Scrapping Non-Performing Contracts a Necessity, Says Minister Ghising

The government has defended its recent move to terminate non-performing contracts, stating that the decision is not arbitrary but a necessary step to end unproductive projects. Speaking at a dialogue on managing failing contracts in Kathmandu on Tuesday, Minister for Physical Infrastructure and Transport, Urban Development, and Energy, Water Resources and Irrigation Kulman Ghising said contracts were cancelled only when they had become dysfunctional and failed to deliver results.

The event was organised by the Nepal Infrastructure Journalists Society in collaboration with the Federation of Contractors’ Associations of Nepal.

Ghising said lapses on the part of government staff may also have contributed to contract failures and that such cases would be investigated and action taken. “There are many contracts that became non-performing due to shortcomings on the project side as well. They must also face action,” he said. “All the contracts scrapped or now under review have failed because of the contractors.”

He added that cases where contracts became non-performing due to the negligence of government staff had not yet been pursued. “Those employees must also be held accountable after due investigation,” Ghising said. Citing operational challenges in Nepal, he remarked that contractors who complete work in six months in China struggle to finish the same task even in six years in Nepal because of weak coordination among contractors, consultants and project offices.

Integrated procurement law ‘a mistake’: Secretary Sharma

Physical Infrastructure and Transport Secretary Keshav Kumar Sharma said Nepal erred by adopting a single integrated procurement law. Unlike India—which has no unified procurement act—Nepal requires sector-specific laws because issues vary by sector, he argued. “Problems arise when the same law governs both buying a pen and purchasing an aircraft,” he said.

Sharma added that despite claims of indiscriminate contract termination, only Rs 2 billion worth of contracts have been cancelled so far out of Rs 20 billion listed for review, meaning contractors need not panic. He stressed the need to reduce the number of construction firms and promote a corporate culture in the sector. He also noted that natural disasters such as the 2015 Gorkha earthquake and the COVID-19 pandemic had contributed to contract failures.

Banks at risk when failing contracts are scrapped: NRB

Nepal Rastra Bank Executive Director and Spokesperson Guru Prasad Paudel warned that widespread termination of non-performing contracts could strain the banking sector. Once contracts are scrapped, the concerned construction companies are placed on a watchlist, restricting their access to loans, he said. “Loans extended to these companies may fall into a lower category, forcing banks to increase provisions and raising their costs,” he added. Terminations also increase banks’ liabilities from advance payment guarantees and other facilities, and may lead to mandatory blacklisting of contractors, resulting in further credit tightening.

Contractors being pushed to collapse: FCAN

Federation of Contractors’ Associations of Nepal President Ravi Singh accused the government of acting with bias and terminating contracts in a way that victimizes the contractors. He said some firms have become financially crippled due to the government’s approach.

“A 15-year-old contract was terminated, but was the project chief ever punished for 15 years of delay? No,” he said, adding that one company lost Rs 3.42 billion in performance guarantees. Singh warned that contract cancellations disrupt not only the construction sector but the broader supply chain. “The government must work to prevent future contracts from becoming non-performing with the same level of urgency it is using to scrap old ones,” he said.

No more leniency for failing contractors, says DoR

Director General of the Department of Roads Dr. Bijay Jaisi said only contracts that failed to progress despite repeated deadline extensions were being terminated. He stressed that the process would continue strictly in accordance with the law. “Construction companies must mobilise on the ground. We can no longer show sympathy to failing contractors,” he said. “These contracts have reached the final stage of failure. The law is the law.”

Procurement law needs revision: PPMO

Joint Secretary at the Public Procurement Monitoring Office Rambandhu Subedi called for substantial revisions to the Procurement Act and Regulations to make them timely and workable.

Failing contracts reduced significantly: Former Secretary Thapa

Former government secretary and infrastructure expert Arjun Jung Thapa, presenting a paper on managing non-performing contracts, said the situation had improved significantly. As of December 2018, Nepal had 1,848 failing contracts worth Rs 118 billion, with deadlines for 1,032 of them already expired, Rs 23.6 billion in outstanding advances and Rs 5.9 billion in performance guarantees at risk. “Today, the number of such projects has fallen below 400, which shows improvement,” he said, adding that the goal should be to bring the figure down to zero.