Payment delays by Govt. badly hit small and medium contractors
The cash-strapped Sri Lanka State Engineering Corporation’s (SEC) delay in paying over Rs.1 billion of outstanding payments for 11 small and medium scale construction firms has brought the housing development programme for under-served settlements in Colombo and suburbs to a standstill, a top official of the SEC disclosed.
The construction of housing units at Kalinga Mawatha in Colombo 5, Angoda Hospital premises land and hospital quarters at Mandawela Road were the worst affected.
The SEC has sought the Treasury intervention to settle the dues of these contractors as the Urban Development Authority (UDA) which is implementing the project is also facing financial constraints, SEC General Manager P.D. Pathmasiri told the Business Times. In this connection discussions were recently held with top officials of the Finance Ministry and the UDA on these issues.
He noted that the SEC is finding it difficult to continue its building construction work countrywide due to the failure of state agencies, where these projects are taking place, to make payments running up to billions of rupees.
State agencies including the UDA have pledged to pay its debts, but have failed to do so due to lack of funds, he said.
The Treasury has directed the SEC to submit documents and details of subcontractors’ case by case basis to find some redress for 11 construction firms, Mr. Pathmasiri said, adding that the country’s state run construction industry is facing the threat of collapse due to current cash flow problems.
The sharp contraction in the construction sector was due to financial difficulties caused by the government’s delay in paying its financial obligations to developers, industry sources said.
The biggest threat to the survival of construction firms is late payment, an owner of a small company said.
These contractors are facing serious difficulties due to delays in getting their payments for the work completed by them for government institutions specially the SEC, he added. Construction companies cannot even pay the salaries of workers due to inadequate working capital as they have to recover millions of rupees from state institutions for the work they have completed in housing and other building projects, a senior member of the Construction Association of Sri Lanka told the Business Times.
This was because of “undue and prolonged delays” in payment and approvals of engineers, he added.
Citing an example, he said that a sum of over Rs. 22 million should be paid by the SEC to a subcontractor for the work done in constructing 120 housing units in Colombo suburbs.
Many construction firms were operating their businesses with borrowed money from banks and finance companies and were not in a position even to repay their loan installment, he disclosed.
It was a major concern for the construction industry, he said, adding that some contractors have been forced to dispose of their company and personal assets due to negative cash flows.