Targeting For Contractor Development Programmes - Background

Targeting for Contractor
Development Programmes:
BACKGROUND
National Contractor Development Programme
CIDB Targeting for Contractor Development Programmes backround COL.indd 1
2010/06/02 09:20:33 AM
EXECUTIVE SUMMARY
DEVELOPMENT TARGETS
These Guidelines for Targeting for Contractor

Development Programmes have been developed
by the cidb in support of the Framework
for the National Contractor Development
Programme (NCDP). These guidelines should be
read in conjunction with the following documents
which are available on the cidb website which
provide additional background information for
developing regional specific targets and on the
state of contractor development:
The following principle guideline should be

applied to establish the number of contractors
to be targeted for enrolment into Contractor
Development Programmes (i.e. the how many):

v)
work opportunities that will sustain all

participants
the necessary training and mentoring
for all participants, as well as
programme overheads.
1DWLRQDO
&RQWUDFWRU
'HYHORSPHQW
Programme (NCDP); Framework (revised
January 2010)
6$&RQWUDFWRU'HYHORSPHQW3URJUDPPHV
Status Quo Report (March 2009)
FLdb Construction Industry Indicators
(CIIs)
FLdb Quarterly Monitor; and
FLdb / BER Business Confidence Survey.
In the absence of a more detailed

assessment, the following guidelines
should be used for the number of
contractors to be enrolled and supported
annually in a self-financed type of CDP
per R1 billion of construction spend per
year by the client department:
TARGET GROUPS
The following guidelines should be applied to
identify target groups for Contractor Development Programmes (CDPs) (i.e. the who):
i)
ii)
iii)
iv)
Affordability and Sustainability:

The
number of contractors to be enrolled into
and supported by a CDP should be limited
by the affordability of the client to provide:
for direct targeting of contractors of

Grades 1 to 6:
Ownership:
CDPs should target the
development of black, women, disabled,
and
youth-owned
companies.
Specifically, CDPs should target the
development of companies in those
Classes of Works (CoWs) and Grades
where imbalances in such ownership exist.
Supply and Demand: CDPs should target
the development of new contracting
capacity where demonstrable shortages
exist that are aligned with the service
delivery objectives of the client.
Contractor
Grade
Number of
Contractors
per R1b
5&6
2 to 4
1
2
5
10
for indirect targeting of contractors of

Grades 2 to 6 through sub-contract
or JV relationships with contracted
targeted development outcomes:
Performance Improvement:
Strong
consideration should be given within CDPs
to improving the performance of
contractors in particular in those areas
which are aligned with the service delivery
objectives of the client.
Project
Grade
Contractor
Grade
Number of
Contractors
per R1b
5&6
2 to 4
4
12
9
7&8
Local Economic Objectives:

Where
feasible, targeting of contractors should
reflect local economic objectives.
i
TARGETING FOR CONTRACTOR DEVELOPMENT PROGRAMMES: BACKGROUND
INDEX
1.
Introduction
pg 1
2.
Background: The National Contractor Development Programme
pg 1
3.

Target Groups
3.1 Ownership
3.2 Supply and Demand
3.3 Performance Improvement
3.4 Local Economic Objectives
pg 2
4.
Affordability and Sustainability
pg 5
5.
Notes
pg 7
ii
2010/06/02 09:20:42 AM
TARGETING FOR CONTRACTOR DEVELOPMENT

PROGRAMMES: BACKGROUND
1.
Introduction
These Guidelines for Targeting for Contractor Development

Programmes have been developed by the cidb in support
of the Framework for the National Contractor Development
Programme (NCDP). These guidelines should be read
in conjunction with the following documents which are
available on the cidb website which provide additional
background information for developing regional specific
targets and on the state of contractor development:
To achieve this objective, participants within the NCDP

commit to:

(NCDP) - Framework revised January 2010
SA
Contractor
Development
Programmes
Status Quo Report March 2009
cidb Construction Industry Indicators (CIIs)
cidb Quarterly Monitor; and
cidb / BER Business Confidence Survey.
2.

