Zimbabwe: Building Contractors, Govt Headed for Legal Showdown

The Zimbabwe Building Contractors Association (ZBCA) is mulling taking the government to court over loss of revenue caused by recent changes to the currency regime, businessdigest has learnt.

Government in February abolished a 1:1 peg between the US dollar and the Real-Time Gross Settlement dollar's predecessor, a fiat currency called bond notes introduced in 2016 as well their electronic equivalent, and introduced the foreign currency interbank rate. Government then abolished the multi-currency regime which was introduced in 2009 through Statutory Instrument 142 of 2019 in June this year.

In an interview this week, ZBCA president Francis Mangwendeza said the shifting of goalposts by government as a result of the currency changes has shortchanged them, hence the need for a class action suit against the state.

"During the period prior to the abolition of the US dollar, contracts were denominated in US dollar. Treasury argues that contractors factored in parallel market rates into their pricing. That is true but only to a certain extent. Contracts priced in 2017 or earlier are more than likely to have been priced in US dollar than contracts priced in 2018," Mangwendeza said. "Because of delays occasioned by various factors including non-payment of claims, lack of forex to import critical inputs and other technical factors, most contracts were lagging behind schedule. As such, a substantial number of contracts were priced before 2017.

Over and above this are issues to do with other contractual claims including retention. A two-year contract priced in 2015, commenced in 2016 and completed in 2017 now has retention due in 2018."

He said they have taken legal opinion on this issue and have tried to engage the Ministry of Finance without success. This, he said, has resulted in their contemplating a class action as an industry to challenge "the said directive and relevant Act".

"It is our view that the application of this particular directive from Treasury is ultra vires one of the principles upon which law is enforced: that you cannot apply the law in retrospect.. This statutory Instrument also contradicts the contract conditions which cannot be changed in retrospect.

What we mean is that where work has been undertaken and certified based on set of conditions and legal provisions, you cannot then apply a law in retrospect that changes those conditions upon which work was undertaken," Mangwendeza said. "As such, it is our contention that all payments due for work done prior to the promulgation of the Treasury circular should be treated as intended in the contract. It is therefore only fair that work done and claims due prior to February be paid at the interbank rate."

Mangwendeza said the banning of the multi-currency regime has been badly implemented and has crippled the construction sector."The transition from foreign currency-denominated contracts to Zimdollar contracts has not been handled well enough and has threatened the viability of the industry.

The change has also caused economic instability. This makes it difficult for the industry to function," Mangwendeza pointed out. "Construction has a long payment cycle from inception of a project to its final payment to recouping investments.

This necessitates a stable economy upon which certain predictions can be made. Where the predictions and or assumptions are adversely affected due to external factors, it brings uncertainty into the project."He said the sector needs economic stability and predictability if it is to remain viable

"The currency which is used is not critical as long as it is stable and exchangeable," Mangwendeza said.

He said the sector has been adversely affected by the prolonged power outages which last up to 18 hours on a daily basis."Like all other sectors we have been adversely affected. We can no longer plan production schedules for those tasks and processes that require power.

Secondly, we are unable to get raw materials as we need them as suppliers' production, for example in cement and other products, is hampered by the lack of power," Mangwendeza said. "The lack of power also lowers investor confidence which impacts on confidence and investment in the construction sector."

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