CESA YPF IMBIZO EMPOWERING YOUNG PEOPLE / … · owned and managed) to ensure they make up at least...

CESA YPF IMBIZOEMPOWERING YOUNG PEOPLE / PROFESSIONALS

PROCUREMENT and REAL RADICAL TRANSFORMATION

CESA YOUNG PROFESSIONALS FORUM ‐ANNUAL CONFERENCE

Procurement• Procurement pre-1994• The Constitution• The Balancing Act• Legislative Framework• Procurement Score card• PPPFA & the 2017

Regulations• Reservation of Work

INDEXReal Radical Transformation • Demographics• Employment Equity• Size of the Cake• Fronting• Cost Effective• Competition• Debtors• The Price war• Corruption / Mismanagement• Conclusion

THE GOOD OLD DAYS (Before 1994)

PROFESSIONALS• Professionals were nominated / selected from panel.

• Gazetted fee scales linked to cost of the works.

• Appointments based on relationships with client.

CONTRACTORS• Tender document prepared by professionals based on well defined scope

• Price based.

• Invitation based on Capacity and relationships with Client and professionals.

• Shorter procurement period.

• Professionals had good understanding of the clients needs.

• Professionals developed tender documents for Contractors based on established norms and standards.

• Sustainable business.

CLIENT BODIES• In‐house experienced professionals.

• Serviced smaller population.

• Little political interference.

• Barrier to entry for new players, leading to fewer, but large companies.

• Procurement not fair, equitable, transparent, competitive and cost-effective.

• Monopolistic behaviour leaving clients at the mercy of professionals.

Private Sector to a large extent still practice this model


THE CONSTITUTION (1996)

Section 217 (Procurement)(1) When an organ of state in the national, provincial or local

sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from 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.

(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.

Importance to use procurement as a tool to correct past imbalances and to uplift vulnerable

groups in society.


Free trade in public markets (World Trade Organisation Government Procurement Agreement) – (ATTRACTIVE FOR FOREIGN

INVESTMENT)VERSUS

The freedom of governments to use procurement as a POLICY TOOLto:

•stimulate economic activity •protect national industry against foreign competition •improve the competitiveness of certain

industrial sectors •remedy regional disparities. &

In addition to implement SECONDARY POLICIES: •creation of jobs •promote fair labour conditions •promote the use

of local labour as a means to prevent discrimination against minority groups •protect the environment •encourage gender equality

•promote employment of people living with a disability.

THE BALANCING ACT


To give effect to Section 217(3) of the Constitution.

• Public / Municipal Finance Management Act

• Preferential Procurement Policy Framework Act (PPPFA) – 2017 Regulations.

• Broad‐Based Black Economic Empowerment Act

• BEE Codes of Good Practice, Codes of good Practice and Scorecard – Construction Sector Scorecard.

LEGISLATIVE ENVIRONMENT


WTOPA

EMPOWERMENT

• Legislative framework written with a specific spirit. • Provided that the use of procurement as a policy tool has

measurable targets; the processes used are verifiable, auditable and transparent; and the use of procurement as a policy tool takes place within a competitive environment, procurement can to a large extent contribute to the development of growing enterprises that are able to participate equitably in the global economy

PROCUREMENT SCORE CARD

• SOE’s tasked with the responsibility of putting measures in place to measure, verify and audit the process have not performed.

• Statutory Council can play a role but can only hold accountable those who have taken the oath.

PRESSURE GROUPS LEANING ON GOVERNMENT TO AMEND LEGISLATION TO RESPOND TO THEIR DEMANDS. OTHERS RESPOND BY LOOKING FOR THE LOOPHOLES.


Pre-qualification criteria for preferential procurement• a tenderer having a stipulated minimum B-BBEE status level of

contributor;• an EME or QSE;• a tenderer subcontracting a minimum of 30% to-

– an EME or QSE which is at least 51% owned by black people, black women, black youth, black people with disabilities, black people living in rural or underdeveloped areas or townships, cooperatives, military veterans, EME’s and QSE’s.

