LONDON/MUMBAI (Reuters) - Goldman Sachs’ reputation for hard-nosed efficiency faces a test in the chaos of Indian building standards, according to architects hired by the Wall Street bank.
Construction is due to start soon on a Bangalore campus for some 4,000 back-office Goldman Sachs staff, but a report by Toronto-based architect Adamson Associates seen by Reuters said the project faces a string of obstacles including shoddy construction, corruption, poor sanitation and an on-site tomb.
“India’s industry standards of construction quality for commercial office space have not yet reached international standards, much less GS standards,” the report said.
It recommended developers “provide extra margins of tolerance (ie a ‘sloppy fit’)” and “not design anything that requires total precision” for the 22-acre site, which is close to a busy stretch of Bangalore’s six-lane outer ring road.
Goldman Sachs and Adamson Associates declined to comment. The bank’s reaction to Adamson’s recommendations is not clear.
The report gives a rare behind-the-scenes insight into the way multinational companies in India view local standards and some locals have reacted angrily to the suggestion Goldman will have to lower its expectations so far.
“This is a wrong notion. A wrong perception is being created. I would like to really confront a person who thinks like this,” said Lalit Kumar Jain, national president of the Confederation of Real Estate Developers’ Association of India.
“This is a prejudiced mind without really understanding the reality on the ground of this country.”
The reaction to the architect’s report will generate further publicity for the intensely scrutinised bank.
“It’s a bit of a cheap shot for a foreign architect to throw stones at Indian construction standards,” said one international developer operating in India who did not want to be named for fear of drawing criticism. “The standards are not the same but then neither is the cost. And that is why Goldman Sachs is putting a million square feet in India.”
Construction costs in India are about 75 to 80 percent lower than in London, he said.
But Ramesh Mysore, a Bangalore-based director of corporate real estate at outsourcing company Convergys, which entered India more than a decade ago and has more than 10,000 staff in the country, said the report only stated the obvious. Red tape and inexperienced developers are a big hurdle.
“The challenge in India is there is still ambiguity in people giving a commitment and achieving it. In other countries, there is more promptness and respect,” he said.
As the financial crisis forces Western banks to rein in costs, they have increasingly turned to emerging economies to set up operations with lower wages and rents.
Companies can save between 40 and 70 percent in places such as India, Asia’s third-largest economy, according to a report this year by U.S. business consultant Everest Group and NASSCOM, an Indian industry body for technology companies.
Earlier this month Goldman Sachs announced a third-quarter profit of $1.5 billion versus a $428 million loss in 2011 against the backdrop of a $1.9 billion cost cutting programme.
Its Bangalore project - codenamed “Big Bang” inside the bank - will move workers from four offices elsewhere in Bangalore into a single campus about 15 km (9 miles) south-east of the city centre by 2017.
The documents, more than 2,000 pages in all, underline the huge scale of Goldman’s plans in the country. The Bangalore operation accounts for about 12 percent of the bank’s global staff but that could more than quadruple to 18,000, the report said.
The campus, which measures 900,000 square feet, comprises two buildings. Floor space will double if Goldman exercises development options. That would give it a site not much smaller than its 2.2 million-square-foot HQ in New York, a skyscraper on which Adamson was the executive architect.
Goldman will pay an annual rent of about 565 rupees ($11) per square foot, local real estate agents said. That compares to a typical figure of 55 pounds ($89) in London’s financial district or about $90 in the midtown Manhattan area of New York.
Banks such as Bank of America Merrill Lynch, Barclays, HSBC, JPMorgan and RBS also have functions like risk and fraud management, finance and accounting in self-contained Bangalore sites known in India as “captive centres”.
However, building in India is not always straightforward.
When a Reuters reporter visited the area where the Goldman Sachs campus will be located earlier this month, he saw a site fenced off with corrugated metal sheets.
The presence of steel reinforcement rods was the only evidence of planned construction work at the site, which, based on maps contained in the Adamson report, appeared to be the future home of the Wall Street bank.
Stray dogs wandered through pot-holed streets and dirt and rubbish were piled up in the surrounding areas, at odds with the glass-fronted modern office blocks which house firms including JP Morgan, Nokia and Cisco.
A large sewage canal ran nearby, where a breeze blew foam into the air.
The architect report notes the canal and warns of the possibility of foul odours, depending on “time of year (and) wind direction.”
Adamson underlined how closely Goldman Sachs should monitor the build, recommending “extensive use of mock-ups” that require approval before the final phases of building work proceed.
“Keep the design simple, straightforward and easily understandable. Complex shapes will not likely be well-constructed,” it said, while emphasizing the building had to be the best quality office block in Bangalore.
Delays and shoddy construction at the 2010 Commonwealth Games in New Delhi, India’s capital, exposed the dearth of skilled labor, building technology and expertise in the country. But things have improved since then, say people in the industry.
“What happened at the Commonwealth Games was not good but the important thing to note is not everything happens like that,” said Convergys Corporation’s Mysore.
“If you get attracted to a developer because the building looks great, is cheap and comes with some goodies, you are being misguided. You need to exercise caution,” he said.
The economic boom of recent years has helped to improve construction standards, local developers said.
“Some of our buildings are better than some American ones,” said J. C. Sharma, chairman of Bangalore-based Sobha Developers, which has built more than 24 million square feet of space for technology company Infosys. “Foreign architects should come and see the buildings here to realise India is also improving, although more slowly than China.”
That said, Goldman will still have to overcome the lack of a municipal sewer system and an unreliable water supply network. The report recommends the Bangalore campus treat waste on-site and install waterless urinals, even though it acknowledges associated “odours and cleanliness issues”.
Further hurdles include what the architect refers to as a tomb on the site that Goldman will have to take into account when positioning the perimeter wall. The Reuters reporter saw a gravestone marked with the dates ‘1913-1981’ near the perimeter fence of the site presumed to be the future Goldman campus.
The bank will also struggle to fit lifts in its building that are up to its usual standards, Adamson said.
“The Indian market does not seem to value elevators as an aesthetic element,” it said. “An aggressive full coverage preventative maintenance programme” was the only way to ensure they didn’t break down.
Goldman faces considerable “reputational risks” associated with the project, given India’s reputation for corruption, use of child labor and the often basic conditions in construction worker camps, the report warned.
The international developer working in India said the bank would have to minimize risks and increase security. “There are so many people waiting for Goldman to make a mistake.”
Reporting by Tom Bill; Additional reporting by Harichandan Arakali in Bangalore; Editing by Sophie Walker and Simon Robinson