Public investment: report warns of a drop in the number of contracts and an increase in costs
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The Ministry of Public Works (MOP) manages thousands of public investment contracts, entrusted to both private and state entities.

Within this framework, since 2019 the ministry has been implementing the “Public Works Transparency Portal”, a joint initiative with the Fiscal Expenditure Observatory and the Chilean Chamber of Construction (CChC), whose objective is to provide citizens, in formats simplified and with a higher opening standard, information regarding works contracts.

The portal, managed by the pro-fiscal transfer NGO, reports on the impact that the increase in construction material costs and the consequent management problems have had on the sector.

Thus, the number of public investment contracts signed by the MOP between September of this year and 2021 has fallen by 33.7%. The total amounts to 1,262, versus 1,904 twelve months ago.

This accounts for a strong adjustment when compared to the 88.1% rise in the same period of 2021 versus 2020, in a year marked by the deployment of measures to deal with the pandemic and a historic growth in public spending.

During 2020, the MOP signed 1,781 contracts, for an amount of more than $1,291,088 million, while in 2021 they added 2,425 contracts for figures that exceed $2,375,958 million in total.

The amount also suffered a 36% adjustment, up to $1,265,111 million. In the comparison September 2021 versus 2022, all the regions show a decrease in the number of contracts signed, with Arica and Parinacota, O’Higgins and Maule leading the losses (see infographic).

Costs go up…

One of the reasons behind the lower signing of contracts is related to the increase in their original amount, given the effects of record inflation in the last 30 years, for example, construction materials.

On average, the value of the assets has exceeded their initial price by 8.1% as of September compared to 2021, with an average cost overrun of $67 million.

In this indicator, Atacama, Arica y Parinacota and Coquimbo led in the percentage increases in value (see table).

On average, 9.2% of public investment contracts have undergone changes in their value, the highest proportion being registered in Coquimbo, Arica y Parinacota and Los Lagos.

●Now, in terms of the average amount of increase associated with modified contracts, the highest figures are also taken by Atacama and Arica and Parinacota, with an average increase per contract of $326 million and $220 million, respectively, followed by the Metropolitan , at $141 million, and O’Higgins at $134 million average.

The investigator of the Observatory of Fiscal Expenditure, Manuel Henríquez, explains that to the extent that the duration of the contract extends to more than one year, the probability of an upward modification increases “significantly”; and, at the same time, to the extent that the contracting process of the awarded company has been more competitive, the probability of generating a change in the amounts increases.

“To the extent that the executing agencies of public works contracts identify in advance the structural factors that are the cause of these increases, then greater efficiency will be in reducing these cost increases over time, which would undoubtedly imply a more efficient use of fiscal resources earmarked for public works,” he stresses.

The expert emphasizes that the analysis does not contemplate the increases that occur in the initial amounts due to the readjustment mechanisms of the contracts.

…And increase deadlines

As of September, 7.5% of the contracts signed by the MOP at the national level that are in execution have presented a lag in their execution with respect to the originally scheduled terms, representing an average delay of 175 days per contract.

The regions that accumulate the highest percentage of lag are Tarapacá and Atacama (with approximately 11.7% of their contracts with deviations), followed by Los Ríos, with 11.2%, and Ñuble, with 10% of their contracts. in this condition.

These lags are equivalent to average delay times per contract that fluctuate between 79 and 142 days, which represents a deviation that goes between 28% and 48% of the total duration of these contracts.

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