Since 1994, the Department of Public Works has championed a range of initiatives and has co-ordinated the development of a comprehensive construction industry development policy as part of its contribution to the national project of reconstruction, growth and development. This White Paper is the culmination of a three-year process of policy development, consultation and implementation.
Towards the end of 1995, the Department of Public Works (DPW) generated a position paper for consideration by Government, entitled "Establishing an enabling environment to ensure that the objectives of the RDP and related initiatives by Government are realised in the construction and allied industries".
In February 1996, the support of Cabinet was obtained to develop construction industry policy and the Department of Public Works was mandated to lead this initiative. At this time South Africa's Constitution had not yet been adopted and detailed government policy formulation for a wide range of related sectors was in the melting pot. Many of these have required interpretation and adaptation within the specific context of the construction sector. To ensure the alignment of policy development in construction, Government appointed a steering committee and working group comprising eight departments, including the Departments of Transport, Water Affairs & Forestry, Housing, Labour, State Expenditure, Trade & Industry, and Education, with Public Works as coordinator.
Further research led to a discussion document, which formed the basis for a round of consultation workshops with industry stakeholders towards the end of 1996. The resulting Green Paper was released for broad comment in November 1997. At the same time, and in line with the Green Paper proposals on the way forward, an Inter-ministerial Task Team on Construction Industry Development was appointed. Drawn from industry and Government, and supported by a Public Works Secretariat, the Task Team has engaged intensively in the consultation with industry stakeholders and has advised on the finalisation of the White Paper.
Following a request from industry, the deadline for comment was extended to 15 May 1998. Comments were received from more than 20 organisations and individuals. The Task Team has subjected comment and feedback to a thorough analysis, which has further modified Government policy thinking. The output of this review was presented in July 1998 to a Construction Industry Development Reference Group of industry stakeholders and gained full support.
The White Paper is thus the result of a broad public policy-making process and represents a significant milestone in the development of the South African construction industry. It establishes an enabling framework within which the construction industry can play a more strategic role in social development and economic growth. This framework provides the basis for an integrated industrial development strategy and the institutional mechanism to drive such a strategy on behalf of all stakeholders. The Construction Industry Development Board will ensure the ongoing commitment of all stakeholders to a common vision.
Key aspects of the Task Team's evaluation of comments on the Green Paper are summarised below.
The Green Paper received without exception general support from all for its vision, principles and objectives. Supported by the Secretariat, the Task Team undertook a thorough analysis of stakeholders' comments.
All comments received were captured in tabular format, together with brief responses. This reflects an audit trail of some 250 comments addressed by the Task Team.
Notwithstanding some concerns, a significant number of stakeholders expressed positive sentiments on the following key proposals:
Positive comment was not always unqualified, and the concerns raised were categorised and dealt with by the Task Team, as follows:
A number of concerns reflected a misunderstanding of Government intentions and the need for greater clarity in the formulation of the White Paper.
Following discussion of the Task Team's review of comment on the Green Paper, its business plan was endorsed by a Reference Group workshop of over 60 leading public- and private-sector stakeholders. The workshop "Planning for Construction Industry Development" expressed its commitment to the process of industry development with the adoption of the following resolution:
"Concerned at the need to accelerate delivery, to increase infrastructure investment, to unblock delivery blockages and to promote industry development, the Reference Group agreed on the need for the structured co-operation of all role-players.
It resolved to support and promote various key outputs, including plans to:
Broadly representative of the South African construction industry, the Reference Group constituents undertook, within their respective means, to commit time and resources to the objectives of construction industry development and to promote the concept of "development through partnership".
In the final drafting process, the Task Team and the Department of Public Works have endeavoured to ensure that the construction industry development policy put forward in this White Paper reflects the deepest concerns of the industry, as a whole, in regard to the development agenda.
