Presented by: Dr. DEEN LETCHMIAH

Presented by: Dr. DEEN LETCHMIAH

PRESENTATION FORMAT INTRODUCTION INFRASTRUCTURE DELIVERY CHALLENGES & OPPORTUNITIES PUBLIC PROCUREMENT REGIME SOCIO-ECONOMIC OBJECTIVES IMPLEMENTATION METHODOLOGY CHALLENGES AND CONSTRAINTS QUESTIONS

INTRODUCTION Integrating Infrastructure Delivery and Socio-economic goals Major Challenges of Poverty, Unemployment and Inequality Construction Industry recognised as one of the more efficient sectors to generate employment and create business opportunities Appropriate procurement methodology is key to successful socioeconomic outcomes Compliance with existing constitutional and legislated procurement framework

GINI COEFFICIENT The Gini coefficient is an index that measures the degree of inequality in the distribution of family income in a country The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income and everyone else has zero income).

HIGHEST TEN LOWEST TEN 1 Seychelles 0.658 2 Comores 0.643 3 Namibia 0.639 4 South Africa 0.631 5 Micronesia 0.611 6 Botswana 0.61 7 Haiti 0.592 8 Zambia 0.575 9 Honduras 0.57 10 Central African Republic 0.563 World Bank 2012 1 Denmark 0.247 2 Japan 0.249 3 Sweden 0.25 4 Ukraine 0.256 5 Norway 0.258 6 Czech Republic 0.258 7 Slovakia 0.26 8 Belarus 0.265 9 Finland 0.269 10 Romania 0.274

INFRASTRUCTURE DELIVERY CHALLENGES AND OPPORTUNITIES

CHALLENGES High unemployment levels Poverty alleviation Rate of Service delivery Availability of Skills and competencies Barriers to entry Capacity limitations Collusion Slow pace of economic transformation

PUBLIC SECTOR PROCUREMENT IN SOUTH AFRICA EXPRESSED AS A PERCENTAGE (24%) OF GDP 11% 5% 2% 6% National Provincial Local authorities State owned enterprises

National Infrastructure Plan (2012) Established the Presidential Infrastructure Co-ordinating Commission (PICC) to co-ordinate, integrate and accelerate implementation Primary objectives: Transform the economic landscape Create new jobs Strengthen the delivery of basic services Implement a program of capacity building and skills transfer Construction Sector through infrastructure delivery identified as a key Jobs Driver

National Infrastructure Plan (2012) INFRASTRUCTURE DELIVERY IS CRITICAL TO : Promote balanced economic development Unlock economic opportunities Address socio-economic needs Promote job creation Help integrate human settlements and economic development

National Infrastructure Plan (2012) IMPROVING PERFORMANCE ON INFRASTRUCTURE PROJECTS Challenges: Poor planning at institutional level Slow approval of projects Late start to projects Poor quality of execution High costs and monopoly pricing Poor industry reaction time Poor project controls (schedule, cost, quality,safety, health and environment) Tender abuses and corruption Unrealistic acceleration Unplanned and costly rework of designs or construction No political alignment with no champion Lead time delays Slow or non-payment of contractors.

National Infrastructure Plan (2012) IMPROVING PERFORMANCE ON INFRASTRUCTURE PROJECTS Actions: Programme to coordinate improvement in project-related skills with emphasis on project management Align the national, provincial and local structures Align the investment plan with funding allocation Predictable process for triggering of national projects, including regulatory approvals Strong policy direction for incentivisation of supplier development, localisation and private sector participation Plan and build projects that promote low life-cycle costs Standardised designs and delivery Strengthening project controls and monitoring Standardised and simple automated reporting to track project progress and performance Early warning to address bottlenecks New compact with private sector.

