CONSTRUCTION SECTOR CODE

RULES OF ENGAGEMENT

LARGE ENTERPRISES

The focus of this article is on Large Enterprises, being the last in a series of

three articles breaking down the Amended Construction Sector Codes of

Good Practice (CSC). TFM Magazine issue 25 focussed on Qualifying Small

Enterprises (QSEs) with less than 51% ‘Black’ Ownership, while issue 24

focussed on Exempted Micro Enterprises and QSEs with more than 51%

‘Black’ Ownership.

Good Practice (Generic Codes); however, they hold additional

requirements to address the challenges in the sector. The

objective is to enhance the capacity of ‘Black’ Contractors,

‘Black’ Built Environment Professionals (BEPs), ‘Black’ Material

Suppliers, industry workers and the community at large to

transform and increase productivity and enhance transformation

in the sector.

The Construction Sector Charter Council (CSCC) was

established in 2009 with the mandate to oversee and monitor

the implementation of the CSC. Annually it provides a report

highlighting the progress of transformation in the sector.

Construction Material Suppliers are measured against the same

scorecard as Contractors. The measurement for both is against

given thresholds, targets, weighting points and methodology.

However, an organisation can only measure Construction

Material Suppliers and Contractors against one another where it

can prove that there is compulsory legislative compliance and/or

a licensing requirement linked to that specific sector.

BEPs are generally, but not exclusively, Consulting engineering

practices, architects, quantity surveyors and town planners who

conduct the following activities:

> Planning, design and costing of construction projects in a

built environment.

> Project management and design of a construction value

chain, including the environment, energy, industrial,

property, transport and infrastructure.

Organisations that fall within the ambit of the CSC are measured against the

Large Enterprise Scorecard if their turnovers exceed the following thresholds.

Priority Elements

A Large Enterprise must meet the 40% sub-minimum requirements of the three identified Priority Elements: Ownership, Skills Development

and Preferential Procurement & Supplier Development.

Not achieving the 40% sub-minimum requirements results in the Discounting Principle being triggered, which means a drop of one Status

Level with the corresponding Preferential Procurement Recognition percentage. A B-BBEE rating agency will indicate whether it applied the

Discounting Principle on an organisation’s B-BBEE certificate.

Ownership

Measurement of Ownership takes place on the

date of an organisation's B-BBEE verification.

Apart from a natural person that holds

Ownership directly, ‘Black’ People may hold

ownership in one of the following forms:

> Company - as defined by the

Companies Act;

> Close Corporation;

> Co-operative;

> Partnership or other association of

natural persons;

> Any other form of a juristic person

recognised under South African law;

> Discretionary Collective Enterprises such as:

• A Trust;

• A Broad-Based Ownership Scheme; and

• An Employee Share

Ownership Programme.

Ownership measures Net Value, Economic

Interest and Voting Rights with four Bonus

Points available. The critical measurement

principles are:

> The criteria for measuring Rights of

Ownership held by ‘Black’ People in South

African multinationals relates to the value of

their South African operations.

> When measuring the Rights of Ownership

of any category of ‘Black’ People and the

Ownership of a ‘Black’ Person passing

through a juristic person as recognised

under South African law, the Flow-Through

Principle applies to every tier of a multi[1]tiered ownership chain until it ends with a

natural person meeting the definition of a

‘Black’ Person.

> The Modified Flow-Through Principle

applies when measuring the Voting

Rights and Economic interest of ‘Black’

People. However, it does not apply when

calculating the Voting Rights and Economic

Interest of ‘Black’ Women, New Entrants or

Designated Groups.

> The CSC exclude ownership held by

organs of state, public entities and Rights

of Ownership for Mandated Investments.

> Upon meeting the requirements, a

portion of ‘Black’ Ownership for a ‘Black’

Participant that and exits an organisation

is recognised.

Applicable to BEPs

The following are additional requirements for calculating ‘Black’ Ownership:

> More than 50% of the total Ownership of a BEP must be individuals who are both:

 1. Professionally registered with any of the statutory professional councils in

the BEP environment in South Africa and,

 2. Form part of an organisation's Executive Management held within the 'Top

Management' definition. In the context of the CSC, Executive Management

includes 'Top Management' as outlined in the Employment Equity Regulations,

which provide for 'Executive Directors' and 'Other Executive Management’.

