The state of consulting engineering in South Africa

March 24th, 2012, Published in Uncategorised articles

by Naren Bhojaram, CESA president

Studies have shown that if all of humanity aspired to first world living standards, we would need three planets like Earth to sustain us.

Addressing a media conference, CESA president Naren Bhojaram said our ever-increasing aspiration towards first world lifestyles has resulted in the human race’s abuse and destruction of resources. A profound example of this is the current global financial crisis which has already reached its fifth stage of development. This crisis started with the seizure of the banking system in 2007, when trust evaporated overnight and banks stopped doing business with each other.

Naren Bhojaram

The financial crisis came to a head in 2008 when the US Government allowed Lehman Brothers to go bankrupt. The next stage of the crisis saw the commitment in 2009 by the G20 countries to a 5-trillion dollar fiscal expansion. In 2010, the focus of concern moved from the private sector to the public sector. The issue was no longer the solvency of banks, but the solvency of governments.

Countries around the world started to become nervous about the size of their budget deficits. The imbalance between the big creditor nations such as China and Germany and the big debt nations such as the USA had grown to the extent where Far Eastern economies are dictating to the capitalist West how to run its economies. The year 2011 will be remembered as the year when, for all intents and purposes, the USA lost its indirect imperial dominance.

The financial crisis is, however, not just about the decline of the USA but about a decline of the West per se.  Economists predict no happy ending:  at best, there will be a long period of weak growth and high unemployment as individuals and banks pay back their debt. At worst, we may see the global economy plunging back into recession in 2012 as the USA goes backwards and the euro degenerates.

Economists also predict that we are halfway through this crisis and that the phase we are entering is extremely volatile, unpredictable and dangerous.

In addition to the financial crisis, which has a direct impact on the delivery of basic services and our ability to provide adequate food, water, shelter, power, employment and transport, we are also faced with the enormous problem of global warming. COP17 in Durban has promised very little by way of solution and developed nations are reluctant to commit themselves on account of other pressing issues. 

Issues in sub-Saharan Africa

The current Nigerian economic reforms which ignited with the scrapping of fuel subsidies in that country will have lasting repercussions on the most populous nation in Africa. This year’s Kenyan elections will determine what happens in this, the biggest East African economy. Escalating inflation will continue to be a thorn in the flesh of a number of economies in Africa. The continent’s largest economy, South Africa, will be influenced heavily by the outcome of the ANC’s December 2012 conference, which will determine whether President Jacob Zuma will lead the party for another term. The rand will remain largely at the mercy of the Eurozone’s stronghold over global investor sentiment.

The bright side

The earth has sufficient resources to provide an adequate lifestyle for all, provided we take control of our destiny. At a global level we need to be mindful of the rate at which the population is expanding and the lifestyle to which we aspire. We must protect our planet and act with integrity on the key issues of the needs of our people and the profits we endeavor to make in business. The global economic crisis has been brought about by greed.

Consulting engineering

Our local industry is populated with very competent and able engineers. Our engineers are also attractive to foreign engineering firms and other industries. At the same time, ours is a country which does not deliver on basic services because our competent engineers are simply not in the right place. Engineers have left our country and we have become an unattractive industry with our profession being reduced to a mere commodity. We are appointed on the basis of lowest price and expertise and experience are not considered adequately.

Engineers provide a service as opposed to goods. Services must have an element of subjectivity determined by the level of experience, trust, past service, references from others etc. A professional person practices their trade not only on the basis of tertiary learning but also according to a code of conduct which society expects them to comply with. Engineering professionals have a moral duty to act in a way which guarantees the safety and wellbeing of society irrespective of the fee they get for their services. Notwithstanding our moral duty, procurement of our services is mainly on the basis of lowest price.  Lowest price appointments lead to the cutting of services and it is time that all clients procure our services on the basis of price and competency assessed in a single evaluation process.

This simply means that the procurement process must include objective criteria such as price and subjective criteria such as quality, experience and competence.

Our industry remains non-representative of South Africa’s demographics. The June 2011 CESA bi-annual economic and capacity survey shows that a total of 40% of our industry and only 12% of professional engineers are black.

The survey also shows that our members are still experiencing recruitment problems and that recruitment of black technical staff is particularly problematic.

The confidence levels in the consulting engineering sector are, at present, significantly higher than those in the building and civil construction sectors. The building and civil construction sector shows an improvement in confidence levels in the latter part of 2011. The big difference between consulting engineers and contractors could be as a result of the increase in workload of our members on studies and planning work, operation and maintenance and institutional strengthening projects where big contractors are less involved.  It also points to the fact that project implementation has slowed down which is not good for job creation.

Procurement of professional services

South Africa has made great strides in terms of regulating the manner in which government at all levels procures services and goods. The Preferential Procurement Policy Framework Act (PPPFA) and the regulations applicable as of 7 December 2011 are positive steps forward. The PPPFA includes a price and a preference component (social responsibility and empowerment) in an 80/20 or 90/10 price/preference evaluation system depending on the size of the project.

We are, however, very concerned about the inconsistencies between the PPPFA regulations and the construction sector Codes of Good Practice promulgated in terms of the BBBEE Act. CESA is calling upon National Treasury and the Department of Trade and Industry to address these inconsistencies urgently.

