National Contractor Development Programme: Construction Industry Development Board (cidb) briefing

Public Works and Infrastructure

17 August 2015
Chairperson: Mr F Adams (ANC) (Acting)
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Meeting Summary

The Portfolio committee on Public works met to receive a briefing by the Construction Industry Development Board (CIDB) on the National Contractor Development Programme. The role of the CIDB was not only the registration of contractors, but it also had a mandate to support, facilitate and promote the industry. The government was spending a lot on infrastructure delivery, and so the CIDB was trying simultaneously to meet socio-economic objectives and transform the industry. With regard to transformation, however, the CIDB was nowhere near where it wanted to be.

On the main objectives of the NCDP was to improve contractors’ grading status from grade 1, which was easy to enter, all the way up to grade 9. They were targeting on increasing representation of black, women and youth-owned companies. Another objective was to promote sustainable contracting, as it was one thing to move up to higher grade, and another to sustain it. They were aiming for improved delivery and quality performance on infrastructure projects.

The challenges that CIDB was facing in the implementation of the NCDP included:

  • The slow pace of its uptake into supply chain management (SCM) policies.  
  • There was inadequate institutional capacity in the public sector to allocate, target and spend budgets.
  • There was a lack of proper monitoring and evaluation systems, despite policies put in place.
  • Delayed payment to contractors was a huge challenge which had had a crippling effect on growth in the emerging sector.  
  • Collusion among cartels and corruption.
  • The fact that the Contractor Development Programme was not mandatory but at the ‘will’ of the clients.

Members were concerned about the effect which the late payment by government departments was having on small contractors, and asked what the CIBD was doing to promote prompt settlement of invoices. They expressed dissatisfaction with the rate of transformation in the construction industry. They asked whether the slow uptake of contractor development programmes into supply chain management policy was because politicians had not bought into the concept. Had lowering the criteria for CIBD registration affected quality standards? How had the CIBD facilitated access to capital for small contractors? Large contracts should be unbundled so that small contractors could participate.

Meeting report

Introductory remarks

The Chairperson said the Construction Industry Development Board (CIDB) were the most important people in the construction industry -- they could make or break the industry.  He asked the Board if they were ready to soar above the tide of challenges the industry faced, and not be carried away by the tide.  He urged them to tell the Committee about their shortfalls so that the Committee would know where to help. 

 

Ms A Dreyer (DA) reminded the Committee that she was replacing Mr S Masango (DA), who had been redeployed to Mpumalanga. She also said that one of the party’s members, Mr K Mubu, was sick but he would be replaced by Mr T Walters (DA) while he was recovering.

 

The Chairperson commended the CIDB on having a woman to pilot the board, and invited them to proceed with their presentation.

 

Construction Industry Development Board presentation

Ms Inba Thumbiran, Acting Chief Executive Officer: CIDB, thanked the chairperson and told the Committee that if the presentation slides were not clear, Board members would clarify matters during question and answer session.

 

Mr Gerard Naidoo, Programme Manager: CIDB, said the presentation was a progress update on the National Contractor Development Programme (NCDP) which would provide background on contractor development, the objectives of the NCDP and how it had evolved over a period of time, the challenges faced by the construction industry and clients, intervention by CIDB in terms of the challenges, and broad recommendations.

The purpose of the report was to give insight into how the NCDP had been incorporated into local government in terms of uptake in implementation, the implementation of the NCDP within the Public Works stable, the challenges and successes it had encountered, and also some CIDB pipeline initiatives and strategy.

The role of the CIDB was not only the registration of contractors, but it also had a mandate to support, facilitate and promote the industry. The government was spending a lot on infrastructure delivery, and so the CIDB was trying simultaneously to meet socio-economic objectives and transform the industry. With regard to transformation, however, the CIDB was nowhere near where it wanted to be.