Not meeting the above criteria means that only 50% of the ‘Black’ Ownership may

be included in the total measurement of ‘Black’ Ownership.

> Where a holding company owns a BEP, the ‘Black’ Ownership must

meet the above criteria. Otherwise, the CSC will only recognise 50%

of the ‘Black’ Ownership in the holding company for the total

measurement of ‘Black’ Ownership.

Step 1: Determine percentage shareholding held by individuals in Top

Management who are also Professionally Registered

Shareholder A 24,00%

Shareholder D 24,00%

 48,00%

Step 2: Does the total in step 1 exceed 50%? No - limitation therefore applies

Step 3: Calculate Black Ownership using Flow-Through Method: 37,50%

100% recognition for a shareholder who is Top Management and

professionally registered (24% x 100%) 24,00%

Shareholder A (24% shareholding x 100% 'Black') 24,00%

Shareholder D (24% shareholding x 0% 'Black') 0,00%

Total 24,00%

50% for a shareholder who is not Top Management

and professionally registered (27% x 50%) 13,50%

Shareholder B (25% shareholding x 0% 'Black') 0,00%

Shareholder C (15% shareholding x 100% 'Black') 15,00%

Shareholder E (12% shareholding x 100% 'Black') 12,00%

Total 27,00%

If limitation was not applicable shareholding would have been: 51,00%

Shareholder A (24% shareholding x 100% 'Black') 24,00%

Shareholder B (25% shareholding x 0% 'Black') 0,00%

Shareholder C (15% shareholding x 100% 'Black') 15,00%

Shareholder D (24% shareholding x 0% 'Black') 0,00%

Shareholder E (12% shareholding x 100% 'Black') 12,00%

Share[1]holder

Shareholder

type

Top

Management

(Y/N)

Professionally

registered

(Y/N)

%

share[1]holding

% Black

share[1]holding

A Individual Y Y 24% 100%

B Company Y N 25% 0%

C Broad-based

Ownership

Scheme

N N 15% 100%

D Individual Y Y 24% 0%

E Individual N Y 12% 100%

An organisation that does not meet the above criteria will not

qualify for ‘Black’ Ownership.

Management Control

Measurement occurs on the date of an organisation's

B-BBEE verification. It determines the representation of

‘Black’ Management that controls or makes decisions in an

organisation. The critical measurement principles include:

> The calculation for the score is against an organisation's

current payroll data. Therefore, a B-BBEE rating agency

must access the complete data set, including a Payment

Parity of the EEA4 or similar report.

> A B-BBEE rating agency is responsible for confirming that a

‘Black’ Person counted in the report receives remuneration

in line with their occupational level. Without evidence

supporting employment conditions, an agency will not

award points for this element.

> If an organisation qualifies as a Designated Employer and

does not submit its Employment Equity submission, a

B-BBEE rating agency will not award points for this element.

> Where a particular occupational level does not apply to the

Measured Entity, the CSC allow the collapsing of specific

indicators on the Management Control scorecard and

sets out the methodology for adjusting weighted points

and targets.

> Achievement is calculated based on either Economically

Active Population or Adjusted Recognition for Gender

depending on the indicator.

Skills Development

The period for measuring Skills Development is an organisation's

Financial Year. A B-BBEE rating agency will only recognise

contributions payable within this period. All applicable

organisations must comply with the Skills Development Act. The

critical measurement principles include:

> All skills interventions must align with the CSC Learning

Matrix.

> Where legislation requires, an organisation must:

• Present a SETA-approved Workplace Skills Plan, Annual

Training Report and Pivotal Report; and

• Implement a general Priority Skills Programme

incorporating ‘Black’ People.

> Targets for Skills Development expenditure can include

external training for ‘Black’ People who are not employees

of an organisation. However, an organisation may not

repeat that claim under any other scorecard element when

claiming for Skills Development. In other words, double

claiming is not allowed.

