Inform Practice Note #10 - Construction Industry Development Board

form of wages and allowances or the value of the supplies,services and works procured from targeted enterprises (or both)expressed as a percentage of the contract amount.Contract participation goals measure the participation of targetedenterprises and targeted labour i.e. the flows of money from thecontract to the target group. They provide a measurable keyperformance indicatorProcedures to quantify and verify such reports in the performanceof the contract need to be included in the contract. This can bedone in specifications or other contract information which apply tothe contract.The participation of target groupsshould, as far as possible, bemeasured in monetary terms, asmonetary transactions can normallybe verified and audited. Theparticipation of targeted enterprisescan generally be measured in terms ofreceipts for work or servicesperformed or for the provision ofsupplies for a contract while theparticipation of targeted labour can bereadily measured in terms of theamounts spent on wages andallowances paid to such labour.Provide business and employmentopportunities to specified target groups(targeted enterprises and / or targeted labour)OBJECTIVEEngage the target groups indirectly or directlyin the performance of the contractEngage target groups to the extent that acontract participation goal (a percentage ofthe value of the contract which represents theinputs of targeted enterprises and/or targetedlabour in the performance of the contract)established for the contract is satisfied.PERFORMANCEDESCRIPTIONSPERFORMANCEPARAMETERSPerformancerequirementsEVALUATION(See means of satisfying contract participation goalsprovided in the relevant parts of SANS 1914)Structure of SANS 1914 performance based resource standardsSANS 1914, Targeted Construction Procurement, provides aseries of performance based specifications to facilitate theestablishment of a contract participation goal for a particularcontract in respect of the participation of targeted enterprises,targeted partners in joint ventures, local resources and targetedlabour, as relevant. Upon award of the contract, thesespecifications form the basis for monitoring and verifying that thecontractor achieves the contract participation goal in theperformance of the contract.Contract participation goals (CPG) may be used, in addition tomeasuring and reporting on a key performance indicator whichreflects the quantum of business or employment generated inrespect of targeted enterprises or targeted labour through theperformance of the contract, to:• reserve a portion of the contract work for specified targetgroups through the setting of minimum contract participationgoals;• establish the basis for the awarding of preferences inproportion to the quantum of the CPG that is tendered; or3 of 8 Practice Note # 10

Further guidance for preferencing maybe found in found in CIDB BestPractice Guidelines B1: Formulatingand Implementing PreferentialProcurement Policies, B2: Methodsand Procedures for ImplementingPreferential Procurement Policies andA8: Procurement measures to developregistered contractorsOption X20 (Key PerformanceIndicators) of the NEC3 Engineeringand Construction Contract makesprovision for a contractor to be paid anamount stated in an incentive scheduleif the target stated for a keyperformance indicator is improvedupon or achieved.Annex B of the CIDB Specification forSocial and Economic Deliverables inConstruction Works Contracts containsrecommended clauses for inclusion innon-NEC3 construction workscontracts.• establish performance targets for the payment of financialincentives relating to the attainment of key performanceindicators.Financial incentives may be offered to contractors should theyattain a key performance indicator (KPI) in the performance acontract in the form of a contract participation goal in accordancewith the requirements of one of the parts of SANS 1914. Such keyperformance indicators can be either agreed to through anegotiation process before or after a contract is awarded.Financial incentives should not be confused with tender evaluationpreferences. The intention for offering financial incentives for theattainment of KPIs is to encourage, rather than coerce, thecontractor to meet the employer’s objectives.Financial incentives can be formulated in a number of ways. Themost common way is to make them directly proportional toincreases in contract participation goals. Stepped incentives mayalso be used. Consideration should be given to capping thequantum of the financial incentive.Alternatively, contractors may be required to subcontract specificportions of a contract to targeted enterprises. Requirements forsubcontracting work including subcontracting procedures, if any,should be established in the scope of work.KEY PERFORMANCE SCHEDULEEmployer’s objectivesKey performanceindicatorTargetMeasurementarrangementAmount of payment if target isachieved or improved uponProvideemploymentopportunities to targeted labourContract participationgoal25% See SANS 1914-5 One of the following amounts will bedue, should the contract participationgoal equal of exceed:• Target: R 250 000• Target plus 15%: R275 000• Target plus 25%: R325 000The quantum of the minimum contractparticipation goals needs to be verycarefully considered. An unachievablyhigh goal will lead to the employerpaying cost premiums as sometenderers will decline to tender whileothers will have to price for theunattainable goal in one way oranother. Accordingly, minimum goalsshould be set at a level that is easilyachievable by most contractors.Contractors should be encouragedthrough either the use of preferencesor financial incentives to improve uponthe minimum levels. The negotiation ofstretch targets linked to financialincentives with a contractor after theaward of the contract is a very effectivemeans of maximizing developmentalopportunities.Main contractors may be:• free to negotiate the prices and terms for subcontracting; or• required to invite competitive tenders from amongst targetedenterprises in terms of a specified procedure and specificforms of subcontract.Upon the award of the contract these targeted enterprisesbecome domestic subcontractors i.e. the main contractor remainsresponsible for providing the subcontracted portion of the works.The advantage of the approach whereby contractors are requiredto call for tenders is that targeted enterprises tender for the workin the same manner as the main contractor does. It also allowsthe employer to influence the terms and conditions under whichtargeted enterprises are subcontracted.Practice Note # 10 4 of 8

