IDENTIFICATION OF SUPPLY SIDE CONSTRAINTS
7.3 GENERAL APPROACH TO TESTING THE HYPOTHESIS
The introduction of various supply side initiatives aimed at addressing SMME constraints is introduced above. In Chapter 5, the author established that participation in the general sub-sector is significantly higher than in the civil, electrical and mechanical sub·sector5. The particular experience of participation across all construction sulrsectors in the Department of Public Works contracts need to be explored. The author conducted extensive structured research to identify particular factors which
7.2
may present obstacles to, or restrict entry of ABEs into all the construction sub-sectors. Levels of participation by ABEs in Prime (Minor) contracts is characterized in Chapter 5.
The research presented in this chapter sets out to identify such obstacles, which are termed entry level thresholds.
The research directed at understanding business practices and decisions was directed in
two
areas.The first area seeks to understand the role of sub-sector Associations in the establishment of thresholds, and specifically whether the Associations themselves impose participation criteria which act as barriers to entry to a sub-sector for ABEs. The focus of this research did not require internal knowledge of the business operations of individual enterprises. It was conducted through interviews with association representatives.
The second area of research was directed at understanding business practices and decisions made by companies to operate in a particular sector or sectors. The conduct of interviews with project managers and principal agents reported in chapter 6 clearty indicated that external knowledge of business practice of contractors is limited to the central requirements of the implementation and evaluation of contracts on site. The respondents in that research had very limited knowledge of the structure or operation of enterprises off the contract sites.
The focus of research to test this hypotheSiS required internal knowledge of the business operations of the enterprises. The research was therefore conducted directly with owners or senior managers in contracting enterprises, through a structured quest;onnaire. The author's literature research has not identified any other examples of structured questionnaires of similar complexity aimed at SMME business owners and senior managers.
7.3.1 Definition of entry level threshold.
It will be useful to define the concept of entry level thresholds in order to focus the research. The word 'threshold' is defined (Brown, 1993) as a doorway. gate or entrance. It is a point or place over (or through) which movement occurs from one place to another, generally from 'outside' to 'inside' or vice versa. It is also an obstacle or stumbling block.
The word is used metaphorically in this research and refers to the point beyond which sub-sector tenders from the Department can be successfully won and completed. The threshold is made up of a number of factors whtth carry different weights. For the research, the following groups, based on a study by Watermeyer and Band (1994) and the author's experience, were considered to be Significant:
• personal experience in the sub-sector;
• specialised technical expertise and work processes;
• access to finance and credit;
• guarantees and warrantees;
• access to plant and equipment;
• capitalisation requirements;
• established relationships with sub-contractors and lor suppliers;
• steady availability of projects; and
• compliance with statutory requirements.
It is anticipated that different combinations of these factors will create a 'capacity' which a company or enterprise must possess before attempting to tender for work in a sub-sector.
For the purposes of this research, therefore, the entry level thresholds are defined as:
~those business factors which, when combined, create the criteria for participation in a sub- sector which an enterprise must have the capacity to satisfy in order to successfully tender and operate~.
7.3.2 Methodology outline : the role of sub-sector Association Interviews in the establishment of thresholds
The author considered the role of sub-sector Associations in the matter of formal and informal participation barriers. General discussions were held with representatives of the following associations:
1. Building Industry Federation of South Africa.
2. South African Federation for Civil Engineering Contractors.
3. National Black Contractors Association and Allied Trades.
4. Electrical Contractors Association.
The interviews were conducted in August and September 1998.
The discussions with the representatives were directed at determining whether any of the Associations impose entry criteria on membership which thereby create entry thresholds into a sub- sector. The author sought to understand at an early phase of research whether Associations imposed formal restrictions on participation which would act as external barriers to sub-sector participation for an enterprise.
The external character of any barrier was considered to be the imposition of participation thresholds requirements which are not part of the short term management activities within contracting
7.4
enterprises. These activities are described as the management of the technical activities and outcomes of a contract; the management of the contractual relationship between the enterprise and the client; and the business management of the enterprise.
The author wished to understand whether Associations tend to create additional requirements of a technical, experiential, or financial or managerial nature which a partiCipant would need to satisfy in order to enter a sub-sector.
Interviews were conducted on a face-ta-face basis and were structured around five areas of enquiry.
The five questions listed below were faxed to each participant prior to the interviews.
1. What are the abilities your organisation requires from a contractor to enter and remain in the industry?
2. Are the above requirements formalised, and if so, where?
3. What other abilities outside those required by your organisation/have you encountered to be a problem for contractors to enter and remain in the industry?
