Sri Lanka - Second Vocational Training Project

Document of The World Bank FOR OMCIAL USE ONLY Report No. 5958-CE STAFF APPRAISAL REPORT SRI LANKA SECOND VOCATIONAL TRAINING PROJECT April 2, 1986 South Asia Projects Department Education and Human Resources Division Tbis document bas a resricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bsnk authorization.  CURRENCY EQUIVALENTS Currency Unit = Sri Lanka Rupee US$ 1.00 = Rs 27.4 Rs 1.00 = US$ 0.036 FISCAL YEAR AND SCHOOL YEAR January - December PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ACCSL - Association of Construction Contractors of Sri Lanka ADB - Asian Development Bank CITP - Construction Industry Training Project CHPB - Center for Housing, Planning and Building FRG - Federal Reoublic of Germany GOSL - Government of Sri Lanka CTZ - German Agency for Technical Cooperation HEOTC - Heavy Equipment Operator Training Center HND - Higher National Diploma ICTAD - Institute for Construction Industry Training and Development I1O - International Labor Organization JTI - Junior Technical Institute MHP - Million Houses Program MOHE - Ministry of Higher Education MOL - Ministry of Labor MOLGHC - Ministry of Local Government, Housing and Construction MYAE - Ministry of Youth Affairs and Employment NAB - National Apprenticeship Board NCC - National Craft Certificate ND - National Diploma NIBM - National Institute of Business Management NTTTC - National Technical Teacher Training College NWS&DB - National Water Supply and Drainage Board SDCC - State Development and Construction Corporation SEC - State Engineering Corporation SIDA - Swedish International Development Authority TEC - Tertiary Education Commission UNDP - United Nations Development Program  FOR OFFICUL USE ONLY SRI LANKA SECOND VOCATIONAL TRAININC PROJECT Table of Contents Page No. BASIC DATA CREDIT AND PROJECT SUMMARY I. MANPOWER AND TRAINING IN THE CONSTRUCTION SECTOR ............ 1 A. Introduction ......................................... .. 1 B. Public Investment Program 1985-1989 ..... i................. 1 C. Manpover Implications ...... .......................... .. 3 D. Issues in the Construction Sector ................ ....... 3 E. Issues in Vocational Training ........................... 5 F. Government Policies and Programs in Vocational Training.. 9 G. External Financing of Vocational Training ............... 10 H. Bank Role in the Construction Sector and Vocational Training ..* ........................................... 10 II. THE PROJECT ................................................. 13 A. Goals and Objectives .................................... 13 B. Institutional Development ....... ........................ 14 C. Skills Training ......................................... 16 D. Management Training ..................................... 17 E. Instructor Training ..................................... 19 F. Monitoring and Evaluation ............................... 19 G. Technical Assistance Summary . .20 III. PROJECT COSTS, FINANCING, IMPLEMENTATION AND DISBURSEMENTS .. 20 A. Project Costs .................................. 20 B. Financing Plan .................................. 23 C. Recurrent Expenditure .................................. 24 D. Status of Project Preparation . . 24 E. Implementation ....................................... 25 F. Accounting and Auditing ................................. 25 G. Procurement . ....................................... 26 H. Disbursements ....................................... 27 IV. BENEFITS AND RISKS ....................................... 28 A. Benefits ...................................... 28 B. Risks .. .................................... 28 V. AGREEKENTS REACHED .. .................................... 29 This Report is based on the findings of an appraisal mission to Sri Lanka from August 5-22, 1985. Mission members were Messrs. R. Cambridge (Mission Leader), E. Ndungutse-(Economist), E. Dib (Architect, Consultant), D. Foster (Management Training Specialist, Consultant), R. Ellis (Vocational Educator, Consultant), and A. Austen (Construction Industry Specialist, ILD). Ms. Pak assisted in preparing the Report. This document hus a stricd distibution and may be usd by rcipients only in the perfonnance of their official duties Its contents may not oterwise be discsed without World Dak autborizon.  ANNEXES 1. Comparative Education Indicators 2. Manpower Demand and Supply 3. Construction Industry in Sri Lanka 4. The Technical/Vocational Training System 5. Expenditures on Vocational Training 6. External Financing of Technical/Vocational Training 7. Performance Indicators - Credit 1130-CE 8. Unit Training Costs: Expenditures and Revenue 9. Terms of Reference: Studies on (a) ICTAD Supported Training Programs and (b) Construction Industry Sector 10. ICTAD Headquarters Building and Other Civil Works 11. Schedule of Appointment of Additional Staff 12. The Center for Housing Planning and Building (CHPB) and proposed Management Training Program 13. Monitoring Benchmarks and Schedule 14. Technical Assistance and Fellowship Program 15. Project Costs: Table 1: Summary Costs by Project Component and Time Table 2: Sumnary Costs by Category of Expenditure and Time Table 3: Sunmmary Costs by Component and Category of Expenditure 16. Financing Plan by Project Component 17. Implementation Schedule 18. Forecast of Expenditures and Disbursements 19. Selected Documents in Project File CHART Proposed Organization of the Institute for Construction Industry Training and Development (ICTAD) Location of ICTAD in the Ministry of Local Government, Housing and Construction MAP Map of Sri Lanka showing the location of project institutions  -lll- SRI LANA SECOND VOCATIONAL TRAINING PROJECT Basic Data A. Area 65,607 sq.ku. B. Population I/ 15.6 Million 1. Rate of Growth 1.7Z p.a. (1971-lo1) 2. Age Structure 0 - 14 35.7Z 15 - 64 60.1Z 65 and above 4.2Z C. CNP per Capita US$ 330 D. Labor Force (Millions) 2/ Male Female Total Agriculture 1.57 0.60 2.17 Construction 0.21 0.02 0.23 Mining 0.06 0.004 0.06 Manufacturing 0.38 0.18 0.56 Other 1.33 0.37 1.70 3.55 1.17 4.72 E. Overseas Higration Skilled/Semi-illed Workers 15,000 Unskilled Workers 41,000 C. Education 3/ 41 Primary Jr/Sr.Secondary University Age Group 5-10 11-18 18- Number of Schools/Institutions 9172 5537 7 Enrollments (Millions) 2.1 2.9 0.01 Gross Enrollment Ratio (Z) 86.5 - - Z Female 48 54 38.9 No. of Teachers - - 1623 % Female 60 40 - Z Trained 58 58 - H. Adult Literacy Rate 871 I. Public Expenditure on Education and Training (FY84) Total Expenditure as Z of GNP 2.47Z Total Educ. Exp. ss Z of total Government Esp. 7.44S Educ. Recurrent ERp. as Z of Government Recurrent Exp. 14.511 Educ. Capital Esp. as Z of Government Capital Esp. 3.02S Unit Cost per Primary Student 400 Rupees Unit Cost per Secondary Student 938 Rupees G. Public Expenditures on Technical and Vocational Training (FY84) Total Exp. as Z of CNP 0.27Z Capital Esp. as Z of Capital Exp. on Educ. and Training 36.21S Recurrent Rxp. as Z of Recurrent Esp. on Educ. and Training 6.101 Total Exp. on Tech/Voc Trg. as Z of Total Exp. on Educ. Trg. 11.291 1/ 1981 Census. 2/ Socio-Economic Survey 1982. 3/ 1983 School Census. 4/ See Annex I for Comparative Education Indicators.  -iv- SRI LANKA SECOND VOCATIONAL TRAINING PROJECT Credit and Project Summary Borrower: Government of Sri Lanka Amount: SDR 13.0 million (US$ 15.0 million equivalent) Terms: Standard Project Description: The goal of the project is to improve the efficiency of the construction industry in Sri Lanka. The main objectives of the project are to (a) create an institutional framework to sustain training and industry development efforts started under the first Construction Industry Project (Credit 1130-CE); (b) increase the supply of semi-skilled, skilled and managerial personneL to the industry; and (c) improve the quality of manpower going into the sector. The institu- tional development objective would be achieved by estab- lishing and developing the Institute of Construction Industry Training and Development (ICTAD). The manpower supply objec- tive would be achieved by training about 50,000 new and upgrading about 26,000 existing semi-skilled, skilled and managerial workers in the construction industry. The quality improvement objective would be achieved by instituting an instructor training and upgrading program, revision and updating of curricula, monitoring and evaluating skill train- ing and industry developments, and trade testing and certify- ing about 40,000 skilled workers and supervisors. Risks: The project is flexibly designed to meet the requirements for construction industry training as diagnosed by training needs assessments. A reduction of the demand for training in total, or for any skill in particular, has no implications for underutilization of staff and facilities as the project would utilize existing faciLities and contract additional instructors only when specific courses are identified. Chan- ges in the demand for training may at most lead to some underutilization of project funds.  Estimated Cost: /a Local Foreign Total ----US$ million Institutional Development (ICTAD) 1.14 1.40 2.54 Skill Training 8.50 4.42 12.92 Management Training 0.96 0.53 1.49 Instructor Training 0.31 0.51 0.82 Monitoring and Evaluation 0.17 0.56 0.73 Total Base Costs 11.08 7.42 18.50 Contingencies Physical 0.63 0.41 1.04 Price 2.67 2.27 4.94 Total Project Costs 14.38 10.10 24.48 /a Includes taxes of US$ 0.85 million equivalent. Financing Plan: Local Foreign Total IDA 5.38 9.62 15.00 UNDP 0.54 0.48 1.02 Zovernment 8.46 - 8.46 Total 14.38 10.10 24.48 Estimated Disbursement: IDA FY FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Annual 0.30 4.18 3.58 1.76 1.14 1.10 1.08 1.04 1.12 Cumulative 0.30 4.48 7.76 9.52 10.66 11.76 12.84 13.88 15.00 Economic Rate of Return: Not applicable  -1- SRI LANKA SECOND VOCATIONAL TRAINING PROJECT I. MANPOWER AND TRAINING IN THE CONSTRUCTION SECTOR A. Introduction 1.01 In 1977, the Government of Sri Lanka embarked on an ambitious development program which committed a large share of public revenues to programs such as irrigation, power generation, housing and urban development. These investments, which have large construction components, made heavy demands on the capacity of the construction industry, and are estimated to have created approximately 100,000 new jobs. In addition to the increased domestic demand for skilled workers, the outflow of skilled workers to the Middle East also grew significantly during this period. A large percentage of these were skilled/semi-skilled workers in the construction trades, with drivers, mechanics, carpenters and masons accounting for nearly 62% of the total in 1980. 1.02 The construction industry was important in revitalizing the economy during the 1977-83 period. While GNP increased by 6% per annum, construction output increased by an annual average of 7.4%. This trend was slowed in 1981 because the Government was compelled to exercise stringent budgetary controls to minimize budget deficits. As a result, public investment in construction activities was either reduced or maintained at 1980 levels, except in the case of investments for foreign-funded construction projects. B. Public Investment Program 1985-1989 1.03 The sharp increase in investment during the 1978/80 period posed a severe threat to budgetary management. Government capital expenditures in 1980 were about 2.5 times higher than in 1978 and accounted for more than 12Z of GDP. Total government expenditures reached a peak of 38.5% of GDP. During the 1985-89 period, the Government expects to achieve a structural transformation in resource utilization. Financial stability based on good budgetary management is to be pursued in order to achieve an annual growth target of 5.0% and the Government budget is to be a key element in the struc- tural adjustment process. In order to achieve this, the investment coeffi- cient is to be reduced from an average of 29.4% of GDP during the 1980-84 period to around 26.0% during the next five years, and the national savings rate is expected to increase from 16.4% of GDP during the 1980-84 period to approximately 20.0% by 1989. A number of budgetary policies, some of which are already in force, have been designed to decrease public investment as a share of GDP from more than 17.0X in 1984 to about 12.0% by 1989. Through a combination of expenditure cuts, reallocation of revenues from low return uses, and revenue raising measures, the mostly negative trend in public savings in the past is to be reversed. Public savings will average about 3%  -2- of CDP in the coming years. The formation of an industrial policy committee, tariff reforms, rationalization of public enterprises, export promotion measures, development of infrastructure, and administrative reforms designed to reduce excessive bureaucratization are expected to benefit the private sector and increase private investment as a share of CDP from 12.0Z in 1984 to close to 14.0Z by 1989. On the savings side, in order to maintain the level achieved in recent years, a more flexible interest rate policy which offers a positive real rate of interest is to be pursued. Within this con- text, the 1985-89 public investment program clearly outlines priority objec- tives and areas of activity. It concentrates on quick yield produc- tion-oriented projects which can reduce balance of payments problems, essen- tial infrastructure needs in power, irrigation, transportation and communica- tions, and urgent needs in health, education, housing and nutrition. 