SA construction industry blooming
2008-05-26 · Property Infrastructure
The 9th of May 2008 was a big day for the South African construction industry. On that day, the allocation of work amounting to R14,5bn opened a new growth path for the industry.
The South African National Road Agency (Sanral) awarded six work packages with a total value of R11,5bn in order for Gauteng's highways to be improved.
The other big contract is worth R3bn and entails civil work at Eskom's Medupi power station. It was awarded to a consortium that comprises Murray & Roberts, Grinaker-LTA and Concor.
Pierre Blaauw, construction economist and operational head of the South African Federation of Civil Engineering Contractors, says these big contracts are merely a foretaste of what lies ahead.
Sanral's total project amounts to approximately R40bn and Eskom's capital spending is estimated at R1,300bn, of which approximately 20% - R200 to R300bn – consists of construction work.
Moreover, pressure is mounting in the run-up to the Soccer World Cup in 2010, and contracts for the upgrading of infrastructure surrounding the soccer stadiums and express train services in the host cities are gathering momentum.
The construction industry is booming to such an extent that Safcec adjusted its earlier prediction – that the industry will be moving sideways – to 5% to 10% real growth during 2008 until the middle of 2009. This comes on the back of 38% real growth in 2007.
The other meaningful aspect of the granting of the contracts, especially the Medupi contract, is the confidence that the state and state enterprises have in the SA construction industry.
The Murray & Roberts consortium beat two Chinese contractors to get this contract. The Chinese Sino group's initial tender of R2,1bn was the lowest.
Hard on its heels was the Chinese government consortium Covec, which astonished the construction industry a few years ago by beating local contractors for the Vresap emergency pipe line contract with an offer 25% lower than that of its competitors.
Covec's bid for Medupi was R2,29bn and that of the Murray & Roberts consortium R2,46bn. Another SA consortium, consisting of WBHO, Group Five, Basil Read and Stefanutti & Bressan, was in fourth place with a R2,8bn bid.
Why then did Eskom, despite its widely-reported financial woes, not accept the lowest bid?
Blaauw says the good reputation of the South African construction industry probably proved to be decisive.
The Eskom bid apparently contained several "open" elements. This means that Eskom didn't provide all the details relating to the work, but that the bidding companies had to provide additional solutions and make suggestions.
Price was therefore not the factor that determined who received the contract, but the bidders had to use their expertise in order to make cost-effective and sensible suggestions.
This is also the reason for the ultimate contract price being higher.
The Medupi project is of great strategic and symbolic value in light of SA's current electricity crisis.
The task of choosing the right contractor probably weighed heavily on Eskom, especially with the spotlight falling sharply on everything it says and does at present.
Industry leaders say Sino hasn't completed construction projects in SA. Covec's Vresap project was only completed long after the deadline expired and Blaauw says Chinese contractors haven't proved, beyond all doubt, that they are able to succeed in local conditions.
"They are doing very well in China, but there they generally work with suppliers that are controlled by the state. If the state suppliers aren't immediately paid by the state contractors, it's not that serious because the money flows back to the state," he says.
Chinese contractors are also not conversant with the strict labour environment and legislation in SA.
Blaauw says the Medupi contract is tied to "extremely ambitious" completion schedules.
It is against this background that Eskom probably went for "a safer choice" by appointing local contractors, who have been in the market for quite some time and have proved their worth.
This contract, not unlike those relating to the World Cup stadiums, is extremely beneficial to the South African construction industry. "The industry is afforded the opportunity to prove its worth and grow in the delivery of power." – Antoinette Slabbert, Sake24
The South African National Road Agency (Sanral) awarded six work packages with a total value of R11,5bn in order for Gauteng's highways to be improved.
The other big contract is worth R3bn and entails civil work at Eskom's Medupi power station. It was awarded to a consortium that comprises Murray & Roberts, Grinaker-LTA and Concor.
Pierre Blaauw, construction economist and operational head of the South African Federation of Civil Engineering Contractors, says these big contracts are merely a foretaste of what lies ahead.
Sanral's total project amounts to approximately R40bn and Eskom's capital spending is estimated at R1,300bn, of which approximately 20% - R200 to R300bn – consists of construction work.
Moreover, pressure is mounting in the run-up to the Soccer World Cup in 2010, and contracts for the upgrading of infrastructure surrounding the soccer stadiums and express train services in the host cities are gathering momentum.
The construction industry is booming to such an extent that Safcec adjusted its earlier prediction – that the industry will be moving sideways – to 5% to 10% real growth during 2008 until the middle of 2009. This comes on the back of 38% real growth in 2007.
The other meaningful aspect of the granting of the contracts, especially the Medupi contract, is the confidence that the state and state enterprises have in the SA construction industry.
The Murray & Roberts consortium beat two Chinese contractors to get this contract. The Chinese Sino group's initial tender of R2,1bn was the lowest.
Hard on its heels was the Chinese government consortium Covec, which astonished the construction industry a few years ago by beating local contractors for the Vresap emergency pipe line contract with an offer 25% lower than that of its competitors.
Covec's bid for Medupi was R2,29bn and that of the Murray & Roberts consortium R2,46bn. Another SA consortium, consisting of WBHO, Group Five, Basil Read and Stefanutti & Bressan, was in fourth place with a R2,8bn bid.
Why then did Eskom, despite its widely-reported financial woes, not accept the lowest bid?
Blaauw says the good reputation of the South African construction industry probably proved to be decisive.
The Eskom bid apparently contained several "open" elements. This means that Eskom didn't provide all the details relating to the work, but that the bidding companies had to provide additional solutions and make suggestions.
Price was therefore not the factor that determined who received the contract, but the bidders had to use their expertise in order to make cost-effective and sensible suggestions.
This is also the reason for the ultimate contract price being higher.
The Medupi project is of great strategic and symbolic value in light of SA's current electricity crisis.
The task of choosing the right contractor probably weighed heavily on Eskom, especially with the spotlight falling sharply on everything it says and does at present.
Industry leaders say Sino hasn't completed construction projects in SA. Covec's Vresap project was only completed long after the deadline expired and Blaauw says Chinese contractors haven't proved, beyond all doubt, that they are able to succeed in local conditions.
"They are doing very well in China, but there they generally work with suppliers that are controlled by the state. If the state suppliers aren't immediately paid by the state contractors, it's not that serious because the money flows back to the state," he says.
Chinese contractors are also not conversant with the strict labour environment and legislation in SA.
Blaauw says the Medupi contract is tied to "extremely ambitious" completion schedules.
It is against this background that Eskom probably went for "a safer choice" by appointing local contractors, who have been in the market for quite some time and have proved their worth.
This contract, not unlike those relating to the World Cup stadiums, is extremely beneficial to the South African construction industry. "The industry is afforded the opportunity to prove its worth and grow in the delivery of power." – Antoinette Slabbert, Sake24
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