Sri Lanka - Construction Industry Project

Document of The World Bank Fljj (urr FOR OFFICIAL USE ONLY Report No. 3219-CE SRI LANKA STAFF APPRAISAL REPORT SRI LANKA CONSTRUCTION INDUSTRY PROJECT March 3, 1981 Transportation Division South Asia Projects Department This document has a restricted distribution and may be used hy recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Sri Lankan Rupee US$1.00 = SL Rs 18.0 SL Rs 1.00 = US$o.056 SL Rs 1 million = US$55,556 SYSTEM OF WEIGHTS AND MEASURES: BRITISH 1 foot (ft) = 0.305 meters 1 mile (mi) = 1.609 kilometers GLOSSARY OF PRINCIPAL ABBREVIATIONS BC - British Council CHPB - Center for Housing Planning and Building CITB - Construction Industry Training Board (UK) DHE - Department of Higher Education DOL - Department of Labor DRI - Department of Rural Industries GOSL - Government of Sri Lanka IFC - International Finance Corporation LOLC - Lanka Orient Leasing Company MLGHC - Ministry of Local Government, Housing and Construction NAB - National Apprenticeship Board NTCCI - National Training Committee for the Construction Industry PPF - Project Preparation Facility SCCI - Secretaries' Committee for the Construction Industry SLCC - Sri Lanka Construction Consortium SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA CONSTRUCTION INDUSTRY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE CONSTRUCTION INDUSTRY IN SRI LANKA .... ............ 1 A. Background .............. 1 B. The Medium-Term Outlook for the Industry .... ..... 2 C. Trends in Construction Employment .... ............ 2 D. Social Characteristics Affecting the Construction Industry ........................... 3 II. THE ORGANIZATION OF THE CONSTRUCTION INDIJSTRY .... ..... 4 A. Training Organizations .............. .............. 4 B. Construction Companies ........................... 5 C. The Construction Consortium ...................... 7 D. Government Institutions Concerned with Construction ................................... 8 III. BANK GROUP LENDING IN RELATED SECTORS .... ............. 9 IV. THE PROJECT ........................................... 9 A. Background ....................................... 9 B. Objectives ................ ....................... 10 C. Description ...................................... 10 D. Training Principles .............................. 11 E. Cost Estimates ................................... 18 F. Project Implementation ........................... 19 G. Project Monitoring and Reporting .... ............. 21 H. Procurement ....................................... 23 I. Financing and Disbursement ........................ 23 V. BENEFITS AND RISK . . ................................... 24 VI. AGREEMENTS AND RECOMMENDATIONS ........................ 25 This report is based on the findings of an appraisal mission which visited Sri Lanka in June/July 1980 and was composed of H. Sydney Thriscutt, Jessica Mott and Max Pulgar-Vidal (Bank) assisted by Andrew Martin and Dennis Maiden (consultants). Eric Pogson (Bank) also assisted in project preparation. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - TABLES 1. Trends of the Construction Industry 2. Distribution of Emigration by Job Category 3. Manpower Requirements - Mahaweli 4. Manpower Requirements - Public Housing Program - Direct Construction 5. Estimated Total Manpower Requirements and Numbers to be Trained (All Grades) 6. Basic Skills and Advanced Artisan Training Resources 7. Tentative Schedule of Trainee Enrollment 8. Tentative Schedule of Training Courses 9. Schedule of Technical Assistance, Inspectors and Instructors with Training Costs 10. Schedule of Mechanical Equipment 11. Schedule of Training Materials 12. Estimated Project Costs by Year 13. Estimated Schedule of Disbursements ANNEXES 1. Modular Training for the Construction Industry 2. Draft Terms of Reference for Technical Assistance for Training 3. Draft Terms of Reference for the Project Cell 4. Draft Terms of Reference for NTCCI 5. Draft Conditions of Training Subcontract 6. Documents Available in the Project File CHARTS 1. Role of Modular Training to Develop a Career Structure 2. Operation of Modular Training under the National Apprenticeship Board 3. Organization of a Technical Assistance Team MAPS IBRD No. 15286  SRI LANKA CONSTRUCTION INDUSTRY PRDJECT I. THE CONSTRUCTION INDUSTRY IN SRI LANKA A. Background 1.01 The state of the construction industry in Sri Lanka has reflected trends in the economy as a whole. The industry experienced rapid growth during the buoyant 1966-70 period, and sharp declines from 1961 to 1965 and again from 1971 to 1977 when the economy was depressed. Decline was parti- cularly severe during the latter period when real output of the sector fell by 17%, dropping from 5.6% to 3.8% of the GDP with construction costs rising considerably more slowly than did the GDP deflator (Table 1). Government policy concerning wages, prices and foreign exchange caused a dramatic shift of work from the private to the public sector of l-he industry, and by 1977 the industry as a whole and especially the private sector was in a state of depression. It had a reduced and largely antiquated fleet of vehicles and equipment, and was poorly placed to undertake any major expansion, a situation accentuated by significant emigration of skilled manpower to better paid jobs in the Middle East during the late 1970s. 1.02 With economic revitalisation since 1977 and the removal,' of import and price controls, there has been a demand for greater constructi'b' activity, Leading to a rapid increase in construction costs, due primarily to material and manpower shortages and the industry's initial low capacity. The Central Bank estimates that value added in the construction industry rose by 28% in 1L978 and a further 21% in 1979 in real terms. Total value added in the con- struction industry in 1979 stood at Rs 3,218 million at current prices. Inadequate planning and poor management of works have been subsidiary causes of cost increases of 45% in 1978 and 50% or more in 1979, compared with a rise of only 2% in the two year period 1975-77. The rise in construction costs applies in all parts of Sri Lanka, with costs in outlying districts tending to move into line with those in and around Colombo. Shortages of materials and skilled labor are estimated to add 25% to normal construction times, while the (juality of finished work is poor. Materials in short supply include cement, steel, timber, bricks, sand and stone aggregate. The first three can be imported at a cost, but bricks, sand and aggregate economically cannot, although local production of these items appears to be increasing in response to demand. So far as labor is concerned, there is. both an absolute shortage and also a dilution of skilled labor by unskilled in the industry, and the present output of about 6,000 trained construction workers a year from various centers is not sufficient to improve matters significantly over the next few years. The two largest items in the Government of Sri Lanka's (GOSL's) construction program, Mahaweli and the public housing program, are planned to reach their peak activity in 1982 and 1983 respectively. Unless early measures can be implemented to increase the capacity of the construction industry, these principal objectives of GOSL's development plan will suffer delays.  -2- The public investment program was revised downwards in 1979. In recent months, the 1981 budget has imposed nominal ceilings on the capital expenditures of the ministries, which has led to a further revision of the public investment program. B. The Medium-Term Outlook for the Industry 1.03 The Central Bank estimates that construction volume in the public sector was about Rs 1.6 billion in 1978, and the volume in 1982 on account of lead projects alone is planned at Rs 5.0 billion. The largest project, the accelerated Mahaweli Program, will for the most part be undertaken by foreign contractors on a turnkey basis using directly imported materials, which will reduce the demand on domestic-traded items. Nevertheless, this program will put a severe strain on balance of payments, non-traded items and on local manpower resources. Construction work which is privately financed currently accounts for about half of total construction-related investment, but this share may decrease due to limited capacity of the construction indus- try. Since much of the private investment takes the form of unrecorded im- provements and extensions, no very accurate estimates can be made of the rate of growth of privately financed construction-related investment. An indica- tion is given by the growth of building approvals in the Colombo municipality between 1977 and 1979, which increased 102%, 89% for housing and 305% for commercial and industrial building. The housing boom may already have peaked due to soaring land and construction costs, but commercial investment is likely to continue to rise. Although private sector investment as a whole is probably less construction oriented than that of the public sector, it is nevertheless likely to generate a continuing and sustained demand for construction services. 