Construction Sector: small businesses/cooperatives challenges: Black Business Council; CIDB, CBE, BECGSA, Department of Public Works

Public Works and Infrastructure

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

The Committee met to consider the challenges facing small businesses and cooperatives in the construction sector, and was briefed by the Black Business Council in the Built Environment (BBCBE), the Built Environment Cooperatives for Graduates in South Africa (BECGSA), the Council for the Built Environment (CBE), the Construction Industry Development Board (CIDB) and the Department of Public Works (DPW)

The BBCBE told the Committee that the total number of companies registered with the CIDB was 204 911, and about 91% were registered in grade one. Although the median percentage of black and women-owned companies registered was 95% and 41% respectively, the registrations did not have any relationship to the total built environment industry turnover. The challenges facing black business companies included the lack of traction in contractor development programmes within the DPW and other public sector bodies; projects were not unbundled for emerging black businesses; a lack of projects for lower grade contractors; and programmes being focused on outsourcing rather than empowering smaller contractors. Proposed solutions required collaboration between the BBCBE and the DPW to ensure that the Contractors Development Programme (CDP) opportunities, especially in grades three to seven, were taken up by black businesses; the DPW must increase its capacity in order to implement the CDP effectively and efficiently; and undertake advocacy to extend implementation of the CDP to other state departments.

The BECGSA said that internships and work-integrated learning were challenges because of inadequate budget allocations, despite the advantages of these skills development programmes. The graduates either needed to be employed in state-owned agencies, referred to private organisations, or given enterprise development opportunities. It highlighted the barriers to candidacy registrations and professional registration, and asked the Committee to support students to register on rebates or for free until they got employed.

The CBE said the challenges included inadequate pricing and costing of tenders; over reliance on government tenders, because they could not readily access private sector contracts; not being able to compete with skilled and talented labour; not having the requisite accreditation and compliance; sub-contracting issues; and problems with the payment timeframes of the public sector which hindered the cash flow of small businesses. It also referred to corruption, with companies paying government departments to have their tenders fast tracked, and collusive tendering. Not being exposed to much needed practical work, despite mentorship and training opportunities, was another factor which impacted on the sustainability of small businesses and cooperatives. Most black professionals in the built environment therefore preferred to be employees, and this suppressed innovation.

The CIBD said small businesses and cooperatives in the construction sector lacked access to work projects and credit, and had challenges with delayed payments and CIDB grading. Lack of access to work was due to fiscal constraints, delayed spending and under-spending against budget allocations. Strategies used to address the lack of access to work projects included monitoring, advocacy and capacity support for public sector procurement.

The Expanded Public Works Programme (EPWP) unit of the DPW briefed the Committee on the Vuk’uphile learnership programme for contractors and supervisors, the EPWP enterprise development programme, the contractor incubator programmes, and other DPW supply chain interventions.

The Committee requested copies of contracts that had a value in excess of billions of rands that had been awarded since 1 April 2017 to see if they reflected transformation, said the DPW must compel other departments to give contracts to emerging black businesses, rather than bigger companies, in order to assist ordinary South Africans by empowering emerging black entrepreneurs. The DPW had to implement the recommendations of the entities and give updated reports on the status of the recommendations at its next meeting with the Committee. 

Meeting report

The Chairperson said the purpose of the meeting was to receive inputs on the challenges facing small businesses and cooperatives in the construction sector, and strategies put in place to resolve the challenges, from the Black Business Council in the Built Environment (BBCBE), the Built Environment Cooperatives for Graduates in South Africa (BECGSA), the Council for the Built Environment (CBE), the Construction Industry Development Board (CIDB) and the Department of Public Works (DPW).

Black Business Council in the Built Environment (BBCBE)

Mr Gregory Mofokeng, Chief Executive Officer (CEO), BBCBE highlighted the vision, mission, institutional alignment and organogram of BBCBE. The total number of companies registered with the CIDB was 204 911, and about 91% were registered in grade one. Although the median percentage of black and women-owned companies registered with the CIDB was 95% and 41% respectively, the registrations did not have any relationship to the turnover generated in relation to the built environment industry turnover.

The BBCBE observed that the DPW was not exerting its authority and not implementing development programmes that benefited black small, medium and micro enterprises (SMMEs) and cooperatives. It also had challenges implementing the Preferential Procurement Policy Framework Act (PPPFA) regulations. Cooperatives were in survival modes, and did not play meaningful roles in the construction industry. Black entrepreneurs were losing opportunities to undertake projects in the built environment sector from the Department of Basic Education (DBE) in each quarter because the DPW was not entrenching policies.

