CONSTRUCTION MONITOR Transformation Q4 2014
CIDB CONSTRUCTION MONITOR - TRANSFORMATION; JANUARY 2015 1. Introduction 1 2. Transformation of the Construction Industry 2 2.1 Transformation Summit (November 2012) 2 2.2 Workshop on the Effectiveness of the Construction Sector Charter (March 2014) 3 2.3 CSCC Baseline Report (April 2014) 3 3. Transformation of the Built Environment Professions Sector 4 3.1 Black-Ownership 4 3.2 Black Management Control 5 3.3 B-BBEE Recognition Level 6 4. Transformation of the Contracting Sector 7 4.1 Black-Ownership 7 4.2 Women Ownership 8 4.3 B-BBEE Recognition Level 10 4.4 Contracts Awarded 10 Appendix 1: Provincial Data: Black-Ownership; Contractors 12 Appendix 2: Provincial Data: Woman Ownership; Contractors 16
CIDB CONSTRUCTION MONITOR - TRANSFORMATION; JANUARY 2015 1. Introduction With effect of January 2015, the cidb has elected to restructure its cidb Quarterly Monitors to focus on individual themes each quarter. The intended schedule of themes is as follows: Quarter 1: Supply & Demand; Quarter 2: Contractor Development; Quarter 3: Employment; and Quarter 4: Empowerment. This cidb Construction Monitor - Transformation (Quarter 4) covers transformation and empowerment issues in the construction industry, focusing on Quarter 1 of 2014 to Quarter 4 of 2014. This cidb Construction Monitor - Transformation presents an assessment of the state of transformation of the construction industry, with a focus on the consulting engineering (or professional service providers) and contracting sectors. The cidb Construction Monitor draws largely on information obtained from the cidb Register of Contractors and the cidb Register of Projects, the Consulting Engineers South Africa (CESA) Bi- Annual Economic and Capacity Survey and the Consruction Sector Charter Council (CSCC) Baseline Report April 2014. Note that the information captured previously in the cidb Quarterly Monitors (which is now covered in a quarterly theme) is still available on request from the cidb, and will shortly be available on-line on the cidb web. 1
2. Transformation of the Construction Industry One of these [priorities] is for a renewed and sustained programme of action to transform the built environment, the construction and property sectors to address the mounting concern at the slow pace of transformation, so that the ownership, management and the skills profile better reflects the demographics of South Africa. Honourable Thulas Nxesi, Minister of Public Works South African Council for Project and Construction Management Professions Conference 21 October 2014 Background and context to the state of transformation is given below, while a detailed assessment of the state of transformation of the consulting engineering and contracting sectors is given in Sections 3 and 4 respectively. 2.1 Transformation Summit (November 2012) The Construction Industry Transformation Summit was initiated by the Minister of Public Works and was held on 23 November 2012, and in his opening address at the Summit the Minister stated: In the end we will be judged not by what we say but by how much we deliver. And to succeed in our objectives we have to come together in terms of the various relevant government departments and the different levels of government as well as entities and all the construction sector role players contractors, suppliers, professionals etc. The Transformation Summit provides an opportunity for this engagement to begin to take place. The Summit endorsed that the pace and depth of transformation in the construction industry is lagging, and is not representative of what government, society or the industry desires. The Summit concluded that several common threads are impacting on transformation, including: i) Transformation is influenced by the construction economy and construction spend, and that: the solution is multi-party solution, involving many parties; government delivery capacity is critical with regard to government spend achieving its full potential; and the role of the PICC is central. ii) iii) iv) The Construction Charter is an important instrument in furthering transformation, and its effectiveness needs to be examined. The supply and availability of skills underpins the ability of the construction industry to transform. The inequalities in the educational need to be addressed urgently, and the Department of Basic Education and the Department of Higher Education and Training are key government departments in this regard. Transforming the industry cannot proceed at the levels we desire without restoring the skills supply line at all levels and across all sectors of the construction industry. In this regard, restoring the supply line for artisan training in the construction industry is very important, including the quality of such artisans, and the quality and relevance of such training. v) Fraud and corruption is impacting negatively on transformation, and there is no doubt that corruption is having a negative impact on transformation of contractors that are best able to perform and deliver Furthermore, there are strong indications that collusion is likely to restrict new entrants by restricting competition to existing entrants. vi) With regard to the contracting sector, the Summit noted specifically the need to focus on, amongst others, transformation at contractor Grades 7 to 9. Transformation has to extend to the large contractors. 2
