Construction World August 2015

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INDUSTRY HAILS PROMPT PAYMENT MEASURES

Hennie Bester, MD of Gauteng Piling, says many subcontractors come from previously disadvantaged backgrounds, and their new businesses rely on prompt payment for survival.

Charl Venter, president of MBA North, says the new Security of Payment regulations would be a lifeline for a struggling building sector.

Master Builders Association North has enthusiastically described the Department of Public Works' draft Prompt Payment regulations as a ‘lifeline for survival’, and has urged all players in the construction industry to immediately register their strong support for the proposed amendment to current legislation.

"The fact that the proposed legislation covers both private sector and public sector clients is to be welcomed. If the legislation is promulgated, it will lead to a huge improve- ment in the financial wellbeing of all stake- holders’ in the construction Industry and also counter unemployment. Employees in the industry are often retrenched or find themselves without a job when a business fails as a result of late or non-payment," Duncan stated. Hennie Bester, another past president of MBA North and MD of Gauteng Piling, which has acted as subcontractor on several multi-million rand projects, said: "For subcontractors, the biggest obstacle in successfully doing business has been delay in payments. Many subcontractors are relatively small companies, some from previously disadvantaged backgrounds, and such businesses simply cannot survive with the pressure late payments have put on their profitability. Gauteng Piling is, therefore, extremely happy about the new proposed regulations." Nico Maas, MBA North and Master Builders SA past president, who has been a campfighter for the new regulations for many years, has urged all involved in the construc- tion industry to voice their unequivocal support for the new regulations. "It must be remembered that the new law is, at this stage, still a proposed measure, and building industry members must also bear in mind that there are parties likely to oppose the new regulations. It is therefore imperative that the building industry shout its support from the rooftops for a legal amendment that could save thousands of jobs," Maas urged. Wesley Soutter, commercial & legal director of MBA North, said bodies such as the Construction Adjudication Association of SA would have to play major role to ensure that the ‘rapid’ mandatory statutory adju- dication outlined in the draft legal amend- ments is complied with. "It is unfortunate that the new proposed legislation at this stage does not extend to house-building but it is undoubtedly a stepping stone towards economic stability in the construction industry," he stated.

Industry comments Charl Venter, current president of MBA North and director of the Pretoria contracting firm, J.C. Van der Linde & Venter Projects, commented: "The proposed new legislation is a lifeline for survival, something MBA North has been seeking for almost 16 years. If legislated, the new rulings will have a huge impact on the construction industry in which it has almost become the norm for a contractor to finance projects in the public as well as private sector. "Hopefully, the new legislation will ensure that local, provincial and national government, as well as private developers' finances are in place before any construction work is started. Cash flow is the most impor- tant factor in any business. Without cash flow no company can exist – and in the struggling construction sector the situation is critical. Due to poor market conditions and very low profit margins since 2007, most contractors do not have any retained earnings and there- fore little or no cash flow," Venter added. Neil Duncan, past president of MBA North and chief financial officer of flooring company, Kevin Bates Albert Carpets, agreed: "Many good companies have been forced out of business as a result of late or non-pay- ment. When a project fails, it is generally the main contractors and sub-contractors that bear the brunt of the failure because developers’ or clients have failed to secure adequate funding before starting a project. Government projects are renowned for late payment which places emerging businesses – who do not have sufficient working capital – under severe pressure.

Interested parties had until 28 July this year to comment on the amendment to the Construc- tion Industry Development Board (CIDB) Act 2000, published in the Govern- ment Gazette on 29 May, 2015. The CIDB Prompt Payment Regulations and Adjudication Standard, contained in the draft amendment, proposes changes that would enable a ‘fair and speedy’ resolution of payment disputes and provide contrac- tors with unprecedented legal recourse to demand timely payment for completed work. A CIDB survey found that 43% of payments to contractors were made more than 30 days after invoicing. What it entails The new proposed Security of Payment regulations prohibit the policy of ‘pay-when- paid’ and withholding of payment, and allow for the fair suspension of construction activities owing to non-payment. It also enti- tles a contractor to charge interest on late payments, and insist on regular payments within a defined time frame, or strictly within 30 days of being invoiced. The proposed changes also incorporate a mandatory statutory form of adjudica- tion – a ‘fair, rapid and inexpensive’ mech- anism. In essence, parties would under the new legislation be compelled to resolve >

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disputes through adjudication within 28 days, extended by 14 days only in prescribed circumstances.

Similar Security for Payment regulations are applicable in the UK, Singapore, Hong Kong, New Zealand Australia and Malaysia.

CONSTRUCTION WORLD AUGUST 2015