CIDB on Contractors Grading Register criteria; Construction industry job losses; Women-owned construction companies

Public Works and Infrastructure

22 November 2017
Chairperson: Mr H Mmemezi (ANC)
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Meeting Summary

The Committee was briefed by the Department of Public Works (DPW) Construction Industry Development Board (CIDB) on proactive steps taken to increase the rate of progression of women-owned construction companies.

DPW highlighted challenges faced by women in the built environment, legislative framework of the built environment, analysis of the construction industry, challenges that limited progression of women contractors and DPW initiatives.

The CIDB briefed the Committee on its mandates on registration of contractors from grade one to nine, statistics on black and women-owned companies and loopholes exploited in the CIBD Act. These loopholes included fronting and the use of subsidiaries to fulfill BBBEE percentages. Other highlights of the presentation included the developmental approach strategy and the current reviews of grading criteria by proposing a Tender Value Limit (TVL). CIDB provided possible explanations for the reported 140 000 job losses within the first and third quarter of 201 7 in the construction industry. Possible explanations included reduction of government expenditure in real terms, reduced infrastructure expenditure and lost opportunity to create jobs due to reduced expenditure in district and local municipalities. The identified causes of reduced infrastructure expenditure were difficult economic conditions, fiscal constraints, delay in expenditure, due to delayed contracts, and under expenditure against the budget. CIDB intervened through monitoring supply and demand, contractor development, employment and transformation. It also performed advocacy functions, provided capacity and skilled support on public sector procurement, introduced guidelines on labour based methods and technologies for employment intensive construction works and implemented employment intensive road works and standards for contract participation goals.

The Committee observed that DPW was not transforming the construction sector because it needed to deliver on its projects and have clean audits hence, it employed trusted contractors and this led to fewer developments in the construction sector. The Committee remarked that the core of the matter was that the construction sector in South Africa needed to change for the better and stated that it expected DPW to bring the needed legislation to ensure the CIDB played a better role in the construction sector.

The Committee asked DPW to state how it would achieve 60% representation in the construction industry, confirm if the national and district municipalities did not inform the DPW of its tenders, give clarity on the term gender champions, its targets and the 27 contractor development program. It also asked DPW questions on strategies used to increase women-owned companies at the foundation and grass root levels, the role of quality surveyors in construction, measures used to improve the skills of women in the construction sector and measures to transit from a lower to a higher grade and assist contractors in rural areas with internet tenders.

The Committee observed that the new registration requirements were raised to discourage black-owned companies because commercial banks were not currently supporting black entrepreneurs hence, the new registration requirements showed lack of commitment to transformation. The Committee asked the CIDB how it hoped to incentivise women to join the construction sector when it did not pay contractors on time and the sector was shrinking. It asked the CIDB questions on tools used to verify data on black owned companies, the developmental approach strategy, the average profit margin of contracts, training that white males were exposed to in the construction sector, costs attached to registration of applicants, how applications were made, its relationship with the Competition Commission, engagements with municipalities on under expenditure on funds and timeframes on the review of the CIDB Act.

The Committee asked DPW and the CIDB to assist upcoming contractors and ensure that the laws being reviewed empowered upcoming contractors. 

Meeting report

Chairperson’s Remarks

The Chairperson remarked that achievements of the Department of Public Works (DPW) on public works were observed across the country especially in the rural areas. However the Department needed to act on comments of the Committee because it would assist the Department to improve services. Officials engaged with monitoring public works need to monitor correctly and ensure small contractors got contracts and were paid on time.

Apologies were received from the DPW DG and Dr Q Madlopha (ANC).

DPW: Proactive Steps to Increase Women-Owned Construction Companies on CIDB Register

Ms Naledi Stemela, Chief Director: Gender Unit, DPW, stated that the purpose of the presentation was to brief the Committee on proactive steps taken by the Department to increase the rate of progression of women-owned construction companies on the Construction Industry Development Board (CIDB) register of contractors. Highlights of the presentation included the problem statement, legislative framework of the built environment, analysis of the construction industry, challenges that limited progression of women contractors and DPW initiatives.

She indicated that the construction industry was characterised by slow transformation which was evident by limited numbers of women-owned construction companies in the upper grades of the CIDB register. The breakdown of registration of women-ownership across the CIDB grades of two to nine showed that on average, 40% of all registrations across these grades were in General Building, Civil Engineering and other specialist works were women-owned. The electrical and mechanical class of work had 36% and 38% women registrations respectively.

