After a boom period stretching over a number of years in the run-up to the Fifa Soccer World Cup, the South African construction industry shedded some 54 000 jobs during the second quarter of 2010 alone, while one of the major players in the sector has just predicted that conditions in the industry will weaken further in the second half of the 2011 financial year.

Releasing the financial results of his company for the six months ended 31 December, Group Five chief executive officer Mike Upton said the good news was that he expected conditions to start improving in the 2012 financial year.

The information website MBendi.com reports that the South African building and construction sector has seen a boom over the last few years as the country prepared itself to host the World Cup.

Apart from the construction of stadiums and roadworks, one of the major projects completed was the Gautrain Rapid Rail Link. The Gautrain is one of the largest public-private partnerships in the world, offering a world-class and cost-effective, efficient, environmentally friendly and safe solution to commuter and transport challenges in the rapidly developing Gauteng province.

“The unfortunate aftermath of this boom is that 54 000 people lost their jobs in the construction sector during the second quarter of 2010,” it is stated on MBendi.com.

“South Africa, Africa’s largest economy, has already shed off hundreds of jobs due to a shrink in the construction industry, partly caused by the ending of major construction projects.

“The construction of low-cost housing remains a significant feature of the building and construction industry, as it allows for the participation of new role-players and fulfils one of the South African government’s main priorities – the rollout of essential services to all of South Africa’s people,” it adds.

“The expansion of this sector is closely tied in with levels of investment in the country, and impacts on a wide range of related sectors, such as cement, construction equipment and the specialist services associated with building and construction.”

In the interim, Group Five announced it would be consolidating and restructuring its construction materials business, resulting in the retrenchment of about 30% of the workforce, or 230-people division, after an impairment of R550 million on property, plant and equipment and goodwill assets in the cluster in the half year to December.

Junaid Allie, the group human resources director, confirmed this, adding that the group had lost about 4 500 people from its head count since the peak of the construction cycle early last year and the end of the limited duration Fifa World Cup contract.

Upton, echoing voices at a recent building crisis summit, said it was a tragedy that there was all this work to do in the country, but jobs continued being destroyed.

Lack of technical competence

Zulch Lötter, the president of Consulting Engineers South Africa (CESA), posed the question: There is need, there is money and there is capacity… so why is infrastructure development in South Africa lagging, and why is the construction industry suffering?

CESA mainly put the blame on the lack of technical competency at government level.

Technical incompetence in governmental departments is the single biggest inhibitor to the effective implementation of infrastructure development in South Africa, the organisation said.

By implication, the incompetence of a few is creating a drag on growth in the construction sector and thus of the economy at large.

“We are all aware that there is a crying need to implement new, and to maintain existing infrastructure,” CESA said in a statement.

In line with this identified need, the government had set aside R846 billion in 2010 for infrastructure development, to be spent over three years.

And, according to CESA, consulting engineers are operating at around 80% capacity from around 100% capacity during the World Cup as growth in the construction industry slumped.

“If you look at the technical competence, I really believe that that is primary,” said Lötter, who is also the managing director of UWP Consulting. “That’s the overarching, single biggest matter that needs to be addressed.

“Our distinct perception is that the bottleneck (in infrastructure spend) is on the client (government) side.

“We don’t have experienced technical people to run the show, to make things happen, and to get the documents out,” he added.

CESA said that the number of technical professionals dealing with the implementation of public works projects in the government had shrunk from 5 500 to fewer than 1 800 over the last 10 years.

The result, according to Naren Bhojaram, deputy president of CESA, “is that government departments find it very difficult to spec our work”.

Although the government has been able to identify needs for infrastructure spend primarily with regard to water, transportation and energy, it is unable to describe properly to contractors and consultants exactly what needs to be done when handing out tender documents, according to Bhojaram.

As a result, engineers who do much “up-front intellectual” work when responding to tender requests are unable to accurately price tender proposals, as they cannot be sure what needs to be done.

This, says Bhojaram, leads to “massive discrepancies in the pricing” of tender proposals and huge inefficiencies down the line as construction and consulting companies gradually find out the scope of the work that needs to be done.

Impact of BEE

At the crisis summit, there were bitter complaints about the perceived lack of uniformity in the way broad-based black economic empowerment (BBBEE) and preferential procurement policies were applied by public sector clients, together with several other issues, and was blamed for the crisis in the building industry.

Talbot said that the industry had spent an enormous amount of resources to support the construction charter and attain compliance with the objectives of the BBBEE Act and Codes of Good Practice.

However, this mechanism was often being circumvented, with preferential procurement being applied in what appeared to be an uncoordinated and haphazard way, Talbot told the summit. “In fact, tender awards often bear little resemblance to basic tendering good practice.”

Old sins

In the interim, news reports regarding the construction industry have been dominated recently by what appears to be sins of the past.

All five of South Africa’s major listed construction firms have been implicated in anti-competitive practices during the Competition Commission’s probe into 65 bid-rigging cases in the sector involving more than 70 projects valued at R29bn.

Deputy commissioner Thembinkosi Bonakele confirmed, however, that not all these firms had lodged corporate leniency applications or were co-operating with the Commission in its probe into collusion and bid-rigging.

Transport Minister Sbusiso Ndebele has lambasted the construction companies for their alleged collusion in tender manipulation, which reportedly greatly inflated the construction costs of World Cup football stadiums, the Gautrain infrastructure and the extensive road construction projects.

Should the allegations of gross impropriety via the so-called construction party have substance, surely it is not enough for punitive fines merely to be levied by the Competition Commission, probably softened by leniency provisions.

If the taxpayer has indeed lost billions of rand in rigged tendering processes, it is incumbent on the government to institute separate litigation to recover much of that money from the companies involved.

“I cannot help thinking that if the situation had been reversed and it was a government enterprise that had transgressed, there would have been an almighty public outcry,” said Ndebele.

“State institutions must begin to institute far superior tender control mechanisms and to hold errant companies to account.

“Just prior to the 2010 World Cup, Bombela requested a whopping extra payment of R1.3bn from the Gauteng provincial government to complete the Sandton to OR Tambo section of the Gautrain in time for the kick-off. The Gauteng government thankfully declined to accede to the grossly inflated extra amount and the rail track was opened anyway without incurring any extra financial outlay,” he added.

“The question must be asked why the Bombela consortium has never been requested by the legislature to provide a detailed audit of its projected hyper extra costs, which ultimately proved to be unnecessary.”