Builders Are Not Banks: Why Risk-Sharing Is Critical in South African Construction

South Africa’s construction industry is at a turning point. While forecasts suggest modest growth of approximately 2.9% annually between 2025 and 2028, the internal pressures facing contractors remain significant.

One of the most urgent challenges is the growing expectation that builders should carry the primary financial and operational risk of a project alone.

This model is not sustainable — and is placing immense strain on an already fragile industry.

The Growing Financial Pressure on South African Builders

Reputable and experienced builders are increasingly being forced into the role of financier. In today’s environment, contractors are expected to absorb risks that extend far beyond construction itself.

1. Rising Material Costs

Construction material prices continue to escalate. With the Construction Materials Price Index rising by approximately 6.5% in 2024, profit margins are being steadily eroded. Fixed-price contracts become particularly risky when input costs are volatile.

2. Extended Payment Delays

The construction sector has one of the longest payment cycles of any industry. Contractors, particularly small and medium enterprises, are often left waiting months for payment, even after delivering completed work. This creates severe cash flow pressure and places otherwise healthy businesses at risk.

External Disruptions Beyond Builder Control

Contractors must also navigate challenges they did not create, including:

• Criminal interference often referred to as the “construction mafia”
• Loadshedding and power instability
• Weather delays
• Supply chain disruptions

These risks are largely uncontrollable yet frequently absorbed by the contractor.

Why the Current Risk Model Is Unsustainable

Construction income is inherently uneven and project-based. This “lumpy” revenue structure requires careful cash flow management. When clients and professional teams expect builders to carry material escalation, payment delays, and unforeseen disruptions at their own cost, it creates a perfect storm.

The consequences are visible. The sector has experienced a significant rise in liquidations in recent years, with a 32% increase recorded in 2022.

A core principle of sound construction management is that risk should be allocated to the party best equipped to manage it:

• Design risk should sit with the professional team (architects and engineers).

• Financial risk related to funding and economic fluctuations should be shared with the client.

• Construction execution risk should remain with the contractor.

When this balance is distorted, both projects and companies fail.

Moving Toward a Fair and Sustainable Construction Industry

If South Africa is to build resilient infrastructure and support economic growth, a shift in mindset is required.

Equitable Risk Allocation

Standard forms of contract such as those published by the Joint Building Contracts Committee (JBCC) are designed to create balanced agreements. However, fairness depends on proper administration and ethical implementation.

Shared Financial Safeguards

Mechanisms such as retention funds, performance guarantees, and properly structured payment schedules can protect all parties — particularly in cases of client insolvency.

A Culture of Prompt Payment

Both public and private sector clients must honour payment timelines. Delayed payment does not only affect one contractor; it creates a ripple effect that threatens subcontractors, and suppliers throughout the value chain.

Builders Are Partners — Not Banks

Builders are not financial institutions. They are skilled partners responsible for delivering homes, commercial spaces, and national infrastructure.

For South Africa’s construction sector to thrive, risk must be shared fairly among clients, professionals, and contractors. Sustainable growth will not come from shifting financial burden onto one party — it will come from collaboration, transparency, and responsible contracting.

If we want to build a stronger South Africa, we must also build a fairer construction industry.