by Jotirmoy Roy

The construction industry, a vital pillar of Bhutan’s economy, is grappling with unprecedented challenges. Nearly 70 per cent of contractors face financial hardship and dwindling opportunities, putting the sector on the brink of collapse. Stakeholders now call for urgent government intervention to address systemic issues and revive the struggling industry.

A major overhaul of the Procurement Rules and Regulations (PRR) 2023 is underway, with the government promising reforms to standard bidding documents and procurement processes. A pivotal consultation meeting on December 3 between the Department of Procurement and Properties and contractors aims to bring clarity and equity to the industry.

A Sector in Crisis

The pandemic’s lasting impact has left many contractors struggling to stay afloat. According to Trashi Wangyal, President of the Construction Association of Bhutan, the crisis has pushed numerous contractors to the edge of financial collapse.

“Some have received loan deferments until June 2024, but others are burdened with non-performing loans and unable to access working capital or bank guarantees,” Wangyal said.

The PRR, instead of providing solutions, has added layers of complexity. Inconsistencies in procurement regulations between agencies and regions have led to confusion and unfair practices. Additionally, the rules often favour procuring agencies, with contractors bearing the lion’s share of the risks, including 10 per cent performance bonds and retention money requirements.

The Core Issues

1. Lack of Uniformity in PRR: Contractors face varied and often contradictory rules across different procurement agencies and dzongkhags.
2. Direct Awarding of Contracts: The practice undermines transparency, bypassing competitive bidding processes.
3. Contract Splitting: Larger contracts are often broken into smaller chunks to evade formal procurement regulations, disadvantaging qualified contractors.
4. Special Contract Conditions: Terms are sometimes tailored to specific contractors, raising concerns of favouritism and collusion.
5. Market Oversaturation: With 2,800 contractors competing for limited projects, market saturation has become a pressing issue.

Proposed Pathways to Revival

Contractors have put forth a series of recommendations to stabilize the industry and promote equitable practices:

• Performance-Based Contractor Management: Assign projects to contractors based on merit and proven capabilities.
• Third-Party Quality Monitoring: Independent oversight to ensure accountability and transparency in project execution.
• Simplified Procurement Processes: Streamline post-pandemic regulations to ease the burden on contractors.
• Balanced Risk Sharing: Amend procurement rules to distribute risks more equitably between contractors and procuring agencies.

The Road Ahead

Despite the challenges, the construction sector holds significant promise. The government’s 13th Plan, with a capital budget exceeding Nu 200 billion, offers hope for rejuvenating the industry. Contractors believe that well-designed policies and transparent implementation could revitalize the sector, creating jobs for the over 10,000 people it employs.

“The government must take realistic measures to support the private sector, ensuring tangible outcomes that trickle down to the economy,” Wangyal emphasized.

Conclusion

The December 3 meeting is a decisive moment for Bhutan’s construction industry. With contractors and government officials coming together, there is hope for reforms to address long-standing grievances and set the industry on a path to recovery.

As the construction sector awaits critical policy shifts, its future will depend on whether these reforms can balance the interests of contractors, agencies, and the broader economy. Only then can Bhutan’s construction industry emerge stronger and more resilient.