Status of the construction charter, property charter and pending legislation: briefing by the Department of Public Works with the Deputy Minister in attendance

Meeting report

Department of Public Works
The Department of Public Works (DPW) briefed the Committee on the status of the construction and property charters as well as on all other outstanding policies and legislation. The briefing was undertaken by Mr Devan Pillay, Chief Director: Construction Policy. The Deputy Minister, Mr Jeremy Cronin and the Director-General, Mr Mzwonke Dlabantu were also in attendance.

Mr Pillay explained that the Construction Sector Charter Council (CSCC) had been registered as a Section 21 company in November 2012. A Chief Executive Officer was appointed in December 2012 and had assumed duty in January 2013. The CSCC was tasked with undertaking research on the transformation of the construction industry by way of a database which was to be developed to capture the scorecard of companies. They would also conduct a baseline study to analyse the extent and depth of transformation since 2009.
The DPW had developed a training manual for the public sector and was currently developing a “How To” Practise Note for the public sector to ensure that CSCC targets were attained. It was to be finalised in March 2013.
The Property Sector Charter Council (PSCC) was gazetted in June 2012 in terms of Section 9(1) of the Broad Based Black Economic Empowerment Act No 53 of 2003. The implications were that all PSCC members could only be verified against the Property Sector Code. All government entities, departments and state owned entities had to comply with the Sector Codes. Sector Codes were launched to all members in May 2012 and there was continuous education via roadshows and seminars. Practice notes were developed to better understand sector codes. To ensure property sector transformation funding was ringfenced. 

Mr Pillay continued with a brief update on legislation. The Agrement South Africa (ASA) Draft Bill would be tabled in Parliament by November 2013. The Committee was provided with detail on the Expropriation Bill. The need for the Expropriation Bill came about because the Expropriation Act of 1975 was outdated and unconstitutional. There was also a need to a align the Expropriation Bill with the Department of Rural Development and Land Reform’s  Green Paper on Land Reform. The DPW would facilitate thorough external consultation on the Draft Expropriation Bill and would make every effort to table the Expropriation Bill in Parliament before the end of the 2013 calendar year.

Members were also given insight into the Construction Industry Development Board (CIDB) Regulations’ Amendments. In January 2012 the CIDB submitted draft amendments. The Minister approved the gazetting of the draft regulations for comment in September 2012. The closing date for public comment had been 5 December 2012. The comments were currently being analysed by the CIDB and would be submitted to a task team for consideration. The target for final gazetting of the Regulations was March 2013.  The Built Environment Policy (BEP) was also touched on. The DPW planned to have a final BEP Policy by December 2013. The legislative process on it was expected to begin in 2014.

Construction Sector Charter Council (CSCC)
The briefing was undertaken by Mr Thabo Masombuka, Chief Executive Officer CSCC. He had been appointed as CEO from the 7 January 2013 on a fixed three-year contract. The purpose of the briefing was to provide the latest progress information on the work of the CSCC since its inception in 2010. Much of the subject matter had been covered in the DPW briefing and would not be repeated. The broad outline of the CSCC was that it comprised of 17 representatives from constituency organisations and operated through an Executive Committee and four sub-committees. The CSCC was responsible for the monitoring and evaluation of the construction codes and to ensure that there was substantive compliance with the codes, that annual reporting to DPW, the Department of Trade and Industry and the BBBEE Advisory Council took place. Measurement of the objectives of the construction code would also take place.
One of the priorities agreed upon by the CSCC was the finalisation of the baseline report on the status of Broad Based Black Economic Empowerment (BBBEE) in the construction sector since the gazette of the sector code in 2009. The CSCC Constitution made provision for the Minister of Public Works to appoint a chairperson with a term of two years. An appointment was expected to be announced soon. After the appointment of a chairperson the CSCC would be formally launched. The CSCC was currently funded through DPW seed capital but it had prioritised the development of a self-funding model to ensure that its programmes were commercially viable. The gazetted construction codes had the aim of ensuring inclusivity and to increase transformation investigations into collusive and price fixing practices.

Property Sector Charter Council (PSCC)
Ms Portia Tau-Sekati, Chief Executive Officer, PSCC, undertook the briefing. She noted that much of the subject matter had been covered in the DPW briefing and at times would be repeated.

