Construction World July 2018

may be that companies that are well positioned to grow and employ more staff would artificially limit their turnover to the R50-million threshold. The disadvantages of marginally growing your business beyond R50-million means an immediate reduction of your company turnover (unless you are able to immediately supplement the 30% of loss in sales through new business. Not easy to do if one con- siders that the new emerging business now has to compete with established large players higher up on the project complexity scale. What is more likely to happen is that the firm would fall back to a QSE level. What may be required in the context of a developmental state would be to create a 'continuum of growth' where different bene- fits continue to accrue as business grow and employ more South Africans up to the envisaged levels of creating Black Industrialists as per DTI’s stated policy. The aim should be to reward to fast growing QSE and not encourage them to stay small. Whether ultimately more jobs are created with the QSE artificial ceiling or many more jobs are lost, remains to be seen. Transferring risk A third trend emerging in the engineering sector is for more risk to be transferred to engineering companies. Engineering companies traditionally operate under Professional Indemnity (PI) insurance for the service they provide. Traditionally, the risk would be limited to twice the fee paid to the professional or a capped limit of the value of the indemnity. This assisted the insurers to quantify the risk and therefore price it appropriately. An insurer could then provide cover up to a certain value if, for instance, a struc- ture collapses due to a design failure. We have noted a recent trend in clients expecting unlimited lia-

bility insurance from professional service providers. This places engi- neering firms in a commercially undesirable position of assuming a disproportionate risk to the fees being earned. A more reasonable approach would be where the client requests this higher level of liability exposure, the level of insurance is increased and therefore the professional fee is increased commensurately with the additional insurance premium. Industry bodies, such the Black Business Council in the Built Environment (BBCBE) continue to engage client bodies around this major concern to professionals. In a highly competitive industry, where the consultant is in most instances evaluated on price rather than value-add, there is a fierce price competition. Some professional services companies become tempted to sign off on the unlimited risk specified, despite knowing that the PI provided by insurers is limited. Clients are of course not telling professionals to do this, but the fierce competition in the sector encourages it. Where the client is a government body, it could be argued that the government is acting in society’s interest by trying to pass on all the risk to its service provider. However, in cases like these, there is room for more engagement before the interpretation is widely adopted by clients as the norm – particularly because it could have unintended consequences and affect the structure and pricing of the market. Disproportionate risk could have a negative impact on the industry. Resolving it will require conversation with insurers, technical people, client bodies as well as policy makers. These emerging trends will bring opportunities as well as tough challenges. As in every industry, there will be competing interests and opposing views. However, I am confident, that some of the chal- lenges can be resolved through adequate consultation and a high level of trust between the various stakeholders. 