Background: The National

Contractor Development
Programme
The contractor development programmes within

the NCDP will need to incorporate the following
elements in order to ensure that contractor development
aligns with the NCDP tenets, including:
The National Contractor Development Programme (NCDP)

is a government programme comprising of a partnership
between the cidb, national and provincial public works
and other willing stakeholders, in which the participating
stakeholders:

commit their efforts and resources to develop

previously disadvantaged contractors, and
align their individual contractor development
programmes or initiatives with the principles set
out in the NCDP framework, meeting both the
objectives of NCDP and their own service delivery
objectives.
by:

establishing an enabling environment for

contractor development
enhancing and strengthening contractor
development mechanisms, including emerging
contractor development programmes (ECDPs),
joint ventures (JVs) and other appropriate
mechanisms
facilitating performance improvement of
contractors; and
supporting the creation of a pool of skilled
artisans, supervisors, technicians and
technologists for the construction industry.
The objective of the NCDP is to increase the capacity, equity

ownership, sustainability, quality and performance of cidb
registered contractors effectively raising the contribution
of the construction industry to South Africas accelerated
and shared growth initiative.
improve the grading status of contractors in

targeted categories and grades
increase the number of black, women, disabled,
and youth-owned companies in targeted categories
create sustainable contracting enterprises by
enabling continuous work through a competitive
process
improve the performance of contractors in terms
of quality, employment practices, skills
development, safety, health and the environment;
and
improve the business management and technical
skills of these contractors.
government will use its procurement of

infrastructure in order to achieve contractor
development
only contractors registered within the cidb Register
of Contractors may participate within the
programmes; the focus of contractor development
must recognise and span the following
components of contractor development
- work force development
- contractor development; and
- performance improvement
a
transparent
selection
process
should
be adopted, based on predetermined criteria
for entrance to the programme for a defined
period (i.e. timeframe) of involvement
contractors must be assessed on entrance
to determine their development potential and needs
targets must be determined for budget
allocation, number of projects and number
of contractors to be developed, to ensure
continuity of appropriate work for the
duration of involvement within the programme
sufficient government capacity for the
management of the contractor
development programme must be ensured
appropriate quality control and training
(on-site and theoretical) must be provided
access to working capital for the
contractors must be facilitated
programmes should aim to graduate contractors
from the programme with measurable
improvements (e.g. NQF level or improvement in
contractor grading); and
exit from the NCDP component should be based
on predetermined criteria.
1
2010/06/02 09:20:42 AM
Defined exit / graduation requirements and continuous

evaluation are also a key factor.
Furthermore, development of contractors should

be
a
well-planned
operation
that
involves
commitment of financial and human resources which
includes the availability of adequate time to manage the
programme. Such resources could be provided:

3.
Target Groups
Guidelines are presented below which should be applied

to identify target groups for Contractor Development
Programmes (CDPs).
directly through a structured public or private

sector contractor development programme
together with appropriate preference models; or
indirectly through a procurement model with
targeted development outcomes.
3.1
Ownership
CDPs should target the development of black,

women, disabled, and youth-owned companies.
Specifically, CDPs should target the development of
companies in those Classes of Works (CoWs) and Grades
where imbalances in such ownership exist.
The NCDP highlights key components of a

well-structured programme. Specifically, the programme
should have a screening mechanism at entry point to
ensure that participating contractors (or sub-contractors)
have a potential to develop and are well prepared for the
challenges that the programme will pose. Attention should
be given to businesses that already have reasonable
industry expertise and experience rather than focus
excessive resources on industry new comers/ hopefuls/ job
seekers. Other key components include theoretical and
practical in-service training, inclusive of a conducive and
enabling environment, mentoring and sustainable work.
For example, details of black ownership for South Africa as

a whole is shown in the following table, where black owned
is defined here as 51% ownership or higher. It is seen that,
for example, around 80% of all GB and CE companies in
Grades 1 to 5 are black owned whereas black ownership
of around 80% in the EB, EP, ME and SW Classes of Works
does not extend much beyond Grades 1 or 2.
Black Ownership; South Africa (end October 2009)
Similarly, women ownership of 40% and higher extends up to Grade 6 in GB and Grade 4 in CE, but again the depth of
women ownership is lower in EB, EP, ME and SW.
Female Ownership; South Africa (end October 2009)
Applying the guideline of targeting the development of (in

