Cash-strapped BBMP banks on new plan to clear bills

Dues concern

Under pressure to pay off its contractors, the cash-strapped BBMP has come up with a novel plan to clear a chunk of the Rs 3,000 crore it owes them.

Under the vendor discounting scheme, which the BBMP hopes to roll out in 15 days, contractors needn’t wait for the standard 24 months to get paid for the work they do for the civic body. They can get most of the money from the bank right away if they pay two years’ interest on it upfront. The scheme is touted as a win-win situation that will benefit both the BBMP and the contractors. The civic body hopes to clear as much as 70 per cent of the pending bills through this method.

Known for spending beyond its means, the BBMP pays contractors two years late for the work they do for it. It uses a seniority list (oldest bills are cleared first) for this purpose. It’s currently paying for works done in September 2020.

But the system has created a massive backlog of bills, frustrated the contractors and resulted in substandard work, which is blamed for Bengaluru’s poor infrastructure.

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There are also technical difficulties. For example, in many cases, by the time a contractor is due to receive the payment, there’s no trace of the work s/he had undertaken. Unscrupulous contractors indulge in double billing or collude with corrupt engineers to fake bills.

Reducing the bill settlement period was one of the major demands put forth by the contractors’ association when its representatives met BBMP Chief Commissioner Tushar Girinath in August.

The BBMP’s solution is the vendor discounting scheme.

Here’s how it will work: The BBMP will tie up with a nationalised bank that gives the maximum loan amount at the lowest interest rate.

The bank will disburse the loan amount to the contractor by deducting the interest upfront. The interest rate will be calculated based on the BBMP’s payment schedule, which is two years. According to the BBMP, the scheme will help contractors who usually fund their projects by taking loans from private lenders at exorbitant interest rates and need to repay them urgently.

Contractors are, however, free to opt out of the scheme if they are willing to wait for their turn to get payments directly from the BBMP.

Girinath said the civic body would share the seniority list (details of contractors due to receive payments) with the bank. “The bills will be discounted and paid to the contractor by deducting a percentage of the interest. We will pay the bank later,” he said.

A similar scheme introduced in the past had failed because of issues in shortlisting older bills and delays in releasing payments to the bank, he added, but promised that the new system will be fool-proof without any manual intervention.

K T Manjunath, president of the BBMP Working Contractors’ Association, said the system would help contractors who need immediate financial relief. “The scheme is such that the interest is deducted from the contractor’s payment. The BBMP does not lose a penny. Ideally, it should pay interest on payments it makes after six months,” he said.

How BBMP runs the city

* Unlike the state government budget, which lapses if the work is not completed in the same year, the BBMP has its own policy.

* Due to delays in approvals and other reasons, the BBMP’s action plan for this year is implemented only next year.

* The BBMP owes contractors Rs 3,000 crore because it usually overestimates revenues and takes up more projects.

* Political interference is also at play. Some of the ongoing works were authorised in 2017-18.