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Contractor perspective on delivery constraints in the Roads Sector

Contractor perspective on delivery constraints in the Roads Sector. Hylton Macdonald. Looking back. Tough times for infrastructure companies. Gross Fixed Capital Formation as percentage of GDP. Source: SARB At constant 2000 prices.

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Contractor perspective on delivery constraints in the Roads Sector

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  1. Contractor perspectiveon delivery constraints in the Roads Sector Hylton Macdonald

  2. Looking back Tough times for infrastructure companies

  3. Gross Fixed Capital Formation as percentage of GDP Source: SARB At constant 2000 prices

  4. Construction Works Contribution to Gross Fixed Capital Formation Source: SARB At constant 2000 prices

  5. Infrastructure lagging economic growth Source: SARB

  6. Paved national and provincial roads, passenger vehicles and commercial vehicles for transport of goods 500 400 300 Index (1970 = 100) 200 100 0 1940 1950 1960 1970 1980 1990 2000 Paved roads Passenger vehicles Goods vehicles Road infrastructure lagging vehicle growth Source: Peter Perkins

  7. Civil engineering graduates down Source: Allyson Lawless Inflation adjusted base 2000

  8. 2000 1500 Artisans Registered 1000 500 0 76 80 84 88 92 96 64 68 72 00 Building Industry Artisans Registered Dramatic drop in artisan registrations EX Allyson Lawless

  9. Looking forward Good times ahead for infrastructure companies

  10. Market conditions • Upward trend in Government spending during past six months • Increased annual investment expenditure in SOE’s with GFCF growth up from 8,4% over the past ten years to 12,5% in last two years • Acceleration in private sector development from average annual GFCF growth of 4,7% in past decade to 8,4% in last two years

  11. Roads • Road infrastructure has also been identified as a key driver to economic growth • One of six constraints identified in Asgisa • One of top expenditure items on current MTEF • 2006 budget confirmed spend at R63bn over next three years

  12. Roads allocation - 24% of MTEF

  13. CIVIL ENGINEERING LEADING INDICATORS (5-qrt moving average) 80 New Tender Contract awards General confidence 70 60 50 40 30 20 10 0 Q1 1996 Q3 1996 Q1 1997 Q3 1997 Q1 1998 Q3 1998 Q1 1999 Q3 1999 Q1 2000 Q3 2000 Q1 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Market sentiment

  14. Government’s 25% GCFC:GDP target • The 25% GCFC:GDP target can be achieved by 2014 based on the following assumptions: • GDP growth is 5% to 2009 and 6% thereafter • Government GFCF growth is 10% to 2009 and 9% thereafter • Private sector GFCF growth is 10% to 2014 • If this target is achieved, the construction industry will double in size, i.e. 8% real growth per annum • Three prerequisites • More efficient delivery systems • A streamlined legislative & regulatory environment • Concerted effort on growing skills

  15. Prerequisites • Effective delivery systems

  16. Effective delivery systems • Government departments unable to spend budgets due to limited capacity and/or low levels of skills… • …in procurement • Focus often on policing of subjective preferencing which is limiting delivery capacity • This should eliminated with introduction of Charter practice note • Complete resolution when Charter is gazetted as a Section 9 Code of Good Practice • …in planning and project management • Small projects use larger skills base • Skills capacity constraints

  17. Effective delivery systems • Large contracts often split into a number of small contracts • Increases complexity and makes them hard to manage • Average size of project is currently R2m with almost 6 000 projects on the go • More skills intensive as resource leveraging benefits from large contracts are lost • Need to package some larger contracts in the short term using suitable terms and defining clearly deliverables for management, training, mentorship, enterprise development, SMME and EPWP Number of companies per size category

  18. Effective delivery systems • Opportunity to redefine the approach to contracting in some areas to facilitate delivery • “Rebuild a town” • “Alliancing” approach using effective multiparty committees to drive the project • “Open book” approach to ensure transparency • Incorporation of contracting, consulting and local government in the team • Project management provided by main contractor • Standardise and simplify specifications and designs • Balance of large, medium and small contractors • Effective use and development of local suppliers and labour • Enterprise development of SMME’s used on the project • Enhance local government capacity in project management and maintenance skills

  19. Effective delivery systems • Opportunity to redefine the approach to contracting in some areas to facilitate delivery • “Rebuild a town” • Large scale EPWP infrastructure projects • Package large infrastructure works with EPWP works • “Open book” approach to ensure transparency • Project management provided by the main contractor • Enhance the local government capacity in project management and maintenance skills • Enterprise development of SMME’s used on the project to be undertaken by the main contractor • Effective us of local suppliers and labour • Structure EPWP component appropriately

  20. Effective delivery systems • Opportunity to redefine the approach to contracting in some areas to facilitate delivery • “Rebuild a town” • Large scale EPWP infrastructure projects • Public Private Partnerships • The unsolicited bid process needs simplification for smaller projects • A need to leverage private investment into existing and new areas • A need to build institutional and developmental capacity • Municipalities should be provided with the resources that will enable them to negotiate and partner with the private sector by the Neighbourhood Development Partnership Grant

  21. Prerequisites • Effective delivery systems • Legislative environment

  22. Legislative environment • More than 120 pieces of legislation currently regulate the industry, including BEE, Environmental issues, labour and social practices, skills development • Policies often uncoordinated between five national Government departments, nine provincial roads and works departments, and more than 300 engineering departments in local authorities • Current focus by government and CIDB on the legislation in an attempt to rationalise the status quo

  23. Prerequisites • Effective delivery systems • Legislative environment • Skills constraints

  24. Skills constraints • Challenge to attract skills to the industry • New graduates in all construction related activities have decreased • A dearth of good general foremen and high tolerance machine operators • Transformation imperatives introduce a further challenge • Optimal use of available skills is critical • Relevance of formal training and education programmes to industry requirements • Employee training programmes important to close the gap • Learnerships and apprenticeships to attract new talent, and train and develop technical skills • Mentorships important for fast-tracking talented middle management • Bursaries to deliver both engineering and business graduates into skills pool

  25. Additional Engineers & Employees needed to cater for anticipated growth 70 000 6 000 Engineers Employees 60 000 5 000 50 000 4 000 40 000 Additional Employees Additional Civil Engineers 3 000 30 000 2 000 20 000 1 000 10 000 0 0 2007 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 Training and Education Source: SAFCEC

  26. 75 75 50 50 25 25 0 0 1998 1998 2000 2000 2002 2002 1996 1996 1986 1986 1988 1988 1990 1990 1992 1992 1994 1994 White White Black Black 75 75 50 50 25 25 0 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 1986 1988 1990 1992 1994 1996 1998 2000 2002 Male Female Male Female Construction ManagementGraduations Universities Technikons Source: Allyson Lawless

  27. 69 Black 64 White 59 54 49 Age 44 39 34 29 24 0 50 100 150 200 250 300 Number per age group Civil Engineering – Engineers & Technologists EX Allyson Lawless, June 2004

  28. Conclusions • Construction sector needs to develop a coordinated approach with all role players • Regulatory framework needs to be streamlined and/or constantly applied • Development of people and enterprises are critical to our future success • Development of technical and administrative capacity of the state is a necessity at all levels to execute the works

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