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By Euan Massey, director at MDA Attorneys

Monday, 17 February 2020: Increased infrastructure projects could be the impetus for an uptick in the ailing construction sector this year, which currently faces tight (and reducing) budgets, difficult trading conditions and adversarial contracts. Several projects across the energy, water and transport infrastructure sectors could create improved conditions and provide much-needed work. The caveat is that policy certainty and commitment to resolving critical issues are required from government. In addition, diminished contractor capacity may mean more work for those businesses that have managed to weather the storm.

Energy opportunities

While the Ramaphosa administration has made positive progress in achieving policy certainty, the problems at Eskom and unreliable power supply are significant barriers to economic growth. Energy Minister Gwede Mantashe gave the green light to mining houses to generate their own electricity at the Mining Indaba last week. With several private power stations at advanced design stage, if these projects get the go-ahead, there could be a significant amount of work coming to market. Mining houses are clearly considering alternative energy options. Anglo American announced plans to construct at least two solar projects, for instance, at which the electricity generated will be used to produce hydrogen to power its mining fleet at some mines.

Renewable Energy Independent Power Producer Procurement (REIPP) Round 4 projects are at various stages of completion and industry is waiting anxiously for REIPP Round 5 to be finalised. With the obvious upside to improve order books, these projects have been fraught with disputes, which in our view is largely attributable to the inflexible contracting model adopted by the financiers, with very little recourse for fair compensation and extension of time flowing from variations and unforeseen conditions.

Water projects

The National Water and Sanitation Master Plan 2019 aims to tackle ageing infrastructure and introduce greater water reserves for the country. With projects such as the Mokolo-Crocodile Water Augmentation Project (which is currently subject to an appeal), Lesotho Highlands Phase II, various desalination plants and the Vaal River Rehabilitation all at various stages of development and implementation, additional work could come on stream during the latter part of the year. These projects are urgent and necessary for the country’s water security. As such, they should be receiving priority.

Additional opportunities

During the latter half of 2019, South African National Roads Agency (Sanral) and Airports Company South Africa (ACSA) issued several enquiries for large scale projects, including the N2/N3 road upgrades, the construction of remote apron stands at OR Tambo International and the construction of a new runway and domestic terminal at Cape Town International.

There are also several building projects which may come on stream this year. In the Western Cape, these include Harbour Arch, Zero-2-One, Ratanga Junction and The Rubik.

Challenges

Several Sanral projects have been plagued by interruptions caused by business forums and local communities. In response, Sanral’s new contracts contain an amended force majeure clause which requires contractors to comply with five conditions in order to be protected from the resultant delays, including launching an urgent application in the High Court. Work on the Msikaba bridge continues this year where the project team seems to have managed its dealings with the local community without rushing off to court. We assume that Sanral is preparing an enquiry for a replacement contractor to construct the Mtentu Bridge.

Employer trends

In the current construction landscape, bonds and guarantees are being regularly drawn down by employers. We are also seeing continued growth in the number of disputes and a steady rise in construction adjudication.

We anticipate that guarantors are likely to start introducing a far more robust assessment of risks before issuing bonds and guarantees. Certain contractors may not be able to secure these securities or be subjected to significantly increased premiums. This does not bode well for employers, some of whom will have to re-assess how they manage contracts if they wish to receive tenders from contractors.

Adjudication, particularly in subcontract agreements, will continue to rise. We now have established case law available that deals with commonly encountered issues in the enforcement of adjudicator’s decisions. In short, the courts have supported adjudication, giving contractors and subcontractors access to a quicker and more cost-effective form of dispute resolution.

ENDS

For interviews, photographs or further information, please contact Despina Harito at Turquoise PR & Marketing Communications despina@turquoisepr.co.za or 011 452 1840 / 084 453 1755.

About Euan Massey, director, MDA Consulting/Attorneys

Euan has extensive experience in commercial litigation and construction related issues including specialist legal counsel on capital project procurement strategies and agreed target cost contracts. He adds significant value to the contracting process and is adept in all forms of dispute resolution, with a particular interest in adjudication. He regularly acts as an arbitrator, adjudicator and mediator.

Euan holds an MSc in Construction Law and Dispute Resolution from Kings College, London, and provides lectures and training on construction contract law and standard form contracts.

About MDA Attorneys

MDA Attorneys is a niche practice in the field of construction law. MDA specialises in contract documentation, dispute resolution and commercial support services to contracting organisations involved in large-scale construction projects in the infrastructure, mining, petrochemical, water processing and energy sectors within Southern Africa and internationally.

www.mdalaw.co.za