Govt owes R5.5bn to contractors

FIRMS’ WOES: BEING PAID LATE OR NOT AT ALL LEADS TO JOB LOSSES, BUSINESS FAILURES

Being paid late or not at all leads to job losses, business failures.

Construction bosses think exercising their rights may risk chance of getting more business.

Government owes construction and building industry contractors about R5.5 billion and recent business failures and job losses in the sector have been blamed on late, or nonpayment, of contractors. Master Builders South Africa (MBSA) executive director Roy Mnisi said this practice by government departments and entities was the number one challenge facing the industry.

He said there had been no improvement in this area year-on-year. “We see no action on the ground to ensure that contractors are paid within the 30-day period after invoicing, as stipulated by National Treasury regulations.”

Mnisi added that situations where nonpayment or delayed payment was the result of a query on an invoice were isolated instances.

The majority of cases were where the work had been completed, but the government department/entity was unable to pay.

Routine occurrence

No action on the ground to ensure contractors are paid

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

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

Mnisi said Treasury highlighted some reasons for the late and nonpayments in a meeting with MBSA earlier this year: Bad budgeting; A lack of proper financial management in the department or government entity; and

Corruption, and the lack of consequence management (managers who don’t comply with Treasury’s 30-day payment requirement face no consequences).

Mnisi said the reasons provided were unacceptable to MBSA because they involved efficiencies that ought to exist in a government institution.

He said the payment issue had 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 nonpayment as one reason they had to close shop.

Listed construction companies in business rescue include Group Five, Basil Read and Esor. Others, including Aveng, have experienced severe financial difficulties. Mnisi said many subcontractors relied on payments from the main contractor and if these payments weren’t made, they could not pay their employees or suppliers.

Suppliers then often applied for liquidation of the company so they could get some of the money they were owed, resulting in employees losing their jobs. Black Business Council in the Built Environment president Majute Kgole told MBSA’s congress last week it bemoaned the state of the construction industry, largely because contractors generally did not exercise their rights in terms of their contracts, “because they will not get a second contract from the client”.

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

“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.”