> Where a measured entity does not have Junior

Management or does not distinguish between Junior and

Middle or Senior Management, points for expenditure

on Junior Management means an allocation to ‘Black’

Management

ecognition for no more than 50% of a bursary target for

learners attending grades 10 – 12 or the equivalent at trade

schools.

> Mandatory Sectoral Training does not qualify as Skills

Development Expenditure. The CSC limit Mandatory

Sectoral Training to site, project or safety inductions, toolbox

talks or Operators’ re-certification.

> Skills Development expenditure is any legitimate training

expense for any learning programme for ‘Black’ People that

includes, but is not limited to, the cost of:

> Skills Development expenditure arising from informal training

- categories F and G - under the Learning Programme

Matrix cannot accumulate more than 35% of the total value.

> Where a learning programme was provided during an

organisation's Measurement Period, salaries or wages for

Learners in categories B, C or D programmes constitute

Skills Development expenditure.

> The maximum period for which an employee is eligible for

Professional Registration learning programmes - category C,

excluding CPD - is five years. Salaries for these employees

are not claimable after the five years from the date of

registration that appears on the candidate’s acceptance

letter or certificate.

> Scholarships and bursaries for employees do not constitute

Skills Development if the Measured Entity can recover any

portion of those expenses from the employee or if the grant

of the scholarship or bursary is conditional. If the right of

recovery involves either of the following obligations of the

employees, the expenses are recognisable:

i Successful completion of studies within an allocated time

frame; or

ii The continuation of employment for a period following

the successful completion of studies. However, the time

frame must not be greater than the time frame of the

study period.

> All foreign service providers must be accredited, registered

or formally approved by a statutory occupational or

professional body in South Africa or abroad. Any training

outside South Africa, provided locally but with

foreign service providers, in line with the Learning

Programme Matrix, meets the requirements.

However, it must align with the Skills Matrix for a

'professional registration body' and be accredited or

registered with a formal learning institution.

Training material Trainers Administration

Scholarships &

bursaries

Course fees Accommodation

& travel

Training facilities,

including the

cost of catering

Funding and supporting research

at tertiary institutions to improve the

sector’s performance.

The CSC Learning Programme Matrix

Category Programme

A

Bursaries & Scholarships include school-going children, but must not exceed 50% of the target spend.

Narrative Description Institution-based theoretical instruction alone. The institution should formally assess it.

Delivery Mode Institutional instruction.

Learning Site Institutions such as universities and colleges, schools and AET providers.

Learning Achievement Recognition of theoretical knowledge resulting in a degree, diploma or certificate

issued by an accredited or registered formal institution of learning.

B

Mandatory Work-based experience, experiential training, in-service training - P1 and P2 – and/or workplace

experience modules for an occupational certificate or part qualification.

Narrative Description Institution-based theoretical instruction with some practical learning at an employer

or in a simulated work environment. The institution should formally assess it.

Delivery Mode Mixed-mode delivery, including institutional instruction. It must incorporate

supervised learning in an appropriate workplace or simulated work environment as

per a tertiary institution's requirements.

Learning Site Institutions such as universities and colleges, schools, AET providers and the

workplace.

Learning Achievement Theoretical knowledge and workplace experience with set requirements result in a

degree, diploma or certificate issued by an accredited formal learning institution.

C1

Professional Registration includes a candidacy or articles. The CSCC publishes an up-to-date table of recognised

Professional Registrations.

Narrative Description Recognised or registered structured experiential learning in the workplace is

necessary for professional registrations. An industry professional registration body

should formally assess professional registration.

Delivery Mode Requirements as prescribed by a relevant industry professional registration body.

Learning Site As prescribed by a relevant industry professional registration body.

Learning Achievement Professional registration.

C2

Continued Professional Development

Narrative Description Recognised learning resulting in CPD points from an industry professional

registration body.

Delivery Mode Requirements as prescribed by the relevant training body and approved by the same

industry professional registration body.

Learning Site Institutions and workplace.

Learning Achievement Continued professional development points or credits.

