Contractors happy as MoF approves special advance and reduces Liquidity Damage

In response to an appeal made by the Construction Association of Bhutan (CAB) few weeks ago, the Ministry of Finance (MoF) has approved two recommendations made by the construction firms.

The MoF approved a One Time Special Advance and they have also amended the Liquidity Damage (LD).

The construction firms in the country had also appealed to the government to work under containment, requested the government to pay the quarantine fees uniformly and to award the work if the bid amount is within the 20 percent of the government’s estimate.

In response, the MoF issued a notification stating that the COVID-19 containment measures including international border closures and the subsequent lockdown from the highly infectious Omicron outbreak have led to cost escalations and shortage of men and materials which have led to delay in the construction works.

The contractors are, therefore, not able to process the running bills to meet certain mandatory expenses such as labor payments and materials costs as the agreed milestones are not achieved, the ministry said.

Therefore, “The government has approved a One Time Special Advance and amended the LD rate for everyday delay, as a relief measure to the contractors to ensure the construction works in hand are completed on time and most importantly with quality,” MoF added.

To avail the One Time Special Advance, the contractor shall be mandated to furnish an equivalent Bank Guarantee (BG).

The MoF further added, “The amended LD rate shall be 0.05 percent for everyday of delay to the maximum of 20 percent of the initial contract price with effect from 1 January 2022 irrespective of the rates mentioned in the contract.”

The amended LD applies to all contracts whose LD will start from 1 January 2022 irrespective of commencement of project and if LD is already entered by 1 January 0222, it applies to that portion of LD after 1 January 2022. It does not apply to the contract that has already exhausted LD before 1 January 2022.

Notwithstanding the above, MoF states that based on the site progress, procuring Agencies may initiate termination after exhausting initial 100 days of the LD period.

Meanwhile, Executive Director of CAB Tshering Yonten said, “We are thankful to the government for their prompt decision and for being so considerate to our local contractors. We are happy with the government’s decision.”

Now that they cannot procure anything from Jaigaon, it was difficult for the contractors to procure materials and thereby, they have asked for 20 percent Special Advance without the BG.

The government has agreed to provide the contractors with 20 percent Special Advance but with BG, and it would be convenient for those contractors who have OD facilities. Otherwise, this will have no benefit to some of the small contractors in particular, he added.

“We have requested government if they can completely exempt the LD given the pandemic situation, however, government did not exempt all but they have amended the LD and brought it to 0.05 percent from 0.1 percent per day,” he added.

The government is right on their part to charge some amount as some of the contractors may not progress if given the full exemption on LD, he said, adding that they are happy with the government’s support so far.  

The MoF have notified respective Finance Committee (FC) to review and approve the One Time Special Advance (per work) and the amended LD rate. The monitoring team/ tender committee shall strictly monitor the progress of the construction works.

The contractors can work under containment mode during lockdown.   

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