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PRASA Rolling Stock Fleet Renewal Programme:

Local Content Document

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Disclaimer

This document has been compiled and made available for the sole purpose of providing an outline

to prospective bidders regarding the Local Content aspects of the Programme. This document is

neither a Request for Proposals, Expressions of Interest or any form of pre-qualification, nor does it

constitute any form of offer or commitment to any RSM or any other person. Whilst PRASA

undertakes to consider all comments received, it will only incorporate such comments as it, in its

sole discretion, deems appropriate.

For the avoidance of doubt, the only definitive and authoritative statement of PRASA’s approach

and requirements in respect of Local Content is the RFP which will, in due course, be issued for the

Programme. PRASA reserves the right to amend, vary or deviate from this document at any time, in

its sole discretion, without incurring any liability whatsoever to any person.

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Contents

Abbreviations and Acronyms ................................................................................................................ 4

Definitions ............................................................................................................................................. 5

1. Introduction and Objectives of this Document ............................................................................ 7

2. Background and Context .............................................................................................................. 9

2.1 National Context ................................................................................................................... 9

2.2 PRASA Context .................................................................................................................... 10

3. South African Government Policies and Legislation ................................................................... 10

3.1 Economic Development Policies ......................................................................................... 11

3.2 Procurement Related Policies ............................................................................................. 11

4. Local Content in the Context of the Programme ........................................................................ 13

4.1 Local Content ...................................................................................................................... 14

4.1.1 Local Content Definition and Calculation ................................................................... 14

4.1.2 Rail Related Skills Development ................................................................................. 18

4.1.3 Bid Documentation Relating to Local Content ........................................................... 19

4.2 B-BBEE ................................................................................................................................. 21

4.3 Job Creation ........................................................................................................................ 22

5. Proposed RFP Evaluation Process ............................................................................................... 23

5.1 Stage 1 ................................................................................................................................ 23

5.2 Stage 2 ................................................................................................................................ 23

6. PRASA’s Expectation of RSMs ..................................................................................................... 24

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Abbreviations and Acronyms

AsgiSA: Accelerated and Shared Growth Initiative for South Africa

B-BBEE: Broad-Based Black Economic Empowerment in line with the B-BBEE Act 53 of 2003

BOM: Bill of Materials

dti: Department of Trade and Industry

EMU: Electrical Multiple Unit

IP: Intellectual Property

IPAP I & II: Industrial Policy Action Plan

LC: Local Content

NGP: New Growth Path

NIPF: National Industrial Policy Framework

NIPP: National Industrial Participation Programme

NSDS: National Skills Development Strategy

PFMA: Public Finance Management Act No. 1 of 1999

PPPFA: Preferential Policy Procurement Framework Act No. 5 of 2000 and all related

regulations

PRASA: Passenger Rail Agency of South Africa

RFP: Request for Proposal

RSM: Rolling Stock Manufacturer

SMME: Small, Medium and Micro Enterprises

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Definitions

Bill of Materials (BOM): is a breakdown of all the components, sub-components and sub-

assemblies that contribute towards the manufacture and assembly of an Electric Multiple

Unit (EMU).

Economic Development: contains the following broad objectives: Local Content, Job

Creation and B-BBEE in the context of PRASA.

Economic Development Plan: means the plan to be submitted by the bidder on how

Economic Development will be implemented. The plan will contain three portions: Local

Content, B-BBEE and Job Creation. The plan will form part of the bid response to the

Request for Proposal (RFP). The objective is to detail how Economic Development

thresholds and targets, defined in the Economic Development Scorecard, will be met by the

bidder.

Economic Development Scorecard: means the scorecard submitted by the bidder

committing to certain Economic Development thresholds or targets. A template will be

provided to the bidder for completion as part of the response to the RFP.

Imported Content: is the total tender price less the total Local Content value.

Intellectual Property (IP) Transfer: Refers to contributions relating to the sharing of

specific intellectual property or “know-how” that will contribute towards the improvement

of a local manufacturer’s capability and competitiveness.

Investment in Plant: any type of direct investment made into any plant, machinery and

tooling for a local manufacturer.

