targeting for contractor development programmes - background

8/17/2019 Targeting for Contractor Development Programmes - Background

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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


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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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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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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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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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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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)


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


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


Limpopo


Works Tower Buildi ng

First floor

43 Church Str eet, Polokwane,0700

Tel: 0861 222 765

Fax: 086 678 9184


Mpumalanga

Nelcity Building

Office No. G15

Cnr Samora Machel & Paul Kruger

Nelspruit, 1200Tel: 0861 678 222

Fax: 086 585 6733


Free State


Medfontein Buildi ng

St. Andrews Street

Ground Floor, Bloemfontein, 9300

Tel: 0861 377 222

Fax: 086 557 1832


Northern Cape

Regional Department of Roads and

Public Works

45 Schmidtsdrift Road

Kimber ley, 8301

Tel: (058) 861 9631/ 32/

Fax: 086 690 6295


North West


Old Parliament Bui lding

Modiri Molema Road

Gate House, Mmabatho,0700Tel: (018) 387 2435

Fax: 086 743 2593


targeting for contractor development programmes - background

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