In yet another attempt to address the liquidity concerns in the construction sector, the government has decided to pay 75 per cent of the contract amount due to the contractors even if such payment is disputed and under arbitration.

This move is expected to address the cash flow problems being faced by project contractors that have resulted in delays in several infrastructure projects. Release of funds would not only help speed up work on existing projects but will also allow deployment of funds in newer projects.

An office memorandum from the Finance Ministry's Department of Expenditure said that a new RuleT227A has been inserted into the General Financial Rules (GFRs) followed by the government departments and agencies to deal with payment systems to be followed in cases of arbitration awards.

As per the new rule, in cases where ministry or departments have challenged an arbitral award and the amount of such award has not be paid, 75 per cent of the due amount (by ministry/department) will be paid to the contractors against a bank guarantee (BG).

he BG amount will only be for the said arbitral award and not for the interest which may become payable to the ministry should subsequent court order require refund of the said amount, as per the new rule.