Some contractors are failing to start implementing projects under the Reformed K5 billion Constituency Development Fund (CDF) due to lack of security bonds, The Nation understands.
Under the CDF, where each of the 229 constituencies will receive K5 billion, contractors are required to produce bonds from banks to act as sureties in case they fail to deliver projects.
However, it has transpired that due to limited capital, some contractors are failing to get the bank bonds. The Nation has also learnt that there is a shortage of contractors, which could affect the new CDF in its first financial year of implementation.
Ministry of Local Government and Rural Development Principal Secretary Dingiswayo Jere said in an interview with The Nation last week that the ministry is “not happy” with the situation.
“Some [contractors] are bidding, but are failing to satisfy the requirements of the contract. The result is that they are delaying the whole process of implementation,” he said.
Jere then said after noting the challenge, the ministry is working with the Malawi Building, Civil Engineering and Allied Trades Association (Mabcata) to discuss with banks the provision of bonds, although it is not the ministry’s responsibility.
“We do not want to extend the implementation period because this is performance-based. If we do not spend on the project, when the financial year ends, it means that money is gone. We cannot carry forward,” he said.
According to him, there is also a shortage of contractors to work on projects in all the councils, with each council having an average of 50 projects.
Meanwhile, Malawi Local Government Association executive director Hadrod Mkandawire has said if contractors fail to secure bonds, which is a legal requirement, the contracts will be terminated to protect public funds.
He said since this is the first year of the implementation of the reformed CDF, councils have learnt a lesson from the current situation.
“In the future, we need to go deeper in terms of scrutinising the capacity of the contractors, not only in terms of technical capacity, but also in terms of financial capacity,” said Mkandawire.
He also advised contractors to consider joint ventures in which a contractor with technical capacity partners another with financial capacity.
Meanwhile, Mabcata vice-president Kondwani Kadango has acknowledged that some of their members are struggling to get the bonds.
He said in a telephone interview that financial institutions require collateral, which is about 20 percent of the total contract amount, which most of them do not have at the moment.
By September this year, the Malawi Government had disbursed K85.5 billion under the CDF to 30 of the 36 local councils to enable them to pay contractors to mobilise resources for projects.
