New code to benefit smaller companies

18th August 2017 By: Marleny Arnoldi - Creamer Media Online Writer

New code to benefit smaller companies

DEON OBERHOLZER Some companies prefer noncompliance with BEE requirements, but subsequently lose lucrative opportunities to supply government or public-sector-related projects
Photo by: Duane Daws

With the Amended Construction Sector Code (CSC) in its final stages, business strategy consultancy Gestalt says the CSC will provide revised specifications in terms of the black economic-empowerment (BEE) requirements in the sector. The sector codes continue to advance the transformation that is needed in South Africa on all levels – ownership, employment and skills development.

Gestalt CEO Deon Oberholzer says the CDC comprises three main focus areas into which the codes can be categorised: ownership of companies, company staff and how they are developed, and how money is spent in the economy, focusing on promoting local manufacturers and suppliers.

“One of the major positive changes is that the new CSC will enable smaller companies to improve on their BEE-compliance scorecard,” says Oberholzer.

He mentions that the Department of Trade and Industry (DTI) has created leeway for small companies, other than those that are already 51% or more black-owned, to also become Level 2 BEE-compliant, with small companies’ maximum efforts to comply with previous sector codes having gone unacknowledged.

This means smaller companies can work towards transformation and growth while receiving the compliance certification in line with their efforts, whereas previously, with the first amended CSC, small companies got stuck at certain compliance levels.

“The whole measurement of small companies in the construction industry should be the benchmark for all businesses because it creates an incentive for even small companies to do something more, which is found nowhere else in the other sector codes as an actual measurement. You could do it because you believe in it, and you will not benefit from it in other sector codes,” explains Oberholzer.

While predicting that the finalisation of the CSC will be towards the end of the year, he mentions that companies in the construction sector are unsure of what to expect.

Oberholzer says the CSC focuses on anomalies in the construction sector, which include the restrictions on allowing people with disabilities to work on site, promoting women in the industry, as well as monitoring and measuring young black professionals in the industry.

“The DTI has defined categories of measurement in terms of BEE compliance, which are more specific and much more appropriate than the generic amended sector codes.”

Oberholzer notes that the release of the final CSC may create “a tricky situation” for companies that are working on large projects because staff and subcontractors, for example, cannot be changed overnight, with the current tendency being that the sector codes have no transition period. Companies may have applied for a tender application based on a set of requirements, which might have to change, pending the release of the CSC.

This leads to business-planning and strategy-mapping difficulties, and often “wasteful transformation”, owing to the shift-in-goalpost nature of sector codes, he points out.

“The construction industry is probably the most affected by this. Companies had to comply with the previous broad-based BEE codes, then had to align with the previous CSC and, after the repeal of that code, companies had to comply with the Amended General Codes and soon, the Amended CSC.”

He adds that it is often difficult to get your mind around what is going on and a lot of companies either give up and then suffer the consequence of noncompliance or they spend so much in an effort to comply quicker that they suffer the cost consequence.

Others prefer to remain noncompliant, which means that they lose the opportunities to supply government or public-sector-related projects.

“There is no compelling force – some companies can survive without complying – but they often miss the opportunities that come with compliance to transformation standards,” he notes.

However, Oberholzer adds that the CSC is good for the industry because its obligations are well defined in terms of differentiating specifications for people in the profession of construction and material suppliers.
One of the most positive aspects intended with the process of drafting new sector codes was to get various industry stakeholders, with vastly different priorities and views of what should be done in terms of compliance, to come to an agreement, says Oberholzer. “However, this can be a challenge at best, and near impossible at worst.”

Sector codes, he avers, can never meet all the expectations of interested parties, and the solution comes with compromise either from the sector council and/or government.

“The future will tell whether the CSC will advance real transformation in the construction industry but, compared with some of the other sector codes, it has a better chance of doing so.”