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Review of Constrction Industry

Development Act in Sri Lanka and Its
Significance To QS Profession | Society of
Sri Lankan Quantity Surveyors (SLQS)

Lalith Ratnayake
B.Ss (Hons) QS, M.Sc (Proj. Mgt.), FIQS(SL)

(PUBLISHED IN ASSOCIATION WITH SLQS-QATAR ANNUAL GET TOGETHER

2014)

It is a cognitive belief that the vibrant construction industry is an indicator of

positive economic development of a country. This is evident from the 8.7%
contribution of Sri Lanka’s construction industry to GDP with a growth rate of
over 14% as stated in the Central Bank Annual Report 2013. It is resplendent to
note that Sri Lanka’s construction industry contributed dramatically from Rs. 366
billion in 2009 to more than Rs. 894 billion in 2013 (in current prices) to the GDP
while the Gross Domestic Capital Formation climbed from about Rs. 802 billion
to Rs. 1631 billion from 2009 to 2013 as per the Central Bank Annual Report 2013.

Partners of the industry attempted many a times to formulate such legislation and
my own records include a draft document circulated for formulating Construction
Industry Authority in 2003. The process of making legislation may have
commenced even before. This long outstanding need to enact legislation for the
construction industry development is now fulfilled with the Construction Industry
Development Act. The question as to whether this Act will reasonably serve the
intended purposes and address all fundamental needs should be answered
following a careful study of the Act and how it has been evolving over the period.

Before answering this question, it would be necessary to perceive that the

management of construction projects is an enterprise that involves many people
with diverse interests, talents and backgrounds. Throughout the project life cycle,
from the time the owner first contemplates launching a construction project to
that celebrated time, many months or years later, when the completed project is
ready for use, the tasks carried out by the various parties vary in type and intensity
(Bennett, 2003, p.l). Due to tins unique nature of construction projects,
construction process is considered as the most complex undertaking in any
industry (Bennett, 1991). The uniqueness and complexity of having numerous
parties and tile need to address each sub sector in formulating tins Act have been
the reasons to take this enactment almost two decades.

Construction Industry Development Act (CIDASL) has been brought into

operation in September 2014. The published CIDASL is cited as the Construction
Industry Development Act of 2014 and comprises of twelve sections as shown in
Figure 1.1. The purported purpose of CIDASL is to assure a sustainable progress in
the development of the construction industry with tile proper policies and
establishing an authorised institute to drive and regulate the industry. The
CIDASL promulgate mainly on regulating, registering, formalizing and
standardizing tile activities of the construction industry, which are described in

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more detail below:

Part 1. National Policy on Construction and its Implementation

The foremost requirement of CIDASL is the formulation of a nationl policy on

construction which wll create a more vibrant, conducive and efficient environment
for a sustainable local industry that meets the demand for its services to support
economic and social growth objectives. The authority on formulating the national
policy is vested in National Advisory Council, which consists of professionals in
the construction industry, including the President of Institute of Quantity
Surveyors, Sri Lanka. (IQSSL). This policy will be subject to change to incorporate
the future developments of the construction industry.

Part 2. National Advisory Council on Construction

The National Advisory Council (NAC) on Construction is mainly consists of twenty

two (22) members inclusive of ex-officio members and appointed members.

The Council is a compilation of the construction related ministries and

professional bodies, including President of Institute of Quantity Surveyors Sri
Lanka. Thus, involving IQSSL in NAC on Construction facilitates the mission to
protect and promote the interests, status, welfare, rights and privileges of the
profession while safeguarding the public interests. The main objectives of the NAC
are directed towards formulating national policy on the construction industry and
in achieving sustainable development of the construction industry. Inclusion of
IQSSL as one of the key professional institutes has been a result of untiring
volunteer services rendered by founders, subsequent Executive Councils and the
members.

Part 3. Construction Industry Development Authority

The CIDA (ICTAD to be transformed into CIDA), established to provide for the
promotion and implementation of the national policy, consists of twenty members
(20) including a member of IQSSL. In reflection to the Authority objectives, it is
quite apparent that the objectives are mainly focused on national policy
implementation, construction industry stakeholder management and research,
dissemination and publication. For better achievement of the objectives, the
functions of the Authority are established in a structured manner. These
comprehensive functions of the Authority intend to attend to the prevailing key
issues and other aspects of the construction industry.

Part 4. Construction Industry Development Fund and Fund Authority

Another major sector, which has been drawing attention to through this Act is
Small and Medium Enterprises

(SME), especially SME sector contractors and self-employed registered craftsmen.

