PRESENTATION AT THE MBSA ANNUAL CONFERENCE

Thabo Masombuka (Mr) Chief Executive Officer (CEO) CSCC

02 September 2016

BEPs CESA

ASAQS

ECASA

Contractors SAFCEC

MBSA

Manufactures SAISC

BEPs SABTACO

SAIA

Contractors NAFCOC

NABCAT

SAWIC

Manufactures

BBBEE AS AN INSTRUMENFOR ECONOMIC EMPOWERMENT

BBBEE PROPERLY DEFINED

“An integrated and coherent socio-economic process….which aims to redress past imbalances by transferring and

conferring ownership, management and control of South Africa’s financial and economic resources to the majority of its citizens and ensure broader participation of black people in the economy in order to achieve sustainable development

and prosperity” – BBBEE Strategy document

OVERVIEW OF THE NEED FOR THE CONSTRUCTION SECTOR

CODEThe BBBEE STRATEGY & CoGP promotes PARTNERSHIP & INDUSTRY EFFORTS to foster economic transformation objectives. Hence the gazette of the Construction Sector Code in June 2009.

Primary strategic objectives in THE CONSTRUCTION SECTOR is to achieve the following:

• The inclusion of BLACK PEOPLE in general and BLACK WOMEN in the OWNERSHIP and MANAGEMENT of construction companies and businesses.

• The acceleration of TECHNICAL SKILLS and CAPACITY OF BLACK YOUTH and PEOPLE WITH DISABILITY.

• To provide JOBS and EMPLOYMENT OPPORTUNITIES in RURAL AREAS

• Building the ENTREPENEURIAL CAPACITY and SUSTAINABILITY of BLACK enterprises in the construction sector

THEREFOR THE ROLE OF THE CSCC

The CSCC is the EXECUTIVE AUTHORITY charged with :

Entrusted with OVERSEEING and MONITORING the IMPLEMENTATION of the Construction Sector Codes (CSC) of Good Practice by the Industry.

Through industry programmes, FACILITATE the achievements of sector empowerment TARGETS. Sharing information with members of the Construction Industry, appropriate Ministries and SOEs, Verification Agencies, CIDB, etc

Provide necessary GUIDANCE & BEST PRACTICE NOTES on the interpretation of the principles of the Construction Sector Code.

LIAISON with and reporting to the regulatory stakeholders on the annual measurement of the construction sector code - BBBEE Advisory, DPW and the DTI .

Creation of RELIABLE and ACCURATE industry specific empowerment data

ALIGNMENT INFORMATION

• The Construction Sector Charter (Transformation Charter) was initially gazetted

in 2008 under gazette no 29616 as a public statement of commitment & intent

in terms of Section 12 of the BEE Act of 2003.

• This paved the way for the finalization and gazette of the Construction Sector

Code in June 2009 in terms of Section 9 (1) of the BEE Act under 36928. This

became the mandatory and legally binding construction measurement for

BBBEE and Transformation in the sector.

• The gazetted sector code would be subject for review on the first seven (7)

YEARS of the measurement period. The framework underlying the gazette of

Sector Codes was amended & reviewed.

THE STATE OF TRANSFORMATION SO FAR

• In April 2014, the CSCC the BASELINE REPORT on the STATE OF TRANSFORMATION THE SECTOR for the period 2009 – 2013. The report revealed the following KEY findings:

Key Findings Implications Action Required

Non-Reporting Absence of enforcement

of the CSC

Improve Monitoring

Mechanism

Inconsistent Measurement Misleading Stats & Data

Fronting

Redefine Scope

Control measurement Bodies

Compliance Monitoring

Increased BBBEE Levels EMEs – QSE level 4

Not increase in Black

Ownership

Project Unbundling

Contractor Development

Increased Sub-Contract

No Skills Dev & Black

Ownership

No sufficient spend on

Skills Dev

Mark SD as priority

elements

THE IMPORTANCE OF COMPLIANCE MEASUREMENT

INTERVENTIONS PUT IN PLACE

COMPLIANCE MONITORING

• In terms of section 1.5.2 of the DCSC, the CSCC will use its executive authority to OVERSEE and MONITOR the implementation of the industry sector code.