this case) black and women owned companies, it can be
concluded that targeting of black and women owned GB
and CE companies in, typically, Grades 1 to 5 may not
necessarily be a priority. Rather, the emphasis should be
on targeting of Grades 6 and above in GB and CE in all
grades in EB, EP, ME and SW.
The above conclusions may however not necessarily apply

at a provincial level, or even at a local authority level,
and the assessment of ownership should therefore be
undertaken at the appropriate level. For example, details
of black and women ownership in the Free State are given
in the following tables although in the case of the Free
State at least, the trends are similar to that at a national
level.
2
2010/06/02 09:20:42 AM
Black Ownership; Free State (end October 2009)
Women Ownership; Free State (end October 2009)
The broad conclusions illustrated above however tend to

conflict with the current dominant focus of CDPs situated
within Provincial Works Departments that focus largely on
GB and CE companies in Grades 1 to 4 (see below) and
the almost complete lack of focus on targeting of GB and
CE in Grades 5 and above, as well as targeting the more
specialist Classes of Works of EB, EP, ME and SW.
constraint is shown in the following figures for the South

African average for General Building, for all contractor
grades surveyed (Grades 4 to 8) and for Grades 5 and 6
(see cidb / BER Business Confidence Survey.
Programme
Target Grades
NDPW CIP
3 to 7
DPW EC CIDP
2 to 5
DPW KZN Masakhe ECDP
2 to 5
KZN eThekwini Vukupile
1 to 3
KZN eThekwini Large Contractor Model
2 to 4
ECDC IECDM
2 to 5
ESKOM Construction Academy
1 to 3
Target Grades of Selected CDPs

3.2
Supply and Demand
Business Confidence; national, GB, all Grades
CDPs should target the development of new contracting

capacity where demonstrable shortages exist that are
aligned with the service delivery objectives of the client.
Departments should consider developing new capacity
where shortages of contracting capacity exist that is
required by the client. Various measures can be used as
indicators of capacity constraints, such as:

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selected contractor Grades and Classes of Works;
ORZWHQGHULQJFRPSHWLWLRQRU
KLJKEXVLQHVVFRQILGHQFH
Business Confidence; national, GB, Grade 5 & 6

Contractors
For example, the business confidence index and index

of contractors rating insufficient demand for work as a
3
These graphs suggest high levels of competition due to

insufficient work which suggests that at a national level,
there are currently no shortages of GB contractors. Similar
results also apply to CE contractors.
Note however that the need to improve the performance of

contractors is however not limited to the lower contractor
grades and the cidb CIIs in fact show that client satisfaction
tends to decrease with increasing project size, suggesting
the need to improve the performance of contractors across
all grades.
The above results will however vary from province to

province (see below), and will certainly vary across different
classes of works.
Satisfied
Neither
Satisfied or
Dissatisfied
Dissatisfied
0.1
10
100
1000
Contract Value (Rm)
Client Satisfaction (2008 CIIs)

Where such a focus exists within a CDP on performance
improvement, the CDPs would need to incorporate
(amongst other) the following elements in order to ensure
that contractor development aligns with the NCDP tenets:
Business Confidence; GB, all grades

3.3
Performance Improvement
Strong consideration within CDPs should be given to

improving the performance of contractors in particular
in those areas which are aligned with the service delivery
objectives of the client.

While in many cases it is likely that sufficient capacity exists

that is aligned with the service delivery objectives of a
client, it is likely that there will always be a need to improve
the performance of the contractors serving a client to be
able to deliver better value to the client. In improving the
performance of contractors, the objectives of the NCDP
would also be achieved, namely to
3.4
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targeted categories and grades - effectively
improving the supply side capacity available to
public and private sector clients
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and youth-owned companies in targeted
categories and grades - increasing the
representativity of contractors in all categories
and grades
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enabling continuous work through a competitive
process - and thus creating the platform for
sustained employment and skills development
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of quality, employment practices, skills
development, safety, health and the environment
and
LPSURYHWKHEXVLQHVVPDQDJHPHQWDQGWHFKQLFDO
skills of these contractors
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CDP to determine their development potential
and needs
DSSURSULDWHTXDOLW\FRQWURODQGWUDLQLQJRQVLWH
and theoretical) must be provided
SURJUDPPHVVKRXOGDLPWRJUDGXDWHFRQWUDFWRUV
from the programme with measurable
improvements (e.g. NQF level and/or
improvement in contractor grading) and
H[LWIURPWKH&'3LVEDVHGRQSUHGHWHUPLQHG
criteria.
Local Economic Objectives
Where feasible, targeting of contractors should reflect local

economic objectives.
Where feasible, CDPs should take cognisance of local
economic objectives such as targeting of contractors from
within a region or community. However, such targeting
should still follow the tenants of the NCDP (see Sections 3.1
to 3.3 above), as well as the sustainability and affordability
requirements presented in Section 3.5 below.
4
4.
AFFORDABILITY AND SUSTAINABILITY

