In an interview with IMIESA, Frikkie Oosthuizen, executive: Contractual Affairs & Support Services, South African Forum of Civil Engineering Contractors (SAFCEC), reports on market conditions and the road ahead.
What is the current state of the civil engineering industry and how does it look going into 2017?
FO: We are all aware of the current and continued depressed market conditions following the 2008 global economic crash. South Africa weathered this storm well, but it clearly had a ripple effect on today’s trading conditions, which remain weak and at low levels, with year-on-year contractions that mean everyone is competing for a smaller slice of the cake. That’s why it’s especially important for current and future SAFCEC members to work together as we lobby and engage with central, provincial and local government entities to find solutions for the development of South African infrastructure, alleviate key bottlenecks, and promote and develop emerging contractors.
Based on our surveyed, quarterly Confidence Index, sentiment is realistically lower, but optimism is on the rise, with active tendering in place, supported by a medium-to-longer-term positive outlook. This is underscored by the industry’s focus on developing and retaining core skills, despite a general decline in employment among members.
What is the current industry status in terms of tender process management and facilitation?
A key development in 2016 and going into 2017 is the South African National Treasury Standard for Infrastructure Procurement and Delivery Management (SIPDM), which came into effect on 1 July 2016 for organs of state, with the exception of municipalities, which have a year’s extension to comply.
This standard makes a distinction between the procurement of ordinary goods and services, and that of infrastructure development. The latter term is broadly defined to describe the full spectrum of construction works, from roads, to airports and sanitation.
The significance of SIPDM is that construction procurement will no longer be limited by constraints in the routine procurement of goods and services. Traditionally, efficiencies in the successful delivery of infrastructure projects in the fixed goods and services procurement environment have been hampered.
Typically, construction projects are once-off endeavors, which means a degree of variation is to be expected that needs to be factored in. All standard forms of construction contracts make provision for a variation clause; i.e. alterations are permitted in the form of additions, substitutions or omissions from the original scope of works.
Thanks to SIPDM, infrastructure procurement will now be dealt with separately and independently, with its own unique construction-related processes. A significant change is that the process must be managed by a designated built environment professional. Additionally, all projects above R10 million must be submitted to National Treasury for vetting and review.
SAFCEC looks forward to this new shift in procurement emphasis. Hopefully, longer-term relational contracting will become the norm – minimising the potential for confrontation. We believe that SIPDM will assist South Africa as a whole in delivering more successful infrastructure development projects. Reduction in costs should also be fundamental in this process.
How is SAFCEC responding to the need for industry transformation?
Our vision is to become an inclusive industry and we continue to broaden our reach as an employer organisation.
SAFCEC has achieved its transformation goals, with more than 50% of our members now comprising black-owned businesses. We now need to take this to the next level. The current emphasis is to develop the ability of these emerging contractors in core areas such as health and safety, environmental management, and human resource development and training.
As a member of the Construction Charter Council, which comprises 16 organisations, we have been instrumental in achieving a very progressive revision of the construction specific sector codes based on the most recent BBBEE scorecard. These have been successfully submitted to the Department of Trade and Industry for approval and promulgation. We believe that SAFCEC, together with all other members, has played a critical role in bringing the industry together. The basic general industry scorecard requires 25% black ownership. We have set the bar much higher, with a 35% target for construction-related companies. Admittedly, our industry is still below 25%, but there is huge commitment from our members to not only meet, but to exceed the new target. So there’s tremendous growth potential.
What are the implications of the proposed new regulations in terms of the Preferential Procurement Policy Framework Act (PPPFA)?
The proposed new regulations set out in the PPPFA have a major influence on transformation. SAFCEC believes that we need a PPPFA that is transformative, yet realistic from a procurement perspective.
The revised PPPFA focuses on a company’s BBBEE status, tender contract price, and functionality (the ability to execute work). This means that a lower-rated BBBEE organisation would need to reduce their price considerably in order to remain competitive. Another new requirement proposed is that 30% of all projects above R30 million must include provisions for subcontractors in specific designated groups, including EMEs and QSEs, to avoid incurring penalties.
What is the current status in terms of labour relations?
SAFCEC continues to contribute proactively to labour relations through our role at the Bargaining Council for the Civil Engineering Industry. In 2015, we were part of a successful team that negotiated a three-year wage agreement. Generally, we have a stable industry with minimal labour unrest. This is underscored by the maturity of the trade unions who represent organised labour in the civil engineering industry.
