Aveng takes Leonardo dispute to adjudicator

Aveng was booted from the The Leonardo contract in January. Photo: Phillip de Wet
Aveng was booted from the The Leonardo contract in January. Photo: Phillip de Wet
Phillip de Wet

Construction firm Aveng has taken its dispute with the developers of The Leonardo - the tallest building in Africa - to the adjudicator, but says whatever the outcome, it does not intend to return to the project. 

Aveng said last month that The Leonardo's developers had given it notice to terminate the contract that the group won in 2015. The Leonardo is being developed by South Africa's Legacy Group and Nedbank. 

On the sidelines of the infrastructure and resources group's results presentation for the six months ended in December, CEO Sean Flanagan said Aveng had not done any work at The Leonardo site since December 6.

"We are very confident that that job was practically complete at the point of termination. We have a number of significant contract disputes with the developer and we have to follow the contract.

"Those provisions of the contract survive the termination. We have two matters that are before the adjudicator at the moment," he said. 

He said the adjudication was not aimed at restoring the contract, but rather at determining whether the developer was right and who owed whom what. The group has not disclosed the extent of losses it will incur as a result of the termination.

Fin24 approached The Leonardo for comment, but no response was forthcoming by deadline. Should it be received, this story will be updated.

The termination of The Leonardo contract has come at a time when Aveng, which was founded as a construction company, is looking to exit the construction and manufacturing sectors in South Africa. The construction sector in SA is on its knees with once-respected companies like Group Five and Basil Read fighting for survival under business rescue.

Getting out of SA construction industry

Aveng took a decision to sell non-core assets when it became clear that the sector downturn wasn't reversing any time soon. It decided to focus in its mining business in SA. To date, the group has disposed more than R1 billion of these businesses, including geotechnical contractor, Ground Engineering, road rehabilitation and infrastructure unit, Rand Roads, as well as its building and civil engineering businesses. The company had planned 12 disposals and has signed 10 deals so far.

Realising the asset sales Aveng had set out to achieve was not an easy road to navigate, given that not much mergers and acquisitions activity was taking place in SA's construction sector. The company was also selective about who it sold these businesses to because it wanted the assurance that they would not close and that employees would keep their jobs.

"All the disposals have been on a going concern basis and our people have moved over to the new buyers," said group chairperson Eric Diack.

Diack said Aveng expects to finalise all asset disposal deals before the end of 2020. The group isn't looking back as it says the construction and manufacturing businesses became even weaker in 2019 than they were before.

"Construction and manufacturing are in a very bad space," said Diack.

CFO Adrian Macartney said once Aveng finalised the last disposal that "will effectively remove ourselves from exposure to South African construction".

The group said the narrowing of its losses – from a headline loss of R703 million in December 2018 to R205 million in December 2019 - was not supported by any recovery of the construction sector at all. Instead, its decision to focus on just two core businesses, McConnell Dowell and Moolmans, was what helped turn its fortunes around.

McConnell Dowell is the Group's Australian-based construction subsidiary and Moolmans is focused on mining across Africa. Both businesses already have a healthy order book, respectively covering 94% and 96% of targeted revenues for 2020.

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