Regulation issues, including the procurement of consulting engineering services, remain one of the biggest challenges faced by the consulting engineering industry, indicates Consulting Engineers South Africa’s (Cesa’s) latest Bi-Annual Economic and Capacity Survey (BECS) for January to June 2014.

The survey, which has just been released, noted that procurement was currently based on price and broad-based black economic-empowerment points, with functionality or quality having a minimum threshold. This affected tender prices, as firms sometimes tendered below cost in view of the diminished availability of projects, explained Cesa.

“The way [in which] the service[s] of consulting engineers [are] procured is a sore point and leaves a lot to be desired. Even our president Abe Thela cautioned about this practice that relegates our noble profession as if they are procuring commodity goods,” said Cesa CEO Lefadi Makibinyane in a statement released on Monday.

According to the BECS, unrealistic tendering fees remained a concern for members, while the extended time it took to finalise a proposal was affecting profitability in the industry. Some firms argued that the quality of technical personnel had deteriorated, putting greater risk on the built environment sector, while skills shortage was regarded as one the most significant institutional challenges faced by the private and public sectors.

Cesa pointed out that it had offered its services to government to procure and implement projects, as well as advocated a speedy review of the Preferential Procurement Policy Framework Act.

This would not only harmonise the "procurement modalities" of the professional services, which included consulting engineering, noted Cesa, but would accelerate the implementation of the Presidential Infrastructure Coordinating Commission's National Infrastructure Development Plan.

BUSINESS CONFIDENCE

After a more optimistic 2013, conditions in the first six months of 2014 appeared to have been less satisfactory. The confidence index for the first six months was revised downward from an expected level of 98.3 to 87.7, suggesting weaker-than-expected conditions. However, in spite of the slower-than-expected start to the year, Cesa revealed that firms were more optimistic with regard to business conditions for the next 12 months, averaging 96.6 for the last six months of 2014 and 96.2 for the first six months of 2015.

Larger firms were unanimous in their views that the outlook for business conditions was satisfactory over the next 12 months, compared with 82.5% of medium-sized firms. 

The relationship between confidence levels of engineers and civil contractors deteriorated from 2009 onwards, as the business environment in terms of consulting engineering did not seem to deteriorate at the same pace as that experienced by the civil construction industry. 

Opinions expressed by civil contractors, as measured by the FNB/BER indices, were more depressed in the first three quarters of 2014, moderating from a net satisfaction rate of 66% in the last quarter of 2013, to 55%, 44% and 48% in the first three quarters.

The FNB/BER Building Industry Confidence Index, declined to a net satisfaction rate of 45% in the third quarter of 2014, from 52% in the first quarter; thus, at a contracting level, conditions in both the building and civil industries were still very much depressed.

Confidence in the consulting engineering sector generally lagged business sentiment, Cesa pointed out, noting that business sentiment slumped back to a level of 41 in the first and second quarters of 2014, but showed some improvement to a level of 46 in the third quarter. 

“Business confidence is still negatively impacted by the industrial strike action in the first half of the year, poor economic growth, rising inflation and the expectation of further monetary policy tightening. Confidence levels have deteriorated since 2007 (when it was at a level of 69) and until it recovers back to a level of at least 60, the outlook for increased private sector investment will remain subdued,” said Cesa.

FRAUD AND CORRUPTION

The industry body noted that fraud and corruption were affecting the ethos of society, “with a lot of talk and little action accompanying the growing evidence of corruption”.

Cesa said it was aware that members were under pressure from contractors and corrupt officials to certify payment for work not completed, and regarded this as an extremely serious matter. Therefore, Cesa stressed that it would be relentless in holding those in power accountable.

Further, unlocking greater private sector participation was seen as a critical element to fast-track delivery that would support engineering fees and, subsequently, engineering development in the industry. Private sector participation in this context referred to involvement on a more technical level, not as a client, to improve municipal capacity and efficiency, Cesa added. 

“Government must create an environment [in which] the private sector can play a much bigger role in infrastructure delivery. Many of the projects highlighted in the National Development Plan can be carried out by the private sector through public–private partnerships.

“Service delivery, especially at municipal level, remains a critical burning issue. The consulting engineering industry is threatened by incapacitated local and provincial governments.  As major clients to the industry, it is important that these institutions become more effective and proactive in identifying needs and priorities, and more efficient in project implementation and management,” Cesa highlighted.

The involvement of non-Cesa members in government tenders and procurement continued to threaten the standard and performance of the industry, as non-Cesa members did not seem to comply with the same standards and principles as Cesa members.  “Whether this is linked to complaints of ‘below-cost’ tendering since 2009, is not certain, but Cesa members should be better informed about engaging in below-cost tendering” the organisation added.

Firms from across South African borders were tendering at rates that were uncompetitive for local firms and complaints had been received of some of these firms not producing proper drawings and not attending site visits. “Clients, unfortunately, are not always properly experienced or educated to conduct proper procurement assessments and unknowingly award contracts to these ‘unscrupulous’ firms.  While these occurrences may be limited to smaller rural areas, it remains an unacceptable practice,” stated Cesa.

Lack of attention to maintain infrastructure also posed a serious problem for the industry.  Not only was it much more costly to build new infrastructure but dilapidated infrastructure hampered economic growth potential. 

Cesa explained that the cost of resurfacing a road after seven years, at current prices, was estimated to be R175 000/km, less than 6% of the construction price – R3-million a kilometer.

“In many cases, infrastructure is left to deteriorate to such a state, that maintenance becomes almost impossible,” Cesa pointed out, adding that another challenge to the industry was with standardising the procurement procedures applied by the different government departments.

“Procurement procedures should be standard for the country, or at least for the specific tier of government,” Cesa said.

Makibinyane urged government departments and entities to establish a panel of consulting engineers for speedy mobilisation and fair distribution of work among the profession, and for competitiveness of the public sector with regard to infrastructure development and refurbishment to complement the public sector technical/engineering capacity, which, he emphasised, “cannot be built overnight".

He added that this panel would ensure that government “gets on” with its infrastructure development plans and boosts the needed business confidence from the current index of 46 to the “magic figure” of 60.