CONSTRUCTION MONITOR Transformation Q4 2015
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1 CONSTRUCTION MONITOR Transformation Q4 2015
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3 CIDB CONSTRUCTION MONITOR TRANSFORMATION; JANUARY Introduction 1 2. Transformation of the Construction Industry Transformation Summit (November 2012) Workshop on the Effectiveness of the Construction Sector Charter (March 2014) CSCC Baseline Report (April 2014) 3 3. Transformation of the Built Environment Professions Sector Black-Ownership Black Management Control Employment Equity 5 4. Transformation of the Contracting Sector Black-Ownership Women Ownership BB-BEE Recognition Level Contracts Awarded 9 Appendix 1: Provincial Data: Black-Ownership; Contractors 11 Appendix 2: Provincial Data: Woman Ownership; Contractors 15
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5 CIDB CONSTRUCTION MONITOR TRANSFORMATION; JANUARY 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 covers empowerment issues in the construction industry, focusing on Quarter 1 of 2015 to Quarter 4 of The Monitor 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 Monitor draws largely on information obtained from the cidb Register of Contractors, the cidb Register of Projects and the Consulting Engineers South Africa (CESA) Bi-Annual Economic and Capacity Survey. 1
6 2. Transformation of the Construction Industry Background and context to the state of transformation is given below, in which reference is made to several conferences, workshops and publications with regard to the state of transformation in the construction industry (which are available from the cidb). These references date between 2012 and 2014, but still reflect important insights into the state of transformation in the industry. However, other that the cidb Register of Contractors, the CESA Bi-Annual Economic and Capacity Survey and the Construction Sector Charter Council (CSCC) annual report of compliance which is not available at the time of writing this report, there are no other systematic assessment of the state of transformation of the industry. The 2012 to 2014 references have been reported on the in the cidb Construction Monitor Transformation; January This Monitor deals primarily with the information from the cidb Register of Contractors and the CESA Bi-Annual Economic and Capacity Survey. This 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. 2
7 vi) vii) 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. 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 Baseline Report, State of Empowerment in the Construction Sector since the Gazette of the Construction Empowerment Code in was released by the CSCC in April 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. 3
8 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 Consulting Engineers South Africa (CESA) Bi-Annual Economic and Capacity Survey taken from January to June 2015, together with other data available from CESA. In this regard it should be noted that while CESA represents a large proportion of consulting engineers, it does not represent all consulting engineers in South Africa 3.1 Black-Ownership An assessment of data obtained from CESA membership data (as of end-december 2015) shows that the total number of companies with black ownership exceeding 50% has increased from 12% to 15% over the past year. A detailed breakdown of the number of companies by turnover with black ownership exceeding 50% is given below. Source: CESA Membership Database, December Black Management Control An assessment of data obtained from CESA membership data (as of end-december 2015) shows the black executives as a percentage of the total executives have increased from 30% in 2012Q4 to 40% in 2015Q2. Even though this increase is encouraging, it is noted that the state of transformation is not representative of the demographics of South Africa. Source: CESA Bi-Annual Economic and Capacity Survey; 2006Q2 2015Q2 4
9 3.3 Employment Equity An assessment of employment equity obtained from CESA membership data (as of end-december 2015) shows total black employees as a percentage of total employees have increased marginally from 45% in 2012Q4 to 47% in 2015Q2. Again, it is noted that the state of transformation is not representative of the demographics of South Africa. Source: CESA Bi-Annual Economic and Capacity Survey; 2006Q2 2015Q2 A breakdown of black employees as a percentage of total employees by job type is given below for 2015Q2. Professional black staff accounts for only 14% of total professional staff. Source: CESA Bi-Annual Economic and Capacity Survey; 2006Q2 2015Q2 5
10 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 the cidb Register of Projects. 4.1 Black-Ownership Details of black ownership of cidb registered contractors (defined as ownership control of 50% or more) for South Africa is given below. (Details for selected provinces are given in Appendix 1, while details of other provinces can be provided on request.) 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 88% of all Grade 5 and 6 GB and CE contractors are black-owned, while around 75% of all Grade 7 and 8 GB and CE contractors are black-owned. Blackownership of Grade 9 contractors has improved in both GB and CE classes of works from 25% to 33% in CE and from 30% to 40% in GB over the past quarters. The history profiles of black ownership for South Africa as a whole is shown in the following figures (see also Appendix 1). Of concern is that while black ownership representation shows improvement over time, overall, black ownership representation has not increased significantly over the past three years in the higher level grades. 6
11 South Africa 4.2 Women Ownership Details of woman 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 Grade 2 to 4 General Building (GB) and Civil Engineering (CE) contractors are women owned. Around an average of 45% of all Grade 5 and 6 GB and CE contractors are woman-owned, while around 40% of all Grade 7 and 8 GB and CE contractors are woman-owned. Woman ownership of Grade 9 GB and CE contractors has increased significantly from 24% to 31% in GB and 16% to 31% over the past four quarters. 7
12 The history profiles of woman ownership for South Africa as a whole is shown in the following figures (see also Appendix 1). Even though there have not been any substantial changes in the Grades 2 to 6, there has been a slight increase in the Grades 7 to 9 in GB and CE. South Africa 8
13 4.3 BB-BEE Recognition Level For the period under review (2015Q1 to 2015Q4), the BB-BEE Level 3 and above and Level 4 and above contributors are shown in the following figures. 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 to black-owned companies during the four quarters under review are shown in the adjacent 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 62% of the contract awards by value have been awarded to black contractors in Grades 7 & 8 for CE and around 72% for GB Grades 7 & 8. 9
14 An alternative estimate of the value of the public and private sector contracts awarded to black owned companies is also given in the figure below, obtained from the turnover reflected in the companies recent financial statements. This estimate suggests that black owned companies in Grades 2 to 4 generate around 65% of the total turnover of Grade 2 to 4 contractors and to around 50% in Grades 5 to 8. 10
15 Appendix 1: Provincial Data: Black-Ownership; Contractors Eastern Cape 11
16 Gauteng 12
17 KwaZulu-Natal 13
18 Western Cape 14
19 Appendix 2: Provincial Data: Woman Ownership; Contractors Eastern Cape 15
20 Gauteng 16
21 KwaZulu-Natal 17
22 Western Cape 18
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24 Pretoria Head Office / cidb Gauteng Provincial Office Pretoria Western Cape Provincial Office Cape Town Eastern Cape Provincial Office Bisho Northern Cape Provincial Office Kimberley Free State Provincial Office Bloemfontein KwaZulu-Natal Provincial Office Durban Limpopo Provincial Office Polokwane Mpumalanga Provincial Office Nelspruit (Mbombela) North West Provincial Office Mahikeng Anonymous Fraud Line Call Centre:
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