3.1. Opportunities and Constraints
3.2. Access to tendering information and the simplification
of tender documents
3.3. Breakout procurement (Unbundling)
3.4. Awarding of tenders in terms of a development objective
/ price mechanism
3.5. An affirmative small, medium and micro enterprise participation
programme
3.6. Promoting employment-intensive practices
3.7. Affirming marginalised sectors of society in construction
projects
3.8. The development of an Affirmative Procurement Policy
| The aim of the review process is to develop a national
procurement
system that promotes the principles of the Reconstruction and Development Programme and government's policies relating to socio-economic objectives. Emphasis is placed on the facilitation of easy access for small, medium and micro enterprises, particularly those owned and controlled by previously disadvantages persons, into the mainstream procurement activities funded by the Public Sector. The aim of empowering small, medium and micro enterprises so that they can access the procurement process will be directed towards having a spin-off in the formalisation of a previously informal sector of the economy. This in turn will have spin-offs in the form of a broadened tax base, improved labour standards and structured economic growth. |
Objectives:
3.1.1 Description
Procurement Policy should complement the macro-economic strategy and extend affirmative action into the area of economic development.
There is undoubtedly a need to fundamentally transform the existing public sector procurement system in order that it responds to current needs of South African society. Current policies and procedures tend to favour the larger and better established entrepreneurs and do not create a favourable environment for small, medium and micro enterprises, in particular those owned and controlled by previously disadvantaged persons, to access the mainstream procurement activities funded by the public sector. In addition, the control of economic power that established business has continued to hold, following South Africa's democratisation, has rendered the country's political transformation meaningless for many. While it seems logical that established business will always support economic growth and a market economy, these have not always been popularly embraced by emerging business as they are not necessarily accompanied by empowerment strategies. Debate and discussion on the racial composition of the business sector and affirmative action will continue as long as disadvantaged businesses are not actively participating in the mainstream economy.
It is imperative that the historical distortions that have negated the increase in business opportunities that could have emanated from entrepreneurship and natural partnerships be reversed.
A fundamental requirement for any new procurement policy is that it should be in line with the Government's overall macro-economic strategy with the acceptance that the country is now operating in a changed environment both locally and internationally. It should, therefore, be reflective of the changed environment, embrace representative government and take cognisance of the authority vested in the provincial and third tier government structures and the provisions of the constitution in a pragmatic manner. Furthermore, it should form part of the strategy for rebuilding and restructuring as envisaged in the Reconstruction and Development Programme. As such, the policy should extend the principles of affirmative action into the area of economic development.
3.1.2 Vision
To realise the potential of public sector procurement as an instrument of policy in the socio-economic transformation process.
Secondary vision
To utilise procurement as a mechanism and a tool for extending the principles of affirmative action into the area of economic reform.
3.1.3. Constraints
Public sector procurement can be used as an instrument of policy in the transformation process.
In theory the only constraints to the attainment of the vision are those relating to constitutional provisions and legal issues. In practice, however, the constraints could include the lack of political will, and the lack of willingness and/or determination of officials to implement the proposed procurement policies as a means of transformation in a systematic manner.
3.1.4. Discussion
It is generally accepted that black economic empowerment needs to be a focal point in the government's policy framework as the continued exclusion of most of the population from the mainstream economy would have serious long-term consequences. There has to be a mechanism whereby the Government can reverse the economic inequities of centuries of systematic black disempowerment. An expanding black middle class, fueled by education, employment and business development programmes designed to overcome historic, legalised, racial discrimination, will open new markets for South African products. Businesses will be able to increase their competitiveness by bringing in a whole new class of productive employees and, at the same time, adding a fresh perspective to the traditional corporate culture. The objective is to right a wrong, not to damage or punish persons who benefited from the old system.
Government's role in economic growth and development is significant. If present trends continue, economic disparities between the haves and have-nots will move from inequitable to inhuman. There is an urgent need to ensure that empowerment of the majority of the people keeps pace with economic growth. The task of government, therefore, is to harness the energies of the people into a significant force so that the expected economic growth advances human development, sustained employment and equity.
Constitutional provisions do not rule out affirmative action.
i. Legal and Constitutional provisions
Any proposed strategy must be in accordance with South Africa's legal and Constitutional provisions. The interim Constitution under section 26 (1 & 2) stated that every person shall have the right to engage freely in economic activity, but does not preclude measures designed to promote inter alia, human development, social justice and equal opportunity for all, since such provision are justifiable in an open and democratic society based on freedom and equality. Further, the interim Constitution stated under sections 8 (2) and 8 (3) (a) that no person shall be unfairly discriminated against, but this provision does not preclude measures designed to achieve adequate protection and advancement of persons or groups or categories of persons previously disadvantaged by unfair discrimination, in order to permit their full and equal enjoyment of all rights and freedoms. These principles are embodied in the 1996 Constitution.
The underlying aim of the Constitution is to form a bridge from an unjust past system to a future underpinned by openness, democratic principles, human rights, reconciliation, reconstruction and peaceful co-existence. It further provides a bridge between the past of a divided society characterised by suffering and injustice, and a future founded on the recognition of, inter alia, development opportunities. The pursuit for the well-being of all citizens requires the reconstruction of society. There is a need for reparation. The effect of this is that it can be argued that the requirement of the Constitution for the tendering system to be fair, equitable, transparent, competitive, and cost effective, does not necessarily rule out the principles of affirmative action.
A system which includes some, but specifically excludes others, may violate Constitutional rights.
Clearly, this calls for a well formulated and structured approach that will promote the long term interests of the country without the exclusion of any person or group of persons. A system that promotes opportunities for some, but specifically excludes others by reserved procurement, or set aside schemes, can be considered to violate the rights of individuals in terms of the Constitution and may not be legally enforceable. What is necessary is a procurement option based on a philosophy of targeting. This would permit all to engage in economic activity in a fair, equitable, transparent, competitive and cost effective manner, whilst containing measures to promote human resource development and equal business opportunities. It would allow all to participate, but would tip the scales in favour of the target group. Thus, tenderers who choose not to meet certain requirements would be penalised, but would not be precluded from participating. On the other hand, those who fall within the targeted group and meet all the relevant requirements cannot be permitted to hold a project to ransom in terms of price and the reward for compliance must be able to be outweighed by penalties incurred through uncompetitive prices. The objective of meeting the short term demands of redistribution and economic empowerment should not necessarily result in additional costs being incurred, or in loss of competitiveness.
Partnerships between established and disadvantaged sectors needs to be established.
Competition has, by any measure, been shown over and over again to be a driving force behind increased standards of excellence. What is therefore necessary is a system that can be used to overcome the competitive advantages of established business created by discrimination and compounded over time by intergenerational transfers of human and financial capital. If the law created the disparity then the law must remedy the inequity. Targeted programmes will expand competitiveness and efficiency by encouraging black business development and capital formation, thereby raising living standards for all South Africans.
Appropriate targeting will facilitate partnerships between businesses in the established and the disadvantaged sectors, and could herald the beginning of a system that will deracialise business ownership and control. This will eliminate the sectarian nature of the economy which continues to create divisions in the socio-political fabric of our society. As long as businesses continue to develop on racial lines and to operate parallel to each other, South Africa cannot develop to its full potential and will not compete internationally as a nation.
3.1.5 Principles and proposals
Any new procurement policy framework should comply and be consistent with the Constitution which supports special measures in terms of Section 217 (2) and specifically states that any system advocated does not prevent any organs of State or institutions implementing a procurement policy providing for:
(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.
