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Sanral moves transformation into top gear

Contract awards per large contractor capped.

The South African National Roads Agency (Sanral) on Friday announced aggressive new transformation measures that may hit struggling large construction companies hard if implemented in its current form.

The policy set the bar higher than what is required by legislation and means contractors complying with the requirements agreed upon in an industry agreement with government concluded a year ago, may still fall short of Sanral’s new rules.

This comes at a time when most of the big contractors are in dire straits and getting little work from the public sector. Aveng, which last week reported a R6.7 billion annual loss, stated that Sanral is virtually the only government client that continues to make new awards.

Government clients have adopted a new strategy of packaging projects into smaller parcels less suitable for large, listed entities. This strategy is aimed at distributing the opportunities wider and might be a response to the reputation damage in the wake of the construction giants’ earlier admissions of widespread collusion.

Murray & Roberts earlier exited the local construction and engineering industry when it sold its local business to an empowerment consortium. When asked if a similar move is on the table as part of Aveng’s strategic review, executive chairman and acting CEO Eric Diack said: “Not at the moment”, but added that it cannot be ruled out as the review unfolds.

Sanral’s draft transformation policy determines that it will only do business with companies with a Construction Industry Development Board (CIDB) generic grading of 8-9 (large contractors) if they are minimum 51% black-owned with at least 30% black management control and level 2 B-BBEE rating.

This also applies to consultants and suppliers with a turnover of more than R50 million and toll concessions. This could affect listed companies supplying cement and aggregates among others.

Last year’s agreement with government required the private sector participants Murray & Roberts, Aveng, Group Five, Basil Read, Stefanutti Stocks, Wilson Bayly Holmes-Ovcon (WBHO) and Raubex to reach a level of at least 40% black equity, but also offered an alternative to mentor and develop three emerging black enterprises according to strict conditions.

The agreement further cost the companies a collective R1.5 billion contribution to a socio-economic development trust over 12 years. It was aimed at putting the earlier collusion scandal to rest and unlocking government spending on infrastructure.

This is over and above the aggregate R1.46 billion administrative penalties that the colluding construction companies in 2013 agreed to pay as part of the Competition Commission’s fast-track settlement process.

Apart from the equity requirement, the companies might also find their B-BBEE rating lacking when bidding for Sanral business. From information on their websites it seems Group Five is the only one of the remaining six construction groups (after M&R’s exit) that currently complies with the required level 2 rating at a group level.

If Sanral’s new transformation policy is finalised it will also ensure that no entity will be awarded more than 15 tenders per year for capital projects nationally and three per province. Companies operating in only one province will qualify for no more than five tenders per province per year.

Sanral CEO Skhumbuzo Macozoma on Friday said the agency’s research shows that the awards were previously concentrated to the extent that a single entity would get up to 25 contracts in one year.

Successful bidders will appoint sub-contractors from Sanral’s approved sub-contractor list.

Sanral will encourage joint ventures, consortia and other partnerships and structure projects to guarantee “balanced and fair access” to black contractors at CIDB levels 1-9, the agency states. Macozoma said: “The blacker the joint venture is, the more projects you will get and the less black, the less projects you will get, forcing more sub-contracting.”

Contracts for toll operations will be limited to three per operator where the operations period overlaps or is concurrent and the terms will be limited to six years with an option to extend by a further two years.

The draft policy also covers real estate and property development, information and communication technology, finance and audit services, legal services, marketing, advertising and communication services and human resources.

Sanral is inviting written submissions and will go on a road show until the end of the year to consult stakeholders on its transformation policy and wider new corporate strategy named Horizon 2030.

It hopes to implement the final policy by April next year.

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If BEE does not work , why are they putting more stringent conditions in using this FAILED government strategy? One day you will realize that hiring people based on colour does NOTHING to increase the output of a company. You hire people based on qualification. And what has the government done to educating the country? They have submarined the idea. They are a failure and they have failed the South African people they “purport” to want to help. Big government is not the answer!! Oh that’s right this country is at least 5 years BEHIND the world.

5 years? That’s too kind.. Try 100 years. Communist Russia pre-WW1 comes to mind. At least they had purpose. Current government has no clue whatsoever. Stumble from one corrupt crisis to another. Ceating generations of dependent and entitled people is backward thinking no matter which way you look at it. Just compounding problems.

We need smart, qualified people to create a vision. Identify potential areas of competitive advantage and develop them. Formulate an education system that helps achieve these goals and makes people independent again. Get rid of unions; they are parasitic and archaic and serve no purpose other than making a few greedy people powerful and wealthy whilst forcing the private sector to become less competitive every year.

Obviously there is no quick, painless fix, but the way we are going now South Africa will just continue to regress. A massive change in mindset is imperative. Stop clinging to the past, look to the future.

-not aimed at you Finfit, just having my daily rant.

This is economic and commercial insanity. And blackmail. And racism. Take note, the rest of corporate SA, what happens in the construction industry today will be heading your way soon.

I agree that BEE is a failed system and will continue to be so because you cannot legislate into being a successful enterprise , it takes hard work, energy , drive, commitment , creativity, education, management skills, motivation etc. if they could legislate these things then the SOE’s would be flying instead of crashing. But then again scamral is a failed department as well, and government is a failed entity and the anc ( another new corruption) is a failed party with the exception of corruption!!

BEE was the door and Zuma was the keys. State capture, looting & corruption at a massive scale was the result. A rigged system with a corrupt politician is all it takes to break this country down to an economic zero. BEE will always be used as an excuse to rectify the imbalances of the past, but it is politicians that have now been creating these imbalances for the last few years. BEE adds no broad based value. It creates no jobs. It doesn’t stimulate the economy, but it feeds off it like a parasite. It needs to be fixed or replaced by a system that stimulates economic growth, support SME’s, creates jobs on all levels.

from what im getting from this article the measures/proposal made by SANRAL make perfect sense. The cake has to be divided and spread to smaller entieites to participate. we can grow the economy by encouraging and fostreing enterprenural spirit and by ensuring that the small guys participate and get work inspires them. The smaller the entities the more efficient they are usually.

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