PPPFA REGULATIONS 2017LEGAL

COMPLIANCE FUNCTIONALITY PRICE & B‐BBEE Sub‐Contracting

PRE‐QUALIFICATION

LEGAL COMPLIANCE FUNCTIONALITY PRICE & B‐BBEE

> R30m, min 30%


PREFERENCE POINTS

CLASSIFICATION Generic Score Card Construction Sector SC

Emerging Micro Enterprise (EME) ≤ R10m ≤ R6m

Qualifying Small Enterprise (QSE) ≤ R50m ≤ R25m

The regulations will go a long way is creating opportunities for micro (EME) and small businesses (QSE), but very little for medium sized companies as most companies

boast a B‐BBEE level 3 or better. This will lead to further fragmentation of the BEP’s considering that more than 80% classify as EME’s and QSE’s. This model does not

support the Black Industrialist Programme as announced by Government

Preference Points Old Regulations New Regulations

80 / 20 ≤ R1m ≤ R50m

90 / 10 > R1m > R50m


• who may do what?– Registered Persons may not undertake or offer to undertake work of a

nature for which their education, training and experience have not rendered them competent to perform.

– A registered person signing off the work of an unregistered personwithout detailed insight and checking and assuming the responsibility for the work is clearly misconduct.

– the Code of Conduct only applies to those already registered.

• Should unregistered persons be allowed to practice in this industry?

RESERVATION OF WORK


• Do you go to a MD every time you feel sick?• Do you consult an attorney for every single contract you enter into?• Do you use a CA for all your financial matters? • If not, why not?

– Answer is simple : Relevance, Time and Affordability• The test is whether the work requires the competence of a

registered person for technically and economically acceptable outcomes that are safe, healthy and environmentally sound?

RESERVATION OF WORK


• Inherent in this question is the risk associated with the work and its solution.

• It comes down to the following. – What are the risks associated with the work and the delivered

product? – What level of competence is required for effective mitigation of the

risks? – Is the determined level of competence at or above the level defined

for any category of registration?

RESERVATION OF WORK

FUNCTIONALITY


• Consensus in the profession is that the greater problem is that of unregistered persons, who may not be adequately competent and who are not accountable for their actions in a way that a registered person would be.

• However the bigger threat to the profession is persons operating in our space with no or incomplete qualifications.

RESERVATION OF WORK

• The integrity of the industry is questioned at the moment with recent significant failures. Further complicated in that the parties involved were experienced Engineers, Suppliers and Contractors.

• Confidence in our profession is at an all time low…government appointed lawyers to investigate roof collapse


• What can we do?– Engineering is a profession that requires significant technical and organizational ability,

coupled with the attitudes and skills to ensure that the work brings benefits and minimizes harm.

– As engineering practitioners, we take pride in our problem‐solving ability. – Stand together as a profession and not enable unqualified persons to operate in our

space.

• We have a problem with lack of competence, knowledge and understanding in public sector client bodies. How do we solve that?

– We need to provide capacity support to the public sector through our professional councils and voluntary bodies like SABTACO and CESA.

– We need to train professionals for the public sector.– We need to encourage young professionals to work in the public sector.

RESERVATION OF WORK


REAL RADICAL TRANSFORMATIONWhat do you want RADICAL to mean?


SENSUS 2015/2016


EMPLOYMENT EQUITY (Statistics from CESA / industry insights studies)

0% 20% 40% 60% 80% 100%

07‐Dec08‐Jun08‐Dec09‐Jun09‐Dec10‐Jun10‐Dec11‐Jun11‐Dec12‐JunDec‐12Jun‐13Dec‐13Jun‐14Dec‐14

Black Asian Coloured White

33%

9%7%

51%

Black Coloured Asian White

Dec ‐ 2016


REGISTERED PROFESSIONALS

Radical is:• To make skills development, training, mentorship and support to ensure professionals registration of

black people a higher priority and to set the industry minimum targets.• To include participation of black professionals at senior project level as part of the prequalification

criteria.

6%3% 4%

87%

Black Coloured Asian White

20072016

• Based on these figures, transformation of our industry stagnated in 2007.

• Coincidentally, it is about the same time when BEE was replaced with B‐BBEE…makes you think.

• The B‐BBEE targets are too low such that companies tick boxes to get a recognition level as opposed to true empowerment. The new CSC will not change much.


