Contractor Incubator Programme NDPW 2008 Presentation Overview

Contractor Incubator Programme NDPW 2008 Presentation: Overview

Background The NDPW has since the inception of the procurement reform in 1995 been actively involved in conceptualising and implementing programmes to promote emerging contractors, These include: § Targeted or Affirmative Procurement Policy (TPP/APP) § Emerging Contractor Development Programme (ECDP) § CIDB § Construction Transformation Charter

Why Incubator Programme? Experience of the DPW & The Status Quo Report (2002/2004) • Achievements – Increased participation of HDIs in the mainstream economy – Increased economic activity in depressed areas – Minimum premium • Challenges – Oversupply of small contractors – Lack of sustainability of the targeted enterprises and the inability of these enterprises to compete in the open market – Issues that limit the growth of emerging contractors include • Perceived low entry • Market conditions – fluctuating work for contractors • Client related constraints – e. g. delayed payment • Contractor related constraints - lack of business management skills, and • Ineffective support

Objective of the Incubator Programme To create an environment that enables the growth and development of small to medium sized construction enterprises to become sustainable construction enterprises.

Key Elements The environment is composed of: § Steady access to work opportunities to ensure sustainability § Supply side measures underpinned by an enterprise development programme including: mentorship, training, finance and information § Enabling environment namely: uniform and standard procurement and contract documentation and practices, and prompt payment The key elements are contained overall guideline ie. the CIP management plan - distribution. doc

Entry Criteria To participate in the CIP, prospective participants should adhere to the following acceptance criteria: § § § Active CIDB grading 3 – 7 Construction experience or construction related training (Works Capability – CIDB criteria) Financial capability and track record (CIDB min criteria for grade 3) Access to skilled staff Level of contractor development (SACEM) Preference given to blacks, women, youth and the disabled

Envisaged outcomes § To create sustainable contracting enterprises…. • Entities who have knowledge and capability to integrate finance, human and material resources to produce a construction product. § At the end of year three (contractor duration on CIP): § Increased number of sustainable black contractors able to execute relatively large projects (R 1, 5 m– R 30 m) § Improved commercial and managerial capacity of black contractors in the construction industry

CIP Processes Stage 1 Invitation to Register for CIP (HO/RO) Selection of Applicants (CIP Guidelines) (HO & RO) Approval (HO) Finalise Available work programme identify suitable Projects (Steering Comm) Create CIP Register of Participants (HO) Invite Mentors To apply (HO/RO) Call for expression Of Interest in Projects (HO & RO) Appoint Mentors Finalise Expression of Interest list (CIDB Category Mentors Assessment of Contractor's Level of Development Invite CIP Contractors to bid (SCM) Evaluation Of Bids (RBC) Enterprise Development Plan (mentor & contractor Monthly, Quarterly & Annual Assessment Award of contract (RBC) Structured Mentorship, Training, Finance & Institutional support Final Assessment (Sustainability Indicators) Contractor exit – end of yr 3

Access to Work Opportunities § Work opportunity not guaranteed § DPW to allocate work to CIP to: • Enable project-based mentorship and training • Ensure contractor sustainability § Procurement with the PPPFA and DPW Supply Chain Management framework • Closed tendering (nominated procedure) § Expression of interest • Consolidation of interest and opportunities • Inviting suitable participants to bid

Project Identification § § § Identify potential projects though strategic planning and budgeting (MTEF) Categorise the projects by value, risk, priority, complexity and size Consideration for • Match to existing contractors • Size and value of the contracts (grading 3 – 7) • DPW priority • Complexity (general building and structural civil) • Term (maintenance) projects are likely to be highly desirable

Procurement Strategy § The procurement policy makes provision for nomination from a pre-qualified CIP list (i. e. nominated procedure) § Strategy allows for direct tendering, subcontracting, joint ventures and other forms of tendering (CIDB prescripts)

Access to Mentorship § Mentor responsibilities: • Assists the contracting enterprise to assess its level of development and strengths and weaknesses (SACEM) • Guides the contracting enterprise through a development programme • Provides both technical (project related) and business (enterprise development) support and coaching based on development plans • Selects appropriate training • Facilitate (with Programme Management Team) access to the support mechanisms e. g. technology and institutional support • Assesses the contracting enterprise for improvement on a monthly, quarterly, annually and upon exit to the programme

Access to Training § Contractor assessments provides a framework for determining training requirements § Training is incorporated in the contractor development plans § All training intervention should be within the SAQA (& CETA) framework and guidelines

Access to Finance § Arrangement with SBSA to facilitate efficient access to working and asset based capital (guarantee finance, purchase materials, pay labour) § Internal enabling environment (DPW guarantee scheme, shorter payment intervals) § Other Support (within the NCDP): • Financial support from NURCHA • Strategy for sustainable access to finance … being developed

Responsiveness Criteria [selection criteria] Incubation Process Sustainable contractors CIDB Registers Select contractors MTEF INCUBATION Secure budget

Development Process This process will be continuously monitored and evaluated by the Incubator Management Team

Monitoring & Evaluation § Incorporates contractor, mentor and project performance § Contractor performance: SACEM assessments (reports and development plans) § Mentorship: mentor reports § Project: project management reports § Monthly, quarterly, annual and exit reports § Interpretation of the contractor business results e. g. improvement of the financial bank rating, profitability, cidb grading

Exit Strategy § At the end of three years, the contractor will exit the CIP at the level where the sustainability criteria have been met over the last three assessments. § In brief, the contractor exit criteria is: • CIDB grading at the level to which being mentored, i. e. satisfies CIDB criteria for grading one level higher than currently registered. § The afore-mentioned criterion is based on the contractor's potential and capability to profitably deliver projects as required by the clients.

Business Results § To be considered sustainable, a contracting enterprise must meet the following criteria: • is legally established and appropriately registered; • has a market niche that is not stretched too widely across different types of work; • understands the various construction processes and has the required networks for contracting; • has the staff with the necessary technical and managerial skills and knowledge to carry out work; • has established technical and business systems and processes and has access to other resources to execute the work; • has delivered consistently good results; and • has a stable and positive cash-flow and a growing assets base.

Resources The main resources required are: § DPW project managers § Programme Management Team § Steering Committees § Contractors (commitment) § Mentors § Training management support (External) § Technical consultants § Budgets

Risks § Mismatch of contractors with available contracts § Contractors falling out before the end of the programme § Inappropriate sustainability indicators § Problem with stakeholder understanding and buy-in

Key Success Factors § § § § § Selection of Right Project Team as well as mentors Selection of appropriate contractors and contracts Communication and buy-in by stakeholders Phased approach to implementation (Implementation will be used to validate the indicators) Clear project guidelines and procedures Realistic schedules and delivery deadlines Regular reporting (monitoring and evaluation) Understanding of individual responsibilities Integrated approach

Integrated Approach

A Partnership Towards Sustainable Contractor Development Thank You