What can be overlooked when seeing these numbers is the practical realities of payment failure or untimely payments for businesses. The consequences range from being unable to pay bills to liquidation.
Many businesses use loans or other financing options to execute on government projects. Government’s failure to pay contractors could have an immediate effect on their ability to service loans and other debt, leading to insolvency.
Demands for payment
In practice, contractors start with attempting to address non-payment on their own, without the intervention and added cost of a legal practitioner. The contractor is often required to submit documents, some of which the organ of state already has, and wait long periods for approvals regarding payment.
Where payment is still not forthcoming after months of demanding or begging for feedback, the contractor would approach legal practitioners or debt collectors for assistance. The cost of intervention by attorneys is an added expense that a contractor, who has not been paid by its main client, shoulders with great difficulty.
In order to keep the business alive, contractors are left with three main options, the first is to become further indebted in the hope that the monies can be recovered. Often shareholders would become personally indebted to save their businesses, putting their families’ livelihoods at risk.
The second is to cut jobs, decrease other expenses and/or pay creditors late. A combination of these first two options occurs regularly.
The third is accepting that it cannot pay its debts and passing a resolution to liquidate the company or commence business rescue, if appropriate.
The state, who is tasked with facilitating a productive commercial environment, is in these situations, the cause of business hardship and destruction. The knock-on effect not only extends to the contractor’s creditors and employees but the public at large.
Effect on the public at large
Where payment is not forthcoming, the services which the contractor was tasked to deliver normally cannot be executed.
In situations of suspended services or cancelled contracts, infrastructure or sites remain incomplete. The failure to pay a contractor does not relinquish the state’s obligation to continue delivering that service.
As a result, emergency contractors have to be deployed at high costs, or new tender processes have to commence. New committees must sit, new decisions must be made, and new commencement costs are incurred.
This inevitably has an impact on the public purse and state resources.
Another public outcome is the loss of public sentiment and trust in government. Where sites are left incomplete or public sentiment is low, issues of safety become a concern.
Unfinished roads or construction sites can lead to injury, and water disruptions can lead to health hazards, for example. We have seen the unfortunate incidents that occur at hospitals when electricity supply is disrupted. Delays and disruptions in services may and often do cause social tension and protests.
The best service providers may also become unwilling to tender at all, viewing business with government as riskier than business in the private sector.
The public therefore may not have access to the best potential service providers, resulting in poor service delivery. This is inevitably dangerous. It has the result of the public being more inclined to take matters into their own hands.
Government mandate
Government cannot deliver on its mandate to broadly foster a sustainable business environment if its own conduct causes the downfall of businesses.
Refusing to pay for services rendered violates basic constitutional standards of ethical public administration, accountability, and the rule of law. It also directly violates internal policy which would provide for timeous payment.
When state inefficiencies or maladministration destabilise companies, this not only violates its legal obligations but undermines the foundational stability and confidence which a society needs for economic growth.
The practical consequences of non-payment by government are therefore far-reaching and interlinked.
It is not limited to consequences for the specific contractor and its employees. Non-payment has consequences for the public at large and could have consequences as serious as safety and health hazards.
It is in the best interest of everyone that issues relating to non-payment and maladministration of contractor invoices be highlighted and addressed. Legal proceedings, while costly, does sometimes result in accelerated payment.