Challenges included overreliance on government projects to sustain work opportunities, poor budget expenditure, impact of delayed payment, lack of access to finance and technical skills and fronting. DPW initiatives included review of the CIDB Act and introduction of supply chain management policies to ensure gender parity. DPW also established the Women Empowerment Advisory Council made up of women in construction, property and the built environment to monitor the progress of women in construction. Other initiatives were resuscitation of incubator programs for girl children, locating the Gender Unit under the DG’s office and appointment of gender champions in head office and regional offices to ensure mainstreaming of gender in all DPW programs.

The Chairperson was pleased that DPW highlighted matters that limited progression of women contractors.

Briefing by the Construction Industry Development Board (CIDB)

Mr Lufuno Nevhutalu, CIBD Chairperson, was pleased that the Committee was interested in the increase of women-owned construction companies. He remarked that the CIDB Act did not reflect modern ways of doing things hence, the CIDB proposed changes to the old CIDB Act. The present Act limited the role of the Board to registration of contractors but for development to take place in construction the Act had to be amended.

Ms Lindelwa Myataza, CIDB board member, looked at the mandate and process of registration of contractors and analysis of the statistics of black and women ownership respectively. The register, which is accessible to the public, showed high percentages of black-owned business in all grades but in reality transformation had not yet being achieved. She explained the anomaly by stating that when companies applied for registration, the shares of ownership and managerial capacity showed high percentages of black involvement. However, CIDB realised that the numbers were corrupted by fronting. Also some companies exploited subsidiaries and used it to fulfill BBBEE percentages. CIDB realised that some companies took advantage of loopholes in the Act hence CIDB has to initiate changes to tighten the Act. The statistics on women-owned construction companies’ were much lower but the challenges of fronting and company subsidiaries had also affected growth of women entrepreneurs.

Dr Rodney Milford, CIBD Program Manager: Construction, indicated that the CIDB performed an administrative function that applied to contractors. The Board approved a developmental approach strategy and the CIDB aimed at implementing best practices in the construction industry.  He highlighted the processes of the developmental approach strategy which focused on increasing representation of contractors in all grades and categories. The CIDB was also currently reviewing grading criteria by proposing a Tender Value Limit (TVL). The TVL would be reviewed on an annual basis to ensure the impact of inflation was avoided.

Mr Ebrahim Moola, CIBD Program Manager: Construction Registers Service, indicated that contractors were registered based on various grading levels between one and nine and different classes of work. The registration criteria and requirements were last amended in July 2013 but are presently under review. He indicated the registration methods and future plans of online registration. The registration criteria review was also proposed because of the results of a study conducted on grade one level which had a status of open entry. The study indicated that contractors entered grade one level because of financial constraints and presumed knowledge of the industry which led to stagnation and exit from the industry. Hence the CIDB proposed introduction of barriers and provision of support to entrepreneurs that were able to meet the criteria. The proposals includes review of the manner in which records were transferred from one contractor to another, reassessment of works and financial capability requirements and reassessment of  adequacy of existing CIDB registration criteria and classes of work based on trends in the construction industry. Other proposals were introduction of the BBBEE principles as a tool to track transformation and making a provision for sub-contractor registration and classes of work for trade contractors respectively.

Dr Milford said that the Register of Projects was established in Chapter Four of the CIDB Act to gather information on the nature, value and distribution of projects. He presented statistics on tender notices in quarter two of 2016, tender awards in quarter two of 2017, the percentage and number of contract awards by grade from quarter three of 2016 to quarter two of 2017 and the contract awards to public and private companies in each province. He also highlighted the statistics of employment and job losses in the construction industry. Statistics SA reported a 10.3% growth in the primary sector in quarter two of 2017 from agriculture due to increased rainfall. Although there was marginal growth of 1.9 % in the secondary sector, construction dropped by 0.5%. An analysis of the construction industry showed that total funds expended on construction decreased from 2015 to 2017 and the decreases were projected to continue in 2018 and 2019. He remarked that because government expenditure was falling in real terms, infrastructure expenditure had reduced the increased job losses from the construction sector. He stated that government lost an opportunity to create jobs due to reduced expenditure in district and local municipalities. The causes of reduced infrastructure expenditure were difficult economic conditions, fiscal constraints, delay in expenditure due to delayed contracts and under expenditure against the budget. The CIDB intervened through monitoring supply and demand, contractor development, employment and transformation. The CIDB also performs advocacy functions, provides capacity and skilled support in public sector procurement, introduced guidelines on labour based methods and technologies for employment intensive construction works and implemented employment intensive road works and standards for contract participation goals.