The size of the cakeCentral10% Provincial

14%

Local25%Parastatals

18%

Private33%

Client Contribution to total revenue

Central Provincial Local Parastatals Private

• Public sector income 67% of total income.

• Private Sector not subjected to the procurement acts and regulations.

• Bulk of parastatals work are allocated to large multi‐nationals. Functionality criteria used to keep out transformed companies.

Radical is:• to set aside 50% of all public sector work for Empowered companies (more than 50% black

owned and managed) to ensure they make up at least 50% of the 10 largest Engineering practices by 2025.

• to make it compulsory for any private sector client to use the public sector procurement Acts and regulations if they want to do business with government.


• Definition: Deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes. Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts.

• Examples: Window-dressing, Benefit Diversion, Opportunistic Intermediaries.

• Responsibility to Report Fronting: Everyone• Penalty: The Amendment Act criminalises fronting and other

misrepresentations regarding the BEE status of an enterprise. Any person convicted of an offence in terms of the BEE Act may be liable to a fine or a maximum prison sentence of 10 years, or in the case of a juristic person, a fine of up to 10% of its annual turnover.

FRONTING

Radical is YP signing an oath that they will not continue employment with any company where fronting is practiced. NOTE: Any agreement that restricts beneficiation in RSA only because of BBBEE is fronting.


COST EFFECTIVE

0

5

10

15

20

25

-100.00%-80.00%-60.00%-40.00%-20.00%

0.00%20.00%40.00%60.00%80.00%

100.00%

Dec

-99

Aug-

00Ap

r-01

Dec

-01

Aug-

02Ap

r-03

Dec

-03

Aug-

04Ap

r-05

Dec

-05

Aug-

06Ap

r-07

Dec

-07

Aug-

08Ap

r-09

Dec

-09

Aug-

10Ap

r-11

Dec

-11

Aug-

12Ap

r-13

Dec

-13

Aug-

14Ap

r-15

Dec

-15

Aug-

16

Profitability : Nett % Satisfaction rateNett perception trends improvingProfitability4 per. Mov. Avg. (Nett perception trends improving)

16%

11%

Profitability levels based financial statements. Does not take into account losses due to long debtor

ageing. If +80% dependant on LG, PG – profitability margins as low as 2%.


COMPETITION

0%

5%

10%

15%

20%

25%

30%

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jun-00 02-Jun 04-Jun 06-Jun 08-Jun 10-Jun Jun-12 Jun-14 Jun-16

Fierce Discounting - right axis 4 per. Mov. Avg. (Fierce)


DEBTOR AGEING > 90 days


• Engineers only able to report positive levels of profitability due to Contractors (the “less educated”) understanding the concept of supply and demand.

• Too much emphasis is placed on price and too little on functionality and empowerment.

PRICE (80 – 90 POINTS)

Radical is:• Where the gazetted fee scales used as a minimum and not a maximum limit, in particular on

projects where there is a specific demand for experienced Engineers.• Where all members of CESA and SABTACO stand together and refuse to submit tenders on

projects where the scope of work is ill defined, the client has a history of non‐compliance with transparent, fair and equitable practice and the tender requirements (functionality) does not align with the degree of complexity of a project.

• Where all professionals suspend all tendering and march as a collective to the DTi, Parliament and the Competition commission to stop professionals from competing on the basis of price.


• Does corruption have a colour? • Do established business who transgress get the

same treatment as transforming / empowered business?

• Do we as professionals take the view that things can happen around me, as longs as I am not part of it?

CORRUPTION

Radical is:• When we turn down work because the process may have been flawed.• When you refuse to be employed by a company that may not be transparent in the

way they secure work.• When our institutions take decisive action against professionals who were implicated

in corruption / collusion, despite what their companies may have agreed with the competition commission.


• More than half of the professionals practicing in RSA is over the age of 55 years.

• This industry is your inheritance, do not allow the “captains of industry” to mess it up and leave you with a mess.

• You are entitled to NOTHING. You will be given NOTHING.

• Take ownership, absorb knowledge, participate and stay passionate.

It’s in your hands

Conclusion

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