Culture of late payments arguably starts with appointed representatives

by  — 4 September 2014

Many fast-growing markets face challenges affecting their growth rate, which if unsolved, could lead to unfortunate future consequences. An example of such a challenge is the apparent culture of late payment in Qatar’s construction industry. Qatari entrepreneur and contractor Zeyad Al Jaidah discusses the consequences and possible solutions to this dilemma.

Construction companies from around the world are drawn to Qatar to win contracts for the many mega projects the country has to offer. Some have come backed by political influence, others with competitive prices and few were invited because of their capabilities. However, they almost all share one problem here:  late payment. 

This often starts right from the initial advance payment (even though the contractor has submitted the statutory 10 percent advance payment guarantee and a 10 percent performance bond) and continues through all payment cycles, causing the contractor to absorb often crippling costs.

The reason for these delays begins, in my experience, with the mindset of the project manager (PM) assigned by the government and not because of insufficient funds. Expatriate PMs often do not sign off on payments because they fear something on the project may have been overlooked and will not be implemented once payment has been made, jeopardising their job.

Other PMs often seem to, I feel, think that all contractors are dishonest, with the sole intention of ripping them off. They do not seem to understand the relationship with the contractor must be equitable and fair, and that they must be paid on time to ensure quality delivery of the project. It bothers me greatly to see some local PMs taking pride in how they squeezed a certain contractor or saved money by not paying them for certain variations in the contract.

Ideally, the relation between the contractor and the client should be based on trust. Unfortunately, however, most times, a badly delivered project or its postponement is a result of these kinds of payment delays.  Indeed, the contractor is often forced to sign a one-sided contract where he cannot stop the work because of payment delays. Sometimes the contractor is also penalised for delay. In such a situation, whereas a foreign contractor has the choice of working here or another country, a local contractor has not much of an option but to accept this one-sided contract or close his business.

Another related issue is the practice of some contractors revising their quote upwards after winning a contract, but that is not universal. There certainly are others who maintain the costing they started with and make fair client servicing a priority.

It is very important for PMs to distinguish between these two categories of contractors. In the absence of this assessment, contractors are encouraged  to be unethical and change prices just to recover part of the losses they might incur because of anticipated late payments.  

One devastating consequence of this problem is apparent in many of our infrastructure projects. Some of them have either been executed in a slipshod manner or are incomplete. As a result, the country ends up spending double the justified cost. 

In my opinion, one way to avoid this is to put PMs through  special training, especially those handling mega projects that involve practical tailor-made experience in consultancy firms and with international contractors, so they get exposure from both sides. Ashghal, for instance, could start with Qatari engineers who are soon to graduate from engineering schools, locally or abroad. This will open their minds to assessing contractors who face delayed payments and the impact this can have.

The Ministry of Justice can also set up a division to oversee changes in the awarding of contracts by the government or semi-government entities, some of which have been described by contractors as being one-sided. It is frustrating for a contractor to be told that the government does not have the budget provisions for a bill presented. Thus another possibility is the Qatar Chamber and/or Shura Council recommending to the government to accept a penalty for late payments, similar to those contractors face for late delivery.  

A reputation for a culture of late payment can dissuade international firms from operating in Qatar or might persuade them to leave, but local companies also suffer under this unfortunate trend. Therefore, it is also the responsibility of Qatari contractors to keep lobbying for changes in the current system.

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