Mr Nevhutalu remarked that it was visible that transformation was not happening in the construction sector and companies were not growing. The CIDB could not offer jobs but could only encourage municipalities to spend budgeted funds allocated to construction.

Discussion

The Chairperson remarked that the core of the matter was that the Committee wanted the construction sector in SA to change for the better.

Mr M Filtane (UDM) expected DPW to bring in the needed legislation to ensure that the CIDB played a better role in the construction sector. He asked DPW to state how it would handle the competition since it was advocating for 60% representation in the construction industry and clarify if was pushing for women domination or gender parity. He asked the CIDB to clarify if it was aware of the training that white males were exposed to in the construction sector and how it hoped to incentivise women to join the construction sector when it did not pay contractors on time and the sector was shrinking. He also asked the CIDB how it verified the data on black owned companies. He noted the developmental approach strategy was not new but had been presented to the Committee earlier. He asked the CIDB to state how many of the black entrepreneurs registered with it were participating in Presidential Infrastructure projects. He asked for the average profit margin of contracts of R300 000. He observed that the new registration requirements were raised to discourage black-owned companies because commercial banks were not currently supporting black entrepreneurs hence, the new registration requirements shows lack of commitment to transformation. He asked DPW to confirm if the National and District Municipalities did not inform DPW of its tenders.

Dr M Figg (DA) asked DPW why it was taking too long for transformation to occur. He asked for clarity on the term “gender champions” and a breakdown of the 27 contractor development programs. He asked the CIDB to clarify if it was carrying out its mandates, if there was cost attached to registration of applicants in the construction sector and if the costs were the same for all grade levels. He then asked the CIDB to confirm if the applications for registrations were still manual, to state the strategy used for monitoring, if service providers that monitored projects were verified and if there were portfolio caps for each monitor.  He asked the CIDB to clarify if contractors applied solely or in conjunction with other contractors, reasons why contracts could be transferred to other contractors and if it was the individual that filed applications or the company.

Mr D Ryder (DA) stated that the reason the Committee had asked DPW to outline proactive steps taken to increase the rate of progression of women-owned construction companies was because there were failures in women representation in the construction sector. He was not convinced that DPW had changed its approach because during the Committee’s oversight it observed that a woman-owned company had only male staff. This explained asking DPW to state strategies used to increase women- owned companies at the foundation and grass root levels. He observed that DPW was not transforming the construction sector because it needed to deliver on its projects  and have clean audits hence it employed trusted contractors and this had led to less developments in the construction sector.

Ms E Masehela (ANC) appreciated the strides taken to achieve gender parity as alluded to in the presentations. She asked how women entrepreneurs in the rural areas could liaise with women in construction because some of the women entrepreneurs had lost hope of being entrepreneurs. She asked DPW to state strategies it was using to achieve the 60% target on gender parity and improve the skills of women in the construction sector. She asked the CIDB to state measures it used to assist contractors in grade one to move to higher grades and asked it to clarify if some provinces did not have contractors in grade eight and nine.

Ms P Adams (ANC) stated that the Committee was proud of the achievements of DPW and the CIDB. She asked for the role of quality surveyors in construction. She observed that there were no substantial changes in the status of grade two to six contractors from 2014 to date. She asked why DPW mentioned lack of access to finance as a challenge while the CIDB stated that funds allocated to municipalities were not spent. Imparting skills to black entrepreneurs should be part of DPW’s social responsibilities for transformation to occur. She asked the CIDB to state its relationship with the Competition Commission and advised DPW to have a social responsibility towards public works. She asked DPW to clarify if the gender champions had targets and to state the success rate of the gender champions.

Mr F Adams (ANC) appreciated the leadership of the CIDB and asked if it did what it set out to do according to its mandates. He asked if the CIDB if it engaged with municipalities when the municipalities underspent funds allocated and to clarify if it had road shows and engaged with stakeholders to address under expenditure. He asked why the confidence levels of grade three and four had increased while the confidence levels of grade five, six and seven had reduced. Were gender champions involved in regional offices? He asked for the strategies that DPW had put in place to assist contractors in rural areas with internet tenders.