Job Creation: this refers to the creation of sustainable jobs to assist members of the local

population in securing sustainable employment. It should be noted that this would include

both temporary and permanent employment opportunities that are created directly from

the Programme.

Job Retention: refers to the maintenance of any existing employment in the rail or related

industry.

Local: originating or registered within the geographical boundaries of the Republic of South

Africa.

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Local Content: includes that portion of the value of components making up an EMU that is

made, added to or manufactured from Southern Africa Customs Union resources in South

Africa; services rendered by citizens, permanent residents or organisations with operations

based and registered in South Africa; and any spend incurred related to Rail Related Skills

Development, IP Transfer and any other investments that aid the development of the rail

or related industries in South Africa.

Programme: refers to the Rolling Stock Fleet Renewal Programme.

Skills Development: refers to Skills Development defined in the B-BBEE Act and the B-BBEE

Codes of Good Practice.

Rail Related Skills Development: Refers to the contributions to develop skills in the rail and

related Local industries with the objective of creating a sustainable and competitive Local

rail industry. This may include activities such as: sponsoring bursaries for rail industry

specific artisans, engineers, technologists or technicians and building industry related

training centres. Bidders may refer to the National Skills Development Strategy III

developed by the Department of Higher Education and Training for Government’s strategy

regarding sector related skills development.

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1. Introduction and Objectives of this Document

Introduction

PRASA is a public entity responsible for the provision of passenger services in the interest of the

South African public. A detailed feasibility study1 was completed by PRASA in 2011 regarding the

procurement, financing and maintenance of rolling stock for Metrorail services. It concluded that

the rolling stock used by Metrorail, the rail commuter division within PRASA, has aged beyond its

economic life and this has led to high maintenance and refurbishment costs, inefficient rail service,

customer delays and customer dissatisfaction. The feasibility study concluded that it is

uneconomical for PRASA to continue with the existing rolling stock fleet and that the entire fleet

needs to be replaced.

This has resulted in a Rolling Stock Fleet Renewal Programme whereby an estimated 7000 EMUs

will be purchased and introduced into Metrorail over a period of approximately 20 years. The

feasibility study recommended that this fleet be acquired in two consecutive contracts. The first

phase of the contract is anticipated to have procurement duration of ten years.

Beyond meeting PRASA’s business objectives, a key requirement of the Programme is also to

accomplish a number of Government’s economic development objectives. The New Growth Path

(NGP) of 2011 essentially integrates a variety of existing economic policies in order to prioritise and

accelerate the achievement of certain goals for the South African economy. In essence, the aim is

to target limited capital and capacity towards activities that maximise the creation of decent work

opportunities. Both macro and micro economic policies are to create an environment to support

more labour-absorbing activities. The main indicators of success will be jobs (the number and

quality of jobs created), growth (the rate, labour intensity and composition of economic growth),

equity (lower income inequality and poverty) and environmental outcomes.

These aims are to be achieved through:

Investment in infrastructure;

The development of local manufacturing capability;

Addressing the broad-based elements of Black Economic Empowerment (BEE); and

Balancing the spatial development of rural areas and poorer provinces.

This Programme will assist in achieving the industrialisation aspirations within South Africa through

investment in infrastructure, the development of local manufacturing capability and the

revitalisation of the rail industry.

Objectives of the Programme

The overall aim of the PRASA Rolling Stock Fleet Renewal Programme is to transform and

modernise the Metrorail service over a period of 20 years with the initial benefits being realised

1 Available on www.prasa.com

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from 2015. Within the overall Programme, the Acquisition of New Rolling Stock Programme has

been established to achieve the following:

The procurement of the required rolling stock;

A high proportion of the value of the train originating from South Africa and in line with the Government’s Local Content objectives, a threshold of 65% should be achieved and maintained by the seventh year of the initial ten year procurement contract period;

The creation of a sustainable and competitive Local rolling stock manufacturing sector;

A strong focus on Job Creation and Job Retention;

The transfer and development of Rail Related Skills to the South African labour force;

Meaningful Black equity ownership at the contractor and sub-contractor level;

The use and enhancement of existing entities/plants and workforce if possible, and

A high priority on safety and reliability of the procured rolling stock.

