OVERVIEW OF THE SALIENT FEATURES OF THE AMENDED CONSTRUCTION SECTOR CODE Presented by Thabo Masombuka & Clint Koopman Presented to THE SANAS/DTI convened CONSTRUCTION/AGRIBEE/FINANCIAL SERVICES BBBEE WORKSHOP 13 APRIL 2018

THE CHRONOLOGICAL ARRANGEMENT OF THE AMENDED CONSTRUCTION SECTOR CODE INDEX AND CONTENT Preamble (1) Legacy & Industry Commitment (1.1) Premise of departure (1.2) Strategic Objectives (1.4) Monitoring & Compliance (1.5) Objectives Of the Statement (1.6) Key Measurement Principles (2) Scope Of Application (3) Priority Elements, Sub-Minimums & Discounting (4) EME & QSE Eligibilities (5) Start-Up Enterprises (6) Measurement of Large Enterprises (7) Large & QSE Scorecards (8) Enhanced Recognitions (9) Effective Date & Transition (10) Verification Of CE (11) Adjustment Of Thresholds (12) Duration Of Sect Codes (13) STATEMENT CSC 100 – Ownership STATEMENT CSC 200 – Management Control STATEMENT CSC 300 – SKILLS DEVELOPMENT STATEMENT CSC 400 – ESD STATEMENT CSC 500 – SED CSCC - CBE Presentation (August 2017)

THE OLD COMPARED TO THE NEW : A COMPARATIVE ANALYSIS The Old Sector Code – Gazette 32305 (Vol 528) 5 June 2009 32 pages long Seven Elements of the Scorecard Differentiates between BEPs and Contractors only Sets out objectives & monitoring Contractor EMEs up to R 5million BEP EMEs up to R1.5 million Notable Changes – Gazette 41287 Now over 85 pages long 5 Elements of the Scorecard Expands the Scope of Application – Include Manufacturers Enhancement & Discounting also applicable to EMEs Elaborative and detailed in the measurement principles & weighting points Places and emphasis on Monitoring & Compliance

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. Align with 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; CSCC - CBE Presentation (August 2017)

OVERVIEW & BRIEF BACKGROUND The ACSC 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; CSCC - CBE Presentation (August 2017)

THE SALIENT FEATURES MONITORING AND COMPLIANCE PAR 1.5.4 - will be 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. The CSCC will use this information to assess the performance of the sector and to provide accurate and reliable state of the industry reports to the line Minister and the DTI. Verification agencies must ensure that the confidentiality obligations with their clients do not prohibit them from providing such information Para - 1.5.6 The CSCC shall, within 12 months of gazette, issue PRACTICE NOTES approved by the Minister of Trade and Industry on the measurement of LOCALIZATION, LOCAL CONTENT & EQUITY EQUIVALENTS CSCC – Property & Construction Development Seminar – March 2018

THE SALIENT FEATURES SCOPE OF APPLICATION PAR 3.2.1 Where a Measured Entity operates in more than one sector or sub-sector (e.g. Contractor or BEP), whether it requires a single entity verification or a consolidated verification for it as a group; it will be required to report in terms of : a) The scorecard for the sector or sub-sector in which the majority of its core activities (measured in terms of annual Revenue) are located, and, b) Should the majority of its core activities be in the construction field, the measured Entity may be evaluated in terms of the Revised Construction Sector scorecard should these activities conform to those described in the definitions of a Contractor or BEP in these codes. CSCC – Property & Construction Development Seminar – March 2018

POST GAZETTE FREQUENTLY RAISED AREAS Since the gazette of the Amended Construction Sector Codes (ACSC), the following are the areas of the Sector Codes that are FREQUENTLY ENQUIRED ABOUT. 1. MEASUREMENT AND STATUS OF EMEs and QSEs – Nominal Fees & applicable rates. (STATEMENT CSC 000) 2. SKILLS DEVELOPMENT related exclusions & Inclusions (STATEMENT CSC300) 3. SCOPE OF APPLICATION related matters (STATEMENT CSC000) 4. MEASUREMENT OF BEP OWNERSHIP & RESTRICTIONS 5. Requirements for PROFESSIONAL REGISTRATION

