New FG directive: MDAs must remit 5% contractors’ retention fees to CBN

The Federal Government of Nigeria has directed all Ministries, Departments, and Agencies (MDAs) to remit five per cent retention fees deducted from contractors’ payments to the Central Bank of Nigeria (CBN).

This directive aims to address ongoing issues regarding the non-payment of retention fees by MDAs after project completion.

New Directive to Ensure Prompt Payment

In a memo dated June 27, 2024, and signed by the Accountant General of the Federation, Oluwatoyin Madein, the government emphasised the necessity of this directive following numerous complaints from contractors.

The memo, tagged OAGF/CAD/026/Vol.V/896, was addressed to key government officials including the Chief of Staff to the President, Femi Gbajabiamila; all ministers, Special Advisers, Service Chiefs, and Foreign Missions.

The retention fee serves as a form of security for construction contracts, ensuring contractors meet their obligations. Typically, a retention fund is a five per cent deduction from the total contract sum, kept in a separate account by the ministry, and paid to the contractor six months after project completion, verification, and certification.

Simplified Payment Process

Upon project completion, contractors apply through the procurement department of the relevant ministry. The department then forwards the request to the permanent secretary for consideration and approval, ultimately sending it to the Ministry of Finance for payment.

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However, due to previous delays and financial constraints, the Office of the Accountant General of the Federation (OAGF) has now mandated that retention fees be deposited directly into a designated account at the CBN. This move is designed to safeguard these funds and ensure timely payments once the six-month defect liability period expires.

Details of the New Guidelines

The memo states, “Following incessant complaints from contractors over non-payment of their retention fees by Ministries, Departments, and Agencies, and in accordance with Treasury Circulars Ref. Nos. OAGF/CAD/026/V.III/116 -TRY/A9&B9/2017, it has become necessary to issue these guidelines.”

Key points from the directive include:

• Mandatory Remittance to CBN: “The five per cent (5%) retention fees deducted from contractors’ payments shall henceforth be remitted to the retention fees account domiciled at the Central Bank of Nigeria.”
• Safeguarding Funds: “The purpose is to safeguard the funds, pending the expiration of the six-month defect liability period, after which the MDA could apply for the payment of the money to the contractors.”
• Detailed Schedule Required: MDAs must prepare and attach a schedule of executed contracts as of December 31st, on which retention fees have been deducted in line with relevant contract agreements. This schedule must be certified by the Accounting Officer and the Director/Head of Finance and Accounts and forwarded to the Sub-Treasury of the Federation.
• No Fresh Fund Requests: Requests for fresh funds for the payment of retention fees to contractors will no longer be entertained.
• Inspection and Compliance: Compliance with these provisions will be verified during inspections carried out by the Treasury Inspectorate Department.

Addressing Previous Delays

In 2022, contractors who had executed contracts with the Federal Ministry of Agriculture and Rural Development appealed for the resumption of retention fund payments, citing financial difficulties faced by the ministry. This new directive aims to prevent such delays and ensure that contractors are paid promptly.

The OAGF memo underscores the government’s commitment to resolving these issues and maintaining a transparent and efficient process for handling retention fees, thereby fostering a more reliable and accountable system for contractor payments.