The challenges of black business companies were the lack of traction in contractor development programmes within the DPW and other public sector bodies; projects were not unbundled for emerging black businesses; a lack of projects for lower grade contractors; and programmes being focused on outsourcing rather than empowering smaller contractors. There was also a lack of access for small contractors to project opportunities and finance, lack of payment or late payment to SMMEs by public sector clients, and instability due to local communities that did not allow SMMEs from other areas to carry out projects. In addition, SMMEs did not price projects correctly, SMMEs that were politically affiliated were not sustainable, and the CIDB had not put out any developmental strategy to empower black-owned SMMEs.

The BBCBE’s proposed solutions were for collaboration between the BBCBE and the DPW to ensure that the Contractors Development Programme (CDP) opportunities, especially in grades three to seven, were taken up by black businesses; the DPW must increase its capacity in order to implement CDP effectively and efficiently and undertake advocacy to extend implementation of the CDP to other state departments. Also, the CIDB should not be lax in implementing policies that would empower black businesses, and should review processes to instruct the public sector to unbundle projects for meaningful participation of emerging black businesses. If projects needed to be outsourced, they must be accompanied with clear instructions for contractor development, and the 30% mandatory sub-contracting must follow Preferential Procurement Policy Framework Act (PPPFA) regulations. Other solutions included assistance in accessing the Tirisano Trust fund, and private sector funding initiatives.

Ms Kile Kwinana, National President: South African Women in Construction (SAWIC), said that the SAWIC cooperative model was developed to assist SMMEs and cooperatives to move from one grade to another, because each contractor on its own could not provide sufficient evidence of all the processes needed for registration. The SAWIC cooperative model had assisted with the growth of cooperatives and SMMEs, and the stretching of the rand for extra value.

Mr Mofokeng added that the BBCBE had identified opportunities to partner with South African Construction Graduate cooperatives to place more interns with its members and the industry. He suggested that the CIDB must submit the data on cooperatives that were registered with it at the next meeting. He also proposed other matters to be discussed with the Committee at its next engagement.

Built Environment Cooperatives for Graduates in South Africa (BECGSA)

Mr Thamsanqa Maqubela, Executive Chairman: BECGSA, said his brief would be on how the built environment would empower South African graduates. Highlights of his brief included the integrated nature of the built environment; its twin challenges of environmental factors that led to global warming and socio-economic factors which led to unemployment; squatter camps; and poor working conditions in the built environment. He said that BECGSA was working on research to resolve the negative effects of the built environment.

Mr Maqubela described what it meant for graduates to be in the built environment sector. The DPW had been the largest hosts of built environment graduates, and he agreed with the BBCBE that government must use its powers to insist that South African graduates were employed. The percentage employment rate in the second quarter of 2016 had been 47.3% for whites, 29.7% for Indians, 16.2% for blacks and 13.3% coloureds. Also, 300 000 graduates were unemployed and close to 200 000 college and university students sought workplace training, which was a graduation requirement in South Africa. Black students therefore did not feel the need to attend college and university.

Internships and work-integrated learning were challenges because of inadequate budget allocations, despite the advantages of these skills development programmes. The graduates either needed to be employed in state-owned agencies, referred to private organisations, or given enterprise development opportunities.  

He outlined the barriers to candidacy registrations and professional registration, and asked the Committee to support students to register on rebates or for free until they got employed. He concluded by proposing probable solutions to the challenges faced by BECGSA in the construction sector.

Council for the Built Environment (CBE)

Ms Priscilla Mdlalose, CEO: CBE, said that the CBE’s brief would centre on its vision, mandate, legislative mandate, the challenges faced by small business and cooperatives, and strategies in place to counter the challenges.

The CBE had been established, based on the CBE Act no 43 of 2000, so from its mandates it had a role to lead, create platforms and establish partnerships to entrench transformation in the built environment. It also needed to promote ongoing human resource (HR) development in the built environment to support black interns and graduates. Its legislative mandates were based on the 1996 South African Constitution, the CBE Act and other relevant Acts. The approved organogram structure for the CBE provided it with the opportunity to regulate the six engineering professional councils. She outlined the strategic goals and programmes of the CBE, and showed how they were linked to the National Development Plan.

The challenges of small business and cooperatives were inadequate pricing and costing of tenders; over reliance on Government tenders, because they could not readily access private sector contracts; not being able to compete with skilled and talented labour; not having the requisite accreditation and compliance; sub-contracting issues and challenges with the payment timeframes of the public sector which hindered the cash flow of small businesses. She also referred to corruption, with companies paying Government departments to have their tenders fast tracked, and collusive tendering; challenges with finances and cash flow; compliance with the requirements of the South African Revenue Service (SARS) and professional bodies; not being able to diversify due to financial incapacity; and a lack of opportunities. Not being exposed to much needed practical work, despite mentorship and training opportunities, was another factor which impacted on the sustainability of small businesses and cooperatives. Most black professionals in the built environment therefore preferred to be employees, and this suppressed innovation.

