and public bodies that delay payments to contractors for construction
projects stand to be heavily penalised should the industry adopt new
regulations to ensure the frequency of cash flow.
Under the proposed guidelines, which have been opened for public
comment for 60 days, contractors will be able to charge interest on
outstanding payments and even suspend projects until payment is
received. Interest has been set at the prime lending rate plus 6%.
The move comes as the government — which is frequently blamed for
tardiness in settling its debts — has undertaken to ensure that it
makes payments within 30 days of receiving an invoice. The proposed
regulations were tabled by the Construction Industry Development Board
last month. Late payment was "practically killing the construction
industry", the state entity’s acting CEO, Inba Thumbiran, said.
"Late payment is one of the crippling constraints to effective
infrastructure delivery," Ms Thumbiran said. The unpredictability of
payments often resulted in an extremely negative contracting
environment, she said.
The South African Federation of Civil Engineering Contractors welcomed
the proposed regulations.
"What is important is that the legislation will apply to all
construction contracts, including subcontracts. This will provide quick
and ready justice to subcontractors who are frequently abused by the
main contractor," federation CEO Webster Mfebe said.
The proposed regulations will outlaw what it called the "pay-when paid"
principle, in which contractors withhold payments to subcontractors
until they have received payment from their own clients. Dispute
management would also be dealt with under the new guidelines, which
seek to make adjudication mandatory for all disagreements between
contractors and their employers.
"Under the present conditions, contract claims can take months if not
years to resolve, resulting in the contractor being out of pocket for a
considerable length of time," Mr Mfebe said.
The aim is for disputes to be finalised within 28 days. Only in certain
circumstances will the window be extended by 14 days.
Similar payment regulations have been introduced in the UK, Singapore,
Hong Kong, New Zealand and Australia, according to MDA Consulting
director Vaughan Hattingh, who said "the success rate (particularly) in
the UK, had been high".
The new laws are expected to benefit smaller construction companies,
which find it more difficult to operate when payment is delayed.
Mpilo Dhlamini, director of Barbcity Steel Works and Construction,
said: "It will make a difference because smooth cash flow ensures the
effective delivery of projects."