Government has reformed the Constituency Development Fund (CDF) to deepen decentralisation and accelerate local infrastructure development.
The fund is now pegged at K5 billion per constituency annually.
However, contractors are facing setbacks to obtain bank guaranteed performance and advance payment bonds for the implementation of CDF projects.
It is understandable that banks classify construction companies as high-risk clients in these turbulent economic times.
Their risks emanate from high rates of project and financial failure, financial crimes and money laundering investigations, entrenched corruption and bribery in tenders, substandard materials, forex scarcity and weak corporate governance. These factors render contractual performance increasingly difficult.
Some may argue that councils should relax their requirements to build capacity of local contractors. However, they need to protect public resources at all cost to prevent corruption and misuse, protect public services, maintain economic stability and promote fair growth.
Nevertheless, one wonders: How did these contractors secure the projects if they are failing to obtain bank guarantees?
This appears to be a fair and relevant question for those seeking someone to blame, but it may lead to a wrong conclusion that such contractors lacked capacity from the outset.
That is definitely not the case here.
The thresholds of financial and technical “capacity” are already set by procuring entities as defined by the level of contractors’ registration with the Construction Industry Regulatory Authority (Cira). Among others, this depends on the availability of technical personnel, machinery, requisite experience, stated average annual volumes; and access to stated financing levels.
They also go a step further to avert contractor over-trading by stating acceptable progress levels of current projects for the prospective contractor.
So how do we now have contractors that seem to lack capacity in implementing CDF projects?
The answer lies partly in self-incapacitation.
For the first time in Malawi, all councils and procuring entities advertised for works around the same time. This meant the normal technical and financial screening could not detect how many projects a contractor was tendering using the same technical and financial capacity without raising an alarm of overtrading.
A contractor could, therefore ,secure multiple projects from different procuring entities whose combined value far exceeded its capacity.
This is self-incapacitation.
It also occurs when contractors do not update their assessments of actual capacity.
The capacity one has with new machinery will not be the same 10 years on.
Similarly, the gap between access to finance declared on paper and actual or available acceptable security to secure the stated finance level in these tough economic times has left some companies incapacitated.
Ultimately, assessing capacity within the confines of existing laws and policies must also consider whether contractors pursue realistic annual growth targets aligned with their resources and financial strength.
Government introduced measures to build capacity of local contractors.
The Cira Act requires foreign contractors to subcontract 30 percent of their works to local contractors, but there is limited evidence that this quota alone is producing the desired transformation in local contractors’ capacity.
Yes, contractors are participating. However, participation is not necessarily the same as capacity building.
The measure of success should not simply be “was 30 percent subcontracted?” Instead, it should be: How much technical responsibility was transferred? How much plant and equipment did the local contractor acquire? How many skilled personnel were retained? How much profit did the local contractor generate? Did the contractor improve its working capital position? Did it acquire the necessary experience and financial record to bid for larger contracts?
The ultimate objective must be contractor graduation from 30 percent subcontractor to larger independent contractor capable of competing internationally.
Government must strengthen implementation, monitor measurable capacity building outcomes and introduce corrective interventions that address existing weaknesses.
Introducing clauses in standard bidding documents for contractors to declare values of current tenders in the pipeline that they are participating in could reduce self-incapacitation.
