Emerging Contractor Development Programme: briefing

Progress Update on the Emerging Contractor Development Programme
(ECDP)
For presentation to The Parliamentary Portfolio Committee on Public Works
12 April 2000

Submitted by the Construction Industry Development Programme, NPWP,
Department of Public Works

1. PURPOSE
This report seeks to provide the Portfolio Committee with an overview of the programme, its current status and key challenges. The report builds on the
documentation submitted to the Portfolio Committee and the presentation made on the 20 October 1999.

2. INTRODUCTION
The introduction of affirmative procurement measures and their ongoing refinement, have opened up work opportunities to previously disadvantaged construction enterprises, thus providing a vital platform for the sector's growth.

Within the framework of its mandate on construction industry development, the Department of Public Works is pursuing a package of initiatives to consolidate this growth potential.

2.1 The Broad Context
A number of hurdles confront emerging contractors. Some of these are specific to the sector and others impact on the industry as a whole. Therefore, the Department's approach to the emerging contractor development is embedded in the comprehensive strategy outlined in the White Paper "Creating an Enabling Environment for Reconstruction, Growth and Development of the Construction industry". In this context, measures to address specific problems facing emerging contractors are reinforced by programmes designed to:

· Develop a stable delivery environment, with measures to counteract demand volatility and to promote a stable employment framework.
· Enhance industry performance through measures centred on procurement
strategies to promote work process transformation and to effect best practice.
· Foster a human resource development strategy, which is holistic, sustainable
and accessible.
· Promote new industry capacity and the emerging sector through affirmative
action in support of historically disadvantaged individuals and enterprises.
· Develop the capacity and role of the public sector to support enabling programmes and improved public sector infrastructure delivery.

In co-operation with key infrastructure delivery departments and industry stakeholders, these strategic programmes are being championed by the Department of Public Works with the overriding purpose of establishing an environment in which the construction industry can play its full role in the challenges of national development and industry transformation. The envisaged Construction Industry Development Board (CIDB) is central to this overarching objective.

2.2 Specific Constraints
Growth of the emerging sector is retarded by a range of specific constraints. Inexperience, lack of managerial and marketing ability as well as access to capital and credit come together in a vicious circle which pegs the growth of emerging contractors. One of the most significant constraints facing SMEs is their lack of managerial expertise, which contributes to poor cash flow management as well as poor site and labour supervision. A consistent workflow is frustrated by difficulty accessing information on tenders, the complexity of contract documentation and obstacles in acquiring sureties and performance guarantees. Consolidation is further impeded by potentially crippling procedures for dispute resolution and delayed payment by public sector agencies. The resulting low turnover, aggravated by a poor understanding of risk management, leads typically to enterprise collapse with associated repercussions for clients, industry and the economy.

Another primary constraint facing SMEs is access to training to improve their business skills and to develop the trade skills of their operatives. Small contractors currently have limited or no access to available skills training programmes and are therefore not in a position to improve their productivity.

Furthermore, despite the existence of several national associations of emerging contractors, the sector lacks cohesion. Barriers to organisation include variations in capacity, sophistication and vision. As such, in relation to the established sector they remain weak.

3. KEY SUPPORT INITIATIVES
Building on affirmative procurement policy, which addresses the fundamental problem of access to work opportunity, the Department of Public Works is vigorously promoting an integrated package of initiatives to consolidate the growth of emerging contractors. This package includes:

· Construction industry development and the shaping of broad construction industry reform measures in a manner which takes account of the circumstances of the emerging sector.

· Promotion of the sector's capacity to organise itself in support of initiatives by Government and other agencies.

· The development of an Emerging Contractor Development Programme (ECDP) which focuses on specific support to the sector.

· Roll-out of the ECDP as a national programme pursued co-operatively by all public sector delivery agencies.

3.1 Construction Industry Development
Within the framework of co-operation established by the Inter-ministerial Task Team on Construction Industry Development work is currently in progress to deliver a number of outputs aimed at creating an enabling industry environment. As such, these outputs will impact positively on both the established and emerging sectors and include the following:

· Plans for a national register of contractors.
· The refinement of an accredited public sector project management training course, which recognises the promotion of socio-economic delivery objectives.
· The development of an industry endorsed set of principles for model forms of contract as the basis for standardisation and simplification of contracts.
· The development of model subcontracts and joint venture agreements which promote equitable industry relationships.
· Alternative dispute resolution clauses in public sector contracts.
· Improved procedures for interim payment and the processing of final accounts on public sector contracts.
· The establishment of the new Construction Education and Training Authority which will enable access to skills training by the emerging sector.
· Establishment of the Construction Industry Development Board.

