Cabinet memorandum sparks hope for contractors

One of the primary outcomes of the meeting was the decision to revisit halted projects

In a landmark meeting held at the Treasury with the Ministry of Urban Development, Construction, and Housing, stakeholders from the construction industry came together to address pressing concerns. The constructive discussions have sparked optimism among contractors, as the Cabinet memorandum outlines key resolutions aimed at revitalising the industry.

Revisiting halted projects 

One of the primary outcomes of the meeting was the decision to revisit halted projects. Comprehensive reports will be generated to determine the most viable paths forward, ensuring that stalled developments can resume efficiently.

Streamlining approval processes 

The memorandum emphasised fast-tracking approval processes, including development permits. Simplifying laws and regulations was agreed upon as a critical step to eliminate bureaucratic delays and accelerate project timelines.

Public-Private Partnership model for land use 

A significant shift in policy was proposed for Government lands in development projects. Instead of requiring developers to pay the full value upfront, lands will be released under a Public-Private Partnership (PPP) model, reducing financial burdens on developers.

Financial management and EXIM bank proposal 

Discussions highlighted the need for improved financial management in property development projects. The creation of an EXIM bank dedicated to supporting construction and related services was agreed upon, alongside efforts to secure private sector funding with support from the Construction Chamber of Industry (CCI).

Community-based contract value limits 

The memorandum proposed imposing maximum contract values for community-based organisations, ensuring equitable distribution of resources and opportunities.

Support for first-time home builders 

A low-interest housing loan scheme at approximately 4% was requested to assist first-time house builders, making home ownership more accessible.

Amendments to Public Contracts Act 

It was agreed that bidders for identified construction works would no longer need to register under the Public Contracts Act No. 3 of 1987, simplifying compliance requirements.

SSCL tax adjustments 

Contractors raised concerns about SSCL tax being applied retroactively to projects signed before 1 October 2022. The memorandum resolved that SSCL tax should only apply to projects signed after this date, alleviating financial strain on contractors.

Price fluctuation compensation and delayed payments 

The memorandum advocated compensating contractors for price fluctuations using CIDA’s Price Fluctuation Formula. Additionally, delayed payments by employers should include a 3% interest rate above the bank rate, as per FIDIC Conditions of Contract provisions.

Extension of time for crisis-affected projects 

Unconditional extensions were suggested for projects impacted by COVID-19 and economic crises between March 2020 and December 2023. This measure aims to provide relief for contractors facing unprecedented challenges during these periods.

Retention money and bond encashment protections 

Contractors requested full retention money release upon submission of bank guarantees. Bond encashment was also proposed to require third-party approval prior to execution.

Direct payments to subcontractors and rate revisions

The possibility of subcontractors receiving direct payments from clients was discussed. Additionally, rate revisions were suggested for projects affected during crisis periods.

Material import duty reduction considerations 

While reducing import duties on materials by 40% remains challenging, future consideration was promised by the Chair.

Competitive bidding and steering committee formation

State organisations were urged to adhere to competitive bidding practices for consultancy and contracts. The formation of a Standing Steering Committee on Construction (SSCC), comprising industry members, was emphasised to oversee project reviews effectively.

The memorandum reflects a collaborative effort between Government officials and industry stakeholders, offering hope for resolving longstanding issues in the construction sector. If implemented effectively, these measures could pave the way for sustainable growth and improved efficiency across the industry.

(The writer is President, Ceylon Institute of Builders.)