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T ARGETING FOR CONTRACTOR
DEVELOPMENT PROGRAMMES:
BACKGROUND
NationalContractorDevelopment Programme
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iTARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
EXECUTIVE SUMMARY
These Guidelines for Targeting for ContractorDevelopment Programmes have been developedby the cidb in support of the Frameworkfor the National Contractor DevelopmentProgramme (NCDP). These guidelines should be
read in conjunction with the following documentswhich are available on the cidb website whichprovide additional background information fordeveloping regional specific targets and on thestate of contractor development:
Programme (NCDP); Framework (revisedJanuary 2010)
Status Quo Report (March 2009)
db Construction Industry Indicators(CIIs)
db Quarterly Monitor; and db / BER Business Confidence Survey.
TARGET GROUPS
The following guidelines should be applied toidentify target groups for Contractor Develop-ment Programmes (CDPs) (i.e. the “who”):
i) Ownership: CDPs should target thedevelopment of black, women, disabled,and youth-owned companies.Specifically, CDPs should target thedevelopment of companies in thoseClasses of Works (CoWs) and Gradeswhere imbalances in such ownership exist.
ii) Supply and Demand: CDPs should targetthe development of new contracting
capacity where demonstrable shortagesexist that are aligned with the servicedelivery objectives of the client.
iii) Performance Improvement: Strongconsideration should be given within CDPsto improving the performance ofcontractors – in particular in those areaswhich are aligned with the service deliveryobjectives of the client.
iv) Local Economic Objectives: Wherefeasible, targeting of contractors shouldreflect local economic objectives.
DEVELOPMENT TARGETS
The following principle guideline should beapplied to establish the number of contractorsto be targeted for enrolment into ContractorDevelopment Programmes (i.e. the “how many ”):
v) Affordability and Sustainability: Thenumber of contractors to be enrolled intoand supported by a CDP should be limitedby the affordability of the client to provide:
work opportunities that will sustain allparticipants
the necessary training and mentoringfor all participants, as well as
programme overheads.
In the absence of a more detailedassessment, the following guidelinesshould be used for the number ofcontractors to be enrolled and supportedannually in a self-financed type of CDPper R1 billion of construction spend peryear by the client department:
for direct targeting of contractors ofGrades 1 to 6:
for indirect targeting of contractors of
Grades 2 to 6 through sub-contractor JV relationships with contractedtargeted development outcomes:
ContractorGrade
5 & 62 to 4
1
Number ofContractors
per R1b
25
10
ProjectGrade
97 & 8
ContractorGrade
Number ofContractors
per R1b
5 & 62 to 4
412
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iiTARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
1. Introduction pg
2. Background: The National Contractor Development Programme pg
3. Target Groups pg3.1 Ownership
3.2 Supply and Demand 3.3 Performance Improvement 3.4 Local Economic Objectives
4. Affordability and Sustainability pg
5. Notes pg
INDEX
1
1
2
5
7
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1TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
1. INTRODUCTION
These Guidelines for Targeting for Contractor Development
Programmes have been developed by the cidb in supportof the Framework for the National Contractor DevelopmentProgramme (NCDP). These guidelines should be readin conjunction with the following documents which areavailable on the cidb website which provide additionalbackground information for developing regional specifictargets and on the state of contractor development:
• National Contractor Development Programme(NCDP) - Framework revised January 2010
• SA Contractor Development Programmes Status Quo Report – March 2009
• cidb Construction Industry Indicators (CIIs)
• cidb Quarterly Monitor; and• cidb / BER Business Confidence Survey.
2. BACKGROUND: THE NATIONALCONTRACTOR DEVELOPMENTPROGRAMME
The National Contractor Development Programme (NCDP)is a government programme comprising of a partnershipbetween the cidb, national and provincial public worksand other willing stakeholders, in which the participatingstakeholders:
• commit their efforts and resources to developpreviously disadvantaged contractors, and
• align their individual contractor developmentprogrammes or initiatives with the principles setout in the NCDP framework, meeting both theobjectives of NCDP and their own service deliveryobjectives.
by:
• establishing an enabling environment forcontractor development
• enhancing and strengthening contractordevelopment mechanisms, including emergingcontractor development programmes (ECDP’s),joint ventures (JVs) and other appropriatemechanisms
• facilitating performance improvement ofcontractors; and
• supporting the creation of a pool of skilledartisans, supervisors, technicians andtechnologists for the construction industry.
The objective of the NCDP is to increase the capacity, equityownership, sustainability, quality and performance of cidb
registered contractors – effectively raising the contributionof the construction industry to South Africa’s acceleratedand shared growth initiative.