1.04 In real terms, the industry achieved a 28% growth in 1978 and 21% in 1979, but taking into account the shortages of materials, manpower and management which have developed, it is unlikely that such growth rates can continue. While it may be possible to overcome materials shortages in the short term by extraordinary measures and to import management expertise, it does not seem feasible to produce the skilled construction workers by 1982 or 1983 which will be called for by the publicly financed construction as now planned, and still allow the level of privately financed construction to take place that is necessary to attain balanced development (para 1.06). C. Trends in Construction Employment 1.05 The construction industry labor force is made up of technical management and supervisors (about 2.5%)--who are mostly graduate engineers or supervisors who have had full time vocational training--artisans who have learned their trade by long apprenticeship (about 18%), equipment operators (3% to 4%) and unskilled or semi-skilled workers making up the balance. Although now increasing, construction workers represent only a small part of Sri Lanka's workforce. Assuming constant productivity, the low level of activity in the industry during most of the 1970s indicates that its labor  - 3 - Eorce remained at about 100,000, or 2% of the totail workforce from 1971, when a census was taken, through to 1977. In recent years, employment in t:he construction industry grew to 116,000 in 1978 and 140,000 in 1979 (Table I). This increase would represent about one-fifth of all new jobs created in 1978-1979, and about one-third would have been for skilled workers. In addition, perhaps as much as half Sri Lanka's emigrants to the Middle East have been construction workers, particularly equipment operators, carpenters and masons among trained emigrants (Table 2). Remittances from emigrant construction workers have become an important source of foreign exchange, since salaries are four or five times their level in Sri Lanka, and it is common to remit 80% or 90% back to families at home. 1.06 The revised public investment program, which includes the Mahaweli project (Table 3) and the public housing program (Table 4), will require large numbers of extra construction workers over the following years. Against this background, it is estimated that a 15% p.a. growth of the workforce in the construction industry over the period 1980-84 would be realistically attain- able and would also be sufficient to meet the demands of the revised public investment program as well as increased private investment levels (Table 5). D. Social Characteristics Affecting the Construction Industry 1.07 Traditionally, construction has been a family trade passed down through the generations and accorded only low status in Sri Lanka society. Although rising wages, new training programs and the shortages of skilled workers, especially for work overseas, is making employment in construction more attractive, past traditions will undoubtedly c:ontinue to influence entry into construction work below the level of technical management and supervisor. 1.08 New workers to the industry in the past learned their trade through years of apprenticeship under a master craftsman, often a member of the family, where there was little formal instruction. Learning was by means of a series oE accidental contacts with situations over a period of decade or more before the apprentice came to be recognized as competent at his trade and could, in turn, take apprentices under him. With the recent high demand for construc- tion workers, apprentices have tended to leave and take up paid employment before they are fully trained, so that the traditional system may be becoming second to formal training as the principal means of producing skilled workers (para 2.02). Females have always been employed in the industry, and their numbers are increasing, both in absolute terms and as a percentage of the whiole work force. In 1971, the census year, there were 1.2% of females in the industry, and this increased to over 5% in 1977 according to a Ministry of Labour survey. Currently, women make up as much as 20% of the labor on urban building work, decreasinf: to about 10% on heavy construction work and in some rural areas. Women work mainly as unskilled laborers, although recently signi- ficant numbers have become semi-skilled masons. Any program to improve the industry should allow for female workers in training and promotion. 1.09 Social attitudes towards construction work mean that the career development pattern common in many countries hardly exists in Sri Lanka. Except amongst the poorest members of society, there is still a very marked  - 4 - aversion to an occupation which involves physical work in the open air,even at high pay rates. Partly as a result of this attitude, it is quite uncommon for an unskilled laborer to rise to any position above that of junior foreman (Gang Baas), while most senior supervisors are appointed directly to the post after some off-site training, which is often highly theoretical and may be quite unsuited for the practical nature of the duties involved. II. THE ORGANIZATION OF THE CONSTRUCTION INDUSTRY A. Training Organizations 2.01 There are four principal government bodies associated with training for construction workers in Sri Lanka: (a) The National Apprenticeship Board (NAB) was set up in 1973 under the Ministry of Youth and Employment. NAB administers craft training at work sites for youths aged between 18 and 24, and currently supervises about 8,000 trainees, of which about 1,400 are apprentices for building and allied trades. NAB does no training itself, but recruits apprentices, establishes training curricula and testing standards, and carries out field inspection of training on work sites. For construction trades, there are some one year courses, but the majority are three or four year courses. NAB also runs a Special Apprenticeship scheme with about 500 trainees at higher levels, and administers training for about 375 middle level supervisors a year in National Diploma courses, plus undergraduate training for about 100 upper management trainees per year at universities. (b) The Department of Labor (DOL), under the Ministry of Labor, trains students aged between 18 and 30 who have at least eight years of schooling. For construction related training, the Ministry operates through two permanent and 130 mobile centers offering courses in masonry and carpentry, plus a few courses in metal work and motor repair and maintenance, to a total of about 2,700 students a year. Most courses are of six or nine months duration. (c) The Department of Rural Industries (DRI), under the Ministry of Rural Development, operates 75 centers to train carpenters on one year courses, plus three centers giving two year courses in cabinet making. About 1,500 trainees are currently taking carpentry courses. The training is rigorous and graduates are highly regarded by employers. (d) The Department of Higher Education (DRE), under the Ministtr of Higher Education, has 20 technical institutes offering a variety of courses as part of a two year general high school education. There are about 4,000 students taking courses  related to construction, but since entry requirements are relatively high, students who have the ability to enter gener- ally prefer to choose courses in subjects which have a higher social status than construction. Consequently, construction courses are often under-enrolled, which is a unique problem. Universities and other courses in technical institutes are usually over-subscribed many times, and DHE might well con- sider reducing entry requirements for construction courses to a level more appropriate to the trades to be taught. NA&B reimburses the employer Rs 15 per day for each apprentice, and DOL and DPI pay their students an allowance of Rs 5 per day. The latter is insuffi- cient to attract the right calibre of recruits, and even NAB apprentices tend tc drop out as soon as they have some rudimentary skills in order to get paid employment. The three departments running courses have constant difficulties ir, obtaining enough training materials, which seriously hampers the quantity and quality of training that can be done. In all, the annual output of exist- ing training facilities is about 6,000 skilled construction workers. 2.02 Traditional apprenticeships under master craftsmen continue to play a major though diminishing part in supplying new skilled workers (para 1.08), but results are slow to mature and variable in quality. With the advent of higher wages for skilled master craftsmen, many of them are now less willing than they were to devote time to passing on their skills to others, since they are often employed on some form of piecework basis where income depends on production. Some master craftsmen have said they would expect to receive a higher than average wage to teach their trade to others, perhaps reflecting an understanding that a shortage of skilled workers will tend to keep their incomes high. 2.03 With the help of the Netherlands Government, the Ministry of Local Government, Housing and Construction (MLGHC) has set up the Center for Housing Planning and Building (CHPB) in Colombo as a training center for construction management. CHPB trains about 40 technical managers annually. Courses are run at three levels: a four week course, which includes project evaluation, for senior staff; an eight week course for middle management such as Inspectors and Superintendents; and three month courses for new recruits to technical grades. The courses aim to train students in site organisation and management appropriate to their seniority, without necessarily imparting any detailed knowledge of construction trades. Students are required to acquire a specified amount of work experience before they are awarded a certificate for the course. B. Construction Companies 2.04 With the exception of a few large projects which were handled by expatriate firms, the situation was such until 1977 that domestic construction companies had spare capacity in spite of their rundown condition. About a third of construction work was carried out by public sector organisations such as the Department of Highways, the Department of Buildings, the River Valleys Development Board, the State Engineering Corporation or the Irrigation Depart- ment. These bodies still exist and are active, but it has become government  -6- practice to give increasing amounts of the extra construction work now being undertaken by public investment, especially building, to be done by the private sector. It was considered that private companies could expand more easily and would be less inhibited by wage controls and trade union activities than would state organizations, who could then concentrate on planning, design and super- vision of construction works. In practice, the public sector corporations and departments often lacked managerial expertise. Work done by private companies for government has frequently increased in cost due to poor planning and design or suffered delays due to inefficient contract administration on the part of the government organization concerned (para 4.15). 2.05 There are no large domestic private construction companies in Sri Lanka at present, although a number are in the process of expanding. There are about six, each with an annual capacity of up to Rs 100 million (US$5.5 million approximately), plus perhaps twenty more with capacities of about Rs 30 million (US$1.7 million) a year each. About half of all construction work is presently undertaken by small family firms, by self-employed workers or, in the case of low cost traditional houses, by the investors themselves. It is estimated that private contractors of all sizes carried out about Rs 2,400 million worth of construction work in 1979, which represents about 75% of all construction work in Sri Lanka. Private companies tend to concen- trate on buildings, water supply and small sewage projects for which little heavy plant or equipment is required. They now undertake about 90 per cent of all building work and a smaller, but increasing proportion of small irriga- tion, sewage and other civil works. Domestic contractors have so far actively responded to the rising demand for their services. They are unlikely to con- tinue to do so, however, unless they can foresee a continued level of future demand, and unless the existing constraints associated with the availability of materials, equipment, credit, skilled manpower and managerial ability are eased. 