Construction Industry Development Board (CIDB) 2019/2020 Annual Report; with Deputy Minister

Meeting report

The Deputy Minister of Public Works, Ms Noxolo Kiviet was present. She offered her condolences to the Minister, who lost her husband.              

Construction Industry Development Board (CIDB) 2019/20 Annual Report

Mr Cyril Gamede, Chief Executive Officer, CIDB, took Members through the presentation. The CIDB achieved 21 of 27 targets (77%). Members were taken through the achievements, and non-achievements, of each programme and challenges. The breakdown of targets achieved per programme:

• administration: 12 of 12 targets achieved
• regulation and advocacy: 2 of 6 targets achieved
• development and capacitation: 4 of 5 targets achieved
• industry performance and transformation: 3 of 4 targets achieved

Challenges:

• Human Resources – the majority of the programmes do not have sufficient staff with the required skills for enterprise development units. Programmes are often either overstaffed with inappropriate staff or understaffed.
• Monitoring and Evaluation of Enterprises - the majority of the programmes also do not implement progress monitoring and evaluation of the enterprises or use enterprise assessment tools to gauge their development. It is then difficult to evaluate enterprises’ progression or prepare for their exit from the programme.
• Training and Skills Development – most programmes have struggled to put in place properly structured training and skills development initiatives, mainly due to the lack of funding or skilled personnel for training.
• Funding for the Programmes – funding for many of the programmes was not prioritized during the conceptualisation and planning phases but only addressed at implementation phase which is often too late.
• Mismatch of Outcomes (Enterprise Development and Market Demands) – the development of SMMEs without considering the assessment of markets for their exit.
• Demonstrated and Tangible Support for the Programme – most of the programmes did not have long-term support evidenced by the commitment of finance and resources. 
• Absorptive Capacity of the Programme - most of the programmes did not effectively match the number of enterprises on the programmes with the resources available
• Enterprise Selection - while the selection of the participating enterprises was for the most part open and transparent, most programmes did not have selection criteria that identified and selected the enterprises with the most potential to develop. This was one of the reasons cited most for the apparent lack of success of many exited enterprises

The Committee was taken through the black, women and youth ownership in each province – refer to presentation attached for details.

The CIDB achieved an unqualified opinion with findings in areas. The main challenge hindering the CIDB from obtaining a clean audit is the quality of the annual financial statements and annual performance report received for auditing purposes. The matters that need attention for the organisation are:

• Lack of skilled staff to support key personnel
• Failure to focus root causes of the audit findings
• Key positions that were not filled on time
• Record keeping deficiencies which delay the audit process
• Inadequate control measures to detect material findings in the financial statement and performance reporting

Financially, the entity reported a decline in surplus for the year compared to the previous financial year, due to a declining revenue while expenditure have increased in line with general increases and continuation of projects planned. The decline in revenue was driven primarily by curtailment by the government to spend towards infrastructure as we responded to the impact of COVID-19. A slowdown in the construction spent was noticeable as early as December 2019, continuing until a sector shutdown on 27 March 2020 as South Africa entered a hard lockdown. A general increase in expenditures occurred primarily within compensation, rental, and other operational costs.

CIDB has retained a healthy financial position with an average of R240m positive cash resources.  In the current year, in line with its digitisation strategy, the CIDB invested significantly in the system development, which stood CIDB in a better position in responding to new norms that required offsite working. CIDB, as permitted by SITA, was the first state in government to adopt and implement the cloud strategy.  An increase in payables exchange was also recorded primarily due to CIDB being unable to receive invoices from various state-owned entities before the cut-off on 31 March 2020. These entities were affected by the lockdown and unable to submit outstanding invoices to the CIDB

Discussion

Mr M Rayi (ANC, Eastern Cape) asked which kind of expertise, tools, and skills, are required by the CIDB to ensure the construction sector grows. The focus of attention in several meetings, and in the National Stakeholder Forum (NSF), was the register of contracts. Mr Rayi asked what concerns were raised in the NSF.

Regarding the amendment of the CIDB Act, Mr Rayi wanted to know by when the amendments are expected to be brought before Parliament. CIDB pledged to support the Expanded Public Works Programme (EPWP), and Mr Rayi asked how CIDB will be able to provide such support considering its role is regulatory.

On the issue of moratoriums, and the downgrading system, he wanted further explanation. He asked if moratoriums mean that, even if companies are unable to undertake duties for a certain grade, it would remain in the grade.