In Sri Lanka, SME play a key role in the revival of development in the construction
industry. The main problem for SME is commonly identified as the existing
financial barriers in terms of cash flow, financial regulations in procurement and
banking sector. The regulations are apparently same whether the enterprise is big
or small in many aspects. In fact, it is more stringent on SME’s when dealing with

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financial institutions for obtaining bonds, loans and the like.

Part 5. Qualified Persons

Professionals have been very concerned on the registration of Qualified Persons

by the Authority, as the respective professional institutions have the mandate to
enroll qualified members to appropriate practice fields. Thus, many suggestions
and amendments brought to the Act by them in this regard and the Minister of
Construction Engineering Services, Housing and Common Amenities, Honourable
Minister, who managed this unprecedentedly delayed task of forming legislation,
agreed to most of the suggested amendments even at the last moment. However,
this Act enables the registration of qualified persons who are not members of any
professional body through a recommendation by the Credential Committee in
CIDA. Thus the Act facilitates the technically qualified personnel to be registered
under the Authority as qualified persons who are recommended by the Credential
Committees. The majority of this committee shall consist of nominated members
of professional institutions as finally amended, following representations from
IQSSL and other professional institutions. The register of qualified persons is to
be maintained for the disciplines such as Quantity Surveying, Engineering,
Architecture, Environmental and Public Health Engineering and the like. Hence,
it is yet to see whether a non-member of any professional institution could be
recognized as a qualified person and how such person would be bound by the
ethics and practice standards in terms of public safety and liability.

Part 6. Registration of Contractors and Property Developers

Register of contractors is to be developed and maintained by the Authority under

the Act. Under this, the qualified contractors are to be registered and registration
number and certificate of registration are to be issued. In a situation where
foreign contractors are to be engaged, they should obtain a temporary registration
as a contractor. It should be noted that for execution of identifying construction
work, it is mandatory to involve not only “Qualified Persons” who are registered
under the Authority, but also registered contractors or temporary registered
foreign contractors. In contrast, a foreign contractor who has entered into an
agreement with the GOSL to engage in any identified construction work is not
subject to above proceedings. Functions of the authority will include maintaining
registers of property developers, directory of importers, manufacturers and
suppliers of construction materials and components and directory of heavy
construction machinery and equipment. When needed, the CIDA has the
authority to conduct technical auditing for any construction work exceeding Rs. 10
million, which are identified as construction work. In this auditing process,
auditing is conducted throughout construction to completion of the works,
including examination of contract documentation and compliance to CIDASL.

Part 8. Standard Document and Human Resource Development

The standardization of the documents used by the qualified persons in the

construction industry is aimed through this section of the Act. Furthermore, it is
intended to develop the skills of the qualified construction personnel to meet the
future demands and for career development while encouraging emerging trades
and careers. Moreover, registered skilled persons are to be issued with an identity
card to emphasize their recognition and with the approval of cabinet ministers,

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long term insurance policy and pension scheme may be arranged for them. In
addition, a register of skilled construction workers, construction site supervisors
and middle level technical officers is to be maintained by CIDA.

Part 9. Settlement of Disputes

In a situation where a construction contract does not provide for any dispute
resolution mechanism, in the event of a dispute, the CIDA follows the dispute
resolution process as shown in Figure 1.2. The CIDA shall maintain a register of
competent adjudicators relating to construction contracts. The procedure and
rules of adjudication may be determined by the CIDA.

Part 10. Appeals Board

The Appeals Board CAB) was established under CIDASL to resolve appeals made
by aggrieved parties by a decision of the CIDA. The AB has the authority to hear
and make determinations of the appeals made. If a party does not satisfy with the
decision of AB, the party has the right to appeal against such decision to the Court
of Appeal within thirty days from the date of decision of AB

Part 11. Collection, Processing and Distribution of Information in the

Construction Industry

The CIDA has the responsibility to maintain an updated national database on

construction and publish the annual report on the construction industry in the
country. The database mainly will consist information on financial facilities
granted to construction industry from banks, National Housing Development
Authority and other government and voluntary organizations, values of imports
and exports of construction material, statistics related to river and sea sand
supplied to the market by license holders for sand mining, construction works
completed, training programs related to construction industry and granted
permits and license for construction works.

Part 12.General

In this section of the Act, it addresses other major areas such as offences under
CIDASL, making of rules and regulations under the Act, power to enter any land
or premises, repeals and savings and interpretation.

If any person or body of persons is charged guilty of offence under CIDASL, shall,
upon conviction after summary trial before a Magistrate, be liable to a fine not
exceeding rupees one hundred thousand (Rs. 100,000/-)

or to imprisonment for a period not exceeding two years or to both such fine and
imprisonment.

