In a recent development that has stirred the construction and procurement landscape, the South African National Roads Agency (Sanral) finds itself in the midst of a high court challenge. This legal battle centers around Sanral’s alleged unilateral introduction of a new preferential procurement scoring system for its tenders, without proper consultation with affected parties.
The Controversial Change
The heart of the matter lies in the new scoring system that Sanral has implemented. This system reportedly diminishes the significance of the Broad-Based Black Economic Empowerment (B-BBEE) Act ratings for the majority of bidders, raising concerns about fairness and transparency. One of the key players in this challenge is H&I Construction, which has filed an urgent application to halt the use of this system in specific tenders. H&I Construction contends that the new scoring methodology presents severe obstacles, making it nearly impossible for companies like theirs to compete fairly and effectively.
Transparency and Consultation Under Scrutiny
One of the core issues raised is the lack of consultation with those directly affected by the new scoring system. H&I Construction asserts that Sanral made this significant change without involving relevant stakeholders in the decision-making process. This absence of proper consultation has led to questions about the validity of the new system, particularly whether it has been approved by Sanral’s board. The absence of board approval evidence on the Sanral website adds to the skepticism surrounding the new scoring criteria.
Legal Grounds for Challenge
The legal challenge brought forth by H&I Construction highlights several key reasons why the new scoring system may fall short of legal requirements. One concern is the potential lack of transparency resulting from Sanral’s intention to independently engage with bidders regarding the scoring criteria. This approach introduces the risk of subjectivity and manipulation, raising doubts about the fairness of the evaluation process.
The ripple effect of this legal challenge extends beyond H&I Construction. Wilson Bayly Holmes-Ovcon (WBHO), a prominent construction and engineering group, has also stepped into the fray by joining H&I Construction’s application. WBHO shares concerns about the constitutionality and lawfulness of Sanral’s new scoring system. Furthermore, other construction companies, including Raubex and Stefanutti Stocks, have expressed support for H&I Construction’s cause, considering their potential participation in tenders that employ the controversial scoring approach.
A Call for Clarity
In response to the challenge, Sanral’s stance has been to process the matter legally, indicating a forthcoming litigation process. While the construction companies involved acknowledge the legal proceedings, they emphasize their intention to advocate for a transparent and fair bidding process, where the rules are clear and the playing field level.
As the legal battle unfolds, the construction and procurement sectors in South Africa closely watch the outcomes and implications of this challenge. The case underscores the significance of stakeholder consultation, transparency, and fairness in procurement procedures. The outcome of this legal action has the potential to influence the direction of procurement practices and policies, not only within Sanral but across the broader landscape of public procurement in the country.
Article source: https://www.moneyweb.co.za/news/south-africa/sanrals-new-preferential-procurement-scoring-system-challenged/
The cancellation of R17.47-billion in tenders by the South African National Roads Agency Limited (Sanral), will lead to major delays in the execution of these projects, warns Concor CEO Lucas Tseki.
The tenders that the Sanral board cancelled are the Mtentu Bridge Wild Coast project, on the N2, valued at R3.4-billion; the rehabilitation of the R56 Matatiele, in the Eastern Cape, at R1-billion; the N3 Ashburton interchange, in KwaZulu-Natal, at R1.8-billion; and improvements to the EB Cloete interchange (N2 and N3 connection point in KwaZulu-Natal), at R4.3-billion.
The Open Road Tolling tender in Gauteng, valued at R6.88-billion, lapsed and was not renewed.
Sanral says the tenders were cancelled owing to “a material irregularity in the tender process” where a resolution made by its board in January 2020 was not implemented by management in the evaluation of the affected tenders.
Concor participated in the tender process for the Mtentu bridge in a joint venture (JV) with the China Communications Construction Company as part of the N2 Wild Coast Project.
The majority black-owned company is already active on the N2 project, where it is constructing the multibillion-rand Msikaba bridge in JV with MECSA Construction.
The Mtentu bridge project already faces heavy delays as the Aveng-Strabag JV in 2019 terminated construction, citing, among other things, safety fears relating to the surrounding communities.
This meant that the tender had to be re-issued.
A new, third tender process on the Mtentu bridge will probably only see construction on the project kick off in 2024 or 2025, says Tseki.
The delay probably also means that the 580-m-long stay-cable Msikaba bridge will have to go into care and maintenance, as it would have been completed by that time.