In areas where the CIDB did not comply with the 2018/2019 Annual Report, he asked if matters not finalised by 31 March, and carried over to 2020, was dealt with in addition to the current ones.

The presentation said there are fewer than 40% registered grade nine entities which are black owned. This was the same in the 2018/2019 Annual Report. It shows not much was done to move away from the 40% and to transform the sector.

Regarding advisory services, the previous CIDB report said there was a Construction Industry Incubator (CIC).  Mr Rayi asked if the partnership still exists, because it does not appear in the current report. It only says there are agencies the CIDB is working with. In each province, he asked which other agencies the CIDB is partnering with, regarding advisory services; and what these advisory services are. He appreciated the services offered by the Jobs Fund to assist contractors. He said key positions in the CIDB, such as the CEO and CFO positions, were already filled. He asked if all the other senior positions were filled.

Mr T Brauteseth (DA, KZN) said the CIDB likes to rely on the constitutional provisions of Section 22, but it does not undertake the obligations which come with those provisions. He shared the same concerns as Mr Rayi does about downgrading. Downgrading started in 2016/17, but the presenter said this was Covid-19 related. Covid-19 is serious but people are starting to use Covid-19 as an excuse for everything. He asked when entities will stop using Covid-19 as an excuse, and when underperforming contractors will be downgraded.  The presentation said there is a large group of contractors in grade one, but if CIBD did proper grading, it would know who these contractors are. There is a massive problem with grading especially at level one.

The Committee raised concerns with the South Africa National Roads Agency (SANRAL) and the Department of Transport (DOT), on the need for an Inter-ministerial Task Team to attend to the issue of rogue units which inhibit the work of contractors regulated by the CIDB.  Mr Brauteseth asked what the CIDB is doing to contribute to the efforts of dealing with these rogue units. The Committee needs a detailed plan on how contractor development is linked to grading and outcomes.

Page 73 of the presentation relates to the audit outcome. He said, based on his experience, he noticed evidence of a deficient Audit Committee. All of the issues raised, such as the lack of skilled staff, the failure to focus on root causes in audit findings, key positions not filled on time, and record keeping deficiencies, all come down to the lack of a strong Audit Committee.  He asked if the CIDB could brief the Committee on what its Audit Committee looks like; how well it is funded; how many people work in the Audit Committee; and if its recommendations are taken seriously by the Minister.

Ms S Boshoff (DA, Mpumalanga) asked what happens to the three winners of the World Skills Extravaganza Competition, once selected to participate. She asked if the participants are given jobs when the participants come back, or if they must find their own.

The online registration implemented in May is doing well, and helping to ensure social distancing for people, as people do not have to stand in lines. She asked how many people applied through this platform; how many of the applicants are women; and how many are disabled. She said she did not see anything about disabled people in the report, and asked if the disabled apply for anything in the construction industry. She asked for a breakdown of statistics of disabled persons who applied to the CIDB. She was pleased to see lockdown had some positive effects for the CIDB, in that it allowed the entity to eradicate its backlog. She asked if this will be kept up to date, so there are no recurring backlogs.

Of the R450 million to be spent on workspace training, she asked how CIBD determines which businesses will benefit from this training. She was worried about the record keeping deficiencies, as this was going to have negative ripple effects, and asked how the CIDB is going to address and ensure records are kept for future reference.

Ms M Moshodi (ANC, Free State) asked when key positions in the CIBD will be filled; what is the timeframe for the CIDB to fill these positions; and if the CIDB has any permanent employees who are disabled. Regarding the online platform for registration, she asked where there applicants from deep rural areas are.

Mr M Dangor (ANC, Gauteng) said, although CIDB has a regulatory role, he wondered if it monitors retention for work done; if it considers using retentions to finance fixing work which may not have been done properly.      

Ms B Mathevula (EFF, Limpopo) said people living with disability experience discrimination. She asked if the CIDB considers this, as disabled persons were not mentioned anywhere in the presentation. She asked what the CIDB is doing in regards to women entrepreneurs and CIDB grades; and which rural academic institutions the CIDB partnered with, especially those which encourage women to join the construction industry.     

