Only half of public sector pays builders within legal limit

Only about 50 percent of public corporations and national, provincial and metropolitan departments, and regional and district councils paid construction industry contractors within the 30-day limit prescribed by law, according to a new report. The 2012 construction industry indicators report from the Construction Industry Development Board (CIDB) also found that slightly less than 50 percent of private sector clients paid construction industry contractors within 30 days, but private sector clients are not necessarily under any legal requirement to make speedy payments. The Public Finance Management Act requires government departments to make payments within 30 days for all services rendered, unless reasons can be provided for the delay.

Delayed payments on road rehabilitation contracts in the Free State partly contributed to the liquidation of listed construction group Sanyati. Rodney Milford, the programme manager of construction industry performance at the CIDB, said this was a major issue affecting the sustainability of contractors. Minister in the Presidency for Performance Monitoring and Evaluation Collins Chabane announced in November that government heads of department and accounting officers would have to sign agreements that would ensure suppliers were paid in 30 days. He also announced the introduction of a new system, which was scheduled to be fully operational this year, to track and monitor payments to improve accountability across all departments.

Overall, the CIDB report revealed that approximately 48 percent of payments to contractors were made within 30 days of invoicing, 45 percent between 30 to 90 days and 8 percent took more than 90 days. The report said the public sector payment rates were reasonably consistent across all the provinces but the highest rate of payments within 30 days took place in the Free State, Limpopo and Western Cape. It said there had been a noticeable increase in payment delays last year for both contractors and the client’s agent compared with 2011. The report also highlighted that with R827 billion earmarked for infrastructure development over the next three years, only about 50 percent of construction tenders were evaluated on quality, price and the preference requirements of broad-based black economic empowerment legislation and regulations.

The report said there was an apparent low application of quality in the adjudication of tenders in the Western Cape, KwaZulu-Natal, Eastern Cape and Mpumalanga. Milford said a trend that was of concern to the CIDB was that functionality or quality was not being taken into account in some tenders. The CIDB advocates that quality should be taken into consideration when evaluating construction-related tenders above R1 million, where the nature of work requires quality, reliability, viability, durability and consideration of the bidders’ technical capacity and ability to execute a contract.

The report found that more than 80 percent of construction work contracts in the public sector were awarded to contractors in the top three CIDB grades in the general building and civil engineering classes of works who were graded by the CIDB to carry out work from R40m and above. The report said a further assessment of tender adjudication on public sector projects was the award of tenders in accordance with the tender committee’s recommendations. It said the 2012 survey indicated that overruling the recommendations of the tender committee in the public sector appeared to be most prevalent in KwaZulu-Natal, where 25 percent of the tender committee’s recommendations on 59 projects were overruled. Milford said the survey did not ask why tenders were not awarded in line with the recommendations of the tender committee. He said there could be valid grounds for this or it could be due to political interference.