4. What assistance with regard to abilities can your organisation provide to contractors to enter and remain in the industry?
5. General comments.
7.3.3 Methodology outline: structured sutHsector threshold research
The research directed at understanding business practices and decisions (second area of research indicated above) conducted through a structured questionnaire in order to develop improved understanding of the business decisions that impact on participation in particular sub-sectors. The author sought to test the willingness, or propensity, of contractors to enter another sub-sector. The structure of the questionnaire seeks to explore the issues of managing and operating an enterprise from a business perspective. The author has not identified equivalent research in the literature and believes this research perspective to be unique in this field of research.
The research was conducted in the contract value range from R100 000 to R2 000 OOO.The selection of the sample was based on the criterion that enterprises had been awarded at least one contract in the period from May 1996 to January 1998.
7.3.3.1 The research sample
The research was conducted on a probability sample stratified by firms having ABElnon-ABE status, comprising 51 enterprises of which 13 were ABEs and 38 were non-ABEs (Cochran, 1977). The sample was drawn from a known universe of 101 qualifying contracts let by the Department of Public Works in all provinces. The universe was determined from the records of a comprehensive database, which was in the process of being complied by the Department. The database was completed subsequent to the selection of the sample and a size of the full universe of 210 qualifying contracts was established.
The questionnaires were completed between November 1998 and April 1999. Questionnaires were completed through telephonic interviews in 47 cases. Respondents in telephonic interviews were taxed questionnaires prior to the interview. In some cases more than one interview was required to obtain all data in the questionnaire. In four cases the questionnaire was faxed to respondents, was completed by respondents and returned. The quality of data obtained from questionnaires completed by respondents was comparable to that obtained from telephonic interviews.
The sample of 51 enterprises from the full universe of 101 contracts awarded to enterprises, determined by the availability of contact details for enterprises and the willingness of respondents to participate, was obtained. The length of telephone interviews ranged from 45 minutes to 90 minutes including time for explaining the research background and scope. The derivation of the sample from the universe at the time of sample selection is indicated in Table 7.1 below.
TABLE 7.1: Derivation of the sample for research Into supply side constraints
SAMPLING ACnVITY Number %
Telephone number not registered
••
43,6Contacted, refused to participate 4 4,0
Contacted, denied OPIN contract 2 1,.
Contacted, participated In research
"
SO,STotal records October 1998 101 100,0
Respondents were contacted at the last telephone number held in the records of the Department of Public Works. Where this number was no longer valid, attempts were made to trace companies through the directory enquiry services of the national telephone service provider, Telkom. Where necessary, variations of company spellings were submitted in an effort to obtain current telephone numbers. The proportion of companies that could not be contacted through these means was higher than anticipated, at 44%.
Through this method 51 enterprises were contacted. Of these, 7% (N=4) refused to participate citing lack of time (N=2) or offering no explanation (N=2), and 3,5% (N=2) denied that they had ever been awarded a contract by the Department of Public Works.
7.6
A more complex questionnaire than that used for the research reported in chapter 6 was necessary to cover the range of business issues. The complexity and depth of some questions resulted in reluctance to participate by some participants, and the refusal by some potential participants. Where the reasons for the reluctance were addressed by assuring respondents of the research purpose, they participated willingly. The author contends that further research in this field will yield additional valuable data and extend the range of analysis that can be performed. The author proposes that the conduct of such research through interviews with contractors when they are active in a contract will greatly reduce the effort required to acquire data.
The composition of the sample of 51 enterprises was compared with the composition of the full universe of 210 contracts in the R1 000 000 to R2 000 000 price range let by the Department. This universe was determined when the Department's comprehensive database was complete. Table 7.2 illustrates the comparison.
TABLE 7.2: Comparative distribution of contract types between the research sample and the corresponding universe for the study period
.
Contract type Sample Unlv ... for study period
Number % Number %
General 18 35,3 115 54,7
General and Civil· 8 15,7 0 0,0
Civil
•
11,8 20 9,5Electrical and Mechanical
"
37,3 75 35,7Total 51 100,0 210 100,0
The deSignation of general and CMI was presented in Department records
..
at the time of sample identificatIOn, but not used as a classification in the comprehensive database.The combination of general and general and civil contracts in the research sample comprise 51 % of the universe.
