Gautrain has already exceeded several of its socio-economic development targets. To date, the Bombela Concession Company has already created or sustained more than 6 700 local direct jobs and an estimated total of more than 36 200 direct, indirect and induced jobs.
Summary of SED Approach and Progress
Socio economic development (SED) is one of the cornerstones of the Gautrain Rapid Rail Link project focusing on local skills development, capacity building and job creation.
The SED objectives with regards to skills development and capacity building include not only the important aspect of broad-based black economic empowerment, but also address aspects such as the development of small, medium and micro enterprises, the sustainable development of underprivileged communities and the maximisation of local content.
Broad-based black economic empowerment focuses on equity participation by black persons and black women in the entities created for the Gautrain project, procurement of services and materials from Black Empowerment Entities (BEEs), sub-contracting of service delivery to BEEs and the establishment of new BEEs.
The job creation strategy focuses on a commitment to progress towards employment equity. This strategy forms part of the SED proposal of Bombela, which includes commitment to the employment of Historically Disadvantaged Individuals (HDIs), women, people with disabilities, and the participation of HDIs and women in management positions.
The project SED objectives include, amongst other:
- Significant financial empowerment of black persons, BEEs and HDIs.
- Significant participation by black persons and BEEs in the procurement of services and materials.
- Significant participation by black persons and BEEs in the sub-contracting of project delivery, including Feeder & Distribution services.
- Promotion of Small, Medium and Micro Enterprises.
- Sustainable development of underprivileged communities in the Project corridor and other poverty-stricken communities in Gauteng.
- Significant utilisation of local resources.
- Improvement of managerial skills of HDIs and women.
- Transfer of skills to HDIs, Women and People with Disabilities.
- Development of the skills base of staff through a structured training programme.
1.1 SED ELEMENTS
The following SED elements were identified based on an examination of various approaches to BBBEE, the project SED objectives and during the negotiations with the Concessionaire:
- Equity and structuring of the Contracting Entity. Equity means interest or shareholding in the tendering company, close corporation, consortium or partnership. It was considered important for black persons to have a stake in the tendering entity so that they can share in the ownership, risks and profits in these entities. It was also important that bidding entities have black directors and other black high-level executives at the decision-making echelons. It was decided not to prescribe the equity percentage that should be held by black persons or BEEs, but that bidding entities had to demonstrate their equity model and the size of the interest that will be held by black persons or BEEs.
- Skills transfer. Major projects provide black people an opportunity to gain and develop skills. Empowerment through skills transfer should not be limited to employees but should also be used to empower BEEs and SMME’s particularly their owners. After completion of the project, BEEs and SMME’s that participated should emerge stronger as they should have gained more skills, new technology including management skills that should enable them to manage similar projects. The strengthening of BEEs and SMMEs provides a solid base for continuous job creation, with a further spin off that may result in the empowerment of various communities.
- Procurement. Procurement from BEEs, new BEEs and SMMEs would result in strengthening and development of such entities.
- Sub-contracting. Sub-contacting is another form of empowering through which BEEs, New BEEs and SMMEs can be strengthened. Large companies often have the capacity and skills to deliver a project and may not necessary engage sub-contractors. To create a space for emerging enterprises, it was a requirement that parts of the project should be undertaken by sub-contractors. Sub-contracting can also be used to transfer technology and management skills to emerging enterprises. The programme of sub-contracting had to be structured in such a way that it would be measurable and could be monitored.
- Local content. It was important to structure the SED requirements so as to ensure that the local economy and local people benefit from the project.
- Employee empowerment. Bidding Companies had to comply in all respects with the provisions of various Acts with regards to employee empowerment, such as the Employment Equity Act (Act 55 of 1998) and the Skills Development Act (Act 97 of 1998).
