Letter to Minister Tito Mboweni
Construction Alliance South Africa (CASA) is a united industry body representing 31 stakeholder bodies in the development, built environment and construction industries. Although the emphasis of the organization is to progress civil and building construction industry issues, we also depend largely on the development pipeline including various statutory approval processes and the procurement of professional and construction services.
Procurement is a fundamental part of the functioning of the development and construction industries. Whether it is the procurement of built environment professional services or the selection of suitable contractors to implement projects, the success of any fixed capital investment project, infrastructure or building, depends on an efficient and transparent procurement process. By implication, procurement covers the full project scope with due regard to legal compliance and the health and safety of all involved in the roll-out process.
The purpose in addressing this letter to you is to call on National Treasury for support through direct intervention in the procurement crisis that the industry is facing daily, specifically in terms of public sector projects across all three spheres of Government and state-owned entities.
1. PROBLEM STATEMENT
The ability of a country to implement its own fixed capital investment projects is an essential strategic asset that contributes directly to economic growth and job creation. Few other sectors serve such a wide sphere of income groups, with the bulk of employment opportunities focused on the lower income labour sector.
The built environment professions and associated construction capacity is a strategic and essential national asset for any country, not least for South Africa, and depend largely on public sector projects for their day-to-day existence. Although private sector work also contributes to the sustainability of these industries, the private sector is more sensitive to economic fluctuations, interest rate changes and general market confidence when compared to public sector fixed capital investment. The built environment professions and construction industries depend on the stability and line of sight that public sector projects provide.
The current reality however is that the procurement process associated with public sector projects has removed the line of sight and predictability previously provided by public sector projects. Many government entities blame the excessive constraints imposed through National Treasury Notes, whilst Treasury simultaneously attempts to curb the endemic corruption that has derailed the growth of the country whilst also attempting at the same time to address essential transformation goals.
The built environment professions and construction sector is bleeding due to the state of the economy and the slowdown caused by Covid-19. This does however not excuse the ongoing problems caused by public sector procurement processes and procedures.
The symptomatic experience of the collective industry is summarized below, yet not limited to the following:
- There is very little certainty on what projects will be tendered at what point in time in any sphere of government or the SOE environment. There is no line of sight to potential work.
- The assessment process of tenders, when they do get advertised, is excessive running into months or years in certain instances. It is normal to receive multiple requests for the extension of the validity of tenders.
- Tenders, having been advertised, are often cancelled without reasons being provided, alternatively they are merely “re-advertised”.
- The extreme levels of tender submissions deemed to be “non-responsive” raises the question whether red tape compliance supersedes tender documents’ ability to procure the necessary technical ability and capacity to deliver.
- The concept of value for money is being confused with lowest price.
- The management and resolution of objections and appeals are not streamlined to either benefit the client (society) or the tenderers. The current arrangement has resulted in so-called professional appeals specifically aimed at undermining expenditure in lieu of coming to some form of agreement with the winning bidder, be it forced joint venture or the payment of bribes.
General industry consensus is that the public sector procurement process does not differentiate between the procurement of fixed capital assets and general day to day purchasing of consumables. This view is supported by the lack of inhouse professional representation of the built environment professions in Bid Adjudication Committees. The procurement of multi-generational assets cannot be left to people who do not have the technical training to prepare and assess construction related tender information. The lack of industry knowledge adds risk to parties, not to mention the potential loss of life that could occur to excessive cost cutting.
There further appears to be a dire lack of auditing of tenders that are either delayed or cancelled. We are unaware that any form of reporting takes place to Treasury when a tender is cancelled. There is further no quantification and reporting on the associated wasted expenditure that would have been incurred in the process leading up to and including the preparation of tenders that end up being cancelled. The monitoring and auditing of delays and cancelled tenders must become part of the Auditor General’s mandate.
Understanding the reasons for high levels of non-responsive tender submissions will lead to understanding whether the procurement process is truly designed to deliver or to hinder growth.
The unfortunate reality is that the state of public sector procurement is now causing many built environment professionals and construction companies to hesitate, or even refuse, to tender on public sector projects. Bearing in mind the strategic value that public sector projects should play in sustaining the consulting and construction industries, South Africa faces a dire future and will shortly become more dependent on international consulting services and importing construction capacity from outside of our borders, something which surely negates the vision of the leadership of the current government.
2. PRACTICAL IMPLICATION ON INDUSTRY
The lack of certainty on the project pipeline prevents the collective industry from creating capacity and training the required labor force to service government. It fundamentally negates job creation.
The uncertainty that a tender, which has been advertised, will in fact be awarded, undermines the technical and financial seriousness that should be employed when tendering on public sector projects.