The PSCC was gazetted in June 2012 in terms of Section 9(1) of the B-BBEE Act No 53 of 2003. The implications were that all government entities, departments and state owned enterprises had to comply with the sector codes. The PSCC had 17 members. All property associations were represented at the PSCC with the exception of the National Association of Managing Agents. In July 2012, sector codes were launched to all its members. From July 2012 to September 2012 a total of 28 roadshows had taken place. Property sector research would be done with the objective of establishing a baseline in order to do annual reporting. The aim of which was to better understand the property sector in order to drive effective measurements. Research showed that the non residential property sector was worth R780 billion. The breakdown for non-residential property sector- retail was R340 billion; office R228 billion and industrial R187 billion. Residential property amounted to R3.0 trillion; public property R570 billion and zoned urban land R520 billion. The total value of the South African property sector was valued at R4.9 trillion. Other supporting requirements for transformation of the sector were continuous education on sector codes via roadshows and seminars. Practice notes needed to be developed for a clearer understanding of sector codes. In order to ensure transformation in the sector took place funds needed to be ringfenced. The PSCC was glad that fronting had been criminalised.

Discussion
In almost all instances members referred to the DPW Presentation, where reference was made to the CSCC or the PSCC presentations it would be stated so.

Mr K Sithole (IFP) referred to the DPW presentation and asked if training was to start in May 2013 what were the timeframes. He also enquired when the Expropriation Bill would appear before the Committee.

The Chairperson recalled that in an earlier briefing to the Committee the Deputy Minister had given a timeframe when the Expropriation Bill was to appear before the Committee.

Mr Sithole asked what the benefit to the construction industry was if the regulations removed the requirement for contractors to have registered professionals in their employ. In addition, he noted that references were made to grades two to nine and asked about grade one.

Mr Pillay replied that CSCC timeframes for training did not have a detailed schedule as yet. A schedule could only be put together once there was sign off on the instruction note. Metros would initially be covered and phase 2 would target smaller municipalities.
The amendment to the regulations was intended to have a positive impact on the construction industry. It was an unnecessary cost to the construction company to have professionals permanently on the payroll. In addition, the removal of Method B which stipulated that a construction company had to have a certain level of liquidity was welcomed as in many instances companies had the liquidity but lacked the skill. 
He noted that grade one requirements remained the same. No expertise was needed only skill.

Honorable Jeremy Cronin, Deputy Minister of Public Works, explained that there was a draft Expropriation Bill. The Bill would be sent to a Cabinet committee in the week of 4 March 2013. The week thereafter the Bill was expected to go to Cabinet where hopefully it would be signed. Once signed the Bill would be gazetted for public comment for a period of a month. Thereafter it would be sent to the National Economic Development and Labour Council (NEDLAC) where it was expected to be delayed. He noted that he would try his best to fast track the Bill. Once the NEDLAC process was complete the DPW would consider the public comments and NEDLAC inputs made on the Bill. The DPW would consequently amend the Bill if need be and would send it back to Cabinet. Thereafter it would be tabled in Parliament for consideration and would appear before the Committee. Thereafter the Committee’s processes on the Bill would ensue.  He pointed out that if Cabinet approved of the Bill the following week he could make the Bill available to the Committee for informal perusal but not to legislate on it.

Ms A Dreyer (DA) referred to page 4 of the DPW presentation and asked if the DPW was developing a “How To” Practice Note for the public sector to ensure CSCC targets were attained, and if so, what were the targets? In addition, she referred to page 9 which spoke to progress made by the PSCC by way of having roadshows and suggested that there was a need to tighten outcomes.

Ms Dreyer noted that reference was made to “old school counsels” and “progressive counsels”. Why was there a distinction between the two? Senior legal counsel was senior legal counsel; opinions should be given on the law. She asked for particulars of the counsels referred to in order to check on their credibility and standing in the legal fraternity. She further referred to page 26 where mention was made that there was delayed payments made by main contractors to sub-contractors. The actual work was done by sub-contractors and in many instances they were not paid. Did the DPW have a mechanism to ensure that reputable contractors were used who did not take advantage of smaller contractors.

Mr Pillay replied that the CSCC targets had been presented to the Committee in a previous meeting. There were targets for each code. On the non-payment of sub-contractors, he noted that the DPW was looking at various mechanisms. Other measures were also considered where there was non-payment by the state.  