Annex I (Selection of subcontractors by employer and contractors)of the CIDB Standard for Uniformity in Construction Procurementprovides a procedure whereby targeted enterprises are requiredto submit tenders in accordance with the CIDB StandardConditions of Tender for subcontracted portions of the work.Insert the following in the Scope of Work:Selection of subcontractors by employers and contractorsScope of mandatory subcontract worksThe following portions of the works shall be subcontracted in accordance with the subcontracting procedures described in this scope of work:…………..Subcontracting proceduresThe contractor shall advertise and call for competitive tenders in respect of each portion of the works that are required to be subcontracted interms of the contract in accordance with the relevant provisions of the latest edition of the CIDB Standard for Uniformity in ConstructionProcurement. The Contract Data in the associated procurement documents shall be based on the ………………(insert title of standard form ofsubcontract that is to be used), with minimal project specific variations and amendments that do not change their intended usage.The Employer together with the Contractor shall evaluate the tenders received in accordance with the provisions of the Standard Conditions ofTender contained in Annex F of Standard for Uniformity in Construction Procurement. The evaluation panel shall comprise equal representativesfrom the Employer and from the Contractor.The Contractor shall without delay enter into contract with the successful tendering subcontractor based on their accepted tender submissionThe Contractor shall remain responsible for providing the subcontracted portion of the works as if the work had not been subcontracted.3. Generic specification for social andeconomic deliverablesThe CIDB Specification for Social and Economic Deliverables inConstruction Works Contracts establishes a number of standardapproaches to attain a range of commonly encountered socioeconomicdeliverables through the execution of large contractsassociated with the following themes:• Employment of local resources• Employment opportunities in labour intensive works• Business opportunities• Enterprise support and development programmes• Skills development• HIV/AIDSThis CIDB specification is intendedprimarily for use in construction workscontracts having a contract value ofR10 million or more and a duration ofnot less than 12 months. Some of thedeliverables may, however, beappropriate in construction workscontracts having a lower value.This specification establishes requirements for contractors and isintended to be used by reference in the scope of work associatedwith a construction works contract. It does not establishrequirements for those administering or monitoring thedeliverables associated with construction contracts. It merelydefines and quantifies the deliverables and provides the means bywhich it can be verified that the deliverables were in fact deliveredin the performance of the contract.The CIDB specification makes reference to and is based on the following South African National Standards• SANS 1914-1, Targeted construction procurement – Part 1: Participation of targeted enterprises• SANS 1914-2, Targeted construction procurement – Part 2: Participation of targeted partners in joint ventures• SANS 1914-5, Targeted construction procurement – Part 5: Participation of targeted labour• SANS 1921-4, Construction and management requirements for contracts – Part 4: Third-party management support inworks contracts• SANS 1921-5, Construction and management requirements for contracts – Part 5: Earthworks activities which are tobe performed by hand• SANS 1921-6, Construction and management requirements for contracts – Part 6: HIV/AIDS awareness5 of 8 Practice Note # 10

