Construction sector faces collapse over funding crisis — Contractors

The Federation of Construction Industry has warned that Nigeria’s construction sector is facing a severe crisis, with inadequate funding and delayed payment for certified projects forcing many contractors to suspend operations and operate at significantly reduced capacity.

FOCI, the umbrella body for organised companies and stakeholders in Nigeria’s construction industry, raised the alarm in a statement signed by its President and Chairman of Council, High Chief Vincent Barrah, and Director-General, Fidelis E. Imoisili on Wednesday in Abuja.

The federation said the slow pace of work by its members over the past year had become “very worrisome”, attributing the situation largely to the gap between budgetary provisions and actual release of funds for infrastructure projects.

It said, “The major challenge confronting the construction industry is inadequate and unpredictable funding.”

According to the federation, many infrastructure projects were awarded without adequate multi-year funding arrangements, resulting in delayed payments, accumulation of certified debts, reduced construction activities and, in some cases, suspension of projects.

“Most of our members handling various projects are not working and those working are operating at a very low capacity due to non-payment of certified jobs,” it stated.

FOCI also raised concerns over the termination of existing contracts by the Ministry of Works, arguing that contractors should not be blamed for delays caused by inadequate funding.

“It is on record that our members suffered arbitrary termination of contracts by the Ministry of Works. Although the termination of those contracts were done by Mutual Consent, it was mainly due to inadequate funding that delayed the execution of those projects,” the federation said.

It added, “You don’t expect a contractor to continue working without the provision of the necessary fund by the employer.”

The construction industry body maintained that infrastructure projects were capital-intensive and required regular funding to ensure timely completion.

“So if projects are delayed, suspended or abandoned, it is not the fault of the contractors,” it stated.

FOCI said the crisis had also resulted in significant job losses across the country, with about 41,800 workers reportedly losing their jobs during the period under review.

It explained that 1,000 workers in the senior staff category and 40,800 junior staff workers were affected, warning that the consequences extended beyond the workers to their families, businesses and the wider economy.

“Imagine the consequences and the multiplier effect to their families, the market women and the economy at large,” the federation stated.

FOCI further criticised what it described as non-compliance with the Standard Conditions of Contract in some projects, saying changes to contractual frameworks should involve all relevant stakeholders.

It called for collaboration among the Bureau of Public Procurement, Council for the Regulation of Engineering in Nigeria, Nigerian Society of Engineers, FOCI, Federal Ministry of Works and Federal Ministry of Justice in developing or reviewing standard contractual conditions.

On contract pricing, the federation said existing mechanisms for price adjustment and variation did not adequately respond to inflation, foreign exchange fluctuations and rising construction input costs.

• Nigeria raises N748.6bn from FGN bonds as rates ease
• Reforms raised revenue, but worsened hardship – Minister
• Nigeria’s portfolio inflows jump to $6.03bn in Q1

It noted that prices of cement, steel, bitumen, diesel, equipment, spare parts and other inputs had risen substantially following the depreciation of the naira.

“Contracts awarded several years ago may consequently become commercially difficult to execute at their original rates,” it said.

FOCI stressed that contract prices should reflect prevailing economic realities and the unique conditions of individual projects.

“Every project is unique, so either in augmentation or review of rates, the consideration should be based on uniqueness and must reflect the current realities for it to be effectively implemented,” it stated.

The federation also identified delayed certification and payment as major threats to contractors’ cash flow, noting that lengthy administrative procedures for project measurement, certification, approval and payment often forced contractors to finance substantial portions of government projects while awaiting reimbursement.

It said the situation increased financing costs and placed additional pressure on contractors’ working capital.

FOCI further lamented the high cost of borrowing, saying interest rates in the banking sector remained elevated, with lending rates ranging from about 20 per cent to as high as 46 per cent.

It said the high cost of finance particularly affected indigenous contractors and limited their capacity to invest in modern equipment, technology and workforce development.

The federation recalled that local contractors recently staged a peaceful protest at the Office of the Accountant-General of the Federation, saying the action reflected the level of frustration in the construction sector.

FOCI said Nigeria’s infrastructure deficit provided significant long-term opportunities for the construction industry but warned that increased capital allocations alone would not translate into completed projects without funding certainty and effective contract administration.

It called for urgent intervention by relevant stakeholders to address funding challenges, payment delays, contract administration and project implementation.

“Nigeria has a significant infrastructure deficit and therefore considerable long-term potential for the construction industry.

“However, translating increased capital budgets into completed infrastructure requires improvements not only in budgetary allocation but also in funding certainty, project prioritisation, payment discipline, contract administration and implementation capacity,” FOCI said.

The federation reaffirmed its commitment to Nigeria’s development, saying its members had a proven record of delivering quality projects.

“We as an organisation are patriotic and our members are notable construction companies with proven record of quality project delivery and we desire the best for the country,” it stated.

It therefore urged stakeholders to act urgently to prevent further deterioration in the sector.

“We therefore use this medium to call on all relevant stakeholders to intervene urgently in this dire situation to save the Construction Industry from total collapse,” FOCI said.