The Department of Public Works (DPW) had played a leadership role in contractor development over the past years as the custodian of asset maintenance, and had had to ensure that socio-economic objectives and transformation of the industry were met while spending the budget on projects and maintenance. In 2008, the DPW had given the CIDB a mandate to explore a uniform policy on how contractor development should be undertaken. So far, with regard to municipalities, they had collaborated with the South African Local Government Association (SALGA) and the Department of Cooperative Governance and Traditional Affairs (COGTA). As recently as March 2015, the national DPW had resolved that the CIDB was to engage with the Municipal Infrastructure Support Agency (MISA) to further support NCDP awareness and rollout. Uptake in implementation at the local government level still represented a huge challenge.

On the main objectives of the NCDP was to improve contractors’ grading status from grade 1, which was easy to enter, all the way up to grade 9. They were targeting on increasing representation of black, women and youth-owned companies. Another objective was to promote sustainable contracting, as it was one thing to move up to higher grade, and another to sustain it. They were aiming for improved delivery and quality performance on infrastructure projects. He defined contractor development as the deliberate and mandated process to achieve all these aforementioned objectives. Grade 1- 2 was the learnership level, grade 2-6 was the enterprise/contractor development level, and grade 4-9 was where there was expectancy of performance improvement.

The methods of contractor development included both direct and indirect targeting. The direct method, called “incubator,” supported and sustained the contractors until they were able to stand on their feet. This method also included graduation after the incubation period. On the indirect targeting, he said that government should ensure that their products were packaged in such a way that they were developmental. On direct targeting, the CIDB provided a guideline and checklist to make sure that it was in line with the contractor development programmes. With indirect targeting, the CIBD used procurement methods which included unbundling, to make sure that the work was spread among different contractors, with the use of potentially emerging contractors, as well as joint ventures.

Black ownership was very low on transformation in the grade 7-9 level, unlike the grade 2-4 level, which was at 90%. About 80% of grade 2-4 contractors had upgraded by at least 1 grade in the past ten years under the CIDB grading status.

The CIDB had conducted a review and assessed how construction development programmes (NCPs) had been implemented at the local level. The finding was that there was generally a low degree of conformity to the NCDP framework and guidelines from different municipalities. To alleviate this, the CIDB had scheduled sessions to continue client capacitation and alignment of CDPs to the NCDP framework and guidelines. The DPW had provided 1 500 incubated contractors, developed policy that was aligned with the NCDP guidelines, and had chaired the NCDP steering committee.

The CIDB survey of 2014 had shown that 16% of clients were neutral or dissatisfied with the performance of contractors, and 22% of contractors were neutral or dissatisfied with the quality of tender documents and specifications obtained from clients. The CIDB was working to ensure that the 16% negative performance was addressed.

The challenges that CIDB was facing in the implementation of the NCDP included:

  • The slow pace of its uptake into supply chain management (SCM) policies. However, the CIDB had provided certain interventions in the form of client awareness of the NCDP, the capacitation of officials, and assessment of SCM and contractor development policies.
  • There was inadequate institutional capacity in the public sector to allocate, target and spend budgets. This problem was related to human resources. However, the CIDB had provided interventions through client awareness and the capacitation of officials, approving and rolling out CDP guidelines with respect to targeting and budgeting strategies.
  • There was a lack of proper monitoring and evaluation systems, despite policies put in place. The CIDB had provided intervention in the form of guidelines aligned to manual checklists and reporting templates. 
  • Delayed payment to contractors was a huge challenge which had had a crippling effect on growth in the emerging sector.  The intervention of the CIDB included prompt payment regulations for payment within 30 days, which had been gazetted for public comment. CIDB practice notes had also been issued to guide prompt payment.
  • Collusion among cartels and corruption. The CIDB provided intervention in the form of a code of conduct for those in the construction industry, an anonymous fraud reporting hotline, forensic investigations, hearings and sanctions for anybody found guilty.
  • The fact that the Contractor Development Programme was not mandatory but at the ‘will’ of the clients. The intervention by the CIDB included information practice notes, and adoption of standards like those for indirect targeting for enterprise development.