• It will perform ANNUAL REPORTS and STUDIES as a way to review the QUALITATIVEand QUANTITATIVE progress towards transformation of the industry.

• It will be COMPULSORY for the Verification Agency to annually provide verified scorecards and reports of each Measured Entities in the construction sector code

BLACK OWNERSHIP – AS PER THE CIDB (JUNE 2016)

THE CURRENT APPLICABLE POSITION

• As of May 2016, the CSCC convened alignment negotiations between the Established and Emerging businesses have concluded the negotiations on the new construction sector scorecard, bringing to an end months of protracted negotiations characterized by tension, deadlocks and balanced compromises.

• The new draft sector code is the product of negotiations aimed at addressing the following :

1. Broad transformation issues, access to the sector by designated groups, correct form of compliance and alignment with DTI.

2. Ensuring that targets and weighting points to measure BBBEE spend in a sustainable manner.

BUT WHY THE CONSTRUCTION SECTOR CODE ??

• Matter of principle ; SECTOR CODES must address industry specific empowerment challenges & peculiarities.

• That is why they must be product of industry wide major associations and industry players.

• At BEST, they must ENHANCE what exist in the generic CoGP in relation to TARGETS, MEASUREMENT POINTS & PRIORITIES

• At WORST, where they deviate, they must have sound economic basis and evidence for doing so. This must be supported by acceptable commercial evidence.

WHY THE CONSTRUCTION SECTOR CODE ??

The REVISED Construction Sector Code is significantly ALIGNED to the Revised BBBEE Codes of Good Practice.

It is intended to DEAL with ANYTHING that is not covered for & provided for in the generic codes, especially those that are UNIQUE to the construction-related value chain. MAJORITY of CORE ACTIVITIES is defined.

Tightens the DEFINITION of the SCOPE of APPLICATION, providing for construction measured entities the opportunity to leverage more bonus points if they commit more spend on initiatives that are a priority to construction sector designated beneficiaries.

WHY THE CONSTRUCTION SECTOR CODE ??

WHAT ARE THE OTHER ESSENTIAL AND UNIQUE FEATURES OF THE CONSTRUCTION SECTOR CODE

• The 25% outsourcing requirement for public sector procurement to an entity with a worse BBBEE level contribution than the entity awarded the contract.

• The Definition of what are SA Operations and Clients All revenue generated by an SA Entity – Even if its outside

• The Special dispensation for Exempted Micro Enterprises.

• NO AFFIDAVIT for measurement of EMEs in the construction sector. ⁻ No provisions for Once Empowered Always Empowered (OEAE) in the

construction sector. Black ownership is handled in terms of the recognition of ownership retention after the sale or exit as in the RCoGP

TRULLY BROAD-BASED

THE MEASUREMENT OF THE CONSTRUCTION SECTOR CODE

• A total of 123 weighting points, 5 points more than the weighting points (118) set out in the new Generic CoGP, have been allocated across the five elements of the scorecard.

• Weighting points are allocated in accordance with the targets set for each element. The total of which determines the BBBEE level contribution for each Measured Entity.

• This provides construction companies with the opportunity and leverage more bonus points when they commit more pend on initiatives that are a priority to construction sector designated beneficiaries such as black women and black women enterprises, the youth, people with disabilities and the construction workers.

FOCUS ON EXEMPTED MICRO ENTERPRISES (EMEs) CONTRIBUTING TO SKILLS DEV

• White owned construction industry EMEs are provided with an opportunity to enhance their BBBEE level contribution by one (1) level up if they chose to spend 100% on training or enterprise development as set out in the QSE construction scorecard.

• This will encourage and incentivize start-ups, emerging and growing enterprises to contribute to industry priorities, which are skills and enterprise development.