2.06 GOSL has foreseen and accepted the fact that it will be necessary to import substantial amounts of construction materials, particularly timber, cement and steel and virtually all construction equipment, and has relaxed import controls to make such imports possible. Although it would be possible to increase domestic production of cement, this could not be done rapidly enough to meet the maximum demand, expected in 1982. Construction industry imports will place a heavy burden on Colombo port, but the port authorities believe they can handle the projected load if the immediate port area can be kept clear of accumulated cargoes. More difficult to overcome are the short- ages of several domestically produced materials which cannot reasonably be imported, such as sand, aggregate and bricks. There are, however, signs that production of these items is increasing, which will be assisted by the Small and Medium Industries projects and the International Finance Corporation's (IFC) equipment leasing company (para 3.02). 2.07 Past import controls, the construction industry's recently depressed state and its present concentration on small, labor intensive works all mean that most contractors have little heavy equipment, and hence scanty knowledge of its correct use. Companies have generally been unable to raise sufficient credit to acquire heavy equipment, although GOSL's practice of allowing an advance payment on government contracts of about 20% of contract value on signature of the agreement has helped contractors to buy smaller items of  - 7 - plant. Under the first Small and Medium Industry Project (942-CE), construc- tion contractors are eligible for fixed investment and working capital loans of up to Rs 1 million (US$55,000). While few contractors have so far availed themselves of this facility, it is expected that their numbers will grow, par- ticularly since additional funds will be available under a follow-up project (para 3.02). IFC has recently cooperated with a Japanese equipment hire com- pany to set up the Lanka Orient Leasing Company (LOLC), which will make long term leases of heavy equipment to the industry, thus avoiding the need for contractors to tie up large amounts of capital for equipment at the start of contracts. Although equipment financing by LOLC is not expected to exceed 5% of total equipment needs in the country over the next years, it will neverthe- less help ease the constraints of equipment available to contractors. During 1981, IDA plans the appraisal of a DFC/industrial project which would include assistance to the construction industry (para 3.02). It is expected that these measures together will nlelp to alleviate the present equipment and credit shortage in the industry. 2.08 In the medium term, the shortages of skilled labor for construction work (para 1.06) will affect foreign contractors, who will have to be used for the larger contracts over the next few years. They may be able to overcome the shortage to some extent, and at high cost, by itnporting highly skilled labor, which domestic firms would find it difficult to do. Over the long term, the market for domestic contractors is likely to grow, although not so dramati- cally as during the next few years. If there is to be sustained economic growth, Sri Lanka must continue to invest in housing, commercial building, roads, sewerage, water supply, irrigation and power supply, in which case there would be ample need for significant numbers of additional skilled labor. A concentrated program of training to improve the supply of skilled labor and management will help the domestic industry to meet its long term demand, and to alleviate the shortages that will be present in t:he medium term. Estimates of medium-term labor requirements in the construction industry (Table 5), the estimates of numbers which can be trained over the following years, and the forecast increased demand for improved construction (para 2.12) indicate that any degree of over-training is unlikely. C. The Construction Consortium 2.09 During a temporary revival of the construc:tion industry in the late 1950's, the Ceylon Chamber of Commerce mobilised contracting and consulting resources to undertake urgent government work. Faced with the same situation again in 1977, the Chamber of Commerce proposed setting up a Sri Lanka Con- struction Consortium (SLCC), to include all interest:ed domestic consultants and contractors, which would carry out contracts for government work at nego- tiated rates. SLCC asked for, and obtained, GOSL's agreement to advances of 20% of the contract amourt to help contractors' precarious liquidity position. In February 1979, the Secretary of the Ceylon Chamber of Commerce resigned in order to become full time Secretary of SLCC, which in September 1979 was placed under the Federation of Chambers of Commerce and Industry of Sri Lanka. SLCC now includes about 30 consultancy and 350 medium and small contracting firms, and about 200 of the latter have been prequalified by SLCC for the type and size of work they are able to undertake.  -8- 2.10 SLCC's main activity has been housing, principally on a turnkey basis. It has been entrusted with the design and construction, or the construc- tion only, of over 6,000 units of housing throughout Sri Lanka, plus 4,000 units of low-cost housing and a further 4,000 units of housing island-wide for public servants. It has also been given the construction of a Rs 100 million hospital, food stores and school extensions, and was called in to help repair cyclone damage at Batticaloa. SLCC has an interest in training to make up for the exodus to the Middle East, and encourages on-the-job training for NAB sponsored apprentices among its member firms. 2.11 SLCC undoubtedly fulfilled a useful function at a time when the industry was run-down and disorganized, enabling GOSL to proceed quickly with its program without having to revise bidding and contract procedures, as would otherwise have been necessary. SLCC probably still has a role to play in assisting small contractors, unused to bidding procedures, to take their part in GOSL's Development Program by undertaking small contracts alone or as sub- contractors on larger works. GOSL has appreciated that it would be advisable to return to the accepted practice of competitive bidding for large contracts, and for small contracts as soon as sufficient small contractors are conversant with bidding procedures and are able to estimate costs reasonably efficiently, and has accordingly reintroduced competitive bidding as the normal practice from February 1981. D. Government Institutions Concerned with Construction 2.12 With the trend for GOSL to put more of its construction work out to private companies rather than doing the work through its own agencies (para 2.04), a number of ministries and departments have become clients of the construction industry. Contract documents, specifications and contract procedures varied from one agency to another and as capacity constraints appeared, ministries have found themselves in competition for available con- struction resources. In an effort to improve the situation, GOSL set up in 1979 the Secretaries' Committee for the Construction Industry (SCCI) composed of the Secretaries of the various Ministries and Department concerned with construction works, under the chairmanship of the Secretary MLGHC. SCCI has made a start towards standardization of contract documents and procedures and, with the help of a UNDP-financed expert, is producing specifications and Codes of Practice for the industry, suitable for use throughout government and for private work. Under an International Development Association (IDA) credit, similar work is being done by consultants in the Department of High- ways for road and bridge works. Standardization of contract procedures and specifications, backed by effective quality control and supervision of works, would be a significant factor in improving the standard of construction work in Sri Lanka. GOSL has agreed that standardization of contract procedures, specifications and contract documents for government work will be reached by June 30, 1983. In order to further encourage improved quality of construc- tion, an understanding has been reached with GOSL that the relevant government departments and ministries will include in construction contracts measures to improve work site supervision and enforce existing regulations and codes con- cerning the construction industry.  - 9 - III. BANK GROUP LENDING IN RELATED SECTORS 3.0)1 To date, the Bank Group's involvement in the Sri Lanka construction industry has mainly been via civil works and other construction, as components -f agriculture, transport and water supply projects. The Second Mahaweli Ganga ;velopment Project (Credit 701-CE, 1977, US$19 million) includes construction of major irrigation works, land settlement and access roads. The Tree Crop Rehabilitation Project (Credit 818-CE, 1978, US$21 million) has a component for improved housing, while the Kuranegela Integrated Rural Development Project (Credit 891-CE, 1979, US$20 million) includes the rehabilitation and construc- tion of rural roads and water pipelines. The Road Maintenance Project (Credit 900-CE, 1979, US$16.5 million), mentioned in para 2.12, includes the strength- ening, repair or widening of about 30 bridges and rehabilitation with selec- tive widening of some primary roads, and the Second Water Supply and Sewerage Project (Credit 1041, 1980, US$30 million) involves construction of treatment plants, a pumping station, transmission mains and a reservoir. All of these projects are in progress and risk experiencing delays and difficulties due to the capacity constraints of the construction industry. 