The lack of technical and experienced expertise of professionally registered built environment professionals in tender Bid Adjudication Committees results in spurious reasons for finding tenders to be non-compliant or penalizing tenders for offering better technical and design solutions, something that the private sector celebrates in pursuit of efficiencies.
The appropriate professionals are not appointed at the optimum time to expedite appropriate actions that would ensure adherence to the parameters of time, cost quality and health and safety.
The purpose of the Central Database (CSD) to upload Treasury documents for standard documents. The ongoing re submission of documents, that are already part of the CSD, on individual tenders wastes time and unnecessarily taps resources.
Due to the expected delay in tender adjudications, tenderers have no choice but to load their prices to compensate for delays, should their offer be accepted. A cursory comparison of private sector and public sector rates will illustrate the premium that the taxpayer is liable for due to these inefficiencies and lack of delivery culture which appears to be endemic in the procurement process.
Importantly, submitting tenders places an obligation on the individual tenderer to ensure that required resources will be available, should a tender be successful. Noting all the vagaries already mentioned, the tendency of open-ended or extension of validity periods, an undue responsibility is placed on tenderers, which in fact is contractually enforceable.
The concept of lowest price, compared to value for money, causes tenderers to focus on cutting corners vs addressing the underlying need to the best of their ability. We are aware of tenders having been awarded to built environment professionals offering up to 80% discount on their respective council recommended fee scales, something which can only result in lack of attention and increase in risk for the project and client. This confirms the view that quality and value for money is not the driving force in procuring long-term fixed capital assets.
The built environment professions and construction industry is suffering due to the so-called “middle gap”, the lack of “thirty somethings” who have been trained and have experience and who will become the mentors of the future. The level of exodus of professionals and contractors from the industry, either in pursuit of other opportunities outside of the sector or due to more favorable opportunities in the international market, does not bode well for the future of the industry and the country.
The public sector procurement environment must change to allow for the ongoing training of industry middle management, the future leaders of the sector, essential to sustain the sector as a critical national resource. The concepts of value for money, quality, predictability, and delivery should drive public procurement, all focused on growing the economy and job creation.
3. PROPOSED SOLUTIONS
We table the following solutions to the challenges highlighted in this letter:
- A workgroup between Treasury and industry should be convened to discuss the content of this letter.
- An objective assessment should be made by Treasury on the industry perceptions raised in this letter. The most efficient and objective method would be for Treasury to place a reporting requirement on all public entities to report the cancellation, or delays in the procurement of any fixed capital tender, both for the procurement of built environment professional services and construction services.
- We propose that a reporting requirement be introduced on the time it takes from advertising to awarding of tender on all public tenders. The data generated through these reporting requirements will be crucial in verifying the content of this letter and to create the basis for engaging with industry and possibly intervening in current procurement processes.
- All public entities procuring fixed capital investment projects must report on the number, or lack thereof, of registered and experienced built environment professionals that form part of Bid Adjudication Committees.
- A maximum discount on built environment professional recommended fee scales must be set to prevent the undermining and eroding of the built environment professions.
- Where tenders are cancelled, the reporting of costs incurred in preparing the tenders, should be audited for possible wasteful expenditure. This is even more important in the cancellation of construction tenders where up to 60% of associated design costs would have been incurred at date of tender by the taxpayer.
- A data system must be created to track the level of non-responsive tenders on all public sector tenders. An investigation must take place to determine whether tender red tape, the bulk of any public sector tender document, is the cause of the high level of non-compliance, whether red tape compliance expectation exceeds the societal need to execute projects, or whether the level of compliance expected is the vehicle by which project execution is delayed or stopped for ulterior motives.
- Tender documents must be structured so that, where a tenderer is registered and in good standing on the National Supplier Database, the tenderer can focus exclusively
on presenting its technical ability, expertise, ability to deliver a project within time, quality and budget expectations, and its ability to share skills and opportunity to address the country’s historical wrongs.
- The use of technology and the submission of electronic tenders must become the norm, allowing for traceability and auditing by Treasury and the Auditor General.
- We offer the use of the CASA network to undertake an industry research project whereby associated memberships will be requested to complete a research questionnaire on public procurement. This will be shared with Treasury and can be used as the basis for restructuring public procurement if the findings so dictate.
The built environment professions and the construction capacity looks at Government to invest in our sustainability.
We trust that you will consider this letter within the constructive spirit of CASA’s attempt to contribute to the economic recovery of the country, the retention of critical skills in both built environment professional services and construction industries, and the creation of job opportunities.
We look forward to your feedback on our request to engage with Treasury in a formal workgroup environment.