The persistence of suicidal pricing from many construction contractors desperate to obtain work, restricts the ability of more prudent contractors to secure even low-margin work, states construction company Gordon Verhoef & Krause (GVK) CEO Richard Williams.

This has resulted in the liquidation of many long-standing contracting businesses, which, in turn, has led to job losses, cost increases and time delays on partially built projects, necessitating that other contractors complete these projects, he adds.

Last year was the low point of the industry recession, which started in 2008. Although there were isolated upticks in project volumes, the industry still requires higher volumes of work to reverse these trends.

To combat the turndown in the construction industry, GVK has been pursuing work in green building retrofits, sending selected staff from all regions on green-building professional courses. The company is working towards attaining environmental accreditation this year in the form of ISO 14001 compliance. This standard sets out the criteria for an environmental management system, Williams explains. For the construction industry, the most evident area of growth, driven by necessity as well as corporate and individual responsibility, is green construction and energy projects, he adds.

To secure more work, GVK has also continued to promote its specialist rope access, asbestos removal and structural repair services and gained more experience in the mining and petrochemicals industries. To date, the company has completed four projects of varying sizes in these sectors and it is undertaking a R30-million project.

“Our experience in the mining and petrochemicals sector has given us the particular skills required for these projects and we continuously seek new relationships to expand our footprint in this sector,” he states.

Further, GVK has expanded its presence in Namibia by establishing a permanent office in Windhoek and added two more substantial projects in 2012 to its existing workload in the country.

“Our latest Namibian contract of more than R50-million started at the end of last year and will continue into 2013. GVK has also secured large contracts in South Africa, with several projects in excess of R100-million.”

Since 2012, there has been an increase in tenders in the two critical areas of hospitals and schools. The school building programme is particularly evident in the Eastern Cape, along with a school building programme in the Western Cape and substantial projects imminent in Gauteng.

GVK also secured work at a hospital and a magistrates court, valued at just over R200-million and R100-million respectively. “We have many smaller contracts starting this year and larger contracts extending into the second half of the year.”

Despite the economic downturn, GVK is acquiring new skills and developing its staff through maintaining its training and bursary programmes, which have been supplemented with internal programmes presented by its staff with specific experience and knowledge.

Regulatory Framework

Government has a well-developed regulatory framework for the construction industry, partially administered by the Construction Industry Development Board (CIDB), which aligns contractors with projects suited to their capacity, Williams notes.

This has led to a reduction in the number of business and project failures, which were more prevalent prior to the establishment of the CIDB, owing to work being awarded to contractors lacking capacity or expertise.

“This system seems to work well and penalties have been imposed on contractors trying to manipulate the system,” he states.

In addition, the occupational health and safety advisory services environment has improved much over the last ten years, with a comprehensive set of regulations and controls, applicable to the full range of building contracts.

“An upgrade to these regulations is imminent and it will demand even stronger safety management and control, starting with design and continuing throughout the construction phase, as well as a general upgrade of safety practitioner skills levels,” explains Williams.

Another area of regulation is the construction industry scorecard, which is used in the public and private sectors to weigh broad-based black economic-empowerment participation in tender adjudication. It also increases transparency in tender processes.

These are some of the positive and progressive regulations in the industry, which have positively impacted on quality and health and safety standards.

“However, the capacity of government to manage, police and sanction within the framework of these regulations is negatively affecting South Africa’s economy. It is thus left to the contractors to elect to comply with regulations to the degree that they see fit,” Williams stresses.

While many contractors take a responsible approach to regulations, there are large numbers that flout the law or do not have the knowledge, capacity or capital to comply with it. “This is where there is huge scope for contractor and industry development, particularly in the area of employee welfare,” he adds.

State of Industry

According to the latest First National Bank Bureau for Economic Research building confidence index survey, confidence in the building sector rose from 26 index points during the third quarter of 2012 to 32 index points in the fourth quarter.

“The rise in [the] confidence [index] seems to be driven by suppliers rather than other sectors of the construction industry,” Williams states.

“Our view is that 2013 will be as tough as 2012 and that we will have a gradual upturn from there. However, attaining ‘normal’, not boom, levels of activity will probably take at least two to three years.”

Currently, the main challenge facing the industry is the lack of private-sector work and, to an extent, the scarcity of government work. Overall, there is a lack of tenders and, often, long delays in tender adjudication. This can probably largely be attributed to the legacy that the new Minister of Public Works, Thulas Nxesi, has inherited, Williams notes.

“Government’s project roll-out is insufficient, particularly in the context of reduced private-sector projects. Government has the capacity to boost the industry and employment levels through a significant increase in project delivery by means of innovations, such as conventional building projects,” he adds.

However, some industry stakeholders state that many conventional building projects are still in the prefeasibility phase. “Our hope for future industry growth lies in Nxesi’s rejuvenation of public works and the resultant improvement in the number and timeous delivery of projects,” Williams concludes.