The company concerned is the China National Overseas Engineering Corporation or Covec, which is working in alliance with black economic-empowered (BEE) company Mathe Construction.
The award was made in December and is reportedly the largest contract ever awarded to a Chinese contractor in South Africa, although Covec has reportedly done far larger projects in Asia, more specifically Malaysia and Indonesia.
The award has also reportedly sent shockwaves through the local construction community, just at a time when it is anticipating boon conditions on the back of scaled-up infrastructure investment by government.
Some industry observers have even raised 'thin-edge-of-the-wedge' concerns that competition from Chinese contractors - some of which reportedly receive State subsidies and work off nonmarket-related cost structures - could overwhelm an industry which was hoping to recover from a long fixed-investment slump.
One commentator suggested that the Covec bid might be more about gaining a strategic foothold into the South African construction economy than profitability. But he did raise concerns that the main savings appeared to relate to how Covec priced its overheads, which he said could have the unintended consequence of putting downward pressure on the value of the engineering input at a time when South Africa desperately needed to improve the status of engineers as well as the earnings potential of practitioners in the sector. Others suggest that the award is simply an early sign that the local construction industry is going to face increasing foreign competition as South Africa begins to rollout its R370-billion public infrastructure investment programme over the next five years. This competition is also unlikely to be confined to public sector projects, with the private sector also on the lookout to increase the competitive pressures in the domestic construction industry.
In fact, such pressure was already in evidence when Mittal Steel controversially awarded Chinese industrial consortium Citic Acre the main contract for construction of the coke oven battery and gas plant as part of a R455-million market-coke project at its Newcastle mill, in Kwazulu-Natal. At the time, Mittal raised the hackles of the construction sector when it suggested that South Africa did not have the competence to complete the project. That led the industry to make representation to the Department of Trade and Industry, which has since called on local State and private businesses to host 'supplier colloquiums' ahead of tender processes in a bid to establish market capacity and interest. Mittal was among the first to adopt the policy ahead of a proposed R9-billion capital investment programme.
The TCTA contract itself, listed at TCTA-V021, is part of the larger R2,5-billion Vaal River Eastern Sub-System Augmentation Project (Vresap) and involves the construction of civil structures, mechanical, electrical instrumentation and piping works. The other component of the project, being the R1,5-billion pipeline supply and installation, was awarded to a joint venture comprising Murray & Roberts Construction, Group Five Construction, the J & J Group and WK Pipelines.
Covec was short-listed along with two other consortia: Foro, which comprised Group Five Construction, Grinaker-LTA, Rainbow Construction and WBHO Construction; and Vaal Civils, made up of Concor, CCC, Kgalagadi Multi Projects, Thuso Water, SET-MAK Civils, Mascrete and Betsy Building. This followed an international tender advertisement in line with requirements from the European Investment Bank, one of the financial institutions backing the project.
TCTA chairperson Leslie Maasdorp tells Engineering News that the Chinese company was found to be technically competent and, therefore, qualified to be short-listed as a tenderer - in the TCTA system, once a company prequalifies, the award decision is based on a straight price contest. He also stressed that a due diligence found the joint venture to have met all South Africa's legal and empowerment requirements, and that its empowerment partner was found to be technically competent.
Maasdorp added that it had received an undertaking from Covec that no more than ten expatriates would be brought in to help implement the project.
Project engineer Tim Staples confirmed this saying that, while no cap had been set, Covec had made a commitment to using as much local labour and material as feasible. He anticipates that some 600 people, including subcontractor staff, will be employed on the job and that the winning bidder had committed itself to its key socioeconomic targets. These embrace the inclusion of a 25% BEE partner, giving preference to local and historically-disadvantaged individuals during the contract staffing and meeting procurement targets relating to purchases from BEE firms, as well as purchases from firms in the vicinity of the projects and from small and medium enterprises. Initial work is set to begin on site imminently.
Staples acknowledged that the award had raised concerns among South African contractors, but suggested that there was still significant work opportunity on the horizon both at the TCTA and from the rest of government which would go the way of domestic contractors.
He also pointed out that it would have been irresponsible for TCTA to ignore a bid that saved its stakeholders, which includes all water consumers, a significant amount of money.