CAN CONSTRUCTION COMPANIES SURVIVE IN THE CURRENT ...

CONTRACTS l COMMERCIAL SUPPORT l DISPUTES l TRAINING

CAN CONSTRUCTION COMPANIES SURVIVE IN THE CURRENT DEPRESSED MARKET?

Ian Massey, Director

MDA Consulting

INTRODUCTION

Too many service providers

Not enough work for everyone

Policy of award based principally on price

INTRODUCTIONThe one who

makes a mistake gets the job

Has to trade himself out of

the predicament

Proliferation of claims, disputes

and conflict

HOW DOES THE CONSTRUCTION ENVIRONMENT IN RSA MEASURE UP TO THIS PROFILE?

WORK AVAILABILITYNUMERICAL ANALYSIS

CONTRACTING OPPORTUNITIES ALL ADVERTISED TENDERS FOR 2015 – 2018 IN AFRICA

INFORMATION OBTAINED FROM LEADS2BUSINESS

CONTRACTING OPPORTUNITIES

Oct2015

Nov2015

Dec2015

Jan2016

Feb2016

Mar2016

Apr2016

May2016

Jun2016

Jul2016

Aug2016

Sep2016

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017

Jun2017

Jul2017

Aug2017

Sep2017

Oct2017

Nov2017

Dec2017

Jan2018

Feb2018

Mar2018

Apr2018

May2018

Jun2018

Jul2018

Aug2018

Sep2018

Oct2018

AWARDED TENDERS FOR 2015 - 2018 IN AFRICA

Oct2015

Nov2015

Dec2015

Jan2016

Feb2016

Mar2016

Apr2016

May2016

Jun2016

Jul2016

Aug2016

Sep2016

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017

Jun2017

Jul2017

Aug2017

Sep2017

Oct2017

Nov2017

Dec2017

Jan2018

Feb2018

Mar2018

Apr2018

May2018

Jun2018

Jul2018

Aug2018

Sep2018

Oct2018

ALL TENDERS ADVERTISED FOR SOUTH AFRICA 2015 - 2018

Oct2015

Nov2015

Dec2015

Jan2016

Feb2016

Mar2016

Apr2016

May2016

Jun2016

Jul2016

Aug2016

Sep2016

Oct2016

Nov2016

Dec2016

Jan2017

Feb2017

Mar2017

Apr2017

May2017

Jun2017

Jul2017

Aug2017

Sep2017

Oct2017

Nov2017

Dec2017

Jan2018

Feb2018

Mar2018

Apr2018

May2018

Jun2018

Jul2018

Aug2018

Sep2018

Oct2018

CANCELLED TENDERS FOR SOUTH AFRICA 2015 - 2018

SO THAT IS THE NUMERICAL COUNT –HOW DO WE LOOK FROM A VALUE

ASSESSMENT?

WORK AVAILABILITYVALUE ANALYSIS BASED ON CIDB RATINGS

VALUES OF TENDERS

0 200 400 600 800 1000 1200 1400 1600 1800 2000

No Rating

CIDB 2: R 200,000 - R 650,000

CIDB 3: R 650,000 - R 2 Million

CIDB 4: R 2 Million - R 4 Million

CIDB 5: R 4 Million - R 6,5 Million

CIDB 6: R 6,5 Million - R 13 Million

CIDB 9: R130 Million Plus

CIDB GRADINGS FOR ALL TENDERS ADVERTISED IN SOUTH AFRICA FOR 2018

VALUES OF TENDERS

0 200 400 600 800 1000 1200 1400 1600 1800 2000

NO RATING

CIDB 2: R 200,000 - R 650,000

CIDB 3: R 650,000 - R 2 MILLION

CIDB 4: R 2 MILLION - R 4 MILLION

CIDB 5: R 4 MILLION - R 6,5 MILLION

CIDB 6: R 6,5 MILLION - R 13 MILLION

CIDB 9: R130 MILLION PLUS

CIDB RATING OF WITHDRAWN TENDERS FOR SOUTH AFRICA IN 2018

VALUES OF TENDERS

0 200 400 600 800 1000 1200 1400 1600 1800 2000

N O R A T I N G

C I D B 2 : R 2 0 0 , 0 0 0 - R 6 5 0 , 0 0 0

C I D B 3 : R 6 5 0 , 0 0 0 - R 2 M I L L I O N

C I D B 4 : R 2 M I L L I O N - R 4 M I L L I O N

C I D B 5 : R 4 M I L L I O N - R 6 , 5 M I L L I O N

C I D B 6 : R 6 , 5 M I L L I O N - R 1 3 M I L L I O N

C I D B 7 : R 1 3 M I L L I O N - R 4 0 M I L L I O N

C I D B 8 : R 4 0 M I L L I O N - R 1 3 0 M I L L I O N

C I D B 9 : R 1 3 0 M I L L I O N P L U S

CIDB VALUE OF AWARDED TENDERS IN SOUTH AFRICA FOR 2018

AN OVERVIEW OF THE CIDB RATINGS

AN OVERVIEW OF THE SECTORS

COLLATERAL DAMAGE

THE EFFECT ON CONTRACTS

GLOBAL AVERAGE DISPUTE VALUE

INFORMATION OBTAINED FROM ARCADIS 2018 REPORT

2012 2013 2014 2015 2016 2017

Global Average

AVERAGE DISPUTE VALUES (US $ MILLIONS)

