Cash-flow woes to be aggravated by lockdown
The Master Builders Association (MBA) North this week warned that the nationwide lockdown would have far-reaching consequences for the troubled construction industry. Mohau Mphomela, the executive director of MBA North, said the fact that all construction work had been put on hold for the lockdown period had caused an immediate cash-flow crunch and that there were longer-term impacts that also needed to be considered.
“The sector is already weakened by a sustained lack of spending on infrastructure, and many of its largest players have gone into business rescue or liquidation. Those that remain do not have the cash reserves to survive for long, especially given the way that payments are structured in construction projects,”Mphomela said.
“An added complication is that the industry is already plagued by a culture of late payment. Many contractors and subcontractors are likely to have entered the lockdown with existing cash-flow issues, which will be exacerbated by the lay-off.” According to data from Statistics SA, released last month,21 construction companies were liquidated in the first two months of this year.
Even the bigger construction firms have been on their knees since the 2010 infrastructure projects fizzled out. Group Five filed for bankruptcy last year. TiI iBasil Read, Esor and Liviero applied for business rescue in 2018.
Nwabejana Mohlaba of Bela Projects said although contractors and subcontractors could declare force majeure (due to lockdown) and would not be penalised for not meeting deadlines, payments were only made when project progress was met.
“All our clients have approved the project extensions; this is not the issue. The issue is that we will only get paid when the work is complete,” said Mohlaba.”This temporary cessation in payments is passed down the line, from principal contractor down to subcontractors and ultimately the workforce.” Force majeure are contractual clauses that alter parties
”’ The issue is that we will only get paid when work is complete obligations when an extra ordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.
Wayne Albertyn, the director of Gothic Construction, said while some contractors would have invoiced for work completed during March, they would not be in a position to invoice at the end of April.
“This might mean that for some, the cash crunch will come after the current lockdown has ended,” Albertyn said. According to data published by Statistics SA last month, 21 South African construction companies were liquidated in the first two months of this year.