Thousands of Eastern Cape families waiting for state houses could face additional delays after the province changed how it pays for housing — a move which could cripple emerging contractors and slow delivery.
The Eastern Cape department of human settlements has introduced a new payment system under which contractors will be paid only once housing units are completed, rather than at various stages of construction.
The province has a housing backlog of about 38,000 homes.
Eastern Cape human settlements spokesperson Yanga Funani said it would require R11bn to eliminate the backlog.
The department says the change in the way invoices are paid is intended to address longstanding problems with incomplete projects and improve accountability.
Contractors, however, warn that it could place severe financial strain on emerging developers, threaten jobs and delay the delivery of houses to beneficiaries.
A number of emerging developers criticised the new payment model, saying it would worsen cash-flow challenges and make it difficult to complete projects.
Historically, contractors were paid at various stages of construction.
Developers said those payments enabled them to buy materials, pay workers and continue construction while projects were under way.
The Dispatch has seen correspondence dated April 30 in which the department informed service providers and implementing agencies that the new payment system would take effect from April 1.
The change comes against a backdrop of persistent complaints of delayed payments by government departments and municipalities.
Several contractors, speaking on condition of anonymity for fear of being victimised, said invoices remained unpaid for months.
One service provider who works in the Buffalo City Metro and Amathole district said the system would devastate small contractors.
“I am under the bus already as many of my invoices remain unpaid.
“Every time we submit invoices, all they ask is for us to keep changing dates, so that they are seen as paying on time, while they are not.
“They are now shifting the goal posts. This will kill some businesses.”
Another contractor with projects in Mthatha and KwaBhaca (Mount Frere) said many developers relied on borrowed money to finance projects while awaiting payment.
“We borrow money and make payments when we are paid. But now we will struggle to service the debts.
“You employ people with different skills on site, at different intervals, now imagine them having to wait until houses are completed before payment is received. It would create instability.”
A contractor from the Chris Hani district said the policy would disproportionately affect small and emerging businesses.
“They are basically killing emerging contractors. They are taking us out of the game.
“The department struggles to pay us within the 30 days as required. With this, we will struggle to service our debts, buy groceries and pay rent for staff on site.
“This is a ticking time bomb and will lead to slow production.”
Funani said the new measures were introduced “to address persistent project completion challenges”.
“Historically, payments were processed at various stages of construction … this arrangement resulted in a number of units remaining incomplete despite payment having been made.
“In addition, contract termination and project abandonment often necessitated costly remedial work, leading to redundant expenditure, accruals, project delays and increased financial exposure.”
The previous payment model, Funani said, also created risks, including incentivising contractors to work on multiple units without completing them, the accumulation of partially completed structures at project sites, increased exposure to vandalism, defects and weather-related damage on incomplete units, stalled projects and delayed delivery to beneficiaries, and challenges in enforcing accountability where progress was uneven across numerous sites.
“The new payment-on-completion approach is intended to strengthen financial controls, encourage the completion of units, reduce accruals, minimise wasteful expenditure and ensure expenditure is directly linked to completed housing delivery,” he said.
Under the new model, payment will be processed only after submission of a final completed-unit report by the National Home Builders Registration Council, a signed beneficiary acceptance letter and a quality compliance certificate.
The National African Federated Chamber of Commerce and Industry (Nafcoc) youth chamber objected to the policy change in a letter to human settlements MEC Siphokazi Mani-Lusithi as well as the minister, Thembi Simelane.
The chamber’s Eastern Cape chair, Samkelo Sangoni, said it supported accountability but objected to the implementation of the policy in its current form.
“We … call for its immediate suspension pending proper consultation with all affected stakeholders.
“While we acknowledge the department’s intention to address incomplete projects and strengthen accountability within the sector, the complete removal of progressive milestone payments and the enforcement of payment only upon full completion of units will have severe and damaging consequences for emerging and small contractors across the province.
“These payment structures exist to ensure project sustainability, healthy cash flow management and fair allocation of risk between contractors and the employer.
“The unilateral introduction of a payment system that fundamentally alters these contractual arrangements raises serious concerns.
“Contractors priced, planned and committed to these projects based on an agreed payment structure.
“Changing these terms during implementation places contractors under significant financial strain and uncertainty.”
Eastern Cape Black Contractors’ Association representative Siya Moko said the policy risked undermining transformation.
“Policies of this nature risk reversing the gains made towards transformation by creating operational conditions that only large, well-capitalised companies can survive.
“Many small contractors do not have access to large credit facilities or financial reserves to carry government projects from start to completion.
“These contractors are expected to fund labour, materials, transport, subcontractors and compliance costs entirely from their own pockets.
“This effectively excludes many black-owned developing businesses from meaningful participation.”
Attempts to obtain comment from Simelane’s office were unsuccessful.
Funani maintained that the department’s intention was not to disadvantage emerging contractors but to “promote the completion of housing units, improve accountability and ensure better utilisation of public funds”.
The department completed 5,052 housing units in the 2025/2026 financial year and plans to complete 4,770 units during 2026/2027.
Daily Dispatch
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