Best practice in labor-based contracting in the road sector

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This program trained contractors in labor-based methods in the local road contracting industry in Ghana in order to produce gravel roads of equal quality to equipment-based methods, and generate rural employment in a cost-effective manner. The program was initiated as a component of the World Bank's Fourth Highway Project and funded by International Development Association (IDA). Lessons learned: although labor-based methods offer the benefits of employment generation without sacrificing on cost and quality, programs must be designed carefully so that contractors find these methods attractive to use. When appraising a program, program designers should: assess the second-hand equipment stock and the competitiveness of sector; target small-scale contractors; ensure timely payments to contractors; and equip contractors with care.
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60569 Infobriefs reports on ongoing operational, economic and sector work carried out by the World Bank and its member governments in the Africa Region. It is published periodically by the Knowledge Networks, Information and Technology Center on behalf of the Region. Best Practice in Labor-Based Contracting in the Road Sector Objectives: This program trained contractors in labor-based methods in the local road contracting industry in Ghana in order to produce gravel roads of equal quality to equipment- based methods, and generate rural employment in a cost-effective manner. The program was initiated as a component of the World Bank's Fourth Highway Project and funded by IDA. Later the program continued under the World Bank's National Feeder Roads Rehabilitation and Maintenance Project (NFRRMP) and was funded by the Government of Ghana, USAID and DANIDA. Impact on the Ground: Between 1986 and 1994, the program created about 2.6 million person- days of employment, paid US$1.4 million in wages, and rehabilitated 1,190 km of gravel roads. In addition, labor-based methods cost approximately US$12,035/km with an average rate of completion of 1.4 km/month while equipment-based methods cost approximately US$19,463/km with an average rate of completion of 2.1 km/month. Lessons Learned: Although labor-based methods offer the benefits of employment generation without sacrificing on cost and quality, programs must be designed carefully so that contractors find these methods attractive to use. When appraising a program, program designers should: Assess the Second-Hand Equipment Stock and the Competitiveness of Sector: A large quantity of second-hand equipment can enable firms using equipment-based methods to underbid those using labor-based methods because it provides suitable equipment at a lower cost. If the sector is very competitive, equipment-based contractors, with their lower variable costs, may be able to underbid labor-based contractors (at least in the short term). In either of these cases, the road agency can decide to protect labor-based contractors from competition with equipment- based firms, as was done in Ghana. In this case, protection was achieved without sacrificing on cost or quality. Target small-scale contractors: Small-scale contractors find labor-based methods more attractive than medium- and large-scale contractors. They prefer labor-based methods since the costs of renting equipment are minimized. Larger firms, in contrast, tend to own their equipment and therefore would rather keep it employed than switch to labor-based methods and leave their equipment idle. Ensure Timely Payments to Contractors: When government payments are prompt, labor- based methods can be cheaper per km and more profitable for small firms than equipment-based methods. Late government payments, however, increase the cost of using labor-based methods; casual laborers will not accept late payments and small firms often do not have access to affordable bridging finance. Late government payments have less impact on small equipment- based firms because their wage bills are lower and suppliers will often accept late payments (for a price). Thus when payment delays occur, equipment-based sites can continue to operate, while labor-based sites often come to a complete standstill. Equip Contractors with Care: If light equipment is unavailable in the market, labor-based programs will have to include measures to equip contractors. How this is done is of great importance. The provision of substantial equipment loans can make it difficult to set up a competitive environment for tendering. For example, in Ghana, the bank administering the hire- purchase arrangement required an assurance from the government that labor-based contractors would be provided with four years of continuous work to permit them to repay their loans. To provide continuous work, the road agency needed to tender the same number of contracts as there were contractors in each region. This led to collusion among the participating firms when contracts were tendered in one region. After this experience, the road agency returned to its system of awarding contracts based on fixed rates instead of tendered bids. The road agency negotiated these fixed rates with the contractors' association and awarded contracts on a rolling basis. Only after the equipment loans are paid off can real competitive bidding be introduced. Therefore, in countries where light equipment cannot be rented in the market, program designers should keep loans as small as possible while still enabling contractors to produce quality results. Key Documents on Rural Infrastructure Elizabeth Stock, The Problems Facing Labor-Based Road Programs and What to Do About Them: Evidence from Ghana, AFTES, SSATP Working Paper 24, World Bank, 1996 (English). Christina Malmberg Calvo, Case Study on Intermediate Means of Transport: Bicycles and Rural Women in Uganda, AFTES, World Bank, 1994 (English). Christina Malmberg Calvo, Case Study on the Role of Women in Rural Transport: Access of Women to Domestic Facilities, AFTES, World Bank, 1994 (English). John Riverson and Carapetis S., Potential of Intermediate Means of Transport in Improving Rural Travel and Transport in Africa, Technical Paper, AFTIN, World Bank, 1991. Juan Gaviria and Pankaj T., Rural Road Sub-Sector Strategy: Madagascar (Vol I) & Ghana (Vol II), AFTIN, World Bank, 1991 (French and English respectively). John Riverson, Gaviria J. and Thriscutt S., Rural Roads in Sub-Saharan Africa: Lessons from World Bank Experience, Technical Paper, AFTIN, World Bank, 1991 (English and French). Juan Gaviria, Rural Transport and Agricultural Performance in SSA: Six Country Case Studies, AFTIN, World Bank, 1991 (English). Bureau for Industrial Cooperation, Rural Travel and Transport in Tanzania: A Situation and Strategy Paper, Office of the Prime Minister and First Vice-President, 1992 (English). Republic of Uganda, Uganda Strategy for Rural Feeder Roads Rehabilitation and Maintenance, Ministry of Local Government, 1993 (English). ILO, IT Transport, Village-Level Transport and Travel Surveys, 1991 (English). Philip Moeller and Iacono M., Human Resources and Institutional Development in the Road Sector, AFTIN, World Bank, 1990.Documents on Rural InfrastructureKey Documents on Rural InfrastructureKey Documents on Rural Infrastructure World Bank staff on the Enterprise Network can access more examples of Best Practice as well as information on the work done by the Africa Region on Governance and Public Administration by accessing the Region's Governance and Public Administration Home Page. To access this page click on Netscape. Under location type http:afr to get to the Africa Region's Home Page. Then click on Best Practices and select Governance and Public Administration. Persons accessing the World Bank's External Web Site http://www.worldbank.org can reach FINDINGS and Best Practices Infobriefs by clicking on either Publications or Country/Project Information.
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