Generic social and economic deliverables provided for in the CIDB SpecificationThemeEmploymentof localresourcesEmploymentopportunitiesin labourintensiveworksBusinessopportunitiesEnterprisesupport anddevelopmentprogrammesDeliverableNumber DescriptionA1 Provide employmentopportunities to targetedlabourOverview of requirementsThe contractor is required to achieve a contract participationgoal in accordance with the requirements of SANS 1914-5relating to the participation of targeted labour:a) as a contractual obligation; orb) in order to receive a financial incentive.Alternatively, the contractor is not set a contract participationgoal but is required to report on the contract participation goalthat is achieved through the performance of the contract.A2 Utilise local resources The contractor is required to achieve a contract participationgoal in accordance with the requirements of SANS 1914-4relating to the participation of targeted labour and targetedenterprises:a) as a contractual obligation; orb) in order to receive a financial incentive.Alternatively, the contractor is not set a contract participationgoal but is required to report on the contract participation goalthat is achieved through the performance of the contract.B1Provide employment andskills developmentopportunities to targetedlabourC1 Provide businessopportunities for targetedenterprisesC2 Procure subcontractors fordefined portions of thecontract in terms ofspecified proceduresD1 Provide third partymanagement supportservices to targetedcontractorsD2D3Procure or manage (orboth) mentoring servicesfor targeted contractorsExecute the contract injoint venture with atargeted partnerThe contractor is required to provide skills development andemployment opportunities to unemployed persons along thelines of that advocated in the Guidelines for theImplementation of Labour Intensive Projects under theExpanded Public Works Programme (EPWP).Contractors may receive financial incentives should theyexceed specified contract participation goals.The contractor is required to achieve a contract participationgoal in accordance with the requirements of SANS 1914-1relating to the participation of targeted enterprises:a) as a contractual obligation; orb) in order to receive a financial incentive.Alternatively, the contractor is not set a contract participationgoal but is required to report on the contract participation goalthat is achieved through the performance of the contract.The contractor is required to procure targeted subcontractorsfor defined portions of the works in accordance with therequirements of the CIDB Standard for Uniformity inConstruction Procurement.The contractor is required to provide in terms of SANS 1921-4construction management services, materials managementservices, or a combination of such services in order tominimize the risk of works not being constructed to statedrequirements, within budget and on time. (The contracts withtargeted enterprises are with the employer and not thecontractor)The contractor is required to procure or manage (or both)mentoring services in order to assist targeted enterprises in theestablishing of business systems within their businesses inorder to improve the sustainability and growth of theirbusiness.The contractor is required as an obligation of the contract toenter into a joint venture with a targeted enterprise after theaward of the contract as an obligation of the contract inaccordance with the requirements of SANS 1914-2 and toachieve a prescribed contract participation goal.Practice Note # 10 6 of 8

Generic social and economic deliverables provided for in the CIDB Specification(Continued)ThemeSkillsdevelopmentDeliverableNumber DescriptionE1 Provide experiential workopportunities towards aspecified professionalregistration for designatedpersonsE2 Provide work learningopportunities towards aspecified degree, diplomaor certificate for designatedpersonsE3 Provide experiential workopportunities towards aSAQA registeredqualification or certificatefor designated personsE4 Procure and manage atraining provider to providespecific training fordesignated personsHIV/AIDS F1 Promote HIV/AIDSawarenessOverview of requirementsThe contractor as an obligation of the contract is required toprovide at least a specified quantum of work opportunitieswhich enables designated persons to gain work placeexperience leading to a specified professional registrationThe contractor as an obligation of the contract is required toprovide at least a specified quantum of work placeopportunities which enables designated persons to gain workplace experience leading to a specified degree, diploma orcertificate from an accredited or registered formal institution oflearning.The contractor as an obligation of the contract is required toprovide at least a specified quantum of workplaceopportunities and training towards trade competencies fordesignated personsThe contractor as an obligation of the contract is required toprocure and manage at least a specified quantum of specifictraining work opportunities for designated personsThe contractor as an obligation of the contract is required topromote HIV/AIDS awareness in accordance with therequirements of SANS 1921-6This specification has been designed in such a manner that adeliverable can be readily referenced in the scope of workassociated with a specific contract to promote a standardapproach to achieving these socio economic deliverables.SCOPE OF WORKDescription of the works…………..…………..Social and economic development requirementsThe contractor shall deliver the following deliverables as described in the October 2007 edition of the CIDB Specification forSocial and Economic Deliverables in Construction Works Contracts (SSED) (www.cidb.org.za) and the following associatedspecification dataClause numberSpecification dataDeliverable C1: Provide business opportunities for targeted enterprisesThe specification data associated with SANS 1914-1 is as follows:2.7 The employer’s representative is …………2.17 A targeted enterprise is …..The targeting strategy is …...The contractor participation goal is as stated in the Preferencing ScheduleThe contract participation goal may only be achieved by subcontracting work to one or moretargeted enterprises to perform commercially useful functions in the performance of the contract.Deliverable F1: Promote HIV/AIDS awareness4.1 A workshop shall be held with the ……. community within two months of the commencement of thecontract. The workshop shall be repeated four months thereafter.4.2.1(a)A qualified service provider is service provider that is one that is accredited by …… / appears on thelist of recognised service providers published by……………The contact particulars of qualified service providers are as follows:Name Tel Fax email……….7 of 8 Practice Note # 10

informconstruction industry developmentpractice notePractice note 10 - February 2008We would like to hear from you aboutyour progress, challenges and ideas.Contact us:E-mail: infocus@cidb.org.zaFax: 012 343 7153Annex A of the CIDB specification provides guidance on how toactivate the specification for each deliverable in the scope of workassociated with a specific contract. Sample specification data isprovided as well as guidance notes for the formulation of thespecification data.Annex B provides guidance on how to implement this specificationin construction works contracts while Annex C provides samplereporting templates where contractors are required to attachinformation to their payment certificates.CIDB Switchboard 086 100 2432Registers Helpdesk 086 010 3353Registers Post Private Bag x14Brooklyn Square0075CIDB Post: PO Box 2107Brooklyn Square0075Development through partnershipcidb website: www.cidb.org.zaPractice Note # 10 8 of 8