The project implementation challenges associated with compensation

About two months ago, I had a breakfast meeting with a friend of mine, Picasso. As we enjoyed our breakfast, I could not help but notice that his hair had turned grey in such a very short time since we last sat up close.

“How is your job treating you?” I asked. “Generally ok”, he replied, “Except for the nightmares I am constantly having related to compensation of project affected persons on my projects. Cyrus, there can be as many problems as there are people to compensate.”

There and then, my eyes lit up because I had been presented with a priceless opportunity to write another article. I began to take note of what Picasso had to say.

Quite often, most government institutions do not have all the funds required to finance infrastructure projects. This leads them to borrow funds from development banks. In some rare cases, governments are able to access project financing through grants.

Whatever the nature of financing, the financiers usually set a pre-condition that government makes a financial contribution to the project(s) as a sign of commitment. The government’s contribution is referred to as counterpart funds. Most of the time, a portion of counterpart funds caters for costs related to payment of Project Affected Persons (PAPs) through a Resettlement Action Plan (RAP). The purpose of a RAP study is to identify PAPs and their assets/properties, value them and provide a strategy for resettlement compensation to ensure that their social and economic well-being is restored or improved. The RAP also sets in place appropriate remedial measures including grievance channels for the PAPs and other community members.

Our agency received loan financing from a development partner to construct an infrastructure project traversing about 8 major towns.

Section 1 – Preparation and approval of the RAP

The initial RAP study for this project was completed in 2010 and the implementation of this RAP commenced in 2013; three years after. This meant that most of the compensation rates in the earlier study had become obsolete. To manage the implementation process, the client contracted a RAP Implementation Consultant. This consultant was different from the one that produced the original RAP report. The scope of work for the implementation consultant comprised;

1. Grievance management and dispute handling
2. Revaluations
3. Preparation of a supplementary RAP
4. Compensation and claims management

By the time the financing for the project had been approved for government to commit funds towards the compensation of PAPs, there was little time left for the implementation of the RAP prior to the signing and commencement of the construction contract.

Section 2 – The challenges encountered during project implementation

Figure 1: A schematic layout of the project indicating the compensation hot spots

Location A

In this area, there was one PAP who claimed that he had a customary tree within the project corridor. The contractor seeing nothing special with the tree cut it down while clearing the route. The PAP eventually claimed that his family had begun having a lot of misfortune ever since the tree had been cut down.

In response to the client’s deaf ear, this PAP began a progressive mobilisation of all project affected persons village after village to resist the project. His most popular phrase being, “The developer is putting up infrastructure within portions of our land and says that we should not do any activity on those portions yet he is only paying for way leave and not outright acquisition. So who owns these portions of land?”

The PAP hired a lawyer to support his cause but has since changed lawyers because of failure to pay legal fees. His intention is for the client to refund all legal costs.

In this location, the government officials who were helping the client solve some of the compensation related issues were unfortunately changed in the course of the usual routine transfer of civil servants. This has also delayed implementation because the new office bearers have got to take some time to understand the history of the prevailing issues before they can be of any help.

Location B

At a certain point in this location, the project was to go through an artificial forest. This forest was legally owned by a single individual who had licensed portions of it to about eight individuals. These individuals were growing trees on the land and stood to lose some of the trees.

Whereas the original RAP study captured the eight individuals as the PAPs to be compensated, the landowner refused to consent to them receiving the compensation.

Location D

Here, the client required land for a major facility. However, this was not captured in the 2010 RAP study. A valuation of the land at the client’s preferred location for the facility was carried out.  The entitled PAP on the other hand had fixed a mental value of his land based on his future needs and disapproved of the compensation rates that had been approved by government under a supplementary RAP, prepared by the implementation consultant. At one point, the client opted for compulsory acquisition.

Fortunately, an amicable compromise was reached between both parties. Time was nevertheless lost in the process and the contractor’s activities delayed. The client has since been able to commence construction works at this facility.

Location E

This location had been skipped in the 2010 study. The client felt that this area could be avoided with a diversion of the project to an alternative route. Unfortunately, the diversion meant that a new route with new PAPs had to be considered for a fresh RAP study. This required an amendment to the terms of reference for the implementation consultant. However, having gone through a number of amendments to the scope of work for the implementation consultant, the procurement team advised that that the contract for the implementation consultant could not be amended any further.

The option to engage the same implementation consultant through a direct procurement was not technically possible. The client was left with the option of opening this to a more competitive process that would unfortunately take a longer lead time.

