The impact of the affirmative procurement policy on affirmable business enterprises in the South African construction industry.

Abstract

The construction industry in South Africa is envisaged to play a pivotal role in the reconstruction of the South African economy, via the delivery of economic and social infrastructure. The skewed ownership I patterns prevalent in the construction sector, resulted in the South African government utilising public sector procurement as a mechanism to address these imbalances, and to promote wider participation I in public sector construction opportunities. This dissertation analyses the role of the construction industry in South Africa, and explores the rationale behind utilising public sector procurement as a mechanism to promote wider participation in the construction industry in South Africa. The research then focuses on the application of the Affirmative Procurement Policy (APP) on construction projects procured by the National Department of Public Works, in order to evaluate the impact which this policy has had on the growth and development of Affirmable Business Enterprises (ABEs). The research evaluates the primary policy outcomes, via the development of appropriate indices and a diagnostic quadrant comparator, and concludes that the application of the APP has had a positive impact on ABE participation, with levels of participation varying across construction sub sectors and categories. It was also found that financial premiums, borne by the State in adopting this policy, were nominal when compared with the initial projected outcomes and the overall benefits. The overall performance of ABEs, measured against that of non-ABEs, was then tested to ascertain whether the adoption of the APP was a necessary and sufficient condition for ABE enablement and empowerment. The research concludes that there is a difference in overall performance between J ABEs and non-ABEs, and that supply side interventions and capacitation programmes are required to mitigate the increased risk exposure by the State, when engaging ABEs on construction projects. The : research also analyses the variation in the levels of participation of ABEs, in the different construction sub sectors and concludes that the manner in which ABEs are structured and their internal business processes tend to establish operational limitations, which influence their scope of activitiies to a larger extent than the existence of eternal sub sector thresholds. Similar characteristics were,observed in non-ABEs of a similar size, inferring that the problems encountered relate to business development and growth of small and medium enterprises, in general. The research also. analyses the impact that the APP has had on subcontracting relationships and the promotion of structured joint ventures. It concludes that whilst the requirements of the APP has seen the development of formalised subcontracting relationships, the form of subcontracts that are currently utilised do not comply with the requirements outlined in the APP, which are aimed at eradicating unfair subcontracting conditions. The adoption of the APP has seen an increase in structured joint ventures between ABEs and larger established contractors. The analysis of these joint ventures concludes that they provide an effective means of transferring expertise, provided that they are structured appropriately. The dissertation concludes with recommendations on APP policy refinements, mechanisms to enhance compliance and opportunities for international application. The recent enactment of the Preferential Procurement Policy Act (Act 5 of 20(0) in South Africa indicates that several elements of the APP are likely to be prescribed as mandatory requirements for public sector procurement by different government institutions and across the different industrial sectors. It is therefore important that the areas identified for further research be pursued, to ensure optimal policy outcomes across a range of industrial sectors.