• Wednesday, June 12, 2024
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Will bond insurance for FG contracts take-off in the New Year?

Will bond insurance for FG contracts take-off in the New Year?

The Nigerian insurance industry in 2021 began conversation around providing bond cover to de-risk federal government contracts over abandonment. How this plays out in the New Year will go a long way in helping government manage the spate of project abandonment across the country, even as data reveal that there are 11,886 abandoned federal and state government projects across Nigeria.

Besides helping the government, it will help the industry mobilise more premium and subsequently increase its contribution to the GDP.

Industry regulator, the National Insurance Commission (NAICOM) had at a recent meeting with operators directed firms to enhance their bond underwriting capacity, one of the industry CEO’s told Business Day.

According to the CEO who do not want his name mentioned, one of the resolutions at the meeting was that: “Insurers are required to review and strengthen their bond underwriting practices and procedures as part of the measures in making insurance bonds a mandatory pre-requisite for federal government contracts.”

Contract bonds are a type of surety bond that must be filed with the owner of a project (the “Obligee”) as a condition for the contractor to bid on or to enter into a contract. Contract bonds consist of two primary categories – (1) bid bonds required of contractors as a condition for a contractor to submit a valid bid on a construction contract; and (2) final bonds required of contractors to enter into a contract.

Contract bonds protect the project owner by transferring to a surety company the cost of damages resulting from a contractor failing to perform the duties of the contract (“Performance Bond”) and failing to pay labourers and material suppliers (“Payment Bond”).

Contract bonds are most often required by government agencies for construction projects on public property, experts stated.

The News Agency of Nigeria had reported on June 3, 202 that Jibrin Barau (APC- Kano)’ Bill on ‘Compulsory Development Planning and Project Continuity Bill,’ that seeks to make it unlawful for governments at all levels to have abandoned projects in Nigeria has passed a second reading in the Senate.

Read also: Emerging market bond insurance costs surge as rout bites

According to the Bill there were about 11,886 abandoned projects littered across Nigeria Federal and State governments.

Barau, in his lead debate, said the bill sought to make provisions for state governments to establish and ensure implementation plans for projects within their jurisdiction from inception to conclusion.

The legislator said the Presidential Projects Assessment Committee reported 11,886 abandoned federal and state government projects across Nigeria, which require N7.78 trillion to complete.

He added that the committee revealed that political and personal considerations outweighed the national interest in the award of contracts.

“Majority of the contracts the committee said were procurement-driven rather than development-driven. With this ugly political trend and worrisome disposition of some politicians, the nation is utterly consigned to retrogression if not urgently checked,” explained Barau.

He added that the abandoned projects and lack of continuity in government programmes and policies were largely responsible for Nigeria’s limited economic and infrastructural development.

“All over the world, government is a continuum. Ideally, once the baton of leadership of a nation is handed over to a new government, the onus lies on it to embrace the projects, policies, and programmes of the previous administration without recourse to any personal, party, or primordial interests.

“However, one major identifiable draw-backs to social, economic, and infrastructural development in Nigeria is lack of continuity of policies and programmes of governments at the federal, state, and local levels.

“State resources are poorly managed as some political leaders often embark on white elephant projects that cannot endure the test of time at the twilight of their tenures.

“This unfortunate tradition has badly characterised governance and induced corruption since 1999,” said Barau.

President of Senate Ahmad Lawan had referred the bill to the Committee on National Planning and Economic Affairs for further legislative work