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Treasury slams the demanding of 30% of contracts for locals

“We will influence Treasury radically” – construction business forums.

Business Forums, also referred to as the ‘construction mafia’, are unlikely to respond lightly to a statement by National Treasury that slams the abuse of the setting aside of 30% of government contracts for local communities.

Moneyweb earlier reported that road construction has almost come to a standstill countrywide due to groups calling themselves business forums demanding that 30% of the contracts be awarded to local communities.

The South African National Roads Agency (Sanral) attributed this to misinterpretation of preferential procurement regulations issued by National Treasury.

Moneyweb also reported that virtually every major construction project in KwaZulu-Natal has been similarly affected due to threats of violence. Law firm Cox Yeats Attorneys has won about 30 court interdicts against such groups in the province.

While these incidents started in KwaZulu-Natal, with the Delangokubona Business Forum playing a prominent role, they are now prevalent in several other provinces.

In June, National Treasury told Moneyweb there was no evidence that the rise of the so-called construction mafia was an unintended consequence of regulations it implemented in April last year.

Last week, however, Treasury issued a statement saying it has received complaints in certain provinces and municipalities about abuse of the requirement that 30% of public procurement contracts be subcontracted to designated groups, as required by the preferential procurement regulations.

“It is alleged that some people are now demanding that they instead be paid in cash 30% of the value of each contract awarded in these provinces or municipalities,” reads the statement. “If their demands are not met, they threaten contracts, [or] interrupt or stop the implementation of projects.”

Treasury warned that organs of state that are using procurement preferences not provided for in the regulatory framework – including ring-fencing contracts for service providers and suppliers who live in a certain geographical area – are non-compliant and that such expenditure will be classified as irregularly incurred.

Umso Construction CEO Tollo Nkosi has welcomed this statement by Treasury. He cites the City of eThekwini’s ‘Go! Durban Radical Economic Transformation Specification’ (GRETS), which requires successful bidders to subcontract 30% of the contract value to businesses from certain target areas. These target areas are firstly the ward where the project is situated (10% of contract value) and secondly the municipal area (20% of contract value).

Nkosi says eThekwini also forces contractors to enter into joint ventures (JVs) with local companies.

He says it is difficult to find suitable JV partners who have the necessary capital and skilled sub-contractors, especially in smaller communities.

The principal contractor still carries the risk, and it becomes strenuous on the principal contractor to have to manage such partners and sub-contractors.

Nkosi says Umso is already 80% black-owned and that such requirements do not add to the level of empowerment associated with the project.

Malusi Zondi, newly elected president of the Federation for Radical Economic Transformation (Fret), rejects the idea that the 30% subcontracting requirement is not geographically defined.

Fret currently represents 37 business forums, including the infamous Delangokubona Business Forum, which reportedly has more than 3 000 members. Zondi acknowledges that most of these members are former criminals.

He says the early days of the business forums were wild, but that Fret is now working to professionalise them and organising itself in all provinces – and that “nobody was robbed and nobody was injured”. He says members shut down construction sites because they were robbed of their fair share (by contractors).

Fret has also engaged with state-owned companies like Transnet and Eskom. It’s branching out to other sectors too, such as mining. And Zondi will be going to Zimbabwe next week to explore opportunities in the neighbouring country.

Zondi says Fret will “radically engage” National Treasury, which he says is “controlled from somewhere”, to influence its unacceptable stance against ring-fencing 30% of contract value for local communities.

In KwaZulu-Natal, he adds, Africans should get preference over Indians and Chinese. “Not that we are racist,” he says, but it is not fair that these two groups dominate the business environment in the province.

Gerald Ndlovu, founder and executive director of the company Black Suppliers, questions the complaints to Treasury and also argues in favour of a requirement that benefits local contractors.

Black Suppliers has a database of “over 800 credible emerging contractors who sweat blood and tears before they are given any work”. The company helps principal contractors like JSE-listed Calgro M3 and retail group Builders Warehouse to identify credible local emerging contractors, and has established an enterprise development programme.

Ndlovu says large construction firms continue to marginalise credible emerging contractors. He accuses large contractors of bribing local authorities (to obtain development sites) and community leaders who serve as gatekeepers as soon as a development starts, and locking the credible emerging entrepreneurs completely out.

“This behaviour has been going on for years in many sectors of the economy and not least the construction sector giving rise to groupings such as the Federation for Radical Economic Transformation which Black Suppliers has no association with whatsoever.”

Ndlovu questions the complaints made to National Treasury.

“I would like to know who these complainants are. My suspicion is that it is the very construction firms who have for years paid lip service to advance preferential procurement requirements and they are only now speaking out because their bottom line is affected.”

He says the construction industry captains who cite project disruptions have overlooked the fact that they have played a major part in not giving local subcontractors opportunities.

“If they have, they must point to specific projects and tell us which local subcontractors benefited and how many. You would find that more often than not, no local subcontractors and skilled labour has been engaged.”

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“Law firm Cox Yeats Attorneys has won about 30 court interdicts against such groups in the province.” How much does a court interdict is worth in SA? As we all know the government regularly ignores it, the fallists laugh at it. What prevents the same bunch of thugs from starting an other “Business Forum” the day after the interdict? The only people benefiting are the lawyers, they have a regular source of income.

…..real state capture in the making

I wonder who really profits from all this in the corridors of this current government?

Proof that people don’t want ‘upliftment’ or ‘opportunities’. They just want money.

And in the mean time tax payers are getting even less for their tax money as there is now this extra 30% paid to subcontractors or simply 3rd parties.

Allocating certain work to specified groups of people , re inforces a culture of entitlement which leads to violent interference at the construction sites . To force a company to employ 30 % of all workers from a specific area , is in practise nearly impossible since each worker must be trained exactly what to do . To expect a company that is allready 80 % black owned , or all ready BEE compliant , to train a new labour force on a daily basis is simply unaffordable …that is one of the reasons why construction companies are collapsing at an alarming rate .

Disgusting. And yet, the policy was asking for it. Quotas can be relied upon to rot the very fabric of society. You cannot separate the good intentions of a “local procurement” or “designated group” policy from the nasty outcomes. Indeed the intention must itself be called into question. You might be implementing what you think is God’s own will, but if it involves arbitrarily dividing people into groups and ranking them for preference, you are actually doing the devil’s work.

An ‘entitlement mentality’ gone way, way too far. Why don’t they make themselves so good and so competitive that they can get 50% of the contracts or is that too much hard work?

Here’s a solution for the building mafia. Start your own 100% BEE construction company, bid for your own contracts, employ all the unemployed people with no skills, pay them excessive wages + bonuses, add leave pay, sick leave, maternity leave, danger pay etc etc. Accede to their demands to employ their friends and relatives. Provide free medical aid and housing and education for their kids. Then try to actually do some construction by borrowing capital, take on massive risks, comply with the building regulations and complete the project in time to avoid penalties. If you don’t go bankrupt and actually make a profit you will have to pay 30% of your profit to your buddies in government plus another 20% on any of the profit you want to take out for yourself.
Good luck!

Business forums demanding that 30% be paid in cash. This was to be expected. They don’t want the work, they merely want the money. The same goes for land expropriation. It’s not the land they’re after, it’s the assests on the farms. They will get the farm & 3 years later it will be stripped and deserted.

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