The ever-increasing emphasis on the development of small to medium-sized businesses in South Africa, to help combat the high unemployment rate, has led to a rise in the number of small building contractors.
Currently there are approximately 5 000 small contractors registered with the National Home Builders’ Registration Council. However, the existence of many of these registered small contractors is often short-lived and they soon find themselves back in the job market.
Ingrid Boreham of Cre8, the research and development arm of Alexander Forbes Risk and Insurance Services, says delayed or non-payment in the building industry poses a serious business risk for many small to medium-sized contractors and is often the reason for these businesses being liquidated.
Due to the nature of the building industry, payment is often made to contractors only once a job has been completed. On the other hand, their suppliers demand prompt payment. Consequently, contractors generally operate cash-strapped businesses. Default on payments often results in the small contractors being unable to sustain their business.
“Traditionally, with a shortfall in cash flow, it has been difficult for these small contractors to take legal action against defaulters, as specialist legal counsel could cost anything between R6 000 and R10 000 per day,” says Boreham.
In a move to reduce the risk exposure of small, medium and micro-sized enterprises (SMMEs) in the building industry in South Africa, and to facilitate their sustainability by making legal counsel and support affordable, Cre8 — in conjunction with Santam — has introduced insurance cover to provide legal assistance and services to SMMEs, dubbed Legal Build.
Legal Build has been designed by South African specialist construction-law attorneys Tiefenthauer.
Without legal assistance to resolve common payment-related disputes such as payment refusal on job completion, late payment, short payment, request for additional work and then refusal to make the necessary payment, failure to return retention monies or unfair rejection of the final account, the small contractor inevitably is exposed to not only the financial risks but also the risk of bankruptcy.
“Legal Build provides small to medium-sized contractors, or those whose annual turnover is less than R20-million, with industry-focused legal advice and legal assistance at a cheap rate and effectively offers them a specialist attorney-on-retainer, which many small contractors could not otherwise afford,” Boreham says.
Legal Build covers the employment costs of the necessary construction-law consultants, attorneys and advocates in pursuing or defending the small- to medium-sized contractor in either mediation, arbitration or court.
“Cre8 anticipates that Legal Build will safeguard small businesses in the booming building industry, help retain the registered numbers of small contractors and increase the number of SMMEs in the industry in South Africa,” says Boreham. — I-Net Bridge