Emerging Contractor Development Programme: briefing

Committee: Public Works

Date of Meeting: 12 Apr 2000

Summary

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Minutes

EMERGING CONTRACTOR DEVELOPMENT PROGRAMME

PUBLIC WORKS PORTFOLIO COMMITTEE
12 April 2000
EMERGING CONTRACTOR DEVELOPMENT PROGRAMME

Documents handed out
Progress Update on the Emerging Contractor Development Programme (See Appendix 1)

MINUTES
Chairperson: Chief ME Hlengwa
The departmental team included the Director General (DG) – Mr T Sotuku; Mr Hodgson: Chief Director Construction Industry; and Mr A Mphahlele: Director of the Programme.

By way of introduction, the DG indicated that the report would inform the members about the programme, its current status and key challenges. This report builds on presentation made to the Portfolio Committee on 20 October 1999. The department had seen to it that the affirmative procurement measures are being introduced in order to open up work opportunities to previously disadvantaged construction enterprises, thus providing a platform to the sector’s growth. The committee was told that the department, within the framework of its mandate on construction industry development, is pursuing a package of initiatives which seek to consolidate this growth potential.

Emerging Contractor Development Programme
Mr Mphahlele informed the committee members that the support programmes are grounded in a White Paper, which seeks to provide:
Stability in the delivery environment;
Enhancement in industry performance;
Restructuring industry training and HRD;
Promotion of new capacity and the emerging sector; and
Development of the capacity of the public sector.
All these have relevance to the emerging sector comprehensive strategy driven by the Construction Industry Development Board (CIDB).

To give meaning to the outlined policies above, the department came up with a package of initiatives – Affirmative procurement, Industry wide development strategies, for example, the Emerging Contractor Development Programme.

Mr Mphahlele pointed out that the ECDP embodies a structured approach to address the supply side constraints facing the sector and the Department of Public Works (DWP) was poised to roll out the programme within the public sector. He noted in his presentation that the development of women is one of the core components of the programme.

Mr Mphalele said the department is following an integrated approach in the ECDP and in all its development initiatives.

The Affirmative Procurement should be transparent, competitive and cost effective, and this will lead to their being successful. Success, in this regard, will be measured by the extent in which emerging contractors emerge.

Principles and Objectives of Support
For the programme to succeed, there has to be:
Opportunity and support based approach;
Promotion of emergence and monitoring through contractor a register.
Public sector support;
Promotion of emergence and industry integration;
Promote access to
information, advice and mentoring
Entrepreneurial and skills training
Finance and credit

Framework of ECDP support
The ECDP Help Desk
Registers contractors;
Provides information, advice and training;
Facilitates access to external service provision
Inter-active video/multimedia programmes.

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, in collaboration with NTSIKA, Black Construction Council (BCC) and with the expertise of the International Labour Organisation (ILO).

Mr Mphahlele pointed that the ECDP, like any ambitious endeavour of ECDP’s nature, has some serious challenges ahead. He listed six challenges:
Appropriate partnering arrangements between DPW regional offices and provincial and local authorities to achieve maximum impact;
The acceleration of development of women construction;
The incorporation of the CET training programme within the activities of the new Construction Education and Training Authority;
The acceleration of the empowerment of prime black contractors;
Improved access to finance and credit;
Public sector uniformity of contract documentation and tender procedures.

Discussion
Mr E Sigwela (ANC) opened the discussion by saying that the presentation was impressive, but the shortage of black contractors was dire, which he attributed to the lack of business administration skills. He asked if the department is doing something about this "fact of life" – the shortage of black contractors and the lack of business administration knowledge.

Mr M M Chikane (ANC) registered his concern as to the allocation of contractors, saying that in areas where they are most needed (rural areas) they cannot be found, but they are concentrated in urban areas. He asked if there is a plan in place to promote the existence of these contractors in rural areas.

Mr S Opperman (DP) asked if the ECDP officials have any contact with the technikons to address, say, the business administration problem and skills in general. Mr Opperman further asked about the criteria for the selection of mentors.

Mr B Rhadebe (ANC) asked what is being done to ensure the sustainability of the programme.

Mr Mkhize asked if there is a role that developed industry is playing in the ECDP.

In response to the above questions, Mr. Mphahlele replied that the point made by Mr Sigwela that the shortage of black contractors is attributable to the lack of business administration is well taken. It links to the need for mentorship that the department has already noted as important and forms the back bone of the ECDP.