PUBLIC PROCUREMENT REGIME

THE SOUTH AFRICAN PROCUREMENT REGIME Good governance in procurement SA Constitution (1996) Attaining socioeconomic objectives through procurement Public Finance Management Act (1999) (for National and Provincial Government) + Municipal Finance Management Act (1999) (for Local Government) Preferential Procurement Policy Framework Act (2000) + Broad Based Black Economic Empowerment Act (2003)

CONSTITUTIONAL REQUIREMENTS Organs of State (national, provincial and local) or any other institution identified in national legislation must contract for goods and services using a system which is : fair equitable transparent competitive cost effective

CONSTITUTIONAL PROVISIONS Furthermore, organs of state or institutions can implement a procurement policy which incorporates :- (a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination

SA LEGISLATION AND ECONOMIC TRANSFORMATION OBJECTIVES Section 217 of the Constitution (Act 108 of 1996) Preferential Procurement Policy Framework Act (Act 5 of 2000) BEE Codes of Good Practice Public Finance Management Act (Act 1 of 1999) Broad-Based Based Black Economic Empowermen t Act (Act 53 of 2003) BBBEE Transformation Charters & BBBEE Scorecards

GOALS PROVIDED FOR IN THE PPPFA The framework states that specific goals may include: i) contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability. ii) implementing the programme of the Reconstruction and Development Programme as published in Government Gazette no. 16085 dated 23 November 1994.

PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT (Act 5 of 2000) 1(e) any specific goal for which a point may be awarded, must be clearly specified in the invitation to submit a tender; (2) Any goals contemplated in subsection 1(e) must be measurable, quantifiable and monitored for compliance.

PREFERENTIAL PROCUREMENT DEFINITION : Preferential procurement policy is defined as a procurement policy that provides objectives additional to those associated with the immediate objective of procurement itself.

PREFERENTIAL PROCUREMENT Provides employment and business opportunities to targeted groups NOTE: Preferential Procurement does not guarantee work to the targeted group.

PPPFA ALIGNED TO BBBEE New Preferential Procurement Regulations gazetted on 08 June 2011 - aligned with the prescripts of the Broad-Based Black Economic Empowerment Act No. 53 of 2003 Effective from 07 December 2011 The 20 or 10 points is now awarded to a tenderer based on its BBBEE status level only and not HDI ownership

ALLOCATION OF 80/20 POINTS B-BBEE BBEE Status Level of Contributor Number of Points 1 20 2 18 3 16 4 12 5 8 6 6 7 4 8 2 Non-compliant contributor 0

ALLOCATION OF 90/10 POINTS B-BBEE BBEE Status Level of Number of Points Contributor 1 10 2 9 3 8 4 5 5 4 6 3 7 2 8 1 Non-compliant contributor 0

RELEVANT FINDINGS OF RECENT RESEARCH Pre 2011 PPPFA Regulations contributed to increased participation of those enterprises with HDI shareholding However, high number but low monetary value of contracts <= R 500 000 therefore limited success Financial premium from 2006 to 2010 (5 year period) was 1.4% of cumulative value lower than assumed New PPPFA Regulations (2011) make no provision for implementing RDP goals as contemplated in the PPPFA

SOCIO-ECONOMIC OBJECTIVES

PROCUREMENT AS AN INSTRUMENT OF POLICY Internationally procurement has been used to: stimulate economic activity; protect national industry against foreign competition; improve the competitiveness of certain industrial sectors; remedy regional disparities; achieve certain more directly social policy functions

TYPICAL DEVELOPMENT OBJECTIVES Development of sectors of an industry, e.g. Small business, women owned business and local industry development. Development of sub-contractors to Prime Contractors. Development of management capacity of small businesses Local Economic Development Job Creation Poverty Alleviation Community-based developments

FACTORS TO CONSIDER Policy objectives - business empowerment - employee empowerment - job creation - development of SMEs - poverty alleviation - community based developments - local economic development Target group - Targeted Enterprises race / ethnicity / gender / size / locality / community parameters - Targeted Labour disability / age / residency / race ethnicity / gender / wage levels / period of unemployment

TARGET GROUP DEFINITION Labour locality gender, race, ethnicity,citizenship age wage levels disability period of unemployment

TARGETS Must be : definable measurable quantifiable verifiable auditable

PPPFA SPECIFIC GOALS RELATING TO RDP the use of local resources the use of labour intensive methods the use of small, medium and micro enterprises job creation equity shareholders affirmative action principles promotion of local enterprises skills training and development; and community and social investment

CORE COMPONENTS OF BROAD-BASED BASED BLACK ECONOMIC EMPOWERMENT CHARTERS Ownership Strategic Representation Employment Equity Skills Development Preferential Procurement Enterprise Development Corporate Social Investment

IMPLEMENTATION METHODS

PROCUREMENT Is the process which creates, manages and terminates Contracts.