1.04 In the education sector, because of past heavy commitments to other sectors which reduced allocations to the sector, provisions would be made to ensure that there is no deterioration in education services. In general education, the emphasis is to be placed on quality improvement, rationaliza- tion and better management. Priority is also to be given to technical and vocational training to meet domestic and foreign skill requirements, as well as the training of future managers. 1.05 In agriculture, the specific goal is to maximize the production of basic food items, and expand earnings from agriculture exports (tea, rubber and coconuts). A major priority in the sector however, is the rehabilitation of the plantation sector with the emphasis on rehabilitating the irrigation system, improving management, and better maintenance of capital assets. 1.06 For the industrial sector, the Government initiated a number of measures to improve the efficiency of public enterprises and revitalize the private sector. These included a rationalization of the tariff structure, attracting foreign investments, and promoting exports. Public sector invol- vement would be limited to the provision of infrastructure support services for industrial operations, and new investments would only be undertaken where the private sector is not engaged. 1.07 In transport, the priority would be the maintenance of operating assets, and the development of the institutional framework for transport planning and formulating transport policy. Because the road network is in a state of disrepair, a five-year program of rehabilitation and routine main- tenance costing about Rs 5,000 million is given priority in the investment program. 1.08 The Government has introduced a program to provide improved shelter to a million or more families. Besides rural housing and urban low-income upgrading programs, the Million Houses Program (MHP) will also introduce a large number of new programs such as sites and services, and joint ventures with the private sector for the development of a private housing industry. The Government has organized the State Mortgage and Investment Bank as the government housing bank and has established a Housing Development Finance Corporation as a building society, under the National Housing Act. These two institutions are expected to intensify the activities of private house builders with new housing mortgage financial schemes, and also support the  -3- private housing developers with the provision of development and mortgage financing. 1.09 The MHP is also tied to an extensive program of drinking water development. Under this program, a large number of projects have been under- taken with multilateral and bilateral assistance. In the urban sector, Phase II of the South West Coastal Water Supply Project is funded by IDA and will be completed in 1988. IDA is also financing a project to rehabilitate the Colombo sewerage system. The National Water Supply & Drainage Board (NWS&DB) has also undertaken a large number of new urban water supply schemes and rehabilitation projects in provincial towns. In addition, the NWS&DB has embarked on an expanded program in the rural sector to provide deep wells particularly in the dry and intermediate zones. The NWS&DB now operates 26 drilling rigs in all parts of the country. C. Manpower Implications of Investment Program 1.10 An estimate of total manpower requirements based on projected growth rates by sector, have been made by the Ministry of Plan Implementation for the 1985-89 Public Investment Program. The construction sector is projected to have a growth rate of 8% per annum during the period, while labor produc- tivity is estimated to increase at an average rate of 3% per annum. On this basis, it is estimated that there will be a total net requirement of 78,000 persons in the construction sector, and when the requirements for skilled workers in construction-related trades in other sectors (transport, irriga- tion, etc.) are added, it will increase to 120,000 (Annex 2, Table 1). In calculating the training to be carried out under the project for the 1987-1995 period, the basic assumptions utilized by the Ministry of Plan Implementation for the 1985-1989 period have been utilized. Training requirements were also derived by taking into account: (a) the manpower available in 1985 (stock); (b) wastage due to retirement and migration; (c) returning workers; and (d) contributions to supply by other institutional and non-institutional training programs. These are realistic assumptions, and when all of these factors are considered, the total training load for the project for the 1987-1993 period would be about 50,000 new entrants and upgrading of about 26,000 existing workers for a total of about 76,000 per- sons (Annex 2, Tables 2 and 3). This would average about 8,400 per year. The present training capacity developed under Credit 1130-CE is about 6,000 per year. It is expected that these estimates would be further refined and updated by Training Needs Assessments to be undertaken in future years (para 2.22). D. Status and Issues in the Construction Sector 1.11 Between 1977 and 1983 the industry grew at an annual rate of about 7.4Z compared with an annual GDP growth of around 6%. The prospects beyond 1985, however, are clouded by several factors. These include (a) the reduc- tion in oil prices which will lower the demand for Sri Lankan construction workers in the Middle East; (b) ethnic disturbances in the northern part of the country; and (c) a major change in the focus of the public investment program with the completion of the Mahaveli project. Despite these changes, the demand for skilled and semi-skilled workers (and hence for training), will continue because domestic development programs, particularly those in road rehabilitation and maintenance, housing, and water supply have been  -4- given high priority n the Public Investment Program 1985-1989; and better maintenance of existing capital assets is to be pursued. The construction industry in Sri Lanka must also take account of Government's policy to improve the efficiency of public enterprises, and revitalize the private sector. The relationships between the public and private sectors, and the implications for the efficiency of the industry are important. Finally, in addition to those factors which are unique to Sri Lanka, construction industries in general exhibit certain characteristics; these include high risk, fluctuating demand, lack of management and technical ability, and administrative and allocative inefficiencies. 1.12 The Public Sector. There are eight public sector organizations and 23 quasi-public institutions which provide construction related goods and services (Annex 3). The major result of this multiplicity is that the government has to perform the role of client, consultant and contractor. These roles are often played simultaneously and results in design, supervi- sion and site management problems. The Government is aware that design problems can result from this overlap and this is reflected in a r?port which investigated current building designs and made recommendations for improve- ments. 1/ The report lists 21 examples of design shortcomings which seriously affected cost, timely completion, and building utility. The recom- mendations made to overcome these problems were to: (a) constitute a Public Building Committee under the Ministry of Local Government, Housing and Con- struction (MLGHC), and to make it compulsory for all projects of the Ministry costing over Rs 2 million to be approved by this Committee at the conceptual stage; (b) bring the projects of other Ministries and Corporations costing over Rs 5 million under the purview of this Committee; and (c) consolidate the expertise and experience gained by this Committee by setting up a Bureau of Public Enterprise under the Ministry of Finance and Planning. 1.13 These proposals illuminate two major issues in the construction sector. First, the ambiguities and inefficiencies which arise from the government assuming roles which should normally be left to the private sec- tor; and second, a tendency on the part of Governments to attempt to regulate problems out of existence. The Government is trying by policy to address the first issue. For example, the Higbways Department became the Road Develop- ment Authority in January 1986, and road maintenance is to be by contract through Road Maintenance Agents. However, to tackle the second issue, behavioral changes on the part of civil servants are required and these may prove more difficult to effect. A report on management training in the construction industry in Sri Lanka 2/ identifies two reasons for managerial shortcomings: (a) failure to delegate decision making, and (b) a lack of formal management training. These factors emphasize the importance to be attached to management development if construction industry performance is to be improved. 1/ Report of the Sub-committee on "Economics of Design and Construction applied to Building Projects." National Steering Committee. Construc- tion Industry Training Project (Cr.1130-CE) - Colombo 1984. 2/ Sri Lanka: Management Training Needs - Whitlock, R.M. Colombo July 1985.  -5- 1.14 Private Sector. With encouragement from the Government, contractors formed the Association of Construction Contractors of Sri Lanka (ACCSL). It now has 102 members. Fifty-eight percent of these have their registered addresses in Colombo, but this does not indicate the geographic spread of their operations. The State Engineering Corporation (SEC) and the State Development and Construction Corporation (SDCC) are members of the Associa- tion, and this illustrates the point about the blurring of distinctions between the public and private sectors (para 1.13). 1.15 The major achievements of this fledgling Association have been a symposium in April 1984 on "The Role of the Contractor in the National Economy", and its gaining membership to the International Federation of Asian and Western Pacific Contractors' Associations (IFAWPCA.) In an effort to resolve the dilemma of an Association which cannot attract members because it cannot offer services, a study was commissioned by the Associaticn and financed by the CITP. The final report includes a number of recommendations; the most important of which are that the ACCSL should: (a) represent the interests of the industry to the government; (b) be consulted regarding legislation affecting the industry; (c) develop resources for the education and training of technicians and building managers; (d) seek to raise contrac- tors' standards; and (e) provide members with technical and business informa- tion. 1.16 Problems which affect ACCSL members are similar to those raised by domestic contractors the world over. These include: (a) unfair competition from foreign contractors; (b) lack of work; (c) high interest rates for working capital; and (d) slowness of payments on government contracts. The ACCSL would be represented on the Consultative Committees for Training and the Construction Industry (para 3.12). This should provide an appropriate forum for the airing of these issues. Other issues in the sector which require attention are the development of smaller contractors, and the extent to which ACCSL can effectively represent the interests of its members to government, as well as provide them with advisory and other services. Since it is the government's policy to encourage small-scale enterprises and assist the Association in its development, the Government undertook in January 1986 in cooperation with the ACCSL, a study of the problems of the private sector with a view to developing programs and policies to overcome these problems (Annex 9). E. Status and Issues in Vocational Training 1.17 There are three Ministries and one Department principally associated with training constrLction workers in Sri Lanka. The National Apprenticeship Board (NAB) was set up in 1971 under the Ministry of Youth Affairs and Employment (MYAE). NAB administers craft training at work sites for youths aged between 16 and 22, and currently supervises about 10,000 trainees. 