At Moore CT Forensic Services, we believe that adopting framework contracts with lower Construction Industry Development Board (CIDB) grading standards is a viable solution due to it encouraging opportunities for competition and access to market opportunities for contractors in different grades. This strategy has already shown success in KwaZulu-Natal (KZN) and has the potential to revitalize the South African construction sector by fostering competition and supporting the growth of Small, Medium, and Micro Enterprises (SMMEs).
Overview of the Construction Mafia Crisis
In 2023, the construction mafia significantly impacted the industry nationwide, especially in the Western Cape. These syndicates disrupt projects, causing delays and increasing costs. According to the South African Forum of Civil Engineering Contractors (SAFCEC), extortion demands can inflate project costs by up to 30% (SAFCEC, 2023). This leads to financial instability for contractors, incomplete projects, and stunted economic growth.
Case Judgment and Clarity in Tender Processes
A recent judgment between JK Structures v City of Cape Town has provided much-needed clarity, for the City of Cape Town and therefore is a signpost to the benefits to all South African contractors regarding tender processes. The judgment underscored the importance of transparency, fairness, and adherence to stipulated criteria in awarding contracts. This clarity is crucial for the successful implementation of framework contracts. Procurement entities need to do detailed analysis into historic spend and ensure estimates take into consideration the lower procurement values, to ensure inclusion of the correct graded contractor for the respective procurement and works packages issued in the framework contract.
There is clear directive that all stakeholders understand and adhere to the revised guidelines can help mitigate resistance and build a more inclusive, competitive market environment. Inclusion of respective graded contractors drives up competition in the construction sector makes companies work harder to provide better services at lower prices, which helps keep the market fair and transparent. This reduces the power of construction mafias, as there's less room for corruption and unfair practices.
Lower CIDB Gradings as a Solution
Lowering CIDB grading requirements, in our view, is a key strategy to combat the construction mafia as, logically considered, framework contracts, which establish agreements with multiple suppliers for a range of works, services, or goods over a set period, can enhance market competition by allowing more SMMEs to qualify for these contracts. This reduces the monopolistic hold of larger firms and can drive economic inclusion. Barriers to the industry is one of the reasons the construction mafia proffer for acting in the manner that they do.
Success in KwaZulu-Natal
The KZN government has effectively used framework contracts with lower CIDB gradings to address similar challenges. By lowering CIDB grading requirements, KZN saw increased participation from SMMEs, leading to improved competition and project delivery efficiency. According to the KZN Department of Public Works, this initiative resulted in a 20% increase in SMME participation and a 15% reduction in project costs over two years (KZN Department of Public Works, 2022).
Implementation Across South Africa
South Africa, with its substantial infrastructure budget, can replicate KZN's success. Various provinces and municipalities collectively manage significant annual budgets for infrastructure projects. By adopting framework contracts with lower CIDB gradings, the country can open the market to more players, driving competition and efficiency. While we are mindful of the additional administration, planning and consideration that will be required with the adoption and monitoring of such process, in our further view, the benefit of adopting such approach significantly outweighs the sum of such efforts. We view the adoption of such approach being tantamount to having tilted the scales in favour of the SA economy in general.
Potential Benefits
- Increased Competition, the lowering entry barriers will allow more SMMEs to bid for contracts, reducing the dominance of a few large firms and breaking the hold of the construction mafia.
- Economic Growth, enhanced competition leads to better pricing and quality. Contributes to cost savings and more effective use of public funds.
- Job Creation, Small to Medium sized businesses are significant job creators. Increased access to public contracts boosts employment, benefiting local communities and stimulating economic activity.
- Sustainable Development, encouraging SMME participation aligns with inclusive growth and sustainable development policies.
Challenges
- Opposition from Well-Established, contractors with higher CIDB ratings may oppose reforms that challenge their domination in the market.
- Guaranteeing Quality, in order to maintain high standards, grading criteria reductions must be accompanied by strict quality assurance procedures.
Recommendations
- Policy Enforcement, procurement policies to include framework contracts with lower CIDB grading criteria.
- Community Engagement and Social Facilitation: Helps construction projects help combat construction mafia activities by promoting transparency, building trust with local communities, and reducing opportunities for corruption and extortion
- Capacity Building and investing in training and development programmes for SMMEs to ensure they meet quality and compliance standards.
- Monitoring and Evaluation, implementation of a robust monitoring mechanism to track the performance of SMMEs and the impact of new procurement procedures and policy
Conclusion
Implementing framework contracts with lower CIDB ratings across South Africa can significantly enhance market competition, driving economic growth and job creation. This approach, building on the successful experience in KZN, has the potential to weaken the influence of the construction mafia and ensure a more equitable and vibrant construction sector. With concerted efforts from industry and government stakeholders, this strategy can serve as a cornerstone for more inclusive growth and overall economic development.
Competition in the supply chain can serve as a deterrent and reduce the influence of the construction mafia in South Africa. When multiple suppliers and contractors compete for projects, transparency and fair practices are encouraged.
This diminishes opportunities for extortion and corruption that the mafia thrives on. Additionally, competitive pressures incentivise efficiency and cost-effectiveness, making it harder for criminal syndicates to impose inflated costs or disrupt projects without repercussions. Fostering healthy competition in the supply chain can indeed help weaken the grip of the construction mafia in South Africa by promoting accountability and fair market practices.
References:
Rise of the new construction mafia" on the Mail & Guardian (M&G) website using the following link:
Rise of the New Construction Mafia 2019
City of Cape Town. (2023). Budget 2023/24. Retrieved from City of Cape Town Budget. KZN Department of Public Works. (2022). Annual Report. Retrieved from KZN Public Works Annual Report. SAFCEC. (2023). The Impact of Extortion on the Construction Industry. Retrieved from SAFCEC Report. Cape Argus. (2023). Case Judgment Creates Clarity for Cape Town Contractors on Tender Processes. Retrieved from IOL.
Case No. 14485 / 2021 JK Structures CC v City of Cape Town and Others leave to appeal 14485 2021 2023 ZAWCHC 93 8 May 2023.
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