CONSTRUCTION COMPANIES ‘FRONTING’ AFFECTS COMPETITION

MBABANE - Competition is imperative to the construction industry as it contributes to the quality of service delivery and sustainability of the industry.

However, this is not the case in Eswatini as local construction companies have adopted the strategy of fronting when procuring tenders. According to the Construction Industry Council (CIC) of Eswatini, fronting in construction procurement involves two or more companies with a mutual director competing in the same category of works/tenders. This was said during a CIC stakeholder Forum yesterday at Esibane Sami Hotel. CIC said it also involves companies accessing work in categories that they were not registered for through submitting other company documents at tender stage.

The regulator also mentioned that the strategy incorporates foreign companies engaging in unfair JV agreements with local companies to access local participation. CIC also mentioned that ‘fronting’ has further engulfed the contractor registration platform. When it comes to registration, CIC said they have experienced challenges whereby companies are registered under the same directorship using different company names doing the same scope of works.

Shareholders

They said in some cases construction directors indirectly owned companies under the directorship of others and emaSwati being major shareholders in partnerships with foreigners (silent shareholders). The council said local construction companies partnering in Joint ventures with foreign nationals has further worsened the situation. They said this provides an artificial sense of change, leaving the workers who ought to benefit from it disgruntled and disempowered because they were only visible on paper and not on the ground. To curb the situation from worsening, CIC said they have put in place registration requirements, which are aimed at establishing the legal standing and relevance of an entity which applies to participate in the construction industry by offering contractor, consultancy or supplier services. This is incorporated in the CIC Act No. 14 of 2013, Section 27.

The regulator said the current contractor registration and grading criteria was currently under review in a bid to further curb the fronting challenges which are not addressed in the current contractor registration and grading criteria. CIC Chief Executive Officer (CEO) Maqhawe Mnisi added that a company director cannot register two or more companies in the same category of works and a holding company cannot register in the same category of works as a subsidiary company. He added that they require the competition commission’s authorisation in the case of company share holder changes or merges. “Given the complexities of the construction sector, it is prudent for us to ensure that where that is called for, we do it in a timely manner, and provide feedback to stakeholders where there have been challenges,” he said.

Mnisi added that they were in bid to incorporate additional registration rules for contractor registration. “A construction company shall not be registered where a director or shareholder has a direct or indirect shareholding or interest in a consultancy practice and vice versa. A holding company cannot register in the same category of works as a subsidiary company.

Directorship

‘A director, shareholder or employee of a company cannot have any shares, interest or hold directorship in any other company that is in the same class of works.’ “A construction company shall be allowed to register wherein a director has a direct or indirect shareholding or interest in a manufacturing and supply of building material business,” he said. The CEO further mentioned that business fronting was prohibited and considered illegal; any contravention shall be dealt with in terms of the Act. He said it was their commitment going forward to not give reasons on why they have not followed up on what we have been tasked by industry to do, but to produce results.

Mnisi added that they were also cognisant of the fact that implementing proposed actions might require further stakeholder engagements, and given the complexities of the construction sector, it was prudent for them to ensure they do it in a timely manner, and provide feedback to stakeholders where there have been challenges. “In the SWOT analysis that was produced from stakeholder engagements during development of the Strategic Plan 2019-2023, a number of challenges came up. “One of those challenges which will be deliberated extensively upon is the practice of fronting which is done by some contractors or consultants through registration or procurement,” he said. Mnisi also mentioned that this was an opportunity to bring together all relevant stakeholders including regulators with legislation that had a bearing on fronting activities and procuring entities, who take on infrastructure projects.

He said they believed they would be able to learn and appreciate where the limitations were and what each stakeholder has to do to address the issues so they leave with a common goal.
Under Secretary in the Ministry of Public Works and Transport Nhlanhla Motsa said construction procurement will always be an important issue of national interest; hence, there was a need to ensure a standardised construction procurement system. He said this would ensure that projects were awarded fairly and added that the issues of fronting had negative implications disadvantaging qualifying construction companies in tenders.

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