Deputy Minister Cronin conceded that perhaps the use of the words, “old school” and “progressive” was a bit clumsy. He agreed that there was perhaps one law but different lawyers would have different opinions on it. The idea was to prevent the Expropriation Bill from being controversial. The existing Expropriation Act predated the Constitution and a change was needed. The state should be given the power to expropriate but it should not be given unbridled power.

Mr Gregory Mofokeng (ExCo Member CSCC) addressed the question on the main contractor-sub-contractor relationship and said that some solutions were to be found outside of the CSCC. It was a contractual issue between the parties.

Ms N November (ANC) referred to the DPW presentation and asked if the roadshows done by the PSCC covered the whole of South Africa. She was concerned that there were smaller towns or places that had not been covered.

Ms Tau-Sekati responded that 28 roadshows had been undertaken. She would forward information on which towns and areas that had been covered to the Committee. She explained that the roadshows were started in metropolitan areas but small towns were also covered. It was the PSCC’s first bite and the process was yet to unfold.

Mr M Swathe (DA) referred to page 15 of the DPW document where he understood it to state that the Expropriation Advisory Board was replaced by the Office of the Valuer General. Were the functions of the two offices not different? In addition, he noted that one of the improvements to regulations was the removal of the Method B Registration on the CIBD Register of Contractors. Given the removal he was concerned about the plight of small emerging contractors. How were small contractors going to be included? He also referred to the roadshows mentioned and asked for particulars on in which provinces, towns or cities they had been held.   

Deputy Minister Cronin addressed the issue of the removal of the Expropriation Advisory Board and explained that there was a parallel process with the Department of Rural Development on Land Reform. The Office of the Valuer General was established to assist the state to value land. The state often did not know the true value of land and had in the past depended on private consultants for valuations. The Valuer General would assist government to monitor the pricing of land and landed property. The Office of the Valuer General had been approved by Cabinet but was not yet functioning. He had no problem with the Office of the Valuer General falling under the Department of Rural Development as it would service government in its entirety. The DPW however needed to develop its internal capacity.

Ms C Madlopha (ANC) addressed the CSCC and expressed concern about the failure of the industry to fast track transformation. The CSCC had been gazetted in 2009 but things were only happening in 2012. What had the CSCC been doing for all that time? The CSCC had a clear objective and aim. Members supported the baseline on transformation. However it needed to be fast tracked. The Committee needed to receive a report from those who were doing the monitoring. The CSCC was accountable to the Committee. A clear blueprint of transformation in the sector should be in place. For example there should be figures for the number of black engineers that there should be on huge projects. The Committee needed to have figures on the numbers of youth, women and persons with disabilities in the sector. There were contractors who received contracts but did not deliver on those contracts. Members received numerous complaints about this and hence needed to be given exact figures on this occurrence.

Mr Pillay explained that the CSCC had been established but had not yet functioned. In June 2012, it decided that it needed to implement activities. A Chief Executive Officer (CEO) was appointed and an Executive Committee was established. He emphasised that none of the acting officials had received remuneration for the work that they did. The baseline study was much broader. The CSCC only had a CEO and one administration person. The rest of the activities like the development of a database and the capturing of scorecards needed to be outsourced. He emphasised that the problem linked to scorecards was that agencies regarded it as a commodity. The DPW had discussed the issue with the Department of Trade and Industry and it seemed that the state needed the scorecard to be used as an instrument to measure transformation.
Figures on the numbers of blacks and youth in the construction industry would come out in the Report to be forwarded to the Committee. Contractors were monitored by the Register of Projects. Attempts were being made to link the Register of Projects with the National Treasury database of contractors. On the issue of punishing consultants, he felt it was the responsibility of the government official to accept or reject what the consultant was saying. Government officials allowed the situation to happen.

Mr Gaehler disagreed with Mr Pillay and pointed out that it was the government official’s duty to check on what the consultant was feeding him. The official did not have the technical know-how to judge what was correct and incorrect. He simply accepted what the consultant said.

Deputy Minister Cronin said that both Mr Pillay and Mr Gaehler were correct. The public sector would always be using consultants. Officials should however be held accountable for the consultants that they hired.

Mr Dlabantu added that the best way to manage a consultant was to ask what the reason was for hiring him.

Mr Mofokeng addressed the issue of transformation in the sector and noted that there was an enterprise development element attached to the CSCC.

