IS IT A CRIME TO PAY INTEREST ON DELAYED PAYMENTS TO CONTRACTORS?

Payment of interest on delayed payment is one of the vital compensations provided in contracts to protect the capital investment of contractors and sustain their cost of financing when the payment due them is delayed. This also ensures that the contractor is able to maintain his arrangements with his creditors or renegotiate with them for continuous supply of requisite inputs to ensure that construction projects are completed with quality within the stipulated period without disruption.

The Construction Sector of the Association of Ghana Industries (AGI) has noted that Public and Civil Servants charged with the administration of contracts sometimes view the payment of interest on delayed payment to contractors (especially Local Contractors) with disdain as though it’s not deserving or as an unmerited favour or an illegality, whereas this should clearly not be so.

In Ghana, the Public Procurement Authority (PPA) provides the Standard Tender Documents for Public Procurement of construction contracts. The PPA has such forms for Small, Medium and Large contracts, all of which have similar clauses on procedures on delayed payment. Also in wide use in Ghana is the Multilateral Development Bank Harmonized Edition of the international Federation of Consulting Engineers’ (FIDIC) Conditions of Contract; especially for World Bank and other foreign denominated funded projects in Ghana.

These two main standard forms of contract in wide circulation in Ghana are very explicit on the approach to dealing with interest on delayed payment. For instance, Section III of the conditions of contract in the PPA standard form of contract, procurement of works, medium contract, Clause 43, outlines the steps on payments delayed as follows:

The Employer shall pay the Contractor the amounts certified by the Project   Manager within   28 days   of the date of each certificate. If the Employer makes a late payment, the Contractor shall be paid interest on the late payment in the next payment.   Interest shall be calculated from the date by which the payment should have been made up to the date when the late payment is made at the prevailing rate of interest for commercial borrowing for each of the currencies in which payments are made.”

This is in addition to the General Conditions of Contract in the FIDIC- Multilateral Development Bank Harmonized Edition of the Conditions of Contract. For Construction for Building and Engineering Works, Clause 14.8, the process for delayed payment is outlined as follows:

 “If the Contractor does not receive payment in accordance with Sub-Clause 14. 7 [Payment). The Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment]. Irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued. Unless otherwise stated in the Particular Conditions. These financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment. And shall be paid in such currency. The Contractor shall be entitled to this payment without formal notice or certification. And without prejudice to any other right or remedy.’’

So, it is a wonder why Public and Civil Servants charged with the administration of contracts frown on this aspect of contract management. After a local contractor borrows money from our local banks at an already high prevailing interest rate for 28 days to 56 days to complete a month’s value of work, suffice to say then, would it not be criminal to destroy the contractors business by delaying the contractor’s payment and then again, go contrary to the stipulations of these clauses quoted above – not to compensate the contractor.

This behaviour on the part of civil and public servants has negative implications on the sustainability of construction companies, particularly, local contractors, and at the heart of the underdeveloped nature of our construction industry.

Therefore, stakeholders in the construction industry are advised to respect the sanctity of our construction contracts to guarantee the rights of all parties in the contract. We therefore call on PPA to educate all stakeholders on these critical clauses to ensure the sanctity of contracts to guarantee the survival of Ghanaian Contractors.

Finally, we wish to acknowledge the support of the BUSAC Fund together with its development partners USAID, DANIDA and the EU, for their support and sponsorship towards promoting the advocacy issues being championed by the AGI construction sector.

By Rockson Dogbegah

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