PRASA will demonstrate its commitment to supporting Government’s objectives by leveraging the

substantive nature of this contract in terms of value and time to contribute towards the

achievement of some of the goals outlined in the NGP. The impact of this investment towards

Economic Development will be measured. Based on initial market research and supplier

engagements, it has been ascertained that a high Local Content target is achievable over a longer

term contract period. Hence, a minimum Local Content threshold of 65% by the seventh year of the

initial ten year delivery contract period has been set to achieve the goal of sustainable

industrialisation of the rail industry in South Africa. The importance of meeting these goals is such

that all bidders will be required to complete an Economic Development Scorecard and Plan to

achieve Economic Development, which will form part of the formal contract. This Plan will be

monitored by PRASA to ensure compliance.

Objectives of this Local Content Communication document The aim of this document is to:

Provide an outline of the relevant policies and frameworks governing the Local Content objectives of this Programme prior to the issue of the RFP documents;

Present an indication of the commitments that may be required of the bidders for certain Local Content thresholds and requirements;

Present the initial guidelines of the evaluation to be conducted by PRASA for the Local Content aspects of this Programme;

Provide the relevant definitions relating to Local Content in the context of this Programme; and

To provide prospective bidders with an opportunity to engage with, comment and, if necessary, seek clarification on PRASA's approach to Local Content (Refer to Section 6 in this document for further information on how to submit comments).

Market Engagements

Communication has been identified as a critical aspect of this Programme. PRASA has already

undertaken two formal market engagements to communicate with potential suppliers. The first

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was held for RSMs in April 2011 and the second, which was specifically targeted at local suppliers,

was held in November 2011.

In addition to this document, which is aimed at providing RSMs with information relating to Local

Content requirements, PRASA will be launching a survey in February 2012 targeting the local

manufacturing sector. Through participation in this survey, local suppliers will have an opportunity

to showcase their capacity and capability (both current and in the future). This will provide greater

visibility of the local supplier base to the RSMs who can then contact local suppliers to assess the

potential for collaboration and partnership in this Programme.

2. Background and Context

2.1 National Context Over the past three decades, South Africa has experienced a period of under-investment in

infrastructure (refer to Figure 1), which has had significant negative impact on the South African

economy including:

A loss of key skills and capabilities;

Decreases in manufacturing capabilities and thereby export potential;

A reduction in Job Creation opportunities; and

Increases in the costs of doing business due to higher transportation costs and longer lead times.

Figure 1: Historical trend of the ratio of Gross Fixed Capital Formation to GDP for South Africa.2

There are also a number of social imbalances faced in South Africa. These are largely due to

historical political regimes which rendered a large portion of the population unable to participate

meaningfully in the economy, thereby creating a significant gap in wealth distribution. South Africa

2 Source: South African Reserve Bank.

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also faces a significant unemployment rate (25%) as well as a host of other socio-economic

challenges such as high levels of poverty, HIV/AIDS and functional illiteracy.

2.2 PRASA Context PRASA has experienced the negative effects of this period of under-investment, with the average

age of its rolling stock fleet currently standing at 38 years of age. Since 1986 no new rolling stock

has been acquired.

A detailed feasibility study3 concluded that the rolling stock used by Metrorail has aged beyond its

economic life and this has led to high maintenance and refurbishment costs, inefficient rail service,

customer delays and customer dissatisfaction. The feasibility study concluded that it is

uneconomical for PRASA to continue with the existing rolling stock fleet and that the entire fleet

needs to be replaced.

This has resulted in a Rolling Stock Fleet Renewal Programme whereby an estimated 7000 EMUs

will be purchased and introduced into Metrorail over a period of approximately 20 years. The

feasibility study recommended that this fleet be acquired in two consecutive contracts. The first

procurement contract is anticipated to have duration of ten years, whilst also providing for a two

year setup period. The aim is for the contract close to be achieved by June 2013 with the contract

procurement period to commence two years later in 2015 for a period of ten years up to 2025. It is

envisaged that the first EMU is delivered by 2015. The final dates and contractual arrangements

will be communicated in the RFP documentation.

