Govt, contractors pledge to resolve payment crisis

PARTNERSHIP: Ministry of Finance, top executives of leading construction firms, Oman Society of Contractors, explore ‘out-of-the-box’ solutions

August 23: The Omani government and the local contracting community have embarked on a groundbreaking effort to jointly explore and implement effective solutions to the protracted problem of payment delays besetting construction firms executing government contracts in the Sultanate.

The move comes against a backdrop of longstanding complaints by many contractors fretting over severe cash flow problems stemming from a combination of factors, chiefly, payment delays now extending up to months and years, on top of mounting arrears, disputes over variation orders, financial penalties, and so on.

Now in a concerted bid to mitigate what is evolving into a potential crisis, the Ministry of Finance and Oman Society of Contractors — representing the Omani government and the contracting community respectively —have pledged joint efforts to resolve this issue.

Top-level officials representing the two sides met recently to seek innovative solutions to help ease the problems of delayed payments, guided by a common desire to support infrastructure development and thereby sustain economic progress despite the constrained fiscal environment.

“This was an engagement between the Ministry of Finance and the construction community aimed at chalking out outof-the-box solutions to alleviate the liquidity crunch faced by contractors as a result of delayed payments for existing contracts and outstandings pertaining to previous contracts,” said Shahswar al Balushi (pictured), CEO — Oman Society of Contractors.

“The objective was to find ways to help finance current and future infrastructure projects without having to depend on government financial resources in light of the current budgetary constraints and fiscal challenges,” Al Balushi stated.

Characterising the meeting constructive and purpose-driven, as the CEO said the two sides “brainstormed a number of ideas and concepts” that, once suitably deliberated upon, fine-tuned and approved, could help pave the way for a possible resolution of the current stalemate over delayed payments.

As part of this quest for possible remedies, the two sides will also seek to engage with other stakeholders, such as commercial banks and clients. Engagement with these entities is key to hammering out timely and effective mechanisms.

This is to facilitate payments and to ease out the cash flow situation for contractors, Al Balushi noted.

In hammering out effective remedies to the crisis, OSC members identified three significant shortcomings often blamed for delayed payments and the resulting cash flow problems. Firstly, projects that are not fully designed and thought through at the outset, typically give way to variation orders and cost escalations, resulting in all sorts of payment disputes and other hassles, said Al Balushi.

Equally problematic for contractors is what OSC describes are “rigid and one-sided” contractual terms that expose the contractors to stiff penalties. “While many of the clients tend to be flexible in enforcing the terms of the contract terms — upholding the spirit rather than the letter of its provisions — some clients however are very rigid in their interpretation of the terms. They go on to impose exorbitant and unjustified penalties on the contractor, make deduction from interim payments, and so on. This add to their cash flow problems,” Al Balushi said.

Also compounding the problem for contractors was the practice by government clients of limiting funding allocations for projects and capping payments as well — the result of government fiscal cuts and austerity measuring. These caps, however, reduced payment flows to contractors to a trickle, resulting in mounting arrears, and a wider liquidity problem, he explained.

But given the positive spirit characterising deliberations last week, Al Balushi said he was optimistic about an early resolution of the payment crisis.

“Both sides are working in a spirit of partnership to help alleviate this issue and thereby stimulate economic growth, given the strategic role that the construction sector plays in economic development. There is a genuine and concerted effort by the two sides to find an effective solution to the issue. We are grateful for this opportunity to work hand in hand with the Ministry of Finance in finding workable remedies to this problem,” he added.