The case for the transformation of the South African construction sector is an obvious and evident one to make, writes Ismail Essa. File photo: Dumisani Sibeko / INLSA
JOHANNESBURG - The case for the transformation of the South African construction sector is an obvious and evident one to make. Large companies continue to dominate business in the engineering and built environments and emerging contractors are confronted with huge barriers to entry.

This dominance has led to some unethical and bad business practices such as the creation of monopolies and collusive practices. This should not be the case nearly a quarter of a century after the democratic transition.

Black-owned companies should not be prevented from winning and delivering on large contracts issued by all spheres of government or state-owned entities. Cosy cartels and closed-loop agreements on the allocation of tenders between the so-called “big players” should belong to the past.

Earlier this year, Sanral took a bold initiative to make its new draft transformation policy public.

From October to December it discussed this policy in great detail with internal and external stakeholders, including the construction and engineering sectors.

The final version, and taking due consideration of stakeholder inputs, will be published this year to complement its long-term strategic vision, Horizon 2030.

What sets Sanral’s new policy apart from other transformation initiatives is that it is pro-active, it is implementable, it sets realistic and achievable goals and it covers all aspects of its business, from major projects to professional services.

The new transformation policy is a pro-active step taking into account Sanral’s role as one of the driving forces in the construction industry.

In the past financial year, Sanral awarded about 170 contracts worth R16billion for new works, road rehabilitation and maintenance.

This has a huge impact on economic activity and many local communities draw major benefits from the opportunities to create jobs and generate incomes.

However, it remains true that the construction industry is dominated by a limited number of major players among contractors, suppliers and consultants.

New entrants - and especially black-owned companies - find it difficult to become “members of the club” and they are too often relegated to the second tiers of procurement and participation.

Thus, as a first step to speed-up transformation, Sanral has committed itself to break down monopolies in the supply chains of materials, equipment, technologies and procurement and to open the sector to broad-based participation by black South Africans.

It then goes further by committing itself to exceed the minimum levels set by the prevailing legislative and regulatory frameworks. It identifies 10 sub-sectors of business that cover all of Sanral’s activities and set clear and reachable goals for each sector.

On capital projects, for example, it states that it will only do business with contractors that are a minimum 51percent black-owned with at least 30percent management control by black people and Level 2 B-BBEE rating. This policy will also apply to consultants and established suppliers whose annual turnovers exceed R50million.

No company will receive more than 15 tenders in a year with a further limitation of three per province. Sanral shall promote joint ventures, consortia and partnerships and main contractors will be required to use a Sanral-approved database of sub-contractors.

To ensure the playing fields are level in the industry Sanral will enter into empowerment agreements with entities at the top of the supply chains for construction material, equipment and supplies.

Such agreements will be broad-based in nature and designed to benefit local communities within the areas where construction activities will take place.

Similar clear objectives are defined for each area of Sanral’s business. Military veterans will be given preference in infrastructure protection projects; emerging enterprises will move to the top of the queues when road furniture and road safety materials are sourced; black real estate developers will be given opportunities to develop Sanral’s property portfolios and minimum B-BBEE levels are set for professional services in the fields of auditing, legal, information technology and communications.

A key success factor will be the ability of black-owned enterprises to participate in the new opportunities that become available.

To facilitate this Sanral will promote and support structured development programmes and partnerships with industry players and industry associations to ensure the growth of black entities in the construction and related sectors.

The envisaged changes will go a long way to transform the engineering and construction sectors and contribute to the growth of a much healthier industry that can meet the objectives of the National Development Plan to accelerate investment in South Africa’s transport infrastructure.

The Sanral Transformation Policy together with the Voluntary Rebuilding Programme (entered between the government and the seven large construction companies) as well as the newly proclaimed Construction Industry B-BBEE Transformation Charter, will give renewed and greater impetus to transformation of the construction industry. Within a few years this industry will change to reflect more closely the demographics of the country.

Ismail Essa is the head of transformation at the SA National Roads Agency.

The views expressed in this article are not necessarily those of the Independent Group.

- BUSINESS REPORT