A recent presentation by Enwee Human, at the African Construction Expo / Totally Concrete Expo, gave some clarity on the “Prompt Payment Regulations” that were published for comments in 2015.
There are various reasons for the proposing of amendments to the Construction Industry Development Board Act Regulations, in the form of Prompt Payment Regulations. A survey completed by the Construction industry development Board (CIDB) shows that in government departments and State Owned Entities (SOE’s), 43% of payments to contractors took place more than 30 days from invoicing. The reason for these proposed regulations is to extend a lifeline to the Construction Industry, in the form of cash flow.
With South Africa being downgraded to sub-investment grade or junk status, it is likely to have even further significant effect on the construction industry in the form of expensive credit and projects being put on hold. The most at risk are the smaller to medium enterprises with limited cash resources available.
These amendments to the CIDB Regulations, will bring change in the way that the private and public sectors carry out business. This type of security-for-payment regulation also introduces a statutory adjudication system for resolving of disputes, and is instrumental for sustainable growth and development of the South African Construction Industry, and the Gross Domestic Product (GDP).
The Payment regulations are however very broad and are applicable to all construction contracts and works related contracts, whether reduced to writing or not, undertaken by private sector and public sector clients excluding home building contracts. These regulations will have the effect of forcing payments to take place within 30 days, with punitive penalty interest on those who do not comply. Non-payment disputes must be referred to adjudication, according to these regulations.
These proposed amendments have led to substantial objections by SOE’s to these regulations, with the amendments put on ice. The National Treasury has however launched a payment call centre, as per the Supplu Chain Management (SCM) Instruction 5 of 2016/2017, where non-payment by SOE’s can be reported.
We look forward to the future discussions with the CIDB to see how these proposed regulations can be amended, to work in line with the SOE’s requests, as well as additional objections that were raised.
We are hopeful that statutory adjudications will remain in place, in order to relieve the courts of some pressure.