Location F

In this area, the community was mobilised to reject the compensation amounts; preferring to be paid speculative amounts. They turned violent, opting to take the client to court. An injunction was placed on any project works within this area until the matters were resolved. The client’s lawyers were brought on board to facilitate this process and an out-of-court engagement eventually agreed that a revaluation be carried out in this sub county.

For some unique cases, the client opted to pay some PAPs who were willing to accept the compensation packages due to them. Obviously other members of the community felt betrayed by their own. However, this was not of much benefit to the client because the sites could not be handed over in bits. After a series of revaluation exercises, the PAPs in this area were paid.

Location G

There were cases where people had property which was valued in 2010, and by 2013 the property had for some reason or another become bigger than was captured in the original RAP study. This was indicative that after the cut-off date, some of the PAPs had extended the size of the buildings in preparation to receive larger compensation entitlements during implementation. For such cases, the client instructed the consultant to carry out a forensic valuation into the properties which had “grown”.

The RAP reports are approved with a disclaimer that requires the client to carry out thorough due diligence before payments to PAPs are finally effected. It would therefore be an error to make payments before a thorough audit has been completed.

Fortunately, it was possible to capture the actual situation on ground at the time of the original RAP study using google satellite imaging software. Once the PAPs in this category were confronted with this evidence, the problems were solved.

Section 3 – Implementation of construction works

The client and contractor signed the construction works contract before all the PAPs had been compensated. This has resulted in scattered project implementation. There have been times when the contractor has run out of locations to work because of unending compensation-related issues.

Currently, the contractor’s level of completion is at around 75% after spending approximately 2½ years on site for a project which was originally anticipated to last only 1½ years. The remaining 25% of the outstanding construction works should last approximately 6 – 8 months. The contractor has submitted claims for delayed access to site.

For project managers who are faced with such a situation, you can never know the magnitude of contractor claims you are likely to receive.

Section 4 – Lessons learnt

1. Contract extensions caused by compensation issues usually result in increased supervision and construction costs e.g. as the clock ticks, the contractor deserves an extension to the original contract duration. Similarly, the contract for the supervising Engineer will most likely be extended as well.

2. It is important to be transparent during RAP implementation because the affected communities usually network with each other. Any decision by the implementing agency which is considered suspect by the PAPs can potentially delay project execution.

3. Most implementing agencies take too long after the cut-off date to commence payments to PAPs. This compounds the implementation challenges further because some PAPs complain of loss in economic benefits as a result of their land being kept idle for too long. It is therefore important to have an early release of funds intended for compensation as early as the RAP study has been approved for implementation. Should there be a delay of any sort in the RAP preparation and subsequent implementation process, it is very good practice to give feedback to all stakeholders.

4. One can arguably say that a RAP implementation consultancy has no end. Most consultants in this field do not find the RAP implementation assignments very attractive as opposed to the preparation of a RAP report. As a result of this, there are certain implementing agencies that opt to carry out a RAP implementation exercise on their own necessitating them to replicate various fully fledged teams with the competencies to work in different locations. There are pros and cons to each option.

5. There are cases where the client is faced with a major language barrier; requiring the services of an interpreter. This particular project traversed many ethnic groups with most of the land being customary land.

6. Delayed implementation of construction works leads to poor absorption of project funds. Sometimes, depending on the conditions embedded in the financing agreements, certain governments are required to pay commitment fees on undisbursed funds.

7. Some governments need to amend their land law(s) to ensure availability of land for the implementation of infrastructure projects.

8. Loans that are secured to fund the development of public infrastructure usually have expiry dates. When delays have become too perennial, development partners might not buckle to a request for an extension to the loan subsequently dictating a cancellation or premature closure of the loan facility. The borrowers of these funds should therefore try to ensure that any compensation issues that arise are solved as soon as possible.

9. In a free market economy where land is owned by the people, there is usually a divergence between the governments’ regulated valuations (forced sale values) for property and the values that would result from open market transactions (between a willing buyer and a willing seller). Once a PAP is not in agreement with the forced sale values, negotiation is the preferred means to reach an amicable agreement.

Conclusion

Compensation can truly be a nightmare you might never wake up from. As a project manager faced with these implementation challenges and other competing demands, it is advisable to try and maintain a cool head by prioritising your daily tasks as they unfold.

© The Builders’ Garage 2016. Permission to use this article or quotations from it is granted subject to appropriate credit being given to thebuildersgarage.com as the source.