The Chairperson asked what the CIDB was doing to support districts in line with the District Development Model. The report showed, regarding transformation in the construction sector, there is slow progress. There are even fewer Black enterprises in the upper grades of the construction sector. He asked what can be done by the CIDB to close the gap in the transformation agenda, especially within the Northern Cape, where there are no black-owned grade nine contractors.   

Responses

Dr Natalie Skeepers, CIDB Board chairperson, replied to the question regarding the Audit Committee, and if it was functioning effectively. There is a functional Audit Committee. Recently the CIDB appointed an independent Chairperson, who is outside the Board of the CIDB. The individual is a qualified chartered accountant. The Audit Committee also meets regularly and has the right people with the right skills. There is an independent, outside committee firm, which manages internal affairs.

On filling vacancies, the only vacancy which affected the Board, is the Chief Operating Officer (COO) vacancy. The position was advertised four weeks ago and there is a plan to fill it.

Mr Gamede said it is important to note the CIBD’s development path was not moving as expected. One of the tools set up to address this is the Best Practice Fee. The Best Practice Fee is a tool for the CIBD, which was signed by the Minister in 2020, and gazetted in September of the same year. CIDB plans to implement this tool in 2021. The other instrument the Minister referred to is the registration of all professionals. Currently only contractors are registered. Through the new CIDB Act, there will be provisions to register professionals.

The CIDB engaged with NSF, and a range of concerns were raised. The CIDB is working to resolve these concerns. The issues raised regarding the NSF are not only about the CIDB. There is an expectation for the CIDB to help contractors to alleviate the challenges confronting this sector. The concerns with NSF comprise of a range of issues, some of which are the things the government promises to do, but does not do, such as payment within 30 days. A lot of client departments are supposed to pay contractors within 30 days, but the contractors complain, saying sometimes contractors are paid after years. These are some of the areas where the CIDB needs help from both the Select Committee, and the Portfolio Committee, to make sure client departments pay contractors on time.

The other issue raised by contractors is, when contractors finish work, the contractors want a guarantee which the contractors often do not get. There are also problems with the Value Added Tax (VAT) which should be attended to.

The amendment of the CIDB Act is currently underway, and by end of June 2021, the CIDB Act should be ready for the next stage.

The CIDB asked, through the National Contractor Development Programmes, for contractors to not treat Expanded Public Works Programmes (EPWP) people as mere labourers. It must ensure EPWPs people get skills and learnerships, to advance. The CIDB also has a learner registration system. It ensures, when people are under training within the construction industry, people are recorded in the system. There was focus only on artisans, but now CIDB resolved there should be technical training programmes for EPWPs.

The moratorium system started in 2016 and is still in place. There are mainly two factors used for the grading system. The first one is financial achievement, namely, the amount of work achieved in the income statement in a year. The other consideration is the size of the projects a contractor may have been previously involved in. These two considerations are related to the economic conditions of the construction industry. If the economy is underperforming and contractors fail to complete projects; the CIDB may have to sympathise with these contractors. There is a different sanction for contractors who fail to deliver quality work.

The CIDB is doing a lot of work to ensure there is compliance, and it is successful in a number of areas, especially in the area regarding CIDB contributions to transformation. The percentage of black-owned contractors remains stagnant at 40%. The CIDB works with client departments. Client departments are responsible to ensure black-owned contractor companies get work, and are the ones who spend money on black-owned contractor enterprises. CIDB does not spend money on black contractors, but facilitates the process by providing statistics which brings about improvement. The State is responsible for spending on black-owned contractor enterprises, and the black economic class grows with money spent on it, and by making sure these companies also get projects.

There are a few partnerships between the CIDB and construction industry agents, such as the Job Fund. The CIDB had a Memorandum of Understanding (MOU) with the Construction Industry Incubator (CII), and the CIDB is in the process of reviving the partnership. The CIDB partners with other entities such as SEDA, and other industry associations, such as the Master Builders Association (MBA). It partners with a variety of agents because it lacks financial and skills capacity, to do everything alone.

CIDB asked for a list of contractors not properly dispatching its work, and the list was provided in the previous year. The list shows all the cases, and shows what was done with those construction companies. There is a process any entity breaching the CIDB code must go through. The maximum sanction the CIDB can impose on non-complying actors is a R100 000 fine. There are concerns that while the fine is provided for in the CIDB Act, the Act is very old and the R100 000 fine is meaningless. Part of the reasons for revising the Act is the drive to make fines meaningful. Fines from the Competition Commission are calculated as a percentage of the income of the offender.

