Government currently owes construction and building industry contractors about R5.5-billion and recent business failures and job losses in the sector have been blamed on the non-payment or late payment of contractors.
Catch-22… Contractors feel that exercising their rights may jeopardise their chances of getting more business from the client. Image credit: Shutterstock
Roy Mnisi, executive director of Master Builders South Africa (MBSA), says this practice by government departments and government entities is the number one challenge facing the industry. Mnisi says there has been no improvement in this area year-on-year, despite government ministers in the built environment and even President Cyril Ramaphosa talking about the issue.
“We see no action on the ground to see that contractors are paid within the 30-day period after invoicing, as stipulated by National Treasury regulations.” Mnisi adds that situations where non-payment or delayed payment is the result of a query on an invoice are isolated instances. The majority of cases are, he says, where the work has been completed but for one or other reason the government department or entity is unable to pay.
Routine occurrence
The Construction Industry Development Board (CIDB) has reported that 60% of payments to contractors are delayed for longer than 30 days after invoicing. MBSA in January last year postponed a planned class-action court application against government, to recoup billions owed to its members for work done for municipalities, provincial and government departments and state-owned entities to engage with National Treasury in a last-ditch attempt to resolve the problem.
Mnisi says National Treasury highlighted some of the reasons for the non-payments and late payments during a meeting with MBSA earlier this year.
The reasons include:
- Bad budgeting;
- Lack of proper financial management in the department or government entity;
- Corruption; and
- The lack of consequence management.
The latter point means managers who sit with invoices and fail to comply with Treasury’s requirement that they pay them within the 30-day period face no consequences. Mnisi says the reasons provided for departments and government entities struggling to pay invoices within 30 days are unacceptable to MBSA, because they involve efficiencies that ought to exist in any government institution.
He says the payment issue has 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 non-payment as one of the reasons they have had to close shop.
Listed construction companies in business rescue include Group Five, Basil Read and Esor while others, including Aveng, have experienced severe financial difficulties. Mnisi says many sub-contractors rely on payments from the main contractor, and if these payments are not made, they cannot pay their employees or suppliers. Suppliers then often apply for liquidation of the company so they can get a little of the money they are owed, resulting in the company’s employees losing their jobs, he adds.
Source: Moneyweb