D1

Apprenticeships, Learnerships, Occupational Certificates

Narrative Description An occupational-directed instructional and work-based learning programme that

requires a formal contract. Formal assessment by an accredited body.

Delivery Mode Institutional instruction together with structured supervised experiential learning in

the workplace.

Learning Site In institutions and the workplace.

Learning Achievement Theoretical knowledge and workplace learning result in achieving a SAQA registered

qualification, a certificate or other similar occupational or professional qualification

issued by an accredited or registered formal learning institution.

Category Programme

D2

A Post-Graduation short-term Mentorship Programme that spans between three and 12 months.

Narrative Description Work experience for graduates to make them employable.

Delivery Mode Structured workplace experience.

Learning Site The workplace.

Learning Achievement Employability for graduates. Evidence in the form of a curriculum vitae and

mentorship programme as defined in Annexe CSC300(C).

E

Occupationally directed SAQA registered unit standards, skills programmes, knowledge and practical modules for

occupational certificates and part qualifications.

Narrative Description An occupationally directed instructional and work-based learning programme which

does not require a formal contract. An accredited body must formally assess it.

Delivery Mode Structured, supervised experiential learning in the workplace may include some

institutional instruction.

Learning Site The workplace, institutional and AET providers.

Learning Achievement Awarding of credits for registered unit standards or occupational modules.

F

External Information Programmes

Narrative Description An occupationally directed informal instructional programme.

Delivery Mode Structured, information-sharing or direct instruction stemming from workshops,

seminars, conferences and short courses.

Learning Site Institutions, conferences and meetings.

Learning Achievement Attendance register or completion certificates from training, conference or seminar

organiser.

G

Internal informal programmes

Narrative Description Work-based informal programmes.

Delivery Mode Informal training which results in a better understanding of a job in the context of a

role or improving performance or level of skill.

Learning Site The workplace.

Learning Achievement Attendance register, log book or institution book.

Preferential Procurement & Supplier Development

The period for measuring Preferential Procurement & Supplier Development is an organisation's Financial Year.

Preferential Procurement

The CSC encourage procurement from ‘Black’-owned and ‘Black’ Woman-owned EMEs and QSEs that are more than 51% ‘Black’-owned.

The objective is to support job creation and participation. A B-BBEE rating agency will only recognise contributions payable within an

organisation's specific financial period. The critical measurement principles for Preferential Procurement include:

> If recipients of qualifying Supplier Development Contributions have a minimum three-year contract with an organisation, its procurement

spend is multiplied by a factor of 1.2.

> Procurement spend with suppliers that are ‘Black’-owned QSEs or EMEs with more than 51% ‘Black’ Ownership who are not recipients

of Supplier Development Contributions, but have a minimum three-year contract with the organisation, is multiplied by a factor of 1.2.

> Spending for a first-time supplier of an organisation is multiplied by a factor of 1.2.

> The basis of an organisation's Preferential Procurement spend is its Total Measured Procurement Spend (TMPS). It relates to a total

procurement spend during an organisation's Measurement Period, which either includes or excludes items depending on the nature of

the procurement.

Spend that constitutes TMPS: All salaries, wages and allowances are paid to non-South African employees.

Cost of Sales. Operational and Capital Expenditure. Public Sector.

Labour brokers and independent

contractors.

Pension and medical aid contributions –

excluding capital investment portion of

employees.

Trade commissions.

Capital expenditure. Monopolistic procurement. Third-party Procurement.

Empowerment-related expenditure. Imports. Intra-group procurement

The CSC exclude spending on specific goods or services where an organisation is forced to use a particular supplier due to tender

requirements or client specifications.

TMPS Exclusions: Non-discretionary procurement, whereby the requirement is a pre-requisite to a

contractual obligation.

Salaries, wages, remunerations, and

emoluments to South African employees.

Pass-through third-party procurement. Empowerment-related procurement.

Imports of specific goods and services. Intra-group procurement. Taxation.

Supplier Development

The CSC define qualifying Supplier Development Beneficiaries as

distributors, suppliers, service providers, consultants, or contractors

to the broader construction sector. Thus, Supplier Development can

benefit Beneficiaries who fall outside an organisation’s supply chain.

