Challenges Facing Contractors in KwaZulu-Natal
Thursday, 30 August 2018
Posted by: Ernest Roper
Our members are finding it increasingly difficult to remain in business. We have not seen as many business rescue applications and liquidations of construction related businesses, in the last thirty years. The current economic conditions are affecting builders across the board from the multinationals through to the small builder doing home alterations. The problems are multi-faceted and can be summarised as follows:
This year we have seen large scale non-payment of contractors by implementing agents, local authorities and private clients. Not only do the main contractors suffer when there is a breach of contract due to non-payment, the whole industry suffers. Subcontractors, suppliers, service providers and all the employees are left without funds in their bank accounts. The situation is becoming unsustainable and the previsions in the contract documents for remedy are not immediate.
There is a misconception that that building contractors operate on large profit margins. The majority of projects in the present economic climate are fortunate to break even on completion. Building Forums use the threat of work stoppages of site and violence to procure subcontract work on site at above market related prices. This is unsustainable as the main contractor cannot sustain losses on certain trades indefinitely. The costs of this practice will eventually be borne by the client. The client will only develop if it makes economic sense in that there is a return on their investment. When the building cost increases, the return on investment drops proportionately and therefore it becomes impossible to develop.
Compliance with statutory requirements
In the past year we have seen the Preferential Procurement Regulations and the Construction Sector Code being gazetted into law. The additional cost and administrative time by companies to comply with these regulations cannot be calculated at present. A company would have to keep costings over a few years in order to ascertain the full financial impact of this legislation. The problem is that companies are tendering at present to incorporate costs that they have no idea of their full financial impact on the business in the future.
Unfortunately, there is no standard documentation template in the industry. Every project manager, quantity surveyor and engineer have their own idea on tender documentation. It is an almost impossible task to prepare a bid in a period of a couple of weeks when changes are made to the standard clauses in the tender documents in all manner of ways. If the industry could agree on one method, this would allow for more competitive bids being submitted and alleviate contractual disputes during the project.
When the professional team are not paid the correct fees for services rendered in order to save costs there is only one outcome and that is poor documentation and detail. Therefore, to remain in practice at the reduced fee income, professional practices cannot supply the same detail and quality of documentation. This results in delays on the project and in some cases buildings of inferior quality. The delays always have a negative financial impact on the building contractor.
Building contractors are facing a fight for survival at present. The Association is working to mitigate the above problem areas and help our members through these difficult times.
R.H. Stembridge | Building Services Manager