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 the Construction Industry Training Project (Credit 1130-CE) sponsored courses (para 1.36). NAB also runs special apprenticeship schemes for about 1,000 trainees at the higher and supervisory management levels. The Ministry of Labor (MOL) trains about 2,700 students per year aged between  -6- 18 and 30 who have at least eight years of schooling. For construc- tion-related training, the Ministry operates two permanent and 317 very small mobile centers which offer courses in masonry, carpentry, metal work, and motor repair and maintenance (Annex 4, paras 22 and 23). The Department of Small Industries operates 109 centers to train carpenters on one-year cour- ses, plus three centers giving two-year courses in cabinet making. About 1,500 trainees are currently taking carpentry courses. MLGHC established the Center of 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 rec_.its to technical grades. The courses concentrate on site organization and mianagement appropriate to their seniority, without neces- sarily 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. A more detailed description of the technical and vocational training system is included in Annex 4. 1.18 Several issues affect technical/vocational training in Sri Lanka. These relate to manpower and financing policies, and the efficiency of the system. As regards policy, there are four issues which warrant attention; the export of manpower, the lack of testing and certification, the wages and benefits to staff in technical/vocational training, and cost recovery. The efficiency of the system is affected by the relevance of the curriculum to market needs, the competence of instructors, and the availability of training equipment and materials, the degree to which the trainees are employed, and the management capacity which exists in the system. L.19 Export of Manpower. Since 1977, the relative share of professional manpower leaving Sri Lanka has declined steadily, while the share of skilled and semi-skilled labor has increased. Among the professional cadres, increased domestic opportunities which resulted from the economic policies of the Government, led to a decrease in out-migration. At the same time, the Government has adopted a policy of encouraging the migration of skilled and semi-skilled workers. In 1982, 76% of the people who migrated for employment belonged to either the skilled or unskilled categories. The remainder were professional, managerial and technical personnel. The major factor influencing the migration of labor is the high wages offered abroad. Surveys show that Sri Lankan workers abroad remit as much as 80Z-90% of their total earnings. These private transfers from abroad have shown a steady increase and have had a favorable effect on the balance of payments. In 1983, private transfers amounted to Rs. 6.8 billion and was the second highest foreign exchange earner after the export of tea. 1.20 The large number of skilled/semi-skilled persons migrating to the Middle East has also eased the pressure of local unemployment. Although this cannot be a permanent solution to unemployment, it has assisted in the short term. Despite these benefits, migration has created a number of problems for local industry. First, there are now difficulties in recruiting competent personnel. Second, productivity in industry has been affected by the migra- tion of the more experienced and skilled workers; and thirdly, this has resulted in an escalation of construction costs due to the increase in wages. No study has yet been undertaken in Sri Lanka to estimate the cost to the  -7- local industry of exporting skilled labor. However, the consensus is that the positive effects of labor migration outweigh the negative. The policy of the Government is not to restrict the movement of labor within and outside the country. While acknowledging the problems of local industry, it sees the impact of remittances on the balance of payments as positive. Under these circumstances, the option which the Government has pursued is to undertake more training programs for skilled workers required for both the local and Middle East labor markets. With the sharp reduction of employment oppor- tunities in the Middle East and Gulf States, and the increase in the number of returnees, the focus of training programs will shift to upgrading and retraining. 1.21 Certification. Training programs conducted by the various Ministries and institutions differ in the level of skills, training methodology, and curriculum for the same trade. Some craft-level training programs do not have a fixed curriculum and therefore the training imparted varies from one place to another, often depending on the emphasis and the competence of the instructor. This lack of uniformity is aggravated by the paucity of facilities for trade testing. Further, the trainees from these programs differ in their skill levels when entering the labor market. Employers find it difficult to ascertain the skills of new recruits particularly those from formal institutional training programs. The tests conducted, and certifi- cates awarded by the different training institutions are therefore not recog- nized by the employers, who instead prefer to administer their own tests and establish wage scales commensurate with the results of the test. There are therefore no uniform wage scales which are linked to the level of skill attainment. One of the major drawbacks in the construction industry at present is that while a national system of training standards and tests have been developed, not enough skilled workers have as yet been tested and ce- tified to have a significant impact on the level of wages. The proposed project plans to test and certify 40,000 workers. 1.22 Salary and benefits. Recruitment for all types of technical person- nel has been a major problem over the last five years. The situation is perhaps most serious in the training profession. General conditions of employment and basic pay scales are more attractive in industry than in technical and vocational training. This has resulted in a dearth of qualified and experienced personnel in training. Although the problem has been recognized, there has been little action to remedy the situation largely because pay scales are part of a wider public service system, and it is difficult to increase the salaries and benefits for one group without creat- ing unrest in other groups. 1.23 Cost Recovery. Sri Lanka has developed a highly subsidized education and training system. The Government's policy is to meet almost the entire capital and recurrent costs of education and training programs from general resource3 (the business turnover tax, income taxes, and export duties) At present, none of these revenues are specifically earmarked for education and training activities and funding is, therefore, on the basis of available resources. The Government also consciously pursues the principle of equality in its allocation of resources for education and training, but the across-the-board application of this financing mechanism has distortionary effects. "Means tests" have not been implemented to establish the levels of subsidies (stipends) or fees people in different income groups should receive  -8- or pay. The 1971 NAB Act, which provides for a training levy on employers with more than 50 employees has never been utilized to finance vocational training. The business turnover tax is seen as the means through which all employers contribute to Government sponsored training programs. The Govern- ment has argued that by Levying the NAB tax in addition to the business turnover tax, it would not only shift costs from contractors and other employers who hire labor to those who pay for the services, but would also be doubly taxing employers who are already paying for services (training man- power) provided by the Government. The Government is the largest single contract awarder and employer. Public training institutions also have a subsidized fee structure. In technical institutes the fees are nominal, while public in-service training institutions administer fee structures that attempt to achieve full cost recovery from private sector trainees who attend courses, while providing free training to public sector employees. In the private sector, there are a number of institutions which conduct specialized vocational programs and charge realistic fees from their clientele. These are, however, very few private institutions which offer basic skill training in the construction trades. The Government's policy is also to award stipends in some of its vocational training programs. This is done in order to attract tra-nees, as well as for socio-economic considerations, because most trainees come from poorer households. There is, however, no uniformity in the levels of stipends paid by the different government agencies for essentially similar training. 1.24 The content of curricula and relevance to labor market requirements are factors which can determine the success or failure of vocational train- ing. Some Ministries have achieved a degree of success in designing training courses which reflect the needs and the requirements of the industry. However, there is no formal system where curricula are designed in consult- ation with the industry, or the feedback from the industry gathered on the relevance of training imparted. A critical element which is missing in the technical/vocational training system, is the participation of the industry in the development of course curricula. This shortcoming has to be corrected by institutionalizing a process where consultative and representative committees are appointed to guide and advise the training organizations on the actual needs of the industry. 1.25 The duration of courses and the admission requirements to vocational programs vary among Ministries. These are most pronounced at skilled/semi- skilled levels. For example, the minimum requirements for admission to carpentry courses varies from five years of formal school education, to G.C.E. Ordinary Level. Similar variations of education qualifications are observed in other trades as well. The duration of existing skilled/semi- skilled training courses also vary from three months to four years. Training courses with a duration of six months or more have recorded high dropout rates. This can be attributed to two factors. First, when trainees acquire sufficient employable skills, they voluntarily leave training for employment. Second, the poverty of the majority of trainees does not permit them to follow long training programs. The task of trainers therefore is to improve the situation. One way is to shorten the training period without compromis- ing quality. It is also possible to establish admission standards which are more realistic so that applicants perhaps with only a primary school back- ground, would be eligible for training in construction-related trades.  -9- 1.26 Another problem of the training system is the lack of technically competent instructors who also have the necessary and relevant industrial experience. Younger instructors often do not have the necessary industrial experience. At the same time, opportunities to provide training for newly recruited instructors have also been reduced during the last decade. The few who have been trained abroad quickly leave for more lucrative employment opportunities overseas and domestically. The CITP's experience with MOHE has shown that about 15X-20% of them leave the system every year. Often the more experienced and competent are the first to leave. 1.27 Most training institutions do not have adequate supplies of con- sumable training materials because of budget constraints. Apart from the funding aspects, there are also problems with the quali-y and timeliness of the provision of consumable training materials. This is especially important in respect of locally produced training materials such as bricks and timber. The delivery of these items in sufficient quantities, and at the time when they are needed is a major problem. Another shortcoming of vocational train- ing in Sri Lanka is the supply and poor quality of instructional materials. The reliance on instructor-focused rather than trainee-centered instructional programs has also prevented experimentation with more innovative teaching methods. 1.28 Finally, the coordination and management of the system is important. The subject of technical and vocational education and training is assigned to a number of Ministries and organizations in Sri Lanka (para 1.17). The need for coordinating to avoid duplication of effort and a waste of resources is urgent. The Government has cited as a good example, the CITP which spans several Ministries in implementing a sector-related training program. There has been no duplication of effort in implementing the project, and existing training facilities are utilized wherever possible, thus obviating the need for new facilities. F. Government Policies and Programs in Vocational Training 1.29 Since 1979, the Government has invested in training programs as a necessary part of its strategy to successfully implement its industrializa- tion and modernization program. The increase in demand for skilled workers especially in engineering and construction trades within the country, and the migration of workers to the Middle East, increased the demand for technical education and vocational training. The relative neglect of this field was recognized and the need to provide increased financing was also accepted. The provision for technical and vocational training programs increased from Rs. 26.3 million in 1971/72 to Rs. 348 million in 1983. The other major decision taken by the Government was not to restrict the outflow of skilled labor from the country. Instead, the policy is to introduce more training programs which would produce skilled workers in sufficient numbers to meet the local as well as foreign demand (para 1.20). 