PROJECT IMPERATIVES PROJECT IMPERATIVES TRADITIONAL: Time Quality Cost ADDITIONAL IMPERATIVE: Socio-economic objectives Project Deliverable product and process

PRIME CONTRACTS The Client The Contracting Entity (Prime Contractor) The Sub-Contractor

STRUCTURED JOINT VENTURES The Client The Contracting Entity Contractor A Contractor B The Sub-Contractor

DEVELOPMENT CONTRACTS The Client THIRD PARTY MANAGEMENT SUPPORT Performs those functional activities, which the Contractor is unable to perform. The Contracting Entity Performs some functional activities

FACTORS TO CONSIDER Simplification in bid submission requirements Broadening of participation base of small suppliers Waiving of bid requirements Contractor registration / prequalification systems Procurement documentation Dispute mechanisms

DEFINING AND QUANTIFYING SOCIO-ECONOMIC DELIVERABLES Requires a measurable component to enable the amount of participation by the target group to be quantified To provide a level playing field for all tenderers, socio-economic deliverables and related specifications must be clearly and precisely defined. The key elements associated with socio-economic objects must accordingly: Define what constitutes each target group; Set goals (targets), measurable in monetary terms, which can be met by engaging the target groups in the pursuit of predetermined socio-economic / development objectives; Provide for the measurement of key indicators to ensure that goals may be quantified and audited during the performance of the contract; and Set out of the manner in which goals can be achieved, as well as what and how penalties will be applied in the event that a contractor fails to meet his contractual obligations.

UNBUNDLING STRATEGIES Either contract directly with a public body as the prime contractor, or participate as a subcontractor Unbundling involves breaking down the tender into work components that are small enough for targeted enterprises to compete as a main contractor, or which are suitable for subcontracting as part of the main contract. Unbundling strategies afford participation opportunities to the full spectrum of targeted enterprises, from those operating as labour only contractors to those operating as prime contractors.

TARGETED PROCUREMENT SYSTEM Targeted Procurement provides employment and business opportunities for historically disadvantaged businesses, marginalized individuals and poor communities. The use of Targeted Procurement enables contracts to be unbundled in a number of ways, viz.: by procuring works in the smallest practicable quantities by obligating prime contractors to engage targeted enterprises in the performance of their contracts in terms of resource specifications by requiring joint venture formation between large businesses and targeted enterprises (known as Structured Joint Venture); and by providing third party management support to enterprises which are not capable of operating as prime contractors (known as Development Contracts).

CONVENTIONAL PROCUREMENT SYSTEM INPUT Materials Plant/equipment Labour Management skills OUTPUT Goods Services Products Assets Economic benefits PROCESS Technical specifications Technical design Contracting strategies Technical quality assurance

TARGETED PROCUREMENT SYSTEM INPUT PROCESS Materials Plant/equipment Labour Management skills OUTPUT Technical specifications Technical design Contracting strategies Technical quality assurance Resource specifications Targeting strategy Technology choice Compliance monitoring Goods - Focussed business Services participation Products - Focussed employment Assets opportunities Economic and social benefits

THE TARGETED PROCUREMENT SYSTEM This system permits socio-economic deliverables (goals and targets) to be : Clearly defined so that they are legally enforceable. Measurable and quantifiable for the purpose of monitoring and evaluation. Verifiable and auditable to satisfy public sector accountability.

MONITORING REQUIREMENTS AS SPECIFIED IN PPPFA 1(e) any specific goal for which a point may be awarded, must be clearly specified in the invitation to submit a tender; (2) Any goals contemplated in subsection 1(e) must be measurable, quantifiable and monitored for compliance.

