Business News of Saturday, 9 December 2017
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.