TARGETING FOR CONTRACTOR DEVELOPMENTPROGRAMMES: BACKGROUND
To achieve this objective, participants within the NCDP
commit to:
• improve the grading status of contractors intargeted categories and grades
• increase the number of black, women, disabled,and youth-owned companies in targeted categories
• create sustainable contracting enterprises byenabling continuous work through a competitiveprocess
• improve the performance of contractors in termsof quality, employment practices, skillsdevelopment, safety, health and the environment;and
• improve the business management and technicalskills of these contractors.
The contractor development programmes withinthe NCDP will need to incorporate the followingelements in order to ensure that contractor developmentaligns with the NCDP tenets, including:
• government will use its procurement ofinfrastructure in order to achieve contractordevelopment
• only contractors registered within the cidb Registerof Contractors may participate within the
programmes; the focus of contractor developmentmust recognise and span the followingcomponents of contractor development
- work force development - contractor development; and - performance improvement• a transparent selection process should
be adopted, based on predetermined criteriafor entrance to the programme for a definedperiod (i.e. timeframe) of involvement
• contractors must be assessed on entranceto determine their development potential and needs
• targets must be determined for budget
allocation, number of projects and numberof contractors to be developed, to ensurecontinuity of appropriate work for theduration of involvement within the programme
• sufficient government capacity for themanagement of the contractordevelopment programme must be ensured
• appropriate quality control and training(on-site and theoretical) must be provided
• access to working capital for thecontractors must be facilitated
• programmes should aim to graduate contractorsfrom the programme with measurableimprovements (e.g. NQF level or improvement incontractor grading); and
• exit from the NCDP component should be basedon predetermined criteria.
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2TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
Furthermore, development of contractors shouldbe a well-planned operation that involvescommitment of financial and human resources whichincludes the availability of adequate time to manage theprogramme. Such resources could be provided:
• directly through a structured public or privatesector contractor development programme
together with appropriate preference models; or• indirectly through a procurement model withtargeted development outcomes.
The NCDP highlights key components of awell-structured programme. Specifically, the programmeshould have a screening mechanism at entry point toensure that participating contractors (or sub-contractors)have a potential to develop and are well prepared for thechallenges that the programme will pose. Attention shouldbe given to businesses that already have reasonableindustry expertise and experience rather than focusexcessive resources on industry ‘new comers/ hopefuls/ job
seekers’. Other key components include theoretical andpractical in-service training, inclusive of a conducive andenabling environment, mentoring and sustainable work.
Similarly, women ownership of 40% and higher extends up to Grade 6 in GB and Grade 4 in CE, but again the depth ofwomen ownership is lower in EB, EP, ME and SW.
Applying the guideline of targeting the development of (inthis case) black and women owned companies, it can beconcluded that targeting of black and women owned GBand CE companies in, typically, Grades 1 to 5 may notnecessarily be a priority. Rather, the emphasis should beon targeting of Grades 6 and above in GB and CE in allgrades in EB, EP, ME and SW.
The above conclusions may however not necessarily applyat a provincial level, or even at a local authority level,and the assessment of ownership should therefore beundertaken at the appropriate level. For example, detailsof black and women ownership in the Free State are givenin the following tables – although in the case of the FreeState at least, the trends are similar to that at a nationallevel.
Black Ownership; South Africa (end October 2009)
Female Ownership; South Africa (end October 2009)
Defined exit / ‘graduation’ requirements and continuousevaluation are also a key factor.
3. TARGET GROUPS
Guidelines are presented below which should be appliedto identify target groups for Contractor DevelopmentProgrammes (CDPs).
3.1 Ownership
CDPs should target the development of black,women, disabled, and youth-owned companies.Specifically, CDPs should target the development ofcompanies in those Classes of Works (CoWs) and Gradeswhere imbalances in such ownership exist.
For example, details of black ownership for South Africa asa whole is shown in the following table, where black ownedis defined here as 51% ownership or higher. It is seen that,for example, around 80% of all GB and CE companies in
Grades 1 to 5 are black owned – whereas black ownershipof around 80% in the EB, EP, ME and SW Classes of Worksdoes not extend much beyond Grades 1 or 2.
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3TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
Business Confidence; national, GB, Grade 5 & 6Contractors
Target Grades of Selected CDPs
Business Confidence; national, GB, all Grades
Black Ownership; Free State (end October 2009)
Women Ownership; Free State (end October 2009)
The broad conclusions illustrated above however tend toconflict with the current dominant focus of CDPs situatedwithin Provincial Works Departments that focus largely onGB and CE companies in Grades 1 to 4 (see below) – andthe almost complete lack of focus on targeting of GB andCE in Grades 5 and above, as well as targeting the morespecialist Classes of Works of EB, EP, ME and SW.
