While Sri Lanka’s construction sector is in the process of revamping, outdated procurement guidelines and a significant migration of skilled professionals continue to impact progress.
Adequate budgetary allocations and post-Ditwah financial provisions have been made, yet structural inefficiencies and administrative constraints remain the key bottlenecks to achieving the industry’s development targets.
Expressing these concerns in an interview with The Sunday Morning Business, National Construction Association of Sri Lanka (NCASL) Chairman M. Darinton Paul explained that the industry’s recovery depends on addressing procurement-related issues and the gap in the skilled labour force. He also noted the need for a fair distribution of projects and streamlined Government processes to prevent the downturn of the industry.
Following are excerpts:
Sri Lanka’s construction sector achieved notable growth in 2025 and activity spiked in January 2026, achieving a Purchasing Managers’ Index (PMI) value of 75 – its second highest reading after July 2020. Can you comment on the sector’s progress at present, especially considering post-Ditwah reconstruction efforts?
From the 2026 Budget, an amount close to Rs. 700 billion was allocated for infrastructure development. However, Ditwah took place after the Budget was finalised. Around Rs. 200 billion has been allocated for infrastructure destroyed by Ditwah. Thus, a total of approximately Rs. 900 billion has been allocated for construction activity.
Recently, we have specifically noticed an increasing number of tenders for university hostel buildings and similar construction. However, despite allocations and construction activity, the process of tender gathering is implemented based on the Procurement Guidelines and Manual of 2024.
Does this lead to any procurement-related issues, and if so, how must they be addressed?
The main issue in this process is that procurement guidelines allow authorities to consider certain contractor qualifications that may be of concern.
For instance, for a project valued over Rs. 500 million, the Procurement Guidelines and Procurement Manual list certain qualifications for a contractor to be pre-qualified. One condition under this is ‘similar nature and complexity’. For a hostel construction project valued over Rs. 500 million for around 400 students, the qualifications required include having completed a project of the same valuation and/or having undertaken another hostel project or a housing scheme.
However, the dollar exchange rate is different in 2026, and a project undertaken in 2019/2020 valued at around Rs. 300 million is similar in scale to a Rs. 500 million project today. If properly calculated under the Net Present Value (NPV), this would be evident.
When officials use that condition for tendering processes, the pool of companies that can undertake such projects is limited, affecting the ability of many firms to participate in the bidding process. Thus, we have been consistently requesting the Government to change this procedure. Only a proper correction of this condition would enable a large number of firms to bid.
The other issue is that regardless of the current crisis and exchange rates, the annual average turnover of the last five years is also needed for bidding. Regarding this as well, we have expressed the need to calculate based on the NPV. This is essential, given that Sri Lanka lacked construction activity for around five years.
Recently, the Chairman of the tender procurement committee for higher education agreed to consider the NPV following our requests. This enabled 12 companies to bid, when only four would have been qualified otherwise. This should be applied across the board, so that the industry can grow. If such a calculation method is not utilised, many contractors will lose their opportunity to bid.
The construction sector is a key contributor to Sri Lanka’s Gross Domestic Product (GDP) and economic growth due to the fast cash flow within the country. The reason for this is the large extent of industries connected to this sector in the supply chain. Thus, we have persistently requested the Government to address issues regarding the procurement manual conditions, taking into consideration the crisis of 2022.
Moreover, a system that ensures the fair distribution of projects, enabling a contractor to undertake at least one construction project, is essential. Regardless of the financial allocations, the due targets cannot be met if these issues are not addressed and those allocations will end up unused.
What solutions has the Government introduced so far to resolve this issue?
We have continuously informed the relevant authorities regarding these concerns. However, the National Procurement Commission is an independent body and therefore the Government is not able to become directly involved.
Our largest concern is that certain Government officers manipulate the aforementioned condition to impose unnecessary pre-qualification requirements. In the absence of clearly defined terms, only a few are able to engage in bidding, which ultimately hinders the development of the construction sector.