The criteria for qualifying as a Supplier Development Beneficiary are:

• Being at least 51% ‘Black’-owned; and

• Having evidence of its annual financial revenue being less

than 30% of the contributing organisation's total annual

revenue during the Measurement Period.

Supplier Development Programmes

A Supplier Development Programme is a structured co-operation

with qualifying Beneficiaries to assist by providing qualifying Supplier

Development Contributions. A qualifying Supplier Development

Programme must comply with:

The Beneficiary Criteria:

> An organisation may not own more than 20% of the equity in a

Beneficiary entity, calculated using the Flow-Through Principle;

> It must have a minimum of three permanent employees;

> It must hold a valid tax clearance certificate;

> It must produce a B-BBEE affidavit (affidavit) whereby the

validity aligns with the Supplier Development Programme

Agreement

The Programme Criteria:

> Both parties must sign a written agreement.

> An organisation should conduct a Needs Analysis that is

subsequently documented and signed by all parties.

> A Supplier Development Plan documented by all parties

aligned with the Measurement Period. The Supplier

Development Plan must:

• Have clear objectives for developing at least three

needs as identified in the Needs Analysis from at least

two areas identified for development.

• Include developmental areas as per the non-exhaustive

list below:

Management

and labour skills

transfer.

Establishing an

administrative

system

Planning, tendering

and programming

skills transfer.

Business skills

transfer with an

emphasis on

negotiation skills.

Technical skills

transfer with

emphasis on

innovation.

Legal compliance.

Procurement

skills transfer.

Establishing a

credit rating and/

or history.

Establishing

financial loan

capacity and/or

history.

Contractual

knowledge

transfer.

Marketing and

branding.

Access to or

implementation of

business systems

> List priority interventions or activities for addressing the

objectives of areas of development identified above

> Incorporate Qualifying Supplier Development Contributions,

including the value thereof. Any contributions that become

payable outside the Measurement Period will not count at

the time of a B-BBEE verification.

The Programme Management Criteria

The CSC require the appointment of ESD Champions to

manage and implement the Supplier Development Programmes.

Requirements for ESD Champions:

> Must be accountable and responsible for the Supplier

Development Programme;

> Must hold a Senior Management position or higher;

> Must be suitably qualified and experienced to monitor

progress; and

> Must have the capacity and capability to complete a portfolio

of evidence for B-BBEE verification purposes.

The target for the number of Supplier Development Programmes

is based on two areas which are:

1 The number of Qualifying Beneficiary Entities that

participated in Supplier Development Programmes; and

2 The total annual Revenues of the Qualifying Beneficiary

Entities

Supplier Development

Contributions

The CSC encourage organisations

to align with Supplier Development

initiatives to promote Government’s

localisation vision, including value-adding

programmes within an organisation’s supply chain.

The annual target for Supplier Development Contributions

is 3% of the average Net Profit After Tax (NPAT) for the three

financial years preceding the Measurement Period.

An Indicative NPAT should apply when an organisation has not

made a profit on average over the last three years or the average

NPAT margin of the past three years was less than one third of the

industry norm NPAT margin during the same three-year period.

The indicative NPAT is based on the Revenue of the Measured

Entity for the measurement period multiplied by one third of the

average Industry Norm NPAT margin for the three financial years

that precede the Measurement Period.

Where the Industry norm NPAT margin for the period is negative, a

nominal value could result in total points. The nominal value should,

however, not be less than 50% of the previous Measurement

Period target.

The critical measurement principles for Supplier Development include:

> The CSC only recognise payments made during an

organisation’s Measurement Period as Supplier

Development Contributions.

> Where a Measured Entity fails to score points for Supplier

Development Programmes, a maximum of 50% of the

annual qualifying Supplier Development Contributions will

be recognised.

"The CSC is a complex document due to the categories, financial

thresholds and manner in which those within the ambit

of the CSC present their B-BBEE Credentials.

The following is a non-exhaustive list of typical Supplier Development Contributions

Investments and loans. Grant contributions.