To promote the stated macro-economic strategy, targets should be designed to facilitate one or more of the following :
New policies and procedures must be developed in a practical and pragmatic manner which will promote Government's socio-economic objectives and Reconstruction and Development principles in South Africa. This will enable organs of the State to put in place systems in a targeted, transparent, visible, measurable, and efficient manner when engaging in economic activity with the private sector, without comprising principles such as fairness, competition, cost efficiency and inclusion.
3.2.1. Description
The simplification of Tender procedures, information networks and documentation is aimed at removing barriers which prevent emerging businesses from competing freely for public sector contracts.
It has been argued that current procurement policies and procedures tend to favour the larger and more established enterprises. They are so complex that they do not provide small, medium and micro enterprises with easy access into the mainstream procurement activities funded by the public sector. Furthermore, it is difficult to obtain accurate and timely information about tendering opportunities.
The process of adjudication of tenders also occurs under a perceived veil of secrecy. This creates a potentially debilitating environment where accusations and suspicions about the fairness of the process abound.
The general lack of feedback to unsuccessful tenderers has made it difficult for emerging businesses to learn what is required to win tenders and to improve on their mistakes. New entrants to public sector procurement activities are, therefore, susceptible to repeating the same mistakes in their tenders.
Currently there is little structured formal exchange of information between tenderers and procurement departments. Obtaining accurate and timely information about tendering opportunities is difficult for emerging enterprises who do not have sophisticated information networks.
In addition, the present system of tender submission requires the completion of various forms and supporting documents which, in their present format, are unnecessarily complicated. Emerging concerns find them difficult to complete satisfactorily, and logistical problems are often encountered by suppliers in preparing and submitting tenders, especially in the emerging sector.
The paperwork and procedures required in the tendering process dissuade, restrict and preclude willing and able emerging businesses from participation in public sector procurement activities.
3.2.2. Vision
To remove barriers created by limited and entrenched information networks, and unnecessarily complex documents and procedures which prevent emerging businesses from competing freely for public sector contracts.
3.2.3. Constraints
Research has shown that there are several constraints which presently stand in the way of achieving the vision identified. Various aspects of the current systems used to communicate tender information and process tenders constitute impediments towards achieving the vision of making the procurement process more accessible. Some of these are:
The most important problem facing disadvantaged communities is the lack of infrastructure and ability to tender because of the need to access an unnecessarily complicated tendering system and work with complex documentation.
3.2.4. Discussion
i. A structured interaction between purchasers and tenderers should be fostered and a relationship cultivated:
Workshops, meetings, printed and electronic media advertisements, and information brochures are possible avenues through which the procurement departments could mount out-reach campaigns to target tenderers with general tendering information such as an explanation of departmental activities, projected tendering opportunities, tendering policies and procedures, general conditions and requirements of tenders.
ii. The tender award process should be more transparent:
iii. Popular and accessible media should be used to disseminate tendering information:
Although the Tender Bulletin, albeit in revised format, could always be an official medium to advertise public sector tenders, particularly for big contracts, tender information could be more widely disseminated.
In addition to the Tender Bulletin, certain tenders, particularly the small and local ones, could be advertised through avenues such as, small business development organisations' notice boards, local emerging business/contractor organisations, Tender Advice Centres, community and commercial newspapers, and community buildings (such as magistrate's courts, Post Offices etc.).
iv. A list of approved suppliers should be established, based on performance:
A data base of all approved suppliers (including small, medium and micro enterprises) could be compiled. Inclusion on the database could be based on quality, delivery, reliability, stability, expertise, experience, existing facilities and human resource levels of the supplier.
v. An information booklet on Tendering should be published:
A booklet on how to tender could be compiled. It could contain examples of tender documents with examples of obvious errors and how to avoid them. The prospective tenderer could then familiarise him/herself with the language used and the general conditions and procedures involved.
vi. Tendering documentation should be easy to comprehend and user-friendly:
Some general concerns common to all documents are; the very sophisticated language, legal terminology, a complex numbering system, lengthy paragraphs, small font sizes, cramped layout and a tendency to present information as rules.
These concerns should be addressed, and the following guidelines considered:
vii. Use of standard and appropriate documentation
There needs to be a commitment from procurement units to use standard contract documentation with minimal deviations from the accepted standard forms of contract and specifications. The practice of writing extensive special conditions of contract to change the risks, rights and obligations of the parties upon which standard conditions of contract are based, should cease. Bodies responsible for the development and publication of such documents must be called upon to publish amended versions of their documents as soon as the general weight of opinion requires such amendments.
Conditions of contract and specifications must be appropriate and fit for their intended purpose. Contracts may be classified in terms of the risk exposure of each party. Factors such as size, complexity, novelty, intensity (speed of delivery), physical location, likelihood of variations in scope, volume and responsibilities are indicators of risk. Standard conditions of contract can be drafted around risk exposure for any class of contract. Accordingly, if standard conditions of contract for a particular class of contract are used, the documentation should be appropriate and commensurate with the risks associated with such contracts. To address concerns that emerging businesses may not understand the manner in which they are to conduct their business in terms of classes of contracts with higher risk exposures, a summary of the principal features of the contract could be drawn up and issued without prejudice.
viii. The feasibility of increasing the number of locations for submissions should be investigated:
At this stage it is difficult to conceive of a suitable working arrangement which would allow tenders to be submitted by electronic means such as fax or e-mail. Also, it may not be realistic to permit tender documents to be delivered to remote, local post offices instead of to the designated office.
The biggest advantage of the introduction of an electronic tendering system would be that it would bring procurement to the people. Simplified procedures could ensure access to information by marginally literate people at the touch of a button. Safeguards against corruption could be built into the system. In addition, the system would not necessarily require that each small, medium and micro enterprise should have its own personal computer. Rather, computers could be located at the LBSCs and TACs for use by tenderers.
or
Since tendering opportunities should be offered to small, medium and micro enterprises at a local level, and local contractors are known in the communities and can be contacted in an informal manner, tenders could be submitted to one point in each area.
Theoretically, tenders could be submitted to various locations and then sent, unopened, to a central point for adjudication.
In order to encourage small, medium and micro enterprises to tender, tenders should be advertised, distributed and awarded as near as possible to where the work is to be done, or the services are to be supplied.
Additional branch offices should be opened to cater for the needs of specific regions and tenderers should be allowed to deposit tenders at these branch offices. The branch offices would be responsible for transporting the tenders to the Head Office within, say, 24 hours and placing them in the Master Tender Box.
However, where tenders are submitted to more than one point the chances of fraud taking place are increased and this approach is therefore in conflict with the commonly held view that tenders should be lodged at one place and be collectively opened at a specific time.
3.2.5. Principles and proposals
To institute a responsive procurement process it is necessary to foster a structured interaction and cultivate a relationship between the procurement units and prospective tenderers.
The tendering process should not only be fair but should also be seen to be fair (transparent) through all stages i.e. pre-tenders (briefing) tender opening, tender award, and post-tender award (responding to complaints).
More popular and accessible media should be used to reach a wider spectrum of potential tenderers with tendering information.
Tender documentation should be completely overhauled and rationalised to encourage participation by emerging businesses in public sector procurement activities. The whole tendering process should be made more accessible by ensuring that tender documentation is:
3.3.1. Description
The scale and scope of tenders can be adjusted to provide the emerging sector with greater opportunities for accessing the public procurement process.
Small, medium and micro enterprises can participate in public sector procurement in one of two ways. They can either contract directly with a State, provincial or local body to execute a contract as a prime or main contractor, or participate as a subcontractor, supplier or service provider to a prime contractor in the delivery chain, popularly referred to as outsourcing. The scale and scope of a particular contract, dictates to a large extent the nature of an enterprise's possible participation.