• In the same breath, 51% - 100% black owned EMEs who are unable to spend at least 40% subminimum of the QSE ED and Skills development will be discounted with one (1) level down, unless they have an annual turnover of less than R 3 million

FOCUS ON EXEMPTED MICRO ENTERPRISES (EMEs) CONTRIBUTING TO SKILLS DEV

As a general rule, new Generic BBBEE Codes exempt all businesses and measuredentities whose annual turnover is less than R 10 million.

This means that these become an automatic BBBEE level 1 if they are 100% blackowned and BBBEE level 2 if they are between 51% and 100% black owned.

The new construction sector code distinguishes between an exempted thresholdfor contractors & manufacturers (R10 million) and Built EnvironmentalProfessional (BEP) firms, which is R 6 million.

This methodology will encourage and incentivize start-ups, emerging and growingenterprises to contribute to the very urgent need of training for the constructionindustry.

TARGET FOR BLACK OWNERSHIP

• Compared to the target of 25.1% in the new Generic BBBEE codes, which is reviewable over a period of 10 years, the targets for black ownership in the construction industry is set at 32.5 % for the period of year 1 - 4 and 35.% from year 4 until review, with great emphasis being placed on the economic interests of black designated groups, namely :

o Black women, youth and the disabled,o Black participants in Employee Share Ownership Schemes (ESOPs),o Black people in broad based ownership schemes,o Black people in co-operatives.

• A total of 31 weighting points have been allocated on this element with higher weighting bonus (4), also allocated for exercisable voting rights for black people and black women.

MANAGEMENT CONTROL

• The new draft construction code makes an important distinction betweentarget contractors and BEPs. Weighting points are allocated for the recognitionof black people in the junior, senior, top and executive management ofconstruction sector measured entities with the highest target being 60% and75%.

• A total of 22 weighting points have been allocated for this.

• More importantly, some bonus weighting points (2.0 for Contractors and 1.5for BEPs) are allocated for the Black Youth as a percentage of the total numberof employees in a certain construction company.

MANAGEMENT CONTROL

MANAGEMENT CONTROL

SKILLS DEVELOPMENT

Although the generic CoGP have set the for SD target of 6% of the employee’s payroll for Skills Development spend, the new construction sector code set the targets on 2.00 % for the first 2 years, 2.5% over a period of 3-4 years and 3.0% after year 5 for both contractors and BEPs.

A total of 26 points have been allocated towards this element. Of these, a total of 4 bonus points have been allocated to recognize initiatives that promote black employees that complete mentorship programmes during the last three (3) years of the measurement period (2 points) and on the number of black employees who are registered with industry professional bodies (2 points).

This is important to drive the training of black youth and unemployed persons.

SUPPLIER AND CONTRACTOR DEVELOPMENT (ESD)

• The most important features of this element is that maximum target of 80% is allocated on the measured entities’ procurement spend from all empowering suppliers who are EMEs, and 51% black owned and 35% black women owned.

• A total of 38 weighting points have been allocated on this element.

• The spread between preferential procurement and enterprise development is carefully crafted.

• 4 of these points are bonus points dedicated for 35 % and 51% black women owned designated group of enterprises.

SOCIO–ECONOMIC DEVELOPMENT (SED)

• The main and primary focus of this element is to encourage contractors to engage in sustainable rural based initiatives.

• It is recognized that most BEP’s business are unsuitable for projects in disadvantaged areas where construction measured entities conduct business.

• Unlike in the new generic BBBEE Codes, which has 5 points allocated, the new draft charter has allocated 6 points for this purpose.

• Through this element, measured entities would be able to implement broad socio-economic initiatives that will have industry specific impact such as post-retrenchments re-skilling and social housing for construction blue-collar employees.

THE GAZETTE PROCESS AND STAKEHOLER ENGAGEMENT APPROACH

• The CSCC has engaged the DTI on the possibilities of a shorted gazette process to 60 days :

• The target is to have the gazette finalized by the 01 November 2016

• During the published gazette, the CSCC – through its TRC – will engage various key players & stakeholders who have a critical role in the successful implementation of the sector code :

⁻ The Verification Agencies, consultants & in-house practitioners ⁻ The infrastructure government departments and agencies ⁻ The media and interest groups

THANK YOU!