MEASUREMENT OF EMEs & QSEs SPECIAL DISPENSATION FOR CONSTRUCTION EMEs EME STATUS LEVEL THRESHOLD Contractors R0 – R 10 million Annual Revenue BEPs R 0 – R 6 million Annual Revenue EMEs with BLACK OWNERSHIP using MFTP Enhancement /Discount Black Ownership BBBEE < 30% Level 5 > 30% but less than 51% Level 4 > 50% but less than 100% Level 2 If 100% Level 1 Enhancement Levels In accord with 4.3 CSCC – Property & Construction Development Seminar – March 2018

EFFECTIVE DATE AND TRANSITIONAL ARRANGEMENTS New Provisions & Insertions Implications / Rational When the Amended Construction Sector Codes are published, Measured Entities may elect to re-do the audit carried out for their current valid scorecard that was done under the provisions of Amended Generic Codes of Good Practice; under the provisions and principles of the Amended Construction Sector Codes. This audit will be done for the same financial period as their current scorecard, but under the measurement principles of the Amended Construction Sector Codes. The Old 2009 Construction Sector Code provided for a twelve (12) months transitional period for phasing in and implementation. The revised construction sector code will make NO provisions for a transitional period. This means that once gazetted, then the Newly revised Construction sector Code will apply and be effective immediately. However, CSME that have valid B-BBEE certificates issued in terms of the Amended Generic Codes of Good Practice may elect to retain their measurement under the Amended Generic Codes until the current scorecard expires, thereafter the Amended Construction Sector Codes must be used, irrespective of the financial period used in the previous audit. CSCC - CBE Presentation (August 2017)

MEASUREMENT OF EMEs and QSEs New Provisions & Insertions Implications / Rationale This is meant to ensure that, amongst other things :   Fraud and circumvention is prevented and mitigated pro-actively, To provide end user (procurement practitioners) with a significant degree of comfort about the compliance in respect of the enhancement and/or discounting. As a matter of PRINCIPLE, the ACSC does not promote the use of an AFFIDAVIT as a suitable evidence of BLACK OWNERSHIP and EME status.   However, an exception exist in the following circumstances ; EMEs whose total annual revenue is less (<) than R1.8 million (For BEPs) and R3 million (For Contractors & Manufacturers /Suppliers) and DO NOT elect for enhancement. NO BLACK OWNED QSE AFFIDAVIT is applicable in the ACSC CSCC - CBE Presentation (August 2017)

Implications / Rationale VERIFICATION OF CONSTRUCTION ENTERPRISES AND THE SUPPORT OF SMALL ENTERPRISES New Provisions & Insertions Implications / Rationale The CSCC in consultation with and as approved by the dti will post such nominal fees on the website. Agencies that are prepared to perform this service, will post their contact details on the Construction Sector Charter Council web-site. In addition, Large Enterprises will be encouraged to fund this nominal fee for small businesses as part of their Supplier Development programmes. This has already been included in the Supplier Development Contribution clause 10.10.5 Verification shall be performed by B-BBEE verification professionals or rating agencies accredited by SANAS or when applicable a B-BBEE Verification Professional Regulator appointed by the Minister of Trade and Industry for the accreditation of verification agencies or the authorization of B-BBEE verification professionals. In view of the fact that EME’s and QSE’s are expected to be verified for compliance with the 40% Skills Development element in order to maintain their levels as provided for under paragraph 3.6.3 above, small black-owned emerging companies have access to B-BBEE verification agencies that will limit their fee for this service at a nominal value. CSCC - CBE Presentation (August 2017)

