Govt, Don’t Hold Up Contractor Payments
Here is one way for the central government to improve the ease of doing business in India, never mind if it contributes to the World Bank’s ranking. The best part of this measure is that it is directly under the control of the central government. The thing to do is to release payments to private sector companies that perform various tasks for it, ranging from building highways and bridges to providing information technology solutions and systems. The government and public sector enterprises owe contractors lakhs of crore rupees in unpaid bills for work completed and delivered. The reasons are many. The root cause is lack of ownership of the projects in the government. This results in the project report being less than realistic. So, once the project gets implemented, change in project design or detail becomes inevitable. Delays in releasing funds leads to time and cost overruns. If the final bill exceeds the amount of the initial tender, no one in the government wants to take the responsibility for approving payment of this higher amount: what if some report of the Comptroller and Auditor General were to fault him for causing loss to the exchequer. So, the way out is to refer the matter to arbitration. That award would normally go in favour of the contractor. The official still would not want to take any chance. The contractor would then go to court. The court would, in the fullness of time, uphold the arbitration award. Thus derisked, the successor official — the earlier one would have retired or been transferred — would now release the payment.
This style of functioning jacks up project costs and slows down both the projects under execution and the companies that implement them. The government has to find a way of derisking the decision to approve higher-than-bid costs.