South Africa's construction sector is expected to play a crucial role in rebuilding the South African economy, through the provision of economic and social infrastructure. The research then focuses on the application of the Affirmative Procurement Policy (APP) to construction projects procured by the Public Works Department, to evaluate the impact this policy has had on the growth and development of Affirmable Business Enterprises (ABEs). . .
CHAPTER ONE
INTRODUCTION
- BACKGROUND
- THE USE OF PROCUREMENT AS AN INSTRUMENT OF SOCIAL POLICY
- SOUTH AFRICA'S AFFIRMATIVE PROCUREMENT POLICY
- MONITORING AND EVALUATING POLICY OUTCOMES
- RESEARCH OBJECTIVES
- THE HYPOTHESIS
- THE STRUCTURE OF THE RESEARCH
The development of the Affirmative Procurement Policy derives its constitutional basis from clause 217 of the Constitution. The application of the Affirmative Procurement Policy has led to better regulated relationships between main contractors and subcontractors.
CHAPTER TWO
THE CONSTRUCTION INDUSTRY IN SOUTH AFRICA AN OVERVIEW OF ITS STRENGTHS AND WEAKNESSES
TOWARDS THE DEVELOPMENT OF AN INTEGRATED INDUSTRIAL DEVELOPMENT STRATEGY
THE ROLE OF THE CONSTRUCTION INDUSTRY IN THE SOUTH AFRICAN ECONOMY
The first view sees construction as a single industry belonging to a sector of the economy (Hiilebrandt, 1984). Interesting features of the construction industry's contribution to the national economy are its role in introducing investment (providing infrastructure) and its contribution to growth-dependent investments such as housing (Hillebrandt, 1984; DPW, 1997).
STRENGTHS AND WEAKNESSES OF THE SOUTH AFRICAN CONSTRUCTION INDUSTRY AND THE NEED FOR AN INTEGRATED INDUSTRIAL DEVELOPMENT
The weaknesses in the South African construction industry can be largely attributed to the fluctuations in construction demand during the apartheid era in South Africa. It is not the author's intention to propose a comprehensive industrial development strategy for the construction industry in this thesis.
CHAPTER THREE
THE ROLE OF THE STATE IN DEVELOPING THE CONSTRUCTION INDUSTRY,
- THE ROLE OF THE STATE IN DEVELOPMENT
- THE ROLE OF THE STATE IN THE CONSTRUCTION INDUSTRY IN SOUTH AFRICA
- ENABLING POLICY INSTRUMENTS WITHIN THE CONSTRUCTION SECTOR
- PUBLIC SECTOR PROCUREMENT AS AN INSTRUMENT FOR EFFECTIVE STATE INTERVENTION WITH SPECIFIC REFERENCE TO PREFERENCING
The Green Paper on the Enabling Environment (DPW, 1997) sees the intended role of the State in the construction industry slightly differently. The Department of Public Works10 was one of the main drivers of public sector procurement reform in South Africa.
APP2
On average, Rijkswaterstaat sets the contract participation target for ABE participation at 15%. The motivation for defining the target group in this way and for the application of the Positive Purchasing Policy within Rijkswaterstaat is also given in Chapter 4.
APP3
Bids are awarded points for the financial offer in the first place and secondly for the extent to which the bid exceeds the minimum goal of contractual cooperation. Failure to meet the minimum specified participation target in the order would render the bid non-responsive and result in its automatic rejection.
APP4
Drawing on the experience gained in the Malmesbury Prison Project, the Department of Public Works, in collaboration with the Public Sector Procurement Working Team (1996), developed a set of standardized resource specifications in relation to the Affirmative Procurement Policy. Chapters 5, 6, 7 and 8 of this dissertation examine the implementation of the Affirmative Procurement Policy specifications and, more specifically, the specification for construction projects procured by the National Department of Public Works during the period August 1996 to June 1998.
CHAPTER FOUR
AFFIRMABLE BUSINESS ENTERPRISES IN THE SOUTH AFRICAN
CONSTRUCTION INDUSTRY
INTRODUCTION
The purpose of the current definition of ABE is to ensure effective targeting of small, medium and micro enterprises owned by previously disadvantaged persons in the construction sector. Further justification for the focus on ABEs in the South African construction industry is the current polarization of the South African construction industry along racial lines, as noted in Chapter 2. It is quite clear that both enabling and intervening strategies are needed to address the issues to address ABEs in the South African construction industry.