- Social responsibility programmes. The nature of the project is such that during its development phase it will have both a direct and an indirect impact on various communities. Social responsibility programmes enable companies to address community needs such as educational, health, economic and other social needs. It is important to carefully structure a social responsibility programme that it would ensure effective delivery to address the identified community needs. It was one of the objectives of the Province that certain resources should be earmarked and directed towards the needy and this will be achieved through of a Social Investment Programme.
A total of 21 SED elements were developed to ensure that the SED project objectives are implemented. The SED elements are grouped into the following 7 clusters:
- Black equity participation includes Equity held by black empowerment entities (BEEs) and Equity held by black women.
- Procurement and sub-contracting includes procurement from Black Empowerment Entities (BEEs), sub-contracting to BEEs, procurement from, and/or sub-contracting to new BEEs, as well as procurement from, and/or sub-contracting to small, medium and micro enterprises (SMMEs).
- Social Investment Programme.
- Local content includes the employment of local people and the procurement of South African materials, plant and equipment.
- Participation by SPG, the Black enterprise and equity participant of Bombela i.e. the Strategic Partners Group (SPG) includes staff seconded from SPG to the five entities within Bombela, expenditure by SPG on plant and equipment, as well as the procurement from, and/or sub-contracting to SPG.
- Employment equity includes the employment of Historically Disadvantaged Individuals (HDIs), women, people with disabilities, and the participation of HDIs and women in management positions.
- Training includes the expenditure on human resource development programmes and a focused women learnership and mentorship programme.
1.2 BIDDING PROCESS
The bidders were requested during the Request for Pre-qualification phase (RFQ) to submit a “declaration of intention” with regards to SED.
Percentage targets were set for each of the respective SED elements during the Request for Proposal phase (RFP). Bidders had to submit SED plans as part of their proposals in reaction to the RFP. Bidders were requested to demonstrate through their SED plans how the involvement of black persons, BEEs and HDIs will be secured, as well as their commitment to the respective SED elements. Bidders had to commit to the SED objectives in terms of the degree, i.e. the proportion or percentage commitment for each of the SED elements for the Concessionaire, Turnkey Contractor and the Operator respectively.
During the Best-and-Final Offer (BAFO) phase, Bidders had to commit; over and above a percentage commitment as defined in the RFP, but also to quantify such commitment with the quantum of the commitment such as estimated amounts (based on the estimated construction cost) allocated to BEEs, New BEEs and SMMEs, and person months of employment. These commitments were incorporated in a SED Matrix that the bidders had to complete and submit with their final offers.
Bidders had to demonstrate in their SED Plans their commitment to the respective SED elements,
- at the commencement of the Development Period, i.e. at the Effective Date;
- at the end of the Development Period;
- at the commencement of operations, i.e. at the Phase 1 Operating Commencement Date, and
- at the end of the fifth Contract Year.
Bidders had to further demonstrate how the involvement of Black Persons and/or Black Empowerment Entities shall be sustained after the fifth Contract Year.
Bidders had to prepare their SED Plans and Employment Equity Plans (EE Plans) in terms of the following SED elements:
- Equity Participation. Equity ownership by BEEs refers to the percentage of a company’s shares that are owned by black persons, who are actively involved in the management of the enterprise or business and exercise control over the enterprise. Bidders had to indicate in their SED Plans the percentage of the total value of shares that will be held by black persons and/or BEEs, and the percentage that would be held by black women. Preference had to be given to utilising the services of BEE shareholders during the development and operation of the Project to enable them to service their own debt obligations.
- Procurement. Bidders had to indicate in their respective SED Plans the percentage and quantum of expenditure earmarked for procurement that will be allocated to BEEs.
- Sub-contracting. Bidders had to indicate in their respective SED Plans, the percentage and quantum of expenditure earmarked for sub-contracting that will be allocated to BEEs. Bidders had to demonstrate how they would strengthen the capacity of such sub-contracted entities and individuals.
