The South African construction industry teeters on the brink of collapse due to dwindling profits, unethical conduct, and widespread delays or non-payment to subcontractors.
This alarming prognosis is issued by the Master Builders Association (MBA) North, urging immediate action to avert further job losses and insolvencies.
“The industry is in dire straits,” asserts Mohau Mphomela, Executive Director of MBA North.
Subcontractors, the backbone of the construction sector, bear the brunt of this crisis. MBA North members emphasize that delayed or withheld payments pose a significant obstacle to South Africa’s construction landscape. Smaller enterprises, particularly subcontractors, endure protracted waits for compensation, exacerbating financial strain as they struggle to meet payroll and vendor obligations.
“Subcontractors, grappling with income losses and mounting debts while fulfilling obligations to workers and suppliers without profit, endure prolonged payment delays,” states MBA North.
Nico Maas, past president of MBA North and representative of Gauteng Piling, reveals staggering financial losses totaling over R9 million in recent years, coupled with outstanding debts amounting to R11 million due to non-payment. “Our small company, with 22 permanent employees, faces existential threats,” laments Maas.
The reliance on subcontractors intensifies as numerous companies face liquidation, a stark departure from the historical practice of in-house employment by contractors. Wanda Merrington, an MBA North member, highlights that up to 80% of construction work now falls under subcontractors, who often lack the expertise, resources, and financial reserves of larger contractors.
Neil Duncan, chair of the MBA North Sub-contractor sub-committee, underscores the industry-wide ramifications of contractor financial instability. “Main contractor difficulties, stemming from contractual disputes or poor performance, reverberate throughout the industry, impacting suppliers, main contractors, and especially subcontractors,” explains Duncan.
Proposed Solutions:
- Retention Funds: MBA North advocates for the establishment of retention funds, wherein withheld funds are secured until project completion and client approval, akin to the practice employed by the Federated Employers Mutual Assurance Company. Maas proposes the inclusion of all retention funds into such a scheme to safeguard main contractors and subcontractors alike.
- Fair Contracts: Uwe Putlitz, former CEO of the Joint Building Contracts Committee, emphasizes the importance of equitable contracts and industry best practices. Clear, standardized contracts outlining terms, timelines, and penalties are crucial to mitigating disputes and ensuring fairness for all parties involved.
- Best Practices: Adherence to proper contract management and dispute resolution mechanisms is essential to minimize conflicts. Subcontractors are encouraged to exercise due diligence when engaging with clients and to resist signing unfavorable contracts under duress.
Brad Boertje, a risk management consultant and legal advisor to MBA North, emphasizes the need for collective action to combat unfair business practices. “It’s time for a unified stance to demand ethical conduct for the benefit of all stakeholders,” asserts Boertje.
