Daily Independent Online.
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Monday, July 26, 2004.
Commissioner supports advance payment system
By Dada Jackson
Senior Property and Environment
Correspondent, Lagos
The Lagos State Commissioner for Works and
Infrastructure, Mr. Rauf Aregbesola, has joined those advocating the retention
of the advance payment system, stressing that the system needed to be
reappraised to prevent the abuse of the privilege.
Aregbesola made the appeal in an address he delivered at a
two-day workshop on ‘‘Management and Administration of Advance
Payments and Bonds in Construction Contracts,’’ organised by the
Nigerian Institute of Quantity Surveyors (NIQS), at the Lagos Airport Hotel,
Ikeja
He said the advance payment system, as a form of
assistance, was inevitable in construction contract in Nigeria to ensure
delivery.
According to him, it would ‘‘be difficult
to regulate the entry and exit of contractors into the construction industry most
especially during this period of our democratic experience.’’
Besides, he added that it was therefore necessary, to continue with this
advance payment system if ‘‘we actually want the project to take
off and to avert cost overruns.’’
He, however, warned that concerted effort should be
made to protect the government from the insecurity of the advance payment
bonds, which according to him, lack follow up by bond agencies, and had not led
to the recovery of down payments.
He said though many contractors had abused this
privilege, ‘‘the Lagos State government is making concerted efforts
at recovering total payments by the setting up of Arbitration panels to try
erring contractors in order to ensure the satisfactory discharge of
construction contracts.’’
According to him, the state government fully
supported the vision of Quantity Surveyors and consequently, became the first
state in the federation, to establish a Department of Quantity Surveying in the
ministry, stressing that
‘‘this became necessary, because the
modern approach to project implementation required sound professional advice at
all stages right from the project conception, preparation of feasibility
studies, planning, design, procurement, overall cost management, construction
and commissioning.’’
In his
address, the President of the institute, Mr. Olusegun Ajanlekoko, said that
advance payment had become an important factor in Procurement Management in
Nigeria’s construction industry, adding that the practice had become rife
both in the private and public sectors.
He pointed out, that while the history of the
practice was difficult to locate, various reasons had been given for the warm
reception it had received from all stakeholders.
According to him, in some instances, advance payment
had been made to stem the tide of price volatility and fluctuation in
construction projects when it is applied for advance purchase of key materials.
He pointed out that in some instances, it served as a
demonstration of seriousness on the part of the client that he was ready to
fully fund the project.
Ajanlekoko said industry stakeholders considered the
issue of Advance Payment a crucial element of construction project procurement
because of many reasons.
He explained that as advance payment is made in
anticipation of performance of a given obligation by the recipient, the like
likelihood of default and consequential losses cannot be ruled out.
He noted
that bonds and guarantees are made to protect the person who makes the advance
payment against the risks of default and consequential losses by the recipient,
adding that it had therefore become an accepted industry practice that advance
payment and bonds /guarantees go hand in hand.
Ajanlekoko said that the workshop was coming at the
right time, noting that it was a direct response to the raging crises of
confidence among industry stakeholders on the efficacy and effectiveness of
advance payments and bonds.
He said that the credibility of bonds issued by
insurance companies had come under severe assault in recent times with the
result that most clients were reluctant to accept insurance bonds as sureties
for their exposures on advance payments.
The NIQS outgoing president said that validity period of
bonds was another area, which should
command the alertness of consultants because liability of the guarantor
is limited by the validity period of the bond or guarantee unless anything to
the contrary was provided.