1.30 Continuing efforts were made in the last few years to meet the demands for skilled manpower generated by the outflow of labor to the Middle East and the requirements of local industry. The network of polytechnics and Junior Technical Institutes (JTIs) of the Ministry of Higher Education (MOHE) was expanded and increased from 15 in 1977 to 27 in 1984. A Rs. 500 million technical education project supported by the ADB, SIDA, and UNDP was  -10- initiated in 1983. A National Technical Teacher Training College (NTTTC) is to be established under the project to provide pre- and in-service training for instructors in MOHE institutions. This College is expected to play a dominant role in relieving the lack of qualified instructors in the country. 1.31 The NAB established an Apprenticeship Training Institute at Katubedda with assistance (Rs. 90 million) from the Federal Republic of Germany. The NAB with assistance from UNDP/ILO is also establishing a Technician Training Institute at Katunayake at a cost of approx. Rs. 65 million. The MOL estab- lished seven permanent vocational training centers with the assistance of the Dutch Government. In addition, it plans to strengthen its institutions at Orugodawatte, Narahenpita and Marawila. At the village level, the Ministry will continue its mobile training center program. With SIDA assistance, the MOL has also established a Foreman Training Center in Colombo. In 1981, the Government established the CITP under the WOLGHC to provide a steady supply of skilled workers required by the construction industry. A program to develop national skill standards, and trade tests for the construction industry as well as construction industry specifications, procedures and documentation was developed by the CITP in collaboration with other relevant Ministries (para 1.37). USAID has provided assistance to the NWS&DB and the Irrigation Department to help in the training of the specialized skill man- power required by these two organizations. 1.32 Public expenditures on technical education and vocational Training (1979-85). Recognizing the importance of technical and vocational education and training, the Government has increased the financial allocations made to this sub-sector. Details of expenditure incurred by the Government during the period are indicated in Annex 5, Table 1. The total expenditure on technical/vocational education and training was around Rs. 588.6 million in FY85 compared to Rs. 93.7 million in .979. The total expenditure on techni- cal education and vocational training taken as a percentage of the GNP has increased from 0.18% in 1979 to 0.34X in 1985. The share of capital expendi- ture within the total allocation provided for technical and vocational train- ing increased (from 25% to 70%) during this period. This indicates that the Government has taken adequate measures to expand training activities and to improve the quality of training by providing more equipment and upgrading the existing training facilities. G. External Financing of Technical and Vocational Education Training 1.33 During the period 1979-1983, the Government obtained foreign assis- tance to finance its expansion of technical and vocational programs. The main multilateral agencies are IDA (para 1.34), ADB, SIDA, UNDP, ILO and FRC (paras 1.30-1.31 and Annex 6). H. Bank Role in the Construction Industry and Vocational Training 1.34 To date, the Bank Group's involvement in the Sri Lanka construction industry has mainly been via civil works and other construction, as com- ponents of agriculture, transport and water supply projects. The Second Mahaweli Ganga Development 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 improving housing, while the Kuranegela  Integrated Rural Development Project (Credit 891-CE, 1979, US$ 20 million) includes the rehabilitation and construction of rural roads and water pipelines. The Road Maintenance Project (Credit 900-CE, 1979, US$ 16.5 million), includes the strengthening, repair or widening of about 30 bridges and rehabilitation with selective widening of some primary roads, and the Second Water Supply and Sewerage Project (Credit 1041-CE, 1980, US$ 30 mil- lion) involves construction of treatment plants, a pumping station, transmis- sion mains and a reservoir. More recently, the Road Maintenance and Rehabilitation Project (Loan 2517-CE) includes the rehabilitation of 570 Km of main roads. 1.35 The Bank Group also directly supports the industry through two projects. The Small and Medium Industries Project (Credit 942-CE, 1979, 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. IFC's investment of Rs. 4.5 million (about US$ 250,000) in Lanka Orient and Leasing Company (LOLC) in 1980 assisted the establishment of this leasing company, 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 construction equip- ment. 1.36 The Sri Lanka Construction Industry Training Project (Credit 1130-CE) is the only vocational training operation supported by IDA. It was estab- lished under the MOLGHC with the objective of developing a training program to meet the immediate requirements of skilled labor for the construction industry. This project was designed to: (a) establish a unified modular training system for construction-related trades; (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; and (d) strengthen the agencies and institutions involved in training for the construction industry. The project was originally intended to train: (a) 45,000 workers in basic construction skills; (b) about 1,800 workers in equipment operation and maintenance; (c) about 900 supervisors in work supervision and quality control; (d) about 80 senior staff in improved work planning and management; (e) upgrade about 9,600 workers; as well as (f) improve methods and procedures in the construction industry. These ta rgets were revised downward in 1983 as & result of reduced demand (Annex 7, Table 1). The project was also originally designed to be implemented in three years from June 1981 - June 1984. However, it has been extended twice and will be closed in December 1986 by which time it will fully achieve the revised training targets of about 30,000. 1.37 The Government established a temporary Project Cell in the Urban Development Authority (UDA) under the MOLGHC. A Coomittee consisting of Secretaries of the MOLGHC as the Chairman, MYAE, Plan Implementation, KOHE, Lands and Land Development, Mahaweli Development, and HOL, was established to formulate policy and oversee the implementation of the project. The Govern- ment agreed to implement through the NAB, standardization of the selection of trainees, training, testing, certification and registration of construction workers, supervisors and specialists. This task has been already been com- pleted and implementation is now being handled by the NAB (Annex 7, paras 37-46). The Government also agreed to develop and implement standardization  -12- of the construction industry contracting specifications, procedures and documentation. The development work was handled by the National Steering Committee which comprised a temporary body of public and private officials. The work is now completed and has been approved by Cabinet for implementa- tion. As part of project design, existing training facilities and staff are being used. Only one new training facility was created; the Heavy Equipment Operator Training Center (HEOTC) at Anuradhapura. In respect of craft, supervisory and management, and mechanic training, existing facilities of the PJHE and government-owned industrial establishments are being used. Staff empLoyed by these organizations assic_ in implementing the training program. 1.38 Under the project, attempts are also being made to recover and/or share part of the costs of the training programs with primary and secondary beneficiaries (trainees and contractors). In the area of skill training, the CITP finances the costs (consumable training materials, stipends, tool kit, salaries of additional staff/overtime) for the 10 week institutional training period plus 10 weeks of the 40 week on-site phase. Contractors pay t:e trainees a comparable or higher stipend during the remaining 30 weeks of the supervised on-site training period. Supervisory, mechanic and operator training trainees are paid a stipend for the duration of the course and there is no cost sharing with contractors. For upper and middle-level management courses and trade testing, fees have been levied from the inception of the project. The unit costs of training are shown in Annex 8, Tables 1 and 2. The CITP also undertakes several activities which generate revenue as part of the training program. Skill-level trainees are required to fabricate doors, window frames, sashes and other building/construction items during their 10 week institutional training course. These items are sold at public auction and the funds retained by CITP. Equipment operators undertake earth moving and other construction projects as part of their training and the revenue generated from these activities accrue to the CITP (Annex 8, Table 4). 1.39 The objectives of the project have largely been met. Continued support is required in order to institutionalize and consolidate these achievements. The modular training syctem has been established but curricula and training manuals require updating to reflect changes in construction techniques as well as instructional methodology; middle and upper management training programs will have to be expanded particularly in view of the urgent need to increase public sector efficiency and the expanding role of private sector contractors. The agencies involved in construction industry training, mainly the MOE, MOL and MYAE, have been assisted under the project. Coor- dination has been enhanced through the temporary Secretaries Committee. This organizational device must now be formalized to prevent duplicative programs and facilities, as well as to manage programs and policies which can stimu- late the role of the private sector. By December 1985, 24,000 persons had been trained under the project and it is expected that a total of about 30,000 persons would be trained by project completion. Tracer studies con- ducted in 1983, 1984 and 1985 showed that up to 85 percent of trainees have found employment in their area of training. The 1985 study also showed that the rate of employment (permanent, self or casual) and the wage earning capacity of CITP trainees were higher than for non-CITP trained workers. On average about 35 percent of CITP trained artisans (carpenters, plumbers, masons, electricians) found full-time permanent emploment while the others were either self-employed or operated as casual (daily) workers. The average  -13- daily wage of CITP trained artisans was about 44 percent higher than for unskilled/untrained workers (Rs 36 per day compared with Rs 15-25). CITP trained equipment operators and mechanics achieved almost 100 percent per- manent full-time employment with average monthly wages of Rs 1,500 which is about 10 percent above the average for other permanently employed skilled workers in the privare sector. Employed construction site supervisors (lower level managers) had an average monthly wage of Rs 1,368, and this compares favorably with supervisors at similar levels in the construction industry. The details of project achievements are outlined in Annex 7. II. THE PROJECT A. Goals and Objectives Goals 2.01 The principal goal of the proposed investment would be to improve the efficiency of the construction industry in Sri Lanka. Objectives 2.02 The main objectives of the proposed project wouLd be to (a) create an institutional framework to sustain training and industry development efforts started under Credit 1130-CE; (b) increase the supply of semi-skilled, skilled and managerial personnel to the industry; and Cc) improve the quality of manpower supplied to the sector. The institutional development objective would be achieved by (a) establishing and developing the Institute for Construction Industry Training and Development (ICTAD). The manpower supply objective would be achieved by (a) training about 50,000 new and upgrading about 26,000 existing Femi-skilled, skilled and managerial workers in the construction industry. The quality improvement objective would be achieved by (a) instituting an instructor training and upgrading program; (b) strengthening monitoring and evaluation of training and industry develop- ment; and (c) trade testing and certifying about 40,000 skilled workers and supervisors. 