FOCI: Construction Industry Faces Collapse over Funding, Payment Crises

The Federation of Construction Industry (FOCI) has warned that the Nigerian construction industry is facing a serious crisis arising from inadequate and unpredictable funding, delayed payments and rising operating costs, urging urgent government intervention to prevent the sector from total collapse.

FOCI raised the alarm in a communiqué issued yesterday after its 70th Annual General Meeting (AGM) and read by its President and Chairman of Council, Chief Vincent Barrah.

The association said the slow pace of construction activities by its members over the past year was “very worrisome”, attributing the situation largely to the gap between annual budgetary provisions and actual cash releases for infrastructure projects.

According to FOCI, many projects are awarded without adequate multi-year funding, leading to delayed payments, accumulation of certified debts, reduced construction activities and, in some cases, suspension or abandonment of projects.

“Most of our members handling various projects are not working as we speak, and those working are operating at a very low capacity due to non-payment of certified jobs,” the association said.

FOCI also raised concerns over the termination of existing contracts, particularly those handled by its members for the Ministry of Works, saying some contracts were terminated by mutual consent because inadequate funding had delayed their execution.

The association argued that contractors could not reasonably be expected to continue executing capital-intensive projects without corresponding funding from employers.

“You do not expect a contractor to continue working without the provision of the necessary funds by the employer,” FOCI said, stressing that delays, suspension or abandonment of projects should not automatically be blamed on contractors.

The funding crisis, it said, was also taking a toll on employment, with situational reports from its unions indicating that about 1,000 senior staff and 40,000 junior workers lost their jobs during the period under review.

FOCI warned that the employment losses had wider consequences for affected families, businesses and the economy, given the sector’s position as one of Nigeria’s largest employers of labour.

The association also identified non-compliance with standard conditions of contract as another major challenge confronting contractors.

It called for greater collaboration among relevant stakeholders, including the Bureau of Public Procurement (BPP), Council for the Regulation of Engineering in Nigeria (COREN), Nigerian Society of Engineers (NSE), FOCI, Ministry of Works and Federal Ministry of Justice, whenever existing contract conditions need to be reviewed or replaced.

On contract pricing, FOCI called for a more responsive approach to price adjustments and variations, saying existing mechanisms often fail to adequately reflect significant changes in inflation, foreign exchange rates and construction input costs.

It noted that the prices of cement, steel, bitumen, diesel, equipment, spare parts and other inputs had risen significantly following the depreciation of the naira, making some contracts awarded several years ago commercially difficult to execute at their original rates.

“Every project is unique. So, either in augmentation or review of rates, the consideration should be based on its uniqueness and must reflect the current realities for it to be effectively implemented,” the association said.

FOCI further identified delays in the certification and payment of completed works as a major constraint on contractors’ cash flow.

It said lengthy administrative processes for measurement, certification, approval and payment often force contractors to finance substantial portions of projects while waiting for government payments, increasing financing costs and placing additional pressure on working capital.

The association also lamented the high cost of financing, saying elevated interest rates and limited access to affordable local infrastructure financing were making construction operations increasingly expensive.

According to FOCI, lending rates across Nigeria’s banking sector range from about 20 per cent to as high as 46 per cent, reflecting the prevailing tight monetary environment and banks’ risk assessment practices.

It said the recent peaceful protest by local contractors at the Office of the Accountant-General of the Federation was an indication of the level of frustration within the construction industry.

Despite the challenges, FOCI said Nigeria’s huge infrastructure deficit presented significant long-term opportunities for the construction sector.

The association, however, said translating increased capital budgets into completed infrastructure required improvements in project prioritisation, funding, payment discipline, contract administration and implementation policies.

It therefore called on the federal government and other relevant stakeholders to urgently intervene in the sector, warning that failure to address the challenges could further weaken construction activities, employment and infrastructure delivery.

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