Construction Industry Development Board (CIDB) 2020/2021 Annual Report; with Deputy Minister

NCOP Transport, Public Service and Administration, Public Works and Infrastructure

23 February 2022
Chairperson: Mr M Mmoiemang (ANC, Northern Cape)
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Meeting Summary

Annual Reports 2020/21

In a virtual meeting, the Construction Industry Development Board (CIDB) presented its 2020/2021 Annual Report. CIDB achieved 17 out of 19 targets (89%). The Committee was taken through the achievements and reasons for non-achievements of each programme and challenges. There had been a decline in transformation. The audit outcome remained the same with an unqualified opinion with findings. Its objective is to obtain a clean audit in 2021/22 and beyond. It has retained a healthy financial position with R169m positive cash resources. A significant increase in expenditure was recorded on Property, Plant and Equipment (PPE) as a result of the new office building.

Members asked questions on the progress in filling vacancies; the set 2025 targets; over expenditure; aim and current success of the build project; its plans to address the lack of transformation in the sector; the request for more funds for its research unit; how CIDB plans to deal with corruption; and progress in investigations on registrations, fraud and non-compliance.

Meeting report

Deputy Minister of Public Works opening remarks
Deputy Minister Noxolo Kiviet said that as much as the CIDB is trying to perform its functions in accordance with its legislation, it still has a long way to go on the work it still needs to focus on. The Annual Report does show that there are areas where the CIDB had performed excellently. However, there are still areas in which it needs to be pushed as there are still areas which they have not touched.

She was a bit tense after the passing of the CIDB CEO the previous year. However, the leadership was able to appoint someone who displays great leadership traits. The Portfolio Committee on Public Works in the National Assembly is discussing the Expropriation Bill. They have split work between the Minister and herself and she is struggling to follow both the Expropriation Bill and the Transport committee meetings. However, she will pay attention to this Committee and her team working with the Portfolio Committee on Public Works will manage at this stage.

Construction Industry Development Board (CIDB) 2020/21 Annual Report
Mr Khulile Nzo, CIDB Board Chairperson, led the presentation. Its legislative mandate included:
- Strategic leadership for sustainable growth, reform and improvement of the construction sector
- Sustainable growth and participation of the emerging sector in the industry
- Improved performance and best practice
- Uniform application of policy and ethical standards, construction procurement reform, improved procurement and delivery management
- Monitoring and regulating industry performance including registration of projects and contractors.

CIDB achieved 17 out of 19 targets (89%). Programme performance was outlined for its six programmes: Administration; Research and Development; Construction Industry Regulations; Construction Industry Performance; Procurement and Development; Provincial Offices.

CIDB's contribution to the Economic Recovery and Reconstruction Plan was to rebuild the construction sector. Its intended outcomes were compliance to CIDB prescripts, transformation, contractor and skills development and job creation.

The audit outcome remained the same with an unqualified opinion with findings. Its objective is to obtain a clean audit in 2021/22 and beyond. It has retained a healthy financial position with R169m positive cash resources. A significant increase in expenditure was recorded on Property, Plant and Equipment (PPE) as a result of the new office building.

Its transformation report noted that Black-owned contractors (51% and more), who make up over 90% of registered contractors, accessed around 29% of public sector awards for 2020Q2, which is a significant decrease from the 54% of 2019Q2 period. Of concern is that the percentages of work accessed in grades 7 and 8 decreased from 70% in 2019Q2 to 31% in 2020Q2
CIDB provided remedial action for the key priority areas of transformation, access to work and enterprise and skills development.

Discussion
Mr T Brauteseth (DA, KZN) pointed to one of the unmet targets and the reason given for this was because of the "misalignment with the KPIs and the calculations". There is a lot of semantics and asked for the realistic meaning of this. Did the client departments implement contracted developments or not? Simply put, was it that the departments did not attempt to do it or was it due to incorrect wording that resulted in the inability for it to be recorded as achieved? Clarity was needed if this non-achievement was due to departmental inability then this was a massive problem. His second concern was Grades 1 to 9 were reported as one in this report. In previous reports these grades were separated. CIDB needs to separate them as this enabled the Committee to know what was going on in the different grades, which is important for transformation. He asked for the reason for putting all of these grades together.