vii) The Summit endorsed the current deliberations within government and industry with regard to the need for balancing delivery and empowerment. The Summit stressed that the roll-out of government s infrastructure programme must support transformation. 2.2 Workshop on the Effectiveness of the Construction Sector Charter (March 2014) A workshop was held on the Effectiveness of the Construction Sector Charter on 10 March 2014, co-hosted by the cidb and the Construction Sector Charter Council (CSCC). It must be noted however that the discussion on the effectiveness of the Construction Sector Charter (CSC) or the state of transformation was done prior to the release of the Baseline Report on the state of transformation and empowerment which the CSCC was to release in April 2014 (see Section 2.3). Notwithstanding this, the workshop did express the view that notwithstanding that the information may be anecdotal, progress is being made in terms of the CSC, but that more needs to be done. It was acknowledged that the CSC is ensuring that deliberate action is taking place. The workshop also noted that transformation is being inhibited by (amongst others) market factors, capacity constraints within client departments, corruption, etc. A need was expressed for a more comprehensive and collaborative approach to transformation. The workshop concluded that: monitoring of the scorecards should be enhanced, including detailed monitoring of the elements of transformation; monitoring of empowerment spend should be enhanced; associations should undertake audits and provide records of what their members have done to support transformation, and to document progress in terms of the CSC; and further engagements are needed to ensure that after the Baseline Report has been released, stakeholders interpret and process the outcomes of the report in relation to their stakeholders. 2.3 CSCC Baseline Report (April 2014) The CSCC First Baseline Report, State of Empowerment in the Construction Sector since the Gazette of the Construction Empowerment Code in 2009 2013 was released by the CSCC in April 2004. The report shows that there is little participation of black people as owners in large companies. In 2011 over 393 construction Measured Entities has shown less than 10% black ownership. Most of the large entities are hovering around 10 percent ownership level which is lower than the 25 percent ownership target. This means that black people in the sector are not participating as owners in the large construction entities. Dr Rob Davies, Minister of Trade and Industry Media Statement on the Construction Sector Charter Council Baseline Report 4 May 2014 The Baseline Report also noted that the Construction Sector has in the period 2009 to 2013 shown increased levels of transformation both at a level Contributor Status as well as an average score per element basis. However, the Baseline Report noted that data consistency and accuracy remains a key concern and the CSCC needs to ensure that there is compulsory reporting to enable richer analysis at a sub-element basis. Detailed conclusions obtained from the Baseline Report are included in Sections 3 and 4. 3
3. Transformation of the Built Environment Professions Sector Information on the state of transformation of the built environment professions (BEPs) sector is drawn largely from the CSCC First Baseline Report and the Civil Engineering South Africa (CESA) Bi-Annual Economic and Capacity Survey taken from January to June 2014, together with other data available from CESA. 3.1 Black-Ownership An assessment of data obtained from CESA membership data (as of end-december 2014) shows that the total number of companies with black ownership exceeding 50% is around 12%. A detailed breakdown of the number of companies by turnover with black ownership exceeding 50% is given in the figure below: Source: CESA Membership Database www.cesa.co.za, December 2014 A further interpretation of black ownership is given in the figure below, in which the number of scorecards assessed in the CSCC First Baseline Report with ownership greater than 50% for Large (with a turnover of greatre than R11,5m), Qualifying Small Enterprises (QSEs, with a turnover of greater than R1,5m up to R11,5m) and Exempted Micro-Enterprises (EMEs, with a turnover of less than R1,5m). A sustained increase in black-ownership is seen over the period 2009 to 2013, but that the overall black-ownership of BEPs remains low at around 20% for large enterprises and QSEs. Note also that the percentage blackownership for 2013 is reasonably consistent with the data obtained for CESA above. Source: CSCC First Baseline Report April 2014 4
3.2 Black Management Control An assessment of data obtained from CESA membership data (as of end-december 2014) shows that black executives as a percentage of the total executives is currently around 36%. As illustrated in the figure below, the percentage black executives has increased from around 25% in 2006 to 36% in 2014, but that the percentage black executives appears to have level off. Source: CESA Bi-Annual Economic and Capacity Survey; January June 2014 September 2014 A further interpretation of black management control (exercisible voting rights of black Board members and black senior top management) is given in the figure below, in which the average score as a percentage of the compliance target for the scorecard element of management control is given for large BEPs (with a turnover of greater than R11,5m). Source: CSCC First Baseline Report April 2014 5
From the above it is seen that there has been a slight increase in performance on management control in large BEPs over the period from 2009 to 2013 from around 65% to 75% of the the compliance target of: 40% exercisable voting rights of black board members (using the adjusted recognition for gender); and 25% (in years 0 to 4) of black senior top management (using the adjusted recognition for gender). 3.3 B-BBEE Recognition Level An assessment of the recognition level of large BEPs is given in the figure below, in which the percentage scorecards of level 2 and higher, level 3 and higher and level 4 and higher is given. It is seen that around 80% of large BEPs have a recognition level of 4 or higher, but only around 30% of large BEPs have a recognition level of 2 or higher (but note that no large BEPs were recorded at a recognition level of 1). Source: CSCC First Baseline Report April 2014 It is also seen from the above that little change in recognition levels has been achieved over the period 2011 to 2013. 6
