Documents

Institutional Development of the Consulting Service Industry in Nepal*

-Er. Keshav Kunwar
President, SCAEF (2004 – 2007)

1. General
Many efforts and achievements have been made for the development of consulting services and the professional practices because of the hard and collective teamwork carried out by SCAEF since it’s establishment in 1990. Because of the vision and the team-effort made by SCAEF in the last 16 years, many of the day to day hindrances in the form of legal provisions and practices, perception of Client/Employer/Donor Agencies towards consulting industry of Nepal, services procurement process etc., which earlier negatively affected the consulting business, has been removed, changed or significantly minimized.

During recent years, GON has also taken some important measures for the institutional development of engineering profession including the construction industry in Nepal. They are:

• Recognition of SCAEF as national body,

• Designation of Government Line Ministry to look after the interest of SCAEF and its Member Firms

• Amendment of Construction Industry Development Act (now in draft)

• Enactment of Nepal Engineering Council Act

• Formulation of Nepal Building Codes Act

• Formulation of Nepal Construction Act

• Establishment of Construction Industry Development Board

• Publication of Public Works Directives

• Preparation of National Procurement Act – (now in draft)

The open and broader view taken by, the Government of Nepal (GON) towards involvement of private sector in national economy is another vital step towards grooming up of the private industries.
Definitely, the efforts made by SCAEF and steps taken by the Government as outlined above are just beginning, which still requires a lot of further efforts from the government and all relevant institutions.

2. Major Issues and Constraints Faced by Consulting Industry in Nepal
2.1 Present Context

• The world as a whole is marching towards liberalization and globalization. This millennium will be an era of whirlpool of globalization. The worldwide waves of democratization, globalization, privatization, liberalization, marketization and individualization have exercised a powerful influence on the life of the Third World countries. Thus, this century will be of more challenge and hard endeavor for developing countries of the world like Nepal in their striving. The invasion of technology, digitization of information, liberalization of economy and global competition for excellence in qualitative performance will push the low income countries like Nepal to a still remote corner, unless we become more qualified, innovative, creative, dedicated, sincere and honest towards our behaviour, practices and profession.

• No nation can operate this 21st century economy without a 21st century knowledge infrastructure. Knowledge infrastructure has now to be developed first for tangible economic performance. Skill acquisition, development and retention, creativity and entrepreneurship are the ‘engine’ to drive knowledge infrastructure.

• The overall service industry in Nepal has been suffering from the lack of right understanding in its totality and thus has not been recognised by the government separately. Service Sector as a whole is contributing more than 40% in the National GDP of Nepal. The construction industry alone is contributing about 15% in GDP.

• There still remains large number of issues, which needs to be addressed in order to institutionalize the consulting service industry in Nepal as a true professional entity and strive for various modalities to enhance technical capability of consulting firms/professionals and uphold professional ethics in the consulting industry of the country. Other than the challenges at domestic level, time has also come to pay attention in much boarder area taking into consideration of the present domestic and international developments, market opportunities, domestic capability as well as constraints etc.

• We have seen from the history of developed countries that the consulting and construction service industries have always played one of the most vital roles, and has been the country’s backbone in their process of development. The development of this sector, in fact, indicates the level of development of a country. Positive and supportive policies and attitude of their respective governments were the main reason behind their success.

• Thus, the issue of the enhancement of skill in domestic consultancy service industry should be one of the major thrust for the overall development endeavor of the nation, as this industry should be one of the spinal element for bringing the dream of the national construction for prosperity into reality. To strengthen the capability and competence is of more importance due to the fact that our country has already entered as a member country into the World Trade Organization (WTO).

• Entry of Nepal in WTO has opened door inviting the developed technology and cutting-age knowledge to enter in the country. This will be an important step forward in long-term to meaningful transfer of technology and development of knowledge-base in local service market.

• But, there is still a lacking of formulation of clear-cut supporting policy and legislative provisions by the government at national level for directly addressing the issues related with consulting industry.

• The consulting industry has never received any preferential approach by the government compared to other industries [e.g. Federation of Nepalese Chamber of Commerce and Industries (FNCCI), Chamber of Commerce, etc.] and it has never received any meaningful protection from the government.

• Hence, with limited technical know-how and modest resources, the consulting industry of the country, after entry in WTO, will reel under the heavy weight intrusion of world giants in this sector.

• At one hand, HMGN is lacking the full-scale commitment , and on the other, the bilateral and multilateral donor agencies, which are the true partners in development of this nation have also kept mum , where adopting bold and adequate provisions for healthy growth of the consulting industry is concerned. Sandwiched between these dilemmas, the present consulting industry is really in deep confusion regarding its survival, like an orphan, where as actually it should have been geared up in full pace and enthusiasm towards developing the nation.