PRESENTATION OF KEY HYPOTHESIS AND SUB-HYPOTHESES
A review of the Affirmative Procurement Policy specifications shows that the primary purpose of these specifications is to increase procurement opportunities for ABEs in the public sector. Rijkswaterstaat can promote greater participation of ABEs in the construction economy through its Affinnative Procurement Policy (APP). The Affirmative Procurement Policy promotes joint venture relationships between established contractors and Affirmable Business Enterprises.
THE PRIMARY OUTCOMES OF THE AFFIRMATIVE PROCUREMENT POLICY
INTRODUCTION
In this chapter, the author analyzes the primary results of the construction contracting policies administered by the National Department of Public Works for the period August 1996 to July 199B. The primary outcomes of the policy, i.e. the increase in ABE participation by using a positive procurement policy and the extent of the direct financial premium borne by the department when using a positive procurement policy will be assessed by testing the following two sub~. hypotheses. A review of the mechanisms by which the Department of Public Works awards construction contracts shows that this is done either by soliciting bids from a limited number of suppliers it provides, contractors, or by inviting bids. Their consideration in testing the aforementioned hypothesis would introduce an inherent bias into the analysis and would in any case have a nominal impact on the results.
DEFINITIONS AND INTERPRETATIONS
Quotations accounted for approximately 80% of the number of contracts awarded, but less than 3% of the total financial value of contracts awarded; the average value of a quote is R9491 (Watermeyer et al, 1998). The Financial Premium Index in the context of the Affirmative Procurement Policy, is the difference in price between the awarded tender price, ie Enlerprl.e Index (ABEI): The estimated total value of work undertaken by ABEs, expressed as a percentage of the total value of contracts awarded, where ABEs are targeted.
REVIEW OF POLICY PROVISIONS OF THE POLICY FOR THE TARGETING OF AFFIRMABLE BUSINESS ENTERPRISES
The calculation of these points will be based on the formula: the tender submitted in each case. 34;Equity" refers to the value of the shareholding held in the tenderer's business entity as reflected in its financial statements and/or contractual agreement as at the closing date of tenders. In some circumstances a development contractor may be required to provide specialist contractors engage to carry out certain aspects of the works and/or construct parts of the works.
TOTAL
DEPARTMENTAL REPORTING ON ABE PARTICIPATION UP TO MAY 1998
The Department of Public WOrXs tasked its documentation section with collecting data on the results of the policy and reporting thereon. Such a parameter is not representative of the Rand value of actual work done by ABEs; It is also not representative of "commercially useful function-. The Department's analysis included bid-like contracts, which in turn skewed the analysis of the number of contracts awarded to ABEs.
METHODOLOGY OUTLINE
The author's reference to the use of targeted public procurement suggests the implementation of a related public procurement policy. The Ministry did not directly target ABE in implementing the policy in question. It is assumed that for Prime (Minor) and Prime (Micro) contracts approximately 10% of the contract value is likely to be subcontracted to non-ABEs.
THE AFFIRMABLE BUSINESS ENTERPRISE INDEX: AN INSTRUMENT TO MEASURE ABE PARTICIPATION OPTIMISATION
Applying a linear ascending scale of 4 points for measuring ABEI with the upper threshold set at 34.3% for the period under review, the author arrived at the descriptors for different ABEI results which are tabulated in table 5.13. The resource target report serves as a useful diagnostic tool to test the adequacy of the minimum targets set and allows the setting of appropriate threshold targets in subsequent tenders. Resource target ratios are calculated for all 5 subsectors in the Major category to test the adequacy of the minimum thresholds set.
QUANTIFYING THE FPI ASSOCIATED WITH THE IMPLEMENTATION OF THE APP POLICY
Where A = sum of the tender prices of awarded contracts in a particular sector B = sum of the tender prices of the lowest responsive tender used as the. This graph can be divided into four equal quadrants if lines are drawn parallel to the x- and y-axis along the mean and maximum value ranges of the descriptors for ABEls and Fpls, as tabulated in table 5.13 and 5.14. The quadrant comparator can best be explained by considering four ordinates shown at the ends of the quadrants in Figure 5.1.
Quadrant 1
- PRESENTATION AND INTERPRETATION OF RESULTS .1 ABE participation levels
In the Prime (Minor/Micro) category, only one out of the thirty-one contracts sampled was awarded an ABE, while in the Prime (Major) category no contracts out of the nine contracts sampled were awarded to an ABE. ABEs have not been awarded. Of the total of 312 contracts in the Prime (Micro/Minor) category, only 34 contracts (10.9%) were awarded to ABEs as main contractors. Watenneyer et al (1998) undertook research on ABO participation levels prior to the introduction of the Affirmative Procurement Policy.