Emerging and historically disadvantaged enterprises find it difficult to establish productive linkages with large scale enterprises. Accordingly, many tenders have recently been broken down into smaller components to afford these enterprises an opportunity to participate as prime contractors, service providers or suppliers. These smaller contracts are an important source of work for enterprises which are graduating from development programmes and establishing themselves.
3.3.2. Vision
To have a public procurement system which is accessible to emerging businesses in as wide as a range of activities as possible, without impacting negatively on time, cost and quality.
3.3.3. Constraints
The administration by public sector bodies, and their agents, of a large number of small contracts could be more complex and costly than of fewer large ones. Also the administrative capacity might not be in place to handle the geographical dispersion of smaller contracts, the increased number of interactions and communications with suppliers and contractors, and the processing of an increased number of payment certificates.
The breaking down of tenders into smaller components is not always justifiable, particularly for engineering and construction contracts. The reasons for this include division of responsibilities, interdependence of activities, programming, duplication of establishment charges and under utilisation of resources. Large engineering and construction projects may be compared to an assembly line. A management contractor is required to manage the assembly and to outsource production line items. The breaking up of the assembly line into discrete and independent activities (contracts) is frequently inefficient, as it destroys cohesive management.
The breaking down of a contract into smaller prime contracts in order to accommodate the aspirations of smaller firms can have a negative impact on cost and time. The international trend is to procure on the largest possible scale in the knowledge that small specialist firms will manufacture / fabricate / construct / provide various components and so be engaged in delivery.
3.3.4. Discussion
The vision may be realised in one, or a combination, of the following ways:
Any programme aimed at making the procurement system accessible to emerging businesses must ensure that such businesses either perform the contract, or add value in the performance of the contract.
Period and ad hoc tenders can be broken down into the smallest practicable quantities, and into manageable sectors
Emerging businesses have frequently preferred to contract directly with public bodies and are somewhat reluctant to contract with prime contractors for a variety of reasons, many of which relate to unfair conditions of contract and difficulties in obtaining payment from prime contractor. This reluctance can be addressed to some extent by regulating the type of contract which a prime contractor is permitted to use in the engagement of targeted business and by providing for secured payment.
Consideration must be given to the contract period as the intensity of delivery has a direct bearing on the type of enterprise which is able to execute a contract. In some instances, long contract periods may be desirable in order to enable emerging businesses to justify the acquisition of capital equipment. This approach has proved to be successful in equipping contractors engaged in contractor development programmes in Ghana and other countries.
Any programme or measure aimed at making the procurement system accessible to emerging businesses must ensure that such businesses either perform the contract or add value in the performance of the contract. Fronting should be strenuously countered and procedures to establish the bona fides of targeted businesses should form an integral part of the tender process.
3.3.5. Principles and proposals
i. Breaking tenders down into smaller contracts
Where feasible the following principles should be considered for breaking up period and ad hoc contracts.
ii. The use of human resource specifications as a tool for unbundling
Contractors can be compelled by means of a human resource specification to engage targeted small, medium and micro enterprises in the execution of their contracts
Contractors, suppliers and service providers are, normally, required to construct, supply or provide a service in accordance with a technical specification. They can, also, be required to execute their contracts in accordance with a human resource specification which defines and sets out the goals for targeted small, medium and micro enterprise participation in the performance of the contract in such a manner that it can be quantified, measured, verified and audited. Human resource specifications should set out how firms can meet these goals in order to comply with the requirements of the contract. Furthermore, they should set out the measures which the client body (employer) has at its disposal to remedy, or penalise, non-compliance.
Participation Goals can be defined as the net value of goods, services and works for the supply of which the firm contracts to engage targeted small, medium and micro enterprises in the performance of the contract, expressed as a percentage of the tender value of the contract. Thus a participation goal of 20% would imply that the amount of contract expenditure funneled through targeted small enterprises is 20% of the tender value. Firms could, for example, meet their participation goal obligations by:
In this manner, prime contractors can be required to 'unpack' their contracts into smaller contracts and to procure the services of targeted small, medium and micro enterprises to perform such contracts and to administer them. The question of unfair conditions of sub-contract can be readily dealt with by denying prime contractors credits towards their participation goal obligations should they not enter into written sub-contracts with targeted enterprises which are free of unfair conditions.
Development objective / price mechanisms can be used to reward firms which undertake to better specified minimum participation goals for a contract.
iii. Structured Joint Ventures
Small, medium and micro enterprise participation on a contract can be secured by requiring joint venture formation between large and small businesses
Joint venture formation between large and small businesses can be used to encourage and secure small, medium and micro enterprise participation. Human resource specifications, as described above, can be utilised to structure, facilitate and measure joint venture formation with targeted enterprises and joint venture participation goals can be set.
Joint venture participation goals can be met where targeted small, medium and micro enterprises acting as joint venture partners, perform with their own resources work equal to a predetermined fraction of their participation and are responsible for the execution of portions of the contract equivalent to their joint-venture participation percentages.
Specifications can be drawn up to permit emerging businesses to enter into joint ventures with established businesses. Such specifications should be sufficiently flexible to permit the restructuring of the joint ventures should the emerging businesses not perform satisfactorily.
3.4.1. Description
By revisiting the current system of awarding tenders, greater opportunities can be created for the accommodation of socio-economic objectives in the procurement process.
The acceptance of the lowest tender does not necessarily reflect value for money in the changed environment
Historically, tenders have been awarded to the lowest tenderer, who has been overlooked only when there is clear evidence that he does not have the necessary experience or capacity to undertake the work or is financially unsound. In other words, the lowest tenderer has been overlooked only when it is considered that the risk of failure by him to satisfactorily complete the contract would be high.
In the changed environment, value for money should not be measured by monetary cost alone. It could be measured, also, by providing increased employment opportunities per unit of expenditure, or a more acceptable technical offer, or an exceptional human resource development offer. If, however, one moves away from awarding contracts to the lowest tenderers in order to reward them for the socio-economic components of their tenders, tender evaluation criteria must be clearly spelt out in the tender documents to enable tenderers to compete on a equitable basis and in a transparent manner.
3.4.2. Vision
To provide a public, competitive and fair tendering system which allows for participation by all South Africans, while creating accelerated opportunities for target groups.
Secondary vision
To provide value for money in terms of both technical and human resource offers, so as to achieve certain socio-economic objectives in a targeted, transparent, visible and measurable manner.
3.4.3. Constraints
The current practice of accepting the lowest tender in terms of price only, is inflexible and will restrict the degree to which the secondary vision may be attained.
3.4.4. Discussion
Tenders could be awarded on a point scoring system in terms of a development objective / price mechanism in such a manner that tenderers are awarded points in the first instance for their financial offer and, in the second instance, for their offer to exceed specified socio-economic objectives, or their current enterprise status.
The current practice of accepting the lowest tenderer in terms of price only, is inflexible and will restrict the degree to which the smaller enterprises can access the process.
Development objective points could be awarded for exceeding targets set in respect of:
or the degree to which the tendering enterprise has embraced:
Points could, also, be awarded on the basis of an enterprise's status, or for environmentally-friendly practices.
The successful tenderer would, normally, be the one who is awarded the most points, subject to technical factors, previous contractual performance, financial references, unit rates and prices, alternative offers, qualifications etc., being acceptable. The premium, if any, which an organ of the State is prepared to pay to meet certain specific socio-economic / development objectives is defined in the formulation of the development objective / price mechanism which could be standardised throughout South Africa.
In this manner the premium payable for incorporating socio-economic objectives into projects would be minimised, as tenderers would compete both on the basis of price and of meeting socio-economic objectives. Market forces will dictate the degree to which contractors can meet socio-economic objectives in the most cost-effective manner.
