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CONSTRUCTION SECTOR | RULES OF ENGAGEMENT


Qualifying Small Enterprises with less than 51% Black Ownership


The construction sector in South Africa is expected to rebound in 2022 and expand by 9.1% in real terms. The industry will then stabilise at an annual average growth of 3.1% between 2023 and 2025. Output will not return to pre-pandemic levels during the forecast period.


However, the sector’s growth over the forecast period will be due to Government’s support in investments in transport, energy, residential, telecommunication and industrial projects. The Government supports businesses and Small and Medium Enterprises (SMEs) to boost business confidence. In November 2021, the National Treasury announced a plan to spend R2.3b in the Financial Year (FY) - from April 2021 to March 2022. It will assist in rebuilding businesses affected by the third pandemic wave and reconstructing infrastructure damaged in the civil unrest that erupted in July 2021 in the Gauteng and KwaZulu- Natal provinces.


Over the long term, the industry’s output will support investments related to the 10-year R2.2tr infrastructure plan unveiled by the Government last year. The plan comprises of 276 projects in various sectors, including transport, energy, industrial and housing. Of the total, R1tr will be spent over the next four years.


With Government support, the industry aims to produce 26% of the total electricity from renewable energy sources by 2030. To achieve this goal, Eskom plans to invest R106tr in constructing wind farms and solar plants until 2030. The Government intends to increase the number of Special Economic Zones (SEZ) across the country, which will further support the industry’s growth. In October 2021, South Africa’s president Cyril Ramaphosa announced plans to designate the Sedibeng area as an SEZ, expecting to attract 99 investment opportunities worth R48b.


The Amended Construction Sector Codes of Good Practice (CSC) align with the Amended Generic Codes of 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 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.


The CSC is comprehensive; however, the requirements are more complex than its sector-specific counterparts. Although published four years ago, misinterpretation of many aspects of the provisions remains a challenge. The consequence is that organisations do not adequately plan their strategy in accordance with the requirements, resulting in a shortfall in evidence at the time of their B-BBEE Verification.


The CSC is a complex document due to the categories, financial thresholds and manner in which those in the ambit of the CSC present their B-BBEE Credentials. Unique to the CSC is that it does not incorporate the traditional Enterprise Development element. Being the second in a series of three, this article addresses how the CSC impacts all QSEs with less than 51% ‘Black’ Ownership.


Scope of Application

An organisation qualifies for measurement on a specific code; therefore, choosing a more convenient one to be measured on is not an option. The criteria as to what code an organisation must be measured on depends on the sector from which it derives the majority of its income, however, some organisations represent two sectors. Nonetheless, an organisation must measure against the code that generates the most of its Annual Revenue in a specific financial period. Therefore, if a gazetted sector code in line with section 21 of the B-BBEE Act represents an organisation’s core business, that is the code it must be measured on; however, with no sector code in place, measurement reverts to the Generic Codes.


The CSC scope of application has three categories for an organisation within its ambit, namely Contractors, Built Environment Professionals (BEPs) and Construction Material Suppliers:

Contractors conduct construction project activities that include civil engineering, electrical engineering, power transmission, general building and specialist construction work as per the CIBD grading tables below:



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, however, are generally not limited to the following activities:

> Planning, design and costing of construction projects in a built environment.

> Project management and configuration of a construction value chain, including the environment.

> Energy, industrial, property, transport and infrastructure; and

> Consulting engineering practices, architects, quantity surveyors and town planners.

This article applies to Qualifying Small Enterprises (QSEs) with less than 51% ‘Black’ Ownership (BO-QSEs) and Exempt Micro Enterprises that opt to be measured on the QSE Scorecard when tendering above their threshold. There is no option for Enhanced Recognition. Construction Material Suppliers, Contractors and BEPS fall under the following thresholds and are measured against the QSE Scorecard as follows:


Priority Elements

A QSE must meet the 40% sub-minimum requirements of two of the three identified Priority Elements. Ownership is compulsory, then either Skills Development or Preferential Procurement & Supplier Development. By not achieving the 40% sub-minimum requirement results in the Discounting Principle being triggered, which means a drop of one Status Level and corresponding Preferential Procurement Recognition Level, which will appear on an organisation’s B-BBEE Certificate. A B-BBEE Rating Agency will indicate whether they applied the Discounting Principle on the B-BBEE Certificate.


Ownership

Ownership is measured 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 form of a juristic person recognised under South African law;

  • Discretionary Collective Enterprises such as:

a. Trust;

b. Broad-Based Ownership Scheme; and

c. Employee Share Ownership Programme;


The definition of ‘Black’ People’ applies to the CSC, being a generic term for African, Coloured and Indian People:

  • Who are citizens of the Republic of South Africa by birth or descent; or

  • Who became citizens of the Republic of South Africa by naturalisation -

    1. Before 27th April 1994; or

    2. On or after 27th April 1994 and who should have been entitled to acquire citizenship by naturalisation prior to that date.


Ownership measures Net Value, Economic Interest and Voting Rights with three Bonus Points available. The key measurement principles are:

  • The criteria for measuring Rights of Ownership held by ‘Black’ People in South African multinationals relates to the value of its 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 – which South African law recognises – then the Flow-Through Principle applies to every tier of a multi-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




Management Control

Management Control is measured 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 key 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 make its Employment Equity submission, a B-BBEE Rating Agency will not award points for this element.





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 key measurement principles include: > All skills interventions must align with the CSC LearningMatrix. Therefore, the following is necessary to receive points on the Skills Development scorecard.


  • Where legislation requires, an organisation must:

    1. Present a SETA-approved Workplace Skills Plan, Annual Training Report and Pivotal Report; and

    2. 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. 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.

  • The CSC limits Mandatory Sectoral Training to:

a. Site, projects or safety inductions;

b. Toolbox talks; and

c. 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.

  • Providing a learning programme is applicable during an organisation’s Measurement Period; salaries or wages for Learners in categories B, C or D programmes are Skills Development expenditure.

  • The maximum period an employee is eligible for Professional Registration learning programmes - category C - is five years, which is the duration of the calculation.

  • Skills Development expenditure does not constitute a claim if:

    • Any portion of the expenditure stems from a grant or another such avenue; or

    • There are any conditions attached to a Bursary or Scholarship, except for:

      1. Successful completion of studies within an allocated time frame; and

      2. The continuation of employment for a period following 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.




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