Mr Naidoo said that the CIDB contractor development strategy included an enabling environment, construction skills, performance improvement and procurement-driven development outcomes. He reminded the Committee that the CIDB was reviewed every five years. The CIDB recommended that the Committee note and endorse the continued and accelerated promotion and championing of the NCDP framework, and that it continue to provide support for the implementation of the NCDP.

Discussion

Ms Dreyer said that the main thrust of the CIDB was to develop black enterprises. She asked if they employed Cubans and people from other African countries, and what percentage they represented. She commented that people worked because the government required them to do so, and if the government delayed in paying the contractors, then small businesses, for example, would go under. What response had the CIDB received from government in this regard?

Ms D Mathebe (ANC) asked what obstacles were hindering an increase among black people and women. What had the board done to enhance prompt payment?

Mr M Filtane (UDM) expressed satisfaction at the fact that the CIDB was looking at development, but was unhappy that transformation had not been captured in the presentation. This was important for the country. He also had not seen any socio-economic objectives or targets. The CIDB should monitor the contractors on what they had done with the money, especially as some were careless in this regard. He also asked how many contractors had upgraded from grade 1-5 in the last five years. What were the contract parameters for grade 2-4? Was there any law that prohibited contractors from being changed, or increasing their percentage? Why were there few black contractors? He asked about the slow pace of uptake into the SCM policies, and whether it was because the politicians had not bought into it.

Ms Masehela asked if the board provided any special assistance to women so that they could match up to their male counterparts. How did the Municipal Infrastructure Support Agent (MISA) assist the municipalities in service delivery? She asked how many contractors had graduated and how long it took to graduate. Why was change so slow, and what could be targeted to achieve radical transformation?   

The Chairperson said that the Western Cape was known for producing a large proportion of the artisans in the South African built environment in. However, people were no longer interested because of a lack of support. If you were not a big company, you would not get to grade 9. This was the case across the board, and was not suffered by the blacks alone. The CIDB had an incubation programme but was not utilising it. He asked whether grade 9 companies which were not doing a proper job had been downgraded, blacklisted or suspended. Did the CIBD conduct oversight when they graded contractors, to check their workmanship?

Ms Thumbiran replied on the issue of delayed payment, which was something they were passionate about and dealing with. Regulations had been put in place, and the revised regulation would be provided to the Committee. She said the CIBD registered Cuban and other international companies. They had prosecuted some companies. The question companies asked was whether the Minister had the power to prosecute. She reminded the Committee that the clients owned the work and sometimes they preferred to award the contracts to upgraded contractors. She said SCM was the lever for procurement.

Mr German Mphahlele, Manager: Enterprise Development Unit, CIDB, on the methods of grading contractors, said that the criteria for grading could be constraining for the movement of contractors from grades 1 to 9. As such, they were looking at removing the criteria of professionalism.  He also said that CIDB was periodically reviewed.

Ms Thumbiran referred to women contractors, and said that clients needed to understand who they were targeting. The clients looked at the register and used their procurement lever. Women contractors were catered for, but development was slow. The CIBD also looked at how budgets were managed by the contractors.

Mr Mphahlele said that the CIBD would provide a guideline to monitor the socio-economic impact of the activities where construction was taking place. In response to why contractors were not moving, he said that construction was cyclical so the main cause could be because of low economic activity.

Ms Dreyer asked what the reason for the delay in payment by the government was, and whether it was because of disputes between the contractors and departments. She asked for the names of companies who had experienced delays in payment.

Mr Filtane asked how big the budget allocated to the lower grade was. He also asked about transformation and socio economic developments.

Mr Naidoo reiterated that economic circumstances were the contributing factor to the slow changes in the construction industry.  The CIDB had lowered the bar on criteria for contractors to register. They were being cautious so that the clients would not complain that their requirements for registration were not strong.  He said that MISA had been set up within COGTA to offer support to municipalities who were in distress. The rate of graduation of the contractors in the programme was guided by guidelines which stated that the contractor would stay in the programme for three years or so. The process to be followed was in the hands of the client department, while the CIDB gave them the portfolio.

