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19 February 2018 | Business & Finance

Contractors Fight Against Delayed Payments

Daily Guide
Rockson Dogbegah 
Rockson Dogbegah 

Members of the Association of Ghana Industries (AGI)'s Construction Sector have urged government to pass legislation on interest payment on delayed payment for public construction works.

In a recent release issued and signed by Rockson Dogbegah, Chair of the AGI Construction Sector, the contractors said “Delayed payment is a major problem in the Ghanaian construction industry. Government projects have become notoriously popular in this regard. However, contractors often borrow working capital from banks in order to finance their construction operations and invariably have to pay interest on these borrowings. Delayed payments increases credit default tendencies and actual defaults. Consequently, it becomes more difficult for construction firms to access credit from the banks.”

Banks avoid contractors
They indicated that most banks now consider government projects risky because of the common issues of delayed payments associated with them, adding that the financial institutions have become increasing disinterested in lending to players in the construction sector, which threatens the sustainability of the already low-capitalised local contractors.

Delayed payment bill
The contractors have therefore called for the passage of the Construction Industry Delayed Payment Law to ensure that funds for construction projects were well budgeted for and made available before the commencement of the project; and also that provisions are made for compensation to be paid to contractors in the event of delayed payments.

“This would ensure justice in the construction industry and promote the sustainability and development of firms and the industry.”

Bid declaration replacement
They also called for the acceptance of bid declaration as replacement for bid security.

“Bid Securities/Guarantees come at a great cost to the bidder, often set either as a percentage of the bidder's offer or as a percentage of the allocated budget for the procurement requirement. High insurance cost, high bank charges and collateral security requirements have introduced inefficiencies into the construction industry that is constraining the ability of local contractors to compete for bidding opportunities. When bids are successful, the financing cost and cash flow problems associated with bid security requirements threaten the sustainability of local Ghanaian contractors.”

Local content policy
They revealed that since independence, most large-scale construction projects had been executed by foreign companies, which often led to capital flight, lack of technology transfer and a loss of opportunity to build the capacity of local construction firms, adding that local content policies prescribed by the UN had been used elsewhere (i.e. US, Singapore, China, India) to develop construction industries.

“However, government’s plan about local content in our construction industry is uncertain and needs to be concretised. Through a series of stakeholder dialogues, a draft local content policy for the construction industry has been developed for Stakeholder adoption and Government's buy-in.”

Payment certificate
The contractors also proposed to government to, as a matter of policy, “rather accept its own payment certificate to defray or offset contractors' statutory obligations.

“Payment certificates for various public construction procurements financed by government are often issued to contractors but the actual payment often delays. Despite the liquidity and cash flow constraints that delayed payments put on contractors, government institutions still require these contractors to fulfill their statutory obligations like tax payment.”

The contractors advised government to consider calls for the establishment of the proposed Construction Industry Development Authority (CIDA) as a strategic move to strengthen the performance and contribution of the construction industry to national development.

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