The construction industry, which comprises both the building (residential and non-residential) and civil engineering sectors, plays an indispensable role in the South African economy. It provides the physical infrastructure which is fundamental to the country's development and its activities affect the lives of all South Africans. Construction contributes about 35% to gross domestic fixed investment (GDFI) and current projections of future infrastructure requirements indicate that its contribution to GDFI could double within 5 to 10 years.
A large and growing percentage of infrastructure development is taking place within disadvantaged communities. Thus, the construction industry offers significant job and business opportunities to those formerly marginalised from economic activity. Furthermore, the sector employs more than 400 000 people, and can play a meaningful role in addressing the current unemployment crisis.
The need for accelerated and increasing delivery presents industry and Government with both challenges and opportunities. Achievement of Government's objectives of reconstruction and development requires an effective strategy for construction industry growth and ongoing development.
This White Paper sets out Government's vision for an enabling strategy aimed at enhanced delivery, greater stability, improved industry performance, value for money and the growth of the emerging sector. It is premised on increasing public-sector demand and identifies the need for improved public-sector capacity to manage the delivery process.
In defining Government policy for the construction industry, the White Paper proceeds from an understanding of the industry and the environment in which it operates. Analysis of this environment captures the specific trends and structure of the industry, as well as the current opportunities and constraints which enable and impede its development. Informed by extensive consultation and by practical experience, the White Paper locates the requirements of industry development within the context of Government's mandate and the regional and global context.
Government's commitment to the objectives of development, growth and the democratisation of society derives from the mandate of the Reconstruction and Development Programme.
Policy has been further elaborated in several documents which are of particular relevance to construction industry development, including:
Within this policy framework, development of the construction industry must respond to the following broad social and economic imperatives:
In rising to meet broad economic and social challenges, industry and Government must overcome a range of fundamental impediments.
The fundamental impediments to industry growth and development are discussed below:
The regulatory framework tends to inhibit innovation and initiative, and disempower the emerging sector. Furthermore, transformation and reform are impeded by the absence of a statutory authority to co-ordinate and promote industry growth and development initiatives.
It is against the background of the need for accelerated delivery and development that the combined and mutually reinforcing effect of the impediments outlined here can be characterised as an industry-wide crisis.
The strategic aim of a construction industry policy is to establish an enabling environment in which the objectives of reconstruction, development and growth are realised in the industry.
Our vision is of a construction industry policy and strategy that promotes stability, fosters economic growth and international competitiveness, creates sustainable employment, and addresses historic imbalances as it generates new industry capacity for industry development.
It presupposes a growing and active industry supported by an effective institutional framework representative of all parties who embrace this vision. It is premised on the ability of Government to exert its influence to foster operating practices conducive to an enabling environment.
Attainment of Government's vision must address the above impediments in a comprehensive and integrated strategy, and a number of mutually reinforcing programmes constitute the cornerstones of this strategy.
The programmes envisaged are elaborated upon in Chapters 3 to 7 and include the following:
In fulfilling its role as regulator, facilitator and client, Government is already involved in the affairs of the construction industry. These functions are exercised by various departments and in all spheres of Government, and are discussed below:
To support and mould programmes for industry-wide transformation of the construction sector, Government must ensure a balanced application of the instruments at its disposal. These include the following:
The use of policy instruments should be guided by the following principles. They should
Following the precedents of other states - such as Australia, Britain, Singapore and Malaysia - public-sector purchasing power can be used to encourage the industry to embrace reform and to operate in a manner that the public sector identifies as "best practice".
Construction-industry policy needs to ensure compliance with minimum standards relating to health and safety, productivity and quality, training, employment practice and environmental protection. It also needs to define best practice for a range of interventions. Practices which focus on work-process transformation, human-resource development, the promotion of SMEs and affirmative action are based not only on the operation of leading construction enterprises in South Africa, but also on the experience of construction and other industries internationally.
It is not assumed that the public sector necessarily has the expertise to decide on best-practice standards. Through appropriate benchmarking, the public sector - in association with appropriate industry institutions - can generate standards which promote the economic viability of the construction industry. Benchmarking is already practised by leading South African construction firms and public corporations, and it is possible to identify those practices which will contribute to the long-term improvement of the industry.