As a stranded asset, with construction of the N2 towards the Mtentu bridge also in jeopardy, the Msikaba bridge is likely to be used by no-one except local farmers until Mtentu is completed, says Tseki.
He adds that the unskilled workers on the Msikaba bridge were set to move to the Mtentu project, but that the delay has now made this impossible.
The communities around Mtentu have also already invested money to enable their participation in the construction project, with up to 30% of the contract’s value to flow to local communities.
“This is a national crisis causing significant social and economic harm,” says Tseki.
The N2 project, linking KwaZulu-Natal and Eastern Cape, was also set to boost the flagging Eastern Cape economy.
What is also of relevance, is that the Concor–China Communications Construction Company JV has invested large amounts of money and time to present its tender, says Tseki.
“We spend huge resources to put forward a responsible, competent bid. The same is almost true for all the projects, and it just illustrates how heartbreaking it is that all of these tenders, and not just Mtentu, have been cancelled, especially during these tough economic times,” he notes.
“It is almost inconceivable how this could have happened,” adds Tseki. “Sanral is a highly respected roads agency worldwide and it has a credible, competent management team.
“It is one of the leading State-owned enterprises, but it seems to be deteriorating. To cancel tenders like this simultaneously is highly unusual in our sector, especially since government and the private sector agreed that infrastructure was a key component of economic recovery following Covid-19.”
Since January 2020, it seems as if a number of projects under a billion-rand have been awarded by Sanral, and Concor and the industry would like to understand under what procurement regime that happened, says Tseki.
“These projects are going ahead; they are under construction. Our grave concern is that it seems as if this resolution, as noted by the board, was not applicable to these projects. This is where the confusion comes in and where we are very concerned about the level of transparency between the sector and Sanral.
“This is not a Concor issue, this is a sector issue,” emphasises Tseki.
“What I would have expected was for the board to insist on consequence management and to understand how it is that the resolution was not implemented by Sanral’s executive management. Could they not have then followed the appropriate disciplinary processes, or found the necessary mechanisms to deal with the issue?
“Sanral could have also worked hand-in-hand with National Treasury, or government’s chief procurement officer, or the Minister of Transport, to not cancel the tenders, but to understand the irregularity in detail, and to ascertain whether there wasn’t a sound technical cure, commercial cure or operational cure that could be applied to these tenders.”
Tseki says he understands the fiduciary duties that Sanral’s directors must exercise, with their duty of care towards Sanral, as opposed to the construction industry or the State.
“I highly respect that, but the nation is facing devastating economic difficulties, especially on the back of the pandemic and surely the board and management should have been mature enough to appreciate the consequences of cancelling these contracts,” says Tseki.
Source: Engineering News
AGREED CONSTRUCTION SECTOR CODES – ADVISORY 25 MAY 2016
It gives us pleasure in informing you that the Construction Sector Charter Council (“CSCC”) convened alignment negotiations between the Established and Emerging businesses and have concluded the negotiations on the Amended Construction Sector Codes (“ACSC”) Scorecard, bringing to an end 22 months of protracted negotiations characterized by tension, deadlocks and balanced compromises. The ACSC sets out the targets and weighting points to measure BBBEE spend in a sustainable manner. The ACSC will now be gazetted in Draft Form for public comment, and then in the final legal gazette.
The negotiating parties are proud to advise that the forward-thinking and progressive tone set by the crafters of our existing codes, has been continued and amplified in the ACSC. The ACSC are without doubt the most transformative of all sectors, but are realistic, achievable and will provide invaluable benefit to our industry. We have used the alignment exercise as an opportunity to address and rectify many construction-related issues for the benefit of our industry as a whole. These will become evident as the codes are unpacked and understood. One of the biggest achievements in the ACSC, is that they now include all suppliers and manufacturers to the Construction Industry, and this legal mandatory compliance by these industries is clearly outlined in the Codes.
The contents and implications of the ACSC scorecard can be summarized as follows:
- MEASUREMENT WEIGHTING POINTS
- A total of 123 weighting points, 5 points more than the weighting points of 118 set out in the DTi Revised Generic Codes of Good Practice (“DTi RCOGP”), have been agreed to. 4 of these points have been allocated to business where black ownership exceeds the prescribed target and 1 additional point in sustainable Socio Economic Development.
