Peter Barnard (Partner) & Marikah Calo (Candidate Attorney), Cox Yeats Attorneys

The construction industry in South Africa is a significant contributor to the country’s employment and economic growth.

Whilst government has given a firm commitment to economic development and transformation in the private sector, never ending unlawful activity perpetrated by third parties means that service delivery is harder to achieve than ever before.

Two of the ways that government is driving economic transformation is through the revised Broad-Based Black Economic Empowerment Construction Sector Codes and the revised Preferential Procurement Policy Framework Act Regulations.

Construction Sector Codes In December 2017, the Revised Construction Sector Codes in terms of the B-BBEE Codes of Good Practice came into effect.

The net result of the revised Codes is that organisations have to ensure that the ownership, preferential procurement and supplier development elements of their businesses now meet the designated ‘minimum thresholds’. In the event that the minimum thresholds are not met, organisations will automatically drop one B-BBEE level. In order to remain competitive in the public sphere, organisations may well need to restructure their businesses in order to meet these thresholds.

The Procurement Regulations In April 2017 new regulations under the Preferential Procurement Policy Framework Act were enacted. These regulations must be adhered to by all spheres of government when putting projects out to tender.

The regulations and the Act still require government to award a project to the most responsive and lowest price bidder, in terms of the 80/20 or 90/10 point system â€" depending on the value of the tender. Under the new regulations, the 80/20 point system will apply to tenders between the value of R30 000 and R50 million. The 90/10 point system applies to tenders above the value of R50 million.

However, under the new regulations a host of ‘gate keeper’ provisions have been created, which contractors must pass through before points are even considered. If any of the provisions are not met, the contractor’s bid will automatically be disregarded.

For example, government may stipulate that all bidders have to have a specific B-BBEE level or may require that at least 30% of the value of the project be subcontracted to certain designated groups, such as black women or war veterans. For contracts over R30 million, the government is mandated to adhere to this requirement.

In addition, the new regulations stipulate that if the bidder chooses to subcontract more than 25% of the project work to a subcontractor with a lower B-BBEE score than their own, that bidder will receive zero points for B-BBEE, effectively taking them out of the race for the project.

A successful contractor wanting to thrive off public sector work in the modern era will need to be highly B-BBEE compliant, with a particular focus on community upliftment and economic empowerment of historically disadvantaged groups.

However, this is where lawlessness comes in, and where service delivery and economic growth is hampered. It is clear from the above that a careful and well thought out plan needs to be created at the time a bidder submits a bid for a project. By the time a project is awarded, all of government’s goals and requirements will have been satisfied, and the proposed plan can then be set into motion.

Unfortunately, what is being experienced throughout KwaZulu-Natal, and now more and more frequently throughout the country, is that multiple “business forums” are insisting that their members be involved in projects. Often with their mafia-style tactics, these groups have successfully shut down major construction projects in the attempt to salvage more work for their constituents and take a bigger bite of the contract value. This can be frustrating for contractors who have already jumped through hurdles for government to win the tender, but still face further demands once mobilising on site.

Government finds itself in a precarious position. One the one hand, they have committed themselves to economic upliftment and transformation, but on the other, have to ensure service delivery. As stated by Durban’s City Manager, Sipho Nzuza, the ‘mafia’ business forums are a sensitive issue, as the business forums raise issues that the municipality and government need to address.

However, as Nzuza indicated, the municipality cannot entertain the forceful tactics of the business forums â€" with the municipality’s assistance, these forums need engagement in the right space and the right manner.

For now, contractors need to rely on court interdicts and police intervention to prevent violence and harm on their sites. Government is beginning to realise that it will need to take more pro-active steps to ensure contractors safety, and will hopefully be able to roll out a national strategy in the foreseeable future.