Presented ON BEHALF OF Thabo Masombuka (Mr) Chief Executive (CSCC) TRANSFORMATION AND PROGRESS IN THE GAZETTE CONSTRUCTION SECTOR (GAUTENG PROVINCIAL SUPPLY CHAIN) Presented ON BEHALF OF Thabo Masombuka (Mr) Chief Executive (CSCC) 23 June 2017

OVERVIEW & BRIEF BACKGROUND WHY CONSTRUCTION SECTOR TRANSFORMATION PREAMBLE - Recognizes the historical Legacy Despite significant progress since the establishment of a demographic government in 1994, South African society is characterized by racially based income and social service inequalities. Consequently, the vast majority of South Africans remain excluded from ownership, control and management of productive assets and from access to training in strategic critical skills. The Broad-Based Black Economic Empowerment Act (No. 53 of 2003) establishes a legislative framework for the promotion of B-BBEE, provides for the gazetting of transformation charters and empowers the Minister of Trade and Industry to issue codes of good practice; The National Development Plan aims to eliminate poverty and reduce inequality by 2030. According to the plan, South Africa can realize these goals by drawing on the energies of all its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society;

OVERVIEW & BRIEF BACKGROUND This Construction Sector Code seeks to support the objectives of the Act as amended from time to time and the objectives of the National Development Plan. Believes that positive and proactive response through the implementation of the Construction Sector Code would address inequalities in the Construction Sector, unlock the sector’s potential and enhance its growth. As such the Construction Sector Code supports: The introduction of Economically Active Population (EAP) targets which aims to address the unequal representation of race sub-groups participating in the industry; The continued research by the CSCC on how to create a Construction Sector that benefits the economy at large through supporting and building capacity in small enterprises including black professional service providers; The set aside of minimum levels of procurement spend from Suppliers that are at least 51% Black Owned or 35% Black Women Owned or 51% Black Designated Groups owned and standardize industry-wide preferential procurement methodologies;

SECTOR CODE STRATEGIC OBJECTIVES Enhance Supplier and Contractor Development in the core value chain of the construction industry that leads to sustainable empowerment for Qualifying Supplier Development Beneficiaries; Contribute to the creation of substantial black owned entities and black industrialists in the Construction Sector through industry wide Supplier and Contractor Development initiatives; Increasing Preferential Procurement spend on local companies thereby increasing local job creation aligned to the objectives of the National Development Plan; Provide the Construction Sector on-going qualitative and quantitative method for monitoring and evaluating the progress of enterprises toward B-BBEE and thereby contribute to ending the malpractice of fronting; and Introduce compulsory reporting and engagement with the BEE Commissioner to monitor progress of enterprises toward B-BBEE.

THE ROLE OF THE CSCC The CSCC is the EXECUTIVE AUTHORITY charged with : Entrusted with OVERSEEING and MONITORING the IMPLEMENTATION of the Construction Sector Codes (CSC) of Good Practice by the Industry. Through industry programmes, FACILITATE the achievements of sector empowerment TARGETS. Sharing information with members of the Construction Industry, appropriate Ministries and SOEs, Verification Agencies, CIDB, etc Provide necessary GUIDANCE & BEST PRACTICE NOTES on the interpretation of the principles of the Construction Sector Code. LIAISON with and reporting to the regulatory stakeholders on the annual measurement of the construction sector code - BBBEE Advisory, DPW and the DTI . Creation of RELIABLE and ACCURATE industry specific empowerment data

RESPONSIBILITY FOR MONITORING AND COMPLIANCE THE CONSTRUCTION SECTOR CHARTER COUNCIL (CSCC) - An industry executive authority made up of government and the industry bodies/associations representing over 10 500 commercially active construction entities ; Oversees and monitor the implementation of the Construction Sector Code. It will act with executive capacity and provide the necessary links to relevant government institutions; Will perform an annual baseline study as a way to review quantitative and qualitative progress towards transformation in the Construction Sector; Will make it COMPULSORY for all verification agencies issuing certificates for companies governed by the Construction Sector Code to annually provide the independently verified scorecard and associated details of the Measured Entity in a prescribed format to the Construction Sector Charter Council.