It should be noted that information on the distribution of
tenders to Grade 1 is very limited and unreliable.
The number of contractors to be enrolled into and supported

by a Contractor Development Programme should be limited
by the affordability of the client to provide:

ii)
ZRUNRSSRUWXQLWLHVWKDWZLOOVXVWDLQDOOSDUWLFLSDQWV
WKHQHFHVVDU\WUDLQLQJDQGPHQWRULQJIRUDOO
participants, as well as
SURJUDPPHRYHUKHDGV
In the absence of a more detailed assessment, the following

guidelines should be used for the number of contractors to
be enrolled and supported annually in a self-financed type
of CDP per R1 billion of construction spend per year by the
client department:
Project Grade
9
7&8
5&6
2 to 4
IRUdirect targeting of contractors of Grades 1 to 6:
Contractor
Grade
Number of
Contractors
per R1b
5&6
2 to 4
1
2
5
10
iii)
Contractor
Grade
Number of
Contractors
per R1b
9
7&8
5&6
2 to 4
4
12
The background to the development of the guidelines given

above for contractors to be enrolled and supported in
CDPs is given below. Where more detailed information is
available, client departments can develop their own targets
using the concepts outlined below.
The distribution of the infrastructure budget per
project Grade depends on the infrastructure needs
of the province, but available statistics for
South Africa suggest that for general building and
civil engineering the infrastructure budget is
distributed as follows:
Project Grade
9
7&8
5&6
2 to 4
1
GB
36%
41%
14%
8%
0.2%
100%
Rm
412
388
130
69
1 000
Contractor development initiatives should seek to

provide work opportunities that provide between
80% to 100% of a contractors annual turnover,
typically:
Grade
6
5
4
3
2
1
IRUindirect targeting of contractors of Grades 2 to

6 through sub-contract or JV relationships with
contracted targeted development outcomes:
Project
Grade
i)
For every R1b construction spend, and assuming

that the distribution of the construction spend
between general building and civil engineering
is 50:50, the distribution of the total infrastructure
budget can then be approximated as follows
(excluding Grade 1):
Projects (Rk pa)

16 000
5 500
3 000
1 700
900
500
iv)
The cost of training, mentoring and programme

overheads must also be included when evaluating
the cost of contractor development, typically:

*UDGHFRQWUDFWRUV5NSHU\HDUDQG
*UDGHWRFRQWUDFWRUV5NSHU\HDU
v)
As highlighted in the NCDP, resources can be

targeted through direct or indirect targeting.
Typically, in direct targeting, a contract relationship
exists between the client and the contractors within
the CDP to be developed, and the client provides
(or outsources) the development support to the
contractors. In other words, the clients construction
spend on projects in, say, Grades 1 to 6 is used to
develop contractors within those Grades.
In indirect targeting, a contract relationship typically
exists between the client and a larger contractor
(typically Grade 7 to 9), and development outcomes
are specified in the contract. The main contractor
is then required to provide the developmental
support to contractors within a CDP through
a subcontract relationship. In other words, the
clients construction spend on projects in, say,
Grades 7 to 9 is used to develop contractors within
Grades 2 to 6.
CE
46%
36%
12%
6%
0.1%
100%
5
vi)
Assuming that between 10% to 20% of the

infrastructure budget is allocated to direct targeting
within a CDP, the number of contractors that can
be developed per band of contractor Grades is
then given below per R1b construction budget.
15% of
Project Infrastructure Budget
Grade Budget (Rm)
(Rm)
5&6
2 to 4
vii)
130
69
20
10
9
7&8
5&6
2 to 4
Number of
Contractors
per R1b
ix)
2
5
When dealing with indirect targeting, several