3.4.5. Principles and proposals
3.5.1. Description
There are major disparities in South Africa in the extent of business ownership and participation in the provision of goods, services and works, when previously disadvantaged race groups are compared to formerly advantaged race groups. Similar disparities are found in terms of gender.
Participation by the disadvantaged groupings in public procurement activities, given the current population demographics, is extremely low throughout the country.
The RDP in its problem statement in the chapter on building the economy states: "The South African economy is in deep-seated structural crisis, and as such requires fundamental reconstruction. For decades forces within the white minority have used their exclusive access to political and economic power to promote their own sectional interests at the expense of black people....The South African economy is also characterized by excessive concentrations of economic power in the hands of a tiny minority of the population.
"Through the pyramid system and the resultant control over a vast network of subsidiary companies, a small number of very large conglomerates now dominate the production, distribution and financial sectors.....Not only does this create racial and social tension, but it is to be seriously doubted that such high levels of concentration can be economically beneficial.
Current business ownership is not reflective of population demographics.
"A particular weakness of the economy, aggravated by racist and sexist policies, is the inability to maintain a dynamic small-scale and micro enterprises sector. Smaller firms, especially if owned by black people, can rarely develop productive linkages with the large-scale sector. Most people in the informal sector lack productive and managerial skill plus access to business sites, capital and markets."
The RDP cites four major constraints which face small and micro enterprises, being the lack of:
Three recurrent themes of the RDP call for:
The challenge is to create a cost effective system of encouraging and promoting the use of small, medium and micro enterprises owned and controlled by blacks and women in as wide a spectrum of public sector activities as possible , without:
in a fair, equitable, competitive and transparent environment.
An affirmative small, medium and micro enterprise programme should not attract undue costs or overload procurement agencies' administrative capacities, and should adhere to acceptable labour standards.
This challenge can be met, to some extent, by introducing an affirmative participation programme directed at small, medium and micro enterprises and aimed at:
3.5.2. Vision
To promote and advance small, medium and micro enterprises, particularly those owned and operated by previously disadvantaged individuals, in public sector procurement without attracting undue costs and overloading procurement agencies' administrative capacities.
3.5.3. Constraints
The central blockage to the attainment of the vision is the lack of a coherent transparent, participatory, and accountable procurement policy, and a long term strategy and mechanisms to implement such policy in support of the vision.
3.5.4. Discussion
An affirmative small, medium and micro enterprise participation programme should be regarded as being an instrument for the creation and redistribution of increased wealth rather than the redistribution of existing wealth. The development of healthy, competitive business enterprises can only lead to wealth creation.
It must, however, be recognised that because of the extreme disparities which exist in South Africa in respect of issues such as levels of education and income, intergenerational transfer of wealth and degree of economic activity amongst the various population groups, an affirmative small, medium and micro enterprise participation programme will have to be implemented in a progressive and incremental manner and will have to be linked to development programmes.
An affirmative small, medium and micro enterprise participation programme should be regarded as being an instrument for the creation of wealth rather than the redistribution of existing wealth.
Typically, development programmes could range from providing access to capital and business counseling to entities which have already been established, to enable them to consolidate and expand their businesses, to providing opportunities for individuals to establish first-time businesses with the support of development specialists in accordance with structured training programmes.
In the building and construction industry, for example, proactive, third party management support has enabled previously disadvantaged communities to participate in construction activities as contractors (entrepreneurs) and programmes have been put in place to enable those with the necessary entrepreneurial flair to develop fully fledged contracting businesses over a period of time. What is required is to build upon these development programmes and to further develop these emerging businesses in competition with established businesses by means of structured participation programmes which enable emerging businesses to compete in the mainstream of the economy. An Affirmative Procurement Policy, based on participation principles, is needed to shift the focus from developing new capacity, to growing majority population owned businesses which embrace sound business practices and contribute to the economy of the country.
The primary purpose of an affirmative small, medium and micro enterprise participation programme is to provide equal access in contracting and procurement opportunities for targeted businesses and, in so doing, eradicate the effects of past and present discrimination in public and private sector procurement practices and assist in creating and developing business enterprises which are reflective of population demographics. The adoption of such a policy should not imply "reverse discrimination" but should be regarded as an endeavour to ensure that all sectors of the population have access to opportunities on a competitive basis and may advance according to their relative abilities.
It is acknowledged that, in some instances, there may be time and cost premiums attached to the implementation of this policy, as programmes may require longer tendering periods to secure participation by the target group and for the training of emerging businesses, and will attract administrative costs. This premium is, however, considered to be rather insignificant and may be regarded as an integral part of transformation costs. The issue is not whether the State, provinces and the local authorities can afford to implement such a programme, but rather whether they can afford not to.
In small contracts, all small, medium and micro enterprises should have the opportunity to participate. A development objective / price mechanism which targets ownership by previously disadvantaged individuals / women can be introduced. Typically, points can be allocated on the basis of the percentage ownership of the enterprise by persons falling into certain race and gender groupings should the presumption be made that persons falling into race groups who were prevented from participating in the previous political dispensation, as well as women, are socially and economically disadvantaged.
Development objective/ price mechanisms with or without human resource specification can be used to ensure significant participation of targeted small, medium and micro enterprises in public sector procurement contracts in an affirmative manner.
In medium to large contracts, goals can be set with respect to affirmative participation targets (Contract Participation Goals) to ensure participation by small, medium and micro enterprises owned and controlled by previously disadvantaged persons who have annual average turnovers commensurate with the limits provided for in the draft Small Business Enabling Act (Affirmable Business Enterprises). The setting of such targets and the measurement of key participation parameters which may be used in the evaluation of tenders and the audit of compliance during the execution of the contract can be described and set out in a human resource specification.
Minimum participation or threshold goals can be set. Failure to achieve these goals would disqualify a tenderer as it would be deemed that his tender has not complied with the specifications. Tenderers who tender increased goals can be awarded a preference in terms of the development objective / price mechanism. In this manner, the price premium, if any, for requiring target group participation can be confined to within acceptable limits.
Human resource specifications may also be used to facilitate joint venture formation with Affirmable Business Enterprises. The removal of restrictions on the turnover of any targeted enterprise, will afford larger emerging businesses owned by previously disadvantaged individuals who have outgrown their small, medium and micro enterprise status to be further developed by means of joint venture formation with larger established businesses.
3.5.5. Principles and proposals
The purposeful flow of public funds directed to and through those population segments which have historically been excluded from participation should be achieved by:
As such, an affirmative small, medium and micro enterprise participation programme should embrace the following principles:
An affirmative small, medium and micro enterprise participation programme should be integrated with development initiatives aimed at enhancing the business capacity and skills of established small, medium and micro enterprises and should provide work opportunities for those enterprises which graduate from initiatives aimed at developing new small, medium and micro enterprise capacity.
The programme should, in the long term:
3.6.1 Description
Labour and resource based works programmes aim to serve several purposes, including the influencing of infrastructural investment policies so as to maximise employment and income generation, the creation of productive assets and poverty alleviation.
Several employment intensive works programmes have been implemented in Africa and Asia over the last two decades. These labour and resource based works programmes aim to serve several purposes simultaneously. Above all, they aim to influence infrastructural investment policies so as to maximise employment and income generation, the creation of productive assets and poverty alleviation. In some instances, the programmes have also set out to create and strengthen both public and private capacity for the effective planning and implementation of employment-intensive policies and programmes.
Such programmes are usually either of a relief, or a growth and development, nature and involve either public works or works of community/household interest. Typically, programmes of a public works nature have involved the construction or maintenance of roads, aforestation, soil conservation and other environmental protection works on public land. Community-based works programmes on the other hand, have focused on small to medium scale irrigation works, small dam construction, aforestation on private lands and community woodlots.