3.02 The Bank Group is currently directly supporting the industry through two projects. The Small and Medium Industries Project (Credit 942-CE, 1979, currently under implementation, US$16 million) includes financing and technical assistance for small scale industries associated with the construction industry, including construction material suppliers as well as construction contractors. As of September 30, 1980, commercial loans refinanced under this project amounted to Rs 22.5 million for construction material suppliers and Rs 1.3 mil- lion for construction contractors. IFC's investment of Rs 4.5 million (about US$250,000) in LOLC in 1980 has assisted the establishment of this leasing coumpany, which is expected to write leases for about US$43 million total value in its first five years, about a third of which is expected to be for construc- tion equipment (para 2.07). In 1981, IDA plans the appraisal of a DFC indus- trial project which would include three major elements: credit and other services for small and medivz industries, including small contractors and building materials firms; finance for larger contractors; and funding to selected public sector enterprises, which may involve a focus on building material concerns. Under this proposed project, at least US$5 million would be specifically earmarked for the construction industry. IV. THE PROJECT A. Background 4.01 When setting up the 1979-83 Medium Term Development Plan, GOSL realized that the capacity of the domestic construction industry would have to be increased to carry out the work called for in the Plan. In response to this situation, a December 1978 IDA mission discussed with GOSL a program of technical assistance and sector work leading to a possible project designed to increase the output of the construction industry. During subsequent identi- fication and preparation missions, GOSL and IDA agreed that a project aiming  - 10 - to improve the function of the construction industry should concentrate on specific aspects where significant improvement might be possible with the resources available. In view of the multisectoral characteristics of the construction industry, it was decided that a possible project would be con- ceived within the scope of a broader strategy. Since other IDA projects under preparation or implementation (para 3.02) were designed to increase the availability of equipment, credit and materials, it was decided that the proposed project would concentrate on increasing the supply of skilled manpower and management expertise for the industry. In June 1980, GOSL retained the British Council (BC) as lead consultants to provide technical assistance for project preparation; BC in turn availed itself of the services of a construc- tion industry specialist of the Construction Industry Training Board (CITB) of the United Kingdom. The project was appraised by IDA in June 1980 with the assistance of the above consultants. B. Objectives 4.02 The project objective is to increase the supply of trained manpower and to improve the level of technical management expertise so that the con- struction industry can better meet the demands of Sri Lanka's investment program. The project is designed to: (a) establish a unified modular training system for construction related trades which will supply the industry with significant numbers of workers trained to limited, but recognized, skill levels in the shortest possible time. This process will both improve the productivity and earning capacity of existing construction workers and provide job opportunities for new entrants from poor rural and urban backgrounds; (b) improve the use and maintenance of plant and equipment by training operators and mechanics; (c) increase the effectiveness of work planning and supervision by training middle and upper management in contract procedures, site management and quality control; (d) strengthen the agencies and institutions involved in train- ing for the construction industry; and (e) improve methods and procedures relating to the industry. C. Description 4.03 The Project consists of: (a) training for about 45,000 new entrants in basic construction skills to a standard where they will be able to carry out simple building craft tasks under supervision;  - 11 - (b) training for about 9,600 experienced conStruction workers to up-grade their existing skills; (c) training for about 1,800 mechanical equipment operators and mechanics in correct operation and maintenance procedures; (d) training for about 900 work supervisors who have little or no site experience in simple procedures of supervision and quality control; (e) training for about 80 experienced senior works managers in improved work planning and management; (f) technical assistance to establish and run the training programs and to advise GOSL on technical and policy issues concerning the construction industry; (g) supply of equipment and materials necessary for training. The numbers estimated for training are indicative targets which will be reviewed periodically during project implementation (para 4.28). The above f:igures have been derived on the basis of (i) the forecast manpower requirements in the construction industry, involving a 15% p.a. growth of the workforce over the next years (Table 5); (ii) the current distribution of trades and skills in the workforce; (iii) an estimate of the numbers that may realistically be trained with the resources available under the project; and (iv) the expected increase in demand for an improved quality of construction (para 2.12). As planned, the project will set up a training organization, which will rely as muLch as practicable on existing training facilities, and will have an adequate back-up of technical assistance, equipment and materials. It is estimated that annual training under the project will grow from about 8,000 in 1981 to 21,000 in 1984, compared with the current annual output of about 6,000 at existing facilities. Training under the project will supply about 57,000, or 60% of the expected cumulative increase in the workforce up-to 1984. The shortfall plus natural wastage and continued emigration of skilled workers to the Middle East will have to be made up by use of foreign contractors (as is being done in Mahaweli projects), traditional apprenticeship under master craftsmen, returning emigrants, and/or further revisions of the development program. D. Training Principles 4.04 The project will provide training for the principal skills which are now deficient in the construction industry, leaving minor and specialist deficiencies to be made up by other courses in exisiting training centers. Training will be on the modular system whereby trainees can progress from one level to a higher level via a series of short courses interspersed with periods of job experience. Coupled with the proposted system of trade testing and registration, this will help to build up a recognized career pattern in the industry which is now lacking. Implicit in the proposed arrangement is  - 12 - a unified standard for entry to and passing courses, plus uniform course con- tent throughout the country, irrespective of which organization may be carrving out training. GOSL is actively committed to achieving such standardization in the field of training, and agreement has been reached with GOSL that, by June 30, 1982, selection criteria, training curricula and methods, trade testing, certification and registration of construction workers, supervisors and specialists will conform to acceptable standards, applicable to all construction training carried out by government. Certificates of training will thus come to have a recognized value in denoting what performance may be expected from the holder. Details of the modular system as applied to the construction industry are shown in Charts 1 and 2 and in Annex 1. In order to achieve rapid implementation of the project, an understanding has been reached with GOSL that, by October 1, 1981, standardized trainee selection criteria will be agreed with IDA and applied to all project training. 4.05 The project will use existing training facilities (para 2.01) as much as possible for off-site training. By using shorter courses, the drop- out rate should decrease, and wastage will be reduced by introducing aptitude tests before admittance, while supplying training materials under the project (para 4.20) will make training more effective. The use of the existing facil- ities may mean the disruption of some existing courses. However, more effi- cient use of these facilities will produce quicker results and benefits to the industry than attempting to establish new training centers. On-site train- ing will take place at on-going works sites where some useful output will result, especially in the case of operators' training. Several suitable sites have been identified, and major contractors have indicated their willingness to participate in on-site training (para 4.12). Agreement has been reached that GOSL will make existing training facilities and staff available for project implementation, and will adjust the training courses relating to the construction industry in a manner satisfactory to the Association. An understanding has been reached that the Project Cell (para 4.24) will, by October 1, 1981 and annually thereafter, prepare and agree with the Associa- tion an implementation schedule, including a timetable for the use of facil- ities and staff and a list of training materials, for the next twelve months (paras 4.08, 4.11, 4.14 and 4.15, and Table 6). 4.06 To obtain maximum benefit from short training courses, it is import- ant that the courses concentrate upon providing the trainee with the essential skills needed at each level. To achieve this, each job for which training is proposed is analyzed objectively and a job specification drawn up which sets out what the worker must be able to do correctly at any stage. Using the job specifications, training standards are developed which will include time and output quality requirements. These standards lead to criteria for aptitude tests that will be used to select trainees who are most likely to benefit from training. Course curricula are developed from the job analyses, which detail the objectives to be achieved and the method of training in detail, although leaving instructors with some freedom in presentation. To achieve maximum advantage from such a planned system of instruction, it must be allied with a recognized trade testing procedure, with certification for those that pass and central registration of skills in the industry so that skilled manpower can be monitored for overall manpower planning. Special efforts will be made to ensure that the course content and the training methods effectively provide the skills required by the construction industry. Understandings have been  - 13 - reached with GOSL that on government work, contractors will be required to complete log books of trainees detailing their work experience (paras 4.09, 4.11 and 4.13), and that on major works the proportion of registered labor employed will be taken into account in prequalification. 