THE PERFORMANCE OF AFFIRMABLE BUSINESS ENTERPRISES
INTRODUCTION
The author has indicated in the previous chapters that the State is obliged to adopt specific policy positions to achieve real and lasting changes in the structure of the construction sector. In this chapter, the author examines the impact of the application of the policy on the Provable Entrepreneurship Sector of the construction industry. As indicated below, a number of substantial initiatives on the supply side were launched following the introduction of the positive purchasing policy.
REVIEW OF FACTORS WHICH SHAPE AND GUIDE POLICY FOR AN AFFIRMATIVE SMALL, MEDIUM AND MICRO ENTERPRISE PROGRAMME IN SOUTH AFRICA
An analysis of the departmental records of contracts awarded in the period from August 1 to July 1, 1998, as shown in Table 5.6 of Chapter 5, shows that a total of 196 Prime (Minor) contracts were awarded. All policies and mechanisms are based on the ability of sufficient ABE owners to create, manage and retain value in their businesses. The adoption of such a policy should not imply “reverse discrimination” but should be seen as an attempt to ensure that all sectors of the population have access to opportunities on a competitive basis and progress based on their relative capabilities.
GENERAL APPROACH TO TESTING THE HYPOTHESIS The sub-hypothesis tested through this portion of research is
As a result, the contracts in the samples were drawn from the department's head office records in Pretoria. There is a cluster of tenders awarded to ABEs in the first six months of the study period, i.e. the contract price distribution of the study sample does not differ from the contract price distribution of all contracts let by the department.
PRESENTATION AND INTERPRETATION OF RESULTS
More than half of the contractors in the full sample (56%) did not submit employees for external training. The data indicate that 64% of non-ABEs provided facilities and the same proportion of the sample maintained them appropriately. TABLE 6,23: xa test of the differences between ABE and non-ABE contractors on product quality focto".
RESEARCH FINDINGS
The T-test shows that there is statistical significance in the overall performance between ABEs and non-ABEs for all recorded factors. Applying the >f test to these data confirmed statistical significance in the observed differences at the p=0.013 level. The observed differences between ABEs and non-ABEs are shown to be statistically significant in 3 of the 8 management factors under test)(2), and overall by the T-test.
CONCLUSION
Regarding the use of substandard materials, Table 6.22 shows that 21% of ABEs were estimated to have done so, while no non-ABEs were recorded as having done so. Contrary to the above, the author believes that this is an aspect of management that can be changed in the short term. Further, although there is no statistically demonstrated relationship between performance on this factor and use of quantity meters, the introduction of these ABE practitioners who do not use them may have a positive effect on relative performance on this factor.
IDENTIFICATION OF SUPPLY SIDE CONSTRAINTS
INTRODUCTION
In the introduction and review sections of Chapter 6, the author identified the reformed procurement regime and the principles underlying the structure of the reforms being implemented. In this chapter, the consideration of the impact of the APP is extended to include components of supply-side measures.
RECENT SOUTH AFRICAN SUPPLY SIDE INITIATIVES
GENERAL APPROACH TO TESTING THE HYPOTHESIS
The research was carried out across the order value range from R100 000 to R2 000. The selection of the sample was based on the criterion that the companies were awarded at least one contract between May 1996 and January 1998. The combination of general general and civil contracts in the research sample comprise 51% of the universe. For the reasons given on page 7.6, the survey sample is sufficiently representative of the range of contract types in the contracting world for the study period.
PRESENTATION AND INTERPRETATION OF RESULTS ON THE ROLE OF SUB- SECTOR ASSOCIATION IN THE ESTABLISHMENT OF THRESHOLDS
Membership of the South African Federation or Civil Engineering Contractors (SAFCEC) is not mandatory for participation in the civil sub-sector. Membership of the National Black Contractors Association and AUied Trades (NABCAT) is not mandatory for so-called Black Contractors entering into general construction contracts. Membership of the Electrical Contractors Association (ECA) is not mandatory for participation in the electrical sub-sector.
PRESENTATION AND INTERPRETATION OF RESULTS ON STRUCTURED SUB- SECTOR THRESHOLD RESEARCH
The data in Table 7.12 highlight a clear distinction between ABEs and non-ABEs in terms of highest public contract prices. The data obtained regarding the value of vehicles and plant owned is shown in table 7.21. The data for both ABEs and non-ABEs suggest a positive relationship between firm size and capitalization level.