Business needs certainty regarding the procurement environment for the economy to prosper, and the industry is currently faced with huge uncertainty which has a negative impact on the cost of doing business, particularly for the SMME sector.

We are particularly concerned that the newly promulgated PPPFA regulations have once again, under special notice from the minister, exempted state owned entities. The private sector is compelled to abide by these regulations, but state owned entities do not have to satisfy their own or government’s regulations with respect to transformation. Organisations that are exempted include Eskom; the water boards; Transnet; COEGA, ACSA and IDC, among many others. 

It has come as a shock to the industry that state owned entities do not have to conform to this code and have been given free rein to implement their own approaches to black economic empowerment. Our industry is looking for consistency and a common approach to procurement of our services. The construction codes underpin the notion of sustainable transformation recognising, inter alia, that enterprise development and skills development are fundamental to the growth of the sector. The unrealistic focus on ownership in the past, as we know, spawned an epidemic of tokenism and fronting.

Most of the companies which deliver and maintain infrastructure fall under the Construction Sector Code of Good Practice issued in terms of Section 9(1) of the Broad Based Black Economic Empowerment Act of 2003, which has the same legally binding status as the generic Codes of Good Practice. There are, however, also inconsistencies between the Preferential Procurement Regulations 2011 and this Code of practice in that:

  • Regulation 10(1) increases the threshold for exempted micro enterprise status for built environment professionals from R1,5 to R5-million.

  • Regulation 11(7) changes the methodology for consolidating the scores for unincorporated joint ventures from a weighting of the shareholder agreement relevant to the specific joint venture to a group structure.

  • The restriction in the amount of work that may be allocated to sub-contractors flies in the face of current industry practice.

The regulations must be amended to address this anomaly.
 
We believe that the element of quality must be brought into the procurement regulations in a single process. If the procurement of professional services includes a component of subjectivity in assessing quality and experience, the technical evaluation of tenders must include input from technical professionals in the bid evaluation committees. The PPPFA should be revised to include quality to the existing criteria of price and preferences in the evaluation of tenders from professional service providers.

While we support the separation of powers in national government and local governments’ procurement processes, we believe that the indirect influence and dominance from the political side is still very much alive and is often where the real power sits. The power continues to reside outside the formal decision making process because of the inexperience of officials in the formal structures of government and local authorities.

The statistics pertaining to vacancies in national, provincial and local government structures at senior level point to an implosion of these structures. We are already seeing signs of this.  Our industry is not growing fast enough to catch up with our shortfall in engineers. The consulting engineering sector has been abused by those who procure our services. Governmental technical departments are in a worse situation and these environments are not conducive to attracting senior professionals. Those seniors who remain in government departments are often demoralised and are just “seeing their time out”. 

Political undermining of the opinion and value add of technical professionals will continue to be a deterrent to attracting back into government those who have left. There is also a number of competent young professionals in government. These professionals do the best they can within their experience levels, but they, too, will leave or not contribute to their full potential if the current situation is not improved to allow technical professionals to do their work as professionals.

Is government on the right track?

We are encouraged by government’s initiatives to stimulate the economy using infrastructure development as a catalyst for job creation. Government’s ambition as described in the New Growth Path 2010 is commendable. This, however, will only materialise if a way is paved for those who can deliver on these ambitions to do so in a “win-win” manner for all.

Also encouraging is the accord signed last year between government, labour, civil society and business, encouraging the use of local resources to stimulate job creation and the economy. We would urge the Minister of Economic Development to consider designating consulting engineering as a sector of local preference. This would not only create a better platform for job creation, but it will also send the right signals attracting young persons to join the sector. Our members would also be in a better position to accelerate training and development.

CESA is optimistic about the future. The plans in place to stimulate the economy and the overarching planning work currently under way by the National Planning Commission bode well for our industry. 

Delivery models for job creation

To accelerate progress we must become more trusting of professional teams. We must be entrepreneurial about the delivery mechanisms for projects, both on implementation and financing models. CESA looks forward to the easing up of the Public Private Partnership regulations to encourage more PPP development of projects, especially those growing out of the unsolicited bid process. This will encourage the private sector to invest in infrastructure development.  Framework contracts are also to be encouraged in specific areas.  Public private partnerships in the true spirit of partnering should be encouraged as we see more of this approach happening across the globe.

Growing the economy

CESA members are required to have quality management systems in place as a condition of membership. CESA has also developed a business integrity management system (BIMS) to which members must comply. It is our intention to make our policy framework on sustainable development a membership requirement by end-2012. It is discouraging that almost every African country has moved backward on the business integrity index of Transparency International over the past two years.  South Africa ranks second to Botswana only on the Transparency International index on the African continent.

A 2011 survey by TNS South Africa found that the majority of people feel that corruption is endemic in this country. An earlier survey revealed that corruption, poverty and unemployment were in the top tier while social and wellbeing issues such as service delivery, HIV and Aids were in the second tier. Our industry can play a part in improving the top tier issues identified by TNS.

While we are primarily in the business of infrastructure and service delivery, we must step up a gear and reduce unemployment and rid ourselves from the plague of corruption. We need to acknowledge that it takes two to play this game, but only one to make it not work.
 
Contact Naren Bhojaram, SSI, Tel 011 798-6000, narenb@dhv.com