4.07 Recruitment will be in response to public advertisement in the case of new entrants or from within the industry otherwise. In view of the high amount of unemployment and underemployment, particularly among school leavers, :it is expected that there will be a good response to advertisement if good employment prospects are offered after only a short course of training. Con- t:ractors have expressed interest in having their staff trained, providing courses are short, and SLCC has offered its services to publicize training opportunities in the industry and coordinate applications from employers. COSL has agreed that trainee selection will be undertaken according to cri- t:eria acceptable to IDA, and an understanding has been reached that such criteria will encourage the participation of women in training courses, in proportions at least similar to those already in existence in the industry. Use of existing training centers throughout Sri Lanka (Map 15286) will help to achieve a representative geographic and ethnic mix among those tiained. (a) Artisan Training 4.08 Artisan training is to be carried out at two levels, basic training for unskilled labor and advanced training to upgrade existing skills. In order to deal with the numbers of trainees involved (about 45,000 at basic and about 9,600 at advanced level), all suitable existing resources must be used. These are the DHE technical institutes, the DOL permanent and mobile centers and the DRI carpentry training courses (Table 6). Masonry and car- pentry courses provided at those facilities will bes adjusted during project implementation as required by resource constraints. No facilities now exist for training bar benders and steel fixers, and site training is proposed for 600 over three years at mobile centers set up for the purpose. Similarly for plumbers, it is proposed to institute training at technical institutes. Electricians' training will be handled in the firsi: year at the two DOL permanent centers near Colombo, expanding their capacity thereafter to handle the additional numbers required. Overall, by using existing facilities as much as possible, there would be a loss of about 3,200 artisans per year trained under present methods, and a gain of about 16,500 per year trained under the project, about 20% at advanced levels. 4.09 Basic skill training will be for eight weeks, after which the unskilled entrant will be able to carry out simple tasks of his trade under supervision. After this basic training, the trainee will be given a Log Book showing what he has been taught and giving a guide for further on-site training. Assuming this is given by the employer, after ten months on-site experience, the basic skill artisan will qualify for the next module of train- ing in his craft. Advanced training modules will iollow the same pattern of eight weeks off-site training followed by job related experience. By attend- ing and passing a number of modules, the artisan can become fully proficient in all aspects of his trade. (b) Equipment Operators' Training 4.10 Due to improper operation and maintenance plus a lack of spare parts, the overall availability of mechanical equipment in Sri Lanka is only about  - 14 - 50%. Hence, any improvement that can be made in operation and maintenance will materially increase the output of the equipment fleet and hence of the construction industry. Equipment operators have traditionally been recruited from among the "greasers" or helpers who have obtained some elementary knowl- edge of a machine and its operation, but this does not produce operators who can get the best results from a machine. Greasers and helpers may continue to provide a recruiting ground for operators, but others may be equally sound material, since anyone with the ability to drive and having some mechanical aptitude can probably be trained to be a satisfactory operator. Before train- ing, aptitude tests will be employed to make sure that trainees have the required manipulative skills and hand and eye coordination, and only those who pass these tests well will be trained on the more sophisticated machines. 4.11 Training for heavy equipment operators will be on-site for a 12- week period, following which the trainee will be able to operate one or two types of heavy equipment safely. Efficiency will increase with on-site experi- ence. Based on a broad assessment of the industry's needs, proportions of operators required for the different types of heavy equipment are estimated as: roller drivers - 42%; tractor-dozer operators - 16%; scraper operators - 11%; grader operators - 11%; and excavator operators - 20%. There is also an urgent need for small plant operators for items such as compressors, concrete mixers, compacting equipment, pneumatic tools and power saws. Such training, to include instruction on maintenance, will be done over a period of four weeks. Four week training is also proposed for truck drivers in correct operation and maintenance of dump and service trucks. To supplement the courses now given by DOL, eight week courses are planned for agricultural tractor drivers. Details of the training proposed for all types of operators are shown in Table 7. At the completion of training, each trainee will take a trade test administered by NAB, and those successful will proceed to normal employment. The operator's Log Book will show the type of equipment operated, the maintenance record and the types of work done. After ten months of satis- factory site experience, the operators will qualify for a certificate of full competence and registration with NAB. 4.12 The on-site training proposed for operators can have a useful end product, and arrangements have been made to take over portions of suitable contracts for production training. Although outputs will be low, it is esti- mated that work to a value of about US$1 million can be usefully completed during the project, and it is intended that appropriate payment shall be made ,for work done according to specifications. Suitable sites exist at Karindi Oya for heavy equipment training and in Colombo for small plant training, and in each case the main contractor is willing to allow the project to carry out work on site as sub-contractor. Suitable contractual arrangements must be concluded between the main contractors and the Project Cell, acting as sub-contractor, in each case. Understanding has been reached with GOSL that suitable contractual arrangements will apply for site training of this nature, with the provision that Special Conditions will be prepared for each contract site as required, and subject to the agreement of GOSL legal authorities. It is expected that the contractual arrangements, shown in draft in Annex 5, will follow a standard main contractor/sub-contractor format, with the main contractor being obliged to reimburse the subcontractor (the Project Cell) for work satisfactorily completed according to specification.  - 15 - (c) Training for Equipment Mechanics 4.13 The most successful form of training is that which allows for off- site training, followed by planned experience under supervision on site. Mechanics training will be for 24 weeks to give a reasonable level of compe- tence, and training will begin at the now disused training center in the Department of Machinery and Equipment main workshops at Ratmalana, Colombo. There will six courses per year with 20 trainees on each course, and GOSL has assured the Association they will make available suitable old machines for training purposes. Following this, training will continue at Kirindi Oya, Udawalawa or elsewhere where operators' training is being done so that trainee mechanics can take part in equipment maintenance on a work site, but under supervision. If this cannot be arranged for all trainees, at the end of their spell in Ratmalana, trainees will be issued with Log Books for employers to record work experience and competence over a period of at least six months. On satisfactory completion of on-site training, whether under the project or not, trainees will be eligible for a certificate of competence and registra- tion with NAB. (d) Technical Site Supervision Training 4.14 A characteristic of the construction industry in Sri Lanka is that there is no clear career progression from a new intake to the industry to the le!vels of senior, or even middle management (para 1.09). It is unlikely this pattern can be changed quickly, and training is therefore necessary to ensure that entrants to the industry from technical training courses as middle level site managers are given a proper practical orientation before starting work. It. cannot be expected that fully competent site supervisors can be turned out inL a short time, but within a period of eight weeks of off-site training, it is possible to point out the principal relationships between theory and prac- tice which site supervisors need to appreciate. It is intended to run site supervision training at, and in cooperation with, CHPB, using their facilities augmented as necessary for the greater intake. By running three streams with 20 trainees in each stream, it is intended to train 300 per year, as compared with the 180 a year now trained to a similar standard. (e) Management and Planning Training 4.15 GOSL's recent shift in emphasis from force account to contract work has highlighted a shortage of management and planning expertise in government (para 2.04), while placing an extra requirement for contract planning on the private sector. There is not so much an absolute shortage of engineers in the country as a shortage of experienced engineers who have successfully dealt with the problems of running works efficiently, and the project aims to improve this situation. Although works planning is an office job, it demands an ex- tensive knowledge of construction methods and practice, and trainees will probably, but not necessa-ily, be graduate engineers with some years of experi- ence. CHPB can play a leading role in this training, and already trains 40 planners a year. It is proposed to double this at least, and since courses retquire careful preparation to be effective, the increase is not expected to take place until the second year of the project. Off-site training should be re!inforced by related experience on site under supervision so that the lessons of poor planning and bad site management can be pointed out. Work sites used under the project for operators' training will be used for this purpose, and  - 16 - contractors and some government organizations have expressed a desire t^ be involved. With their help, it may be possible to extend the numbers