She emphasised that although the BBCBE and BECSA claimed that strategies were not in place to assist black SMMEs and cooperatives, the strategies were available but needed to be enforced. Strategies in place were enforcement of the 30-day payment policy by the DPW; raising platforms such as the  Minister’s stakeholder engagements, to enable small businesses report their challenges; and facilitation of network platforms through business chambers and the CIDB contractor development programme. Other strategies that needed more focus were the need to encourage shared services for small businesses, such as financial management; matching businesses to encourage profit sharing; professionalising and up-skilling business owners; and the need for the CBE to invest in research and development to inform SMMEs and cooperatives of trends in the industry.

The CBE’s recommendations were the need to facilitate business matching through business chambers to assist SMMEs and cooperatives to develop their own skills; the need to priortise payments to small businesses; the need for political heads to monitor how procurement plans were implemented by departments; and the need to strengthen Public-Private-Partnerships to ensure skill transfers and collaborations.

Construction Industry Development Board (CIDB)

Dr Rodney Milford, Programme Manager, Construction: CIDB, stated that in terms of the Board’s grading, large enterprises did not have a maximum tender limit and were graded greater than grade seven. Qualifying small enterprises had a turnover of R50 miliion per annum, were between grades six and seven, and had maximum tender limits of R40 million, while exempt micro enterprises had R10 million per annum total turnover, were graded less than level six and had maximum tender limits of R6.5 million.

Small businesses and cooperatives in the construction sector lacked access to work projects and credit, and had challenges with delayed payments and CIDB grading. Lack of access to work was due to fiscal constraints, delayed spending and under-spending against budget allocations. Strategies used to address the lack of access to work projects were monitoring, advocacy and capacity support for public sector procurement. Strategies to access credit included a development support strategy, and partnering with Small Enterprise Finance Agencies.

The introduction of prompt payment regulations, a draft CIDB standard for prompt payment, and the CIDB standard for minimum requirements for engagement of contractors and sub-contractors on construction work contracts, were used to address delayed payments. The strategies used to assist with the CIDB grading process were monitoring and reporting of turnaround time; carrying-out a contractor satisfaction survey on completion of grading; initiating online registration systems; investigating decentralisation of the registration process; and enhancing the capacity at the CIDB offices. He also indicated that the CIDB registration criteria were been reviewed.

Department of Public Works (DPW)

 

Ms Carmen-Joy Abrahams, Chief Director: Partnership Support, Expanded Public Works Program (EPWP), briefed the Committee on SMME development initiatives used to assist black businesses. The initiatives were the Vuk’uphile learnership programme implemented by the DPW, in collaboration with the Construction Education Training Authority (CETA) and different public bodies, to develop contractors and supervisors who could implement projects using labour intensive methods. She gave an overview of the programme, the statistics of learners in training per province and the future plans of the programme.

Another initiative was the EPWP enterprise development which was implemented through the social infrastructure, non-state environment and culture sectors. The primary objective of the EPWP enterprise development was to support participants to start and operate businesses in order to promote sustainable livelihoods. She outlined the support provided, and progress after second quarter of the 2017/18 financial year.

The DPW also implemented the Contractor Development Program (CDP) to transform CIDB registered Grade three to six medium enterprise contractors into sustainable business enterprises that could compete in the mainstream economy. The proposed key interventions of the programme were contractor performance enhancement through training, mentorship, access to finance and access to technology, information and business linkages. She outlined what the CDP was meant to achieve and an update on its progress.

Other supply chain initiatives by the DPW included ensuring that all tenders and quotes subscribed to the preferential procurement regulations; the appointment of professional service providers (PSPs) within the built environment that were focused on promoting local participation and advancement of black owned PSPs; the monitoring of SMME payments to ensure they were paid within 30days; and the scheduling of bilateral agreements between the DPW’s supply chain management (SCM) and the BBCBE to advance procurement strategies for commodities specifically designated to the CBE.

The DPW’s challenges in supporting SMME initiatives were the inability to maintain profits and increase revenues; difficulties in establishing market linkages; delays in awarding training projects by implementing bodies to learner contractors; an insufficient level of interest by public bodies in enterprise development activities and the inability of learner contracting companies to access bridging finance provided from appointed financial service providers (FSPs).

The measures taken to address the challenges in the implementation of the Vuk’uphile learnership programme were continuous close monitoring and evaluations; exploring relationships with PSPs for assistance with bridging finance; conducting enterprise development awareness workshops; training on the “start your business” programmes; inclusion of project lists in memorandums of association of implementing bodies; and improving planning processes.

Mr Sam Vukela, Acting Director General: DPW, said that apart from the initiatives in the brief, the DPW had extensive skills development programmes for young graduates which would be shared with the Committee at the next meeting. He remarked that DPW had presented initiatives without carrying stakeholders along, but would improve on its synergy with its stakeholders.

