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5 minute read
19 Sep 2019
9:15 am

State owes construction contractors R5.5bn


Paying late – or not at all – is leading to job losses and business failures.

Image: Shutterstock

Government currently owes construction and building industry contractors about R5.5 billion and recent business failures and job losses in the sector have been blamed on the non-payment or late payment of contractors.

Roy Mnisi, executive director of Master Builders South Africa (MBSA), says this practice by government departments and government entities is the number one challenge facing the industry.

Mnisi says there has been no improvement in this area year-on-year, despite government ministers in the built environment and even President Cyril Ramaphosa talking about the issue.

“We see no action on the ground to see that contractors are paid within the 30-day period after invoicing, as stipulated by National Treasury regulations.”

Mnisi adds that situations where non-payment or delayed payment is the result of a query on an invoice are isolated instances. The majority of cases are, he says, where the work has been completed but for one or other reason the government department or entity is unable to pay.

Routine occurrence

The Construction Industry Development Board (CIDB) has reported that 60% of payments to contractors are delayed for longer than 30 days after invoicing.

MBSA in January last year postponed a planned class-action court application against government, to recoup billions owed to its members for work done for municipalities, provincial and government departments and state-owned entities (SOEs) to engage with National Treasury in a last-ditch attempt to resolve the problem.

Mnisi says National Treasury highlighted some of the reasons for the non-payments and late payments during a meeting with MBSA earlier this year.

The reasons include:

  • Bad budgeting
  • A lack of proper financial management in the department or government entity
  • Corruption, and
  • The lack of consequence management.

The latter point means managers who sit with invoices and fail to comply with Treasury’s requirement that they pay them within the 30-day period face no consequences.

Mnisi says the reasons provided for departments and government entities struggling to pay invoices within 30 days are unacceptable to MBSA, because they involve efficiencies that ought to exist in any government institution.

He says the payment issue has been the direct cause of many of MBSA’s members going into business rescue and, in some instances, filing for final liquidation, with the companies citing non-payment as one of the reasons they have had to close shop.

Listed construction companies in business rescue include Group Five, Basil Read and Esor while others, including Aveng, have experienced severe financial difficulties.

Mnisi says many sub-contractors rely on payments from the main contractor, and if these payments are not made, they cannot pay their employees or suppliers.

Suppliers then often apply for liquidation of the company so they can get a little of the money they are owed, resulting in the company’s employees losing their jobs, he adds.

Majute Kgole, president of the Black Business Council in the Built Environment, told MBSA’s congress last week it laments the state of the construction industry, largely because contractors in the main don’t exercise their rights in terms of their contracts.

“For me, this is the biggest problem. Most of the contracts that are used for construction do have payment and claiming clauses and have a lot of other things, including extension of time,” he said.

“But we find that for some reason contractors are not exercising their rights in terms of their contracts. Contractors normally say they are a little bit scared to exercise their rights because they will not get the second contract from the client.”

In reference to projects being disrupted and stopped by business forums or the construction ‘mafia’, Kgole said he believes this is “a myth”.

He stressed that contractors could not just go into a community and start setting up camp and militarising the site, adding that many years ago there was a process to engage all the stakeholders in the area before moving onto a site.

However, Joseph Montisetse, president of the National Union of Mineworkers, says the business forums or construction mafia exist because some projects have been stopped.

Montisetse agreed that consultation is very important, but said these people do not need to take the law into their own hands by stopping projects that are intended to bring about service delivery in that particular geographical area.

“It must be condemned and the government must take action against these people because they are not legally operating to bring whatever economic assistance to the communities.”

Thembinkosi Nzimande, past president of the South African Forum of Civil Engineering Contractors, says it is painful to see that some companies would not have gone into liquidation if two or three of their major clients had paid them.

“People don’t understand the human impact of a liquidation and retrenchments.

“For certain officials to withhold payment to a company that was literally borderline and that could have been saved is a blight on all South Africans.

“This is one thing we have to solve.”

Nzimande says there are two lessons from the large companies that have survived and those that have collapsed.

Those that thrive seem to have evolved to infrastructure developments, as opposed to pure construction.

A lot of the companies that have a balance sheet where they own and operate projects seem to have survived, while many companies that are highly dependent on expenditure by government are experiencing a lot of problems.

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