2.2 Examples of Some Specific Issues
There has been some cases in the past and more at present regarding penslising the consulting firms including blacklisting of firms for the under performance or giving caution for unsatisfactory performance as desired by the Client and donors without giving sufficient opportunity to the consulting firms to clarify. The intent here is not that there should not be practice of penalising against the bad performance. The concern is only that it has to be evaluated based on facts and figures concerned with all the project related stakeholders and working conditions. Now security for sure has become a serious concern and we all are aware of the practical difficulties that we all are facing. Further, the basic five actors of the development works are the Client, the Donor, the Consultant, the Contractor and the NGOs/INGOs or the community group. The performance evaluation of all these actors have to be done and not only the evaluation of the Consultants and Contractors. Even in normal situation, there are areas of lackings with Clients and Donors also leading to Project delays and sufferings. Some of the examples of such lapses are :

(1) Project Planning:
  » The Project should be planned in such a way that good working season is best utilized. Commencement of field survey and investigation should generally be planned from the month of November and not during onset of monsoon and festival periods.

(2) Delay in Decision Making in the Procurement Process of the Consulting Services
  » The Consultant’s selection procedure is generally delayed and sometime it takes more than one year, which effects in the actual working schedule of the project leaving less time for actual execution of the Project, which ultimately leaves questions on Consultant’s performance.
  » The delays made for decision making are compensated from the time required for actual project implementation.
  » Most of the Project requiring substantial field based works get commenced at the onset of the monsoon.
  » We know well about bureaucratic lingering of GON, but delay for giving concurrence from donor agencies has also been observed.
  » Because of these delays, projects are being implemented on the basis of the pre-feasibility or feasibility studies, no time with the Client and donors to go for detailed design and one can expect the performance output by this.
  » Ultimately, the Consultants are always made Scapegoats.

(3) Lack of Standard Billing Rates for Consulting Services
  » It has been a normal practice that GON (even within the various branches of same department) and Donor Agencies use different billing rates while estimating the fee for consulting services.
  » Some use rate of NRs 45,000 and some NRs 145,000 for remuneration per month for similar position of experts/specialists.
  » Such differing estimations suiting the specific need of particular department and project budget is due to the lack of a standard billing rates. Thus, to avoid such differing estimations, a standard billing rate should be adopted.
  » SCAEF has prepared such standard billing rates and has provided to government agencies, which needs to be accepted by all or alternate solution should be worked out

(4) Estimate of Adequate Working Time Period and Realistic Professional Inputs
  » Adequate time, specially for survey, investigation and design, should be given.
  » The delays made for decision making should not be compensated from the time required for actual project implementation.
  » Similarly, appropriate estimates of inputs needs to be made depending upon the complexity of the Project in term of type of works, terrain, social issues etc.
 
(5) Lack of Government Authority to Establish Uniformity in the Selection Procedures of the Consulting Services
  » There are lots of ambiguities and complexities in the preparation of Terms of References, evaluation criteria, formation of evaluation committees between various government agencies and departments.

(8) Unstable financial policy and frequent changes in budgetary provision mainly related to advance tax deduction have always created chaos & conflict. The efforts and achievements and decisions made earlier are lost and conflict is crated between Government and Private Sector. From the advance tax deduction, more than 20 million (2 carores) rupees is deposited in government account after clearance of tax, which needs to be refunded to various consulting firms.

(9) Uncompatible Weightage Between Domestic and Expatriate Consultants

While large and complex projects are to be formulated and designed, the involvement of foreign consulting firms are still inevitable, since they have the practical experience of applying modern technology and have long history of managing large consulting services. Though, GON has the practice to invite foreign consulting firms in association with local consulting firms, the leading firms of the such associations, in general, are mostly foreign firms even with the negligible small inputs as compared to the inputs of domestic firms. Instead of giving Domestic Consultants lead roles, maximum weightage for selection of consultants is given to expatriate specialists even when their man-months allocated are considerably small compared to that of local professionals. This requires rethinking as the basic aspiration of involving expatriate specialists is for technology transfer for those complex issues, which requires more experienced hands. This is also important to avoid demoralising affects to domestic consultants.

(10) Lack of Opportunity for Human Resource Development
SCAEF member firms employ a large number of professional, technical and managerial staff. But, GON so far has never provided any opportunities for overseas training and studies for human resource development within the consulting industry. Such opportunities are given only to government employees. Trained and skilled manpower only can replace expensive expatriate experts, and steer the nation towards the path of development under self-sufficiency. Furthermore, skilled and trained menpower are the asset of the country, wheather they are serving from government agencies or private sector. Moreover, in the context of WTO, skill development exposure to international arena, learn lessons from developed part of the world and explore opportunities is must in order to complete globally. Thus, this discrimination is not justified, and is not based on the natural law of equity.

(11) Inability to Listen and Change
  » In several instance, the government asks for suggestion and advises from SCAEF, but in many cases the advises are ignored, which is disgraceful and waste of time.