North America UK Continental Europe Middle East

Global Average

GLOBAL AVERAGE DISPUTE DURATION

INFORMATION OBTAINED FROM ARCADIS 2018 REPORT

2013 2014 2015 2016 2017

Global Average

AVERAGE LENGTH OF DISPUTE (MONTHS)

North America UK Continental Europe Middle East

DISPUTE STATISTICS SOUTH AFRICA

INFORMATION OBTAINED FROM BYRNE MANDLENKOSI SITHOLE’S DISSERTATION

NUMBER OF DISPUTES REFERRED TO ASSOCIATION OF ARBITRATORS (SOUTHERN AFRICA) FOR FORMAL DISPUTE RESOLUTION.

YEAR NEC JBCC FIDIC GCC COMMERCIAL OTHERS TOTAL

2015 15 104 4 3 4 43 173

2016 14 107 10 3 2 39 175

2017 0 67 3 0 3 24 97

MDA ADJUDICATION SURVEY 2017

• Number of adjudications increased from 27 (2016) to 45 (2017)

• 40% GCC

• 27% FIDIC

• 13% NEC

• 16% JBCC

• Value increased particularly in the 20 to 50 million zone

• 27% of adjudication awards rejected

COLLATERAL DAMAGE

THE EFFECT ON COMPANIES

STOCK PERFORMANCE OVER THE PAST 3 YEARS

INFORMATION OBTAINED FROM SA RESERVE BANK AND THE JSE

R 0.00

R 5.00

R 10.00

R 15.00

R 20.00

R 25.00

R 30.00

JSE STOCK PRICES NOVEMBER 2015 - NOVEMBER 2018

CALGRO -62,33% GROUP 5 -94,84% RAUBEX +28,30% M&R +73,11% BASIL READ -99,05%

ESOR -89,66% STEFSTOCKS -40,20% AVENG -98,50% TREND

STOCK PERFORMANCE OVER THE PAST 10 YEARS

INFORMATION OBTAINED FROM SA RESERVE BANK AND THE JSE

R 0.00

R 0.02

R 0.04

R 0.06

R 0.08

R 0.10

R 0.12

R 0.14

R 0.16

JSE STOCK PRICES NOVEMBER 2010 - NOVEMBER 2018

WBHO +22,9%

CALGRO -62,33%

GROUP 5 -94,84%

RAUBEX +28,30%

M&R +73,11%

BASIL READ -99,05%

ESOR -89,66%

STEFSTOCKS -40,20%

AVENG -98,50%

R VALUE AGAINSTUSD

COLLATERAL DAMAGE

THE EFFECT ON THE INDUSTRY AND COMMUNITY

SKILLS LOSS

Recent publications by Stats SA show:

• Estimated emigration figure of 1 016 994 between 2016 – 2021 at the current rate

• Estimated 1 000 000 immigrants set to enter South Africa’s job market over the same period

INFORMATION OBTAINED FROM STATS S.A

SKILLS LOSS

• In July 2017, the Department of Home Affairs officially gazetted a white paper

• Using recent census data, the white paper estimated that more than 520,000 South Africans had emigrated between 1989 and 2003, with the numbers growing by about 9% a year.

• About 120,000 of those emigrants had professional qualifications.

• “This represents about 7% of the total stock of professionals employed in South Africa and is more than eight times the number of professionals immigrating to South Africa in the same period.”

INFORMATION OBTAINED FROM BUSINESSTECH

SKILLS LOSS

Articles by several online publications quoting emigration specialists and businesses discuss the skills loss being as a result of:

• Most South African emigrants are skilled / wealthy families who are emigrating due to attractive opportunities in other countries

• Most immigrants to South Africa are unskilled migrants from neighbouring African countries and will not combat the skills shortage in South Africa

INFORMATION OBTAINED FROM STATS SA, BUSINESS TECH, THE ZULULAND OBSERVER, THE SOUTHAFRICAN.COM, COSMOPOLITAN.CO.ZA

CRITICAL SKILLS VISAS ATTRACT PROFESSIONALS

Critical skills shortages are being experienced world wide, with many countries offering special visas to attract skilled immigrants, such as:

• Australia

• New Zealand

• UK

• United Arab Emirates

• Canada

• USA

INFORMATION OBTAINED FROM STATS SA, BUSINESS TECH, THE ZULULAND OBSERVER, THE SOUTHAFRICAN.COM, COSMOPOLITAN.CO.ZA

CONTRACTS l COMMERCIAL SUPPORT l DISPUTES l TRAININGSO, THE FIRST PROCUREMENT

RISK YOU SHOULD CONSIDER IS,

“IS THERE OR WILL THERE BE A

CONSTRUCTION INDUSTRY TO

BUILD MY NEXT CAPITAL

PROJECT?”

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