Riyadh is right to compensate firms

04 July 2008
Relief for contractors will be tempered by the knowledge that progress is unlikely to be immediate.

Saudi contractors can look to the future with a little more certainty following a decree by the government to compensate firms for rising materials prices.

The contractors had been hoping for such a decision after writing to the Council of Ministers earlier in the year to highlight their concerns over inflation.

However, the additional announcement that the government would double the advance payments paid to contractors to 20 per cent from 10 per cent came as a surprise.

With the majority of projects in the kingdom being government-led, Riyadh felt obliged to act and alleviate the concerns over the level of risk firms were taking on. If it did not, major projects to modernise the country’s ailing infrastructure could have been ignored by contractors unwilling to sign deals that virtually guaranteed a loss.

But relief for contractors will be tempered by the knowledge that even though the government has issued the decree, it does not mean there will be immediate progress. The onus is now on the Finance Ministry to set up a mechanism to implement the policy. It will still take time to iron out any difficulties before any payments can be made.
Even so, the fact that the government has issued the decree can only be a positive step for the construction sector.

Even firms that normally shy away from public sector work have voiced their approval of this shift, implying that some might now start to bid for government contracts and ensure greater competition. If such firms are becoming more open to the idea of government work, then the decree is certainly a success, both for contractors and for Riyadh.

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