Providing financial guarantees or securities and making credit

facilities available.

Incurring direct costs when aiding or accelerating development

and providing seed or development capital.

Overhead costs. Granting preferential credit terms.

Granting preferential terms for supplying goods or services. Discounts allowed for acquisition or maintenance costs

associated with a franchise grant, license, agency, distribution,

or similar business rights.

Creating or developing the capacity and expertise to manufacture

or produce goods or services previously not manufactured,

produced or provided in South Africa. The Government's

economic growth and local supplier development policies and

initiatives guide this process.

Providing training or mentorship interventions to increase

operational or financial capacity. Note that such interventions

may not be double-counted under the Skills Development

scorecard.

Facilitating access to credit and affording preferential credit

facilities.

Creating or developing new projects promoting beneficiation.

Providing direct training or mentoring to qualifying beneficiaries.

This training may not be double-counted under the Skills

Development scorecard.

Maintaining a Supplier Development unit to focus exclusively on

support is capped to a proportion of relevant overhead costs.

Payments to suitably qualified and experienced third parties to

implement Supplier Development interventions on behalf of an

organisation.

Contributions made towards the settlement of the cost of

services relating to operational or financial capacity or efficiency

levels, not limited to:

> Professional and consulting fees;

> Statutory licensing and/or registration fees;

> Industry-specific levies and/or other such fees;

> IT services; and

> Payment towards B-BBEE verification for an EME by a

SANAS accredited B-BBEE rating agency.

Socio-economic Development (SED)

Contributions are monetary or non-monetary, initiated and implemented in favour of Beneficiaries by a Measured Entity with the specific

objective of facilitating sustainable economic access for targeted Beneficiaries.

Like Supplier Development Contributions, the target for Socio-Economic Development (SED) is calculated on the average NPAT for the three

preceding financial years. When making an average loss or the average NPAT is less than a third of the industry norm, the same steps apply

as for determining the Supplier Development target.

The critical measurement principles for SED include:

> The CSC only recognise payments made during an

organisation’s Measurement Period.

> The CSC encourage Measured Entities to implement SED

by prioritising communities in the areas where they operate.

> Where less than 75% of a contribution directly benefits

‘Black’ People, the value of that contribution should be

adjusted by the percentage which was for the benefit of

‘Black people. If more than 75% of the benefit was for

‘Black People, the total value could be recognised as a

contribution, subject to the SED Recognition Matrix.

> An enhanced factor of 1.25 is allowed for the portion of

contributions that benefits ‘Black People with Disabilities.

Grant contributions. Providing financial

guarantees or security.

Direct costs incurred in

assisting beneficiaries.

Overhead costs directly

attributable to SED.

Development capital

advanced to beneficiary

communities.

Granting preferential terms

for supplying goods or

services.

Payments to third parties

for implementing SED

interventions on behalf of

an organisation.

Suitable training or

mentorship interventions to

beneficiary communities to

increase financial capacity.

Time spent by staff

in carrying out SED

initiatives, excluding travel

or time to commute.

The maintenance of an

SED unit that focuses on

supporting Beneficiaries and

Beneficiary communities

The CSC target is set at 30% of total SED contributions to

Communities with Limited Services. These communities are

defined as those where:

A less than 65% of the households have access to piped water;

or

B less than 85% of the households have access to electricity;

and

C more than 50% of the households have an average household

income in the first five levels - including none - of the income

data table.

Evidence to substantiate Communities with Limited Services must

be the latest STATS SA census results filtered through to the local

municipality.

The CSC allow for Bonus Points on SED where contributions are

made to Structured SED Projects.

Evidence of implementing an SED as part of a Structured SED

Project includes:

> The SED Plan which is signed by all parties, including third[1]party intermediaries, and consists of:

• The description of the programme;

• Clear objectives, including financial targets and

commitments;

• Priority interventions;

• A concise implementation plan that articulates milestones.

> A signed confirmation by the beneficiary or third party

through whom the contribution was made, confirming the

value of the contribution that became payable during the

Measurement Period;

> An annual project impact analysis against targets and

milestones and whether or not they were realistic.