Thursday, 15 April 2021

In Property

What Next for Construction in South Africa?

As South African construction Industry representative negotiate for resumption of projects across the country, there has been the question of “what next”, as layoffs and revenue losses continue due to the impact of the Covid19 Pandemic.

The impacts of the virus on the global construction business might prove to be detrimental. Contractors are at the forefront as they are service and product providers at the same time. Covid-19 affects both material and labour, key cost components of construction projects, and by doing so, challenge on-going project delivery, companies’ liquidity and whole business models.

All-of-society quarantines have resulted in a full stall of different sized construction sites and partially non-operational business to effectively apply social distance in a unified effort to limit a further outbreak. In addition to physical wellness, contractors are considering mental health care following reports on anxiety among workers. Contractors currently prepare the introduction of short-term working conditions to circumvent dismissals.

Many countries such as China and Italy have slowed or shut down their production sectors leading to forecasts of a sharp decrease in production of a wide range of materials ranging from steel to cement. Contractors that rely on Chinese-made goods and materials are likely to be faced with higher costs and, caused by shortages of construction material, slower project completion. This, in turn, implies higher prices and more projects cancelled. Limited public transportation and travel bans slow down project delivery as sub-contractors are not able to perform or provide required material. While works are stalled, equipment rental companies are starting to face problems with equipment left on inoperative sites.

Contractors may be faced with dramatic turbulences alongside their supply chains. With smaller companies facing the real risk of bankruptcy, major contractors will be forced in legal disputes over non-deliverance and “empty” spending. Quarantine periods across the world vary in length. The uptake of cross-boarder projects will require a higher administrative burden. Contractors should be mindful to claim possible time and financial coverage entitlement as early as possible. Borrowers may make back-to-back force majeure claims under concession agreements to avoid breaching milestone completion dates and incurring liability for liquidated damages.

Read more in Cabanga Magazine.

Cabanga Media Group is a media and business services company with interests in Botswana, Nigeria, Kenya, South Africa, Zambia and Zimbabwe.

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