3.2 Promoting Organisation of the Emerging Sector
Without the organised co-operation and input of emerging contractors themselves, the full benefit of public and private sector initiatives will not be realised. The Department of Public Works is therefore encouraging the sector to develop its organisational capacity at local, provincial and national level. The objective is a viable and self-sustaining organisation able to support and promote public and private sector initiatives, to mobilise additional support to its members and to engage effectively in all areas of industry development. Specific support includes the facilitation of workshops for the sector to enable its participation in policy making and the shaping of support measures.

3.3 The Emerging Contractor Development Programme (ECDP)
The ECDP embodies a structured approach to address the supply side constraints facing the sector and the DPW is currently poised to roll-out the programme within the public sector. The accelerated development of women in construction is a core component of the programme.

4. CORE ELEMENTS OF THE ECDP
The planning of the ECDP has been undertaken in close co-operation with the Black Construction Industry, the Department of Trade and Industry, Ntsika, Khula and other role players.

Together with these agencies, the Department of Public Works has championed
the development and introduction of a co-ordinated programme to enable access
to critical areas of support, such as:
· Contractor entrepreneurial training;
· Mentoring;
· Finance and Credit;
· Information and Advice

Within the scope of its own transformation the Department has ensured that the ECDP is firmly located within the structure and mission of the National Public Works Programme. Thus, beyond the head office function of co-ordination and programme development, the ECDP is staffed and equipped in our 6 regional public works offices to provide the core interface with contractors, project managers and local service providers.

In essence the programme is structured around the following components:

· A Help Desk, which provides direct support and facilitation.
· Linkage to, and promotion of, external support providers.
· The ECDP database, which categorises contractors and targets appropriate work opportunities.

4.1 Regional ECDP Manager and Help Desk Facilitator
The programme is co-ordinated at regional level by the ECDP programme manager, responsible for internal and external programme development. Critical functions of the programme manager are to promote regional initiatives, a network of service providers and awareness of the programme by emerging contractors.

The Help Desk facilitator assists contractors to complete a registration form, which enables logging onto the data base. Further facilitation includes information, advice and counselling on PWD procurement procedures, quoting and tendering, performance expectations and payment procedure. A series of inter-active video/ multi-media programmes have been developed to support understanding by the users.

The Help Desk also provides advice on the availability and access requirements of services provided by private sector and NGO agencies in the region.

4.2 The Database (see Appendix A)
The database is designed to match contracting capability with work opportunities, and to support programme monitoring and evaluation. It is based on a simple categorisation of contractors as follows:

Category 1: less than R30 000, where procurement practice requires quotations rather than tenders, and where support will be at a basic level;

Category 2: R 30 000 - R200 000, which constitutes the main target group in terms of support envisaged,

Category 3: R 200 000 - R2 million where envisaged support is primarily of a back-up nature.

The programme is designed to enable progression. For each category the definition of support covers entrance criteria, exit criteria, procurement strategy and support strategy.

Thus, for example, Category 2 defines entrance criteria as follows:
60% equity owned by previously disadvantaged shareholders;
60% senior management must have been previously disadvantaged;
- Maximum annual turnover of R1 500 000;
- Be able to demonstrate past experience of projects greater than R 30 000 and thus requiring tendering experience.

The database system holds the main registration details of contractors, contains project management feedback on performance, training feedback, courses offered and financial support data.

The system automatically categorises every work package, which is logged. With regard to category 1 contractors (quotes), it facilitates the matching of opportunity to the type of work and the location of the job. The system also rotates the category 1 contractors on a time related roster.

Currently over 1600 contractors are registered on the database and are able to access support. 236 of these are women and 3 are disabled. For a detailed breakdown of contractors registered in the different categories see Appendix A.

All category contractors are evaluated after a combination of
- a number of works awarded, and
- an amount of works awarded.
At this evaluation, the contractor's performance records are assessed. The business may then be re-categorised, ie promoted, kept within the existing category, or removed for non-performance.

4.3 Promoting Women in Construction
The ECDP has prioritised support to women contractors and suppliers. To
accelerate the development of women contractors the following initiatives are in progress:
· A business plan is being developed in collaboration with South African Women in Construction (SAWIC);
· A series of workshops on tendering is planned to take place in all provinces;
· Donor funding is being mobilised to enable entrepreneurial training;
· Accelerated rotation on the data base will enable improved workflow.

4.4 Promotion of External Service Provision
The critical areas of support required from private sector and NGO service providers relate to entrepreneurial training, mentoring and finance and credit facilities. The ECDP has promoted a range of initiatives to develop these areas of support.