In the context of transformation and rapid global change, public policy must be dynamic and responsive. While the Department of Public Works is responsible for co-ordinating the development, monitoring and dissemination of Government policy for construction-industry development, there is currently no national agency charged with guiding the development and promotion of the construction industry as a whole.
The specification of standards, the testing and phasing-in of appropriate public-sector measures and the development of industry and public-sector capacity, will require close and constructive collaboration between the private sector (established and emerging), labour, Government and non-governmental sectors.
Co-ordination will also necessitate effective partnerships between national, provincial and local-level administrations, as well as between Government departments. Constant monitoring and review will be required to co-ordinate and evaluate the effectiveness of enabling programmes and to respond to shifting priorities and new challenges.
These requirements highlight the need for permanent institutional arrangements which are outlined in Chapter 8. Central to the proposed arrangements is the need for a statutory Construction Industry Development Board (CIDB), which can provide a focal point for all stakeholders to advance the agenda for positive change. It will further commit all stakeholders to a common vision and drive the ongoing refinement of an integrated industrial strategy, based on the programmes outlined in this White Paper.
In co-operation with Government policy organs, the board will evaluate and advise on industry performance and the realisation of Government's enabling role.
Guided by the Inter-ministerial Task Team on Construction Industry Development, a planning and consultative process is under way to establish the legislative framework for the CIDB.
The strategic goals of industry transformation will not be accomplished by short-term programmes. But the reality that fundamental re-orientation may only occur over the next 10 or 20 years underlines the urgency for action if South Africa's broader reconstruction and development objectives are to be attained. Therefore, based on the Green Paper proposals, critical steps are being taken to address strategic development objectives and the current industry crisis. Addressing each of the programmes contained in the ensuing chapters, these steps are being facilitated by the Inter-ministerial Task Team on Construction Industry Development. In line with the Green Paper mandate on the way forward, co-operation is being forged between all stakeholders to take forward the agenda of reconstruction, growth and development in the construction industry.
The basis of this agenda is the vision and strategy now consolidated in this White Paper by the Department of Public Works in co-operation with the participating departments. Crystallising construction industry policy, the White Paper reflects a thorough review of public comment and consultation on the Green Paper proposals. It provides a framework for concerted action by public- and private-sector stakeholders to promote "development through partnership" in the construction industry.
The construction industry operates in a complex and generally project-specific environment. It is impacted on by a wide range of legislation, regulation and forms of contract and subcontract. It is heavily dependent on labour and each new project faces different challenges in terms of size and scope, location and terrain and the range of skills and materials required.
The industry is mobile, and every project involves the assembly of a new combination of role players and resources: new clients, a spectrum of professional disciplines, contractors and subcontractors, skilled and unskilled workers, plant and equipment. In short, nothing in the industry is static. Industry instability is compounded by the fact that construction is a competitive and high-risk business for both client and contractor.
Critically significant for industry growth and development is an increasing and relatively stable environment as the foundation for sustainable growth and job creation, enhanced employment stability, investment in human-resource development and the plant and equipment necessary to maintain or improve productivity, quality and international competitiveness.
Since the late 1970s, gross domestic fixed investment (GDFI) on construction goods has been declining. According to SA Reserve Bank figures, construction - which comprises both the building and civil engineering sectors - contributed only 2,87% to GDP in 1997, a significantly smaller proportion of the national economy than its peak of 5,37% in 1975.
This decline in construction spending was most severe in the civil engineering sector, with almost a two-thirds reduction from the early 1980s, as well as a halving of the non-residential and residential building investment over a similar period. Since 1994, Reserve Bank statistics suggest that the civil engineering and non-residential sectors have experienced positive growth while the residential market has remained virtually static.
