Tenders add to construction’s ills

Almost one-third of construction projects put out to tender in the second quarter of this year were delayed, postponed or cancelled, according to Industry Insight, a construction industry market intelligence firm. Industry Insight said the number of contracts postponed in the second quarter rose by 46 percent, compared with the previous quarter, with the rate of these increasing to 31.8 percent in the second quarter from 20.5 percent in the first quarter. It said the average postponement rate, which was the number of projects postponed in a given period expressed as a percentage of the number of tenders received during the same period, was 21.5 percent in 2010 and 20 percent last year, suggesting conditions were getting worse.

Industry Insight said postponements caused serious problems for the industry as tendering was a costly exercise and the “promise” of pipeline work meant companies had to hold onto resources that could have otherwise been used elsewhere. “It also leads to under-utilisation of already excess capacity,” it said. The reasons for these delays were many, including poor planning and availability of funds, it said. Group Five this week reported a 64.4 percent slump in headline earnings a share to R1.16 in the year to June from R3.26 in the previous year. The group stressed that its performance and earnings during the period were impacted by, among other factors, delayed construction revenue due to contract delays and client scope changes.

In trading updates released this week, Aveng said that its headline earnings a share for the year to June were expected to be between 50 percent and 60 percent lower than the previous year, while Basil Read said its earnings and headline earnings for the six months to June were expected to be between 75 percent and 85 percent lower than the previous corresponding period. Aveng said its South African construction and engineering segment incurred a substantial loss, which it attributed partly to the depressed construction sector and delays in the government’s infrastructure development programme. Basil Read said its financial performance had been negatively affected by difficult trading conditions in the construction sector.

Industry Insight’s analysis of construction activity in the second quarter indicated the bulk of postponements took place in Gauteng, followed by the Eastern Cape and Western Cape. Conditions seemed to have improved in KwaZulu-Natal, with fewer postponements reported in the second quarter, the intelligence firm said. Industry Insight said postponements in the building industry had improved over the last five quarters, although 8 percent fewer tenders were issued, compared with the corresponding quarter last year. Postponements in the civil engineering industry rose year on year by a staggering 37 percent, to 28 percent in the second quarter, the bulk situated in Mpumalanga. It said that conditions were worse in the public sector than the private sector, where postponements increased 27 percent year on year over the last five quarters.

The bulk of postponements were in commercial, education and water projects. Industry Insight said tender activity disappointed in the second quarter, declining 6 percent year on year. Only three of the nine provinces reported an annual improvement during the second quarter, with the Eastern Cape up 13 percent, Free State surging 103 percent and Western Cape rising 5 percent.