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Contractor perspective on delivery constraints in the Roads Sector Hylton Macdonald.

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Presentation on theme: "Contractor perspective on delivery constraints in the Roads Sector Hylton Macdonald."— Presentation transcript:

1 Contractor perspective on 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 Road infrastructure lagging vehicle growth Source: Peter Perkins Paved national and provincial roads, passenger vehicles and commercial vehicles for transport of goods Index (1970 = 100) Paved roadsPassenger vehiclesGoods vehicles

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

8 Dramatic drop in artisan registrations EX Allyson Lawless Artisans Registered Building Industry Artisans Registered

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 SectorR billion% Water Electricity Housing Health Roads Rail Ports Buildings Airports Stadiums Gautrain Pipelines 19,3 58,0 32,4 22,3 63,2 17,8 14,7 16,8 5,2 3,0 14,2 1, % of R372 billion100%

13 Market sentiment Q1 1996Q3 1996Q1 1997Q3 1997Q1 1998Q3 1998Q1 1999Q3 1999Q1 2000Q3 2000Q1 2001Q4 2001Q2 2002Q4 2002Q2 2003Q4 2003Q2 2004Q4 2004Q2 2005Q New TenderContract awardsGeneral confidence CIVIL ENGINEERING LEADING INDICATORS (5-qrt moving average)

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 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 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 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 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 Training and Education Source: SAFCEC Additional Engineers & Employees needed to cater for anticipated growth Additional Employees Additional Civil Engineers Engineers Employees

26 Construction Management Graduations Source: Allyson Lawless UniversitiesTechnikons WhiteBlack WhiteBlack MaleFemale MaleFemale

27 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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