Razina Munshi

Government’s commitment to small business development is mere lip service, says a group of emerging contractors in Soweto.

Under the banner of the Soweto SMME Contractors Forum, 200 firms are considering legal action against Johannesburg Water and intermediary firms, which, they say, have failed to compensate them for cancelled contracts.

The firms are owed about R100m in total, says forum co-ordinator Desire Myezo, the owner of a small company, Buyambo Projects.

For small businesses, which often depend on a single project for work, the cancellation and nonpayment of a contract can be crippling.

The contracts in question relate to Johannesburg Water’s launch in 2004 of Operation Gcin’amanzi to upgrade its water infrastructure in the Phiri township in Soweto. One element of this project was the installation of prepaid water meters. The matter became the subject of a constitutional court case, which the city eventually won in 2009.

But events leading up to the court case forced Johannesburg Water to suspend Operation Gcin’amanzi, and it put contracts on hold. Small firms, which are responsible for most of the utility’s work in Soweto, say they were left without compensation.

Johannesburg Water spokesman Baldwin Matsimela says this is an isolated case, and that the utility does not owe contractors anything. The Soweto firms are subcontracted by intermediaries, who are the ones responsible for paying them. However, he says the utility is aware of the problem and will meet contractors to attempt to resolve the issue. Johannesburg Water has deliberately sought to empower small business by insisting that its intermediaries use them.

But Morgan Pillay, MD of construction finance and support group Nurcha, says Johannesburg Water is just as responsible for the nonpayment as the intermediaries who fail to pay the subcontractors they hired to do the work. “It doesn’t matter whether a contractor works with an intermediary or directly with a client. They all have a responsibility to ensure that the value chain works,” says Pillay.

Nonpayment by government entities has reached “crisis” levels, Pillay says. He sees it as evidence of a breakdown of administrative processes at local and provincial government level.

Nurcha finances small contractors, providing them with access to the working capital they need to pay workers and buy materials. In the past financial year, it has provided R96m to various companies. About 50% of that is due to nonpayment from government, compared with 10% three years ago.

“Large companies have the ability to manage cash flow, but small contractors who aren’t paid go out of business. Projects get delayed or fail, and institutions like ours need to spend more money to fix them,” Pillay says.

A payment delay of just two months causes huge problems for small contractors, and could jeopardise their other work. As many as 60% of small contractors depend on income from a single project, Pillay says.

After holding meetings with city authorities, contractors who carried out work for the suspended Operation Gcin’amanzi were able to secure R30m in payment in December 2008, says Myezo.

But that was eight months after the project was put on hold. Since then, little has been done to secure the rest of the outstanding payments, despite meetings with Johannesburg Water CEO Gerald Dumas, city manager Mavela Dlamini and city mayor Amos Masondo, Myezo says. The Soweto SMME Contractors Forum is now exploring legal options.

Making the situation more complex is that contracts between the contractors and the firms acting as intermediaries between them and Johannesburg Water do not make provision for compensation for “standing time”.

Werksmans Attorneys’ Des Williams says using a mediator would be the best course.

Source: Financial Mail