The government will not consider further extension of contract periods and price adjustments (cost escalation) of construction works that were affected by the pandemic, according to Finance Minister Namgay Tshering.
The Ministry of Finance (MoF) had allowed procuring agencies and contractors to reschedule completion dates of construction works in June this year following the normalisation of the Covid-19 protocols.
The finance minister said that the government had no plans for further consideration of cost escalations, which come with extension of project periods.
Procuring agencies after the pandemic had rescheduled the ongoing works as a one-time measure “except as per the contract documents”. Penalties will be levied if the works are not completed on the revised schedule, according to the MoF.
However, according to some procuring agencies, contractors were deliberately trying to delay the work hoping that the MoF would consider further extension of the contract periods so that the cost of projects would be revised at the latest market price.
An official from one of the procuring agencies said that the progress had been too slow even after the normalisation of the Covid protocols.
Some contractors, according to sources, feel that it would be better for a contractor to get cost adjustments at a later period than to pay penalties.
Denying the allegations, the president of the Construction Association of Bhutan (CAB), Tashi Wangyel, said that most contractors were working honestly, but said that there could be a few who could be deliberately delaying the work.
He said that many contractors did not have working capital as they had incurred losses during the pandemic.
The CAB president said that the government needed to consider cost escalations to contractors as the economy improves. Contractors, he said, would incur further losses and that some of the contractors would be forced to surrender the project if the cost escalations are not considered.
Tashi Wangyel said that contractors are normally eligible for the adjustment of price escalations if the project period goes beyond a year. Such adjustments, he said, are made based on the consumer price index of the National Statistical Bureau of Bhutan (NSB), which comes to about 6 to 7 percent.
However, the CAB president claims that the cost of projects that are affected by the pandemic had increased by more than 50 percent due to the hike in the cost of labour and construction materials.
“With the price adjustments that are made based on the consumer price index, contractors are not able to cover the losses they have incurred during the pandemic,” he said.
Some contractors, the CAB president said, were already forced to surrender the project due to losses arising from cost escalations.
Procuring agencies, on the other hand, claim that contractors are surrendering works because the penalty is cheaper than completing the work.
The CAB had appraised the prime minister and the finance minister about the issue. He said that the association was grateful to the government for not imposing penalties on contractors so far.