Similar programmes have been introduced and implemented in South Africa during the last few years.
Employment-intensive methods have been employed in South Africa on construction projects which include rural gravel roads; low level bridges; small dams; residential township roads (surfaced and gravel); water and sewerage reticulation for townships; bituminous surfacing of roads; low voltage electrical reticulations; stormwater drainage systems; and on-site sanitation. Road maintenance projects have included regravelling, and routine road maintenance.
The promotion of employment-intensive projects can be seen as an attempt to realise the potential of the procurement system as an instrument of job creation.
Other employment-intensive projects have included materials manufacture (precast concrete products, timber roof trusses, metal window frames); agricultural structures (dams, erosion control measures, irrigation projects); building works (community centres, clinics, schools, classrooms, housing); agriculture (vegetable and flower growing, indigenous herbs, poultry farming); clothing manufacture; handcrafts; electrification; and refuse collection.
Frequently, employment-intensive practices have been implemented by small scale community-based contractors.
3.6.2 Vision
To realise the potential of the procurement system as an instrument of job creation.
Secondary vision
3.6.3 Constraints
Employment-intensive construction can be defined in civil engineering projects as "the economically efficient employment of as much labour as is technically feasible to produce as high a standard of construction as demanded by the specifications and allowed by the funding available."
If employment-intensive works were always more economical than plant-based works there would be no problem. The quality of the end product can be readily measured and compared whereas economic efficiency cannot. Value for money assessments, where socio-economic considerations prevail, are subjective. What are the socio-economic parameters? What is value for money? There is also the question of sustainability. Can employment-intensive works lead to sustainable job creation / income generation?
3.6.4 Discussion
Employment-intensive works have been highly visible in the civil engineering industry as the industry has aggressively marketed such practices. (This industry probably has the highest exposure to public sector procurement. During the 1995 calendar year 83% of contracts awarded to the industry were let by organs of State. The comparable figure for the building industry was a mere 15%.) The civil engineering industry is plant intensive when compared to the building industry. Both industries are employment-intensive when compared to most other industries. The building industry, in general, generates more employment opportunities per unit of expenditure than does the civil engineering industry. If, however, labour is substituted for machines, this position can be reversed. Alternatively, if a blend of labour and light equipment is used on civil engineering projects, the difference in labour intensiveness between the two industries will reduce.
Public sector building and construction work forms a significant portion of both industries' workload. These industries are supported by numerous professional and contractor associations and learned societies, which facilitate the dissemination of information. As a result, employment-intensive construction issues are published and are visible. The same is not true of other sectors of industry, particularly where public sector expenditure is relatively insignificant. Invariably, the focus in sectors outside the building and construction industry has been on the development of sustainable small business enterprises which are employers of labour and for which labour-friendly technologies have frequently been developed in order to facilitate the functioning of the enterprises.
The choice of technology has a marked influence on the number and location of employment opportunities generated and the choice of construction method can, particularly in the case of civil engineering projects, significantly influence the total number of personhours of employment generated.
On building and electrification projects, significant increases in the number of employment opportunities per unit of expenditure are only possible where earthworks activities for which labour-intensive construction methods are feasible, form a significant part of the works, e.g. where underground cables are to be laid.
The choice of manufacturing method of building and construction components and materials can also significantly affect the number of employment opportunities generated. There is considerable scope for increasing employment opportunities through the use of employment-intensive methods of manufacture.
The choice of technology is generally made during the basic design phase of works contracts, whereas the choice of construction method / method of manufacture is usually decided upon during the construction phase. Two alternative procurement approaches to implementing employment-intensive works methods can be adopted.
Method 1 : lay down the use of specific employment-intensive technologies and methods of construction / manufacture in the contract document.
Method 2: afford tenderers the opportunity to choose the technology / construction method / method of materials manufacture which they wish to use in order to implement employment-intensive methods.
The choice of technology has a marked influence on the number of employment opportunities generated and where such employment is located.
Either method may be used to increase the quantity of employment generated per unit of expenditure. Method 1 usually achieves the objective by restricting the use of certain types of plant / manufacturing methods and by specifying particular technologies. Method 2, on the other hand, requires tenderers to tender the amount of targeted labour, measured in accordance with a human resource specification, which they undertake to engage in the performance of the contract. Method 2, accordingly, permits tenderers to use their knowledge, skill and creativity in arriving at an optimum economic mix of equipment, technologies and labour in order to meet the objectives.
Method 1 is well suited to the targeting of local labour. The economic viability of this approach is, however, dependent on the ability of the designer / specifier to forecast cost. Method 2 can be used for the employment of relatively unskilled labour and any potential price premium can be readily assessed by adjudicating of tenders in accordance with a development objective / price mechanism. Method 2 therefore has the distinct advantage that tender prices will usually fall within acceptable limits and economic justification of decisions relating to employment generation will not be necessary.
A distinction should be made between the increase in the volume of jobs available and the allocation of jobs to local labour.
With regard to employment sustainability, work on infrastructure construction is, by its nature, temporary. It is also self-targeting towards the poorest members of society, because unskilled wages in construction are traditionally low. Workers with better options tend to go into other kinds of work and leave the temporary jobs in construction to those with fewer options, the poorest. Thus, although the jobs created are not permanent, the total volume of work available to the poor is increased considerably.
Any form of employment-intensive construction or manufacture, should be closely linked with the targeting of employment opportunities. The question, "How many employment opportunities are created?" is no less important than "Who is to be employed and which persons will benefit from the projects?"
Targeted procurement can be used by government as one of the strategies to ensure that the private sector implements policy relating to employment creation on public sector contracts.
It may be argued that expenditure in any sector of the economy will create employment opportunities. However, some sectors of industry are more efficient than others in generating employment opportunities for a given capital inflow. Industries where the potential for the effective substitutions of labour for capital and local resources for imports exist, can expect to achieve enhanced performance in the provision of employment opportunities.
3.5.5 Principals and proposals
Procurement should facilitate the generation of jobs in South Africa by:
Human resource specifications and development objective / price mechanisms should be used to encourage cost effective employment intensive practices.
A distinction should be made in the targeting of local labour in order to stimulate local economies and the increase in employment opportunities generated per unit of expenditure. Increased credits in development objective / price mechanisms should be granted to encourage the increase in employment opportunities generated per unit of expenditure where tenderers are permitted to choose technologies and work methods.
Any premiums to be paid in respect of employment-intensive practices should be determined and accepted prior to the award contracts. Employment intensive practices should result in the generation of jobs as opposed to the displacement of jobs.
3.7.1 Description
Construction projects are amenable to area-bound forms of targeted procurement.
The targeting of marginalised sectors of society is frequently linked to poverty alleviation and the channeled flow of income to the poorest sectors of the community.
Previous subsections entitled "An affirmative small, medium and micro enterprise participation programme" and "Promoting employment-intensive practices" describe forms of targeted procurement in terms of which the target groups are not confined to well-defined, narrow geographical areas. The targets are of a generic nature and are not area-bound. Construction projects, however, lend themselves to area-bound targeting as the assets which are procured have to be constructed in a specific location.
The targeting of marginalised sectors of society (communities) in construction projects is invariably linked to labour-based works. Frequently, it is linked to poverty alleviation and the purposeful flow of income to the poorest sectors of the community. Education and training are often seen as a means of economic empowerment as the construction projects themselves are usually of comparatively short duration. The development of community capacity to manage its own affairs in some instances forms part of such projects as this is considered an essential component in the strengthening of local governance and the generation of sustainable economic development.
