TOTAL
5.6 THE AFFIRMABLE BUSINESS ENTERPRISE INDEX: AN INSTRUMENT TO MEASURE ABE PARTICIPATION OPTIMISATION
5.6.1 Definitions and formulae
The Affirmable Business Enterprise Index (AB El) is by definition the estimated total value of work undertaken by ABEs expressed as a percentage of the total value of contracts awarded, where ABEs are targeted. This index provides a useful mechanism to access ABE participation in financial terms for the different construction subsections viz general, civil, mechanical and electrical and for the different contract classifications viz, Major, Minor and Micro.
Based on arguments made in section 5,5.4, ABE participation is not synonymous with the contract participation goals tendered for on Prime (Major) contracts. Further, for Micro and Minor contracts where direct preference to ABEs are applicable, the extent of ABE participation is assessed on the value of contracts awarded to ABEs, with no relationship to contract participation goals. For this and other reasons outlined in Section 5.5.4, the ABEI for the different contract classifications are calculated, in accordance with the following formulae:
Where:
AB El (Prime (Micro)) = 0,9 X AlB X 100
A
=
sum of all prime contracts awarded to ABEs in the micro sector.B
=
sum of all prime contracts awarded in the micro sector under the APP programme.The formula could be further delineated per subsector, e.g. Mechanical, Civil, etc.
Where:
ABEI (Prime (Minor)) = 0,9 X CID X 100
C
=
sum of all prime contracts awarded to ABEs in the minor sector.o =
sum of all prime contracts awarded in the minor sector under the APP programme.The formula could be further delineated for minor contracts greater than R1,0 m and for minor contracts less than or equal to R1 ,0 m to account for the impact of varying performance bonds.
Where:
ABEI (Prime (Major)) = 0,85 X ElF X 100
E = sum of the product of all prime major contracts and their associated contract participation goals divided by 100.
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F
=
sum of all prime major contracts awarded under the programme.ABEI (Composite) = (0,9xA + 0,9xC + 0,85xE) I (B + 0 + F) x 100
For practical purposes the ABEI (Prime (Minor)) and ABEI (Prime (Micro)) are calculated as a combined index viz. ABEI (Prime (MinorlMicro)).
5.6.2 Time Incrementa
The indices referred to in 5.6.1 are calculated in respect of the following time increments:
• 1 August 1996 - 30 June 1997
• 1 July 1997 - 30 Dec 1997
• 1Jan1998-1July1998
Start up phase
First six month period after start up phase Second six month after start up phase
ABEIS applicable to the entire time period are also calculated and statistically analysed for variances in key parameters associated with each time increment.
5.6.3 Estab"shment of potential polIcy outcomes
In order to establish the degree to which the ABE participation meets with potential policy outcomes, appropriate targets or limits must be set for appropriate time increments 12.
A review of the tender adjudication parameters contained in the tender conditions aSSOCiated with the awarding of Prime (Major) contracts, indicates that the only reference to an upper target for participation is made in Prime (Major) Contracts where reference is made to no further allocation of development objective tender adjudication points, in instances where tile contract participation goal exceeds 40 %. (Refer to 5.3.2 for method of calculation) . This tends to indicate that the policy writers were satisfied with a contract participation goal of 40 % being realised for the period under review. For the purposes of this dissertation and in the absence of any other information, the upper threshold to ensure full compliance of the APP for the current time frame for Prime (Micro), Prime (Minor) and Prime (Major) contracts is assumed to be:
ABEI (upper threshold) = 0,857 x 40 %
= 34,3 %
The factor of 0,857 is applied to compensate for the difference between the ABEI and the overall ABE participation and is the weighted average of 0,85 and 0,90 calculated on the basis of a proportional split between Prime (Micro) and Prime (Minor) contracts on one hand, and Prime (Major) contracts, on the other. (Refer to Table 5.6)
12 Targets tor ABE participation were flOt set by the Department as there were no previous statistics against which appropriate benchmarks could be formulated.
Applying a 4 point incremental linear scale to the measurement of the ABEI with the upper threshold set at 34,3 % for the period under review, the author arrived at the descriptors for different ABEI outcomes which are tabulated in Table 5.13.
Table 5.13: Description for different AB El outcomes
ABEI DESCRIPTOR ABEI VALUE RANGE (%)
low (l) 0-8,58
Below Average (BA) 8,59-17,15
Above Average (AA) 17,16-25,73
High (H) 25,74 - 34,30
The descriptors set out in Table 5.13 provide a simple means to assess different ABEls against the envisaged initial outcomes. These descriptors are applied to all the ABEls which are calculated.
5.6.4 Resource Goal Ratios as a diagnostic instrument
The introduction of minimum resource goals by the employer at tender stage on prime major contracts, requires tenderers to embrace the policy and guarantees some participation by ABEs. It is therefore important to log the minimum resource goals set for every Prime (Major) tender and to determine the ratio for the number of contracts under consideration of the weighted average of the contract participation goals and of the contracted minimum resource goals specified in the tender. A resource goal ratio close to unity would indicate that the minimum resource goal ratio is too high for one or more of the following reasons:
• The absorptive capacity of ABEs in the specific sector has been reached.
• The prices received from the targeted enterprises are not competitive when compared to those received from non-targeted enterprises.
• The scope for participation by ABEs is less than predicted.
• The cost to embrace the policy objective generally exceeds the reward which is provided in the development objective/price mechanism to do so.
The resource goal ratio serves as a useful diagnostic instrument to test the appropriateness of the minimum goals set, and allows for the establishment of appropriate threshold goals on subsequent tenders. Resource goal ratios are calculated for all 5ubsectors in the Prime (Major) category to test the appropriateness of the minimum thresholds set.
5.26
5.7 QUANTIFYING THE FPI ASSOCIATED WITH THE IMPLEMENTATION OF THE APP