This trend contrasts with the history of construction in other countries. In almost all countries, but especially middle-income countries such as South Africa, the rate of growth in the construction sector should be greater than that of the economy as a whole. Construction contributes at least 50% to fixed capital investment in most developing countries. Where there is rapid economic development, therefore, construction should grow even more rapidly than the rest of the economy.
It has been estimated that more than 35% of all construction employees were lost to the industry during the recession of the mid-1970s and that at least a further 30% of employees were again lost in the late 1980s and early 1990s.
Together with the wasteful loss of skilled personnel, South Africa has lost the capacity of thousands of construction companies that were unable to survive the volatility of demand.
Firms balanced on the brink of survival in an uncertain market are reluctant to invest in improved health and safety, productivity and quality, training, improved employment practice and environmental protection.
Responding to the decline in investment and accompanying volatility, South African firms - in conformity with global trends - have adopted more flexible production strategies. However, in the context of intense competition and the specific pre-1994 environment, the shedding of labour obligations and an increasing reliance on unregulated labour-only subcontracting (LOSC) have further contributed to declining capacity, productivity and output quality.
Government is committed to meeting the basic needs of the population. Estimates of the investment required to overcome the growing backlog of physical infrastructural requirements project the need to escalate construction spending significantly. This translates into a potential output increase of up to 100% in the next 5 to 10 years, signalling a period of profound growth for the South African construction industry.
This period of growth provides a window of opportunity for the development of a more stable delivery environment, underpinned by measures to counteract the effects of demand volatility, and stabilise employment conditions as the basis for consolidating industry skills and management capacity.
The State will therefore aim to moderate the fluctuations in its own expenditure by developing clear medium-term fixed-investment guidelines for all public-sector spending agencies. The appropriate scheduling of public-sector investment in construction goods and services would then provide a more predictable environment for private-sector investment, growth and development.
* Government's commitment to increased direct investment in construction expenditure is constrained by the limitations of the public fiscus.
* Private-sector financing of public-sector projects is a complex form of procurement. Although various models are contemplated by Government and some are being tested, there is need for co-ordinated policy and for the development of specialist capacity in both the public and private sectors.
It is recognised that there are constraints which could undermine the effectiveness of proposals to moderate demand volatility. These constraints include the following:
Although the three-year projections of the MTEF will only provide expenditure ceilings, which may be partially revised in subsequent years, this planning tool will provide a much clearer indication of Government priorities than the previous budget system. More importantly, the MTEF provides both the public and private sector with opportunities to participate in the process of determining future budget priorities. The Medium Term Budget Policy Statement (2 December 1997) describes the key features of the MTEF, as follows:
Related to construction spending projections is the need for adequate mechanisms for monitoring, evaluation and reporting.
With the support of the Department of Public Works and other infrastructure-delivery departments, the envisaged Construction Industry Development Board (CIDB - see Chapter Eight) will provide the industry and public sector with a forum to develop and promote approaches to the construction-related content of public- and private-sector partnerships.
In this regard the CIDB will co-operate with Government agencies established to promote such partnerships in developing public- and private-sector capacity, and in disseminating information.
The infrastructure departments, in co-operation with the CIDB, will participate in a process of defining construction-investment priorities through the MTEF process. To support the MTEF process as described above, which involves a number of opportunities for both public- and private-sector agencies to debate the priorities set in the MTEFs, a construction industry economic-planning capacity will be developed by the DPW, together with the envisaged CIDB.
In relation to the budgeting process, this planning capacity will undertake the following:
Supported by the CIDB, the departments involved in public-sector infrastructure investment will advise the Departments of Finance and State Expenditure, and spending agencies at national, provincial and local authority level on the scheduling, projecting and monitoring of construction demand and public-sector measures to level spending.
The CIDB will facilitate the input of industry in this process and will promote the dissemination of information within the industry and the public sector.
The experience of declining demand and increasing volatility referred to above has left the industry focused on short-term survival strategies. The successive industry slumps have resulted in considerable loss of trained personnel and more than half the firms that were active during the industry peak in the early 1980s have either dramatically reduced their capacity or left the industry entirely.