He explained that no rational person in South Africa would argue against empowerment and development and that the greater concern is how it works. The main difference between a grade 1 and grade 9 construction company is engineers. Grade 1 speaks of unskilled labour and Grade 9 needs highly skilled and qualified architects and engineers who are responsible for big projects. Therefore, to say that there is transformation challenges at the upper level highlights that there is a greater education challenge.

You cannot get construction companies that are black or women owned if they do not have the skills to do that. Otherwise, roads, building and massive constructions that are built by unskilled people will only result in poor projects that are dangerous and pose a threat to lives. Thus, many people will face jail time on the basis of professional negligence and criminal conduct. Therefore, there needs to be a down-top approach in which in CIDB is approaching high schools and speaking to teachers to tell them about learners that are good with physical science and mathematics so that learners are informed of the possible career paths into engineering and project management. Learners are encouraged to put in more effort in their maths and science subjects and are informed about the provision of bursaries to study engineering at top universities in the country. Getting this feeder process right will result in seeing more of the disadvantaged groups in these highly skilled occupations and in construction companies able to do the job.

One of the major problems is that when doing massive projects such as building a large interchange and bridges that are 100m off the ground, you need highly skilled and qualified people to do the job. We have borne witness that multi-billion projects are being done by international companies because we do not have the skills and knowledge in South Africa. The problem is that learners are not being informed and encouraged into exploring engineering as a career path. He asked what CIDB is doing to address this. The presentation gives the impression that certain companies in the private construction industry are not being given these projects and not employing which results in the lack of transformation.

Mr M Rayi (ANC, Eastern Cape) asked for an update on the status of the Jobs Fund project to benefit SMEs, a partnership between National Treasury and CIDB. Secondly, clarity on the CIDB programme to boost export-ready contractors. He noted the mention of the National Stakeholder Forum. One of its aims was to assist with compliance with the Register of Projects (RoP). He did not see information on why it has been rationalised into a smaller forum and that there is no indication of what it is doing. He went on to speak on CIDB’s commitment to the Department of Public Works and Infrastructure in supporting its implementation of the Expanded Public Works Programme. The downgrade in transformation percentages was confirmation of certain problems with transformation.

The CIDB five-year strategy had the target of 75% black ownership of contracts in Grade 7-9 by 2025. Taking into consideration the problems that have risen in the current Annual Report, would this target still be achievable? He noted also the target for increase of work for black owned enterprises from 58% to 70% and the number of women-owned contractors from 30% to 40%. The previous report on the registration of contractors gave more clarity on the division of the different Grades 1 to 9 and this report summed the grades all together. He asked for a clear breakdown on compliance and non-compliance.

He wanted more clarity on the money that will be allocated to research development. Based on the performance report there was an achievement of 100%, however there is an underspending of R29.9 million some of which it explained will be spent on strengthening and capacitating the research and development directorate. The Administration budget was R86.6 million and actual expenditure was R95.7 million. What was the reason for this over expenditure?

The Chairperson said the Administration programme is the one with the problem of over-expenditure. What is the impact of this overspending? He noted consultant and IT expenses had low expenditure. This is pivotal to the overall efficiency and its ability to do its work. On the Register of Projects, he asked about the extension of the 20 - 23 registered projects. How has this affected CIDB’s ability to monitor this infrastructure programme?

The Chairperson asked for an update on the vacancies for company secretary and chief operating officer as it is important that these vacancies are filled. He asked for an update on the progress in Special Investigating Unit (SIU) investigations about the allegations about registered contractors and the CIDB. Has there been a report on when these investigations will be finalised because at the time of the audit it was still busy investigating these allegations?

On the observations on Transformation in the report and the empowerment recognition of women in construction and young people, it is important to establish stability at management level and ensure the objectives are achieved.

