South African contractors and construction firms must be alive to ‘construction mafia risks

Given a recent influx of the construction mafia – organised groups, often presenting themselves as ‘local business forums’, that infiltrate the construction industry, using intimidation, violence and extortion to force their way into lucrative projects – contractors need to ensure they are alive the risks when tendering for work on projects. Contractors must undertake adequate and appropriate risk assessment when deciding which projects to partake in.

The construction mafia continues to cause concern for contractors and businesses across South Africa’s construction industry, using methods such as threatening staff on projects with violence and heavy weaponry as well as demanding money, jobs or a share of the contract in question without having any actual genuine interest in the job itself. The tactics have now further developed into coercing contractors into paying protection fees as a form of security from their very own disruptive and violent conduct.

The emergence of the construction mafia stems from an exploitation of the Preferential Procurement Policy Framework Act (PPPFA). The objective of the PPPFA is to promote economic transformation by providing that 30% of public procurement contracts be allowed to historically disadvantaged individuals, as provided for in the Preferential Procurement Regulations, often referred to as a ‘local content’ requirement. These groups continue to misuse the provisions of the PPPFA by demanding that a 30% share of a contract value of construction projects accrue directly to the construction mafia.

The National Treasury has condemned this practice as illegal and deems this exploitive conduct to be undermining the purpose of the PPPFA by hindering the economic development and promotion of historically disadvantaged individuals and small businesses.

Contractual provisions may provide protection

The standard form contracts most commonly used in the construction industry in South Africa are the Joint Building Contracts Committee (JBCC) and the International Federation of Consulting Engineers (FIDIC) contracts. Both these contract types contain contractual provisions on which the contractor may rely if its project is negatively affected by the construction mafia’s conduct.

The JBCC form contracts, particularly the Principal Building Agreements (PBA), Nominated Subcontract Agreements (N/S Agreement) and the Minor Works Agreement (MWA), include a clause which entitles a contractor or subcontractor to a revised practical completion date without adjustment of the contract value when affected by a “force majeure” event – an event beyond the control of the parties’ involved. This provides contractors with a mechanism which entitles them to an extension of time where the works in the construction project have been delayed due to the activities of the construction mafia.

Further, these sets of contracts contain a clause which allows for the termination of the contract, subject to issuing a notice, if the progression of the works has stopped for prolonged periods of time or where there is destruction of works due to force majeure events. The contractor cannot be held liable for any damages which have bene caused by these unforeseeable events.

Clause 19 of the FIDIC standard form contracts provides for payment to cover costs incurred in a force majeure event if the event is beyond the contract’s control, unforeseen before the conclusion of the contract, and if the event was unable to be reasonably avoided. This includes events such as riot, commotion disorder, strike or lockout by a person other than the contractor’s personnel.

Contractors may rely on this clause to extend the practical completion date and to terminate the contract, with notice, where construction mafias disrupt the project.

Failing to carry out an adequate risk assessment and therefore taking on a project with potential risks may make it difficult for contractors to overcome the “unforeseeable” hurdle and therefore rely on this clause.

Remedies available to contractors

Whilst contractors can make use of the contractual provisions as a remedy to protect against losses, the conduct of the construction mafia when targeting sites requires a remedy which can effectively cease the present obstructive conduct.

Contractors can use private security and apply for an urgent interdict in court to prevent the conduct of the construction mafia continuing.

The South African National Roads Agency (SANRAL) has been negatively impacted over the last few years by such conduct due as its construction projects are mainly road projects, easily accessible to the construction mafia. The construction of the Mtentu bridge, a 1.13km cantilever bridge forming part of SANRAL’s N2 Wild Coast Road – one of the biggest projects in South Africa – has been previously halted due to disruption caused by members of the construction mafia, as there were protests by local community members who demanded employment opportunities and that materials be sourced locally. These protests escalated and became violent, endangering the joint venture’s staff and halting construction.

In February, the MyCiTi Bus Project – part of the city of Cape Town’s integrated public transport network project that aims to expand the MyCiTi bus services across the entire city by 2030 – was halted after extortion syndicates threatened contractors and their workers. The threats came from individuals linked to five development and business forums in the area, which eventually forced the contractor off-site. The city of Cape Town obtained an urgent interdict to prevent any further obstruction.

Development of available remedies

These disruptions have promoted SANRAL to impose requirements for contractors when bidding for projects.

SANRAL has developed the Works Contract, based on the FIDIC Conditions of Contract for Construction (1999), to develop its force majeure clause to include five conditions to be satisfied before contractors pursue a claim.

Contractors must engage with the disruptors and document grievances, threats, and unlawful actions; proof of any riot or disorder must be recorded; all incidents must be reported to the South African Police Service; contractors must launch an urgent court application to interdict unlawful actions and lastly ensure that court orders are fully enforced.

The conditions included in the amended Works Contract are remedies which contractors have ordinarily followed to protect themselves against the conduct of the construction mafia. However, SANRAL enforcing it in writing as a condition provides a guideline for both employers and contractors to protect themselves against the negative implications which arise from the actions of these groups. Parties to construction projects in South Africa should ensure that all mitigation measures – such as engaging the community before commencing construction, and having adequate protection for employees – are employed to manage the risk of potentially being targeted.

Co-written by Brendan Whyte, Luyanda Khanyile and Tlotlang Seabo of Pinsent Masons.