…𝑪𝒐𝒏𝒕𝒓𝒂𝒄𝒕𝒐𝒓𝒔 𝒑𝒆𝒕𝒊𝒕𝒊𝒐𝒏 𝑷𝒓𝒊𝒎𝒆 𝑴𝒊𝒏𝒊𝒔𝒕𝒆𝒓 𝒕𝒐 𝒓𝒆𝒄𝒐𝒏𝒔𝒊𝒅𝒆𝒓 𝒕𝒉𝒆 𝒆𝒙𝒕𝒆𝒏𝒅𝒆𝒅 𝑫𝒆𝒇𝒆𝒄𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝑷𝒆𝒓𝒊𝒐𝒅, 𝒄𝒊𝒕𝒊𝒏𝒈 𝒄𝒐𝒏𝒄𝒆𝒓𝒏𝒔 𝒐𝒗𝒆𝒓 𝒃𝒂𝒏𝒌 𝒈𝒖𝒂𝒓𝒂𝒏𝒕𝒆𝒆𝒔 𝒂𝒏𝒅 𝒑𝒓𝒂𝒄𝒕𝒊𝒄𝒂𝒍𝒊𝒕𝒚 𝒊𝒏 𝒕𝒉𝒆 𝒄𝒐𝒏𝒔𝒕𝒓𝒖𝒄𝒕𝒊𝒐𝒏 𝒊𝒏𝒅𝒖𝒔𝒕𝒓𝒚
In a noteworthy development, the 2023 Procurement Rules and Regulations (PRR) have witnessed a significant alteration-a lengthening of the defect liability period from one year to two years. This change has prompted a wave of dissatisfaction among contractors in Bhutan, who have joined forces to submit a formal petition to the Prime Minister, appealing for a reconsideration of this modification and a reinstatement of the original one-year defect liability period.
The contractors’ plea was formally presented during the Annual General Meeting of the Construction Association of Bhutan (CAB), a pivotal event that unfolded from September 8 to September 11, 2023.
The defect liability period, often abbreviated as DLP, occupies a pivotal role within construction contracts. During this period, contractors bear the responsibility of addressing and rectifying any defects or issues that may arise in the completed project. It functions as a guarantee, ensuring that the construction work aligns meticulously with the agreed-upon standards and specifications, safeguarding both quality and accountability.
Karma Drugyal, a contractor conveyed his concerns regarding the extended defect liability period. He said, “The primary issue with extending the defect liability period to two years centers around the retention of 10% of our payment until the conclusion of this extended period. To secure this 10%, we are mandated to furnish a bank guarantee. However, if the bank guarantee remains tied up for two-year duration and, during that time, we secure another project, the availability of funds may fall short.”
Further emphasizing their position, Drugyal stated, “We have formally communicated this concern with the Prime Minister and are currently awaiting their response.”
Ugyen Namgay, another contractor, shared a similar perspective and recounted the series of events that led to this juncture. He revealed, “As early as the previous year, discussions regarding the extension of the defect liability period to two years had commenced. In February, I had the privilege of representing the contractor community at a meeting convened by the Department of National Properties (DNP), now known as the Department of Procurement and Properties. During this meeting, the proposal to extend the Defect Liability Period (DLP) to two years was once again deliberated, but we vehemently voiced our disagreement. Regrettably, the DNP informed us that they would engage with the Prime Minister on this matter. To our dismay, the 2023 Procurement Rules and Regulations (PRR) published in June unmistakably incorporated this change.”
Namgay added to the discourse, shedding light on a crucial aspect of the issue. He remarked, “As contractors, we do not oppose the idea of extending the Defects Liability Period (DLP) to two years or even longer, especially if it contributes to the preservation of the highest work quality. However, the challenge we are grappling with presently is associated with procuring a bank guarantee. Unfortunately, banks typically refrain from offering guarantees for periods beyond a certain length, and this limitation is even more stringent for entities classified as Non-Performing Loans (NPLs).”
Expanding on the Prime Minister’s perspective, Namgay said, “During the meeting, one of the Prime Minister’s favorable responses was a question: ‘Is it genuinely necessary to allocate 10% most of the time for maintenance, given that in many instances, only 5% or 4% is actually required?’ Based on my observations thus far, I have witnessed maintenance needs that substantiate this query.”
Dorji, a contractor, said, ‘With the extension of the Defect Liability Period, it further constrains the availability of funds during tough times for the construction industry, our retained money also remains frozen with the client for two years. This fund could be easily invested in other projects. Otherwise, we have to submit a bank guarantee, unnecessarily paying the bank. Either way, this extension is a liability to the company.’
“During the project execution period, if the project is properly monitored for quality and thoroughly verified upon completion, this extension is futile and does not serve the intended objective. It only increases unnecessary financial liability for the contractors,” he added.
In a move indicative of their resolve, the Construction Association of Bhutan has officially submitted a request for a comprehensive review of the Procurement Rules and Regulations (PRR) to the Prime Minister. This request, which forms part of their Annual General Meeting (AGM) resolutions, encompasses a meticulous examination of the Defects Liability Period. The contractor community now eagerly anticipates the outcome of this submission, with the hope that their concerns will be addressed to ensure a balanced and effective regulatory framework in the construction industry.