assumptions need to be made regarding the
value of work subcontracted out by the main
contractor to the sub-contractors. From the
limited information available, it is reasonable to
assume that 50% of the main contract is
subcontracted to sub-contractors as follows:
Grade
5&6
2 to 4
viii)
Allocation
per
Contractor
(Rm)
10
2
15% of
Project Infrastructure
Budget
Grade Budget (Rm)
(Rm)
411
388
36
24
Allocation
per
Contractor
(Rm)
Number
of Contractors
per R1b
10
2
4
12
Estimates of the number of Grade 1 contractors

that can be sustained per R1b construction spend
in a CDP are very difficult to obtain, and the
targets developed here are a generic guideline to
assist clients.
To place the above targets into perspective, it should be

noted that the construction budget for a province can vary
typically between R3b to R15b per annum. For example,
according to the MTEF, the infrastructure budget is around
R12b for Gauteng for 2009/10 and around R5b for the
Eastern Cape.
Value of Main
Contract
sub-contracted
Sector
Rm (2009/10)
Social Development
155
Education
755
Health
1 581
Housing
3 432
Public Transport, Roads and Works
6 707
12 630
60% of 50%
40% of 50%
50%
Assuming that between 10% to 20% of the

infrastructure budget is allocated to indirect
targeting within a CDP, the number of contractors
that can be developed per band of contractor
Grades is then given below per R1b construction
budget.
6
5&6
2 to 4
130
69
20
10
2
5
10
2
NOTES:
7
2010/06/02 09:20:46 AM
NOTES:
8
2010/06/02 09:20:47 AM
cidb CONSTRUCTION CONTACT CENTRES (CCC's):
Western Cape
Gauteng
Free State
140 Long Street

Cnr Long & Dorp Street
Cape Town, 8000
Tel: 0861 927 222
Fax: 086 674 0293
E-mail: wcccc@cidb.org.za
Blocks N & R
SABS Campus
2 Dr Lategan Road
Groenkloof, Pretoria, 0001
Tel: 0861 428 222
Fax: 086 680 8569
E-mail: gpccc@cidb.org.za
Department of Public Works

Medfontein Building
St. Andrews Street
Ground Floor, Bloemfontein, 9300
Tel: 0861 377 222
Fax: 086 557 1832
E-mail: freestateccc@cidb.org.za
KwaZulu Natal
428 Blink Bonnie Road
Mayville, 4000
Tel: 0861 596 222
Fax: 086 685 6024
E-mail: kznccc@cidb.org.za
Eastern Cape
Qhashana Building
Independence Avenue
Bhisho. 2485
Tel: 0861 222 327
Fax: 086 674 2908
E-mail: ecpccc@cidb.org.za
Limpopo
Northern Cape

Works Tower Building
First floor
43 Church Street, Polokwane,0700
Tel: 0861 222 765
Fax: 086 678 9184
E-mail: limpopoccc@cidb.org.za
Regional Department of Roads and

Public Works
45 Schmidtsdrift Road
Kimberley, 8301
Tel: (058) 861 9631/ 32/
Fax: 086 690 6295
E-mail: ncccc@cidb.org.za
Mpumalanga
North West
Nelcity Building
Office No. G15
Cnr Samora Machel & Paul Kruger
Nelspruit, 1200
Tel: 0861 678 222
Fax: 086 585 6733
E-mail: mpumalangaccc@cidb.org.za

Old Parliament Building
Modiri Molema Road
Gate House, Mmabatho,0700
Tel: (018) 387 2435
Fax: 086 743 2593
E-mail: nwccc@cidb.org.za
cidb HELP LINE: 0860 103 353

cidb FRAUD HOTLINE: 0800 112 432
2010/06/02 09:21:07 AM

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Targeting For Contractor Development Programmes - Background

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Targeting for Contractor

National Contractor Development Programme

CIDB Targeting for Contractor Development Programmes backround COL.indd 1

These Guidelines for Targeting for Contractor

The following principle guideline should be

work opportunities that will sustain all

In the absence of a more detailed

Affordability and Sustainability:

for direct targeting of contractors of

for indirect targeting of contractors of

Local Economic Objectives:

Background: The National Contractor Development Programme

Affordability and Sustainability

CIDB Targeting for Contractor Development Programmes backround COL.indd 2