(12) Capability Evaluation of Nepalese Consulting Industry
  » Facts and figures on the overall standing of Nepalese Consulting Industry are not established. No any kind of efforts have been made by GON in this regard.
 
(13) Reward and Penalty
  » There is no appropriate performance evaluation system of consulting firms to penalize for the bad performance and also reward for good performance in order to enhance the overall capability of the industry as a whole.
Besides, the Consulting Industry needs the following support from Government and The Donor Agencies:
  » There is scarcity of job in the Nepalese market and consulting firms are struggling for their survival.
  » In this context, huge packages should be split into several smaller packages, so that more consulting firms have a chance to participate and get the job.
  » Blacklisting and cautioning of National Firms and individual professionals based on one sided past performance evaluation should be stopped.
  » The evaluation should be done in transparent way and concerned party should get a chance for clarification. Due regards should be given to the fact that National Consulting Firms are working at adverse working condition at present and they are in learning curves.
  » Independent third party should carry out performance evaluation of the Donor supported projects or programmes.

(14) Establishment of Base Line Data: Evaluation from third independent agency on the overall scenario of the actors involved in the development endeavors in the country and establish facts and figures from where to have a new start is a need of today.

(15) There are also, at present, various shortcomings on the part of Consultants. The Consulting industry needs a matured professionalism and ethical behaviour. Further, there are some other burning issues such as quoting of low rates, replacement of project personnel, pulling legs among firms etc.

Steps Taken by SCAEF

• SCAEF has been concerned with the above-mentioned issues, as part of its continual efforts to make the consulting industry play a positive and visible role in the task of national development. SCAEF is now attempting for
    » Act of professionalism, which is really lacking
    » Healthy competition and sustained future
    » Develope good society and brotherhood
    » Enhance in house capability
    » Transparency

• Open dialogue, professional discussion and communication based on moral an ethical values

• Follow the Codes of Ethics Prepared by SCAEF.

• SCAEF has suspended few of its members from its memberships, who have violated the code of Ethics of SCAEF.

3. Future Needs
There are lots of pros and cons in post WTO entry, which if not timely weighed and appropriate decision made, will surely destruct the national capital developed till date, be it in commercial, trade or service sector. The construction and consulting industries including science and technology related professional services are the pillars and backbone of development of any nation. Today, even recognised as domestic issues are increasingly affected by international actors and events. In the context that Nepal has formally become the Member of WTO since April 23, 2004, and with the limited technical know-how and resource, survival of the industry will be an upheaval task against the free and open competition from the developed part of the world. For this, a more determined and bold support from the government is most important to promote and ensure strengthening and proliferation of this national industry, which can stand against global competition and challenges, and can exploit the opportunities.

In the above context, SCAEF has been seriously working for the overall institutional development of consulting industry in Nepal. Some of the activities carried out and efforts and achievements made are described above and elsewhere in this document.

3.1 Efforts Underway and Recommendations
Formulation of Clear - Cut Supportive Policy and Legislative Provisions: To protect the national property developed with lots of effort and resources spent, Government must take bold, responsible and far-sighted decisions and must formulate a clear - cut supportive policy and legal provisions (Act and Regulations) to protect national interest, promote national firms and develop their competency through preferential provisions made towards them. Without such support from the government, the national consulting sector will be overthrown by flood of expatriate firms with manifold resources and experience.

Establishment of “Consultancy Development Center”: The Government should establish a “Consultancy Development Centre” (CDC) like in other countries (e.g. India, Srilanka, Malaysia, Indonesia etc.) as a national nodal point, which should be an authorized body to particularly deal with enhancing, strengthening the consultancy capabilities and promoting of the Consulting Industry at national and international levels including enhancing consultant – client interaction and act as a policy facilitator. This body should be responsible to formulate & suggest appropriate policies and regulations required for a healthy growth of the industry, and training in management of consulting Industry including preparation of standard documents and procedures for the selection of consultants to be used by all government organizations in order to maintain uniformity.

The task of performance evaluation of Consultants for reward and punishment can also be given to CDC as an independent agency.

Similarly, establishment of a ‘National Procurement Cell’ for review and for maintaining uniformity, and monitor the entire process of procurement including adoption of standard billing rates for maintaining uniformity is vital. Further, It should be ensured that subject matter specialists get selected and nominated in evaluation committees. A formal TOR of the ‘Evaluation Committee’ should be prepared along with the statement on qualification of the evaluators, the detailed criteria of the evaluation before calling proposals and bids. Such criterion should be made transparent to the consulting firms and bidders.

The Consulting Services Act should be formulated which should define the professional liability and need for qualified professionals for undertaking consulting business. The consulting services are amalgamation of business and professional. The professional characteristics required to be engraved in the corporate structure of the consulting firms including provision of professional working directors/managers. This will also help in developing corporate culture in consulting firms, and enhance professional liability.

