MBA North calls out unscrupulous practices in construction industry

Source: Ivan Kruk © 123RF.com

“When established, stable businesses with good track records close their doors, you know there is something rotten in an industry. The MBA North has been raising certain issues over the course of many years, and we are now calling for all stakeholders to come together to resolve these issues,” says Mohau Mphomela, executive director at MBA North.

“We all know that the country desperately needs a major infrastructure renewal programme, and government has committed the funds, but if we lose our large contractors, we simply won’t be able to meet demand.”

Mphomela highlights three issues that need to be addressed urgently:

Amendments to JBCC contracts

The Joint Building Contracts Committee (JBCC), a non-profit organisation representing building owners and developers, built environment professional consultants, and general and specialist contractors, created a set of building contract blueprints some 20 years ago. The JBCC contracts are used in the vast majority of projects and were drafted to ensure that every role-player was treated fairly.

However, says Mphomela, it has become increasingly common for developers or their agents to insist on varying the terms of the contract to protect themselves, thus putting contractors at risk.

Wayne Albertyn, contracts director at Gothic Construction, says that any alterations should be made using the same consultative process that gave rise to the contracts in the first place. “If one party unilaterally changes the contract, there is a clear conflict of interest, and we appeal to all stakeholders not to continue this practice, which puts contractors at a massive disadvantage,” he says.

“If the contract does need to be changed, then an ombud is needed to oversee it or the MBA could play that role. JBCC contracts are the gold standard.”

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Ceding of contractor’s lien on the building

The JBCC contract makes provision for the contractor to have a lien over the building to protect against non- or short payment. A common contract alteration is for the developer or its agents, such the quantity surveyor or architect, to strike out this clause. Besides leaving the contractor exposed, it means that the contractor finds it ruinously expensive to get a payment guarantee from the banks as it does not have collateral – banks typically demand 200% collateral to provide a payment guarantee.

Derek Wheals, MD of Tri-Star Construction, says that all of this is putting contractors at significant risk. He proposes that banks agree to provide a payment guarantee that reduces in line with the payments made to the contractor by the client, thus ensuring that the bank is never over-exposed.

Issuing of zero certificates

Another pernicious practice is the issuing of so-called zero certificates at the practical or final completion stages of a contract. In this way, the contractor is forced to have to go to the courts to get its final payment, greatly affecting cash flow.

In summary, says Mphomela, the MBA North is urging all the stakeholders in the construction industry to come to the table to discuss these and other issues and arrive at mutually satisfactory solutions.

“The construction industry is one of the backbones of any economy, and ours has been eroding at a frightening rate. Part of the problem is that margins are so thin and jobs still so scarce that stakeholders seem to have forgotten that, in the final analysis, they exist in an ecosystem, and depend on each other to survive,” he says.

“We came together to create the JBCC contracts, and we need the same spirit to solve our current challenges.”