2.03 Another objective of the project would be to institute a cost recovery system in vocational training for the construction trades. The Government has acknowledged that beneficiaries should cover a larger part of the costs of training but indicated that because of Sri Lanka's education and training policies, and experience under Credit 1130-CE, covering these costs through the sale of trainee products and services and other revenue gener- ation actions, would be preferable to an exclusive reliance on fees. However, because of the inherent conflicts which can develop when training is fully subsumed to production and income generation activities, and given the existing public budgetary constraints, all options must be considered. A detailed study of the financial and economic costs and benefits of publically financed construction industry training, the impact on the government budget, and the proportions of costs to be shared by trainee, government and private sector, would be undertaken. Terms of reference for this study have been prepared and agreed to by GOSL and IDA (Annex 9). The study is also expected to provide guidance on the appropriate levels of stipends and who should receive them. During negotiations, the Government provided an assurance that  -14- it would carry out the study and review the findings with IDA by September 30, 1987. Since the project would continue to generate revenues (para 1.38), during negotiations the Government provided an assurance that by December 31, 1989, the full cost of stipends and trainee tool kits; and by December 31, 1994, about 50 of the cost of consumable training materials, would be financed from sources other than the general revenues of the Government. B. Institutional Development: Establishing the Institute for Construction Industry Training and Development (ICTAD) (Proposed Outlay US$ 2.54 million) 1/ 2.04 In 1981, the Government established the CITP as a crash program to meet shortages of manpower in the construction sector (para 1.35). One requirement of the Credit was the creation of a temporary Project Cell, with a full time Project Director (Section 3.06 tb] DCA). The Cell was created under the UDA in the MLGHC. In addition to its training functions, the Cell was also expected to "implement standardization of construction industry concract specifications, procedures and documentation" (Section 3.07 [b] DCA) (Annex 7, page 17). To accomplish this task, a National Steering Committee (para 1.37) was constituted and the detailed work carried out by five sub-committees organized around a) tender procedures, contractor grading systems, contracts and specifications; b) middle and upper management train- ing, quantity surveying and quality coitrol; c) developing a contractors' association; d) design economics; and e) strategic planning in the construc- tion sector. In August 1985, the Cabinet of Ministers approved for implemen- tation, the proposals and recommendations regarding tender procedures and technical specifications. 2.05 The reasons for establishing ICTAD are clear. In order to implement the recommendations approved by the Cabinet, to build on the momentum gained in developing rational training programs and sustaining the training effort, and most important, institutionalizing the experience gained under Credit 1130-CE, the temporary Project Cell would be transformed into the Institute for Construction Industry Training and Development (ICTAD) under the UDA. This involves an increase of 17 professional level project Cell staff and locating the Institute in a permanent purpose-built building instead of the rented premises which the CITP presently occupy (Annex 10). During nego- tiations the Government provided an assurance that it would appoint the additional staff at the appropriate levels according to a schedule agreed with IDA (Annex 11). A second reason for establishing ICTAD is related to the unique characteristics of the construction industry. 2/ These include the separation of design from production, the geographic scatter of produc- tion activities, the labor intensive nature of the industry, susceptibility to weather, fluctuating demand, and high risks. Further, because the 1/ This an subsequent statements of proposed outlays are baseline costs including taxes. 2/ Source: The Construction Industry - Issues and Strategies for Develop- ing Countries, World Bank, Washington, D.C., 19b4, and Construc- tion Management Training in Developing Countries, International Labor Organization, Geneva, 1983.  -15- industry contributes to and is involved in nearly all development programs, and because the government is a major client, it cuts across ministerial boundaries. 1/ Sri Lanka is no exception to these general observations. An increasing number of countries have become aware of the need to provide a focus for construction industry development for it to be both coherent and effective. Examples include the Construction Industry Development Board of Singapore, and the Construction Industry Development Unit (PUSBINLAT) of Indonesia. In Sri Lanka, this focus would be ICTAD. Consultative Committees would be formed to advise on the training and industry development activities to be pursued by ICTAD. The Committees would have equal public and private sector representation and include among others, the ACCSL (para 3.12). 2.06 A third reason for establishing ICTAD is that as a result of experience gained under Credit 1130-CE, it was clear that although training at all levels (skilled worker to the senior managers) is essential, training aLone cannot produce the desired improvements in the construction industry. The Government recognized that attention must be paid to the operational environment of the industry, particularly those factors which inhibit the growth of a healthy private sector. These problems require examination, analysi. and action. The inclusion of the ACCSL and other private sector representatives in the Consultative Committee and the prominent role they have played in developing training, skill standards and tests (Annex 7, paras 42, 43), reflects the position that private sectors views and representation are essential if environmental issues are to be addressed and policies reformed. The Government formally established ICTAD as a permanent institu- tion under the UDA on February 19, 1986. 2.07 ICTAD would have two major functions: training and industry develop- ment. Its organizational structure reflects these two major activities. The operating principle of the Training Division would be to assist existing institutions to deliver training, rather than itself providing training. The only exception would be where no other agency has the ca:ability (or poten- tial) to deliver training. The Division's role would largely be one of an active enabler through the designing, supervision and financing of appropriate training schemes. During the project, ICTAD's training activities would be centered at existing institutions (paras 2.12 and 2.15). The Division would work closely with the NAB on the further development of trade standards and tests and collaborate closely with the NTTTC when it is fully established, for the training of instructors. However, in the interim, it would develop a capability to monitor the quality of instructor training, identify gaps in the program, and assist in the development of courses, curricula, and appropriate instructional methodologies. During negotiations, the Government provided an assurance that ICTAD would transfer all instructor training to the NTTTC by June 30, 1990. 2.08 The Construction Industry Development Division of ICTAD would have three major functions: (a) technology development; (b) improvement of the operating environment of the construction industry; and (c) contractor development. Technology development would provide information on construction 1/ 44Z of the total cost of projects approved for assistance by IBRD in FY 1980-C2 went to construction activities  -16- methods, materials, and equipment which are available in other countries and are relevant to local conditions. The Institute of Architects and Institute of Engineers are expected to work closely with ICTAD on these topics. As the ACCSL develops, it could take over some of this activity and provide its members with a useful service. While the Association is at present not in a position to handle this activity, assistance provided under Credit 1130-CE will ultimately lead to a stronger and more capable organization. Another important element in technology transfer is the encouragement of the use of local materials. Major barriers to this evolution lie not so much in the devising appropriate technology, but in the lack of appropriate specifica- tions, standards and building regulations. The economics of substitution (local vs. foreign) would also require scrutiny and analysis, and the Divi- sion would perform this activity. 2.09 The improvement of the operating environment of the industry requires identification and analysis of specific problems and making recommendations for change. This would include the collection and interpretation of con- struction industry statistics including price indices, manpower demand/supply, contract awards, etc. The data obtained would be used as the basis for recommending changes in bidding procedures, contract conditions, pre-qualification requirements, and regulation of foreign contractors. Because government is the major client of the construction industry in Sri Lanka, its legal and regulatory requirements also directly affect performance. Even where the client is private, the need to conform to build- ing regulations, safety requirements and other regulations established by Government also have an impact. The development of private contractors depend in part on government action, but largely on actions by the contrac- tors themselves. For this to happen there must be an administratively and financially sound Association. Contractors must first be convinced of the need for training, especially in management; secondly, relevant training programs must be in place. Systems for financing training must also be designed. This type of development takes time and requires careful planning. It would be a function of the Industry Development Division to work closely with the ACCSL to determine a development strategy and to prepare a phased program for transfer of responsibility for these activities from ICTAD to ACCSL. This would be a gradual process and even when achieved, there will still be a residual role for ICTAD to play. During negotiations, the Govern- ment provided an assurance that by January 31, 1989, ICTAD would transfer to the ACCSL all work on the registration of contractors and the promotion of the private sector in the construction industry. To support the estab- lishment and development of ICTAD, the project would finance civil works, equipment, vehicles, books, expert services, fellowships and consumable materials and the salaries of additional staff on a declining scale. C. Skill Training (Proposed Outlay US$ 12.92 million) 2.10 The objective of this component is to increase the supply of skilled and semi-skilled workers for the construction industry through a) extending training to construction trades not covered by existing training programs; b) increasing the range of competencies of semi-skilled workers who have already been trained to the Grade III (semi-skilled) level; and c) certifying the quality of skill training by testing construction workers to National Skill Standards. During the project period, approximately 72,000 skilled and  -17- semi-skilled workers would be trained and/or upgraded in various trades, and of these about 40,000 would be trade-tested and certified (Annex 2, Table 2) 2.11 New entrants in craft trades would be trained to the basic Grade III level while existing workers would be upgraded to either Grade II or Grade I (skilled worker). The training program for new entrants would consist of 10 weeks of institutional training followed by 40 weeks of "on-site" practical training. The equipment operator program would consist of six weeks institu- tional training, followed by 200-240 hours of "on-site" training. For mechanics, the program is differentiated between light and heavy mechanics. In the case of heavy mechanics, the program includes six months of training at a center, followed by 12 weeks on-the-job training. For light equipment mechanics, the institutional phase of the program is reduced to five months. Upgrading programs would be of shorter duration and modular in design. Most of the program would be conducted during weekends. The upgrading of equip- ment mechanics would be achieved by using modules of a longer duration. 2.12 The institutional phase of all skill training programs would be conducted at existing institutions. This gives a large degree of flexibility to the training system because it enables courses to be scheduled in response to manpower demands. Some construction would be required to provide for the storage of training materials, upgrading of existing workshops, and staff and student housing (Annex 10). Craft training would be carried out at 21 Technical Colleges of the MOHE. Mechanic training would be conducted in the SEC and SDCC workshops, and at the regional workshops of the Department of Highwa-s situated in Angulana and Kandy. Equipment operator training would be undertaken at the HEOTC. 