Pre-Budget submission for Budget 2022

Construction services is a potential export income earner for the country. Through careful planning and introducing a conducive environment for construction companies to improve their productivity and competency, we can build a world class construction industry that will enable our construction companies to become internationally competitive and bring the much needed foreign income to our country – Pic by Shehan Gunasekara

By Ceylon Institute Of Builders

Introduction

The Budget 2022 is being presented at a critical time for our country. The country is emerging from the COVID-19 pandemic which had a profound negative impact on our economy. However we have been able to emerge from the pandemic swiftly due to the proactive measures taken by the Government to mitigate the impact of the pandemic. Thanks to the accelerated vaccination rollout, we are well underway to vaccinate the entire population of the country by the end of this year. About 55% of the population, including 75% of those over 20 years of age, has already been administered both the doses of the vaccine.  

While the country is emerging from the COVID-19 crisis with hope, we are confident that the Budget 2022 will propose measures needed for our country to enter into a resurgent phase of our economic development while meeting the fiscal challenges that we face in the short term. While the Government needs to begin focusing on long-term strategic and structural development challenges, the country faces challenges in loan repayments and reducing trade deficit and balance of payments.  More than ever, we have to focus on catalysing investment and improving our productive capacity. 

Finally, an improved trade balance and strong remittance inflows are important to narrow the current account deficit. While Sri Lanka’s foreign earnings come primarily from tourism, textiles, tea, rubber based and agriculture products, service sectors such as information technology, financial services and transport have increased substantially. The Government has understandably been focusing on supporting these sectors. Similarly, a sector that has high foreign earning potential is the construction sector. But, adequate attention has not been given to the construction sector by successive governments.  

The future of the global construction industry looks good with opportunities in residential, non-residential and infrastructure and is expected to reach an estimated $ 10.5 trillion by 2023. This presents numerous opportunities for Sri Lankan construction organisations to venture abroad. The construction services is a potential export income earner for the country. Through careful planning and introducing a conducive environment for construction companies to improve their productivity and competency, we can build a world class construction industry that will enable our construction companies to become internationally competitive and bring the much needed foreign income to our country.

We would like to present the following pre-budget submissions for the Budget 2022 to:  

• Address the current problems affecting the industry, and
• Introduce measures to develop our construction industry on par with the international standards and become a major export earner for our country.  

We have grouped our suggestions under the relevant subject/ ministries.

1. Ministry of Finance

Establish a dedicated authority to address all the issues related to the construction industry

We recommend the establishment of a dedicated authority with sufficient resources and a broader mandate to act as a single widow for developing the construction industry to alleviate the challenges faced by the industry currently. 

The proposed authority should:

• Establish strategic collaboration and alliance with private sector, industry associations/ chambers and professional institutes to develop strategic plans and policies for developing and strengthen the construction industry to be on par with international standards;
• Facilitate construction companies to venture out to other countries and market their services;
• Have the mandate to formulate and reform policies, rules and regulations as and when necessary;
• Be given the necessary legislative authority to issue directives and circulars as and when necessary to ministries, departments, authorities, provincial councils and local government institutions to strictly implement clear and consistent policies;
• Regularly monitor the regulations and payments to be made to the contractors by line ministries, departments, provincial councils, etc. and ensure that the ministries don’t deviate from the established standard contract document, procurement procedures and directives issued by this unit;
• Look into settle the outstanding payments owed to the contractors in an effective manner.

Develop a fully-equipped construction data and statistical centre 

Presently, construction related statistics are not collected and maintained by any agencies and hence we recommend the setting up of a fully equipped construction data and statistics centre with:

• A centralised database which is regularly updated to provide price data related to construction material and labour wages, and made available to all the Government institutions and industry practitioners to access through the official web-based system. The ministries and departments should be asked to use the price data from the database to calculate the total cost estimate prior to calling a tender; 
• A web-based database containing historical data pertaining to the details of infrastructure projects implemented by central ministries, local authorities and provincial councils. 

Support small business recovery and enhance access to capital

We encourage the Government to:

• Consult businesses and financial institutions on further measures to enhance small business financing, including tax policies to incentivise increased investment in small businesses and opportunities to modernise existing programs;
• Issue clear directives to the provincial councils and local government authorities to follow the Government recommended standard procedure for awarding construction tenders to only contractors registered with CIDA;
• Provide training to MSMEs on management, business planning, financial management, book 

Foster entrepreneurship in construction industry

Entrepreneurial organisations which are typically Micro, Small and Medium Enterprises (MSME) are known to contribute disproportionately to innovations, job creation and improve economic conditions of a country. 

We propose that the Government should include the following measures to promote entrepreneurship in the country:

nIntroduce innovative schemes and financial instruments to enable access to finance by the start-ups;

• Develop special schemes to support entrepreneurs by helping them to integrate with the digital economy and gain a stronger foothold in global value chains;
• While negotiating with other countries for trade agreements, gaining market access for smaller start-ups should be discussed;
• Foster an inclusive innovation ecosystem for entrepreneurs.