3. South African Government Policies and Legislation

The South African Government has developed a host of policies and legislation, which will inform the drafting of the RFP for this Programme. These include but are not limited to:

AsgiSA

NIPF

IPAP I & II

NGP

B-BBEE

NSDS III

NIPP

PFMA

PPPFA

3 Available on www.prasa.com

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3.1 Economic Development Policies AsgiSA

The Accelerated and Shared Growth Initiative for South Africa (AsgiSA) was developed in 2008 to

address the issues of poverty and unemployment in South Africa by focusing on investment in

infrastructure, developing skills and capabilities and the removal of any constraints to growth.

NIPF

The National Industrial Policy Framework (NIPF) was subsequently created in 2008 to set out

Government’s strategy for industrialisation to achieve some of the objectives of AsgiSA.

IPAP I & II

The Industrial Policy Action Plan (IPAP) was developed by the dti in 2008 as an implementation plan

for the NIPF. The focus was largely to identify “quick-wins” for certain sectors of the economy (e.g.

automotive and textile) improving competition in the economy and reducing red-tape and

bureaucracy for small businesses.

IPAP II followed in 2010 with its main focus to change the structure of the economy to facilitate

growth, which includes leveraging public and private procurement to raise domestic production

and employment in a range of sectors. It includes the alignment of B-BBEE to industrial

development objectives. IPAP II indicates that the dti will designate sectors or sub-sectors for

domestic production at specified levels of Local Content. Rolling Stock has been classified as a

designated sector.

NGP

The New Growth Path (NGP) is the most recent policy launched in 2010, which aligns and builds on previous policies (some mentioned above) to ensure the achievement of Government’s development objectives for South Africa in terms of creating decent jobs, decreasing inequality and eliminating poverty. As part of the NGP the Local Procurement Accord was launched on 31 October 2011, which identified that public procurement can be leveraged as a key instrument to create jobs and support productive sectors.

B-BBEE

The objective of B-BBEE is the social and economic upliftment of South Africa’s historically disadvantaged communities and individuals. This is achieved through improved access to the economy through specific interventions, such as requiring black people to participate at various levels of enterprises and the promotion of programmes that lead to broad-based and meaningful participation in the economy by black people in order to achieve sustainable development and general prosperity.

NSDS III

The objective of the National Skills Development Strategy (NSDS) III, developed in 2011, is to increase access to high quality and relevant education, training and skills development opportunities, including workplace learning and experience. The goal of this policy is to enable effective participation in the economy and society by all South Africans and reduce inequalities.

3.2 Procurement Related Policies The following policies will inform the procurement requirements of this Programme:

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NIPP

All Government and State Owned Enterprise (SOE) purchases or lease contracts are subject to a

National Industrial Participation Programme (NIPP) obligation if content is imported. Therefore this

procurement may have a NIPP obligation.

NIPP is an import-offset programme, where 30% of the imported content value is invested into a

related or unrelated industry which is mutually beneficial to both the supplier and the South

African economy.

NIPP is obligatory on purchases or lease contracts with an imported content equal to or exceeding US$10 million (or the equivalent thereof); and

NIPP projects are agreed upon between the dti and the supplier after the award of the contract (PRASA is not part of the NIPP process).

There is close alignment between the activities performed to achieve the Local Content and the

NIPP objectives. In achieving the 65% Local Content requirement, it is likely that the 30% NIPP

obligation will be satisfied through investments, joint ventures, sub-contracting, licensee

production, export promotion, sourcing arrangements and research and development activities

with partners and suppliers.

Discussions have been held with the dti and agreement is being sought in principle that NIPP credit

can be obtained through applying the same Local Content plans that would contribute to achieving

the 65% requirement if the projects are deemed to meet NIPP requirements. However, currently it

is still a dti condition that the successful bidder submits a specific NIPP project plan which will then

be monitored by the dti subject to the approval by the Internal Control Committee. The dti has

developed a NIPP guideline document which is available on their website www.thedti.gov.za.