The development of local enterprises is of great value to a community. The resources readily available include local materials, local manpower, local machinery and local money. Development support systems have evolved to provide professional / developmental assistance and the resources lacked by local enterprises to enable communities to construct their own infrastructures and to acquire skills and competencies in commercial, administrative and managerial fields. Community members have, in addition to the more traditional construction activities, also become involved in the operation of stores facilities; the provision of support to local contractors by involvement in administration, monitoring of progress etc.; the transportation of materials from central stores to local labour only contractors; the manufacture of certain materials; the supply of minor materials; and the security of the site.
Construction projects which target marginalised communities in the context of public sector procurement should not be confused with relief programmes, which are of a social and compensatory employment nature, or programmes involving works of community or household interest where the beneficiaries of the assets are directly involved and wage payment is not the prime factor motivating their participation, e.g. construction on privately owned land. Projects which target (affirm) communities are works administered by organs of State for the benefit of the public, where ownership of the infrastructure created is retained by such organs and the major motivation for the labour force engaged in the schemes is the wage received in compensation for their labour.
There is at present no comprehensive policy in place to engage marginalised communities in construction activities in South Africa and current initiatives are a mix of international and local practice. There is a need to review current practices, delivery systems and implementation mechanisms from a procurement perspective and to establish policy in this regard.
3.7.2 Vision
To realise the potential of the procurement system as a means of empowering marginalised sectors of society in order to alleviate their marginalisation from economic, political and social power through the creation of assets.
Secondary vision
To structure projects involving the creation of assets within targeted (area-bound) communities in such a manner, insofar as the community is concerned, that:
3.7.3 Constraints
There are, of course constraints applicable to any project, irrespective of the supplementary benefits that may otherwise accrue to the community. These are:
Delivery systems which seek to attain the vision must:
3.7.4 Discussion
Community projects can be community or authority controlled, depending upon where administrative and financial control is placed.
The selection of the contract strategy dictates the degree to which beneficiary communities can participate in construction activities.
Community projects are process (the manner in which the asset is acquired and constructed) driven as opposed to product (asset) driven, the process being just as important as the product. Community development may be viewed as a process with milestones, completed projects being beneficial by-products of the process, which does not have a definable start, or a definable end. Facilitation is necessary to drive the development process, whilst contractors / service providers are required to deliver the projects. Construction projects do have definable starts and ends. Accordingly, tensions may arise over short term construction related issues, as technical priorities do not always match community priorities and construction expediences do not always meet community aspirations.
Facilitators should be impartial managers of the process and are frequently required to lead/ assist communities in structuring themselves and to generate sufficient consensus on the appointment of professional teams to provide the necessary support in respect of design, organisation, project / construction management, training, community needs and the like.
Projects which target marginalised communities will, depending upon where the financial responsibility for dispersing of funds and the administration of the project is placed, be regarded as being either community controlled, or authority controlled. Within either of these two categories, community participation insofar as construction is concerned, can range from the provision of unskilled labour to the construction of the project as a whole.
Marginalised communities rarely possess sufficient resources to undertake projects without external assistance and technical, commercial and financial support is required to facilitate their participation. Implementation mechanisms range from labour-pool worker programmes, in which prime contractors contract to engage unskilled workers from the community, to the engagement of community contractors in tandem with third parties who "fill the gaps" and minimise the public authority's risk exposure. In some instances, communities have employed labour directly.
The contract strategy which is adopted dictates to a large degree the extent to which communities can participate in construction activities. Participation can be secured by means of human resource specifications and development objective / price mechanisms; goals may be set for either the engagement of local enterprises (local labour and local enterprises including local suppliers and local manufacturers) or for the engagement of targeted labour. Participation can also be secured by means of joint venture formation with targeted enterprises within communities or by letting labour only and labour and material contracts and providing third party management support to perform construction and materials management functions.
Third party management support has facilitated contractor development based on the progressive introduction of labour, transport, materials, plant and finance. The third party's responsibilities reduce as emerging contractors become capable of assuming successive areas of responsibility and mastering functional activities.
Competitive tendering can be used in all the aforementioned contract strategies to secure targeted community participation without resorting to set asides. Targets, however, need to be clearly and unambiguously defined on a project specific basis. Contract strategies also need to be set on a contract specific basis in order to optimise the benefits accruing to marginalised communities.
i. Community Controlled Projects
Community controlled projects are based on the philosophy of making the community totally responsible for the project and its outcome.
Community controlled projects build capacity outside of the third tier of government .
Community controlled projects are projects which are specifically designed to be executed through community control, but with outside expertise and assistance to help the communities in their efforts. For these projects, communities are expected to set up their own legal entities, varying from voluntary associations and trusts to Section 21 companies. These entities represent the communities by prioritising their particular project needs, setting up management and control systems, receiving funds and implementing the projects.
Community controlled projects are based on the philosophy of making the communities totally responsible for the projects. Each community is, for the purposes of the project, the client and is therefore responsible for the outcome. The focus of control during the planning, design, implementation and operation of the project is within the community. Organs of State provide assistance to communities, and approve project plans in accordance with their normal responsibilities, but do not control projects.
Where communities appoint consultants, organs of State exercise no direct control over the consultants. This situation is not ideal, either from the consultants', or the State's point of view. On some projects, consultants are remunerated directly by organs of State and the communities are the consultants' sub-clients.
In what is known as the Community-based Public Works Programme, communities make application to organs of State for community-based projects. Approval of an application enables the community to secure funding for advice and assistance in order for it to commence with the planning of the project and the preparation of project proposals, business plans and the like. Funding for the project is only released upon acceptance of the proposals. Currently between 10% and 45% of the project cost is paid into the community's banking account upon approval of the project. The remaining funds are disbursed against monitoring reports which record progress against predetermined milestones. Upon completion of the project, all remaining funds are returned to the department and are reallocated to other projects.
The community is charged with all procurement matters and is entitled to enter into contracts. The community is, furthermore, required to ensure that any physical assets that are built are of an acceptable quality and is required to exercise control over the monies received.
Communities are represented, and participate procedurally, in a number of ways in authority controlled projects.
There is a view that community controlled projects provide communities with 100% preference and are, in effect, set asides. Concerns have been expressed that the community structures which are formed to oversee projects are, in effect, gate keepers and opportunists; that community structures undermine local governance; and that communities compromise labour standards. Some have questioned the wisdom of placing responsibility for procurement and financial control in the hands of the community, which does not have accounting officers as required in terms of treasury controls. Others have questioned the sustainability of enterprises which have developed, as they may not be able to secure work in programmes outside of their own communities, as neighbouring communities will demand set asides for their members.
It may be further argued that Community-based Public Works programmes develop capacity in communities which would be better located and more sustainable in the third tier of government. The practice of placing funds outside the direct control of accounting officers does raise a number of questions relating to risk. For example, what happens if a community is unable to deliver the project within its financial allocation and how are monies to be recovered from the community in the event that funds are fraudulently or irresponsibly spent?
ii. Authority Controlled Projects
In authority controlled projects, accountability lies with an organ of State, although communities can be represented and can participate procedurally in projects in a number of ways. Projects can be identified either from within the community or by the controlling authority. In some cases, the community may be required to confirm the priority of an identified project.
Opportunities for engaging communities in project implementation include seeking approval for the asset to be created; the use of employment-intensive construction methods; recruitment procedures and task-based systems of employment and remuneration; the community liaison process; pre-tender arrangements; maintenance and management arrangements for the assets after the project is completed; and financial and training arrangements.
Community approval is construed to be given by the conclusion of a contract between a representative community structure and the responsible authority, or by a resolution taken at a representative community meeting. This approach has generally been used in the implementation of labour-pool worker programmes.
