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GOVT OWES CONTRACTORS E700M

15/12/2019 07:07:00 BY WELCOME DLAMINI

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MBABANE – The construction industry is one of those most affected y government’s ongoing cash flow crisis.
A survey conducted by the Construction Industry Council (CIC) has revealed that contractors are owed more than E700 million by government.

This has reportedly led to companies having to lay off employees or completely shutdown, resulting in the loss of 400 jobs.
This is contained in the CIC’s 2018/2019 Annual Report where Chief Executive Officer Nhlanhla Dlamini has disclosed the country’s low economic growth and government’s poor fiscal position meant the construction industry continued to grapple with challenges and faced an uncertain future.

“The current state of affairs has further been revealed by a recent study undertaken by the Council titled ‘Effects of delayed and non-payment of Contractors for Public Infrastructure Projects’. The study which focused on the period 2016-2018 has found that contractors are owed at least E700 million by government and with more than 400 jobs lost in the industry,” said the CEO.
The job losses have occurred over the past three years.

impacted service providers

As per the study, major implications of government’s non-payment has impacted service providers as evidenced by slow payments for construction goods provided on credit by suppliers and high defaults on outstanding loans from financiers.
“Indications are that government is no longer undertaking new major projects but is rather concentrating on ongoing infrastructure developments,” reads the report.
The CIC has recommended a number of strategies to address the challenges posed by the non or delayed payments and these include that government should establish a Construction Bank or Fund responsible for payment of tenders.
Also, that government should ensure availability of funds before a project is undertaken; and that industry associations should set up professional advice and service office to handle adjudication on dispute matters.

Additionally, that government should deposit its funds in an escrow account managed by the CIC and also that the CIC should mediate between government and contractors and facilitate communication between the two parties.
The CEO said the study further highlighted that in the short-term, the industry was expected to benefit from the clearing of arrears by government, something that was expected to provide relief to the contractors.
“However, the Council anticipates that reversing the job losses will require concerted efforts from all stakeholders working together to improve compliance and on effective and efficient project delivery towards a sustainable construction industry,” Dlamini said.
He pointed out that locally, the public sector’s capacity to deliver infrastructure projects as to support domestic and foreign investments, agriculture, tourism and improved service delivery in education and health depended on provision of significant resources.

economic conditions

However, according to the CEO, the current economic conditions necessitated increased participation of the private sector in delivery of infrastructure projects.
He said in the coming years, industry transformation was going to hinge on economic growth, level of resources allocated to maintenance of existing infrastructure and construction of new public infrastructure, and in the willingness of banks to finance new projects.

“There is therefore a need for government, industry players and stakeholders to engage in finding a lasting solution to existing challenges. Possible solutions that will be considered include the possible development of a construction fund, PPPs, development of infrastructure development plan (IDP), accelerated development of the low skilled through skills training and education and guaranteeing local SME participation through public procurement,” stated the CEO.
Meanwhile, Chairman of the CIC Board Dan Dlamini also shared his sentiments on the deepening challenges faced by the industry, particularly due to government’s fiscal challenges.

He said since the public infrastructure developments accounted for the majority of all construction works in the country, most contractors and consultants were directly or indirectly involved in government-related infrastructure projects.
The chairman stated that the delayed payment by project owners had resulted in the number of registered contractors declining from 1 197 the previous year to 1 059 in the 2018/2019 financial year.

Other factors that caused the decline in registered contractors were that there were fewer available projects as well as poor business management practices that led to poor business performance.
‘Furthermore, there is a general upward trend in terms of compliance of contractors which has reached 85 per cent based on statistics gathered from site inspections done by the Council.

effort to improve

“I addition, 77 per cent of consultants found on site were registered with the Council. On the other hand, project registration has been historically poor and recorded a compliance rate of 55 per cent for the financial year,” said the chairman.
He said therefore, in an effort to improve the industry and ensure increased compliance and effective efficient delivery of infrastructure projects among other things, the Board provided guidance to Council in pursuing strategic objectives such as ensuring financial sustainability, industry development and training, advocacy and compliance, customer service and stakeholder relations and organisational capacity and efficiency.
On the other hand, the chairman, when listing achievement of the Council, said over the years the Board worked tirelessly to ensure significant progress and achievement of milestones.

He said these included reduction of registration fees by 25 per cent, increased participation of local contractors, development of contractor grading criterion and registration procedure, increased compliance in company registration, intensified training and business development for contractors, trade testing for artisans, development of a construction industry associations regulatory policy, extensive consultation on and development of draft CIC regulations and undertaking of local industry skills gap survey.
Adding, the chairman extended appreciation for the concerted efforts towards creating a conducive environment for business, levelling the playing field for local contractors and forging alliances with industry stakeholders to deliver on the Council’s strategic objectives.