The RFP will specify the overall procurement process and specifically the interaction with the dti to

determine and finalise NIPP obligations.

PFMA

PRASA is classified as a public entity and is therefore required to comply with the Public Finance

Management Act (PFMA) which governs how state funds are spent.

PPPFA

PPPFA Requirements

As a schedule 3B company, PRASA is required to comply with the Preferential Procurement Policy

Framework Act 2000 (PPPFA) and the Regulations of 2011, which govern the preferential

procurement processes of public entities.

The PPPFA outlines certain criteria that must be adhered to during the evaluation of bids and in

particular Section 2(1) of the PPPFA, which provides that an organ of state must determine its

preferential procurement policy and implement it within the preference point system prescribed.

In terms of the regulations and applicability for this procurement, a two-stage evaluation process

must be followed, with the first stage containing functional thresholds and the second stage

containing an evaluation of price and B-BBEE (contributor status level) with 90 points allocated for

price and 10 points for B-BBEE.

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On the 7th December 2011, the PPPFA Regulations came into force and these empower the dti to

designate sectors and products for local production. Rolling Stock has been classified as a

designated sector.

PRASA is seeking an exemption from the PPPFA as a whole to allow it to structure the Programme

in a way that maximises its objectives.

This will allow PRASA to:

Amend the definition and calculation of Local Content that can be monitored and audited. The current definition under PPPFA calculates Local Content by deducting Imported Content from Tender Price. It is important to be able to calculate Local Content in a manner which is closely tailored to the particular characteristics of this Programme. The proposed definition and calculation, as described in Section 4 is recommended.

Enable the replacement of the B-BBEE scoring component (based on historical scorecard) by an evaluation methodology based on forward looking Economic Development metrics including Rail Related Skills Development, Job Creation and Local Content.

4. Local Content in the Context of the Programme

As discussed in the Introduction (see Section 1), PRASA has various Economic Development

objectives that it hopes to achieve through this Programme. In the context of PRASA, Economic

Development can be split into three elements, namely: Local Content, Job Creation and B-BBEE

(See Figure 2). Bidders responding to the RFP will need to address the Local Content, Job Creation

and B-BBEE requirements of the bid by completing a separate scorecard for each as well as the

respective portions of the Economic Development Plan. The RFP will provide more details relating

to the scorecards. This section indicates what will be included in each element of the Economic

Development Plan with the main focus of this document being Local Content.

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Figure 2: Indicative figure illustrating how Local Content fits within the overall Economic

Development objectives of PRASA.

4.1 Local Content A minimum Local Content threshold of 65% by the seventh year of the initial ten year procurement

contract period has been set and will be defined and calculated as described in Section 4.1.1 below.

The Local Content requirement will be applicable to both the Supply and Maintenance components

of the Bid.

4.1.1 Local Content Definition and Calculation

Pending exemption from the PPPFA definition, Local Content will then be defined as:

“Local Content includes that portion of the value of components making up an EMU that is made,

added to or manufactured from Southern Africa Customs Union resources in South Africa; services

rendered by citizens, permanent residents or organisations with operations based and registered in

South Africa; and any spend incurred related to Rail Related Skills Development, IP Transfer and any

other investments that aid the development of the rail or related industries in South Africa.”

The purpose of this definition is to enable the measurement and monitoring of the overall Local

Content value. A formula, along the following lines below, will be used to determine the Local

Content percentage:

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Figure 3: Illustrative Local Content percentage calculation.

In order to evaluate to what extent the RSMs meet the Local Content requirement, it will be

necessary for bidders to provide some transparency into their costing structures. Figure 4 below

presents an illustrative breakdown of the total tender price:

Figure 4: Illustrative example of a potential breakdown of tender price.

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Figure 5: Illustrative example of a potential breakdown of “Other” category of the tender price.

As seen in Figure 4 above, the RSMs tender price could potentially consist of four categories:

BOM: The cost associated with the purchasing, assembly and/or manufacturing the various components of the EMU.

Investment in Plant: The capital costs associated in building the manufacturing and assembly facility for an EMU.