Ms D Mathebe (ANC) asked for timeframes on the review of the CIDB Act. She also asked DPW to state strategies to assist rural women in alleviating poverty, unemployment and training rural contractors that did not have the required technical skills.

The Chairperson noted that during its oversight visit, the Committee observed that a school project in Beaufort West was constructed without a hall and the contractor on a clinic project had not been paid. He requested that DPW provide the Committee with written responses to the status of these projects within three days. He asked for an update on Batabile Construction Services which had received many contracts recently. He asked DPW to assist upcoming contractors and the CIDB to ensure that the laws being reviewed empowered upcoming contractors.

Mr Butcher Matutle, DPW DDG: Regional Coordination, indicated that the clinic and schools were not under the national office of DPW but under the provincial office, however DPW would assist in the context of the sector.  Three days however would not be enough time to send the written response to the Committee. DPW initially had disjointed relationship challenges but efforts were underway to bring synergy to the national and provincial DPW offices.

Ms Stemela stated that there were improvements in gender parity activities based on bringing the unit under the DGs’ office. The gender unit had a program in rural areas to encourage girl children interested in science and math to be mentored for built engineering courses. There were also open days and access provided to artisan training in different departments. The gender unit facilitated 233 bursaries to study built engineering courses in universities from the first year. There was also the young professionals program which has exposed the girl child to the built environment experience. The unit works in collaboration with the CIDB and South African Council for Project Mangers. The EXCO of the Gender Unit decided on a 60% target but realised it failed because adverts were only in newspapers. Hence, it incorporated road shows countrywide to achieve the 60% gender parity target. It is presently reviewing and re-strategising the outreaches. Only two people worked in the gender unit hence DPW introduced gender champions in each region to assist. Structures were put in place recently because the Minister approved programs to assist women working in construction companies in rural areas.

Mr Filtane observed that Ms Stemela was answering only one question.

The Chairperson agreed that she was answering only one question but observed that she was giving detailed information.

Mr Adams observed that some of the answers were not part of the brief but was interested in the answers Ms Stemela was giving. He suggested that because of time constraints answers should be presented in writing.

The Chairperson resolved that the Committee should hear what answers could be given by DPW in the time available and mandated the Department to provide outstanding responses in writing.

Ms Stemela stated that DPW had engaged with the Department of Small Business Development (DSBD) and Small Enterprise Finance Agency (SEFA) to secure small loans for women entrepreneurs because commercial banks declined such loans. DSBD and SAEFA approved the loans hence some women contractors were assisted to get a certain amount of work.

Mr Nevhutalu added that the CIDB had stabilised greatly although it took some time. There were challenges on how the Act was coined hence it had proposed changes to empower the Board.  He made commitments that the CIDB would give written answers to questions.

Dr Mfezeko Gwazube, CIBD CEO, explained that profit margins depended on economic conditions of the country. He outlined models for profit margin in construction but indicated that the sector was presently going through a technical recession. In ideal situations, typically R300 000 contracts were small. The rate of progression of women was a function of procurement tools hence the Preferential Procurement Policy Framework Act (PPPFA) could be stretched to empower women contractors.

The Chairperson appreciated the response nut requested it also be sent to the Committee in writing.

Ms Myataza indicated that before it was concluded that there were little differences in construction activities, the environment in which the CIDB operated should be considered. The CIDB’s’ operations are affected if there are no major changes. BBBEE principles in the construction industry were compromised by fronting and exploitation of subsidiaries which negatively affected development in the sector. Black entrepreneurs want to be lead shareholders but do not want to do the work in terms of skills. The CIDB needs to review empowerment strategies because for contractors to grow they must get projects. Hence legislation needs to be put in place for black entrepreneurs to get projects. The CIDB had earlier tried to intervene on payments but it was stalled because the office of the State Legal Adviser observed that payment provision was not part of the CIDB Act. The CIDB is presently working on reviewing legislation and regulations, however it was a lengthy process involving public participation. Downgrades were stopped.

Dr Milford stated that the CIDB would respond in writing and appreciated interacting with the Committee.

Dr Natalie Skeepers, CIBD Board Member, added that the CIDB linked small contractors to get projects from Transnet because the small contractors would not have met Transnet requirements on their own.  The same principles are being replicated at Eskom.

Mr Matutle indicated that DPW and the CIBD would provide responses to the Committee in writing.

The Chairperson deferred the adoption of Committee Minutes to the next meeting.

The meeting was adjourned.

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