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Contractors insurance

22 August 2004 Angelo Coppola

(22.8.04) The introduction of legal protection for small- to medium-sized contractors is expected to sustain South Africa’s SMME sector

The ever-increasing emphasis on the development of small to medium sized businesses in South Africa, to help combat the high unemployment rate, has lead to the rise in the number of small building contractors.

Currently there are approximately 5 000 small contractors registered with the NHBRC (National Home Builders Registration Council).

However, the existence of many of these registered small contractors is often short-lived and they soon find themselves back in the job market, amongst the other estimated 38% of South Africa’s unemployed population.

Ingrid Boreham of Cre8, the research and development arm of Alexander Forbes Risk and Insurance Services, says non- or delayed payment in the building industry poses a serious business risk for many small- to medium-sized contractors and is often the reason for these businesses being liquidated.

Due to the nature of the building industry, payment is often made to contractors only once a job has been completed while, on the other hand, their suppliers demand prompt payment.

Consequently, contractors generally operate cash-strapped businesses and default on payments often results in the small contractors being unable to sustain their business.

“Traditionally, with a shortfall in cash flow, it has been difficult for these small contractors to take legal action against defaulters, as specialist legal counsel could cost anything between R6 000 and R10 000 per a day,” said Boreham.

In a move to reduce the risk exposure of SMMEs in the building industry in South Africa, and to facilitate their sustainability by making legal counsel and support affordable, Cre8, in conjunction with Santam, has introduced insurance cover to provide legal assistance and services to SMMEs, dubbed Legal Build.

Legal Build has been designed by South African specialist construction law attorneys, Tiefenthauer.

Without legal assistance to resolve common payment-related disputes such as payment refusal on job completion, late payment, short payment, request for additional work and then refusal to make the necessary payment, failure to return retention monies or unfair rejection of the final account, the small contractor inevitably is exposed to the financial risks and the risk of bankruptcy.

“Legal Build provides small to medium-sized contractors, or those whose annual turnover is less than R20 million, with industry focused legal advice and legal assistance at a cheap rate and effectively offers them a specialist attorney-on-retainer, which many small contractors could not otherwise afford,” Boreham said.

Legal Build covers the employment costs of the necessary construction law consultants, attorneys and advocates in pursuing or defending the small- to medium-sized contractor in either Mediation, Arbitration or Court.

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