Rail Related Skills Development: The costs in building the necessary capacity and capability associated with this Programme.

IP Transfer: The costs associated in transferring any patented knowledge or methodologies, including sustainable design capabilities, associated with this Programme.

Other: Those costs not directly associated with manufacturing, BOM components and building capability. This is expected to incorporate the risk premium and profit margin as well as other costs associated with Project Management and Sales and Marketing.

Typically the first four categories described above comprise the majority of the total tender price.

As the key Local Content related components of the tender price are estimated to comprise the

majority of the total tender price, applying the 65% Local Content threshold in this way will still

ensure that the goals of industrialisation are achieved. In addition, this approach provides the

opportunity for RSMs to include other elements into the Local Content calculation relating to Rail

Related Skills Development and IP Transfer.

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In order that PRASA may calculate the total Local Content value, the RSMs will be required to

provide a breakdown of the imported and local components of the tender price according to each

category. For the “Other” category, RSMs will be given the flexibility to divulge only the Local

Content components that they are willing to be audited on. This will provide RSMs with the option

to not state information that they would not like to share, such as profit margins. However, it must

be noted that any items not disclosed will not be able to be recognised as Local Content. The onus

to prove and maintain an audit trail for Local Content will rest with the bidder, which can then be

monitored and audited by an independent service provider.

However, as the different RSMs might structure their responses differently, this is only to be used

as a guideline, and is indicative of the key categories relating to the overall tender price.

Bidders will need to determine the areas of the Rolling Stock BOM that they want to focus on or

prioritise for Local Content and then develop the mechanisms through which they will achieve this.

Table 1 provides an illustrative example of a generic BOM breakdown to the Tier 1 Component

level for an EMU. These Tier 1 components can then be further broken down into Tier 2, 3 etc.

1 Alternators / Power electronics

2 Bogie

3 Braking system

4 Car body

5 Coupling equipment

6 Electrical systems

7 Heat, ventilation and air conditioning

8 Suspension

9 Traction motors

10 Other

Tier 1 Components

Table 1: Illustrative example of the BOM breakdown to a Tier 1 component level for an EMU.

Whilst bidders will be asked to consider the substantial elements of Local Content through all the

tiers, the monitoring of the Local Content portion of BOM components will be principally

conducted at a Tier 1 and Tier 2 level. PRASA will however retain the option to conduct random

audits of the other tiers of components. Auditing will follow the Flow Through principle, which

traces material or a component to the lowest tier of local origination.

For example, a Tier 1 component is manufactured or assembled in South Africa. The component

utilises imported goods and skills which account for 55% of the value of the entire component. This

results in only 45% of the total component value being recognised as Local Content. If only 80% of

the value of the Tier 2 components within the Local Content originate locally, then only 36% (80% x

45%) of the component value can be recognised as Local Content.

The suppliers of Tier 2 components must engage their supplier(s) to determine the Local Content

value of their components / services through the value chain. It will be the responsibility of the

RSM to prove the Local Content % that they lay claim to.

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Local Content Calculation

There are two key calculations pertaining to Local Content that the bidder will be required to

provide with supporting evidence in their bid documents:

a) The achievement of the minimum threshold percentage of 65% Local Content by the seventh year of the first ten year procurement contract period.

b) The Local Content ramp-up in each year to reach the threshold of 65%.

To enable the Local Content calculation to be performed as per the formula in Section 4.1.1, the bidders will be required to provide auditable details on all the Local Content components of the tender price for each year of the contract period. Bidders will be asked to complete a table indicating their % Local Content spend per year over the ten year period, as illustrated in Table 2 below:

Time line Total Local Content Spend (Rand Value)

A

Total Spend (Rand Value) B

Local content %

A / B x 100

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Table 2: Example of the anticipated Local Content ramp-up

The RFP will specify the mechanism to evaluate the rate of ramp-up to the 65% threshold. This will

be evaluated in Stage 2 (as discussed in Section 5) and points will be awarded to the bidder based

on the fastest rate of ramp-up, therefore, it is in the Bidder’s interest to achieve the 65% earlier in

the ten year contract period rather than later. The RFP will specify the time intervals over which

the contract will be monitored to ensure adherence to the plan submitted by the bidder.