4. Transformation of the Contracting Sector Information on the state of transformation of the contracting sector is drawn largely from the cidb Register of Contractors and Register of Projects, as well as the CSCC First Baseline Report. 4.1 Black-Ownership (Note that the the determination of active registrations, and in particular the historic asessement of active registrations, has been rebased. In particular, the historic assessment only includes current active contractors, resulting in differences in comparisons with previous Quarterly Monitors.) Details of black ownership of cidb registered contractors (defined as ownership control of 50% or more) for South Africa. (Details for selected provinces is given in Appendix 1, while details of other provinces can be provided on request.) From the figure below it can be seen that around 95% of cidb registered Grade 2 to 4 General Building (GB) and Civil Engineering (CE) contractors are black-owned. Furthermore, around an average of 86% of all Grade 5 and 6 General Building (GB) and Civil Engineering (CE) contractors are black-owned, while around 70% of all Grade 7 and 8 General Building (GB) and Civil Engineering (CE) contractors are blackowned. Black-ownership of Grade 9 contractors is significantly lower around 25% to 30%. Source: cidb Construction Registers The historic profiles of black ownership for South Africa as a whole is shown in the following figures (see also Appendix 1). Of concern is that, overall, black ownership representation has not increased significantly over the past three years. 7
Source: cidb Construction Registers 4.2 Women Ownership (Note that the the determination of active registrations, and in particular the historic assessment of active registrations, has been rebased. In particular, the historic assessment only includes current active contractors, resulting in differences in comparisons with previous Quarterly Monitors.) Details of black ownership of cidb registered contractors (defined as ownership control of 30% or more) for South Africa is shown in the following figures. (Details for woman ownership for selected provinces is given in Appendix 2, while details of other provinces can be provided on request.) On average, around 50% of all Grade 2 to 4 contractors are women owned. Around an average of 40% of all Grade 5 and 6 General Building (GB) and Civil Engineering (CE) contractors are woman-owned, while around 30% of all Grade 7 and 8 General Building (GB) and Civil Engineering (CE) contractors are woman-owned. Woman ownership of Grade 9 contractors is significantly lower around 7%. Of interest, as reflected in Appendix 1 and other data, women ownership varies significantly from province to province and across the Grades with the highest ownership in Limpopo (which probably reflects tender preferencing in this province), followed by Mpumalanga. 8
Source: cidb Construction Registers The historic profiles of woman ownership for South Africa as a whole is shown in the following figures (see also Appendix 1). Of concern is that, overall, woman ownership is not showning any substantial changes. Source: cidb Construction Registers 9
4.3 B-BBEE Recognition Level For the periond under review (2014Q1 to 2014Q4), the B-BBEE Level 3 and above and Level 4 and above contributors are shown below. Source: cidb Construction Registers It is seen that there is little difference in recognition level with contractor Grade. 4.4 Contracts Awarded Estimates of the value of public sector contracts awarded by value to black-owned companies during the four quarters under review are shown in the following figure, from which it is seen that around 70% to 90% of the contract awards by value have been awarded to black owned contractors in Grade 2 to 8 in General Building (GB). In Civil Engineering (CE) it is seen that around 80% of contract awards by value have been awarded to black owned contractors in Grades 2 to 6 but only about 60% of the contract awards by value have been awarded to black contractors in Grades 7 & 8. Of interest is that the around 86% of public sector General Building (GB) contracts have been awarded to black-owned contractors over the period. Overall it is seen that the data reflects that the public sector contract awards by value in both General Building (GB). In Civil Engineering (CE) appears to be higher than the proportion of black-owned contractors reflecting government s intent of supporting transformation. 10
Source: cidb Construction Registers However, an alternative estimate of the value of the public and private sector contracts awarded to black owned companies is given in the following figure, obtained from the turnover reflected in the companies recent financial statements. This estimate reflects that black-owned Grade 2 to 4 contractors only generate around 75% of the total turnover of Grade 2 to 4 contractors, and black-owned Grade 7 and 8 contractors only generate around 50% of the total turnover of Grade 7 and 8 contractors which is lower than the distribution of black-ownership. (Note that the turnover of Grade 9 contractors is not reflected in the figure below because the turnover of many Grade 9 contractors reflects non-south African and non-contracting activity.) Source: cidb Construction Registers 11
Appendix 1: Provincial Data: Black-Ownership; Contractors Eastern Cape 12
Gauteng 13
KwaZulu-Natal 14
Western Cape 15
Appendix 2: Provincial Data: Woman Ownership; Contractors Eastern Cape 16
Gauteng 17
KwaZulu-Natal 18
Western Cape 19
Notes 20
21
22
Pretoria Head Office +27 12 482 7200/+27 86 100 cidb Gauteng Provincial Office Pretoria 0861 428 222 Western Cape Provincial Office Cape Town 0861 927 222 Eastern Cape Provincial Office Bisho 0861 222 327 Northern Cape Provincial Office Kimberley 053 861 9631 Free State Provincial Office Bloemfontein 0861 377 222 KwaZulu-Natal Provincial Office Durban 0861 596 222 Limpopo Provincial Office Polokwane 0861 222 765 Mpumalanga Provincial Office Nelspruit (Mbombela) 0861 678 222 North West Provincial Office Mahikeng 0861 243 222 Anonymous Fraud Line 0800 112 432 Call Centre: 0860 103 353 email: cidb@cidb.org.za www.cidb.org.za