2.13 The "on-site" or practical part of the training program would con- tinue to be organized by the ICTAD with assistance from the District Training Officers (DTO) who are employees of the Building Department of MLGHC. Trainees are placed on building construction sites and supervised by the both DTO and NAB. Equipment operators and mechanics would be given supervised practical experience either at their place of employment or, for new entrants, on simulated and contracted work. Trade testing would be conducted at various Technical Colleges, the SEC workshop, HEOTC and a National Trade Testing Centre being constructed by the Government at Orugodawatte. Course curricula, instructional manuals, and other teaching aids for all skill training have been developed under Cr. 1130-CE, but require revision to meet the changing needs of the construction industry. In order to support this level of skill training, the project would finance civil works, furniture, equipment, vehicles, books, expert services, fellowships, and recurrent expenditures (consumable materials, operation and maintenance, tool kits, stipends and the salaries of additional staff) on a declining scale. During negotiations, the Government provided an assurance that it would appoint all additional staff on a schedule acceptable to IDA (para 2.05, Annex 11). D. Management Training (Proposed Outlay US$ 1.49 million) 2.14 The lack of supervisory and management skills in the construction industry has been identified as one area which is essential for the improve- ment in the efficiency of industry. During the project, about 5,700 new and  -18- existing managers and supervisors of all grades in the Ministries of High- ways, Kahaweli, Irrigation, and MOLGHC, and the private sector will be trained. A draft training plan is outlined in Annex 12. 2.15 Upper Management training programs would be organized by the CHPB and targeted to senior executives in the public and private sectors. The program would consist of two to five day seminars and workshops, as well as a specialized three-week course on Project Management. A total of 30 courses and seminars are planned during the project period and these will focus on topics such as construction engineering and technology, contract management, construction planning and control, as well as financial, materials and per- sonnel management. These areas were identified in a training needs assess- ment conducted in 1985. It is expected that the entire management program would be conducted by CHPB, although seminars, workshops and some courses would be located at either the CHPB or ICTAD. During negotiations, the Government provided an assurance that by January 1, 1990, all upper-level management courses would be financed by the trainees or their employers. 2.16 Middle Management training would be mainly upgrading the skills of existing staff in (a) specific areas of construction management, project Analysis, and contract supervision, as it relates to highways, housing build- ing and irrigation; and (b) general areas of financial and personnel manage- -ment. The program would range from short one-to-eight week courses conducted at CHPB, to a specialized degree in Quantity Surveying and Building Economics which would be carried out at the University of Moratuwa. The training of the management staff of the Highways Department (Authority) would also be a responsibility of the CHPB. Courses would be designed to reflect the changed status of the organization, and to enhance the skills of the management cadre to undertake the major investment program in highway development and main- tenance. 2.17 Lower Level Management (Supervisory) courses for new recruits would consist of an eight-week institutional course followed by an "cn-site" program of 50 weeks, including a final four-week institutional training period. Existing supervisors who are being upgraded would undergo training of from one to four weeks and this would be both on-the-job and institu- tional. Trainees would take a National Skill Standard test at the end of their training period. The training of new supervisors would be located at: CHPB; the Technical Colleges at Kandy, Jaffna, Amparai and Embilipitiya; the Ratmalana Technical and Research Institute and the HEOTC at Galkulama. The upgrading of existing supervisors also would be located at CHPB, as well as the Technical Colleges at Kurunegala, Moratuwa, Tanamalwilla, Galkulama and Ratmalana. While curricula, training materials and instructional staff have been developed under Cr. 1130-CE, the expanded scope of training and the new clientele to be trained require that the curriculum be revised, and the instructional capabilities of staff improved. In order to support the entire management/supervisory training effort the present range of skills, number of staff, and program design capabilities of CHPB would have to be expanded and upgraded to undertake this effort. The project would support a staff and curriculum development program for the CHPB as well as expert services, fellowships, equipment, books, and consumable materials and the salaries of additional staff on a declining scale. During negotiations, the Government provided an assurance that it would appoint all additional staff according to a schedule agreed with IDA (paras 2.05, 2.13).  -19- E. Instructor Training (Proposed Outlay US$ 0.82 million) 2.18 The objective of this component is to increase the number of qualified skill trades and management instructcrs in order to improve the quality of construction training. To undertake the proposed program of skill development and management improvement, approximately 235 existing instruc- tional staff would have to be upgraded and a further 265 new staff recruited and trained. 2.19 Skill Trade Instructors: Existing instructors for the basic con- struction trades (e.g., masonry, carpentry, electric wiring, plumbing, etc.) are employed by the MOHE and they require upgrading in both skill and instructional methodology. However, the mix of these components will vary from one skill trade to another and be based on pre-course analysis. Since the MOHE discontinued its own two-year certificate course in all basic con- struction trades to accommodate the CITP training program, instructor train- ing in these fields wouid be the responsibility of ICTAD until the NTTTC is fully operational. The courses would be of six weeks duration and undertaken initially at the Dehiwela (interim) Technical Teacher Training Centre of the MOHE, with the practical trade skill upgrading being carried out in the workshops of Technical Colleges. By June 1990, the NTTTC in Colombo would be completed and all MOHE instructors/teachers would be trained there. ICTAD would work closely with the NTTTC on the design and implementation of instructor courses for the construction trades. During negotiations, the Government provided an assurance that by June 30, 1990, it would transfer all skill-level instructor training to the NTTTC (para 2.07). 2.20 Equipment Operator and Mechanics Instructors: Training of these instructors would take place at the HEOTC, SEC and the NTTTC. The courses would be of variable length, depending on the nature of the skill to be taught. The courses would be of about three months duration for instructors and six months for demonstrators. The total number of trainee instructors under this program would be about 280, although most of them would be part-time instructors with teaching commitments of about 10 hours per week. In order to implement this program of instructor training for the skill trades of the construction industry, the project would support the provision of equipment, expert services, fellowships, vehicles, and consumable materials and the salaries of additional staff on a declining scale. 2.21 Instructors in Management Subjects: A staff development program would be carried out for CHPB to increase both individual instructJr as well as institutional capacity in conducting programs using appropriate teaching technology. The staff at technical colleges participating in the supervisory management training would also be upgraded. It is envisaged that training links with similar staff development programs overseas would be established. The Project would finance equipment, expert services, fellowships, and addi- tional staff salaries on a declining basis. F. Monitoring and Evaluation (Proposed Outlay US$ 0.73 million) 2.22 Under Credit 1130-CE, the Government was required to establish a monitoring and evaluation system (Annex 7, page 14). The monitoring of project inputs (financial and material) and outputs (trainees) has been up-to-date and timely, and the Quarterly Progress Reports submitted by the  -20- Government have been comprehensive in their coverage. Evaluation has however been less systematic and adjustments in project training targets have been accomplished only after special studies have been undertaken. The Government undertook two Training Needs Assessments (1983 and 1985) both of which were conducted by the National Institute of Business Administration (NIBM). The first study provided the basis for adjusting training targets under Credit 1130-CE while the second study provides the estimates for the Troposed project (para 1.10 and Annex 2). The project would provide resources so that these training needs assessments can be conducted every two years during the project. During negotiations, the Government provided an assurance that it would conduct four training needs assessments, complete them according to an agreed schedule (Annex 13), and review the findings with IDA prior to their implementation. The training needs assessment computer model which was developed by NIBM has been refined through its two applications to date. It has demonstrated areas where training of new entrants should be curtailed to prevent an oversupply, as well as skill categories where incubents require upgrading and retraining. 2.23 The second area of evaluation which requires assistance are Tracer Studies. Three tracer studies have been undertaken since 1981 (Annex 7, para 47). The first two studies simply looked at the "affiliation" rate of a sample of trainees and concluded that 73% and 75% remained with the construc- tion industry at least one year after completing training. A more detailed study was undertaken in 1985, and in addition to affiliation, looked at the employment (permanent, self or casual) and wage earning (monthly, daily) characteristics of a much wider sample of trainees from all trades. The general conclusions were that 85% of the sample remained with the industry and that their permanent employment and wages rates were higher than those of non CITP trainees. This study was undertaken by the Ministry of Plan Implementation (Department of Census). It is proposed that under the Credit, support would be provided to the Department to expand the scope of the study to include more detailed demographic and social data; migration (internal and external), and household income and expenditure information. Four studies would be conducted during the course of the project. During negotiations, the Government provided an assurance that it would conduct four tracer studies, complete them according to an agreed schedule (Annex 13), and revieu the findings with IDA. The project would finance equipment, vehicles and technical assistance to support monitoring and evaluation. Because many project activities (training targets, tracer and financing studies, revenue generation, transfer of instructor training to NTTTC, devolution of activities to ACCSL) are scheduled to be reviewed within three years of project start-up, during negotiations, the Government provided an assurance that a mid-term review would be undertaken in January 1991. This mid-term evaluation would take stock of achievements to date and make adjustments which are necessary in light of experience during the first years of implementation. G. Technical Assistance Summary (Proposed Outlay US$ 2.78 million) 2.24 The technical assistance to be pruvided under the project would comprise 11 staff years of expatriate expert services and 96 staff years of local expert services which would include mostly contracted local consultants to the CHPB for the management training program. This approach would limit the number of full-time additional staff required, and has worked well under Credit 1130-CE. Technical assistance would also includes 19.6 staff years of  -21- international and regional fellowships and 121.5 staff years of Local train- ing. The assistance would be allocated as outlined in Annex 14. 