Violent action on construction sites countrywide is the result of frustration among small business owners who have been excluded from projects for too long.
This is the view of engineer Tollo Nkosi, CEO of Umso Construction, a grade 9CE and 8 GBPE construction company established in 1996. Its grading by the Construction Industry Development Board (CIDB) qualifies Umso for public sector civil engineering tenders and general building tenders without any limit on the value.
Nkosi contacted Moneyweb in response to an article in which the South African National Roads Agency (Sanral) discloses that its road building operations countrywide have come to a virtual standstill due to violent demands by so-called business forums, which demand control over 30% of the contract value without following a formal process.
These groups have collectively been referred to as the ‘construction mafia’.
According to Sanral engineering executive Louw Kannemeyer, their actions are an unintended consequence of new treasury regulations that local communities have misinterpreted and which they believe entitles them to 30% of the contract value of work in their areas.
National Treasury denied any knowledge of the disruption of construction work based on the misunderstanding of treasury regulation, and said the regulations were revised to ensure economic opportunities for historically excluded and vulnerable groups, and the improved growth and development of small business and cooperatives.
The regulations do not refer to local subcontractors, but only to “designated groups” as listed in the regulations, treasury said.
Moneyweb has learnt that following the publication of the article, National Treasury last week cancelled a meeting with Sanral to discuss the matter.
According to Nkosi, Umso Construction has R800 million to R900 million worth of active projects at any given time. Many of its road projects are done in joint ventures or with Umso as a subcontractor to Sanral’s principal contractors.
He says engagement with stakeholders doesn’t start only when the contractor arrives on site. “These projects are complex and there is a lot of community engagement long before construction starts, aimed at ensuring benefits to the community.”
Business forums are part of the community, he adds, but are often ignored. This leads to frustration that erupts when the contractor moves on site.
He says members of these forums are typically ‘bakkie’ builders and the like, who hope to benefit from these huge projects. “This is quite achievable,” he says. “No big contractor carries staff to do bricklaying and other low-skilled labour. You hire them as you need them.”
However, many contractors have established sub-contractors providing such labour, and prefer to work with people they know rather than members of the local business forums.
Umso in fact achieved 40% local sub-contracting while working on the Rustenburg Bus Rapid Transit system. “There were enough small companies in the area to do miscellaneous work, and they were capable,” says Nkosi.
He adds that the CIDB has encouraged smaller operators countrywide to register as contractors, which has also raised expectations. However, the organisation has failed to incorporate a development aspect and only plays a regulatory role.
Nkosi says working with the business forums can be challenging, but if one understands where they are coming from, it is easier to achieve.
He says Umso has been working on big road construction projects in KwaZulu-Natal since 2015 – two bridges over the Tugela River, and the Umzimkhulu road upgrade. Initially, there was no 30% sub-contracting requirement.
“We were only halfway with these projects when the business forums came, expecting to be shot down,” he says.
“We listened and engaged with our client [the KwaZulu-Natal roads department] who was willing to accommodate them.” The condition was that the forum would not resort to violence.
The business forum members eventually participated in the project. Skills were an issue, but were addressed with the agreement of the client. “The first month was a disaster, which we expected. Then we introduced our own supervision. It came at an extra cost to the client, but the next time the extra supervision was unnecessary.”
Nkosi says the members of the business forums are actually “quite genuine. They just want to work.”
He admits that there are a few hotheads, but says the other forum members tend to sort them out.
They don’t have the skills to submit tenders, he adds. “But we have to accommodate them.”
He believes big contractors can work with the business forums, but that won’t happen if there is a negative attitude from day one.