For reasons out/ined on page 7.6 the research sample is sufficiently representative of the range of contract types in the contract universe for the study period. Allowance is made for respondents to have classified work on site services as civil, whilst the tenders for such work are technically recorded as general contracts. The relative spread of contract types between General, Civil, Electrical and Mechanical contracts is comparable.
Table 7.3 presents the distribution of ABE and non-ABE enterprises across the research sample and qualifying universe for the study period.
TABLE 7,3: Distribution of ABE and non-ABE enterprises between the sample and the corresponding universe for the study period.
Contract type Sample Universe for study period
ABE Non-ABE ABE non-ABE
N % N % N % N %
General 8 61,5 10 26,3 22 84,. 93 50,6
General and Civil 3 23,7 5 13,2 0 0,0 0 0,0
Civil 1 7.7 5 13,2 1 3,9 19 10,3
Electrical and Mechanical 1 7,7 18 47,3 3 11,5 72 39,1
Total 13 100,0 24 100,0 2. 100,0 184 100,0
The Table indicates a bias towards ABE contractors in the research sample for the combined contracts. The distribution of ABE and non-ABE enterprises for Mechanical and Electrical Contracts in the research sample corresponds with the distribution in the universe.
The character of the sample in terms of the key areas of enquiry is shown in Table 7.4.
TABLE 7,4: Character of the sample for research into supply side constraints
DESCRIPTION Number of cases
Number %
R . . pondent position
Owner I Director ... . 29 78.4 Manager ... . ...... .. 4 10.8
Other ...... .. 4 10,8
V •• r of establishment
less than 10 years ......... . 21 42,0
10 • 20 years ... .. 18 36,0
More than 20 years ............. . 11 22.0 Company structure
Sole trader ......... ... ...... ... ... ... ... ..... . ... . 7 14,0
Single member CC . . ... .
•
12,0Multiple member CC ... . 20 40,0
Pty ltd ... . 17 34,0 ABE status
ABE ... . ... . 13 25,5
NON·ABE ...... .. 38 74,5
Are. of activity
General ... . 18 35,3
General & Civil 8 15.7
Civil ...Electricatl ....Mechanical ... .. .. ........ . ... .. 19
•
37,3 11.8 Member of an associationVes ........ . 33 84,.
No ... .
•
15,4No of pennanent employees
less than 10 person ... . 12 23.5 10 to 25 person ...... . 18 35.3
26 or more persons ... . 21 41.2
Number of cases 51 100.0
H2l!i In each category, the misSing cases are excluded.
7.8
7.3.3.2 Survey Instrument
A structured survey method was selected for this research, utilizing a structured questionnaire as the survey instrument (see Appendix 7.1). The questionnaire was structured in six sections as follows :
•
Enterprise information;•
Human resources;•
Finance;•
Equipment and plant;•
Business thresholds. and•
Sub-sector thresholds.The third section, covering finance, incorporates some questions from the structured questionnaire used for the research into mobilization of sureties and contracts compliance. The author's intention was to gather this information over a wider sample.
The primary data determined in the questionnaire was descriptive, with open fields for respondents to indicate use of human resources, years of experience and qualifications for questions on human resources, business thresholds, sub-sector thresholds and equipment and plant.
Data relating to use of sub-contractors was collected on a three-point scale of 'always use', 'usually use' and 'sometimes use'.
Nominal data was collected for the section on finance, with the majority of questions requiring a yes/no answer.
The data was captured and analysed in the SPSS package.
The questionnaire was designed in anticipation of detaited information across the full range of questions, but this could not be obtained consistently, and variable levels of data were received. In some cases detail was incomplete or missing. As a result the data does not comprehensively cover all sections of the questionnaire. Data is presented and discussed for those variables with a tolerable number of missing cases.
Three levels of analysis were carried out on the data. Firstly the percentage distributions of the responses with adequate levels of analysis were calculated and are presented. The second level of
analysis involved statistical test of the significant of the differences that result in the bivariate analysis.
For this analysis the Pearson Chi Square ()(2) test was used. The third level of analysis involved the statistical testing for significant associations of sets of variables. For this analysis a regression model was used.
The size of the sample at 51 cases restricted the possible level of cross·tabulations for some variables across all contract types.
The author proposes that the questionnaire be applied by the Department on a continuous basis.
When a sample of sufficient size is obtained, analysis of the propensities to move both horizontally and vertically will be possible. The sample size presently precludes analysis of the propensity to move vertically in a sutrsector.
7.4 PRESENTATION AND INTERPRETATION OF RESULTS ON THE ROLE OF SUB-