Master Builders South Africa (MBSA) has noted with concern, the impact of the latest increase in the price of fuel on construction projects. The Department of Mineral Resources and Energy announced new fuel prices that came into effect on Wednesday, 06 July, with petrol prices hiked by R2.37 (93) and R2.57 (95) a litre, while diesel prices increased by R2.31 (0.05% sulphur) and R2.30 (0.005% sulphur) a litre. This was a result of increased international oil prices, as well as Wednesday’s reduction of the fuel levy reprieve announced by government.
“The direct impact on ongoing building projects has been an immediate increase in the cost of construction for contractors who are already on sites. Fuel is a big cost component of equipment used in construction and the steep increase in its price that we’ve experienced in the last 12 months is not absorbable by contractors in fixed-price contracts” said Roy Mnisi, Executive Director of Master Builders South Africa.
Construction has traditionally been known as a high-risk and thin-margin industry, where slight changes or delays in a project can result in significant financial losses for contractors. “We have the double-whammy of fuel price increases and power outages, which will also soon reflect in construction material shortages and price increases. Many projects will overrun their budgets because the rate of escalation was unforeseen and current escalation indices in contracts are inadequate to cover these increases in project costs. Small contractors will be most affected because they do not have adequate cover to accommodate these shocks’’, said Mnisi.
The Federation says it is already engaging client bodies and the Department of Public Works and Infrastructure to consider alternative specifications and designs that would allow current construction projects to keep within budgets and reduce the burden of unanticipated fuel and material price increases on contractors.