Financing the construction industry via development banking

Construction is a capital intensive industry and availability of long term capital at concessionary interest rates are essential for the development of the industry. Therefore, we recommend that a development bank be established for the development of the construction and other capital intensive industries.

• Revise conditions related to retention money and performance bond
• The amount retained by the client as retention money and the value of performance bond to be submitted by the contractor for a tender is unreasonably high and hence we recommend the following measures: 
• Reduction in the percentages of retention money and performance bond in the tender conditions;
• Temporarily waive-off the requirement of retaining retention money until such time the economy of the country improves; 
• Channel the funds claimed from the performance bond of the contractors who default, to the development of construction sector  

2. Ministry of Construction

Streamline public procurement with harmonised procurement guidelines and bidding documents 

We recommend the following measures to be taken to streamline the public procurement process: 

• Enactment of a Public Procurement Law;
• Enactment of a construction contract adjudication law for a speedy and cost effective dispute resolution procedure;
• Revision of Govt. Works procurement guidelines with positive features;
• Incorporating such Procurement guidelines in SBDs (Standard Bidding Documents);
• Introduction of fair and reasonable terms in general conditions of contract;
• Revision of SBDs with same terminology, terms and provisions among all the four SBDS. 

Establish a construction research institute

The Government should setup a dedicated construction research institute to promote research and development and innovation in construction technologies, building materials, machinery and equipment, process improvement, etc. and promote more university industry collaboration. This institution should:

• Promote and fund university-industry collaborations;
• Provide good governance and incentives to encourage business innovation;
• Fund R&D activities related to construction sector in universities and research institutes;
• Make funds available through budgetary allocation to promote innovation in the construction sector; 
• Enable availability of credit and an environment that supports international market and encourage venture capital investment to accelerate innovation;
• In collaboration with the industry associations and chambers, conduct annual industry-wide competition to recognise and reward organisations and staff for proposing/implementing innovative ideas in the industry.

Improve technical infrastructure and knowhow of the construction companies

Benefits

• Sri Lankan construction firms are well equipped to compete in the global construction market; 
• Construction contractors are able to complete projects more efficiently, at a greater speed and lesser cost.

Encourage manufacturing of construction material in Sri Lanka

We recommend that the following measures be adopted to promote the manufacturing of construction material in Sri Lanka;

• To develop a national manufacturing policy;
• Promote FDI and incentivise Joint Venture partnership in the construction material manufacturing industries;
• Initiate a targeted campaign to attract FDI and JV partnerships from companies in emerging economies such as China, India, and Malaysia etc.
• According to Central Bank, “During the last decade, South-South FDI, which involve emerging market economies (EMEs) such as China, Malaysia, India and Russia, investing in similar economies has increased. Such countries are more focused on market access and raw materials and have different perceptions about the quality of institutions than firms of advanced nations.” Therefore, we need to cater to the requirements of FDI sources from these countries.
• Establish a technology acquisition and development fund to facilitate the acquisition of technology by small and medium enterprises;
• Establish a scheme to provide low interest loans to manufacturing companies;
• Setup a steering committee to find solutions to the problems affecting the existing material manufacturers to grow their businesses and formulate a plan to utilise their abilities and skills to contribute effectively to the economy

Prioritise the achievement of Sustainable Development Goals

We recommend that the Government should:

Initiate a policy to include the achievement of sustainable development goals (SDG) in the planning stages of any infrastructure project to ascertain that the project will enhance the country’s march towards achieving the SDG goals by 2030;

• Ensure that priority is given to minimise waste and standardise design requirements of the Government sector buildings at the design stages; 
• Incorporate on-site power generation from renewable sources such as solar, wind etc. as a component in the new building projects; 
• Promote prefabricated and modular technologies to minimise construction waste;
• nInvest in identifying and developing methods in mitigating construction waste and implementing processes to recycle construction waste
• Develop long-term plan to achieve Carbon neutral (Zero Co2 emissions) for all new buildings

3. Ministry of Education and State Ministry of Skills Development, Vocational Education, Research and Development

Address skilled labour shortage in the construction industry 

We recommend that the Government should:

Make budgetary allocations to invest in vocational education infrastructure to increase the annual student intake for building related vocational courses;

• Encourage work-integrated learning by providing incentives for employers to take on more trainees during studies; 
• Introduce regulations where a provisional sum is allocated in budgeting for tenders to encourage construction companies that are awarded the tender to employ and train the students of technical colleges and training institutes attached to Vocational Training Authority and National Industry Apprentice Training Authority.

