Johannesburg - Government needs to think counter-cyclically to get the best value for its R846bn planned infrastructure expenditure.
This would mean that now, while competition in the domestic construction industry is depressing profit margins, it has to award as many contracts as possible.
Unfortunately the reverse is taking place. Almost every contractor around is complaining about delays in the awarding of state tenders, and both Group Five and Murray & Roberts recently indicated that they would be looking for opportunities outside South Africa.
In some cases, such as with Eskom's construction programme, delays are caused by financing problems, which is understandable in the current market, reckons Group Five chief executive Mike Upton.
But there are many tenders being dragged out for other reasons:
- The provision of electricity by private entrepreneurs cannot proceed because of regulatory uncertainty. Government could have cleared this up long ago.
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Various partnerships with the private sector are being delayed as a result of political infighting because new political leaders, appointed after the election almost a year ago, have other preferences - this despite the fact that concerns have invested years of work and huge resources in the projects.
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At the municipal level, especially, there is an inability to manage the purchasing process properly and, according to Pierre Blaauw, operating manager for the South African Federation of Civil Engineering Contractors (Safcec), the awarding of work has practically come to a standstill.
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Government's programme for building cheap houses is not making progress because contractors have to interrupt building owing to cash-flow problems caused by the erratic way in which various government agencies pay their accounts.
Apart from these problems, contractors say it is becoming increasingly difficult to do business with government.
Corruption is rife and a supplier of building material says it is getting worse all the time.
Not a week goes by without suppliers receiving calls from people wanting bribes. The head of a listed construction group's building division says there are usually about 20 prospective bidders at tender meetings and easily another 100 that come simply to consider the bidding.
After the meeting a prospective bidder can receive up to 20 calls from people insisting on participating in the tender as empowerment partners, and each one "guarantees" the bidder will receive the tender.
'Government remains reactive'
The company mentioned had been the cheapest bidder for a particular tender, but it was awarded to the company that was 15th in terms of price, which then subcontracted it to the group in third place, with government ultimately paying R40m more for the building than necessary.
If one wins a tender, one is still not certain of being paid. Listed housing group Sea Kay can attest to this. It is facing liquidation while government owes it hundreds of millions in arrears.
Contractors are at a loss because public officials whom they confront for payment threaten that the contractors' attitude will lose them future government work.
Blaauw says Safcec is attempting to persuade government clients that this is the time contracts should be awarded.
Unfortunately, it seems government's awarding of projects remains reactive.
As in the cases of the Eskom construction programme and the soccer stadiums, the contracts are awarded only when it is impossible to delay any further.
From 2012 to 2015, South Africa will have to deal with (defective) water infrastructure, says Blaauw, and then a whole cluster of contracts will again need to be awarded simultaneously.
This, and the fact that contractors will then know government has its back to the wall, will inflate prices.
- Sake24.com
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