Those firms that have remained have adopted more flexible production practices such as labour-only subcontracting (LOSC). Although LOSC practices have been adopted internationally with some success, the institutional environment of the South African industry in the late 1980s and early 1990s ensured that, by using unregistered LOSC, firms were able to avoid negotiated labour obligations. Thus, cost savings are generally achieved through lower wage rates rather than through the higher productivity generally attained by means of specialist subcontracting.
Indeed, the use of such LOSC has contributed to declining health, safety, productivity and quality standards in the industry, since the employees of such LOSC have historically been unable to access available training schemes.
The public sector will support an appropriately regulated labour market, which will promote:
* improved labour conditions;
* reduced turnover of labour;
* sustained human-resource development; and
* improved quality and productivity.
The industry as a whole is trapped within a competitive arena which dictates short-term survival objectives. Without immediate incentives and State support, the industry is unable to focus its creativity on the horizon of longer-term benefits of stability made possible through self-regulatory measures.
Labour-only subcontracting is an entrenched component of industry organisation, both in South Africa and internationally. Its function in the project-specific environment of the contracting business is not in dispute.Regulatory measures should be confined to stabilising employment conditions as a basis for sustained human-resource development and improved quality and productivity.
The public sector will therefore support an appropriately structured labour market in the construction industry through the use of labour-related performance standards certain categories of public-sector construction contracts.
Following the lead of the Labour Market Commission, the Labour Relations Act (1996) and the Basic Conditions of Employment Act, Government will support a system of labour regulation that embraces the following:
Government supports the principle of collective bargaining. In line with this policy, the public-sector delivery agencies, in co-operation with the CIDB, will encourage the extension of collective bargaining to all labour involved in the construction sector, by developing public-sector procurement incentives (discussed in Section 4.2). In promoting this policy instrument, Government proceeds in the conviction that a basic agreement should be negotiated covering all labour in a particular labour market.
The actual content of this agreement may vary in the different regional construction labour markets, depending on the agreements negotiated by the bargaining partners, but all agreements should at least conform to a minimum set of basic standards such as those defined by the Basic Conditions of Employment Act (1997). The actual content and coverage of such agreements will, however, in terms of the principle of voice regulation, be determined by the organisational strength of bargaining parties.
Where no bargaining councils exist, the industry can request the Wage Board to set minimum wages and working conditions in line with basic conditions prevalent in agreements negotiated elsewhere.
In this case, public-sector procurement incentives and performance conditions should cover the extension of such determinations.
Since Government support for "voice regulation" is premised on the assumption that bargaining partners have similar capacity to organise and negotiate, such promotion of collective bargaining would remain unequal, given South Africa's history. The recommendation of the Labour Market Commission - that the Department of Labour is to provide financial and other support to improve the organisational and bargaining skills of the unions and shop stewards - is supported. Such organisational support is considered essential in the construction sector where, due to the sporadic and migratory nature of employment, unions are particularly weak.
In support of a strategy to stabilise the construction labour market, and to promote appropriate labour and other production standards, the Department of Public Works, in co-operation with other infrastructure-delivery departments and the industry, will:
This pilot approach will inform the development of permanent mechanisms described below.
The strategy to promote appropriate labour regulation will be supported by the establishment of a national register of accredited contractors. Since such a register would need to be monitored in co-operation with industry, Government strategy will be further supported by the establishment of the CIDB, which is discussed in Chapter 8 of this document.
Within the framework of its role to maintain the national register of contractors, the CIDB will evaluate and adjust the incentive measures and standards outlined above and will promote these within the public and private sectors. It will further support improved stability by monitoring and advising Government on the promotion and application of these standards in the industry.
In support of the Labour Market Commission's recommendation, the CIDB will co-operate with the Department of Labour to promote the improved organisational and bargaining skills of the unions and shop stewards in the construction sector.