How construction companies struggle to get paid
As if the crash in building work were not enough, construction companies battle to get paid for completed work
As if the crash in building work were not enough, construction companies battle to get paid for completed work.
"I suspect that many clients think that because Basil Read is in business rescue [it has] no capacity to fight for payments," says Basil Read CEO Khathutshelo Mapasa.
"We have had to go through this very frustrating process. These are claims that have been signed off, invoices have been submitted, but they just do not pay," he says.
Perhaps clients are simply betting on companies going belly-up.
After all, according to Master Builders SA, between 2014 and 2018, 506 construction firms went into liquidation.
And based on Stats SA data, the body says that for 2019 it is estimated that 98 construction companies will hit the wall.
Basil Read, which reported an operating loss of R733.8m in the year ended December 31 2017, has been in business rescue since June 2018.
Loss-making contracts got the better of the once prestigious construction firm.
Mapasa says that in the past decade, clients have squeezed desperate contractors as much as they can.
"In the last 10 years it has been a very acrimonious experience," he says.
Paying contractors on time would go a long way in addressing the cash-flow problems that many companies have.
In Basil Read’s case, low margins on projects left it especially vulnerable.
Mapasa says there is also noticeable bias towards resolving contractual disputes through courts. "So by the time you get through your claim, you are in trouble already."
Mapasa, who took over as CEO in October 2017, cites the company’s St Helena airport project as one of its biggest failures.
In 2011 Basil Read won the contract to build and operate the airport on the isolated island in the South Atlantic Ocean. But the St Helena government, Basil Read’s client in the R4.6bn airport project, kicked the company off the project after it went into business rescue while work at the airport was outstanding.
The government then terminated the contract in October 2018, and called a performance guarantee of about R140m.
Mapasa says he was disappointed with how things turned out in what he says was one of Basil Read’s most successful projects.
"My disappointment is that when we went into business rescue we began negotiations to facilitate the completion of a bulk fuel installation, which was in the commissioning stage; they terminated our contract and called the guarantee. The termination came a week after our business rescue plan was approved by over 99% creditors."