SCAEF has been able to convience the government on the need of the above said and the amendment of Construction Industry Development ACT and REGULATION for the overall development of construction and consulting service sector is already underway and on February 22, 2005, Ministry of Physical Planning and Works has been designed as Government Line Agency to look after the interest of consulting service industry.

Maximize the Input of Domestic Consultant Firms with Domestic Firms in Lead Roles: A policy should be made for Domestic Consultant to play lead role in all infrastructure development works except those complicated and needing high technology that is not available in the country. In many cases, the input of domestic consultants can be maximized with expatriates to be involved in advisory roles. The type of projects requiring expatriate specialists can be specified after detail discussion with SCAEF, and other concerned agencies. This is a general practice being followed in almost all countries in south-east Asia, with the committed support from their governments. It is also necessary to assign proportionate weightage to all experts (foreign and local) and also for work experience during the Consultant’s selection on the basis of their inputs. This practice will not only boost the morale of local experts but will also assign them responsibility to perform. Some achievement has been made in this regards.

Establishment of Base Line Data on Domestic Consulting Industry: In a regular basis, evaluation of the overall capability of consulting scenario in the country is necessary in order to decide on the actual need of expatriate consultants. SCAEF is working in this regard.
Human Resource Development: The opportunity for higher study, training’s, international seminars, conference, etc. must be made open and available to the private consultants and their employees to enhance their capability and qualification as an assets of the country. With the long and continual effort of SCAEF, the government, now has started to provide some opportunities for training to the staff of SCAEF member firms, which previously was meant only for government employees.

Institutional Importance and Preferential Treatment: SCAEF, as a professional partner of HMG must be encouraged to be apart of its entire procedures of technical affairs, should be included in all relevant task forces, national committees and policy making committees. SCAEF should be given same type of preferences and opportunities by the government as they give to FNCCI, Chamber of Commerce etc. Efforts are underway to make SCAEF recognized to such an extent that SCAEF’s representatives should be a member of delegations during high level formal/state visits.
 Institutional Importance and Preferential Treatment:
Promote Domestic Professionals at International Level: The government agencies and political leaders, ministers, bureaucrats should act as ambassador on its behalf outside the country to promote and disseminate information about SCAEF.

Financial & Legislative Policies: The Financial Administration Regulation (FAR) needs to be reviewed and clauses related to the Procurement needs to be deleted from FAR, with a statement that “Procurement shall be carried out according to the Procurement Guidelines used by MOF/FCGO or the Donor Agencies”. There should be an uniformity and continuity in financial policy, which are not changed frequently, so that the achievements and decisions once made are given continuity, and no conflict is created between government and private sector. In internationally funded projects, there should be a provision of acquiring a certain portion of fee in foreign currency (viz. US$). Government should develop policy to relax tax/custom (in income as well as in equipment purchage) in consulting service sector as is provisional in other sectors (e.g. tourism)

Partnership: An environment of partnership between bureaucratic & political parties and private professional organizations should be promoted through awareness programmes to end the prevailing feeling of bossim and ‘Master & Servant’ feeling.

Creation Of Market Development Fund: A “Market Development Fund” should be created comprising of a diverted part of tax paid by the Consultants into this fund for utilization for institutional and professional development of consulting industry

4. Long-term Results
SCAEF is confident that with the appropriate concern and positive considerations of the GON towards the implementation of policies and regulations as outlined above, and a positive consideration for HRD programmes from the Donor Agencies, the avenue for institutional strengthening of the Consulting Industry will be widened and this will create, among others.

• Employment opportunities to a large numbers of engineers, experts/specialists, technicians, administrative staff including retired government employees etc.

• Service delivery and revenue generation (tax is not applicable on the huge amount paid to expatriate consultants)

• Increased involvement of Nepalese Consulting Firms to ensure increased accountability and sustainability of infrastructure development works

• Significant reduction in project cost due to the involvement of Nepalese Consulting Firms (cost of foreign Consulting Firms is generally 15-20 times expensive than the local Firms)

• Expenditure made remains within the country

• National capacity enhancement in the area of science, technology and research works

• Human resource development to lead towards the development of knowledge-infrastructure & knowledge economy.

• Finally, create environment for effective contribution in the efforts for poverty alleviation and sustainable development in Nepal.

5. Conclusion
The Consulting Industry being in a learning curve has many limitations those needs to be corrected. The industry under collective leadership of SCAEF is striving it’s best to identify their weak areas and rectify them. The industry, despite being in a state of despair due to the present deteriorating economic, developmental and security condition is still in a state of confidence and ready to bear the hardships. Only that is needed is sympathy and understanding with commitment from the Government and Donor Agencies to support and assist them to perform with zeal, efficiency and quality for overall development of this nation.