The state of preferential procurement in the construction sector with specific reference to the Department of Public Works (DPW), Pretoria

John, Venilla
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Executive Summary This research seeks to explore how the Preferential Point Scoring System has impacted on the construction sector with particular reference to the Department of Public Works. There is little empirical research being undertaken on the impact of the preferential point scoring system and thus there is a need for research in this field, to contribute to the knowledge of how to plan and implement policies in the public sector. It is our contention that the implementation of the laws and regulations is deficient, including the manner in which the allocation of points is awarded. This results we believe, in a poor success rate in terms of preference of businesses owned by black individuals, women or the disabled. The Department has not undertaken research to identify how successful the Preferential Procurement Framework Policy is and its impact on Black Economic Empowerment (BEE) in the Department. This study intends to identify, document and evaluate the current practices and impact of preferential point scoring system on the construction sector and to propose possible improvements. The objective of this study is to: provide a description of the department’s policy on preferential procurement and document its implementation for the construction industry. The research methodology includes a review of literature of public and private sector intervention as well as journals and internet searches in order to gain an overall context of preferential procurement. The primary tools that were used were the opinion survey and questionnaire (random sampling). Research covers the period 2005 -2006 and 2006-2007. A random survey of 25 cases (5 cases per year) was drawn using the Excel computer system. Members of the Bid Adjudication Committee and contractors were interviewed. Interviews were allowed to develop by allowing the interviewees to express themselves. 3 The findings were as follows: From the analysis it could be determined that the department was able to achieve its objective for the Historically Disadvantaged Individuals (HDI’s). It can be observed from the survey undertaken of the extent to which these groups are participating in the bid processes. The barriers to participation are briefly as follows: The use of fronting by companies to secure bids; a lack of contractor training and development programmes for women and disabled; a lack of finance by Historically Disadvantaged Individuals (HDI’s) and the need for contractor training. The number and value of contracts awarded to BEE companies has fallen well below the targets. HDI’s secured 53% of contracts in 2006-07 compared to 60% in 2005-06. The shortage is especially acute as regards black women and disabled contractors in the mechanical and electrical sectors. During 2006-07 women made up a mere 1.7% in the construction sector but 12% during 2005-06. This shows a decrease of 10.3% of women owned construction companies from 2005-2007. Women owned construction companies represented 10.3% in the mechanical sector for 2005-06 but do not feature in this sector at all during 2006-07. The mechanical and electrical industries are particularly problematic. HDI’s are mostly registered in grades 1-4 (bids valued from R200, 000- R3m) and are underrepresented in grades 7-9 (bids from R30m and over). Where targets were reached, it is primarily in the smaller categories. This is primarily due to newly emerging black companies. In addition to this is: the inability of small contractors to prepare acceptable proposals. Contractors lack the experience and expertise to properly prepare price proposals; failure to meet the requirements for registration on the supplier database. Many fail to submit the correct documentation for registration purposes with CIDB. This ultimately delays contractor registration; frequency of poor performance ratings, leading to failure to be re-appointed. A contractor will abandon site, often due to financial difficulties on site and lack of project management skills; deficiencies in the point scoring process. There is no proper verification checks undertaken and this makes it easy for companies which tender to misrepresent themselves by claiming fraudulently for preference points; contractors expressed 4 the need for training especially in the business environment; the creation of opportunities for fronting to occur; the lack of formation of joint ventures. Based on these findings, we suggest the following improvement framework: The Department of Public Works (DPW) needs to embark on a communication awareness and hold briefing sessions with prospective contractors on the bidding process, and the documents required in the tender process; DPW together with the Construction Industry Development Board (CIDB) should undertake road shows, workshops and use the media to disseminate information to potential contractors; DPW should partner with financial institutions to assist successful bidders to secure funding for the project. The letter of award should be used as proof that it has secured a government contract; officials in the Supply Chain Management unit should conduct verification checks on the preferences claimed by contractors. This should include in-loco inspections; specific days in the year should be devoted to training of potential bidders. The dates should be advertised in the media and the department’s website, public places and at hardware stores; measures should be placed to verify preference points claimed by contractors before award of bids. The investigation of fronting by companies, criminal prosecution and blacklisting of companies should occur; a plan must be embarked upon to encourage black and white business to partner with each other by means of outsourced production elements processes
MM thesis - P&DM
Construction industry, Department of Public Works