In January 2025 the Capital Development Authority (CDA) directly awarded the development of Kuri Model Scheme – now known as DHA Margalla Enclave – to the Defence Housing Authority (DHA); an Army run real estate developer. CDA did this by abandoning the open competitive bidding process as prescribed under the Public Procurement Rules 2004.
Every state organization in Pakistan is bound to follow the Public Procurement Rules 2004. These procurement rules contemplate the open competitive bidding as the primary and preferred mechanism to award contracts by state organizations. This bidding process ensures optimal value and complete transparency in the best of public interest.
However, the CDA Board deviated in favour of the secondary procurement mechanisms not encouraged for frequent use. CDA has not demonstrated how abandoning open competitive bidding was better in the public interest in favour of the direct award for Kuri Model Scheme under Section 42-F of the Public Procurement Rules 2004.
What is Section 42-F of the Public Procurement Rules 2004?
Section 42 of the Public Procurement Rules 2004 outlines alternative methods to the primary and preferred open competitive bidding process. Under Section 42-F a procuring state organization may award direct contracts to other state organizations including professional, autonomous or semi-autonomous, either of the Federal or the Provincial Governments. The procuring state organization may award contract for goods, services and works, and consultancy services.
What are the key causes to procure directly from a state organization without open competition?
Two key causes including ‘time saving’ and ‘public interest’ determine whether a direct award to a state organization under Section 42-F is preferable over the open competitive bidding process. The procuring state organization must demonstrate with evidence that these two causes are satisfied to bypass the open competitive bidding process.
CDA is increasingly using direct contracting with the recent announcement to develop Margalla Enclave Phase II under Section 42-F.
What are the conditions to choose a state organization under Section 42-F?
A procuring state organization must ensure the following conditions to award a direct contract to another state organization:
(i) the organization or the body to be engaged in direct contracting shall be eligible to perform the works or render the services;
(ii) the organization or the body shall accomplish the work or the services including consultancy services, exclusively through its own resources without involving private sector as a partner or in the form of a joint venture or as a sub-contractor;
(iii) in case there are more than one organizations or bodies eligible to perform the works or render the services, the procuring agency shall hold competition amongst them through limited tendering (notifications) without any advertisements, however, giving reasonable time for submission of their applications or proposals;
(iv) the procuring agency shall devise a mechanism for determining price reasonability to ensure that the prices offered by the state owned entities are reasonable for award of the contract.
How did CDA apply Section 42-F to make a direct award to DHA for Kuri Model Scheme?
Step – 1: Determine the two key causes to avoid open competitive bidding
What CDA was required to do:
The first step for CDA was to determine the two key causes for bypassing the open competitive bidding for the award of previously Kuri Enclave to DHA. The PPRA regulations 2004 require that limitation of time and safeguard of public interest must be better achieved with a direct award to a state organization. CDA would be required to benchmark the reduced development time and therefore the resulting improvement to public interest with the direct award of the development work to the Defence Housing Authority (DHA).
What CDA did:
CDA has thus far only revealed the estimated possession timeframe of 3 years for the DHA Margalla Enclave – meaning end of 2027. However it is not clear whether this timeframe is for the 100% delivery of the project or only partial. Clear communication of the development and delivery timeframe to the public is a key requirement to justify opting for a direct award to DHA. What incentive or penalties would be applicable on DHA if it fails to deliver within the committed 3 years delivery timeframe? CDA has not made many contractual aspects clear through its public communication.
Step – 2: Select an eligible government organization to award direct contract
What CDA was required to do:
The first condition to award direct contract to DHA was to determine its eligibility. This would require for DHA to have a solid trackrecord of developing residential housing projects on time and in the best of public interest. This would require DHA to submit evidence of its earlier town development projects that were delivered on time and within the approved budget.
What CDA did:
While DHA is one of the large real estate developers but it has a history rife with extremely long delays in delivery of residential development projects. This includes DHA Phase 6 Islamabad, previously DHA Phase – 2 Extension, that has not been delivered to allottees for almost 20 years and over 98% of it is still not developed. This fact alone puts to doubt the eligibility of DHA as the best available option because the promised completion timeframe for DHA Margalla Enclave is 3 years which is not supported by DHA’s project delivery track record.