It should be noted that CIDA has the authority to make rules while power of
making regulations is vested in the Minister. All the rules and regulations should
be published in the Gazette while regulations should come into operation on the
date of publication or a later date specified. Another fact to be considered is that
CIDA has the power to enter any land or premises of identifying construction
work for the inquiry of any complaint received by the Authority. If the owner or
occupier resists such entrance, CIDA has the authority to obtain a search warrant

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from the Magistrate’s Court.

Under subsection repeals and savings, it is pointed out that the Minister has the
right to cancel the Gazette

Extraordinary No. 718/15 of June 10, 1992 issued under the State Industrial
Corporation Act, No. 49 of 1957 by

an Order published in the Gazette. Thereby, all the employees, movable and
immovable properties, contracts

and agreements, suits, actions and other legal proceedings, rights, liabilities and
obligations and all of the Institute of Construction Training and Development
(ICTAD) shall come under CIDA.

For the purpose of CIDASL, the term construction work, construction contract,
contractor, constructor, consulting, documentation, externally funded projects,
identified construction works, completed identified construction works, Minister,
property developer, qualified person and supervision are defined in the
concluding section of the Act.

Other Observations

Among the other Acts related to construction, development published worldwide,

Construction Contracts Act

2002 in New Zealand and Lembaga Pembangunan Industri Pembinaan Malaysia

Act 1994 can be good references.

Acts of United Kingdom (UK) are more time tested with their legal system and
may be referred in development of the Act further. Housing Grants, Construction
and Regeneration Act 1996 and Local Democracy, Economic Development and
Construction Act 2009 are example of Acts in UK Though the purposes of the Acts
seems to

be similar to some extent, The UK Acts and Construction Contracts Act 2002 in
New Zealand focuses on facilitating regular and timely payments between the
parties to a construction contract and providing remedies for the recovery of
payments under a construction contract. In UK Acts has gone to the extent
ensuring that payment provisions within a construction contract cannot be linked
to provisions under another contract. The outlawing of ‘pay-when-paid’ is a salient
aspect in UK Acts where sub-contractors payments cannot be unreasonably
withheld.

In addition, Contracts Act 2002 in New Zealand (CANZ) and Lembaga

Pembangunan Industri Pembinaan Malaysia Act 1994 (LPIPM) provides
interpretations related to the construction industry. According to LPIPM
“construction industry” means the industry concerning construction works while
in CANZ “commercial construction contract” means a contract for carrying out
construction work in which none of the parties is a residential occupier of the
premises that are the subject of the contract. The nature of the construction
industry and construction contracts tends to have different characteristics in the
world.

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In CANZ, a major section is dedicated in ensuring the payments certified in

construction contracts. Through

this act, conditional payments are prohibited where “paid when paid” or “paid if
paid” clauses are not enforceable and cannot be used as a basis for withholding
any payment due in the construction contract. Further, the Act provides for the
default provisions for progress payments. These provisions have been introduced
in CANZ to include legal enforcement of payments in construction contracts.

It is necessary to include similar payment guarantee clauses in CIDASL to enable

legal enforceability in payments in construction contracts in Sri Lanka too.
However, there are many obstacles to go to that extent at present as it needs
clearance of public finance institutions. The dispute resolution in adjudication is
also an area to be further improved in the CIDASL taking examples from other
parts of the world.

It was also suggested that practice of Standard Documents published by ICTAD

(to be changed to CIDA) to be mandatory at the initial stages, such as Standard
Method of Measurement, but such provisions are not included in this Act. Yet
again, there are practical issues in implementation without making adequate
awareness on the same.

Quality of construction and professional services also are concerns to be

addressed in particular for public safety, environment protection, sustainability
and accountability. Promoting such aspects would be necessary, though there are
no express provisions to that effect in the Act. Another, major area to be focused is
the research and development.

The technology used in the industry is apparently same whether it is a residential

building or a medium rise building. Roads, bridges and water supply also not an
exception from searching for new knowledge in technology for the benefit of the
public and to minimize ecological and social impacts.

This Construction Industry Development Act will not be the end of the road but
the beginning of a new path. Now that there is legislation in motion, let us
contribute to the development of the industry and further improvements
necessary taking this Act as a launching platform.

References

Bennett, F. (2003). The management of construction. Amsterdam:

Butterworth-Heinemann.
Bennett, J. (1991). International construction project management. Oxford:
Butterworth Heinemann.
Central Bank of Sri Lanka (2013) Annual report, Colombo, Sri Lanka:
Author.
Construction Industry Development Act 2014.
Inland Revenue Act 2006.
Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994
Nafeel, N. (2014, September 23). Construction industry development draft
act before house – Wimal. Daily News

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