Construction firms hit by delayed government payments

From left : NCASL Batticaloa Branch Chairman R. Pujendran, NCASL Treasuer W A W Perera, NCASL, First Vice Chairman Susantha Liyanarachchi and NCASL Chairman Athula Priyantha Galagoda
Pic by Pradeeep Dilruckshana 

• More than 3, 500 construction firms struggling over delayed govt. payments 
• Industry body appeals immediate release of Rs.500mn to save SME construction firms from bankruptcy   
• Says minimum Rs.400 to 800mn overdue from each province 

By Nishel Fernando 

Sri Lanka’s economy is likely to have an adverse impact from a potential slowdown in construction sector activities, as over 3500 small and medium sized construction firms employing over 1.6 million people are yet to receive their payments worth billions of rupees for State-contracted construction projects last year, a construction industry body warned.  

Addressing a press conference this week, National Construction Association of Sri Lanka (NCASL) Chairman Athula Priyantha Galagoda revealed that majority of the constructions firms are on the verge of bankruptcy as they were compelled to borrow from commercial banks at market rates to continue the construction projects. 

The construction sector activities contributed to 7.2 percent of the gross domestic product in the first nine months of last year.

Galagoda noted that over 80 percent of the NCASL membership is SME and approximately 80 percent of their income is generated from State-related construction projects. 

“They have mortgaged all their assets to banks, which are going to be seized by the banks very soon,” NCASL Batticaloa Branch Chairman R.Pujendran noted. 
Prior to the political crisis on October 26, the government had agreed to settle payments by December 31, 2018.

Galagoda said the government might not have grasped the gravity of the situation the construction firms are faced with as well as the economic impact of a potential bankruptcy of construction firms.  

According to NCASL, the Education Ministry of the Eastern Provincial Council alone owes a staggering Rs.615 million to construction companies.

An NCASL member said the projects under the ‘Closest School is the Best School’ programme might face delays as the construction firms were unable to fund construction work due to non-payment.

He revealed that construction firms have completed 60 percent of the work under the Rs.64 billion projects.  However, they noted that 40 percent of payments are yet to be settled by the government.

NCASL estimates that from each province, there is minimum of Rs.400-800 million overdue payments to construction firms.  

NCASL First Vice Chairman Susantha Liyanarachchi explained that there could be several adverse economic consequences if the SME construction firms file for bankruptcy. 

He pointed out that the construction companies are already struggling to retain both skilled and unskilled construction workers in their workforce as they are tempted to leave the industry to become three-wheeler drivers or look for overseas jobs. 

He further said if construction firms fail to pay their salaries, that would worsen the labour shortage in the construction industry. 

In addition, NCASL officials also revealed that construction companies have increased their bid amounts anticipating delay in payments, which has sometimes gone over 30 percent of the cost of the projects.

He noted that the government could divert funds from infrastructure projects such as “Gamperaliya” to make these overdue payments to construction companies. 
NCASL appealed to the government to release a minimum of Rs.500 million immediately to provincial, local government and district level projects in order for SME companies to fulfil their payment obligations to banks, as they are not able to wait until budget allocations, which are set for April. 

NCASL calls for removal of provincial based gross profit margin rates

The NCASL has called for the removal of discriminatory gross profit margin rates imposed on a provincial basis in North, East and Sabaragmuwa provinces on government projects. 

NCASL Batticaloa branch Chairman R. Pujendran said that the government has imposed a 14 percent lower upper gross profit margin for the North and East provinces and 18 percent for the Sabaragmuwa Province, while setting a gross profit margin between 20-35 percent range for the rest of the country.
He pointed out that the government introduced the 14 percent gross profit margin for North and East Provinces over a decade ago.

He said that the government has turned down the repeated requests from the industry to remove the provincial based gross profit margin rates.  
Pujendran stressed that the SME construction firms are the main contractors in these provinces where small-scale construction projects are plentiful.  
 “The large scale contractors are mostly involved in construction projects in urban areas. They can influence the authorities and get preferential rate,” he added.