CIDB response
Mr Khulile Nzo, CIDB Board Chairperson, replied to Mr Brauteseth on CIDB’s approach to education and skills. Mr Brauteseth's suggestion is correct because education is important in the building of construction companies and he went far beyond what the Board had anticipated. The Board had thought of incorporating students from universities and technical colleges to be part of the project and work towards strengthening this. It was previously recommending that, as part of the procurement, the winning bidder would be obligated to take in students as part of the project with the aim to upskill them. The suggestion now is to expand this to high school level. As the Board they believe that the word ‘development’ is so broad and that a deeper analysis would show that CIDB needs to engage with several other entities such as Treasury and Education. The approach is to ensure the young get skills and most importantly experience which forms a great part of Grade 9 where there are high levels of experience. This extends beyond education as it looks at financial capacity and the challenges that are presented. This leads to the ability to have sustainable contractors because it is good to get contractors in Grades 1-3. However, it poses a challenge when CIDB is unable to find work for them to get the relevant experience so that they are able to move up those grades. The tendering system poses challenges and they do not have the work. This becomes a development challenge that results in the need to look at procurement, how to keep these entities sustainable, how to keep the client departments issuing out the work so that contractors can start building up their grade. Therefore, the option of looking at the stem of the education is an important part. The build programmes aim is to look into this as it is made of the development of thecontractors, funds that they need to come up with that will assist development.

All the vacancies have been filled and the only vacancies still unfilled is Company Secretary and CEO. This process is still underway, and an action plan has been sent to the Department and they anticipate having a permanent CEO by May 2022.

On the target non-achievements, the work on client capacitation and contractor development was done and the only issue was audit related. There was a misunderstanding of what was going to be produced as evidence of the work done. The auditor had asked for an MOU. Client capacitation does not require a signed MOU but due to the wording of the performance indicator it was determined as not achieved. There were 22 client departments capacitated on contractor development and the misunderstanding was with the technical indicator descriptor The Grade 1-9 statistics are available and can be shared with the Committee. There was an attempt to highlight this in the presentation on Transformation. In future this will be separated for clarity purposes.

On the boost for export-ready contractors, CIDB had not done much work on the exposure of their contractors due to the Covid pandemic and travel restrictions. In 2019/20 work was done in this area especially eSwatini and getting contractors exposed. There was a call for assistance on the range of projects that form a basis to monitor implementation of client bodies. Moreover, on monitoring and collection and implementation of the B.U.I.L.D programme, compliance is still low at 30% and they have a new engagement strategy with the client body. They are receiving assistance from the Minister and Deputy Minister to check on compliance for this. They have assigned the Executive to look at the top 20 infrastructure-spending clients as they take up the majority of the budget. This includes public entities such as Eskom and Transnet.

There has been an increase of the enforcement units to ensure that non-compliance is noted so that it is dealt with effectively. This is done to establish a culture of high compliance which breeds great results for the country. The CFO will give a more detailed explanation on this. They have also opened several cases and established a relationship with SAPS to deal with cases of incorrect registrations, suspicion of fraud and non-compliance. They are reviewing the regulations to make it easier for CIDB to deal with non-compliance. They have faced challenges that have limited the manner in which they can deal with the perpetrators such as they can only fine a perpetrator no more than a R100 000 regardless of the extent of the transgression. The new Act that is currently under discussion will also assist in this.

On CIDB’s ability to achieve the 2025 target on Transformation (1:38:30-1:39:04 poor network connection). The downgrading and whether the moratorium is still in place. The aim is not to penalise contractors whilst there are no activities within the construction sector. They are reviewing the registration criteria to enhance the risk mitigation aspect without an extra burden that does not serve the purpose of having a quality construction register. There was a request for a provincial breakdown on compliance and non-compliance and this has been reported before in other forums and they are able to make provide which departments are not complying. This will assist in building this culture of high compliance that is beneficial to South Africa as a whole.

There was money directed at R&D and the set R&D targets were achieved. They are fully aware that there is room for improvement so they are able to advise the Ministry and the Department on the policies being implemented which need to be backed up by proper research. There are a few areas of excellence with research. CIDB capacity to do more research on how the industry should respond is the reason for the request of a regular increase in the budget allocated to research.

CIDB Acting CEO, Mr Bongani Dladla, replied that ability of CIDB to monitor and correct what is happening in the industry is very important especially with the registration of projects. This includes the ability to deal with non-compliance effectively and report to both the accounting officer and political principal in those departments. They are also referring a number of cases to SAPS.

Mr Mathebula asked a written question in the chat on what CIDB is doing to fight corruption in the industry specifically when the company is found in a corrupt act whilst registered with the CIDB.