CERTAIN PRIORITY AREAS OF THE CONSTRUCTION SECTOR CODES ACCELERATED LEVELS OF BLACK OWNERSHIP Achieving accelerated, substantial & meaningful racial and gender changes in the ownership patterns specify the specific measurement principles applicable to various types of Equity Instruments; Specify the formula for measuring Voting Rights, Economic Interest, and Realisation points. EQUITY IN EMPLOYMENT PRACTICES Strive to promote effective employment equity in the under-represented sections of management in measurement entities. As such improving prospects of gaining Management control by black people within Measured Entities. ACCELERATED SKILLS DEVELOPMENT Advancing black participation in learnerships, mentorship & technical management roles for designated beneficiaries and target groups

TRANSFORMATION BY CIDB – JUNE 2016

TARGETS FOR BLACK OWNERSHIP Compared to the target of 25.1% provided for in the Amended Generic BBBEE codes, which is reviewable over a period of 10 years, the targets for black ownership in the construction industry is immediately set at 32.5 % and 35% after 4 years f The target of 32.5% in 1 – 4 year & 35.% after 4 years with great emphasis being placed on the economic interests of black designated groups, namely : o Black women, youth and the disabled, o Black participants in Employee Share Ownership Schemes (ESOPs), o Black people in broad based ownership schemes, o Black people in co-operatives. Consequently, a total of 31 weighting points have been allocated on this element with higher weighting bonus (4), also allocated for exercisable voting rights for black people and black women.

VERIFICATION OF CONSTRUCTION MEASURED ENTITIES As a general rule, the B-BBEE verification of Construction Sector enterprises shall be performed by B-BBEE verification professionals or rating agencies that are accredited by a B-BBEE Verification Professional Regulator YET TO BE SET UP by the Minister of Trade & Industry. For the avoidance of doubt, this rule also applies to all EME’s and QSE’s. However, Affidavits (Sworn Statements) – To the Extend that they are issuable by Commissioners of Oath as defined in the Commissioners of Oath Act are to be accepted with PRECAUTION. These are only to be limited to certain categories of PROFESSIONALS agreed upon with the DTI, namely Intellectual Property Commission (CIPC) Accountants Commercial Attorneys Persons with competent knowledge of the Sector Code DURATION – THE SECTOR CODES WILL REMAIN IN EFFECT UNTIL REVOKED BY THE MINISTER

OWNERSHIP MEASUREMENT PRINCIPLES ….. The Rights of Ownership held by black people in South African Multinationals are measureable against the value of their South African operations only. The Exclusion Principle must be applied with reference to the value of the Measured Entity’s foreign operations when calculating its ownership score. The Measurement of Ownership in BEPs More than 50% of the total ownership held in a Measured Entity as a BEP must be held by individuals who are both : Professionally Registered with any of the statutory professional councils in the BEP environment in South Africa; and at the same time. A member of the Executive Management of the Measured Entity; Therefore when measuring the black ownership of any BEP, where the measured entity does not meet the requirements of 3.1.3.1 above, only 50% of the black ownership of those owners who do not meet the requirement of may be included in the total measurement of black ownership in the measured entity.

BLACK OWNERSHIP – EXCLUSIONS PRINCIPLES EXCLUSION OF SPECIFIED ENTITIES WHEN DETERMINING OWNERSHIP When determining Ownership in a Measured Entity, Ownership held by Organs of State or Public Entities must be excluded.  The exclusion of Ownership held by Organs of State or Public Entities is to be effected before any other Ownership discounting methods are to be applied. In calculating their Ownership score, Measured Entities must apply the Exclusion Principle to any portion of their Ownership held by Organs of State or Public Entities. MANDATED INVESTMENTS When determining Ownership in a Measured Entity, rights of Ownership of Mandated Investments may be excluded. The maximum percentage of the Ownership of any Measured Entity that may be so excluded is 40%.

BLACK OWNERSHIP – ONCE EMPOWERED ALWAYS EMPOWERED RECOGNITION OF OWNERSHIP AFTER THE SALE OR LOSS OF SHARES BY BLACK PARTICIPANTS A Measured Entity is allowed to recognise a portion of Black Ownership after a Black Participant has exited through the sale or loss of shares subject to the following criteria: The Black Participant has held shares for a minimum period of 3 years; The net value based on the Time Based Graduation Factor as per annexe 100 (E) must have been created in the hands of Black People and; Transformation has taken place within the Measured Entity using the B-BBEE Recognition Level from the period of entry of black Participants to the exiting period. The minimum transformation required is a BBBEE status level 6 and that the score must have improved since the last verification. Meaningful & Sustainable Transformation

MANAGEMENT CONTROL The draft construction code makes an important distinction between targets for contractors and BEPs. Weighting points are allocated for the recognition of black people in the junior, senior, top and executive management of construction sector measured entities with the highest target being 60% and 75%. • A total of 22 weighting points are allocated for this. More importantly, some bonus weighting points (2.0 for Contractors and 1.5 for BEPs) are allocated for the Black Youth as a percentage of the total number of employees in a certain construction company. Recognition is made for difference in the measurement of management layers between the CONTRACTORS and BEPs.

THE BUSINESS CASE FOR TRANSFORMATION

THE BUSINESS CASE FOR TRANSFORMATION

TRULLY BROAD-BASED

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