Accra, Dec. 8, GNA – The Association of Ghana
Industry (AGI) Construction Sector has called for the preparation and passage
of a delayed payment law (DPL) to ensure that local construction firms are paid
promptly for government contracts executed.
The DPL, it said, would ensure that funds for
construction projects were well budgeted for and were available before the
commencement of projects, and make provision for compensation to be paid to
contractors in the event of delayed payments.
The AGI Construction Sector said the law had
become necessary in view of the late payment to contractors for work on
government projects.
The suggestion was contained in a baseline
study by the Association of Ghana Industries (AGI) Construction Sector to make
a case for the passage of a DPL.
The study proposal is being supported by
“BUSAC Fund and its development partners – DANIDA, the EU and USAID.
It said delayed payment had been identified as
a major problem to the Ghanaian construction industry and thus making it
difficult for the players in the sector to compete with their foreign
counterparts.
The proposal said local contractors often
borrowed working capital from banks in order to finance their construction
operations and invariably had to pay interest on those borrowings.
It found out that delayed payment increased
credit defaults by the local construction companies and made it difficult for
the players in the sector to raise credit from banks to finance their
operations.
“Indeed most banks consider government
projects as risky because of the common issues of delayed payments associated
with them. They have therefore become
increasingly disinterested in lending to the construction sector,” the proposal
said.
Among other effects of the delayed payment on
the construction industry, the study revealed that “it rendered local
construction firms less competitive to their foreign counterparts and also
unable to raise the needed finance to execute projects and where they are able
to raise funds, they are often at a high cost of capital.
“Other effects of delayed payment on
construction firms are inadequate equipment holding. This contributes to the
late completion of projects, poor quality works, unemployment, an increase of
total cost of project, disputes, liquidation of construction firms and loss of
productivity.
The study, therefore, stressed the need to
identify ways to improve the contractors’ cash flow in the Ghanaian
construction industry.
Among the objectives of the study was to
establish the nature and cause of delayed payments and the periods involved,
examine the effect of delayed payments on the construction industry performance
and sustainability.
GNA