How do we build strong local contractors when gov’t always owes them for so long?

July 14, 2017
How do we build strong local contractors when gov’t always owes them for so long?

It has become an accepted norm that construction companies, especially those working on government contracts, can have their payments delayed for as long as the government wishes and nothing can be done about it.

Despite the many pleas of these construction firms, nothing seems to change, with the government owing some of them for as long as six years. Meanwhile, these firms, the local ones mainly, resort to loans at very high interest rates to pre-finance projects.

This should not be the case because these companies, just like any other company operating in the country, pay taxes and workers, and they buy materials to work with, among other expenses.

The situation has become so difficult for the firms that they now want legislation on delayed payments. Really? Did we have to get here?

But of course, if that is what it will take for government to begin realising how it is using its own hands to clip the wings of local businesses that it should be providing a springboard, so be it.

Rockson Dogbegah, Construction Sector Chair of the Association of Ghana Industries notes, for example, that the delay in payment for work done was adversely affecting contractor capacity building and making it difficult for local contractors to compete with foreign counterparts for donor funded projects.

This paper strongly supports the need for regulation to guide the delay in payment of contractors so that undue delays can be aggressively curtailed.

Hopefully, such a piece of legislation should help bring a level of sanity in how long these payments can last. Once there is regulation in place, government will be forced to abide by it or face the consequence in either court or pay interest on the monies it owes, which it wouldn’t want to do.

Mr. Dogbegah noted that one other issue confronting contractors in the country was the Formula for building Price Fluctuation Factor which does not adequately compensate for increments and asked the government to take a second look at it.

The intention of a Price Fluctuation Factor is for equitable risk sharing between the employer and the contractor in terms of material, labour and/or currency cost fluctuations and seeks to rationalise the construction costs for employers over the longer term.

We also support his call for the government, in collaboration with the private sector, to put in place strong regulatory task force to ensure compliance with health and safety requirements on construction sites.

Tackling rising demurrage requires a collective effort

Any time importers and exporters have had to complain dearly about the rising cost of doing business at the country’s ports, the issue of demurrage features strongly.

If the figures released by the Ghana Shippers Authority are anything to go by, demurrage charges are on the rise and we do not seem to have found a solution yet to the undue delays that occur in our ports, particularly the Tema port.

According to the authority, demurrage cost to shippers has risen astronomically from US$40 million in 2010 to US$85 million in 2013 and US$100 million in 2016.

The question is: how long should we allow this avoidable charge to grow like the trend shows? Is it outside our ability to rectify the various challenges that contribute to container delays that result in demurrage?

Instead of the issue becoming a banter among industry players, a lot of collaborative dialogue is required. The interests of the various players in the industry are not mutually exclusive, are they? The rightful pursuit of their individual interests leads to making Ghana a strong maritime hub.

Beyond the blame game, it is quite obvious that demurrage to the shipper is the result of several factors along the cargo clearance chain, including port congestion, bureaucratic valuation procedures and system downtimes.

Getting demurrage off the shoulders of shippers will require an all hands on deck approach from the various actors within the shipping value chain—shipping lines, shippers, service providers and port authorities.

Will we get consignees to submit genuine documents on time instead of trying to outsmart the system? Will the various service providers ensure that their systems perform optimally? And will Customs provide cargo release on time for the shipper to get his/her consignment out of the port within the seven days demurrage free period?

There is a lot of untapped potential in the industry, both within the fast-expanding local economy and the landlocked Sahelian part of the West African Sub-region. This is not the time for squabbling.