CRUMBLING CONSTRUCTION SECTOR IN NEED OF URGENT REFORM Part 1

Roelof van den Berg, CEO of the South African-based Gap Infrastructure Corporation.

The construction landscape in South Africa has changed dramatically over the past few years, says Roelof van den Berg, CEO of the South African-based Gap Infrastructure Corporation. This is part one of a two-part series.

What was once a robust pillar of the economy is now a sector in distress, with prominent, large-scale construction companies either shutting down or teetering on the brink of collapse.

Amidst this turmoil, , provides a stark diagnosis: “The construction industry in South Africa is in a terrible state. There’s no sugarcoating it, it is what it is. If we don’t make a change soon and take urgent steps to readjust, the industry may soon face some of the worst years seen in modern times.”

The sector is in decline, marred by an alarming rate of closures as hundreds of companies are forced out of the market each year. Small contractors, in particular, are struggling to survive and secure a steady inflow of contracts. When jobs dry up, these contractors cannot compensate their workers, and ultimately must close their doors.

“I’m frequently asked the same questions by peers and many of the stakeholders with whom we interact: ‘What’s at the root of this decline, and what can we do about it?’” he says.

“And my answer is simple: South Africa’s procurement policies are fundamentally flawed, failing to foster an environment conducive to sustainable and profitable operations. The most critical element to any company’s success is profitability. Without profits, there’s no future for any business.”

The pitfalls of competitive bidding

The construction sector is notorious for its razor-thin profit margins, exacerbated by an intensely competitive market with little to no protection for smaller contractors still finding their footing. Furthermore, in a desperate bid to remain operational, companies often engage in cutthroat bidding wars, driving prices down to unsustainable levels.

“It’s not uncommon for bids to be submitted with zero mark-up or even at a loss in a desperate attempt to secure work. This practice, in my opinion, is the number one killer in the construction sector, and disproportionately affects smaller businesses that cannot afford it,” emphasises van den Berg.

“But larger players that employ sub-contractors also have a vested interest in protecting and seeing these smaller businesses survive and grow. In many ways, our businesses depend on their success. To protect them, we urgently need to revise current bidding structures to eliminate substandard bidding altogether.”