About the role to be played by the developed industry, Mr Mphahlele said that that is an objective at hand. He said it is the intention of government that ECDP is not seen as the government programme, solely responsible for its success to the government, but a programme in which the already developed industry can participate and offer a hand of help in terms of providing the expertise and/or finances.

On the question of the criteria for the selection of mentors, Mr Mphalele said that the process had started with inviting, through advertisements, experienced and interested people in mentorship, for example, academics and others. On the receipt of the responses, these candidates were invited to attend a test, and it is on the basis of that test that the department will make judgements on who the mentors will be. He said this is being done in conjunction with the University of Pretoria.

On the issue of technikons, Mr Mphahlele said they are looking at engaging technikons, especially with regard to the training of women, but nothing has been finalised yet.

Ms O Kasienyane (ANC) said even if the emerging contractors can grow, there will always be a financing problem, therefore, she argued emphatically that the department needs to put a finger on this.

Mr G Baloyi (UCDP) asked if the department has in place a system to monitor if the contractor is repeatedly committing mistakes (quality problem).

Mr Radebe (ANC) asked what capacity does the department have to reach out to the rural areas.

On the question of the monitoring of quality, Mr Mphahlele said there is a national register of contractors, though it is still at a proposal stage, that the department may use to monitor quality.

On the question of finances, Mr Mphahlele said the department is not a financing institution; what it provides is a risk free environment. The business is the one that is supposed to do the financing.

On rural areas, Mr Mphahlele said there are already in place community based Public Works programmes. He told the committee that a presentation on the issues surrounding rural areas will be given soon.

The meeting was adjourned.

Appendix 1

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

Number of Contractors

Category 1

Category 2

Category 3

Not Categorised

Total

Bloemfontein

23

5

3

166

197

Johannesburg

161

43

7

30

241

Kimberley

108

8

1

11

128

Cape Town

229

68

37

36

370

Port Elizabeth

77

10

7

110

204

Durban

327

37

8

21

393

Total

925

171

63

374

1533


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

Main discipline areas

CT

Kimberley

Bloemfontein

Gauteng

Dbn

PE

Total

Partitioning/ Shopfitting

36

28

12

13

27

17

133

General Building

233

83

132

98

184

97

827

General Electrical

43

32

62

33

54

40

264

Glazing

56

37

162

16

31

48

350

Painting

135

8

21

40

95

73

372

Roadworks & Site

Cleaning

24

15

27

19

65

21

171

Plumbing

103

65

156

39

110

71

544

Sewage Installations

24

38

9

14

22

28

135

Site Cleaning

58

35

47

26

69

38

273

Curtains

13

5

13

13

8

7

59

Carpet Cleaning

21

3

23

23

21

17

108

Metalwork and Security Measures

           

44

31

21

27

14

2

139

Horticultural Services

9

3

6

51

13

2

84

Pest Control

10

3

4

4

14

13

48

Carpeting

5

0

101

23

2

38

169

Roofing &Waterproofing

101

46

84

31

56

58

376

Fencing

50

40

5

27

57

53

232

TOTAL

965

472

885

497

842

623

4284


Currently over 1600 contractors are registered on the database and able to access support. 236 of these are women and three are disabled.

APPENDIX B

TOWARDS A NATIONAL EMERGING CONTRACTOR DEVELOPMENT PROGRAMME

CORE PRINCIPLES
Support measures must reinforce strategies to promote all-round industry performance and public interests within a clear framework of principles.

· Enabling programmes must not perpetuate the division of the construction industry between a relatively well resourced formal sector and an unregistered, poorly resourced informal sector.
· Support measures must ensure genuine emergence into the mainstream of the South African economy;
· Support should be provided to enterprises, which make best use of the support provided.
· The establishment of a register, classification system and the performance monitoring of emerging businesses will help to regulate the sector and develop private sector confidence. It will enable the targeting of appropriate work opportunities and support, and is consistent with the goal of establishing a register for all contractors.
· The performance of emerging contractors should be systematically monitored and evaluated using the database/register, which creates, inter alia, a track record.
· Criteria for the provision and discontinuation of support must be clearly stated and made known to interested parties.
· Clients should pay contractors promptly.
· Uniform and standard procurement documents, practices and procedures; standard targeting strategies and uniform preferencing procurement policies, which are developed at a national level with minimal locality/organisational specific amendments, should be used.
· Given the structure of the industry and the prevalence of subcontracting, exemption-based strategies could undermine efforts to improve industry performance and are not advocated for this sector.
· The principles of the National Qualifications Framework (NQF) should form the basis for any managerial and skills development.
Training should promote career progression.




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