trained well above the figures estimated in Table 7, which gives a summary of numbers to be trained of all grades, by year. Details of all training courses are shown in Table 8. Technical Assistance 4.16 To set up the systems, train local staff and supervise the project a significant amount of technical assistance is necessary. GOSL has requested, and IDA has agreed, that BC shall undertake this work subject to the completion of a contract acceptable to the Association, and preparatory work is being done under the Project Preparation Facility (PPF) (para 4.22). A total of about 430 man months of expatriate technical assistance is proposed. If, as anticipated, existing facilities are used for masonry and carpentry training (para 4.08), the present staffs of instructors can be used with suitable re- training for the new course structures. However, there will be need for 21 course inspectors, plus four experts. As there are now no courses in plumbing nor in bar bending and steel fixing, instructors will have to be recruited, and for the extension of electrical training at the DOL centers, extra instruc- tors will be required after the first year. An expert in plumbing and one in electrical work will be provided for 18 months each; bar bending and steel fixing will be supervised by one expert part-time. 4.17 Training for equipment operators on site will need two experts plus one for small plant, as this may take place at several sites removed from the main equipment training site at Karindi Oya. As operators' training is almost an individual instruction, five senior instructors and 21 instructors are proposed. Mechanics training will be supervised by the small plant train- ing expert assisted by six instructors to carry out off-site training at Ratmalana and monitor on-site experience. Two experts are proposed to organise and supervise training in site supervision and works planning, plus three instructors and one part-time, all to augment the present resources of CHPB. 4.18 Terms of Reference for technical assistance have been agreed with GOSL (Annex 2). Details of staff and cost estimates of training are shown in Table 9 and on Chart No. 3. The technical assistance team will include two senior members directly concerned with the implementation of the project (para 4.24): a construction industry specialist who will assist the Secre- taries' Committee for the Construction Industry (SCCI) in technical and policy matters; and a senior training manager who will assist the National Training Committee for the Construction Industry (NTCCI) in the planning of the entire training operation. Efforts will be made by GOSL during project implementa- tion to attract Sri Lankans who have emigrated to Middle East, who would then be in a position to take over from the expatriate technical assistance team the responsibility for the training program after 1984. Training Equipment 4.19 Details of the mechanical equipment to be supplied under the project to carry out operators' training are given in Table 10. Contrary to the usual aim to standardize, models and makes will be selected, so far as possible, to represent those in most common use in the country. Within the funds available,  - 17 - it: is not possible to acquire all the types of plant on which training should be given, and assurances have been received that GOSL will provide other items oi- equipment on loan as they may be available, so that the extent of training can be increased. Even without any extra equipment from GOSL, the equipment to be provided under the project will form a simple construction unit able to carry out a range of operations for heavy earthmoving and building works. Approximately 17% extra is allowed on the capital costs of equipment to pur- chase spares. Daily and minor equipment maintenance will be done by trainees operators under supervision; heavier maintenance will be done by trainee mechanics, also under supervision or, in the case of major overhaul, work will be done in main GOSL mechanical workshops. The arrangements proposed have been discussed with GOSL and appropriate assurances received. Materials for the Project 4.20 A major constraint to effective training in technical institutes and training centers has been the almost complete lack of any training materials (para 2.01), and the project will make these available for all the training proposed (Table 11), including fuel and lubricants, hand tools, building materials for aptitude testing, artisans' training and trade testing and oi-fice supplies. Procurement of training materials will be coordinated by the Project Cell (para 4.24), which will arrange for procurement according to st:andard GOSL procedures acceptable to the Association. Consumable materials will be reimbursed on an agreed scale according to the number of trainees and il: will be a part of the duties of inspectors and the technical assistance team to check that materials are used correctly in the course of training. A-;surances have been received that storage, distribution, use and control oi- materials will be carried out as part of the duties of the Project Cell. A:Llowances to Trainees 4 21 Trainees under full time instruction will be paid an allowance set at: the minimum level necessary to attract sufficient entrants, and calculated with reference to current wage rates. It is expected that these allowances will not exceed about two-thirds of the wage the trainee would receive if fully employed, without training. No allowances will be paid to those under- going training in planning and management, since they will normally be in employment and their employer will continue their salaries during training. In the case of any trainees at other levels who are in employment and who are trained at their employer's request, no training allowance will be paid. The levels of the allowances will be revised as necessary, during project imaplementation. Estimates of the costs of allowances and of salaries for local instructors and inspectors are given in Table 9, and the appropriate agreements have been reached with GOSL on the allowances and their proper control under the project. Use of the Project Preparation Facility 4.22 In view of the urgency of commencing work to increase the construc- tion industry's capacity as quickly as possible, and because of the amount of detailed work that is required to arrange course curricula, training sites, materials supply and equipment purchase, GOSL requested, and IDA approved,  - 18 - advances under PPF P0128 up to US$280,000 equivalent. The PPF is to be used to reimburse GOSL for the costs of approximately 25 man-months of consultancy services currently being provided by BC to GOSL in order to develop training curricula, trade test standards and recruitment methods, recruit local instruc- tors, initiate recruitment of trainees, select sites for equipment operator training and establish an accounting system for the project. The PPF is also to be used to cover costs of training local instructors and purchasing the necessary materials to be used in this process. E. Cost Estimates 4.23 The total cost of the project is estimated at US$25.0 million equiv- alent, with a foreign exchange cost of US$10.8 million, and including taxes and duties of US$2.6 million. The following is a summary of costs, and full details are contained in Table 12: Rs million US$ million Local Foreign Total Local Foreign Total I. Equipment and Tools 2.3 43.6 45.9 0.1 2.4 2.5 II. Training Materials 50.0 33.1 83.1 2.8 1.8 4.6 III. Staff Costs and Trainee Allowances 52.9 - 52.9 3.0 - 3.0 IV. Technical Assistance 14.8 59.2 74.0 0.8 3.3 4.1 Total 120.0 135.9 255.9 6.7 7.5 14.2 Total Quantity Contingency 12.1 11.3 23.4 0.7 0.6 1.3 Total Price Contingency 76.3 47.3 123.6 4.2 2.7 6.9 Total with Contingencies 208.4 194.5 402.9 11.6 10.8 22.4 Taxes and Duties 47.5 - 47.5 2.6 - 2.6 255.9 450.4 14.2 25.0 Quantity contingencies of 5% have been allowed for equipment and 10% for all other items. Price contingencies have been estimated on the basis of the following price level forecasts: for equipment, 10.5% in 1980 and 9% in 1981 (international inflation for equipment); for training materials, staff costs and allowances, 25% in 1980 and 1981, 15% in 1982, 12% in 1983 and 10% in 1984 (domestic inflation in Sri Lanka); and for technical assistance, 13.5% in 1980/81, 8.5% in 1981/82 and 7.5% in 1982/83 and 1983/84 (domestic inflation  - 19 - in the United Kingdom). Estimates for equipment and tools are based on July 1.980 prices CIF Colombo plus domestic handling and transport costs. Materials for training and testing are estimated on 1980 prices and on the basis of the estimated numbers to be trained. Staff salaries and trainee allowances are based on wage rates within the industry in 1980, with an additional allowance ior staff salaries to allow the project to employ high quality staff. The cost estimates for the expatriate technical assistance (para 4.16) are based on prevailing man-month rates for comparable staff from UK consultants. About 4s30 man-months will be provided under the project at a total cost of about US$4.1 million. Average man-month costs are expected to be in the range IIS$9,000-$11,000, with an average of US$9,500. Anticipated revenue from use- ful work done during equipment operator training has not been included in the financial projections, but has been taken into account in estimating economic bene fits. F. Project Implementation 4r.24 Implementation of the project will be the responsibility of MLGHC t:hrough the SCCI acting as a steering committee, assisted by the construction industry specialist of the technical assistance team. SCCI will be responsible for the overall operations of the industry in the public sector and in the pri- vate sector so far as government work is concerned. The day to day administra- t:ion of the project will be carried out by a Project Cell set up by MLGHC under an experienced, full-time Project Director, whose qualifications, experience, and terms and conditions of employment are satisfactory to the Association. The Project Cell will receive specific guidance from SCCI on policy and plan- ning, and from NTCCI on training. The staff of the Project Cell will include (1ualified accountants able to monitor and control expenditures, which will be subject to external audit. The Project Cell will be responsible for: (a) preparation of budgets covering supply of materials and payment of salaries and allowances in collaboration with the various implementing agencies; (b) release of funds and payment of project expenditures; (c) maintenance of consolidated project accounts; (d) preparation of applications to IDA for reimbursements; (e) monthly progress review with each of the implementing agencies; (f) liaison with SCCI and the technical assistance team leaders on all project matters; (g) implementation of training for equipment operators and mechanics; ane (h) procurement of training materials. A suitably staffed Project Cell has been set up together with the necessary institutional arrangements and facilities for its operations. Understandings have been reached on the Terms of Reference of the Project Cell (Annex 3),  - 20 - and that the Project Cell will prepare detailed programs and schedules (para 4.05). NTCCI has been established as a sub-committee of SCCI and will be responsible for the overall planning of training in the construction industry sector, and for setting up standards for admissions, curricula and trade testing. NTCCI will include members nominated by SCCI representing concerned GOSL agencies, and will be assisted by the senior training manager of the technical assistance team. Draft Terms of Reference for NTCCI are included in Annex 4, and understandings have been reached with GOSL that these are appro- priate for its activities. 