4.1.2 Rail Related Skills Development

Rail Related Skills Development refers to the contributions the RSMs will make to the local rail and

related industries. The Local Content Plan section of the overall Economic Development Plan will

form part of the RFP response and may include a scorecard which the bidder will need to complete,

setting out their commitment to the spending and timing of activities related to Rail Related Skills

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Development. This Rail Related Skills Development plan needs to address how the RSM will

transfer Intellectual Property and capability to design EMUs and key components in South Africa

beyond the time frame of the Programme. In addition, the Local Content Plan should detail the Rail

Related Skills Development activities that the bidder will undertake and the outputs thereof. Rail

Related Skills Development may be evaluated and monitored in three areas:

The total value in terms of Rail Related Skills Development which is included in the tender price will be incorporated into the Local Content Calculation for the 65% threshold in Stage 1;

The value of Rail Related Skills Development can contribute and may be evaluated accordingly in the Skills Development component of the B-BBEE Scorecard in Stage 2; and

The outputs relating to Rail Related Skills Development in terms of e.g. numbers of people trained may be incorporated as part of the Stage 2 of evaluation.

4.1.3 Bid Documentation Relating to Local Content

As mentioned, the bidder will need to complete the Local Content portion of the Economic

Development Plan incorporating the scorecard to detail how Local Content will be achieved. The

Local Content portion of the plan is critical as it will specify the total Local Content activities that

will be monitored during the period of the contract.

The Local Content portion of the plan should support the targets and/or thresholds committed to

in the Local Content Scorecard. A high-level guideline for bidders on what the content of the Local

Content portion of the plan should potentially contain or discuss includes the following:

Local Content:

Provide rationale and motivation for the bidder’s selection of specific components for achieving Local Content objectives;

An explanation of the strategy for achieving Local Content commitments e.g. direct local sourcing from capable local suppliers, joint ventures to upgrade local suppliers or green field development of component manufacturers;

A description of the activities (i.e. Investment in Plant, equipment, IP Transfer, Rail Related Skills Development) and timelines involved to achieve this Local Content threshold in relation to the ramp-up stages;

A discussion around developing competitiveness in the local market in the long-term and ensuring sustainability of the industry;

An explanation of the Local Content value calculated (Breakdown of the total tender price showing Local Content);

Details of the elements of Local Content spend to calculate the threshold over the ten year period;

Local Content Scorecard; and

The inclusion of any supporting information or documents deemed appropriate.

Rail Related Skills Development:

An explanation of how the skills gap will be identified and filled;

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Description and motivation of the methodologies that will be employed for Rail Related Skills Development in the industry e.g. investing in training centres for technicians or artisans and bursaries for engineers; and

Rail Related Skills Development scorecard.

Key Focus Areas for Local Content:

Although the bidder is responsible for identifying the areas of the BOM in which they will achieve

Local Content thresholds, the following is a list of components and sub-components where RSM’s

should prioritise the identification of opportunities for sourcing and developing local

manufacturers if possible:

Assembly of locomotives and EMU

Car body

- Car body shell - Door system - Windows - Seats (for coach interior) - Heating and ventilation - Lighting - Grab pillars and rails - Interior cladding - Cable and wire - Safety equipment - Pipe works and ducts

Bogie

- Bogie frame - Motor suspension unit - Wheels (including tyres: wheel centre and wheel sets) - Axle and axle boxes - Bearings - Bolster

Coupling equipment

- Coupler body - Coupler hook - Yoke - Pin - Draft-gear

Suspension

- Shock absorbers and dampers - Springs

Braking system

Alternators

Traction Motors

Electric systems

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The local supplier market survey that is being launched (as specified in Section 1) is aimed to assist

RSMs by providing additional details relating to the potential local supplier base, their current and

potential capacity and capability. RSMs are encouraged to obtain the results of this survey and

engage with potential suppliers to assist them with developing their Local Content plans. One of

the stated Programme objectives is the “use and enhancement of existing entities/plants and

workforce if possible”. Bearing this objective in mind, the onus will be on the RSMs to determine

and submit in their proposal the optimal solution of the local manufacturers and their locations.