Mr L Gaehler (UDM) pointed out that the DPW CIDB Regulations were good but the concern was about late payments. The problem lied with provincial departments. Contractors did not receive payment because the funds were used elsewhere. Funds for projects needed to be ringfenced. The CIDB made provision for the punishment of contractors. He asked how consultants could be punished. He cited the current situation in Limpopo where consultants had given government the wrong reports.  A way was needed to be able to hold consultants accountable and to be able to punish them.

Mr L Gaehler addressed the CSCC and asked if there were emerging construction companies. What measures were in place to combat fronting? He also asked what measures were in place to take action against public bodies which resisted transformation. What plans were in place to get youth into the construction sector?

Mr Pillay replied that incidents of fronting should be reported to the police and be investigated.

Mr Masombuka explained that there were three categories of fronting. The first was where the person agreed to contract with a big company because he was desperate. The second was where the person had the skill and capacity but was ignorant. The third category was the worst where the person willingly partook in fronting. Many black owned companies were guilty of the last category where they sold their status to white owned companies. The Black Economic Empowerment Bill sought to punish those individuals. Lastly, he added that once a baseline was done the numbers of emerging companies could be calculated and the figures could be provided to the Committee by way of a report.

Ms Tau-Sekati stated that the DTI was the custodian of black economic empowerment (BEE). A BBBEE Amendment bill was released for public comment in 2011. The bill spoke about a commissioner and policies to enhance transformation.

Ms N Ngcengwane (ANC) was concerned about transformation in relation to the charters, especially the construction charter. She pointed out that the Property Charter showed no movement. Furthermore, she highlighted that the non payment of sub-contractors was a huge problem. How could the main contractor be monitored in order to ensure that the sub-contractor received payment?

Ms Tau-Sekati said that the Property Charter had been gazetted in June 2012.

Mr P Mnguni (Cope) stressed that a report on transformation in the construction sector would be a huge help. The Committee should be able to say that emerging contractors were merged with bigger contractors. Huge contractors who received government tenders should be able to provide figures on how many emerging contractors they were able to take on board. Implementation and monitoring was needed. A report from the CSCC would be helpful.

Mr Masombuka agreed that the CSCC would provide a report on capacity development to the Committee. He emphasised that it was important for emerging contractors to emerge on their own if true transformation was taking place.

Mr N Magubane (ANC) said that the Expropriation Bill had been withdrawn in 2008. He asked whether the DPW had closed all the gaps on it.

Deputy Minister Cronin replied that the Expropriation Bill was indeed withdrawn in 2008.The problem with the 2008 bill was that there were issues around compensation. The Bill needed to be fast tracked as government needed to expropriate land for public interest. On the issue of compensation the Office of the Valuer General would assist in this regard. He noted that disputes around compensation would not delay expropriation. Expropriation would go ahead. The main problem was not the quantum of the compensation but rather the delays. Settlements could be negotiated or matters could be settled in court.

The Chairperson voiced concern that NEDLAC would have sufficient time with the Bill but that it would have to be fast tracked in Parliament.

Deputy Minister Cronin explained that the existing Expropriation Act was unconstitutional. A consensual process was the aim. Expropriation should be balanced.

Ms Ngcengwane asked when the Committee could expect a report on the scorecard.

Ms Madlopha said that the Committee needed a status quo report on consultants. She emphasised that collusion by big construction companies was blocking transformation in the industry. How many incidences of collusion had taken place? Was there timeframes attached to training.

Mr Pillay noted that if incidents of collusion took place it was a sign that there were gaps in the market place.

Mr Mofokeng said that collusion was condemned and that companies had to co-operate fully with investigations.

Mr Gaehler pointed that in agriculture the Land Bank provided financing. What was available to emerging black contractors in the construction industry?  A finance model was needed for construction.

Mr Pillay referred to the financing of small contractors said that the DPW was working with the industry and stakeholders over the issue. The CIDB negotiated with banks to give smaller contractors better interest rates.

Mr Mofokeng said that a construction bank was a good idea. Memorandums of Understandings with banks did not work.

Mr Swathe asked whether the CSCC had achieved its objective.

Mr Sithole addressed the PSCC asked where had the 28 roadshows taken place. To the CSCC he asked what informed the two-year term of its Chairperson.

Mr Pillay replied that the 2-year appointment of the CSCC Chairperson was in terms of the organisation’s Constitution.

The meeting was adjourned.