Business
Contractors to be graded on ability
Publish Date: Apr 20, 2014
Contractors to be graded on ability
Classification will keep big firms away from small contracts such as maintenance.
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By Billy Rwothungeyo

WITH the Government prioritising infrastructure, the road construction industry in Uganda is becoming more lucrative.

However, local contractors are still struggling to compete against formidable international competitors.

To try and bridge this gap, a key stakeholder in the industry, Jonathan Wanzira, the president of the Uganda National Association of Building and Civil Engineering Contractors (UNABCEC) is calling for the classification of contractors.

The works ministry used to categorise contractors in classes but stopped.

However, the ministry has proposed a new law, the Uganda Construction Industry Commission bill, which is before Parliament, to provide for classification of contractors.

Growth of local contractors

Wanzira reasons that if contractors are categorised, the growth of local contractors will be promoted as they will have priority to get projects that are within their ability to implement.

“It will make the construction industry more organised. There are cases of firms with the capacity to do big projects fighting for the small jobs. It will not encourage growth of the industry, because the small players will be edged out yet they also need a chance to grow,” he reasons.

Due to the disparities between big and small contractors, Wanzira says this classification should make even more sense to the Government’s efforts to achieve value for money.

Big contractors have bigger overheads, than their smaller counterparts and have higher costs of doing business, which translates to higher prices. Therefore, a big contractor is more likely to quote a higher price than a smaller contractor, even for a small job.

Keeping small contractors off big projects

Not only will this classification promote the growth of local contractors by making small projects their reserve but big multinationals will also stick and have some sort of exclusivity to big projects such as highways and flyovers.

“The even bigger problem is giving small contractors very big jobs,” reasons Wanzira.

Many small contractors that are awarded big projects struggle to deliver because of challenges, chief among them, financial arrangements.

When a contractor is awarded a tender, in many instances, the firm is asked for a performance bond, which is usually 10%.

Then the contractor is also required to make an advance payment guarantee to allow the job owner to advance you some money, which is 20%.

To get these bank guarantees, one must have the equivalent of the loan facility — must be secured by collateral.

Then the job owner retains 10% of the value of the contract, so that the contractor can fulfil his responsibilities during the defects liability period — the time after a contractor has finished a project but remains liable to any defects that may crop up.

Implications of biting more than one can chew

“You start having cash flow issues because construction is very cash intensive, and then you cannot perform very well. You find someone has failed to deliver, not because he does not have competent workers or machinery, but because he does not have the financial muscle,” says Wanzira.

The classification of contractors would have to follow the mechanisms of financial muscle, equipment, manpower and expertise.

Stakeholders welcome idea

The Uganda National Roads Authority (UNRA) — the single biggest source of road contracts in the country, has welcomed the idea of classification of contractors.

“Uganda’s construction industry is still very young having undergone decades of stunted development, disorganisation and loss of capacity. Right now even contractors who have not done a single job think they can bid for periodic maintenance of a 100km road,” Dan Alinange, UNRA’s head of corporate communications says.

“While we would like to support local contractors, the industry is still littered with brief case companies that submit forged papers in order to qualify for bids. This arrangement will help us to develop local contractors and support those that are still struggling.”

The Creating Opportunities for Sustainable Spending on Roads (CrossRoads) — a programme aimed at improving the quality of Uganda’s road network also backs the move.

“For it to work, the designated roads agencies who are the main employers – UNRA, Road Fund and district local governments must use the classification in their procurement processes,” Alex Mugova, CrossRoads’ market systems development specialist says.

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