7.1 INTRODUCTION
This chapter presents the interpretation and discussion of empirical results and findings in relation to the existing literature.
7.2 BACKGROUND PROFILE OF THE SMCS AND RESPONDENTS
The results emerging from the SMCs surveyed indicate that more than half have been in the construction business for more than 10 years. Thus, the majority of respondents have considerable experience and a record of their participation in the construction industry, which improves the validity and reliability of the data obtained and subsequent findings. More than two-thirds of the contractors engaged less than 20 permanent full-time employees, which is well within the range for construction SMEs, according to the National Small Business Act, No. 106 of 2003. Moreover, empirical evidence suggests that many small firms start small, with one to three employees, and remain unchanged throughout their existence (Coad, 2007; Garnsey et al., 2006).
The results further showed that a significant majority of the technical and professional staff have at least Grade 12 certificates. Less than one-third of the technical staff have a university degree, while more than one-third of professional staff have a university degree. This finding reflects that most of the SMCs have in their employment, technical personnel with the minimum qualifications and experience required for successful project delivery; but they do not have the same minimum of professional staff. Goedhuys and Veugelers (2012) asserted that the skills of the workforce and management staff are more important than their tertiary education levels. This result compared well with reports from the US construction industry about the educational attainment of construction employees showed that 40% of construction workers had some post-secondary education CPWR Data Center, 2010). The level of education and experience of the staff strongly affect technical capacity, as knowledge and intellectual capital have been linked directly to enterprise growth and performance (Abu Bakar et al., 2011; Lubit, 2001).
7.3 SMCS’ PARTICIPATION IN TARGETED PROCUREMENT CONTRACTS AND CDPS
Results from the study show that more than two-thirds of the SMCs surveyed had participated in as many as five public-sector contracts where Targeted Procurement strategies were implemented
177
during the five-year period of observation. However, more than half also did not execute any non- Targeted Procurement government contracts or private sector contracts during the period of observation. This implies that a significant number of SMCs are actively participating in public- sector targeted contracts, and more importantly, depend on them for their survival. This find is aligned to reports by Marion (2007) who suggested that set-asides contribute to the survival rates of minority businesses in the US construction industry. The implication of this finding is that SMCs are at the risk of going out of business if they continue to rely on targeted contracts as the sole source of sustainable work (Bates and Williams, 1996; Holzer and Neumark, 2000).
Findings from the SMCs participation in CDPs revealed that 7% and 36% SMCs have experienced a negative and positive advancement respectively on the cidb RoC, while 57% have maintained their cidb grading since participating in a CDP. In contrast, the cidb assessments of contractor upgrades within CDPs report that approximately 51% (355 – 43% GB and 57% CE) of Grades 2 to 6 contractors upgraded by one or more grade in three years between 2013:Q3 and 2016:Q2 (cidb, 2016b). This figure decreases to approximately 45% (391 – 37% GB and 63% CE) in a more recent review between 2014:Q3 and 2017:Q2 (cidb, 2017a). This contrast may be explained by the fact that the cidb report includes contractors who achieved a maximum grade but are no longer registered with the cidb; while this study comprises of only cidb registered contractors.
This finding suggests that participation in CDPs may not necessarily translate to holistic growth and advancement on the cidb RoC; however, it enhances the sustainability of SMCs even when they did not move up the cidb register.
7.4 TARGETED PROCUREMENT STRATEGIES COMMONLY USED AS A MECHANISM FOR CONTRACTOR DEVELOPMENT
It emerged from the results obtained that the most frequently used Targeted Procurement strategy as a mechanism for contractor development was tendering equity; this is followed by preferencing, mandatory subcontracting, and unbundling of contracts. Third-party management and accelerated rotations ranked lowest, indicating that these strategies are the least used by state entities. This finding suggests that government clients progressively require bidders to have certain levels of equity ownership when submitting bids for Targeted Procurement contracts; implying that Targeted Procurement is primarily targeted at SMCs owned by historically disadvantaged individuals in South Africa. The result come at little surprise, as this practice is in line with the core objectives of South Africa’s preferential procurement policy, as contained in the PPPFA and B-BBEE Act. Preferencing also emerged as the second most commonly used targeting strategy.
178
This result is similar to the trend reported in other countries, such as Botswana, Malaysia and Singapore (Govender and Watermeyer, 2001; Ofori, 1996; Watermeyer 2003).
7.5 SUPPLY CHAIN RELATIONSHIP QUALITY IN THE TARGETED PROCUREMENT PROCESS
The result from the assessment of relationship quality criteria showed that trust was relatively low between SMCs and other project parties in the Targeted Procurement process, with the majority reporting trust based on competence rather than goodwill. Ineffective joint problem-solving permeated the supply chains studies, with the majority indicating that problems sometimes lead to disputes. Moreover, learning and innovation sharing, and cost data transparency was limited among project parties, indicating borderline arms-length relationships. Balance of risk and reward was also inadequate with little or no reward for taking on risks. While continuity of work was limited, with the prospect for future work existing only through competitive tendering, this indicated that most of the relationships were largely project-based, and not extending beyond a single project. Furthermore, almost two-thirds of the procurement method and the form of contract used on the identified Targeted Procurement projects, was based on price competition and quality competition respectively.
These findings from the questionnaire survey are further substantiated by the following remarks from the focus group interview participants when asked about the quality of relationships; SMC C stated that:
…The relationship between the SMEs is better than the relationship between the SMEs and the main contractor. Because with the main contractor, if you go and speak about (rates) to him, then he keeps telling you, "sign for this", while knowing that is not the rates. So there's no way that you can really build a better relationship with such (SMC B murmurs in agreement). (SMC C)
Regarding information sharing and transparency, SMC B stated that:
…the client must see that the main contractor pays us the right money, and we must have the opportunity to look at the contract between the main contractor and the client. Because we are not aware of what is going on there, and then the main contractor just gives us what they like… (SMC B)
SMC C added:
I think the problem there, is the legality of it, because there’s a contract between the client and the main contractor. So we don't see that legality. But then in our contract, it says we got access to that main contract. But then that contractor doesn't want to allow us peep into that contract (others murmur in agreement). Because when we see the contract, we