Initiate a dedicated capacity building programme for the construction industry to enable them to become internationally competitive 

In order to address issues such as lack of technical infrastructure and productivity, it is recommended that a dedicated capacity building programme for the construction industry be initiated by the Government with the assistance and collaboration of donor agencies. 

This should:

• Act as a vehicle for stimulating broad based industry growth, promoting international competitiveness and implementing knowledge enhancement programmes; 
• Assist contractors to send their managers and skilled workers for training in consultation with foreign construction companies, universities and training organisations;
• Fund for training programs on lean construction, green construction and other emerging technologies to help contractors to adopt the latest technologies to enhance quality, save cost and improve productivity in their operations;
• Persuade the donor agencies to allocate a certain percentage of the project budget for capacity building while negotiating with funding agencies;
• Engage industry associations/chambers and professional institutes to identify and address the skill deficiency gap in the industry.

4. Ministry of Justice

Enact ‘Construction Payment Guarantee Act’ to ensure guarantee of payment for performance of construction works

In Budget 2022, we encourage the Government to enact ‘Construction Payment Act’ to ensure that any company or person who undertakes to carry out construction work under a contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work.

5. Ministry of Labour

Modernise labour laws and reduce holidays for business growth

We request the Government to:

• Modernise the current archaic labour laws with new laws and regulations in line with the present context of demand and target driven output in order to increase productivity;
• Devise mechanisms and strategies to find a suitable solution for the unusually large number of holidays in the country.

6. Ministry of Public Services, Provincial Councils and Local Government

Modernise the Regulatory Framework

While bureaucracy is essential for functioning of a Government, it can act as a detriment to the economic growth, especially if the existing bureaucratic processes and procedures are not modified according to the changing business and economic environment of the world. We recommend that,

• Government regulations that negatively impact businesses and impede growth should be changed with the objective of reducing red tape; 
• Strategise and implement measures to mitigate the deficiencies, delays and lapses in the current regulatory system;
• Conduct regular surveys among public to find out the performance of the Government employees vis-à-vis expectation of the public while receiving Government services such as obtaining building approvals, getting payments, taking pensions, etc.;
• Department of Census and Statistics should be directed to publish internationally comparative data on the administrative burden created by excessive Government regulation in Sri Lanka.

Constitutional reform for an effective Government structure

We propose that constitutional reforms be enacted to bring about an efficient administration free of corruption and a public sector that is responsive to the people’s needs. The envisaged reforms:

• Should eliminate multiple layers of governance mechanism that is prevalent today by doing away with local councils and provincial councils;
• Should have only a single layer of elected members per electrode; 
• The Provincial council system that has become a severe drain on Government funds should be abolished altogether.

7. Ministry of Technology

Fuel Future Growth by Digitising the Delivery of Government Services to Businesses and Public 

Digitisation of the Government is increasingly enabling countries to open up opportunities for businesses, organisations and people to work towards a brighter future by delivering Government services more efficiently and productively, cut burdensome red tape and reduce public service expenditure. We propose that an inter-ministerial steering committee be set up with the following objectives:

• Putting burden reduction principles at the forefront of the day-to-day work of Government by amending, introducing and eliminating regulations;
• Conducting extensive studies and audits within individual ministries to identify regulations, processes and pain points:
• that impede efficient delivery of services to the public and businesses; 
• that can be eliminated by digitisation;
• that are duplicated in other ministries contributing to wastage of time and hence need to be streamlined
• Monitor and provide ministry-by-ministry breakdown of progress on regulatory reduction on a regular basis; 
• Work with ICT agency to employ state-of-the-art technology to make it easier for businesses to comply with regulations;
• Modernise the regulatory framework and introduce acts and bills to simplify and streamline regulations and harmonise rules across the Government;
• Formulate a mechanism to identify Government institutions which are over staffed and introduce measures to reduce the recruitment of Government officers to those institutions;
• Introduce a ‘Voluntary Retirement Scheme’ to encourage public sector staff to retire from the Government services and engage in other productive activities

Foster digital transformation in the construction sector

We would like to propose to the Government to:

• Establish a task force to promote the use and deployment of digital technologies in the construction industry and to encourage the widespread application of BIM (Business Information Modelling) in the Government sponsored infrastructure projects: 
• Develop a road map for the achievement of the above objectives with industry support and engagement of Government, industry and academia;
• Develop and adopt standardised contracts to mandate and facilitate BIM implementation in infrastructure projects;
• Develop and review platform standards and guidelines;
• Digital skills: to assess and identify skill needs in digital construction and invest in training programs that not only build needed capabilities but also provide new opportunities to workers displaced by these technologies;

• Provide financial access and support to construction contractors to speed up the absorption of digital technologies 
• Create a regulatory framework on data policy to enable the implementation of a ‘common data environment’ for construction industry and create of a common digital platform based on ‘open’ standards
• To develop a national data policy for the digital built environment in Sri Lanka and establish a task force for integrating geospatial modelling and building information modelling.