SKILLS DEVELOPMENT RELATED MATTERS Rational for Skills Development Measurement must ; Contribute to the achievement of the country’s economic growth and social development goals that will enrich the creation of decent work and sustainable livelihoods. Promote the development of an industrial skills base in critical sectors of production and value-added manufacturing, which are largely labour-intensive industries. Support Professional, Vocational, Technical and Academic Learning programmes, achieved by means of professional placements, work-integrated learning, Apprenticeships, Learnerships and Internships, that meet the criteria needs for economic growth and development.   Strengthen the skills and human resource base by encouraging the support of skills development initiatives with an emphasis on skills development and career pathing for all working people in order to support employment creation. Recognisable Skills Development Expenditure includes any Legitimate Training Expenses incurred for any Learning Programme offered by a Measured Entity to Black People. Skills Development Expenditure arising from Informal training or Category F and G Learning Programmes under the Learning Programmes Matrix cannot in aggregate represent more than 35% of the total value of Skills Development Expenditure. CSCC - CBE Presentation (August 2017)

SKILLS DEVELOPMENT RELATED MATTERS SOME AREAS OF CONFUSION JUNIOR MANAGEMENT CATEGORY IN 2.1.2.3 Where a Measured Entity does not distinguish between Junior, Middle & Senior Management – then the weighting points are allocated to the Black Management category (3.7 of Statement CSC300) SALARIES & WAGES Salaries OR Wages - Paid to Employees of the ME participating as a LEARNER only constitute SD expenditure ONLY if the Learning Programme is a category B, C, or D EXCLUDED SECTORAL MANDATORY TRAINING Limited to Site, project or safety inductions, toolbox talk, Operator re-certification. WSP/ATR REPORTING REQUIREMENTS Therefore, to the extent that WSPs and ATRs are already a requirement of legal reporting in the SETAs and Department of labour, IT IS NOT necessary for EMEs and QSEs in this sector code to submit these, unless they fall within the applicable thresholds. CRITERIA FOR OFFICE BASED EMPLOYEES When measuring Management Control and Skills Development elements, reliance is to be placed on the Measured Entity’s Human resource plan, payroll and role designation for purposes of determining on-site from office based employees. The same applies to learners enrolled by the Measured Entity. CSCC – SANAS BBBEE WORKSHOP – APRIL 2018

LEGITIMATE SD TRAINING EXPENSES New Provisions & Insertions Implications / Rationale DO NOT REWARD A FISH FOR SWIMMING Legitimate Training Expenses include but is not necessarily limited to: 6.1.1 Costs of training materials; 6.1.2 Costs of trainers; 6.1.3 Costs of training facilities including costs of catering; 6.1.4 Scholarships and bursaries; 6.1.5 Course fees; 6.1.6 Accommodation and travel; and 6.1.7 Administration costs such as the organization of training including, where appropriate, the cost of the Measured Entity of employing a Skills Development facilitator or a training manager. 6.1.8 Funding and support of research at tertiary institutions aimed at improving performance of the Construction Sector. CSCC - CBE Presentation (August 2017)

Implications / Rationale OWNERSHIP AND CONTROL New Provisions & Insertions Implications / Rationale The Generic Codes of Good Practice sets the Ownership target at 25.1% - The sector specific needs for ownership is increased from 30% to 35% as a way of radical economic transformation. Emphasis has been placed on the enhancement of BLACK WOMEN and BLACK YOUTH – Including Employees through the Broad Based Ownership Employee Schemes. Compared to the Old Codes – the new targets for black ownership are at : Measurement Target Voting Rights / Economic Interests 32.5 % Immediately 35.00 % (After 4 years) Black Women 10.00% Employees 10.00% ring Fenced CSCC - CBE Presentation (August 2017)

OWNERSHIP MEASUREMENT OF BEPs New Provisions & Insertions Implications / Rationale 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 3.1.3.1 may be included in the total measurement of black ownership in the measured entity. For the avoidance of doubt, Executive Management in this context is defined as “Top Management” in terms of the Employment Equity Regulations and include the ‘Executive Directors’ and ‘Other Executive Management’ of the Measured Entity. New requirements for BEP Ownership recognition is that at least MORE than 50% of the total ownership of the Measured Entity must be held by INDIVIDUALS who : Are Professionally registered with any of the statutory professional councils in the BEP environment in South Africa; and at the same time, Members of the Executive Management of the Measured Entity; CSCC - CBE Presentation (August 2017)

END QUESTIONS CSCC – SANAS BBBEE WORKSHOP – APRIL 2018