9 minute read
Identifying weaknesses
Construction mafia
The violent disruption of construction sites is one of the biggest threats to economic activity. A so-called ‘construction mafia’ has been plaguing the industry for some years, with syndicates disrupting projects and causing damage worth billions of rand. These armed groups visit construction sites and demand a share of work. In January 2020, estimated losses owing to the disruption of construction projects amounted to R40.70-billion (IOL, 2021). Criminality is affecting not only the construction industry, but is also weighing on the electricity sector with serious allegations of sabotage of power group Eskom’s infrastructure, as well as in the rail industry with unprecedented theft of cables. Eskom believes the recent collapse of a distribution-line tower at its Lethabo power station, in the Free State, is a “deliberate act of sabotage” (Engineering News, 2021a). The theft of overhead cables and vandalism of freight utility Transnet’s property continues to be on a steep increase. From January to October 2021, Transnet Freight Rail lost more than 1 000 km of copper cable, while an average of 600 theft and vandalism incidents a month were recorded (Engineering News, 2021b). The criminal activity is a serious constraint on the economy and left unaddressed, will curtail South Africa’s growth prospects (BER, 2021).
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Construction projects are also disrupted when there is limited community involvement and support. The Mtentu bridge project, in the Eastern Cape, is but one example of a megaproject that has suffered severe delays owing to community protest. The former contractors, a joint venture of Strabag and Aveng, terminated their contract with the South African National Roads Agency Limited in early 2019, stalling the Mtentu project. At the time of writing, a new contractor was yet to be appointed (Engineering News, 2021c).
A concerted effort is needed to ensure proper community engagement and redress to prevent the project disruptions. Investment in local skills transfer and training of local emerging contractors will enable communities to benefit more from infrastructure projects. The South African Forum of Civil Engineering Contractors (Safcec) believes “throwing the book of law at disruptors is not enough, so too must a book of opportunities be handed to them” (Webster, 2021). Safcec argues that thugs must be isolated from genuine grievances of communities and community-based entities that feel excluded from participation in local economic activities. Some business forums in the construction sector, whose members were in the past accused of violent disruptions, have transformed themselves and have started to undertake legitimate business activity.
Identifying weaknesses
Cumbersome licensing and permitting
The construction sector is highly regulated and requires permits in advance of construction. These processes can be slow and cumbersome, leaving many private projects trapped in an ineffective licensing and permitting system. The World Bank’s 2020 Ease of Doing Business Ranking places South Africa 98 out of 190 countries on regulations pertaining to construction permits and 108 regarding the registering of property. To build a R4-million warehouse in Johannesburg, Gauteng, it will take 20 procedures and 155 days to obtain licences and permits, to complete required notifications and inspections and to obtain utility connections. By comparison, sub-Saharan Africa’s average is 15.10 procedures and 145.40 days to do the same (World Bank, 2020).
Infrastructure constraints
South Africa faces serious limitations when it comes to basic infrastructure and services that are required for the successful execution of projects. The electricity supply issues are well documented, with the country having experienced intense periods of loadshedding in recent years. South Africa is also facing a water crisis, in part owing to a lack of skilled water engineers and insufficient infrastructure maintenance and investment. About 56% of the more than 1 150 municipal wastewater treatment works and about 44% of the 962 water treatment works are in a ‘poor’ or ‘critical condition’ and in need of urgent rehabilitation and skilled operators. About 11% of this infrastructure is completely dysfunctional (DWS, 2019). Road infrastructure is also deteriorating. More than half of the country’s unpaved road network is in ‘poor’ to ‘very poor’ condition, while about one-third of the paved network is in similar condition. The Eastern Cape, Free State, Limpopo, Mpumalanga and the North West, in particular, are struggling with the maintenance of their respective road networks (Frost & Sullivan, 2021).
Competency shortcomings
The lack of appropriate skills in strategic positions in government is a concern. Local government, in particular, grapples with low competency levels as municipalities battle to attract, retain and train and employees with the requisite skills leading to a deficit of experienced staff. There is a disparity between metropolitan and rural municipalities and their ability to attract talent.
Each year, billions of rands are spent on wasteful expenditure, highlighting the lack of accountability, weak project management and the high level of vacancies in key positions across municipalities across the country. The Auditor-General’s report for 2020/21, however, paints a bleak picture of the state of local government, with only 27 (11%) of the 257 municipalities receiving clean audits. It also shows that the resourcing of 122 finance units (32%) was
Identifying weaknesses
either ‘concerning’ or ‘requiring intervention’, owing to staff vacancies, inadequate skills or a combination thereof (Maluleke, 2021).
Shortcomings in municipalities have a direct impact on project planning, execution and management. Concerns have been raised about whether municipal employees understand contracting or what contracting methods are used. The private sector should be called upon to assist municipalities in project management and project spend.