- Establishment and development of New BEEs. Bidders had to indicate in their respective SED Plans, the percentage and quantum of expenditure earmarked for procurement and sub-contracting that will be allocated to new BEEs.
- Development of SMMEs. Bidders had to indicate in their respective SED Plans, the percentage and quantum of expenditure earmarked for procurement and sub-contracting that will be allocated to SMMEs.
- Social Investment Programme. Bidders had to submit a Social Investment Programme and had to indicate the percentage of the capital expenditure, excluding rolling stock, during the Development Period that would be allocated to the Social Investment Programme. 50% of the Social Investment Programme had to focus on HDI communities in the proximity of the route. The remaining 50% had to be directed to poverty-stricken communities in Gauteng.
- Local Content. It was indicated that preference be given to
- employing local people in the following order of preference: Citizens of South Africa who are residents of Gauteng, citizens of South Africa who are residents of other provinces, and citizens of other SADC countries, and
- procuring South African materials, plant and equipment.
- Participation in management. Bidders had to indicate in their respective EE Plans the percentage of the total employment and the number of HDIs and women that will participate in top, senior and middle management on the project.
- Employment. Bidders had to indicate in their respective EE Plans, the percentage of the total employment and the number of HDIs, women and people with disabilities that will be employed on the project.
- Training. Bidders had to indicate in their respective EE Plans, the amount that will be spent on human resource development and the number of women that will participate in their Women Learnership and Mentorship Programme.
2. SOCIO ECONOMIC DEVELOPMENT OBLIGATIONS
The competitive bidding process was used to solicit commitments by the two pre-qualified bidders towards the various SED elements. These commitments were refined during the negotiations with the Bombela Consortium, and monthly quantum obligations were included in the concession agreement concluded with them.
Bombela has committed, amongst other, to the following SED obligations:
- Black persons will be holding 25% shares in the Concession Company, the Turnkey Contractor and the Operating Company. Furthermore, black persons will be holding 10% of the shares in both the Civil Contractor and the Electrical and Mechanical Contractor.
- More than R4 100 million (R2 000 million during the design, construction and commissioning phase) will be procured from, or sub-contracted to BEEs. SPG uses their involvement in the project to grow this new black empowerment entity through participating in the various integrated joint ventures created for the Gautrain project, acts as a sub-contractor to the Bombela consortium, and will play an active role in various new companies that are created such as the Track Work Company and the Maintenance Company.
- More than R2 700 million (R850 million during the design, construction and commissioning phase) will be procured from, or sub-contracted to new BEEs.
- More than R550 million (R230 million during the design, construction and commissioning phase) will be procured from, or sub-contracted to SMMEs.
- South African materials, plant and equipment of more than R2 700 million (R1 700 million during the design, construction and commissioning phase) will be procured.
- Bombela has committed that more than 90% of its staff and those employed by its sub-consultants will be South African citizens.
- Of the total employment, at least 65% historically disadvantaged individuals, 15% women and 1% people with disabilities will be employed. The estimated relatively low number of women that will be employed is caused by a low commitment to the employment of women during the design, construction and commissioning of the project, which is in line with the current situation in the construction sector. However, Bombela has committed to a women learnership and mentorship programme as a contribution to increase the involvement of women in the construction sector. During a period of four years, Bombela will ensure that there will be at least 120 women in each month participating in this programme.
- At least 31% historically disadvantaged individuals and 13% women will be employed within the top, senior and middle management positions. Bombela has also committed that at least 45% of the junior managers would be historically disadvantaged individuals.
3. PENALTY AND REWARD REGIME
A robust, fair and equitable penalty and reward regime was developed in which the Bombela Consortium will be penalised if they do not meet their socio-economic development obligations within a specific quarter, and should they exceed their obligations, it could be used to offset a possible under-performance in future quarters.
