The Master Builders Association North says that the non-payment of contractors remains a key barrier to a healthy construction industry. It is calling on all players within the industry, both within the private and public sectors, to adopt fair payment practices to avoid reputational damage and also to promote a collaborative spirit.
“Margins in the construction industry are paper thin, as we all know. It’s a serious business for small contractors when they are not paid timeously because they rely so heavily on cash flow,” says Enwee Human, Legal and Contractual Manager at Master Builders Association North. “Many risk going out of business altogether if their cash flow is interrupted and, as a result, increasing numbers of contractors are refusing to work with principal contractors who have a bad reputation for non-payment.”
The Construction Industry Development Board (CIDB) says that 60% of subcontractors have experienced delayed payments from main contractors. These late payments are not linked to any fault of the subcontractor. Human says that this is supported by the experience of the Master Builders Association, with the number of disputes between contracting parties rising from 2016 to 2017. Eighty percent of the disputes were based on payments, he notes.
“The danger is that principal contractors who get a reputation for late payment will find it increasingly hard to engage the best subcontractors or enjoy competitive pricing for a particular job, thus impacting their ability to do the best possible job for the client,” he says. “It also poisons any future working relationship that might come into being.”
One of the major drivers of delayed payment is the “pay when paid” principle, which is extremely unpopular with subcontractors and, says Human, is simply not fair. The subcontractor’s contract is with the main contractor; the subcontractor cannot be expected to absorb any delays or shortfalls in other contracts, especially as it has no control over them.
Human says, “We must also recognise that the construction industry value chain is highly dependent on cash flow and, ultimately, if the client delays payment, everybody down the line suffers. Government is a particular offender in this regard, and the Master Builders Association is currently engaging with National Treasury to facilitate prompt payment by municipalities, government departments and state-owned enterprises. Our members are currently owed around R5.5 billion and you can be sure that subcontractors are feeling the knock-on effect of that as well.”
The Master Builders Association is also currently working with the CIDB to finalise a voluntary standard for the industry to follow as regards payments. Human says that a regulation would be ideal, but in order to promulgate one, the Act that governs the CIDB would need to be amended.
“The forthcoming payment standard will make a great difference because it will give clients – especially in the public sector – a benchmark with which to comply,” says Human. “But until the Act is changed to allow the CIDB to publish a regulation, compliance will be voluntary. More than ever, it makes sense for contractors to ensure that they work with members of the Master Builders Association, because we can hold them accountable to our Code of Conduct and can arbitrate disputes. But, of course, we have no jurisdiction over contractors who are not members.”