'It's viewed as a game': Western groups recoil at India's culture of late payment

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John Messer, the lead in-house lawyer for US engineering group McDermott International, was back in India again last week. It's a country he and his predecessors have got to know better than anyone would have imagined back in the late 1980s, when the contract was drawn up to build a giant offshore platform for the Mumbai High oil field.

For the past 17 years, McDermott has been trying to get paid.

In October 2006, Burn Standard, the Indian engineering company that sub-contracted work on the project to McDermott, lost its appeal against a court ruling instructing it to pay the US group $90m (£45m). The money has still to be received.

McDermott is an extreme case, but it is not alone. As more Western consultants, designers and contractors are lured to India by the scope of work available, many are discovering a big hitch: late payment is so common as to be almost routine.

Anoop Narayanan, a partner at Majmudar, a law firm in Mumbai, says: "We have a lot of disputes, especially in the international contract scenario, and most of these disputes are around payment."

In February 2006 Mark Dickens of Astound, the UK design consultancy known for its work on Tesco super- markets, was approached with what looked the deal of the century. India's richest man, Mukesh Ambani, wanted to build a modern retail sector from scratch. Astound was to design India's version of Tesco (Reliance Fresh) a hypermarket chain (Reliance Mart), and 11 other high-street formats. But long before the stores began opening in the middle of last year, the dream had become a nightmare as Reliance's late payments pushed Astound's finances to the brink – a major factor in the founders' decision last summer to close the agency down.

"They put an enormous strain on the balance sheet and caused us a lot of personal stress," Dickens recalls. "Where it got really hard was when we had done the lion's share of the project. We realised it was unlikely we'd get all the money."

Astound had to resort to extreme tactics. "We had to stop working on the project four times and refuse to continue work until we were paid."

Clough, an Australian oil services company, is still struggling to claw back $125m from India's state oil group, ONGC, over a deal for another offshore oil field a few years back. "It nearly killed this company," says a senior executive. "We've closed our office, fired all our people, and we're not working in India any more. Life's too short for that kind of stuff."

He adds that the country has the worst payment issues he's seen. " It's viewed as a game. If you're not from India, you're seen as a bona fide target for Indian business practices."

Experienced operators in India now overcharge to cover the extra interest costs caused by delays. An engineer who has been working there for more than a decade says: "Unless your client is Tata or Mittal, payment is always late." He adds that some players resort to bribery: "You have to have special people who work for you to expedite payments. You have to pay a lot under the table. But it's peanuts compared to the value of the contracts."

However, India risks losing much-needed expertise. Since the disastrous Dabhol project in the 1990s, when a US consortium of Enron, GE and Bechtel built a huge power station, only for the Indian government to refuse to pay, there has been big investment. For the many Indians, who only get a few hours' power a day, that isn't worth a candle.