Key sector has yet to wake up to the new SA
| Politically and professionally, the construction industry is stuck in the past, says Basil Read CEO
NEVILLE Nicolau, the CEO of Basil Read, one of South Africa’s largest engineering and construction companies, has slammed what he calls an “immature relationship between government and business”.
He blames this for the ongoing failure of the government to implement its R800-billion-plus infrastructure programme.
“The situation needs a bit of strong leadership. Somebody needs to get up and take the situation by the scruff of the neck, get the parties together and start the build programme that the country so badly needs,” he says.
Nicolau, who was appointed CEO of Basil Read in September last year after spending most of his professional life in mining, has harsh words for the construction industry, which he says is lagging behind transformation in the rest of South Africa.
“The construction industry needs to take stock of what it is doing and move forward into the modern South Africa, not continue to try and live in the past,” says Nicolau.
He says he believes that an effective roll-out of the government’s much vaunted infrastructure programme is being hampered by a high level of “distrust” between the government and the construction industry, which he attributes both to its lack of transformation and “the whole collusion saga”, during which most of the country’s large construction firms were penalised for colluding over large government tenders.
Basil Read, one of the smaller offenders in the collusion debacle, paid a R95-million fine.
“Our relationship with society and government in particular has led to a lot of tension on both sides,” says Nicolau. “There is huge unhappiness from the government with the construction sector.”
Nicolau says “mature leadership” is needed to move the situation forward. Asked if he has seen any signs of such maturity from the government, he sounds doubtful.
“Mature leadership could come from industry. There’s no reason why we can’t stand up and say, ‘We’re putting the problems behind us, we’re now going to modify our relationship and we’re going to behave ourselves as mature people.’ ”
Nicolau, 55, knows a thing about tough industries. He was, after all, CEO of Anglo Platinum until 2012.
Last week he unveiled appalling results, “shock and horror stuff”, for Basil Read.
Almost without fail, CEOs blame such calamitous performances on something safely beyond their control, invariably the “cycle”.
Nicolau offers the same excuse — although in his case, it’s his predecessors he is trying to protect rather than himself. He, after all, was parachuted into the disaster after it had happened, in order to fix it.
The construction sector goes through cycles, he says. It went into decline after the high of the 2010 Soccer World Cup and is now towards the bottom of the cycle.
At least that’s what he must be hoping.
“It’s debatable where we are in the cycle, but certainly in the lower part.”
The truth, as is usually the case and as becomes clear from a cursory reading of his report, is that Basil Read was brought low by astonishingly bad man- agement. It bought companies without asking what synergies there would be. As Nicolau found when he arrived, there weren’t any.
Each subsidiary operated independently as a separate com- pany with its own management structure, its own head office, board, directors and well-remunerated executives.
A lot of what they were supposedly doing in the name of, and at considerable cost to, Basil Read, was already being done by Basil Read. There was enormous overlap and duplication. Small wonder then that what helped torpedo Basil Read were its huge overheads.
Nicolau has changed Basil Read into a company with divisions rather than a company with separate companies.
“We’ve learnt that to run a company when subsidiaries go off and do their own thing is not appropriate,” he says.
Basil Read reported huge losses — but, says Nicolau, there were huge claims against these losses.
For example, it signed a R1.3-billion contract with the state-owned Trans-Caledon Tunnel Authority to build a 40km pipeline from De Hoop dam in Limpopo to the Steelpoort river. It took a R320- million loss on top of a R45million loss from the previous year because it couldn’t gain access to the land where it was supposed to build the pipe.
Arranging access was one of the tunnel authority’s responsibilities — but it failed to do so. Work had to be halted, which caused huge running costs.
Now, Basil Read is claiming R500-million back from the client.
“In the normal state of affairs this claim would be handled quite quickly,” says Nicolau. But almost three years later the parties are still in a dispute resolution process over it.
“One of the problems in the construction industry,” he says, “is that we’ve relied on relationships with engineers and clients in terms of settling things like this. The industry has moved on to be much more formal.”
The construction companies are still living in the past.
“With these big government contracts, we have to up our game in terms of the implementation of the contract from very early on,” says Nicolau.
One of the hazards of working with the government?
“No, if we do our work properly and get our stuff in on time we should be able to resolve these problems before they get to this level. It’s about how we manage the contract.”
So, badly managed contracts have come back to bite Basil Read on the bottom line?
“They are what they are,” he mutters.
The construction industry needs to take stock of what it is doing and move forward