ProgrammeNDPW CIPDPW EC CIDPDPW KZN Masakhe ECDPKZN eThekwini VukupileKZN eThekwini Large Contractor ModelECDC IECDMESKOM Construction Academy
Target Grades3 to 72 to 52 to 51 to 32 to 42 to 51 to 3
3.2 Supply and Demand
CDPs should target the development of new contractingcapacity where demonstrable shortages exist that arealigned with the service delivery objectives of the client.
Departments should consider developing new capacitywhere shortages of contracting capacity exist that isrequired by the client. Various measures can be used asindicators of capacity constraints, such as:
selected contractor Grades and Classes of Works;
For example, the business confidence index and indexof contractors rating insufficient demand for work as a
constraint is shown in the following figures for the South African average for General Building, for all contractorgrades surveyed (Grades 4 to 8) and for Grades 5 and 6
(see cidb / BER Business Confidence Survey.
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4TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
These graphs suggest high levels of competition due toinsufficient work – which suggests that at a national level,there are currently no shortages of GB contractors. Similarresults also apply to CE contractors.
The above results will however vary from province toprovince (see below), and will certainly vary across differentclasses of works.
Business Confidence; GB, all grades
3.3 Performance Improvement
Strong consideration within CDPs should be given toimproving the performance of contractors – in particularin those areas which are aligned with the service deliveryobjectives of the client.
While in many cases it is likely that sufficient capacity existsthat is aligned with the service delivery objectives of aclient, it is likely that there will always be a need to improvethe performance of the contractors serving a client – to beable to deliver better value to the client. In improving theperformance of contractors, the objectives of the NCDPwould also be achieved, namely to
targeted categories and grades - effectivelyimproving the supply side capacity available to
public and private sector clients
and youth-owned companies in targetedcategories and grades - increasing therepresentativity of contractors in all categoriesand grades
enabling continuous work through a competitiveprocess - and thus creating the platform forsustained employment and skills development
of quality, employment practices, skillsdevelopment, safety, health and the environment
and
skills of these contractors
Client Satisfaction (2008 CIIs)
0.1 1 10 100 1000
Contract Value (Rm)
Satisfied
Neither
Satisfied or
Dissatisfied
Dissatisfied
Note however that the need to improve the performance ofcontractors is however not limited to the lower contractorgrades – and the cidb CIIs in fact show that client satisfactiontends to decrease with increasing project size, suggestingthe need to improve the performance of contractors acrossall grades.
Where such a focus exists within a CDP on performanceimprovement, the CDPs would need to incorporate(amongst other) the following elements in order to ensurethat contractor development aligns with the NCDP tenets:
CDP to determine their development potentialand needs
and theoretical) must be provided
from the programme with measurableimprovements (e.g. NQF level and/orimprovement in contractor grading) and
criteria.
3.4 Local Economic Objectives
Where feasible, targeting of contractors should reflect localeconomic objectives.
Where feasible, CDPs should take cognisance of localeconomic objectives – such as targeting of contractors fromwithin a region or community. However, such targetingshould still follow the tenants of the NCDP (see Sections 3.1to 3.3 above), as well as the sustainability and affordabilityrequirements presented in Section 3.5 below.
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5TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
In the absence of a more detailed assessment, the followingguidelines should be used for the number of contractors tobe enrolled and supported annually in a self-financed typeof CDP per R1 billion of construction spend per year by theclient department:
direct targeting of contractors of Grades 1 to 6:
ii) For every R1b construction spend, and assumingthat the distribution of the construction spendbetween general building and civil engineering
is 50:50, the distribution of the total infrastructurebudget can then be approximated as follows(excluding Grade 1):
indirect targeting of contractors of Grades 2 to6 through sub-contract or JV relationships withcontracted targeted development outcomes:
The background to the development of the guidelines givenabove for contractors to be enrolled and supported inCDPs is given below. Where more detailed information isavailable, client departments can develop their own targetsusing the concepts outlined below.
i) The distribution of the infrastructure budget perproject Grade depends on the infrastructure needsof the province, but available statistics forSouth Africa suggest that for general building andcivil engineering the infrastructure budget isdistributed as follows:
It should be noted that information on the distribution oftenders to Grade 1 is very limited and unreliable.
Contractor
Grade
5 & 62 to 4
1
Number of
Contractorsper R1b
2510
ProjectGrade
97 & 8
ContractorGrade Number ofContractorsper R1b
5 & 62 to 4
412
iii) Contractor development initiatives should seek to
provide work opportunities that provide between80% to 100% of a contractor’s annual turnover,typically:
iv) The cost of training, mentoring and programmeoverheads must also be included when evaluatingthe cost of contractor development, typically:
Project Grade9
7 & 8
5 & 62 to 4
1
GB36%41%
14%8%
0.2%100%
CE46%36%
12%6%
0.1%100%
Project Grade9
7 & 85 & 62 to 4
Rm412388130 69
1 000
Grade654321
Projects (Rk pa)16 0005 5003 0001 700900500
4. AFFORDABILITY AND SUSTAINABILITY
The number of contractors to be enrolled into and supportedby a Contractor Development Programme should be limitedby the affordability of the client to provide:
participants, as well as
v) As highlighted in the NCDP, resources can betargeted through direct or indirect targeting.Typically, in direct targeting, a contract relationshipexists between the client and the contractors withinthe CDP to be developed, and the client provides(or outsources) the development support to the
contractors. In other words, the client’s constructionspend on projects in, say, Grades 1 to 6 is used todevelop contractors within those Grades.