What role does SAFCEC play in growing South Africa’s skills pool?
Despite the quiet period we’re currently experiencing, we need to keep investing in education and training. Through our Education, Training and Development support service, we have developed and submitted three new qualifications to the Quality Council for Trades & Occupations for review and registration. These new courses comprise Services Constructor, Roads Constructor, and Structures Constructor qualifications, which will serve as preparation for individuals at artisan level and beyond for ongoing career path development. The courses are funded by and are under the auspices of the Construction Education and Training Authority.
How are things progressing with the Diamond Academy?
This year has already seen our Diamond Academy take place in Johannesburg, Port Elizabeth and Cape Town. The Diamond Academy concept was introduced some years ago and was relaunched in 2015. The academy is an initiative we’re very passionate about, as its purpose is to develop emerging contractors in all areas of a civil engineering business and its successful operation.
Our modules are all formulated to develop the skills required for successfully managing and advancing a business. One of the course highlights is the project execution and control module, with delegates learning how projects should be managed to ensure successful outcomes. Facilitators of the modules include our own in-house subject matter experts, as well as external industry experts. SAFCEC’s established members also volunteer their time to facilitate modules in areas in which they have a great deal of knowledge and experience, making the Diamond Academy a truly inclusive initiative.
The academy is not restricted to SAFCEC members only and is open to anyone in the civil engineering industry, although SAFCEC members derive exclusive benefits in terms of costs. Our objective is to host Diamond Academy sessions in closer proximity to our members.
How does SAFCEC view the future of public-private partnerships (PPPs)?
While the PPP model does have merit for South Africa, one of the key barriers to its implementation is the concern by investors over payment guarantees.
The private sector certainly has the resources and skills to participate in PPP infrastructure developments like wastewater treatment plants, hospitals and toll roads. However, the broader South African community is yet to appreciate the rationale behind, and the purpose of, PPPs. This is evidenced by the ongoing resistance to the Gauteng Freeway Improvement Project. A new mind shift is required in this regard.
Are SAFCEC members considering expanding into Africa?
Undertaking projects in Africa has received renewed focus by SAFCEC member companies. Up until now, South African construction companies have been successful in areas such as mine development, roads and dam construction, but in a more standalone capacity.
SAFCEC is in discussion with various bodies that include the Construction Industry Development Board, Master Builders South Africa, the Black Business Council in the Built Environment, and the Built Environment Professions Export Council (BEPEC), all under the auspices of the Department of Trade and Industry, to explore the potential for a more unified industry approach.
Historically, the construction industry has not been part of an export council. Going forward, contractors will be able to join BEPEC as full members. The objective is to unite local construction under the banner of “South Africa Inc.” so that we can compete competitively in Africa on major infrastructure projects. So, let’s export South African construction.
What are the benefits of being a SAFCEC member?
We are a member-driven organisation and the voice of the civil engineering industry. Joining SAFCEC provides an invaluable forum and platform for change, together with a comprehensive suite of services that help member companies maintain and grow their businesses. Equal benefits and services are provided to all member companies, irrespective of their size.
A critical benefit is that members are given a “seat at the table”, which is particularly important when it comes to labour bargaining councils. You must be a member to engage and have input on wage issues.
SAFCEC’s areas of expertise include expert advice and support in the areas of human resource management; labour relations; contractual and economic affairs; education, training and development; and safety, health, environment, risk and quality management. SAFCEC also monitors, collates and publishes projects out to tender from more than 100 tender websites and publications on a daily basis. These are all distributed to our members through our subscription-based tender bulletin. SAFCEC also publishes monthly CPAF indices as an exclusive member benefit.
We keep members up to date on current industry developments and provide support on issues and challenges experienced within the civil engineering contracting environment. This includes facilitation between members and public entities such as the CIDB, organs of state, metros and local municipalities. We also assist members with the drawing up of industry scorecards in a very complex environment.
We have a range of committees and subcommittees to address specific industry sectors, and their success is dependent on member participation. The rewards of being involved translate into more efficient and compliant businesses.
In summary, SAFCEC is a voluntary organisation that has developed a long-term focus to overcome short-term hurdles. We are excited about the future of South African construction, in particular the civil engineering sector.