Contractors welcome late payment penalty clause in govt contracts

MUSCAT, JUNE 5 –

Oman’s beleaguered contracting community, which has had to endure lengthy delays in payments on government contracts owing to the challenging economic environment, has broadly welcomed moves by Sharakah — the Public Private Partnership Taskforce — to ensure that such companies are suitably compensated for payment delays.
The Implementation Support and Follow-up Unit (ISFU), tasked with monitoring the timely execution of initiatives proposed by Sharakah, Tanfeedh (The National Programme for Enhancing Economic Diversification), and other economic agencies, announced recently that companies — contractors, vendors and service providers alike — will be eligible for compensation against delays in settlements in government contracts.
Sharakah, which has been set up under the auspices of the Diwan of Royal Court, had mooted the inclusion of a clause in all unified government contracts entitling firms to fair recompense if they fail to receive payments in a timely fashion.
“Many companies undergo difficulties owing to late payments made by government. By September 2016, Sharakah suggested the inclusion of an article (one clause) in all unified government contracts. The clause gives the right for companies to claim late payments penalties from the government. The aim of this initiative was to urge the government not to delay the payments. The Ministry of Finance aimed to complete the objective of the initiative by April 2017,” the The Implementation Support and Follow-up Unit (ISFU) said.
“The inclusion of late payment penalty clause in all five unified government contracts was achieved by May 2017,” the ISFU added in its newly published Annual Report for 2017.
The announcement has been hailed by the Oman Society of Contractors (OSC),  the accredited grouping of contracting services providers in the Sultanate.
“If this measure comes through, it will be very good news for the contractors,” said Shahswar al Balushi, Chief Executive Officer of OSC.
“It promises to bring fairness to contractual obligations (between the client and the contractor),” he noted.
The Society has been at the forefront of parleys with the government in alleviating the impacts of lengthy delays in the settlement of arrears owed to contracting firms. Those delays, according to Al Balushi, have contributed to significant liquidity challenges for some of OSC’s members.
“Compensation is fair because the contractors, requiring to ensure enough cash flow, are forced to borrow from local banks, which inevitably costs them interest. In contracts, there is a provision stipulating that the client has to pay compensation if there are delays in payments — which has not been followed,” he said.
The arrears, according to the official, are primarily due to procedural and bureaucratic delays. “When a contractor completes a section of his job, he raises an invoice to the client, who then certifies the invoices and inputs a computer number in the system of the Ministry of Finance.
The Ministry settles the amount once this process is completed —usually within 30-60 days. Problems usually occur when the client delays the certification of the invoice for a variety of reasons — some legitimate, others not so legitimate — leading to the holdup of payments.”
Some delays also occur if monthly quotas for disbursement of funds allocated by the Finance Ministry for each month are exhausted quickly, he further explained.
“Thus if the client exhausts its quota for that month, the client is unable to certify any new invoices, much like how banks will not accept payments for accounts that show a debit. These are some of the challenges that contractors face in getting their payments on time.”