2.25 UNDP would finance the technical assistance requirements for the skill and instructor training components, and it would be implemented by the International Labor Office (ILO). IDA would finance the technical assistance for the institutional development and management training components. Agree- ment in principle on co-financing between GOSL and UNDP has beer .eached. The signing of a technical assistance agreement between GOSL and UNDP/ILO, as well as a contract with consultants for the IDA financed technical assis- tance, are conditions of credit effectiveness. III. PROJECT COST, FINANCING, IMPLEMENTATiON AND DISBURSEMENTS A. Project Costs 3.01 Cost Summary. The total cost of the project, including duties and taxes on imported goods, is estimated at Rs. 711.05 million or US$ 24.48 million equivalent. Detailed project costs by component, categories of expenditure and time are given in Annex 15. Breakdown of local and foreign costs by component and categories of expenditure are summarized in Tables 3.1 and 3.2. Table 3.1 : Project Cost by Component I/ I Rupee (Million) | US$ (Million) 1% of I Z I I Component I I I I I IBase IForeign I I I LocallForeigni Total ILocaliForeigni TotallCostslExchangel lInstitutional I I I I I I I I I I Development(ICTAD)l 31.111 38.511 69.621 1.141 1.40 1 2.541 14% | 55% | ISkill Training 1232.971 121.171 354.141 8.501 4.42 | 12.921 702 I 34Z I IManagement Trainingl 26.281 14.681 40.961 0.961 0.53 | 1.491 8% | 36% | lInstructor Trainingl 8.381 13.781 22.161 0.311 0.51 | 0.821 4% I 62% | IMonitoring and I I I I I I I I I I Evaluation 1 4.571 14.431 20.001 0.171 0.56 1 0.731 4% i 77% I I Base Costs 1303.311 203.571 506.88111.081 7.42 1l8.851100% 1 40% 1 I Contingencies I I I I I I I I I I Physical I 17.331 11.341 28.631 0.631 0.41 I 1.041 6% I 39% | 1 Price I 97.271 78.271 175.541 2.671 2.27 1 4.941 27% I 46% Z I Subtotal 1114.601 89.571 204.171 3.301 2.68 1 5.981 33X | 43% X ITOTAL PROJECT COSTS1417.911 293.14! 711.05114.381 10.10 1_24.481133% 1 41% I I/ Includes taxes and duties. NOTE: Subtotals may not add to totals due to rounding.  -22- 3.02 The estimated costs by categories of expenditure are summarized in Table 3.02. Table 3.2 : Project Costs by Category of Expenditure 1/ I I Rupee (Million) 1 US$ (Million) 1Z ofl Z I I Category I 1 l -1 |BaseiForeign I ! of Expenditure I LocallForeigni Totall LocallForeigni TotallCostlErchangel Civil Works I I I I I I I I I & Prof. Fees 1 28.751 19.511 48.261 1.051 0.71 | 1.791 9ZI 41% | Furniture I 1.991 1.641 3.631 0.071 0.06 | 0.131 iZ1 45% X 1 Equipment I 8.061 54.401 64.461 0.291 2.06 1 2.351 13ZI 88% X 1 Vehicles | 2.851 5.061 7.911 0.101 0.18 1 0.281 2Z1 64% Z 1 Books I 1.381 4.201 5.581 0.051 0.15 1 0.201 2Z1 75% I I Expert Services I 19.811 30.271 50.081 0.731 1.10 1 1.831 9ZI 80% I 1 Fellowships 1 10.521 15.821 26.341 0.381 0.58 | 0.961 5XI 80% Z I Salaries of I I I I I I I I 1 I Additional Staff 1 61.751 - j 61.751 2.251 - 1 2.251 12ZI - I Cons-mable I I I I I I I I l I Materials | 87.141 58.631145.771 3.181 2.14 1 5.321 29%I 40% 1 I Stipends 1 52.761 - 1 52.761 1.921 - 1 1.921 lOZI - I I Tool Kits I 15.781 10.621 26.401 0.571 0.39 1 0.961 5Z1 40% | 1 Operation and I I I I I I I I I I Maintenance 1 12.501 1.401 13.901 0.451 0.05 1 0.501 3%1 102 I I Base costs 1303.311 203.571506.881 11.081 7.42 118.501100%l 40% I I Contingencies I I I I I I I I I I Physical 1 17.331 11.301 28.631 0.631 0.41 1 1.041 6ZI 39% I I Price | 97.271 78.271175.541 2.671 2.27 1 4.941 27XI 46% | I Subtotal 1114.601 89.571204.171 3.301 2.68 1 5.981 33ZI 43% I ITOTAL PROJECT COSTS1417.911 293.141711.051 14.381 10.10 1 24.481133%1 41% Z 1l Includes taxes and duties where applicable. NOTE: Subtotals may not add to totals due to rounding. 3.03 Basis of Cost Estimates. Estimated costs for civil works are based on: (a) schedules of accommodations and final drawings for new construction of ICTAD headquarters building: (b) final plans for staff housing, student hostels and workshops; and (c) the country's current unit costs of similar types of construction at appraisal in August 1985. The estimated cost per square foot of gross construction area, averages US$ 14.1 equivalent and is reasonable for the standard of construction when compared with comparable Bank-assisted projects in other countries of the region. Costs for profes- sional services reflect scales used for supervision, the actual costs for topographical surveys, soil tests and analysis for sites uwder the project. Furniture and equipment costs are estimated on the basis of established master lists reviewed during appraisal and updated in December 1985. Vehicles, tool kits and consumable material costs reflect current prices at the time of appraisal and updated in December 1985. Estimated costs for additional staff salaries are based on government pay scales and standard allowances for social and other benefits. 3.04 Custom Duties and Taxes. All imported goods are subject to custom duties and taxes. The cost of the project includes import duties and taxes estimated at US$ 0.85 million.  -23- 3.05 Contingencies Allowances. Estimated project costs include physical contingencies (US$ 1.04 million) estimated at 6X of base costs of all project components (10% of base costs for professional services, civil works, furni- ture and operation and maintenance and 5% for equipment, vehicles, tool kits, books, consumable macerials, salaries, stipends and technical assistance) and price contingencies (US$ 4.94 million) to cover expected price escalation at the following rates. For civil works and goods; foreign costs at 7.5Z in 1986 and 1987, 7.7% in 1988, 7.6% in 1989 and 4.5Z in 1990-1994; and local costs at 12% in 1986, 9X in 1987, 8Z in 1988, 7.6% in 1989, and 4.5% from 1990-1994. The foreign costs of salaries and services are calculated at 7.5Z in 1986 and 1987, 7.7% in 1988, 7.6% in 1989, and 4.5% from 1990-1994, and local costs at i.0% from 1986-1994. 3.06 Foreign Exchange Component. The estimated foreign exchange component of US$ 10.11 million, representing 41% of estimated total project costs, has been calculated on the basis of estimated foreign exchange proportions as follows: (a) civil works 41%; (b) professional services 20%; (c) furniture 45%; (d) equipment 90%; (e) vehicles 65%; (f) books 75Z; (g) consumable materials 80%; (h) international and regional fellowships 100%; (i) foreign experts 80%; and (j) operation and maintenance 10%. B. Financial Plan 3.07 The total project cost of US$ 24.48 million equivalent would be financed as follows: (a) a proposed IDA credit of US$ 15.00 million equiv- alent would cover 63% of total project cost net of taxes; (b) UNDP would finance US$ 1.02 million equivalent; and (c) the Government would finance the remaining net costs of US$ 7.61 million (32% of total net costs) and all taxes. Total external financing would cover 68% of total project costs net of taxes. The proposed financing plan by categories of expenditure is out- lined in Table 3.3. The Financing Plan by project component is shown in Annex 16. Table 3.3: Financing Plan (US$ Million) | Category of I COSL I I I I Expenditure I Taxesi Total I IDA I UNDP I TOTALI NET I | Civil Works & Prof. fees | 0.07 | 0.23 | 2.07 | - | 2.30 | 2.23 I | Furniture | 0.04 | 0.04 | 0.13 | - | 0.17 | 0.13 | | Equipment | 0.37 | 0.37 | 2.60 | - I 2.97 | 2.60 | | Vehicles |0.13 0.13 0.23| - o 0.36 0.23| | Books I - I - I 0.28| - | 0.28 0.28| I Expert Services I - I - I 1.50 | 0.70 | 2.20 | 2.20 | I Fellowships I _ I - I 0.86 | 0.32 I 1.18 | 1.18 | |Salaries - _ 1.09 11.421 - 2.51 12.511 | Tool Kits | 0.08 | 0.63 | 0.83 1 - | 1.46 | 1.38 | |Stipends - 1 2.141 - - 2.14 1 2.141 | Consumable Materials I 0.08 I 3.47 | 4.60 | - | 8.07 | 7.99 I I Operation & Maintenance 1 0.08 1 0.36 I 0.48 - I 0.84 1 0.76 1 TOTAL | 0.85 | 8.45 | 15.00 | 1.021 24.481 23.63 1  -24- C. Recurrent Expenditures 3.08 When fully operational in 1995, the project would generate about Rs.63.58 million (US$2.18 million) annually in recurrent costs. The dis- tribution of these would be as follows: salaries for additional staff Rs. 9.45 million (or 14.8Z), consumable training materials Rs.35.09 million (or 55.01), trainee stipends Rs.8.15 million (or 12.8%), trainee tool kits Rs.6.25 million (or 9.8Z), and operation and maintenance Rs.4.63 million (or 7.3%). Annex 5, Table 2 shows the distribution of these costs at 1995 prices. When the project is completed in 1995, the annual recurrent expendi- tures would represent less than one per cent (0.43Z) of projected recurrent expenditures on education and training, but about 13.2% of projected recur- rent expenditures on technical/vocational training in 1995. Since the project would generate additional revenues and these would be used to defray a part of recurrent operational costs, the impact on the recurrent cost budget would decreases. The net annual recurrent expenditures of the project are estimated to be about 0.372 of projected recurrent expenditure on educa- tion and training and about 11.2% of projected recurrent expenditure on technical/vocational training (Annex 5, Table 3). The grou,h and level of these expenditures are not inconsistent with levels prevailing in other countries at a similar stage of development. 3.09 Special Account (Revolving Fund). To ensure that project activities are started promptly, the Government would open a Special Account in US dollars in a commercial bank with an initial deposit of US$ 0.7 million representing the estimated average amount of four months expenditure on IDA financed items. The opening of the Special Account would be made in accord- ance with Section 2.02(b) of the Development Credit Agreement. 3.10 Retroactive Financing. The design prevaration costs for the ICTAD headquarters building was financed under Credit 1130-CE. Construction and bid documents have been completed and contractors prequalified. The estimated expenditure for the civil works to be incurred during the period prior to credit signing is US$ 0.25 million. The Government requested and IDA agreed to retroactively finance these costs. D. Status of Project Preparation 3.11 (a) Civil Works. The final design sketches for the stores, staff housing and boarding facilities, and final drawings for workshops to be built under the skill training component of the project were reviewed during appraisal and found satisfactory. Design development, working drawings, construction details and all related tender documents have been completed. The preliminary design for the workshop at the Peliyagoda Technical Training Center was reviewed and found unsatisfactory. A new design has been prepared, found acceptable, and the final drawings, structural and construc- tion details completed. The designs for ICTAD headquarters were reviewed during appraisal and changes suggested by the mission have been incorporated in the final design. Tender documents have been finalized and reviewed by IDA. Contractors have been prequalified, tendering completed and the con- tract awarded in April 1986. (b) Sites. All sites required for construction have been acquired. (c) Furniture, Equipment and Books. Preliminary lists and cost estimates for furniture, equipment and books were reviewed by the appraisal mission and found satisfactory. Final lists with technical  -25- specifications and bid documents have been completed. Equipment layout plans for all workshops (showing electrical outlets and connections) and the ICGAD conference room and auditorium were completed in November 1985. (d) Techni- cal Assistance. Draft terms of reference for consultants and studies have been discussed and agreed with the Government. (e) Training ProRrams. Detailed training programs have been designed for all categories of skill (craft, mechanic, operator), management and instructor training. E. Implementation 3.12 The implementation period for the project is estimated at nine years (Annex 17) and is in accordance with the standard profile for education and training projects, as well as projects in Sri Lanka. Execution of the project would be the responsibility of the MOLGHC through ICTAD. The Secretary of HOLGHC who is also the Chairman of the UDA, would be the Chief Financial Otficer of ICTAD. He would be the Chairman of the Secretaries Committee which would include the Secretaries of all the Ministries involved with the project, and include Higher Education, Youth Affairs and Employment, Plan Implementation, Labor, Mahaweli Development, and Lands and Land Develop- ment. rTe Secretaries Commitee would be responsible for (a) policy formula- tion; (b) approval of training and development programs; (c) reviewing and evaluating performance; (d) approving personnel and staffing policies includ- ing terms and conditions of employment of ICTAD employees; and Ce) formulat- ing administrative and operating procedures for the Institute. In addition to the Secretaries Committee, ICTAD would also constitute two Consultative Committees to advise on the broad functions of the institution. The Consult- ative Committee for Training would be responsible for advising ICTAD on issues of training, trade testing standardization, and curriculum develop- ment. The Consultative Committee for the Construction Industry would provide advice on issues relating to specifications, technology, small-scale con- tracting, etc. The Committees would each have about twelve members drawn equally trom the public and prLvate sectors. 