Moreover, the Procurement Guidelines provide for a Variation Review Committee to address situations subject to variation, including time extensions and other changes to projects. However, due to infrequent meetings, there are delays in the process and, consequently, delays in project completions. When the delay is from the client’s side, many large contractors raise concerns. The resulting losses must be borne by the Government, as this often leads to additional payments to contractors due to legal proceedings. Similar issues also arise when handing over projects due to administrative bottlenecks.
Due to these issues and other related challenges, there are several inefficiencies and delays in projects. Therefore, effective solutions are necessary and must be implemented in collaboration with builders, Government officers, and relevant authorities. There is a need to uplift the struggling construction industry while expanding Sri Lanka’s development efforts. To achieve this, proper discussions with all stakeholders is essential.
With a national construction policy planned for implementation, how should these issues be addressed within such a framework?
The Construction Industry Development Act of 2014 is currently in force. Our understanding is that with this act already established, there is no need for additional legislation or frameworks, as it already includes all the necessary requirements. However, effective implementation of the act remains essential. At present, the industry is facing more pressing issues that require attention.
Could you outline the most significant issue the industry is currently facing?
Following Covid-19 and the subsequent crises, the majority of skilled, top-tier industry professionals and engineers migrated, with much of the labour force and skilled technicians following suit.
I would say the biggest issue facing Sri Lanka’s construction sector at present is the shortage of a skilled and qualified labour force, which is heavily detrimental to the future of the industry. On the other hand, the youth are often reluctant to enter this profession as well, due to the lack of a proper reputation for the profession. While the act addresses concerns such as labour creation, the establishment of necessary funds for workers, and ensuring their safety and health, what is needed is the proper implementation and practice of these provisions.
While importing labour provides a temporary solution, it is not a solution that the entire industry can adopt, given the fact that around 75-80% of Sri Lanka’s construction industry consists of small and medium businesses. Therefore, the option of importing is mainly a solution for large-scale projects due to high salary demands.
Instead of relying on imported labour, Sri Lanka needs to reassess the current salary structures for workers, which are unsustainable and inadequate under the current economic circumstances. To attract talent to this industry, it is essential to build a proper reputation for the sector, ensure adequate compensation, and provide professional and technical training along with proper safety measures – ultimately making the trade more desirable. This framework must be established within the sector.
Is there a significant impact on the construction sector from the Middle East crisis so far?
Sri Lanka’s most pressing issue stemming from the ongoing war is fuel, which represents a substantial bottleneck for the construction industry.
A majority of the construction projects currently underway, including road construction, rely heavily on fuel. This shortage also risks creating bottlenecks in the transport system and price hikes due to supply chain disruptions, making it a significant issue for the industry. I reiterate that regardless of the notable financial allocations made for the construction sector, development programmes could collapse. The Government must intervene through all possible means.
What are the main solutions the industry expects from the Government going forward?
First, it is essential to acknowledge the 2022 crisis and recognise the fact that the sector has been in a state of collapse for five years. During this period of inactivity, many stakeholders faced several issues, including machinery malfunctions while trying to continue their businesses.
Thus, the Government must fully understand the situation and intervene more actively, ensuring that the implementation of planned projects involves all stakeholders in the construction sector. This approach would ensure a just distribution of construction opportunities based on capacity. In order to spend the budgetary allocations effectively, removing inefficiencies and restrictions is necessary.
Sri Lanka has a large number of projects distributed to provincial councils. Government officers employed in these councils must understand that the sector has undergone a major crisis. In addition, the tax system is burdensome, with a turnover tax of 2.5%, a 30% income tax, and several other taxes, creating a large tax base.
Therefore, when preparing calculations, it is crucial to properly account for raw materials, taxes, and other factors in order to ensure fair profit and overhead. Without this, many in the industry will not be able to survive.
We continue to engage in discussions and hope that the relevant authorities will pay attention to these issues and address the concerns of the construction industry appropriately. While the Government has fulfilled its responsibility by allocating sufficient funds for construction activity, it must also ensure streamlined processes and project completions.
The Government must observe the bottlenecks and inefficiencies, intervene, and address them effectively.