Further DHA has been a defaulter for 16 years for failing to transfer 729 plots to CDA under an agreement signed in 2007-08. These plots were to be transferred to CDA in compensation for the land CDA had transferred for the development of DHA Phase 6 – earlier DHA Phase 2 Extension. DHA only cleared the 16 years old default to become eligible for the joint venture to develop Kuri Model Scheme now known as DHA Margalla Enclave.
Step – 3: Determine self-sufficiency of the awarded government agency to deliver the project
What CDA was required to do:
CDA was to determine if DHA had the necessary internal technical, working, and financial capacity to deliver DHA Margalla Enclave within 3 years without sub-contracting any of the functions to a private sector organization.
What CDA did:
DHA has a documented history of entering into joint ventures with private organizations to deliver residential and infrastructure development projects. These projects include DHA Valley, DHA Phase II Extension (now called DHA Phase 6 Islamabad), DHA Express Way, and DHA Villas. These projects started as a joint venture between DHA, Bahria Town, and Habib Rafiq Limited (HRL) circa 2009. Earlier in June 2006, DHA had hired Habib Rafiq Limited (HRL) for the design and development of Block-A of DHA Phase 1 Extension comprising 2300 residential plots of 1 Kanal.
Step – 4: Determine the most suited organization in case of multiple options
What CDA was required to do:
CDA needed to determine if multiple government organizations could compete via a direct limited tendering to get the best offer for project delivery time and financials yielding optmial public interest.
What CDA did:
Initially in February 2024, CDA had advertised for an open competitive bidding for the development of the Kuri Enclave – now known as DHA Margalla Enclave. Big town developers had shown interest including one government organisation and several private sector developers. These included the Pakistan Army run Defence Housing Authority (DHA) from the government sector. The private sector candidates included Bahria Town of Malik Riaz, Park View of Aleem Khan, ZM/Faisal Hills of Chaudhry Majeed, New City Paradise, and AKD Group of Abdul Karim Dhedhi. Shortly after in May 2024, CDA abruptly shelved the open competitive bidding and went directly into a joint venture with the Defence Housing Authority for the development of the Kuri Enclave now rebranded as DHA Margalla Enclave. This abrupt move by CDA was odd since Bahria Town had a competitive track record of town development at much larger scales and offered equal or better quality of infrastructure development over DHA Islamabad.
Step – 5: Determine the mechanism for price reasonability to get the best value in public interest
What CDA was required to do:
CDA was required to formulate a price mechanism to get the best price possible in the procurement of a town developer for the Kuri Model Scheme. This would entail benchmarking competitive prices of developed land in the vicinity to assess total revenue generation from the project sales. The cost component would involve getting the best rate for the development of the Kuri Model Scheme.
What CDA did:
CDA did not disclose what pricing mechanism it used to accept the proposal by DHA for the development of DHA Margalla Enclave (previously Kuri Model Scheme). Since CDA did not call for competitive bids, no benchmark could be established for the costing of the project. It remains unclear how CDA determined the suitability of the joint venture with DHA. All that is known is that CDA is providing the land and DHA will incur the development expenditure and the earnings will be split 55:45 respectively.There is no competitive or comparative study made publicly awaiblabe by the CDA to determine if this is the best deal to directly award the development of Kuri Model Scheme to the Defence Housing Authority under Section 42-F of the Public Procurement Regulations 2004.
Conclusion
It defies good logic that CDA would enter into a large project – namely DHA Margalla Enclave – with DHA that was a stubborn defaulter for 16 years, has a poor track-record for timely development, and has heavily relied on private sector organizations for the development of its own projects.
Despite that CDA directly awarded a 10,000 kanal project to DHA in one of the prime locations of Islamabad. Only time will tell if DHA Margalla Enclave delivers on time, within the budget, and generates the promised revenues. CDA and DHA have promised to deliver the project by end of 2027- three years ahead since the award in January 2025.
To get guidance on investing in DHA Margalla Enclave and CDA Islamabad sectors please email us at info@gharmubarak.com
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