The Bombela Consortium has an obligation in terms of the Concession Agreement to submit a Monthly SED Report to the Province and the ISEM. The Monthly SED Report provides detail on the achievements of the Concessionaire and its sub-contractors with regards to its SED obligations, positive developments, areas of concern, challenges and interventions introduced. The actual SED achievements are compared every month with the committed obligations to inform a pro-active approach that would address any non-compliance.
Performance deductions for not meeting the committed obligations, or performance credits for exceeding the obligations, are calculated on a quarterly basis.
4. INDEPENDENT MONITORING
The Concession Agreement makes provision for the appointment of an Independent Socio-Economic Monitor (ISEM). The ISEM is appointed jointly by the Gauteng Province and the Bombela Concession Company. The purpose of the ISEM is to perform an independent verifying role to validate compliance by the Concessionaire with its contracted SED obligations during the design, construction and commissioning of the project. The ISEM undertakes the following tasks:
- monitoring of the SED programmes of Bombela;
- reviewing the processes, procedures and systems of Bombela;
- verification of the SED achievements of Bombela;
- reporting monthly its findings with regards to its monitoring and reviewing tasks and the outcome of its verification of the SED achievements claimed by Bombela in Monthly SED Reports, and
- if required, undertaking advisory tasks.
The ISEM was appointed on 2 April 2007 by the Province and Bombela. Up to then, some of the ISEM responsibilities were undertaken by the Independent Certifier.
The works programme and reporting timelines of the ISEM were revised based on the initial findings of the ISEM with regards to its initial review of the processes, procedures and systems of Bombela and the initial verification of the SED achievements of Bombela. This include the time for the ISEM to undertake its monthly responsibilities and address the backlog (Month 0 to Month 6), time allowed for Bombela to provide outstanding information and time for Bombela and Province to respond to the monthly ISEM report. The revised works programme allowed the ISEM to complete the review of the backlog months and the current monthly reports by the end of April 2008.
A structured process was introduced that enabled Province, Bombela and the ISEM to agree on the interpretation of the SED definitions in Schedule 22 and to determine the required supporting information substantiating the SED achievements of Bombela to date.
5. SED ACHIEVEMENTS TO DATE
The Gautrain Rapid Rail Link project has already made a significant impact on socio-economic development. Bombela reported the following SED achievements up to the end of March 2008:
- Black persons are holding 25% shares in the Concession Company, the Turnkey Contractor and the Operating Company. Furthermore, black persons are holding 10% of the shares in the Civil Contractor and the Electrical and Mechanical Contractor.
- More than R1 330 million; of which more than R920 million has been verified by the ISEM; was spent on procurement from, and sub-contracting to more than 190 BEEs.
- More than R540 million; of which more than R250 million has been verified by the ISEM; was spent on procurement from, and sub-contracting to more than 60 New BEEs.
- More than R450 million; of which more than R180 million has been verified by the ISEM; was spent on procurement from, and sub-contracting to more than 130 SMMEs.
- South African materials, plant and equipment to the value of more than R630 million; of which more than R590 million has been verified by the ISEM; have been purchased.
- Unskilled staff and semi-skilled staff attended more than 8 100 courses to improve their skills levels.
- Top management, senior management, middle management and junior management of Bombela attended more than 900 training courses.
- Bombela has increased its labour force to date and has significantly exceeded its obligations with regards to employment equity. At the end of March 2008 Bombela and its sub-contractors have employed 7 380 people. About 90% of these people, i.e. 6 612 are local people. 5 893 HDIs, 600 women, and 47 people with disabilities were employed.
- Bombela has already created or sustained more than 6 700 local direct jobs and an estimated total of more than 36 200 direct, indirect and induced jobs to date.
The emphasis with the socio economic development strategy of the Gautrain Rapid Rail Link project is to move away from idle promises, and to ensure that the socio-economic objectives or “dreams” become a reality! According to the information submitted by Bombela, the Gautrain Rapid Rail Link project has already made a significant impact on socio economic development in Gauteng, and for that matter, in South Africa.