In indirect targeting, a contract relationship typicallyexists between the client and a larger contractor(typically Grade 7 to 9), and development outcomesare specified in the contract. The main contractoris then required to provide the developmentalsupport to contractors within a CDP througha subcontract relationship. In other words, theclient’s construction spend on projects in, say,Grades 7 to 9 is used to develop contractors withinGrades 2 to 6.
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6TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
vii) When dealing with indirect targeting, severalassumptions need to be made regarding thevalue of work subcontracted out by the maincontractor to the sub-contractors. From thelimited information available, it is reasonable toassume that 50% of the main contract is
subcontracted to sub-contractors as follows:
vi) Assuming that between 10% to 20% of theinfrastructure budget is allocated to direct targetingwithin a CDP, the number of contractors that canbe developed per band of contractor Grades isthen given below per R1b construction budget.
viii) Assuming that between 10% to 20% of theinfrastructure budget is allocated to indirecttargeting within a CDP, the number of contractorsthat can be developed per band of contractorGrades is then given below per R1b constructionbudget.
ix) Estimates of the number of Grade 1 contractorsthat can be sustained per R1b construction spendin a CDP are very difficult to obtain, and thetargets developed here are a generic guideline toassist clients.
To place the above targets into perspective, it should benoted that the construction budget for a province can varytypically between R3b to R15b per annum. For example,according to the MTEF, the infrastructure budget is around
R12b for Gauteng for 2009/10 and around R5b for theEastern Cape.
ProjectGrade
5 & 62 to 4
2010
15% ofBudget(Rm)
Number ofContractors
per R1b
InfrastructureBudget (Rm)
13069
Allocationper
Contractor(Rm)102
25
ProjectGrade
97 & 85 & 6
2 to 43624
15% ofBudget(Rm)
Numberof Contractors
per R1b
InfrastructureBudget (Rm)
411388
Allocationper
Contractor(Rm)
102
412
SectorSocial DevelopmentEducationHealthHousingPublic Transport, Roads and Works
Rm (2009/10)155755
1 5813 4326 70712 630
Grade
5 & 62 to 4
Value of MainContract
sub-contracted
60% of 50%40% of 50%
50%
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NOTES:
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NOTES:
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cidb HELP LINE: 0860 103 353
cidb FRAUD HOTLINE: 0800 112 432
cidb CONSTRUCTION CONTACT CENTRES (CCC's):
National ContractorDevelopment Programme
Western Cape
140 Long Street
Cnr Long & Dorp Street
Cape Town, 8000
Tel: 0861 927 222
Fax: 086 674 0293
E-mail: [email protected]
KwaZulu NatalDepartment of Public Works
428 Blink Bonnie Road
Mayville, 4000
Tel: 0861 596 222
Fax: 086 685 6024
E-mail: [email protected]
Eastern Cape
Department of Public Works
Qhashana Buildin g
Independence Avenue
Bhisho. 2485
Tel: 0861 222 327
Fax: 086 674 2908E-mail: [email protected]
Gauteng
Blocks N & R
SABS Campus
2 Dr Lategan Road
Groenkloof, Pretoria, 0001
Tel: 0861 428 222
Fax: 086 680 8569
E-mail: [email protected]
Limpopo
Department of Public Works
Works Tower Buildi ng
First floor
43 Church Str eet, Polokwane,0700
Tel: 0861 222 765
Fax: 086 678 9184
E-mail: [email protected]
Mpumalanga
Nelcity Building
Office No. G15
Cnr Samora Machel & Paul Kruger
Nelspruit, 1200Tel: 0861 678 222
Fax: 086 585 6733
E-mail: [email protected]
Free State
Department of Public Works
Medfontein Buildi ng
St. Andrews Street
Ground Floor, Bloemfontein, 9300
Tel: 0861 377 222
Fax: 086 557 1832
E-mail: [email protected]
Northern Cape
Regional Department of Roads and
Public Works
45 Schmidtsdrift Road
Kimber ley, 8301
Tel: (058) 861 9631/ 32/
Fax: 086 690 6295
E-mail: [email protected]
North West
Department of Public Works
Old Parliament Bui lding
Modiri Molema Road
Gate House, Mmabatho,0700Tel: (018) 387 2435
Fax: 086 743 2593
E-mail: [email protected]