4.4.1 Construction Entrepreneurial Training Programme (CET)

The Contracting Entrepreneurial Programme (CET) developed in collaboration with NISIKA, Black Construction Council (BCC) and with the expertise of the International Labour Organisation (ILO) was officially launched in October1999.

The training programme covers 12 modules ranging from "understanding basic contracting principles" to "pricing, bidding and growing your business". It further includes a simple to use monitoring and evaluation system and an established methodology for the training and accreditation of training providers as well as for the setting up of a national network of providers.

The initial training of 47 trainers has been concluded and approximately 900
contractors have received training on various GET modules through the 25
participating training organisations.

Services for Enterprise Improvement & Business Start-ups Africa (SEIBSA) has been tasked to assist with the promotion, proliferation and updating of the CET.

4.4.2 Mentoring
To complement the Targeted Procurement Strategy, the ECDP was tasked with
the development of a mentorship programme. The programme has been tested
on various projects and progress includes:
· Identification and specification of mentorship scope;
· A database of potential mentors and a procedure to accredit mentors in
co-operation with the University of Pretoria;
Procedures for including mentorship on targeted projects.

Defined by the Oxford Dictionary as "experienced and trusted advisor"s, project mentors will have responsibility to provide reliable, honest and hands on advice to contractors on all contracting issues including business management, legal and contractual procedure, safety and loss control, estimating, marketing and others. Strong links have been forged with other mentorship programmes such as the KHULA mentorship scheme.

Whilst the Mentorship Programme largely targets projects available within the Department of Public works, other initiatives were sought to augment existing opportunities. One such initiative is the Youth Skills Development Programme that links the training of the youth from local communities to employment on
construction projects such as prisons and hospitals. With further development, the youth so trained will have the opportunity of developing into contractors in their own right. The programme has thus far been implemented at the Kokstad Prison Complex and Umtata Academic Hospital. The total number of youth
trained in technical skills and the employment thus far is 279 and 165
respectively. The Kokstad and Umtata initiative owes its success to the
co-operation between the ECDP and the Department of Labour, which made funds available for training of the youth. The co-operation will be replicated in other projects.

4.4.3 Credit and Finance
The ECDP has interacted with financial institutions including Khula Enterprises as well as materials suppliers to promote access to finance and credit. Despite Khula's loan guarantee of up to 80%, commercial banks remain reluctant to enter the emerging contractor market. Khula has established Retail Financial Intermediaries (RFI's) and the Help Desk introduces contractors to these RFI's. However, contractors who accessed finance through this channel have found the interest rates are not competitive with the normal commercial rates and they remain competitively disadvantaged.

The commitment of retail financial institutions to engage the emerging sector at all contracting categories remains a critical programme objective. During the course of this year, the ECDP will actively strive for a breakthrough by targeting finance on selected projects where contractors have already established a track record and where a mentoring programme is in place.

5. ROLL-OUT OF THE ECDP
A fundamental precondition for effective contractor development is a consistent flow of work and therefore the need for co-operation between public sector
delivery agencies. To promote this objective and a common development approach, a public sector workshop was jointly convened on the 24 and 25 January by the DPW and the South African Roads Agency.

Attended by approximately 150 practitioners from national, provincial and local authority agencies, the workshop reviewed the experiences and challenges faced in emerging contractor development and agreed on the following:

· Fundamental development principles to ensure genuine emergence into the mainstream of the South African economy (See Appendix 2).
· The need for DPW to champion the strategy and process towards a National
Emerging Contractor Development Programme including:
- Establishment of a public sector forum and website,
- Appropriate partnering arrangements based on a common database of emerging contractors.

The outcome of the workshop has been captured in two documents (currently with the printers) which will provide:
· Guidelines on Emerging Contractor Development for practitioners (delivery agencies)
· An overview of the Framework for a National Emerging Contractor Development Programme

Steps have already been taken to progress the workshop agenda.

6. CHALLENGES AHEAD
· The roll-out of the ECDP will be undertaken in parallel with the roll-out of Affirmative Procurement Policy;
· Appropriate partnering arrangements between DPW regional offices and provincial and local authorities to achieve maximum impact;
· The accelerated development of women in construction
· The incorporation of the GET training programme within the activities of the new Construction Education and Training Authority;
· The accelerated empowerment of prime black contractors;
· Improved access to finance and credit.
Public sector uniformity of contract documentation and tender procedures.


APPENDIX A
Category 1 R0 to R30 000
Category 2 R30 000 to R200 000
Category 3 = R200 000 to R2000 000

The distribution of the contractors according to the trade is detailed below.