The CFO responded about the Administration programme over expenditure saying that in comparison to the other units it may seem like it is overspending. However, the composition of Administration explains this over expenditure. It is made up of a few programmes such as the CEO’s Office, Chief Financial Officer, Corporate, HR, Security, Legal and other programmes that form part of Administration. They were able to fill a couple of vacancies within Administration not only at the executive level which resulted in the overspending. There has been a reduction in travelling and lower expenditure on IT and consulting.

The Job Fund is proceeding and it is a programme in which CIDB, Treasury and Public Works have partnered with the private sector to assist in achieving the CIDB mandate of job creation, enterprise development, capacitation and upscaling. This is still continuing and it is opening up for new applications. Considering the job losses that occurred this initiative will assist in easing the impact of job losses and create jobs. In 2020/21, through this initiative they were able to create 160 jobs and achieve 71 beneficiaries.

Mr Phiri, CIDB COO, was tasked with responding about compliance and non-compliance (poor network connection 1:51:50- 1:52:40). On compliance within Register of Projects, the B.U.I.L.D programme has been established around the RoP as it is key in helping them monitor this programme and get the 2% that enables them to invoice the public sector clients. The Register of Projects became important and that is why enhancements have been made to it and compliance is made on this basis. Currently there is 40% compliance of all public sector entities. Therefore, the current strategy is to look for compliance and now the Act enables them to escalate non-compliance with the ROP. Automated messages will be sent to the accounting officers and senior directors of these departments to make them aware of the compliance statistics. The compliance statistics can be made available to the Committee, provinces, municipalities and national governments.

During the first quarter of this financial year CIDB received 51 cases from the SIU. These are related to the proclamation in KZN. 62 cases from the year 2017 have been finalised and approximately 35 cases are in the administrative process through the code of conduct and some of these cases have been dealt with in court. These cases are then taken into their database of registered contractors so that CIDB is able to act against those that have been finalised. This enables them to penalise these contractors without going through long processes as these cases have been finalised by the different courts and platforms. The Act is very detailed and direct on how to deal with such cases. Although SIU has dealt with most of the cases, there are still internal administration processes for instance where cases are being appealed.

The work being done with EPWP has been extended to the construction industry for the lower grades, from 1 to 4. They are able to look at their developmental needs and address these needs. They are reviewing labour intensive construction methods that were published in 2015.

In addition to the work being done with SIU, some of the cases have been handed over to the Hawks to deal with the corruption in the industry in which SAPS is also included. This has been expanded into the Gauteng province and the intention is to expand it further to other places. This can also be used to deal with site invasions in the majority of their projects.

Deputy Minister Kiviet responded to Mr Brauteseth on targeting learners. As the Department of Public Works and Infrastructure they were in Gauteng, awarding bursaries to learners from high school. This was done through the Department programme of working with high school learners who have shown great potential in the construction industry. During discussions, there was an agreement on the need to work with both the Council for the Built Environment (CBE) and CIDB and putting together resources to pull learners into the industry. There will be engagements with CIDB on the internal allocation of learners to the needed skills. The suggestion made by Mr Brauteseth is something that is already being done and all that is needed is for them to include all entities. There has been a sponsored facilitation of cooperation between CBE and CIDB.

The CIDB mandate within the industry has led to transformation. As much as they can recognise the progress made in establishing women and black-owned companies, the performance has been in the lower grades. To ensure their rise to the higher grades there needs to be intentional procurement through introduction into these collaborative forums. These will allow them to share their thoughts in a collaborative way and enhance CIDB's approach in fast-tracking growth in transformation and women-ownership.

There is a discussion on the rates and membership fees paid by both companies and individuals. There is an outcry that some of these fees are too expensive. The CIDB did indicate that they do not penalise people and have reviewed their operations in this area. There is a need for a sustainable effort to assist person who are unable to pay these fees. Research is important in seeing whether this issue is real or perceived. The CIDB is immersed in its mandate and their established plans for dealing with challenges is making a difference.

In closing, the Chairperson spoke about the unfolding recovering construction programme and the CIDB strategic role under the infrastructure programme. The Committee is impressed by the work and plans of the CIDB to address the challenges of transformation and the registration concerns raised by those registering and the commitment to elevate black- and women owned construction companies. The Chairperson thanked everyone and the meeting ended.

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