There are also concerns about grading, and particularly Grade One. If a contractor is in Grade One, it only gets graded when it moves from Grade One to Grade Two.  With Grade One the only requirement is registration, as such, a lot of people register with the CIDB. The CIDB knows there are some applicants who register but do not have any activity. Those entities with activity, usually apply for Grade Two. When entities apply for upgrading, it means the entity was active, because it is impossible to apply if the applicant was inactive.

Regarding concerns over site invasions, the CIDB plans to partner with a variety of stakeholders, such as the South African Police (SAPS,) because some of the site invasions get violent. The CIDB has also industry partners to combat these site invasions, some include the SA Federation of Civil Engineering Contractors (SAFSEC), and the Black Business Council in the Built Environment (BBCBE). There are many partnerships with stakeholders to deal with the site invasions. What emerged from the site invasions is local people do not feel empowered. This is the reason why the CIDB focuses on Contractor Development Programmes. Through these programmes, there is investment in people, and therefore less resistance against construction projects. When some people join the site invasions, people want a 30% stake upfront, and do not want 30% of the work. If there are some people benefiting from the work, it reduces the problems with site invasions.

The development of CIDB is outcome based. CIDB wants returns and feedback from the partners it engages with. The CIDB encourages excellence. If there is no global exposure to how things are done there can be problems. This is why there is a national competition, where participants are picked to go, and compete worldwide. The winners are not recruited by the CIDB, but are given media coverage, so the winners can be employed by companies interested in employing them.

The proportion of people now applying online is over 50%. The CIDB worked on dealing with its backlog, and after every two weeks there is a backlog report to ensure it is kept down.

Of the R450 million to be spent in the new Project Assessment Fee, the CIDB is working on the strategy and criteria of how and where it will be spent. The CIDB intends to ensure there is equity among the provinces, youth, women, and the disabled, in spending this money.

Replying to the concern raised over record keeping deficiencies, it is important to note in 2019, the Pastel accounting system was used. The CIBD is now using the Enterprise Resource Planning (ERP) system, and the migration to this new ERP system created challenges with records.

The CIBD still has offices for people who may not have access to online tools. Such persons can come to the CIBD offices, and the CIBD trains and enables them to register online. Currently there are no statistics of disabled people in construction. The challenge is the nature of construction work does not favour people with disabilities. When the CIBD starts to register professionals, the number of disabled people registering is expected to increase because most of those positions are office bound. There might be some other people employed in the industry with minor disabilities.

Regarding retentions and guarantees, CIBD works differently to the National Home Builders Registration Council (NHBRC). NHBRC looks at guarantees and workmanship, and it has a fund. Those funds are between the contractor and the client. The CIDB Act does not provide for the CIBD to have direct access to guarantees and retentions. The CIDB provides guidelines to assist with resolving disputes.

The CIDB works in partnership with client departments. Client departments are supposed to spend money in the area of women-owned construction companies. Unfortunately, women have to deal with discrimination by white counterparts and black male counterparts. The client departments’ spending money must have deliberate targets to spend money on women-owned construction companies. In CIDB’s recent project, the Empowerment and Recognition of Women in Construction (ERWIC), women said departments do not have necessarily targeted programmes.

Regarding rural academic institutions and empowering women, CIDB has a partnership with the University of Johannesburg. It hopes to have other partnerships with more institutions. There are a few engineering institutions which are historically black universities, Walter Sisulu University for example, has an engineering programme, and the CIDB will consider it in the future. The University of Zululand is starting an engineering programme this year. The CIDB will consider such institutions and make sure it promotes women in construction.

To embrace the District Development Model (DDM), the CIDB has targets in its partnership with municipalities. One of these targets is about capacity, which includes ensuring there is an Infrastructure Development Management System (IDMS) to help municipalities with how to implement projects effectively. CIDB also helps municipalities in the interpretation of the policies, which is an area where municipalities struggle.

To have more black-owned companies in Grade Nine, it is important for these companies to get work. There must be training in black-owned construction companies, and the CIDB does a lot of work in this area. Client departments must spend its money by giving these companies work. In the Northern Cape there are no Grade Nine construction companies, because of the economic activities in the area. Grade Nine projects can only be found after every three years. Grade Nine companies cannot be based in the Northern Cape. These companies would rather have its offices in Johannesburg or Bloemfontein, where there are Grade Nine projects, and when there is a once-off project in the Northern Cape, it will go there. The problem in the Northern Cape is an economic structural problem, rather than anything else. If there were a lot of Grade Nine projects there, many Grade Nine companies would go there.