Ms Thumbiran referred to the delays in payment of contractors, and said a survey undertaken at the University of Pretoria had found that fewer than 30% had been paid on time. She added that it was awkward for the CIDB to beg client departments to register in their register of projects.

Ms Mathebe asked what criteria the CIDB used for grading.

Ms Thumbiran answered they included access to capital and a track record. The track record was not limited to public work they had done. However, there were challenges with access to capital, as contractors found it difficult to sustain themselves workwise.

Ms Mathebe said that access to capital may be the crippling factor preventing blacks and other small companies from moving or upgrading.

Mr Mphahlele said that they were gradually making provision to alleviate the issue of access to capital.

Mr Filtane said that much transformation was expected in the construction industry. Construction was regarded as a way of helping to help people who were less educated. Unbundling should be encouraged so that the small companies could participate, and not only the big companies.

The Chairperson asked about the impact which lowering the criteria had on the quality of the completed work. What efforts had the CIDB made to approach banks to make money readily available to contractors? He asked whether they had partnered with the banks. His concerns was the fact that banks were choosy about who they assisted, and had tightened their rules, like asking for letters of guarantee. He asked if the CIDB was willingly to act as guarantor to the smaller companies. Did it do random oversight checks before grading contractors?

Ms Thumbiran said the CIDB’s oversight efforts went mainly into registration. The information that they had on compliance from the register of projects was not enough.  She added that clients were charged for evaluation.

Mr Naidoo said the CIBD had met with banking officials and had pitched the requirements of government on contractual development. They had agreed, and four banks -- ABSA, FNB, Standard Bank and Nedbank – had signed an MOU.

Mr Mphahlele expressed concern that banks experienced problems in servicing loans because the contractors were not paid on time. Some of the banks had stopped financing construction projects.

Ms Masehela asked if there was any intervention on skills development.

Mr Filtane asked the DPW why there was no unbundling going on, since the hands of the CIDB were tied.

Mr Naidoo said that some projects could be unbundled, while others could not. On skills, he said that CIDB could provide an assessment of contracts. It could give accreditation once skills were identified. He said that the board needed funding and resources to be able to check on contractors and the projects that has been implemented.

Mr Richard Samuel, Deputy Director General: DPW said that their mandate was indeed to provide support to the CIDB, and he had taken note of the issues that needed the attention of the Department. They would be able to provide further details of how the DPW would treat these issues, and how it was spending money with regard to them. On the issue of late payment, he said that the statistics they had for 2011 indicated that there has been a great deal of improvement, but they would provide more information on that.

Ms Dreyer asked the Chairperson to ask the Department officially to make the information available.

The Chairperson asked the Department to liaise with the Committee Secretary.

Mr Samuel said that unbundling was happening, based on design specifications. He added that the issue of policy review, the development of the Public Works Act and the enforcement of the CIDB Act, gave the Department the opportunity to develop standards for the Public Works “family.” When they had concluded the process on the Public Works Act, they would develop norms and standards that would go with the Act.

Mr Filtane commented that the process of developing a statute to the stage where it was signed by the President, was a very long one. He reminded the Department that after 21 years of democracy, it was still looking into it while people were starving. He asked the Department to give a date on which they would come back and tell them what they had done. He expressed concern that the Minister of Public Works was not present when issues of this sort were being discussed.

The Chairperson asked about the stumbling blocks in the DPW, and said the Department must take the issues of the CIDB and the Committee to the Minister and Deputy Minister.

Mr Samuel said they would provide information on what the Department was doing. On the statute issue, he was relating to the policy limitations the CIDB had referred to. The Department was enforcing the CIDB Act and was also in the process of putting in place the Public Works Act. Work had been done by the DPW in the provinces, and information relating to this work was being collected by the meeting of the ministers. The DPW would provide the statistics to the Committee. It wanted the law to be mandatory and not a matter of choice. He apologised to the Committee if they had not understood him initially.

The chairperson thanked the Committee, the CIDB and the DPW, and reminded them that their work did not end there. He urged them to continue their work. He said the Committee might call on the CIDB any time for a report.

The meeting was adjourned.

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