4.25 Six different Ministries of GOSL will be concerned with project implementation. Understanding with GOSL has been reached that the functions to be undertaken by such institutions, insofar as the project is concerned, will be as outlined below: 1. Ministry of Local Government, Housing and Construction (MLGHC) (a) Secretaries Committee for the - act as a steering committee Construction Industry (SCCI) for the project. (b) Project Cell - day-to-day administration and control of the project; pro- curement of training materials; a-d implementation of opera- tors' and mechanics' training. (c) National Training Committee - act as a sub-committee of for the Construction SCCI responsible for overall Industry (NTCCI) planning of training for the construction industry sector; and establishment of standards for admission, curricula and trade testing for the industry, applicable to all training. (d) Center for House Planning - recruit and train technical and Building (CHPB) managers and supervisors. 2. Ministry of Youth Affairs and Employment National Apprenticeship Board (NAB) - administer training at work sites. - produce and administer aptitude and trade tests and introduce registration of skilled con- struction workers. 3. Ministry of Labor Department of Labor (DOL) training - train masons, carpenters, electricians and agricultural tractor driver/mechanics 4. Ministry of Higher Education Department of Higher Education (DHE) - train masons, carpenters, Polytechnical and Junior Technical plumbers and possibly Institutes electricians.  - 21 - 5. Ministry of Rural Development Department of Rural Industries (DRI) - train carpenters if required. Training Centers 6. Ministry of Lands and Land Development (a) River Valleys Development - allow the use of suitable con- Board (RVDB) struction sites for equipment operators' training. (b) Department of Machinery - provide facilities for mechanics' and Equipment (DME) training at Ratmalana workshops. Coordination among the above institutions will take place through SCCI, which was set up by GOSL with this end in view (para 2.12). As the project pro- gresses, other GOSL bodies may become involved if they carry out construction work which is suitable for training purposes and with the agreement of the department and main contractor concerned. General cooperation in the project has been promised, if required, by the Mahaweli Development Board, the Depart- ment of Highways, the Department of Housing, the Women's Bureau, as well as SLCC. The Project Cell, assisted by the technical assistance team, will have responsibility for operators' and mechanics' training, since there is at present no agency in the public sector carrying out such work. 4.26 The physical implementation of the project is planned to run from mid-1981 to mid-1984. Using PPF (para 4.22), by the time of credit effective- niess, the Project Cell will be fully in operation and the mechanics of neces- sary liaison between the various GOSL Ministries involved will have been established.Course curricula will have been drafted and discussed and a start made in recruiting and training local instructors. Procurement of mechanical Equipment and materials will have commenced, and the equipment ordered will be delivered during the first year of the project. Some of the technical assistance team will arrive under PPF and the balance during the first year. During Year One, recruitment and training of local staff will be completed and training will commence in all specialities apart from technical planning and management, which will commence in Year Two (Table 7). By Year Three, training will have built up to its maximum, and GOSL should by then have considered how training can be continued at a comparable level in order to serve the needs of the industry. The complexity of this project will make close supervision necessary. G. Project Monitoring and Reporting 4.27 It is planned within the project to create the capability for GOSL, working through NAB to: (a) monitor the recruitment, training and iob placement of trainees and their progress after course! completion;  - 22 - (b) revise and refine selection standards, course curricula and trade testing in response to this monitoring; and (c) use the results of monitoring to expand the training proposed under the project into an integrated modular system able to meet the changing demand for skilled construction industry workers. Agreement has been reached with GOSL that, by June 30, 1982, NAB will have set up a monitoring and evaluation system satisfactory to IDA able to measure the qualitative and quantitative impacts of the project, in accordance with the stated objectives. This will be done by recording such data as training capa- city, enrollments, aptitude test failure rates, drop-out rates, attendance, trade test pass rates and subsequent employment and wages for the various training components. On a random sample of those trained, tracer studies will be pursued by NAB after training and during employment to assess the possible impact of training on careers. 4.28 Understanding has been reached with GOSL that reporting requirements under the project will include the following: (a) During the course of project implementation, GOSL will, with the help of the technical assistance team, submit to IDA quarterly progress reports; (b) In order to keep a degree of flexibility during project implementation, the Project Cell, with the help of the technical assistance team, will prepare by June 30, 1982 and again in June 30, 1983, a brief report regarding the suitability of the training program being carried out under the project, with recommendations on ways to render it more relevant to the needs of the construction industry. GOSL would discuss such reports with IDA and carry out actions to improve the training program. (c) By June 30, 1983 a report on the long-term prospects for training in the construction industry will be prepared by the Project Cell with the help of the technical assis- tance team, and reviewed by GOSL, with appropriate plans discussed with IDA for the continuation of the training program after 1984. (d) Audit reports of the project sub-accounts and consolidated account would be prepared according to GOSL procedures (which have been reviewed by IDA and found satisfactory) within nine months of the end of the fiscal year. (e) Within six months of project completion, GOSL will submit to IDA a Project Completion Report on the execution and initial operation of the project, its costs, the benefits derived or expected to be derived from it, an assessment of the performance by the Government and IDA of their respective obligations under the project, and the extent to which the purposes of the project have been accomplished.  - 23 - H. Procurement 4.29 Due to the need to acquire equipment and tools for training which are representative, so far as possible, of those currently in use in the country as a whole (para 4.19), the purchase of these items would be on the basis of competitive bidding limited to international suppliers of closely specified models and types; it is estimated that this procurement method will apply to about US$2.5 million worth of equipment asnd tools. In the event that no models or types can be specified for a particular tool or piece of equipment, international competitive bidding will be used and a preference of 15%, or the import tariff amount, whichever is the less, will be allowed in either case on locally assembled items in accordance with Bank Guidelines. Procurement of materials used in training will be by GOSL prudent shopping or local competitive bidding practices, which have been reviewed and found acceptable to the Association. For prudent shopping, wherever possible, quotations will be received from at least three suppliers. For purchases of items with an individual value of US$5,000 or less and up to an aggregate amount not exceeding US$125,000, local prudent shopping procedures may be used. The Association will review all contracts and related documentation for procurement of goods and services estimated to cost US$100,000 or more 'before an award is made. The Association will review the proposal and rates of the British Council technical assistance team before their services are retained. I. Financing and Disbursement 4.30 The total project cost is estimated at US$25.0 million (including taxes and duties of US$2.6 million equivalent) with a foreign exchange cost of US$10.8 million. The proposed credit of US$13.5 million would finance the full foreign exchange cost and contribute US$2.7 million to local costs, or about 60% of total project costs, net of taxes and duties. The remaining local costs, amounting to US$11.5 million (including-taxes and duties) would be met by the Government. Disbursements from the proceeds of the credit will 'be made on the following basis: (a) Equipment: 100% of the cost of foreign expenditures for directly imported items; 100% of the ex-factory price of locally manufactured items; and 80% of the purchase price of locally procured items; (b) Training materials: 50% of expenditures; and (c) Technical ass.stance: 100% of expenditures. Disbursement applications will be fully documented. Expenditures made under PPF (para 4.22) are to be refinanced by the Association in the first year of the project and will amount to a maximum of US$280),000 equivalent. Table 13 presents the estimated schedule of disbursements.  - 24 - V. BENEFITS AND RISKS Benefits from the Project 5.01 The proposed project will increase the capacity of Sri Lanka's construction industry so that it can better meet the needs of the country's investment program in the public and private sectors. Benefits will accrue from the project by: (a) increasing the number of skilled and semi-skilled workers; (b) reducing wage inflation at present caused by the shortage of skilled workers; (c) increasing employment amongst unskilled labor; (d) improving income levels of individual workers by providing them with extra skills; (e) increasing returns on invested capital through better use of equipment and better management; (f) improving the quality of finished work; and (g) improving the effectiveness and productivity of existing training facilities. Emigration of skilled workers after they have acquired about five years of experience will probably continue at least at present levels, but it will increase rather than decrease benefits due to the level of remittances to be expected from emigrant labor (para 1.05). Project Risks 5.02 The following events, if they took place, would endanger the suc- cess of the project: (a) radical curtailment of existing investment plans; (b) shortages or irregular supplies of training materials; (c) shortage of recruits for training; (d) lack of quality control on works to encourage use of skills acquired during training; (e) rigidity of training schedules so that they do not follow changes in the demand for skills in the industry. Resources available permit only about 60% of the total estimated requirement of labor to be trained (Table 5) and this, with the dilution of skills that has taken place, means that a reduction of about 70% in the public and private  - 25 - construction investment plan would have to take place before there would be serious danger of over-production of skilled workers, quite apart from the emigration market; in addition, a degree of flexibility has been built in the project through short-course format and periodic project performance reviews, so that training targets may be readjusted if needed during project implemen- tation. Materials required for training form only a small percentage of the total requirement for the industry, and as a training targets are known, advance purchases will help to reduce risks of shortages impeding training. Apart from operators training, where little difficulty in finding recruits is expected, reduction of intake by about 40% would still leave the project viable; however, given the high rate of unemployment among school leavers and the fairly sure prospect of employment following a few weeks of training, plus allowances during training, it is expected that no shortage of recruits will take place. One of the reasons for training supervisors and contract managers is to allow for better quality control in ccastruction undertaken by contractors or government; the introduction of a monitoring function in NAB (para 4.27) and tighter site supervision requirements (para 2.12) will help to produce a feedback on the demand for training. Project Beneficiaries 5.03 The largest number of direct beneficiaries of the project will be those trained in basic skills who are mostly from poor backgrounds and tend at present to be unemployed or underemployed. Others who have some skills at present and who undergo training will receive increased earnings, while private contractors and Government departments carrying out construction work will benefit from better returns on invested capital, due to better utilisation of equipment and a better supply of skilled labor. Indirectly, the project will benefit all those who stand to benefit from public and private investment i.n construction, due to faster and less expensive completion of works. VI. AGREEMENTS AND RECOMMENDATIONS 6.01 Agreement has been reached with GOSL on the following matters: (a) standardization of contract procedures, specifications and contract documents for government work by June 30, 1983 (para 2.12); (b) standardization, by June 30, 1982, for all construction training carried out by government, of selection criteria, training curricula and methods, trade testing, certifica- tion and registration (para 4.04); (c) existing training facilities and the staff thereof to be made available for training under the project, and training courses related to the construction industry to be adjusted in a manner satisfactory to IDA (para 4.05); (d) scale of trainee allowances to be paid end criteria for their revision during project implementation (para 4.21); and  -26 - (e) establishment, by June 30, 1982, of a project monitoring and evaluation system in NAB, satisfactory to the Association (para 4.27). 6.02 Understandings have been reached with GOSL on the following matters: (a) GOSL will cause relevant government departments and minis- tries to include in their construction contracts, measures to improve work site supervision and enforce existing regulations and codes concerning the construction industry (para 2.12); (b) GOSL will, by October 1, 1981, agree to standardized trainee selection criteria and apply them for all project training (para 4.04); (c) that the Project Cell will, by October 1, 1981, and annually thereafter, prepare and agreed with the Association on an implementation schedule, including a timetable for the use of facilities and staff, and a list of training materials for the next twelve months (para 4.05). (d) contractors doing work for GOSL will be required to com- plete trainee log books; and that the employment of a minimum proportion of registered labor will be taken into account in prequalification of contractors (para 4.06); (e) trainee selection criteria will encourage the participation of women in training courses (para 4.07); (f) suitable contractual arrangements for on-site training, particularly regarding the General Conditions of Contract, and with the appropriate Special Conditions will be pre- pared for each contract, as required (para 4.12); (g) Terms of Reference of the Project Cell and the NTCCI (para 4.24); (h) functions to be undertaken by GOSL bodies concerned with project implementation (para 4.25); and (i) details of project reporting requirements, including audit reports of proiect accounts (para 4.28). 6.03 The following matters have been discussed and the appropriate assurances received from GOSL: (a) use of available GOSL equipment from Karindi Oya, Ratmalana and Udawalawa, for training and major maintenance of project equipment (paras 4.13 and 4.19); and (b) arrangements for storage, distxix'utiou, use andA cQontvol of training materials (para 4.20). 6.04 The proposed project constitutes a suitable basis for an IDA credit of US$13.5 million on standard terms to the Government of Sri Lanka.  -27- Table 1 SRI LANKA CONSTRUCTION INDUSTRY PROJECT Trends in the Construction Industry Net Cumulative Value Added 1/ Value Added 2I Value Added Emigration of Construction Industry Construction Industry Construction Industry Construction Construction Workers at current prices at 1970 prices as a perce tage Employment 3/ to the Middle East 4 Year (Rs sillion) _ s million) of GDP?%) _ (1000 ersons) (1000 persons) 1971 751 708 5.4 104 - 1972 71; 651 4.8 95 - 1973 802 665 4.7 97 - 1974 1011 712 4.9 104 - 1975 1018 649 4.3 95 - 1976 1164 685 4.4 100 0.3 1977 1133 619 3.8 91 5.0 1978 1965 794 4.7 116 9.8 1979 3218 960 5.2 140 12.4 1980 - 1104 - 161 15.0 1981 - 1270 - 186 17.3 1982 - 1460 - 213 19.8 1983 - 1680 - 245 22.8 1984 - 1930 - 282 26.2 1985 3/ _ 2220 - 325 30.0 1/ Central Bank of Ceylon 2| For 1971-1979, Central Bank of Ceylon. For 1980-1984, assumes 15% real growth per annum. 3/ Based on 1971 census, thereafter estimated as a constant ratio to value added which implies constant worker productivity. During most of the 1970a import restrictions on construction equipment curtailed worker productivity in real terms, while in the late 1970s4 emigration to the Middle East of the most highly skilled workers offset productivity gains from the lifting of import controls. More such emigration is expected in the 1980s. 4/ Mission estimates based on figures of the Ministry of Plan Implementation, Division of Manpower Planning October 1980  -28- Table 2 SRI LANKA CONSTRUCTION INDUSTRY PROJECT Distribution of Emigration by Job Category Job Category Estimated Estimated 1984 as percentage Domestic Emigrants as of total Estimated Construction 2 of all Constructiol Emigrants Workers Construction Emigration- 1984 1984 Workers (1000's) (1000's) Equipment Operators and Mechanics Mechanics 9 Heavy vehicle drivers 7 Machine Operators 5 Sub-total 21 5.50 8.47 40 Engineers 1 0.26 2.82 9 Technical Supervisors and Technicians 6 1.57 6.49 20 Artisans Carpenters 19 Masons 17 Electricians 5 Fitters and barbenders 5 Plumbers 2 Sub-total 48 12.58 52.49 20 Laborers 24 6.24 211.93 3 Total 100 26.20 282.20 9 1/ 1976-1979 Source: Ministry of Plan Implementation: Division of Manpower Planning, Annex I - Tables 1 and 4, and Mission estimates. October 1980  SRI LANKA CONSTRUCTION INDUSTRY PROJECT Manpower Requirements - Mahaweli Employed or Available Total Projected Requirements ------- 1979 1980 1981 1982 1983 1984 Work supervisors 958 869 1038 976 971 368 Heavy M/C & plant operators 458 496 694 653 723 266 Mechanics 791 465 701 879 664 130 Greasers 111 320 410 416 385 90 Total Equipment Personnel 1360 1281 1948 1948 1772 486 Carpenters 647 1930 2868 2728 1362 340 Masons 787 1817 3628 3538 2224 240 Barbenders & steel fitters 154 638 1069 1268 1003 237 Plumbers 4 34 42 33 28 15 Electricians 18 17 19 - - _ Total Artisans 1610 4436 7626 7567 4617 832 Total Laborers I and Helpers - 10481 65680 104690 104910 73660 16860 Grand Total 14409 72446 115159 115401 81026 18546 / Government projects that the number of unskilled workers will total 109330 in 1980 and 135330 in 1981 but the mission believes that efforts to speed Mahaweli through greater use of equip- ment will mean that the number of unskilled workers will be limited to ten times the number of skilled workers. Source: Mahaweli Accelerated Programme - Manpower Requirements, August 1979 and Mission estimates. October 1980  SRI LANKA CONSTRUCTION INDUSTRY PROJECT Manpower Requirements - Public Housing Program - Direct Construction - Employed -------Total Projected Requirements------- Worker years per unit 1979 1980 1981 1982 1983 1984 Number of Units 2/ 3,288 4,603 6,444 7,733 8,340 8,340 Technical Supervisors .12 395 552 773 928 1,001 1,001 Equipment Operators & Mechanics .15 493 690 966 1,160 1,251 1,251 Masons .45 1,480 2,072 2,900 3,480 3,753 3,753 Carpenters .31 1,019 1,427 1,998 2,397 2,585 2,585 Barbenders &