As the Guyana Government continues with efforts to clamp down on delinquent contractors, President Dr Irfaan Ali has revealed that approximately $3 billion in charges for liquidated damages have been instituted over delays in public projects across the country.
The President made this disclosure during a recent press conference at the State House.
“Letters have been sent out to contractors…to the value of about three billion dollars in liquidated damages, that is, projects that are going beyond their timeline,” the Head of State announced.
Liquidated damages refer to a provision allowing for the payment of a specified sum in the case of a breach of contract. Based on the value of the contracts, the percentage of the liquidated damage is calculated. This can range from 0.1 per cent up to 10 per cent of the contract sum.
According to President Ali, instructions have been given to charge the maximum value of liquidated damages from those delinquent contractors.
“So, the [state] institutions and the agencies have been advised that they must ensure that liquidated damages are charged on projects that, without justification… [have asked for an] extension of time. So, once there is no justifiable reason for the extension of project time, liquidated damages must be charged,” the Guyanese Leader declared.
This publication understands that several state agencies have embarked on recovering liquidated damages, the Ministries of Public Works, Housing and Water, and Agriculture are the main entities with defaulting contractors.
The Ministry of Public Works (MoPW) has issued letters to contractors for some 365 projects that have been experiencing unjustified delays.
According to Public Works Minister, Juan Edghill, the liquidated damages being sought from these contractors amount to a staggering $934.65 million.
Edghill explained that the liquidated damages formula on these contracts ranges from 0.25 per cent up to per cent.
While the minister opted not to divulge who some of these contractors are or what some of these projects are, this publication understands that Avinash Construction and Metal Works, which is executing the controversial $475 million Cemetery Road Expansion project is one.
It was previously reported that the Government would pursue liquidated damages from the contractor for the prolonged delays suffered in the execution of the contract.
The multi-million project will see the two-lane carriageway being extended into four lanes and was initially expected to be completed in July 2023. However, those works are still ongoing.
Meanwhile, the this publication was unable to get any information from the other two Ministries that account for a large portion of the $3 billion sum being sought from delinquent contractors.
Back in April, President Ali had issued strict orders that penalties like liquidated damages outlined in contracts be enforced for companies executing public projects that continue to default on their contractual obligations.
It was subsequently announced that all Government ministries will soon have a unit tasked with assessing the performance of contractors across the various sectors to go after those delinquent ones. These units will be supported by a Contract Compliance Unit within the Legal Affairs Ministry to provide guidance and file legal proceedings where necessary.
Attorney General and Legal Affairs Minister, Anil Nandlall, SC, had cautioned contractors to ensure that they execute their contracts diligently and deliver projects that cannot be deemed substandard. He noted that this move by the Government is a demonstration of the administration’s commitment to move condignly against contractors who are negligent in the discharge of their duties.
Only recently, the Government moved to terminate the contract with Trinidadian company, Kalco Guyana Incorporated, which had abandoned its works on sections of the Conversation Tree Road Expansion Project.
Earlier this month, Minister Edghill disclosed that Kalco has since settled the outstanding mobilisation costs while the Government has paid the Trinidadian company for works done so far on the incomplete road.
Meanwhile, the Government has since retained S. Jagmohan Construction and General Supplies Inc., which has already completed another section of the Conversation Tree Road, to finish the abandoned works.
However, as the Government goes after these delinquent contractors, banks, and insurance companies that issue performance bonds to contractors could find themselves facing the consequences of delays in public projects.
During a June 6 press conference, Vice President Dr Bharrat Jagdeo explained that as part of their contracts, contractors are required to put up a performance bond that the State can draw down on should they fail to complete their work on time or at all.
These performance bonds are often issued by commercial banks and insurance companies. As such, in addition to contractors, the Vice President is also putting these financial institutions on notice that the Government intends to levy on these performance bonds.
“So, I want to urge the banks and the insurance companies too that if you’re giving a performance bond, you better make sure that your client is doing the work too because, at the end of the day, we will come against the bond that you have issued. And therefore, the insurance company or the bank will be called upon to perform and because we will draw down on the bond from them.”
“And so, I hope that they are also paying keen attention to this matter because sometimes they think that the issuance of these performance bonds is risk-free. But if your client doesn’t perform then the state has every intention of calling in the bond, and we’re doing this with greater frequency now,” Jagdeo noted.
The Vice President indicated that clear instructions have already been passed to all ministries and state agencies to look into cashing in the performance bonds.
According to Jagdeo, in the past, there was a “lax view” in instituting liquidated damages against contractors who had not completed their work within the contractual timeline – something that will no longer be obtained.
