Contractors bleed in Medupi’s shadow

Lephalale’s business chamber chairperson, Wayne Derksen believes that many local companies stand to lose everything if something is not done about late payments by main-contractors on the Medupi Power Station project. He uses the example of local sub-contractors Lezmin 3453, TT61, Baarata and Zin Zi Construction who left the Medupi site and instituted legal action against MPSJV and Eskom last year. Derksen told Northern News this week that companies like Baarta have been waiting as long as ten months for payment from MPSJV, a joint enterprise between Concor, Grinaker-LTA and Murray & Roberts (M&R).
In an article published in Fin24 this week, Martin Nel of Baarata says that the company paid more than R19-million to its labourers, while its total income from the contract was only around R9-million.
One of the contractors, Shakes Ndou of TT61, approached the Presidential hotline and also handed a letter to the office of Brian Dames, chief executive of Eskom in a desperate attempt to secure payment.
It has since been reported that MPSJV is offering the four subcontractors R54 000 each as a settlement. Derksen agrees with Shamima Mulla, the owner of Zin-zi, who said that she is extremely disappointed by the offer. She believes that MPSJV has tried to take advantage of the subcontractors’ desperate plight.
“The offer is totally unrealistic and if I were them [the subcontractors] I would also not accept it,” Derksen said. “These contractors are being mistreated by both MPSJV and Eskom. Instead of trying to solve the dispute in a positive manner, the companies who have both the financial and influential muscle, are using this muscle to destroy our local businesses and their employees. At least 600 people lost their jobs, impacting on 3 000 people’s lives. That is 3 000 people in Lephalale who suddenly find themselves without an income and maybe even a place to stay. They [MPSJV] must realise that their actions do not only influence just these four companies but thousands of lives and our local economy,” Derksen added.
MPSJV previously responded to the Fin24 article by saying that it had done what it could to help the four subcontractors. It also said that small contractors did not understand the claims process. In a written statement MPSJV claimed to have been particularly lenient, but that there was a point at which subcontractors had to accept responsibility.
Meanwhile, an independent report that Eskom requested on the issue remains secret despite several requests from these subcontractors to see it.
Northern News have since learned of many more companies who are struggling to keep head above water while waiting for payment.
In some instances subcontractors had to fend off angry workers who have not been paid because of late-payment.
“It is a vicious circle that affects many people in Lephalale, because if you are not paid you cannot pay the next person, who in return cannot pay the next. Many businesses suffer because of this,” a subcontractor who wanted to remain anonymous said.
According to Gerrie van Biljon, executive director at Business Partners, a specialist risk finance company for SMEs, this trend is extremely worrying as it is estimated that SMEs generate half of gross domestic product (GDP) and 60% of employment locally.
Van Biljon wrote on Biz-community’s web site that larger corporations and government might not realise the negative effects that late payments can have on SMEs. “While payment delays can be easily absorbed by larger companies with access to credit, late payments could have potentially devastating consequences for small firms, which struggle with cash flows and cannot easily secure overdrafts or bridging finance.”
Van Biljon gives the following advice to SMEs:
Many small businesses are afraid to negotiate stringent payment terms upfront, for fear of losing a potentially large customer. Many large organisations know this and put pressure on suppliers to accept their often lengthy payment terms.
“While it is not always easy to stand firm in these situations, failing to do so could result in massive dangers down the line. Make it clear to the customer what the credit terms are. If there is a difference between the two parties’ payment terms, don’t ignore the issue - discuss it and come to an agreement, otherwise it will arise later when it has become more critical to cash flow,” says Van Biljon.
Before accepting an order or brief, the supplier should fully understand the meaning of all payment terms. This includes particular requirements regarding invoicing, what references or order numbers should be quoted, what the procedures are for making payment, as well as whether the customer only accepts electronic invoicing. It is highly unlikely that the customer will pay before their standard terms, but it is advisable to discuss payment before in order to find out what flexibility they have.
Many small businesses shy away from pressing large clients for payment as they fear it could damage the relationship they have with their client contact.
“One option is to outsource invoicing and collections to an outside supplier, who is able to chase late payment on the supplier’s behalf.”
Van Biljon says that SMEs experiencing late payments of more than 30 days after doing business with the government can now call a hotline on 0860 766 3729 for assistance.
“The hotline will provide SMEs and suppliers with a single point of contact to facilitate the speedy payment for services or products provided to the government.”In some instances subcontractors had to fend off angry workers who have not been paid because of late-payment.
“It is a vicious circle that affects many people in Lephalale, because if you are not paid you cannot pay the next person, who in return cannot pay the next. Many businesses suffer because of this,” a subcontractor who wanted to remain anonymous said.
According to Gerrie van Biljon, executive director at Business Partners, a specialist risk finance company for SMEs, this trend is extremely worrying as it is estimated that SMEs generate half of gross domestic product (GDP) and 60% of employment locally.
Van Biljon wrote on Biz-community’s web site that larger corporations and government might not realise the negative effects that late payments can have on SMEs. “While payment delays can be easily absorbed by larger companies with access to credit, late payments could have potentially devastating consequences for small firms, which struggle with cash flows and cannot easily secure overdrafts or bridging finance.”
Van Biljon gives the following advice to SMEs:
Many small businesses are afraid to negotiate stringent payment terms upfront, for fear of losing a potentially large customer. Many large organisations know this and put pressure on suppliers to accept their often lengthy payment terms.
“While it is not always easy to stand firm in these situations, failing to do so could result in massive dangers down the line. Make it clear to the customer what the credit terms are. If there is a difference between the two parties’ payment terms, don’t ignore the issue - discuss it and come to an agreement, otherwise it will arise later when it has become more critical to cash flow,” says Van Biljon.
Before accepting an order or brief, the supplier should fully understand the meaning of all payment terms. This includes particular requirements regarding invoicing, what references or order numbers should be quoted, what the procedures are for making payment, as well as whether the customer only accepts electronic invoicing. It is highly unlikely that the customer will pay before their standard terms, but it is advisable to discuss payment before in order to find out what flexibility they have.
Many small businesses shy away from pressing large clients for payment as they fear it could damage the relationship they have with their client contact.
“One option is to outsource invoicing and collections to an outside supplier, who is able to chase late payment on the supplier’s behalf.”
Van Biljon says that SMEs experiencing late payments of more than 30 days after doing business with the government can now call a hotline on 0860 766 3729 for assistance.
“The hotline will provide SMEs and suppliers with a single point of contact to facilitate the speedy payment for services or products provided to the government.”