Inform Practice Note #10 - Construction Industry Development Board

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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
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Inform Practice Note #10 - Construction Industry Development Board

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