BMC to return 50% cash deposit to contractors

The BMC has decided to return half of the cash deposits to contractors to help them deal with the cash crunch due to the pandemic. For the remaining 50 per cent, contractors can replace the cash deposits with bank guarantees. This will be applicable to only those contractors who have completed 50 per cent of their work. Also, those contractors who are facing probes for shoddy or substandard work will not be eligible for this scheme.

The BMC has cash deposits and bank guarantee of at least Rs 500 crore from major contractors who work in departments like roads, bridges, water supply, education and health, officials said. This is done to ensure that contractors don’t abandon projects mid-way and the BMC can redo the projects like roads and bridges in case contractors do substandard work.

“This new scheme is in line with the circulars of the central and state government. This will help contractors generate some liquidity since they are facing a cash crunch. By taking back the cash deposit, they can use the money to get work done and instead give us a bank guarantee. This will reduce the cash load on them,” said P Velrasu, Additional Municipal Commissioner, Projects.

According to BMC officials, contractors pay hefty cash deposits to the BMC if they are given work orders for infrastructure projects like roads, bridges and even water supply projects. According to BMC rules, when contractors bid more than 12 per cent below the estimated costs, they are required to submit a cash deposit, over and above the performance bank guarantee. The lower they bid, the more is the cash deposit bank guarantee. If a contractor bids 12 per cent below estimate, then there is no cash deposit but just a bank guarantee of 0.92 per cent. But if he bids 13 per cent below estimate, then the BMC takes a cash deposit of 1 per cent and a bank guarantee of 1.92 per cent.

In May this year, the central government had announced two major relaxations for private contractors engaged by central government agencies -up to six months’ extension for completing the work and partial release of bank guarantees.

Contractors have said that even the bank guarantee must be waived since the smaller contractors bear higher cost for bank guarantee as financial institutions seek higher collateral. “We will get 50 per cent of the deposits back and to take the remaining 50 per cent we will have to replace the cash deposits with a bank guarantee. The banks charge a lot for giving bank guarantees and take three times in collateral. So we have requested that the bank guarantee must be waived, if more than 50 per cent of the work is complete,” said a contractor, who refused to be named. Velrasu said waiving the bank guarantee was under consideration. “Contractors have demanded that the bank guarantee should be waived. This is under consideration. We have also given a 6 months extension for all projects,” Velrasu said.