Discussion

 

Ms D Mathebe (ANC) commented that the number of briefs and the short time had not allowed the Committee to effectively interrogate the briefs. She appreciated the briefs from the different teams, and said that Mr Vukela had pre-empted her by indicating that the DPW had operated without carrying its stakeholders along. Stakeholders had highlighted the challenges faced by black business companies in the built environment and the measures that the DPW could undertake to resolve the challenges. She expressed concern over the instability in the leadership of the DPW, especially the EPWP, which had a time frame of seven years but had had vacancies as a result of resignations. She was impressed that the entities had addressed government policies, and realised from the briefs that the mechanisms that were supposed to be operating were not functional. The Committee wanted to know what was stopping policies from being functional and asked for an update on the progress of initiatives in place to empower black entrepreneurs, because the initiatives had been in place since 2014 and had not yielded much benefit. The black majority of South Africans had lower employment rates compared to the white minority, so she mandated the DPW to submit progress reports to the Committee on the recommendations of the BBCBE, BECGSA and CBE in the next term.

Mr M Figg (DA) agreed with Ms Mathebe’s proposal for the DPW to submit an update on the entities’ recommendations in the next term. He had observed from the BBCBE’s brief that even though figures for black ownership company registrations of contractors were high, data on women’s ownership of companies was low. He appreciated the CBE on its payment recommendations and said that the DPW must implement the recommendations of the presenters. He asked DPW to indicate the cost of its development initiatives used to assist black businesses.

Mr M Filtane (UDM) expressed concern that the DPW lacked political leadership, and asked Mr Vukela to state the measures that would be used to convey the challenges of black entrepreneurs in the built environment to the Minister. He asked the BBCBE to describe how the current legislative and policy framework in the built environment failed to assist it, and to indicate the relationships it had with the DBE in order to get built environment projects. He asked the BBCBE what percentage of black contractors were not registered with the CIDB. Why did the DPW not seem to be playing its role in empowering black SMMEs? He mandated the DPW to give the Committee copies of contracts above R50 million awarded from 1 April, 2017 to see if they reflected transformation.

He expressed concern about the statistics of black graduates not employed. He asked DPW why it did not consider assisting emerging black entrepreneurs through the costing of its tenders, with a view to assisting them to win tenders and ensuring that the transformation targets were achieved. He remarked that if DPW had a basic plan to maintain government buildings, it would assist emerging black entrepreneurs to have contracts from ongoing broad-based maintenance projects instead of focusing on mega projects. If the DPW was not taking responsibility to assist the CIDB with its challenges, then there should be penalties on people who failed to do their jobs. He asked DPW to give clarity on the progress of the EPWP development initiatives used to assist black businesses, and to state how many people had been able to get contracts as a result of its initiatives.

Mr D Ryder (DA) commented that having five briefs in a day, despite the short time, did not allow the Committee to engage the entities well. He asked DPW to state where the BBBCE and BECGSA fitted into its organogram. He observed that although both had pointed accusing fingers at the CIDB, the CBE had a higher portion of the blame, based on its mandates. The bulk of the issues were due to a lack of political guidance. The DPW needed to empower its entities in order for them to deliver services to the people.

 He expressed disappointment that the BECGSA could not access funds meant for emerging black entrepreneurs in the built environment. State entities made the CBE’s work more difficult by late payment of contractors. He advised the DPW to encourage collaboration within its entities. He observed that the Vuk’uphile learnership programme did not have a good track record, so he advised the DPW not to focus on metros which had high budget allocations and did not need its assistance, but rather to focus on assisting contractors from small municipalities that needed its assistance.

Ms E Masehela (ANC) supported Mr Ryder’s observation that the DPW needed to empower small municipalities rather that metros that had higher budget allocations. She asked the DPW how it arrived at the data on the success rate of the Vuk’uphile learnership programme. Who was responsible for ensuring that contractors were paid? The DPW must compel other departments to give contracts to emerging black businesses, rather than bigger companies. She also expressed concern with regard to the implementation of work study programmess for interns.

The Chairperson observed that the entities had given detailed information about the challenges in the built environment. He remarked that the DPW had to assist ordinary South Africans by empowering emerging black entrepreneurs. Information on contracts approved since 1 April 2017 should not start with contracts above R50 million, but contracts that had a value in excess of billions of rands. He said that money generated in South Africa must work for South Africans, rather than being taken out of the country by multi-national companies.

He mandated the DPW and its entities to send written responses to comments and questions asked by Members. The Committee would address the removal and resignation of officials in the DPW which had made planning difficult during its next term, but insisted that the DPW needed to assist emerging black entrepreneurs in respect of transformation targets.

The meeting was adjourned.

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