Both the clients and contractors must abide with CIBD prescripts. Clients sometimes default in certain areas, and are fined by the CIBD. In most cases it is the contractors who usually default. In most cases, default by contractors is because of the submission of false documents. CIDB introduced the online registration process to solve the problems of false documentation, by checking compliance on the online system. For example, tax compliance can be checked online through the Treasury database. By example, the Companies Intellectual Property Commission (CIPC) requires the applicant to upload its financial statements on the platform, for company registration renewals. Some of the most forged documents are the annual financial statements. CIBD can liaise with the CIPC to allow the CIBD to access the same annual financial statements, to limit forging annual financial statements.

Mr T Apleni (EFF, Eastern Cape) said he was disappointed by the lack of black, women, and youth ownership of construction companies. The Covid 19 pandemic is used as a scapegoat to justify the lack of black, women, and youth ownership. It is 27 years since the dawn of democracy. A radical approach is needed in this regard. The ownership of companies in the construction industry must indicate the demography of South Africa. The Department did not mention any programme to alert women and young people in the rural areas to the opportunities in the construction industry, and to equip such persons to compete against established companies, which are mostly owned by white males.

Deputy Minister Kiviet said Mr Apleni’s comments are political. The mandate of the Department is to improve the lives of citizens, and to free the potential of each person, which includes women who were previously not exposed to, or excluded from opportunities. She appreciated the democratic dispensation opening opportunities for women to own construction companies.

There was a resolution taken regarding the need to monitor companies who do poor work. The resolution was taken at a meeting with members of the Council for the Built Environment (CBE). The reason for it is, to check if these companies have qualified professionals to do the work. There must be deeper analysis of the composition of companies producing low quality work, and contravening CIDB rules. This analysis will be relevant in the legislative process of amending the CIDB Act. The review of the CIDB is currently with the drafters. From here it will move to the State Law Advisors, and from the State Law Advisors, back to the Ministry. There are a number of impediments on how the CIBD should progress, which needs to be addressed in the CIBD Act review process.

There is work underway to allow different entities under the Department of Public Works to engage with each other. The entities should not work in isolation. The Department said Infrastructure South Africa (ISA) must be part of the engagements undertaken by the Department of Public Works. The CIBD does not award contracts, as Mr Gamede said earlier. The actual transformation work is done at departmental level, where tenders to construct are awarded. This is where the major focus should be.

The private sector must not be left unattended. Departments have the tendency to work as if it must regulate government, and yet it must regulate the industry, and the industry includes private players.

Regarding the District Development Model, the Department of Public Works resolved there is a need for departmental entities to be visible per district. In district development meetings, Department of Public Works entities must be represented, and participate meaningfully. The Annual Report presented, applies to a period before the Covid 19 pandemic, but the CIDB remains adamant the lockdown retarded the process consolidating its reporting information.  The Department has a lot of collaborative forums with various entities. This resulted in some improvement regarding the participation of women in the construction industry, specifically in relation to the previous year, where performance was even worse. The Minister noted the need for monitoring tools, to monitor the work the Department undertakes. For this to happen, the Department’s Information Communication and Technology (ICT) capacity, as well as its business model, must be strengthened.

Mr Brauteseth said he sent a question through the Zoom chat platform, asking about Wisani Ku Hlupeka Trading Services, but the chat was disabled before his question was addressed. If someone tampered with the chat section, it is infringing on the rights of the Members to engage.

The Chairperson said the Committee was comfortable with the performance of the CIDB particularly with regard to a number of areas including the work being done around the construction registration services, the rationale behind the downgrading moratoria and clarity given on the work done on grading, criteria assessment, transformation of targeted groups and the registration of contractors. The progress made was appreciated and the commitment of the CIDB and partners to accelerate the transformation agenda along with general capacitation of the entity to achieve its targets. The targeted approach to deal with non-compliance was welcomed. The Committee also appreciated the commitment to address findings of the Auditor-General. The Committee looked forward to engaging with the entity in future especially on transformation and non-compliance.

In other Committee matters, the Chairperson proposed the adoption of the minutes of the meeting of 3 February 2021, and the minutes were adopted.

The meeting was adjourned.