- FOCUS ON MICRO ENTERPRISES (EMEs) CONTRIBUTING TO SKILLS SPEND AND SUPPLIER DEVELOPMENT
- The DTi RCOGP exempt all businesses and measured entities whose annual turnover is less than R 10 million. This means that these become an automatic BBBEE level 1 if they are 100% black owned and BBBEE level 2 if they are between 51% and 100% black owned and they are not obliged to contribute to training spend.
- In the construction industry a large percentage of companies fall into this bracket and the construction EME classification now ensures that EME companies who do not spend the QSE sub-minimum on training are discounted but if they spend the full QSE spend on training and Enterprise Development they can improve their BBBEE rating by 2 levels.
- This methodology will encourage and incentivize start-ups, emerging and growing enterprises to contribute to the very urgent need of training for all size companies in the construction industry.
- OWNERSHIP TARGET
- Once again the ACSC have set the highest percentage of black economic interest in all the Sector codes and the DTi RCOGP. The weighting points of 31 ensures that the focus of ownership has the highest percentage weighting of the entire scorecard of 123 points.
- Compared to the target of 25% + 1 in the DTi RCOGP, which is reviewable over a period of 10 years, the targets for black ownership in the Construction Industry is set at 5% for the period of year 1 – 4 and 35% from year 4 until review, with great emphasis being placed on the economic interest of black designated groups.
- It must be noted that the Construction Sector negotiation and alignment teams were the only sector to include Unions (NUM) in their negotiations, and their advice and aspirations were noted, in particular with regard to Ownership and Skills It must therefore be noted that the percentage ownership for Black Designated groups (Employee Share Ownership Schemes) has been increased by 400% over that in the DTi RCOGP to 12% after year 4. The target is 3% in the DTi RCOGP.
- Black new entrants receive a target of 5% for contractors and 6% for BEPs compared to the 2% set out in the DTi RCOGP.
- MANAGEMENT CONTROL
- The ACSC makes an important distinction between target contractors and weighting points are allocated for the recognition of black people in the management of construction sector measured entities with the highest target being 88% (junior), 75% (middle) and 60% (executive and senior).
- A total of 22 points have been allocated for management control.
- More importantly, some bonus weighting points (2 for Contractors and 2 for BEPs) are allocated for the Black Youth as a percentage of the total number of employees in a certain construction company.
- SKILLS DEVELOPMENT
- Although the DTi RCOGP has set the target of 6% of the employee’s leviable amount for Skills Development spend, the ACSC set the targets on 2% for the first 2 years, 5% over a period of 3-4 years and 3% after year 5 for both contractors and BEPs.
- This is in line with the rationale of the 2009 Construction Sector Codes of Good Practice where training percentages were accepted to be 50% of the Generic Codes, as the Construction industry are the third highest employer of labour with the lowest margins of all sectors. The increase noted above still represents an almost 300% increase i.e from 5% black training spend to 3%.
- It must be noted that although the percentages are less for large companies, that the ACSC now include a training priority for all size companies in the industry including previously Exempt Micro Enterprises.
- 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).
- The urgent need to drive the training of black youth and unemployed persons has therefore been addressed in these Codes.
- PREFERENTIAL PROCUREMENT AND SUPPLIER DEVELOPMENT
- The 2009 Construction Codes contained unique and detailed methodologies on the growth and development of small and medium black-owned companies that have proved invaluable to the growth of these companies in the industry. These unique features have been retained and amplified in the ACSC.
- The targets and weightings of the DTi RCOGP have been adhered to and additional bonus points allocated to procurement from 51% black owned suppliers and 35% black woman owned suppliers.
- A total of 38 weighting points have been allocated on this element spread between preferential procurement and supplier development programmes and contributions.
- SOCIO-ECONOMIC DEVELOPMENT (SED)
- This element is usually used to drive soft community based initiatives. The ACSC incentivizes measured entities to focus a significant portion of their SED spend and annual contribution on sustainable projects in communities with limited services where they are doing business.
- Unlike in the DTi RCOGP which has 5 points allocated, the ACSC has allocated 6 points for SED.
- Through this element, measured entities would be able to implement broad SED initiatives that will have industry specific impact such as post-retrenchments re-skilling and social housing for construction blue-collar employees.
Advisory issued on behalf of the CSC Code Alignment Negotiating Team 25 May 2016