At the other end of the spectrum of authority controlled programmes lies the Development Compact approach. In terms of this approach, the beneficiary community and the developer (implementing organ of State or their agent) enter into a Development Compact, i.e., an agreement which lays down a procedure, which is to be followed from inception to completion, allocates areas of responsibility and requires participants to account for their actions. Project steering committees are formed to administer this type of agreement.
The third tier of government should become community joint venture partners and take responsibility for the implementation of projects.
Both the beneficiary community and the developer have obligations in terms of the Development Compact. In essence, the developer is responsible for working through the delivery options with the beneficiary community, while the beneficiary community is responsible for accepting the development strategies, defining the geographical area which is to be regarded as being local, nominating candidates for management posts, advising on community needs, etc. In this manner, the beneficiary community exercises more influence over the project than would normally be the case, advises on community requirements and identifies local resources.
The Development Compact deals with issues at local or project level. It presupposes that planning at the macro level has taken place and the wider community has mandated the beneficiary community to enter into a development compact with the implementing organ of State.
It may be argued that authority controlled approaches to engage communities in construction activities were developed to overcome difficulties associated with illegitimate government and are no longer necessary.
iii. The role of third tier government in community projects
Funds have been placed in the hands of the communities for community controlled projects for reasons other than a desire to develop capacity in the communities. In many African countries, donors have opted for this route in order to secure and dedicate the funds for the project in question and to by-pass organs of State. In South Africa, this route has in the past been followed in certain instances in order to locate monies in community structures as opposed to "illegitimate" local authorities, or to provide a vehicle to disburse funds on projects where the third tier of government had no capacity to do so, or was not functioning.
Recent local elections throughout South Africa have resulted in democratically elected representatives being installed in metropolitan, town, rural and district councils. The question now arises as to the role of the these councils.
It is submitted that :
In effect, councils should become community "joint venture partners". Councils should, as far as it is practicable, take responsibility for the initiation and management of community projects and out-source as necessary the execution of such projects to firms which are capable of providing the necessary resources. The third tier of government should assume a co-ordinating role in project facilitation and data collection, so as to avoid duplication and to achieve uniformity in policy and approach within a particular region.
It is acknowledged that in certain areas, particularly rural ones, councils are not fully functional. In such circumstances national and regional implementing departments may, in the short term, need to undertake facilitation in conjunction with relevant councillors and broker agreements with beneficiary communities.
iv. Compensatory wage packages in community projects
The jobs created by construction projects usually last only as long as the construction phase of the project. To ensure some degree of sustainability after completion of the project, education and training, in the form of vocational training (technical, managerial, administrative); generic training (life skills; adult basic education); and institutional training (developing a community to manage its own affairs), is frequently provided to those working on the project. This is seen by some as highly desirable and as providing a stepping stone to obtaining jobs elsewhere, or becoming self employed.
Current recommendations for training budgets range between 5% and 10% of total project cost. Funding has, in the past, been sourced from project budgets, government departments such as the Department of Labour, schemes such as the Unemployed Persons Training Scheme and donors.
Wages and training costs have, in effect, become a "tax" on community projects, particularly where, on civil engineering works, labour is substituted for machines in an environment where wages are controlled by a wage order, or conciliation board agreements. The wage order prescribes a minimum wage level and requires employees to be remunerated on the basis of time worked rather than the quantity of work done. Industry has argued that to make projects viable, workers should be remunerated on a task-based payment system at a lower wage rate than the industry minimum. Training is linked to the lowering of wages to sweeten the wage package. This has proved successful where the Department of Labour has had funds available for the purpose, but has become unattractive where the funding of training has had to be drawn from project budgets which may already have been reduced to accommodate more costly employment-intensive construction methods.
There is a relationship between wages and productivity. The lowering of wages frequently leads to lower productivity and is not a recipe for sustainable development , or enterprise creation.
The linking of training, at the level envisaged, to employment, in order to permit a lowering of wages, has become a major issue. How should training be funded? Should training be project specific? Should non-industry specific training be linked to construction projects? Will industry specific training lead to an over supply of labour in the market? All these questions need to be answered as the demand for training has, in effect, resulted in a cost premium for projects of this nature. Negotiations over wages and training can be very protracted and time consuming. This results in delayed starts to projects. Also, communities which renege on their acceptance of lower wages can hold projects to ransom.
3.8.6. Principles and proposals
Projects which involve the area-bound targeting of marginalised sectors of society should, in a safe and healthy environment, be completed:
Such projects should be based on the following principals:
In order to facilitate delivery and to maintain labour standards, task-based payments based on wage levels expressed as percentages of statutory wage levels, should be legislated. Furthermore, conditions of employment should be developed and promulgated for project-specific workers (temporary workers) whose status is neither that of casual or permanent workers. This will reduce delays in procurement.
In general, training should not be project specific, except for on-the-job training, and should not be linked to the lowering of wages. Regional budgets and programmes should address training for marginalised sectors of society on a programme basis. All training should be in accordance with provincial human resource development strategies, guidelines and principles. Contractors responsible for works contracts should not be required to provide training other than specific on-the-job training.
Community projects should be categorised. This will enable organs of State to have a starting point when interacting with communities, and opportunities and systems to be linked to categories of projects. It is proposed that community projects be classified as either being budget offer or target market and community or authority controlled.
Budget offer projects would be those in which a sum of money is set aside for a specific community to be provided with certain facilities within broad parameters and the flexibility exists for the end product to be determined, both in quantity and quality, by the process without changing the budget. (A well known example of this type of project may be found in the State's housing programme where communities can, depending upon their priorities, have larger or smaller top structures, depending upon their technical, training and method of construction choices.) Thus in budget offer projects, community choices at every stage of delivery has an impact on the final product. Accordingly, training budgets can be project specific and funded through the project; less economically efficient delivery systems which meet the needs of the community can be considered and contracts can be set aside for members of the community to execute.
In the target market category, the community is provided with facilities without the flexibility of the budget offer approach and has its role confined to the submission of inputs, setting of affirmative targets and choice of delivery mechanism within the constraints of value for money through the third tier of government.
Target market projects should afford constituents of beneficiary communities an opportunity of participation in projects, but should not guarantee work to any individual or enterprise. Budget offer projects should be confined to those projects where a narrow sector of the community benefits from the asset that is created.
Requirements for an Affirmative Procurement Policy
An Affirmative Procurement Policy is required to enact the vision for the Procurement Reform Process and to facilitate the engagement of previously disadvantaged enterprises and communities.
What is required is an Affirmative Procurement Policy which sets out to enact the vision for the Procurement Reform Process. Such a policy would need to set out clear statements of intent and address issues raised by questions such as:
Affirmative Procurement should include programmes aimed at the engagement of small, medium and micro enterprises; an increase in the volume of work available to the poor, and income generation for the marginalised sectors of society.
Guiding principles for the development of an Affirmative Procurement Policy
The Government has a compelling interest in ensuring that public funds are expended in such a way that all segments of the South African population benefit from such expenditure through job creation and commercial activity. Accordingly, it is necessary, to purposefully direct the flow of commerce to and through those population segments which have historically been under-utilised and excluded from participation. This should be done in such a manner that participation in procurement activities is ensured through:
In addition, an Affirmative Procurement Policy should, where practicable :
An Affirmative Procurement Policy should have a development component which enables the target group to participate in procurement activities.
Affirmative Procurement should, accordingly, comprise participation programmes aimed at the engagement of small, medium and micro enterprises owned by previously disadvantaged persons, in all types of contracts and, in engineering and construction contracts, increasing the volume of work available to the poor and income generation for marginalised sectors of society. Sunset provisions should be built into the system to ensure that programmes do not continue to protect and advance persons and sectors of society, historically disadvantaged by unfair discrimination, beyond the point at which such measures are no longer justifiable.
