The construction industry is still facing daunting challenges

By Ravisingh Gutty

The construction industry is still facing daunting challenges in the post pandemic era and the prevailing world economic climate. These include continuous hike in material prices, fret and logistics costs, supply chain disruptions, payment and cash flow issues and skilled labour shortages, amongst others.

The Building and Civil Engineering Contractors Association (BACECA) has been focusing on “the protection and promotion of the local industry and local contractors” to prevent local construction companies from bankruptcy and to safeguard local employment. In this context, we welcome the reinstating of the Margin of Preference for local contractors following the recent issuing of Directive 67 to the Public Procurement Act by the PPO and look forward to its prompt implementation in the procurement of public contracts. From an economic point of view, awarding contracts to local contractors will result in the multiplying effect of the circulation of money locally, and more local service providers and suppliers will be involved in the supply chain. 

The prices of building materials were this year at their highest since the global crisis of 2007-2009. Steel prices are up 77.4%, timber prices are up 55%, bitumen prices 81% from pre-pandemic prices. In addition, shortages and delays in material deliveries and labour shortages are expected to persist in the short and medium terms.

It is now more than ever essential that government and construction professionals maintain an open dialogue around price volatility and have a thorough understanding of existing fixed price contracts and new contracts to come to proactively mitigate the impact of the significant material price increases. We have hence proposed that all construction contracts with a duration of more than six months be systematically subject to price fluctuation clauses until the economic situation stabilizes.

The cost and availability of construction materials have kept more than one contractor from completing jobs on time and within budget. Material shortages interrupt cash flow and affect costs, timing and budgets. This is currently leading to loss-making projects as profit margins are traditionally thin in the construction sector. We hereby request government’s urgent attention to alleviate the cash flow problems that most contractors are facing as many building materials suppliers have reduced their credit facilities and demand earlier payments due to economic conditions overseas. Thus, it is urgent to shorten the terms of payment in contracts, to review the advances and the quantum and formula of retention money, in the current context, to save construction companies.

In addition, credit risk has increased significantly for contractors, especially for private projects. There is a need to protect builders and for developers to provide some form of payment guarantee. This could be in the form of a bank guarantee, a lien on the property being built, legislation preventing the sale of a property unless all payments are made or pari-passu terms in the contract in the event of bankruptcy of the promoter. We appeal to the EDB to take this aspect into consideration for private developments.

Skills, technical knowhow and expertise

The Finance Minister has recognized in his budget this year that construction is one of the industries “in need of more employees” and that “it needs to reinforce its capacity and improve the skills of its workforce” and for the related measures such as the Prime à l’Emploi and the e-register of skills. We welcome the setting up of a Construction Industry Authority and a Construction Industry Training Council as announced. In our opinion, schools and training centres should provide vocational counselling targeted at attracting both male and female young people into the sector. Modern construction has something to offer for people of any age and gender through innovating construction techniques and use of digital tools in construction planning and on construction sites.

Foreign workforce is unfortunately an essential need, but way too costly.

The construction industry heavily relies on and is a large industrial importer and employer of foreign workers. In the short term, resort to foreign workforce is unfortunately an essential need, but way too costly. To support construction growth, we request that the work permit processing be fast-tracked and re-iterate that fees be revised downwards and rates applied to be in line with the manufacturing sector. 

The social housing project has finally been launched by the NSLD mid of this year, and it is good to see that an effort has been made to promote the participation of local construction companies. However, the time constraint to deliver various lots in parallel seems to be challenging for many contractors, in terms of resources to be deployed, as well as the Fixed Price Contract condition, which is a major risk for the contractor in the current economic climate due to low visibility and high volatility of prices. We recommend that a price fluctuation mechanism be considered, at least after the first 6 or maximum 12 months of the contract.

This project is a great opportunity to introduce new technology and construction methodology to modernize the construction industry. However, the barriers to this, in the current form of the project, are the time factor to customize, order and receive specialized equipment and technology from abroad and the risk of not having a minimum critical mass or number of housing units in order to amortize the considerable investment involved in bringing new technology to Mauritius from overseas.

The turnover of the construction sector should increase from Rs 18.7 billion in 2021 to Rs 23.3 billion in 2022 with the metro project. The sector employs 46,900 people directly and as many if not more people indirectly. We hope the construction activity will increase even further in 2023 and that major development projects, such as the M4 motorway or the Rivière des Anguilles Dam, will be relaunched.

BACECA appeals for closer collaboration between the public and private sectors within the framework of PPP agreements as an alternative means of financing public projects, particularly in the current context. We propose that as from 2023 there is a real dialogue between the public sector and the stakeholders of the construction industry in order to achieve a successful PPP Scheme for the construction sector, as the one that exists in the energy sector, through a careful analysis of the long-term development goals for the country and not just case by case projects as we have experienced so far. Local construction companies are enthusiastic and proud to participate in the development of the country through skills, technical knowhow and expertise acquired in the various fields of construction over the years.