Long project lead times
The government infrastructure programme lacks urgency and adequate scale. Industry players participating in the ISI discussion argue that, despite pronouncements by government, actual projects are slow to materialise.
Poor planning and budgeting
Weak integrated and spatial development planning, misaligned government budgets and weak leadership and management are to blame for project failures. Government often operates in silos, which hampers the effective delivery of infrastructure. For example, an affordable housing development will be delivered on time, but a lack of coordination among government departments means that bulk services upgrades or social infrastructure, such as a school or a clinic, are not delivered at the same time. A development that should have been conducive to growth is relegated to a dormitory suburb.
Municipalities also fall short in project management, despite being required to draft and present annual integrated development plans (IDPs), in which all projects that are planned and ongoing are listed. The failure to properly plan, present and implement IDPs results in failing infrastructure. For example, raw sewerage flowing into freshwater catchment areas or erratic water supply. It is argued that IDPs and other strategic plans fail when the task at hand is not appropriately quantified, resulting in faulty budgeting and a failure to measure and track progress. There is also a mismatch between policy and affordability. In housing for instance, the focus is on densification, but that is not necessarily affordable.
Town planning failures exacerbate problems at municipal level, with buildings being erected on vacant land without consideration of complementary infrastructure.
Political interference in planning and execution of projects, a lack of accountability, as well as corruption further stifle development. Municipalities are hamstrung by a short-term view, and they seldom look past the medium-term expenditure framework. The focus on this three- to five-year horizon is not conducive for multiyear projects or developments.
Identifying weaknesses
Budget and funding decisions often focus on the capital expenditure for the creation of infrastructure and do not take into account the full life-cycle cost of infrastructure, resulting in poor maintenance planning later on.
Skills deficit
South Africa’s skills deficit is a widely reported concern. The country is not only losing engineers and other highly skilled technical people through emigration, but skills transfer and training are not keeping up with requirements. Training of skilled and semiskilled personnel in the construction industry is important to ensure that infrastructure work is of high quality.
Subcontracting requirements
Government has introduced a requirement that 30% of public procurement contracts be subcontracted to designated groups to advance transformation in the economy. Where feasible, subcontracting is compulsory for tenders above R30-million (National Treasury, 2017). While the industry considers transformation as imperative, the 30% subcontracting requirement is a contentious issue. There is concern that in a competitive market, adverse cost effects are mainly being borne by main contractors, which is not sustainable in the medium to long term. The requirements increase the risk for the main contractor and reduce its span of control over the delivery timeframe, budget and quality of work (Massey, 2021).
The payment of subcontractors is also an area of concern. Smaller subcontractors must be paid within 30 days, but often the main contractor is under pressure as payment from the client is delayed. It is important that there be improved synchronisation of such payment cycles.
Tenders and procurement
Several issues were raised regarding tenders and a lack of trust between government and the private sector in the tendering process. Government’s inability to correctly determine the cost of infrastructure results in inflated tenders being awarded, or tenders that underestimate the true cost of delivering the infrastructure.
There is frustration regarding the disqualification of bidders, which appears arbitrary and vague amid a lack of transparency in the tender adjudication process. To address these concerns, professionals who specify the bid should be involved in the adjudication process.
The Gauteng Department of Roads and Transport’s open tender system is a model to emulate to restore confidence in public procurement. The open tender process includes public scrutiny of the opening of the tender boxes and imprinting of all documents, appointing external, independent probity auditors to scrutinise every phase of the tender evaluation process, and
Identifying weaknesses
importantly, the public adjudication of the decision on the recommended service provider where bidders, the media and interested members of the public can watch the proceedings.
It also takes too long to award tenders and the ratio of tenders that are awarded is low. Safcec has called out the City of Cape Town for its slow pace in awarding tenders. According to the forum, the City advertised a road rehabilitation project in May 2019 and gave contractors only one month to tender, while it took the city 16 months to assess the applications and appoint six contractors for the work in October 2020 (IOL, 2020).
Further, a lack of trust between the public and private sectors in the tendering process results in more demands for performance bonds. A performance bond protects the client from a contractor’s failure to perform according to contractual terms. In the current circumstances, the low level of trust means that even smaller projects with contract values of under R5-million require performance bonds.
Concern has been raised about the abuse of tender panels, comprising a selection of prequalified providers, who are considered preferred suppliers. Although a tender panel simplifies the procurement process, it may reduce competition and open the process to corruption.
Weak partnerships
Industry participants raised concern about partnerships between government and the private sector. There is a view that government does not consult the construction industry and contractors in early infrastructure planning and design. Early contractor involvement will mitigate many risks during the implementation phase of projects and will save government money. PPPs also need to be streamlined.
