The Ministry of Finance (MoF) has increased the material mobilisation advance payment to contractors from the existing 10 percent to 20 percent of the contract price.
The mobilisation advance will be paid upon the signing of the contract and furnishing of performance security. The notification came into effect on March 23.
Finance Minister Namgay Tshering said that the increase in the mobilisation advance would help contractors at a time when mobilisation of materials have been a challenge. “In the past, some contractors used to import materials on credit, but that’s become difficult due to the Covid-19 pandemic,” he said.
The decision, Lyonpo said, would also increase the flow of money in the economy. The increase in the mobilisation advance will apply to all the categories of contractors, he added.
However, to prevent the misuse of the mobilisation advance, the MoF has notified that the contractor must use it only to pay for equipment, plant, materials and other expenses required specifically for execution of the contract.
The contractor must produce copies of invoices or other documents to demonstrate that the advance has been used for the said purpose.
The contractor must also produce a guarantee issued by a financial institution for an amount equal to the required advance payment. The guarantee will remain valid till the advance is recovered in full, according to the MoF.
Contractors said the decision would benefit the sector and that it had come at a right time.
A Samtse-based contractor who did not want to be named said that the decision would benefit small and newly established construction companies as they don’t have much access to credit like the large ones.
“The increase in the mobilisation advance will help in the growth of our business,” he said, adding that many construction companies were struggling financially.
He said that construction was one of the largest and fastest growing industries that employs a large number of youth. The decision, he said, would strengthen the sector and help create more jobs.
“It may not make a big difference for large contractors. But some contractors face difficulties to mobalise funds to execute the project,” he said.
A contractor, Sonam Tshewang, said that the decision should be applied retrospectively to the projects that were signed before the March 23 to help contractors. But he added that the decision would benefit the sector.
It was learnt that the decision was part of the government’s strategy to offset the impact of the Covid-19 by ramping up the government’s spending.
The low budget utilisation rate has been a concern for the government. The actual capital expenditure reported in the first half of the fiscal year (July-December 2020) was Nu 6.176B, which is roughly 16 percent of total capital budget.
This means that about 84 percent of the capital budget remained unused at the beginning of the second half.
The MoF also recently notified that procuring agencies and contractors would be allowed to defer the project completion deadline due to the pandemic. This is also expected to affect budget utilisation.
However, to offset the impact of the Covid-19 on budget utilisation plans, the government was working on allowing a contractor to take up a maximum of five works at a time.
The rules would help the government execute more projects within a short period. This is aimed at enabling the government to increase its spending.