Affirmative Procurement should in the long term :
The policy for Affirmative Procurement should have two main legs, viz.:
Development programmes which provide the necessary developmental support to emerging target group enterprises should:
Affirmative small, medium and micro enterprise participation programmes should, on the other hand, embrace the following principles:
Accordingly, the development component of the policy should be concerned with:
The structured participation component of the policy should be concerned with:
Targeting should be focused so that the target group is readily and unambiguously identifiable.
In both components, programmes should be structured in a transparent manner and should be narrow in their targeting, so that the target group is readily and unambiguously identifiable.
Participants in programmes should be registered. Sanctions, such as exclusion from future participation in public sector procurement, should be applied to those who contravene the conditions of participation, or secure participation in a fraudulent manner.
The target groups for participation programmes aimed at the engagement of small, medium and micro enterprises and the increase in work available to the poor, should not be area bound. The target groups for participation programmes in engineering and construction works contracts aimed at increasing income generation to marginalised sectors of society should, on the other hand, be area bound. The setting of area bound targets should be undertaken by metropolitan / town / rural / district councils. The councillors in whose constituencies construction is to take place should, if mandated by their councils, be consulted by the implementing organ of State. The cost of facilitation should be borne by the metropolitan / town / rural / district council and should institutional capacity building be necessary this should be directed at the third tier of government.
Administrative procedures located within an Affirmative Procurement Policy should:
Finally, the policy should be underpinned by strategies which provide:
Some practical considerations regarding an affirmative small, medium and micro enterprise participation programme.
Certification in affirmative small, medium and micro enterprise participation programmes is required to establish that the target group owns and controls the enterprise.
Certification is required to establish the bona fides of the target group. Much of the focus of the certification process is on identifying fronts and frauds and ensuring the integrity of the programme; the idea being that the screening process will ensure that only bona fide target groups can claim target status, be accorded preferential treatment and be empowered through the programme.
Where target enterprises are claimed to be owned and controlled by previously disadvantaged individuals, certification should seek to confirm such ownership and control.
Control of a business entity signifies the power to direct both the operational and management control of the business entity. Accordingly, the certification process needs to establish that, from an operation control point of view, the target group:
Certification, from a managerial point of view, has to demonstrate the ability of the target group to make independent and unilateral business decisions, and to guide the future and destiny of the business. Ownership and control can, to some extent, be established by questioning persons to whom goods, services or works have previously been provided by the business entity.
Certification can be undertaken on a self-certification basis, with minimal independent checks, provided that it is linked to a system of registration, which permits transgressors to be deregistered and prevented from participation in future contracts, and is open to public scrutiny. Self-certification which is not linked to registration and public scrutiny should not be pursued in the medium term, as recourse against those who abuse the system would be difficult.
Regional registers are not desirable as programmes would not be based on area bound enterprises and co-ordination would be difficult. Registration can best be effected by a national Procurement Compliance Office.
Prime contractors can also abuse participation programmes by employing targeted enterprises in "pass through" activities (targeted enterprises would fail to perform meaningful functions). Sanctions in the form of contract administration remedies and the barring of contractors from tendering on future contracts is considered to be the best method of dealing with such practices. To effect this, registration of all contractors is required. Such registration and sanction can best be effected by a national Procurement Compliance Office.
In special circumstances, sheltered market tenders may have to be considered and designed for the 'differently-abled' community in order to ensure that those targeted end up with contracts. As this is a form of reserved procurement, such programmes need to be implemented under strict controls, and only when other remedies are determined to be inadequate, or inappropriate, to meet the desired objectives. A national Procurement Compliance Office can play an important moderating and supervisory role in this regard.
Deregistration is an effective means of sanctioning those parties that abuse the system.
A Procurement Compliance Office can register contractors, engage in outreach, and publish directories of target group enterprises.
An information and communication awareness campaign is required to inform established industry and emerging target group enterprises of the programme and the specific opportunities presented thereby. A national Procurement Compliance Office could assume responsibility for this. The publication of directories of target group enterprises by such an office, broken down into regions and the services provided by the enterprises, would enable productive linkages to be established between emerging target group enterprises and large scale established businesses.
Some practical considerations regarding the affirming of marginalised sectors of society in construction projects
The defining of general target groups on the basis of parameters such as franchise in terms of the 1984 constitution (race-based), gender and scale of enterprise is relatively easy, as such definitions are universally applicable. Furthermore, such targeting is not area bound. There is, however, no universal definition for the targeting of marginalised sectors of society in construction projects. There are many factors which need to be considered when determining which communities may be regarded are being marginalised. Invariably, such communities are confined to specific geographic areas.
All marginalised communities have labour which can be engaged on projects. Some have enterprises which may supply materials, hire plant and equipment, manufacture materials, construct portions of the work, etc. There are also degrees to which specific groupings within communities are marginalised. Thus if the local resources are available within marginalised communities, there may be different weightings which should apply to different resources and to different sectors within the community. At the same time, geographic areas which may be used to define enterprises will generally be wider than those which may be used for unskilled labour.
It was proposed earlier in this chapter that elected councillors, in whose constituencies construction takes place, should engage with implementing organs of State on delivery options and define target groups, if relevant, provided that they are mandated to do so by their respective councils. As such targets have, for the aforementioned reasons, to be defined on a project specific basis, it is submitted that in some instances targets which are set may not necessarily be appropriate. The system is open to abuse and manipulation and councilors may, for reasons of vested interest, promote delivery systems or promote enterprises which should, rather, participate in other forms of programme. Furthermore, the setting of area bound targets is a form of preference which, in terms of the new Constitution, must be regulated by national legislation.
A national Procurement Compliance Office can exercise external controls and perform audits on the third tier of government's engagement of marginalised sectors of society in construction contracts.
In order to overcome these constraints, both actual and perceived, external controls and auditing systems need to be put in place. A national Procurement Compliance Office could do this and enforce a uniform interpretation of the term "marginalised sectors of society". This arrangement would also ensure that poor precedents are not set by metropolitan, town, rural or district councils. This is particularly important, as the development of community contractors can work against the development of black-owned small, medium and micro enterprises. For example, community C may demand that only contractors from community C be engaged on a project. This would mean that any contractors developed through projects in communities A and B would be excluded from participation and have no continuity of work, i.e., enterprises developed through community projects will not be able to export their services to neighbouring communities and so develop in a sustainable manner.
The role of a national Procurement Compliance Office.
National legislation as recommended in chapter 2 should be drafted to set out uniform tender procedures, policies and control measures and to require all organs of State to use standard contract documentation and contract options. Such legislation should also set out preferences and policies with respect to the advancement / protection of persons or categories of persons disadvantaged by unfair discrimination, define the target groups and provide for the establishment of a national Procurement Compliance Office. The Procurement Compliance Office, apart from ensuring that procurement offices and procurement centres comply with national legislation and setting regulations and policy with respect to contract documentation and contract options, should, inter alia :
The Procurement Compliance Office is the engine which may be used to drive Affirmative Procurement.
From the above it can be seen that the Procurement Compliance Office would play a pivotal role and be, in essence, the engine which drives Affirmative Procurement.
Key elements for the successful implementation of an Affirmative Procurement Policy.
Aspects of an enabling environment which are conducive to the effective implementation of an Affirmative Procurement Policy are:
The key elements of an Affirmative Procurement Policy, on the other hand, are:
The statement entitled "Affirmative Procurement in Brief" which may be found at the end of this paper, summarises these aspects of an Affirmative Procurement Policy.
The success of an Affirmative Procurement Policy is highly dependent on :