Investigating factors associated with insolvencies among civil engineering contractors in KwaZulu-Natal

Abstract

Insolvency may be broadly defined as an inability of 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 creditors owing. There are indications to suggest that during periods of adverse conditions the occurrences of insolvencies are mutually exclusive and remain a subject of debate. The occurrence of these financial failures adversely affect business concerns operating within the civil engineering construction industry. In South Africa, figures released by the South African Federation of Civil Engineering Contractors (SAFCEC) in 1992 suggested an expected general decline in workload handled 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 the previously disadvantaged communities. During that period large contractors suffered financially and some went through insolvency. The government had also put emphasis on transformation of the sector to allow participation of emerging and small contractors, but this was not properly regulated, so most of these contractors did not have the experience and skills to operate sustainable construction firms. The Construction Industry 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 public sector for effective delivery and the industry’s enhanced role in the country’s economy. The CIDB’s regulations were implemented after 2003 and are continuously improving the construction public sector’s growth. This research study investigated and evaluated the factors associated with insolvencies amongst civil engineering contractors in KwaZulu-Natal. The study investigated the hypotheses that “the prominent factors associated with civil engineering contractors insolvencies are related to managerial/operational issues”, the prominent factors associated with civil engineering contractors insolvencies are related to financial issues”, “South African government initiatives create an environment for small to medium contractors to develop through their implementation”, and good management and operation of small to medium construction companies reduce insolvency in construction”. Operational management and strategic factors were found to be amongst the leading causes of companies failures. The study also made some recommendations from the research findings. The findings are relevant to the South African government infrastructure service delivery programs and the general issue of affordable infrastructure services.