3.13 The Chief Executive of ICTAD would be the Director General and three Divisions would be established under his direction. The Training Division would be responsible for (a) skill, supervisory, management, equipment operator, and mechanic training; and (b) on-site training and trade testing. The Construction Industry Development Division would focus on technology transfer and local materials development, manpower and construction industry statistical analysis, policy analysis, small contractor development, and the examination of industry rules, regulations and organization (paras 2.08, 2.09). There will also be a Resource Management (Administration and Finance) Division which would concentrate on administration, budget, and accounting functions of the Institute. Supervision of civil works implementation and the procurement of equipment, vehicles and training materials would also be the responsibility of this Division. F. Accounting and Auditing 3.14 ICTAD would prepare and maintain project accounts in accordance with sound accounting practices. Project accounts would be prepared and withdrawal applications would be supported by full documentation except expenditures on salaries and other recurrent expenditures and small civil  -26- works contracts for less than US$ 20,000 equivalent, which would be reim- bursed against statements of expenditures certified by the Director General. During negotiations, the Government provided assurances that: (a) accounts and financial statements for each fiscal year would be prepared and audited by independent auditors acceptable to IDA; (b) statements of expenditure would be maintained in accordance with sound accounting practices, be main- tained at least one year after the completion of the audit for the fiscal year in which the last withdrawal was made, and be included in the annual audit; and (c) certified copies of the audited accounts and financial state- ments for each fiscal year, together with the Auditors report would be fur- nished to IDA as soon as available, but not later than nine months after the end of each fiscal year. Audited accounts and the Auditor General's Report for FY81-83 of Credit 1130-CE have been received by IDA and found satisfac- tory. G. Procurement 3.15 Procurement arrangements are summarized in Table 3.4. Contracts for construction of stores, workshops, staff and student housing, and ICTAD headquarters building would be avarded on the basis of -CB procedures. Because the centers are dispersed around the island, it is anticipated that 14 contracts would be avarded for the civil works program (US$ 2.30 million) to local contractors. Equipment and vehicles contracts (US$ 3.33 million, inclusive of taxes) would be awarded in accordance with ICB procedures. Local manufactuers would be given a 15% margin of preference. Equipment and vehicles would be grouped to the extent possible in large packages for bulk procurement. Books financed by IDA (USS 0.28 million) would be purchased directly from distributors. Recurrent expenses (US$ 15.02 million) include (USS 9.52 million) for consunable training materials and trainee tool kits, would be procured through prudent shopping on the basis of three price quota- tions from different sources. Technical. assistance (expert services and fellowships) financed by UNDP (US$ 1.02 million) would be in accordance with their guidelines. All civil works contracts over USS 250,000 equivalent each, corresponding to about 75Z of value of works, would be subject to prior IDA review. All equipment and vehicles contracts over US$ 100,000 equivalent each, corresponding to about 7.5% of value of goods would be subject to prior IDA review. Other contracts would be subject to selective post-award review.  -27- Table 3.4 : Procurement Method I Category of I I USS (million) I I Total I Expenditure I ICB I LCB I Other I lA I Cost 1/ 1 I Civil Works & I I 2.30 1 1 1 2.30 1 I Prof. Fees L_ 1 (2.07) 1 I_ I I Furniture I 1 0.17 1 1 1 0.17 1 I I I (0.13) _ I _ I IEquipment 1 2.97 1 1 1 1 2.97 1 I 1(2.60) 1 _ I _ I I Vehicles I 0.36 11 1 0.36 1 I 1(0.23) _ I _ - I IBooks I I I 0.28 1 1 0.28 I I___________________ I L________ I 1 (0.28) I I I Technical Asst.1 2.36 1 1 1.02 1 I 3.38 1 I 1 (2.36) 1 I I I Consumable I I I 1 9.52 1 9.52 1 I Materials& I I I I (5.43)I I Took Kits I I I I I I I Incremental I I I I 5.50 1 5.50 1 I Recurrent I I I I (1.90) I I I Euienses I l j l I I I TOTAL 1 5.69 1 2.47 1 1.30 15.02 I24.48 I IDA I 5.19 1 2.20 1 0.28 1 7.33 1 15.00 1 I VUND I - I - I 1.021 - I1.02 1 I G;OSL _ 0.50 1 0.27 1 - I7.691 8.46 1 iJ Includes contingencies and duties and taxes where applicable. NOTE: Figures in brackets are the respective amounts financed by IDA. B. Disbursements 3.16 The proposed Credit would be disbursed over a period of nine years vbich conforms to the disbursement profile for IDA-assisted projects in Sri Lanka. A forecast of disbursements based on nine years is shown in Annex 18. The Credit would cover 63Z of total project costs net of taxes and would finance 10OZ of expenditures for technical assistance; 90% of civil works and professional fees; 100% of foreign expenditures for directly imported equip- ment, furniture, books and vehicles; 100I of ex-factory costs of locally manutactured goods and 80% if procured locally. Disbursements would be fully documented except for payments under contracts for civil works and locally procured items costing less than equivalent $20,000 each, which would be reimbursed on statements of expenditures (SOEs), and for salaries, consumable materials, tool kits and operation and maintenance costs, which would be disbursed on SOEs on a declining basis for an average of 57Z througout the project period (FY87188/89 at 80Z, FY90 at 70, FY91 at 60%, FY92 at 50% FY93 at 40% and FY94 at 20%). The SOEs would be certified by the Director General. The documentation would be retained by ICTAD and made available to IDA representatives for review upon request. It is expected that disbur- sements will be completed by June 30, 1985 six months after project comple- tion date of December 31, 1994. A Special Account of US$0.70 million is proposed for the project (para 3.09). Retroactive financing for civil works payments made after September 1, 1985, would be eligible for reimbursement up to the aggregate amount of $0.25 million equivalent, (para 3.10).  -28- IV. BENEFITS AND RISKS Benefits 4.01 Over 85Z of all project trainees would be either new entrants or existiug workers at the basic skill levels in the construction industry, and would come from lower income households. Because of the employment and income benefits which will accrue to these trainees (para 1.39), the project will have an impact on poverty alleviation. The project will also increase the capacity of the Sri Lanka construction industry so that it would be more productive, efficient, and capable of meeting targets in the investment program in both the public and private sector. Other benefits which will accrue from the project include: (a) the addition of skilled construction workers to the industry; (b) increasing the labor productivity and efficiency of the existing construction personnel by up-grading their skills; (c) improving the income levels of unemployed youths by providing necessary skills so they could obtain gainful employment in the industry; and (d) increasing returns on invested capital from better and more efficient use of equipment. The project would also have institutional benefits. The effec- tiveness and productivity of the existing training facilities would be increased, and the standards of the construction industry improved by intro- ducing more appropriate specifications. Finally, the reduction of construc- tion costs by improving the efficiency and the productivity of the industry would be a major benefit of the project. Risks 4.02 There are a number of risks associated with this project. One con- cerns changes in the demand for training arising out of lower levels of construction activities or changes in the composition of skills that may be required. The project is flexibly designed to meet the requirements for skill training as diagnosed by the training needs assessments to be under- taken during the project. A reduction of the demand for training in total or for any skill in particular, may at most lead to some underutilization of project funds. As the project would utilize existing facilities and contract additional instructors only when specific courses are identified, no implica- tions for underutilization of staff and/or facilities exist. If a larger than expected number of emigrants return from the Middle East, the supply of certain skills will be affected, and some of the envisaged training may not be required. Equally, though, some retraining of returnees may also be required. The concern about the recruitment and retention in service of qualified instructors is likely to be overcome by the steps undertaken during the project. These include, a systematic training program (local and foreign fellowships), training allowances and overtime pay. While there is agreement that ICTAD should not be a regulatory agency, nor attempt to preempt activities which should normallv be undertaken by the private sector, there is the risk that a government agency/institution would gradually attempt to play just such a role. The representation of the private sector on the Consultative Committees, the Administrative Order (Cabinet Memorandum) which established ICTAD, and the program to assist the ACCSL to undertake more activities should overcome this risk.  -29- V. AGREEMENTS REACHED 5.01 During negotiations, the Government provided assurances that it would: (a) carry out a study on the financing of construction industry training and review the findings with IDA by September 30, 1987 (para 2.03); (b) fully cover from sources other than general budget revenues, all trainee stipend and tool kits costs by December 31, 1989, and by December 31, 1994, about 50Z of consumable training materials costs (para 2.03); (c) appoint all additional staff at the appropriate levels and according to a schedule agreed with IDA (paras 2.05, 2.13, 2.17); (d) by June 30, 1990, transfer all instructor training to the NTTTC (paras 2.07, 2.19); (e) by January 31, 1989, would transfer from ICTAD to the ACCSL, all work on the registration of contractors and the promotion of the private sector in the construction industry (para 2.09); (f) by January 1, 1990, all upper-level management training courses would be financed by the trainees or their employers (para 2.15): (g) undertake four training needs assessments during the project period, complete them according to an agreed schedule, and review the find- ings with IDA (para 2.22); (h) conduct four tracer studies during the project, complete them accord- ing to an agreed schedule, and review the findings with IDA (para 2.23); (i) undertake in January 1991, a mid-term evaluation with IDA to review achievements and make adjustments based on implementation experience (para 2.23); (j) prepare accounts and financial statements for each fiscal year and have them audited by independent auditors acceptable to IDA (para 3.14); (k) statements of expenditure would be maintained according to sound accounting practices, be retained for at least one year after the completion of the sudit for the fiscal year in which the last withdrawal was made, and be included in the annual audit (para 3.14); (1) furnish to IDA as soon as available, but not later than nine months after the end of each fiscal year, audited accounts and financial statements for each fiscal year together with the auditors report (para 3.14).  -30- 5.02 The signing of a technical assistance agreement between GOSL and UNDP/ILO, as well as a contract with consultants for the IDA financed techni- cal assistance, would be conditions of credit effectiveness. 5.03 Subject to the above conditions, the proposed project constitutes a suitable basis for a credit of US$ 15.0 million to the Government of Sri Lanka for a term of 50 years.  -31- A,. 332 tANKA 335A330 90CftR AL TRAISTC P11150?ec COIPAR? lYE RI=ICAT I INDIICATIOES Apr11 2. 1986 I O~~~~~OVEUPIOT GOP PIR aq PniCerr zxpnAmittss LIrYRRCY PmIMIARY PONARY PRIMARY PRIMARtY RATE POMP REOUIART RECVIDAAYT5 RICIER YEAR1 IL2R. CMS) BESTED TO GOVRNNW(T PBI NBC 531 (2) KaI CoYCLE PER AS PERCENIT RRF35DANT RATIn ProE mlDrt 12979) (2197) EOWIICU EXPWOUrrKRE C?) to2974) C?) 1!) PraOERt CUPIcApITr (2) II) PFACER 121 (33 (23 (3) (4AS3 () ( 8 9 10 I) (i I) (6 CANJALZA la 37 ~I0 71 I.' 1,~~a 9 3l4ti Ion 21 9994 3 9' 23 27.408 CO.ROTN P.R. 19 01.2 11.200 4,9 9.9 - 99 899 3031 -. -. 1nn3 91 -- 12.14W 3EaIIRLAIIDS 19 14.0 30,490 7.9 5.3 20 35 25 9907 94 Qs in 3 1.1 99 8 It 32.40 NEW ZEAL.ANOl 8 3.20 .333)0 % 39 13.4 37 32 23 "q0 Inm iN 24 11.4 amn 3? IS 29,1908' suem 7~~9 8.1 32,2 SD 9.0 353.2 13 in in 99h @9' a Inn 9. i00Mg I i 7w 0"p 346.q21 EAMAEN AFRICA 65IsUUA 33 Ia OVA0 4.0 22.0 42 34 22 40 amo 77 32 30.0 40 20 21 3.530 338860 of 4.2 215 2jq03 39.0 43 29 27 Zs 29' 13 17 20.2 12 1. 17 1.14) 0c6032