Contractors Struggle with CDF Projects in Malawi Due to Lack of Security Bonds

The implementation of projects under the Reformed K5 billion Constituency Development Fund (CDF) in Malawi is facing challenges as some contractors are struggling to obtain security bonds from banks. The CDF, which allocates K5 billion to each of the 229 constituencies, requires contractors to produce bonds from banks as sureties in case they fail to deliver projects. However, due to limited capital, some contractors are finding it difficult to secure these bonds.

The Ministry of Local Government and Rural Development has expressed concern over the situation, with Principal Secretary Dingiswayo Jere stating that the ministry is "not happy" with the progress. Jere noted that some contractors are bidding for projects but failing to satisfy the requirements of the contract, delaying the implementation process. The ministry is working with the Malawi Building, Civil Engineering and Allied Trades Association (Mabcata) to discuss with banks the provision of bonds.

A shortage of contractors has also been identified as a potential issue, with each council having an average of 50 projects to be worked on. This shortage, combined with the difficulties in obtaining security bonds, could affect the implementation of the CDF in its first financial year. The ministry is keen to avoid extending the implementation period, as this is performance-based and any unspent funds will lapse at the end of the financial year.

Malawi Local Government Association executive director Hadrod Mkandawire has emphasized that if contractors fail to secure bonds, which is a legal requirement, the contracts will be terminated to protect public funds. Mkandawire noted that councils have learnt a lesson from the current situation and will need to scrutinize the capacity of contractors more thoroughly in the future, not only in terms of technical capacity but also financial capacity.

Mabcata vice-president Kondwani Kadango has acknowledged that some of their members are struggling to get the bonds, citing the requirement for collateral, which is about 20 percent of the total contract amount, as a major challenge. Many contractors do not have the necessary collateral, making it difficult for them to secure the bonds.

The Malawi Government had disbursed K85.5 billion under the CDF to 30 of the 36 local councils by September this year, enabling them to pay contractors to mobilise resources for projects. The government is working to ensure that the implementation of the CDF projects is completed within the financial year, and measures are being taken to address the challenges faced by contractors.

Contractors are being advised to consider joint ventures, where a contractor with technical capacity partners with another with financial capacity, to overcome the challenges of securing bonds. The Malawi Local Government Association and Mabcata are working together to find solutions to the issues affecting the implementation of the CDF projects, ensuring that the funds are utilised effectively and efficiently.

Key points

• Contractors in Malawi are struggling to obtain security bonds from banks, which is a requirement for implementing Constituency Development Fund projects.
• A shortage of contractors has been identified, which could affect the implementation of the CDF projects in their first financial year.
• The Malawi Government is working to address the challenges faced by contractors and ensure that the CDF projects are completed within the financial year.