TARGETED PROCUREMENT SPECIFICATIONS Presently available as South African National Standards (SANS) documents (www.sans.org.za) Types of Resource Specifications Resource Specifications Document Reference Socio-Economic Objectives Targeting of Affirmable Business Enterprises (ABE s) Structured Joint Ventures (Affirmable Partners) Structured Joint Ventures (Targeted Partners) Targeting of Local Resources Engagement of Targeted Labour Targeting of Affirmable Professional Service Providers TP1 (APP1) TP2 (APP2) TP3 (APP3) TP4 (APP4) TP5 (APP5) TP6 (APP6) Development of sectors of an industry, e.g. SMME s, HDI owned business, women owned business and local industry development. The specification provides for affirmative participation targets to be set by the Client which a contractor is required to meet in order for the tender to be responsive. Development of sub-contractors to prime (main) contractors and development of management capacity of emerging contractors. The specifications provide for the setting of joint venture participation targets by the Client which promotes participation of target enterprises in a structured manner. Local economic development; job creation; poverty alleviation; and community based developments. The specification provides for the setting of participation targets for the procurement of local resources in contracts. Job creation for targeted sectors of the population (based on race, gender, disability, age, period of unemployment, etc.) and poverty alleviation. The specification provides for the setting of targeted labour participation and requires contractors to engage labour in accordance with the specified conditions. Development of sectors of the built environment professions to facilitate skills development and capacity building. The specification is used for the appointment of Affirmable Professional Service Providers.

EXAMPLE: PARTICIPATION OF TARGETED LABOUR These Special Conditions of Bid refer to and are read together with the procedures for Targeted Construction Procurement - Part 5: Participation of Targeted Labour (SANS 1914-5: 2002) Targeted Labour refers to South African citizens classified as Youth who permanently reside, where practical, within a 50km radius of each applicable school. It is incumbent on individuals to demonstrate their claims to such residency on the basis of identification and association with and recognition by members of the school and extended community residing within the target area. Youth refers inclusively to young people within the age group of 14 to 35 years as defined in the National Youth Policy 2009-2014. The Employer has determined the minimum Contact Participation Goal (CPG) for this contract to be 10 % (ten per cent). The minimum CPG is a functionality criteria and any bidder not meeting this requirement will be considered non-responsive and accordingly the bid will be disqualified. Penalty for Non-compliance - The Contractor shall pay penalties in accordance with the following formula: Rand Value of Penalty = 0.05 x (D Do) x Net Amount (D) Where D = the bid Contract Participation Goal percentage Do = Contract Participation Goal achieved in the contract

EXAMPLE: PARTICIPATION OF TARGETED ENTERPRISES These Special Conditions of Bid refer to and are read together with the procedures for Targeted Construction Procurement - Part 1: Participation of Targeted Enterprises (SANS 1914-1: 2002) Targeted Enterprises refer to Youth Owned Contractors as registered with CIDB in the GB Category. The Employer has determined the minimum Contact Participation Goal (CPG) for this contract to be 50 % (fifty percent). The minimum CPG is a functionality criteria and any bidder not meeting this requirement will be considered non-responsive and accordingly the bid will be disqualified. Penalty for Non-compliance - The Contractor shall pay penalties in accordance with the following formula: Rand Value of Penalty = 0.10 x (D Do) x Net Amount (100 Ds) Where D = the Bid Contract Participation Goal percentage Do = Contract Participation Goal achieved in the contract Ds = the specified minimum Contract Participation Goal percentage 100 = the maximum possible Contract Participation Goal percentage that can be achieved

EVALUATION OF TENDERS ON FUNCTIONALITY Must indicate in the invitation to tender if to be evaluated on functionality If evaluating on functionality, the criteria must be clearly specified in the tender invitation Will not be an acceptable tender if it fails to achieve the minimum score for functionality Only tenders achieving the minimum qualifying score will be evaluated further using the points system

EMPOWERMENT REQUIREMENTS IN CONCESSION CONTRACTS Equity by Disadvantaged Persons in the Bidding Entity Business Participation by Target Groups Employee Empowerment

PUBLIC FINANCE MANAGEMENT ACT (PFMA) REQUIREMENTS FOR PROCUREMENT AND DELIVERY MANAGEMENT Accounting officers are required to have: an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective; effective, efficient and transparent systems of financial and risk management and internal control; and a system for properly evaluating all major capital projects prior to a final decision on the project.

CHALLENGES & CONSTRAINTS

CONSTRAINTS TO BUSINESS DEVELOPMENT access to markets skills finance supportive institutional arrangements.

CHALLENGES AND BARRIERS Resistance to Change Prejudice / Attitudes Fronting and Abuse Lack of Monitoring and Reporting Effective Supply Side Measures Quality Management and Assurance

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