Factors associated with insolvences amongst civil engineering construction firms in KwaZulu-Natal, South Africa

Abstract

Paper presented at the 28th Annual Southern African Transport Conference 6 - 9 July 2009 "Sustainable Transport", CSIR International Convention Centre, Pretoria, South Africa.

Insolvency may be broadly defined as an inability of a business entity to meet pending financial commitments. For a construction firm, such a situation creates conditions whereby a business entity is unable to fulfill its contractual obligations with regard to work in progress or credit owing(De Valance, 1994). There are indications to suggest that during times of adverse conditions, the occurrences of insolvencies are mutually exclusive and remain a subject of debate. The occurrences of these financial facilities seem to have adversely affected business operations within the civil engineering construction industry. In South Africa, figures released by the South African Federation of Civil Engineering Contractors (SAFCEC) in 1992 were suggesting an expected general decline in work load handling by this sector. This was a result of scaling down of heavy infrastructure projects because of government shifting focus to housing and other related projects mainly towards meeting the needs of previously disadvantage communities. During that period large contractors suffered financially and some went through insolvency. The government had also put emphasis on transforming the sector to allow participation of emerging and small contractors but this was not properly regulated as most of these contractors did not have the experience and skills to operate sustainable construction firms. The Construction lndustry Development Board(CIDB) was established in 2000 as a statutory body to provide leadership to stakeholders and to stimulate sustainable growth, reform and improvement of the construction sector for effective delivery and the industry's enhanced role in the country's economy. CIDB's regulations were implemented after 2003 and are positively impacting the sector's growth. This research work sought to evaluate the findings of an investigation into factors associated with insolvencies amongst civil engineering contractors in KwaZulu-Natal. The research thesis in based on the basis of the hypothesis that 'the prominent factors associated with civil engineering contractor's insolvencies are related to operational and strategic issues'. The analysis of the findings from questionnaires and liquidators' reports supports the hypothesis. From the findings, a number of recommendations are made to develop strategies to promote growth and sustainability in the civil construction industry especially amongst emerging contractors. This paper focuses on randomly selected liquidator's reports of construction firms which went insolvent between 2000 and 2005.