The Local Content portion of the overall Economic Development Plan will be submitted as part of

the RFP response and will form part of the RSM’s contractual commitment to PRASA should they

be awarded the contract. The successful RSM will be required to report on a regular basis to PRASA

in terms of their progress against their Local Content objectives and planned activities. Timeframes

for reporting and monitoring will be further defined in the contracting phase.

PRASA reserves the right to apply a variety of commercial and financial penalties as part of the

contract agreement to ensure compliance with the Local Content commitments. These penalties

will be further detailed in the RFP documents.

4.2 B-BBEE Bidders will be required to complete and submit a scorecard, which contains B-BBEE and Job

Creation elements as well as the B-BBEE and Job Creation portions of the Economic Development

Plan, which outlines how the targets and thresholds defined in the scorecard will be met.

The elements of the scorecard will contain the following, to be applied at various levels of the

bidder:

Job Creation

Ownership

Management Control

Employment Equity

Skills Development

Preferential Procurement

Enterprise Development

Socio-Economic Development

Both portions of the plan need to be submitted as part of the RFP response and will form part of

the RSM’s contractual commitment with PRASA should they be awarded the contract. The awarded

RSM will be required to report on a regular basis to PRASA in terms of their progress regarding

their B-BBEE objectives and planned activities. Timeframes for reporting and monitoring will be

further defined in the contracting phase. The B-BBEE scorecard is applicable to all the Tiers in the

supply chain.

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PRASA will consider the application of a variety of commercial and financial penalties as part of the

contract agreement to ensure compliance with the B-BBEE commitments and these will be further

detailed in the RFP.

4.3 Job Creation There is a transformation element to job creation which takes into consideration the

representation and demographics of the jobs created in terms of sex, race, skills and other

elements. For the purposes of this Programme, Job Creation has been included as an element of

the B-BBEE scorecard and plan in Section 4.2 above.

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5. Proposed RFP Evaluation Process

Figure 6: Illustrative example of the Evaluation Process for the Programme.

Subject to receiving exemption from the PPPFA, PRASA proposes a two-stage evaluation.

5.1 Stage 1 There are three categories of criteria that will be evaluated in Stage 1 of the evaluation process.

These include Functionality (primarily related to technical requirements), Local Content and B-BBEE

criteria. Further details relating to these criteria will be provided in the RFP documentation. All

three categories will have minimum thresholds which must be met by the bidder in order to

proceed to the next stage of evaluation. These minimum thresholds will be published in the final

RFP document.

A 65% minimum threshold criterion for Local Content has already been stipulated. The bidder must

report the % of Local Content which they will achieve and maintain by the seventh year of the

contract and calculate it as per Section 4 of this document.

In addition, RSMs will need to specify in their Local Content plan that they will complete the

assembly of the South African Plant within the first three years after contract award. i.e. if contract

award is made in June 2013 then the assembly plant must be complete and operational by June

2016, with production of EMUs from that plant. This requirement will be evaluated as part of the

Stage 1 threshold.

5.2 Stage 2 The second stage of evaluation will be conducted based on Price and Economic Development

scores. The applicable evaluation weightings for these scores will be published in the final RFP

document.

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Local content will be evaluated based on the speed at which the Local Content objectives are

achieved and on the outputs relating to Rail Related Skills Development activities. The RFP

documentation will specify the formula that is to be used to calculate and measure the ramp-up of

the 65% Local Content, with the application of the principle that the bidder who can demonstrate

an early commitment to achieving their Local Content objectives receives a higher score.

6. PRASA’s Expectation of RSMs

As mentioned, this document serves as a communication for RSMs regarding the Local Content

requirements for this Programme.

PRASA invites RSMs to provide their comments on this document in the following key areas of:

Definition of Local Content

Local Content Calculation

Breakdown of total tender price to illustrate Local Content contribution

RSMs can provide their feedback via the PRASA website.