development through partnership inaugural annual built environment symposium 14 -15 may 2008...

development through partnershipcidb

INAUGURAL ANNUAL BUILT ENVIRONMENT SYMPOSIUM

14 -15 MAY 2008

Gallagher Estates. Midrand

Common problems faced by small contractors in government.

German Mphahlele


Purpose

To consolidate and utilize the understanding of the common

problems facing small contractors in the CIDB process of strengthening

responses


Problems facing small contractor

The problems relate to:• Legal and regulatory environment • Business environment • Access to markets (continuity of

profitable work)• Access to finance • Access to information and knowledge,

Skills and managerial expertise


Legal and regulatory environment



Inappropriate or unduly restrictive legislative regulatory conditions

Prob

lem



• Regulations to simplify and improve the registration of grade 1 contractors were published in November 2007– Over the counter registration– Reduced fees over the three year period of

registration– Simplified and shorter registration form

• Broad set of regulation amendments published for public comment 30 May 2008

Res

pons

es



• Improvement to registration criteria – Enabling contractors to calculate the grade that the qualify fo for,

by removing the subjective bank rating factor– Best turnover over the previous two financial years as opposed

to average annual turnover over previous two years.– More equitable requirements between new and existing

enterprises

• General Amendments– Enhancement to classes of work– Exemption from registration for enterprises that undertake

substantially supply only projects

• Increases in tender value to take account of inflation.

Res

pons

es


Business Environment


Business Environment

Unfavourable business environment

Prob

lem


Business environment

• Construction Procurement Best Practice Library which comprises of best practice documentation covering:– Procurement procedures– Procurement documentation– Contracting strategies– Alternative dispute resolution methods– Subcontracting and JV arrangements

• Standard for Uniformity Construction Procurement (e.g. recognised forms of contract)

Res

pons

es


Business environment (cont.)

• A code of conduct for participants in construction procurement, including clients, professions and all service providers

• Practice notes, which provide guidance to clients to achieve their objectives in construction procurement and delivery

• Specification for labour based technologies.

• Client capacitation - IDIP

Res

pons

es


Market penetration


Market Penetration

Promoting and developing sustainable contracting enterprises

Prob

lem


Market penetration

• Promoting appropriate Procurement methods that encourage longer contract periods and move away from frequent tendering which is both expensive and disruptive

• ESDA (Employment, Skills Development Agency) enabling a pool of learners to participating contractors.

• The cidb Quarterly Monitor ( Input to developing targeted development intervention strategies.

Res

pons

es


Access to finance


Contractors’ financial difficulties

Contractors’ poor track records

Contractors’ low capital base

Contractors’ lack of business relationships with banks

Contractors’ poor knowledge

Poor image of construction industry

Underdeveloped materials supply sector

Retention of funds by clients

Clients’ inadequate financial base

Inability to make informed case to banks

Banks’ poor knowledge of industry

Lack of credits from materials suppliers

Complex approval procedures

Loss of interest, opportunity cost

Firms’ lack of collateral

Banks’ application of traditional lending criteria

Delays in payments to contractors

Lack of fit between banks’ requirements and contractors’ features to trigger business opportunity

Contractors face cash flow problems

Contractors adopt ‘remedies’ – delay of payments to subcontractors

-- defaults in obligations

Fig 2. Factors causing small contractors’ financial difficulties

1st order 2nd order 3rd order 4th order

Access to financePr

oble

m


Access to finance

• Engaging Financial Institutions both Banks and “non-bank”

• The non-bank will include” – Development Corporations– Khula Guarantee Scheme– National Empowerment Fund– IDC– Host of RFIs

Res

pons

es


Access to finance

Lessons• Contractors to be given funding support

should be carefully chosen on basis of…– size– track record– commitment to construction– financial viability of their tenders.

• Effective management with tight monitoring and control is critical.

Res

pons

es


.

Access to information, knowledge skills and management expertise


Access to information and knowledge

Inability to access critical business related information and knowledge, skills and

management expertise

Prob

lem


Access to information and knowledge

• Development of a framework for a NCDP in partnership with Public Works

• Establishment and roll-out of the CCC• i-Tender• Series – “Inform contractor guidelines”

in partnership with NURCHA and PPC• Series - “Tips brochures”• Developed training materials and

workshop with contractors

Res

pons

es


Lessons, Successes and challenges of Contractor development


Lessons/observations from CD initiatives

• Barriers to entry of , are not fully useful in developing small contractors.– they might protect inefficient firms, perpetuating

mediocrity – Discourage innovation and isolate contractors– Increase costs and develop complacency

• Experience shows technology transfer is complex, and difficult to realise. Common problems include reluctance of established contractors to nurture potential competitors. (Reward systems)

• Others consideration for, successful transfer …– involves additional managerial effort and operating

costs– depends on commitment of the transferees– requires monitoring, evaluation


Challenges

• CDPs succeeded in increasing participation and not in ensuring emergence

• Oversupply of micro and very small contractor

• Fragmentation and lack of co-ordination of contractor development

• Absence of the application of effective monitoring tools and systems

• Lack of sustainability of programmes


Challenges (cont.)

• Agencies which implement contractor-support programmes faced several problems, for example…– they could support very few firms at any time– contractors became over-reliant on the

support provided– a high volume of defaults in repayment of

pre-financing loans saddled the agencies with huge debts

• Thus, success of these attempts at offering comprehensive support to have generally been modest


Unintended consequences

• Fronting • Social dynamics arising from the

aggressive targeting of small WOE• Over stimulation at entry level• Real empowerment remain elusive• Growth of informal money lenders• “Artificial” development propped up by

cession agreements


Successes

• Significantly increased participation of HDI• Created jobs• Developed tools and model in support of

contractor development e.g SACEM• Informed the complimentary legislative

instruments:– PPPFA– BBBEE– CIDB Act– CETA


Some of the remaining challenges

• Many support programme only tackle the symptoms of deeper-lying problems. E.g. access to finance

• Inadequate representation of small contractors interest in feedback on specific needs.

• Insufficient interaction between small enterprise support programmes

• Inadequate and regular monitoring and evaluation of support processes

• Expand knowledge and understanding of specific challenges faced by WOE


thank youThank You

Siyabonga!!!

development through partnership inaugural annual built environment symposium 14 -15 may 2008...

Documents