1. The context in which the Commercial Equity Policy should be viewed.
Rand Water is, through various initiatives and interventions, endeavouring to correct and redress both the historical advantages and disadvantages accorded to or imposed upon certain sections of the South African population during the course of past unfair discriminatory policies and practices.
One such initiative by Rand Water is to make rapid progress towards the inclusion of Previously Disadvantaged Individuals in the supplier base of goods and services supporting its activities.
The first part of the initiative consists of the introduction of a policy to achieve the objective of a diverse supplier base within a reasonable time whilst at the same time enabling Rand Water to continue to provide an effective and efficient service to its customers.
This policy is termed the Commercial Equity Policy, which will remain in force until the Board of Rand Water decides that the policy has served its purpose.
The second part of the initiative is that the policy makes provision for the setting and review of targets, at least annually, in order to ensure that reasonable progress is made towards achieving the ultimate objective.
2. Definitions of Previously Disadvantaged Individuals and Tenders from target groups.
The term Previously Disadvantaged Individuals used in this policy is intended to describe individuals who are South African citizens and have been socially and economically disadvantaged by the legacy of the South African political dispensation prior to 28 April 1994. For the purpose of the policy the presumption is made that individuals who fall into population groups that had no franchise in national elections immediately prior to the introduction of the 1984 constitution and the tricameral parliamentary system, are Previously Disadvantaged Individuals.
This is subject to persons who obtained South African citizenship after 2 February 1990 being able to demonstrate traceable South African parentage. It is incumbent on individuals to demonstrate their claims to fall into such population groups on the basis of identification and association with and recognition by the members of such group.
The term “Tenders from Target Groups” denotes tenders from entities comprising specific combinations of Previously Disadvantaged Individuals as equity shareholders or managers as defined under the section on “Status of the Enterprise” included in the policy.
3. The objective of the Commercial Equity Policy.
The objective of Rand Water's "Commercial Equity Policy" is to correct the imbalances of past discriminatory practices with regard to race, gender and disability by proactively transforming the supplier base for the provision of goods and services which supports Rand Water's activities.
The objective will have been achieved when the Board of Rand Water is of the opinion that its supplier base for goods and services to support its activities is sufficiently representative of previously disadvantaged racial groups, women and disabled persons. This is therefore a limited period intervention.
4. Proactive measures to be adopted to achieve the objective of the Commercial Equity Policy.
The proactive measures to be adopted by Rand Water in order to achieve its Commercial Equity Policy objective are:
4.1 Price preferences will be accorded to tenderers whose firms or joint ventures comprise specific combinations of Previously Disadvantaged Persons as equity shareholders or managers and where tenders can be defined as “Tenders From Target Groups”. The preference will be calculated in accordance with the section on “Preferences for Tenders from Target Groups” described elsewhere in this policy.
4.2 An annual review by end users and commercial equity managers will identify all goods and services procured by Rand Water during each year and identify which goods and services can readily be supplied through “Tenders from Target Groups”.
4.3 The users of the required goods and services will, with the commercial equity managers, be required to break down all appropriate work into practical contract components which will facilitate the participation of “Tenders from Target Groups”.
4.4 The users of the required goods and services will, with the commercial equity managers, strive to ensure that specifications are made more understandable and are based only on the minimum requirements for the job in order to facilitate participation of “Tenders from Target Groups”.
4.5 The commercial equity managers will provide a counseling and training service to entities submitting “Tenders from Target Groups” in order, where appropriate, to:
(i) Provide pre and post tender counseling.
(ii) Assist with negotiating financial arrangements with financial institutions.
(iii) Assist with support for strategic thinking to eliminate dependency of tendered/contractor on Rand Water.
(iv) Encourage and directly assist in the formation of firms to supply goods and services to Rand Water.
(v) Give guidance and advice with respect to matters such as quality, production, procurement, finance etc.
4.6 The Commercial Manager, in consultation with the user, may recommend that the General Manager - Finance waive sureties for work to be performed under contract if, in his opinion, the risk to Rand Water of default is insignificant and participation of “Tenders from Target Groups” is thereby facilitated. The maximum amount of the value of the surety that may be waived or reduced is to be set by the Board annually.
4.7 (i) Where monopolies, sole suppliers or exclusive suppliers of goods or services to Rand Water exist, the organization may require that the supplier breaks down the contract into logical component parts in order to facilitate the procurement of a stated percentage of the contract value from “Tenders from Target Groups”. These include:
· subcontracting portions of the contract
· Procuring manufactured components/ subassemblies
· procuring of consumables
· procuring of services, e g transport, legal etc
· procuring of professional services, e g engineering, design etc
(ii) The percentage of contract value, which is procured in the manner specified under this clause, will be considered as and reported as procurements from target groups.
(iii) Suppliers who are not willing to be helpful with this requirement may not be considered further in the placing of the order for the work.
4.8 Rand Water will make special interim arrangements to pay entities whose special circumstances may require it. Such interim payments will be made on the recommendation of the Commercial Manager and on the authorization of the General Manager - Finance and may be made 14 days after receipt of invoice and certification of completion of work.
4.9 The Commercial Manager will recommend to management certain categories of goods and services for which only “Tenders from Target Groups” may be submitted. Tenders for work on this basis will be awarded provided the award does not exceed an open market or “shadow price” by more than ten per cent.
4.10 Rand Water will, where considered necessary, provide additional supervision for work to be performed by entities in the category “Tenders from Target Groups” and the cost of such additional supervision will be taken into account in the adjudication of tenders. The maximum cost to be incurred in this activity will be stipulated by the Board from time to time at the annual review of targets.
5. Preferences for tenders from target groups.
The method of determining preferences to be given to tenderers incorporating "appropriate" combinations of previously disadvantaged persons in “Tenders from Target Groups” will be as follows:
5.1 Points awarded for price (Np)
90 (ninety) points shall be awarded to the lowest acceptable tenderer in respect of price, technical, financial, quality, and other considerations, i e according to the adjudication criteria listed in the Rules of Order of the Tender Committee as approved by the Board on 27 February 1997. All other tenders will be compared to this lowest acceptable tender according to the following calculation:
Np = 90[ 1 - (Pc-PL) ]
Np = The adjudication points awarded for price.
Pc = The price of the tenderer under consideration.
PL = The price of the lowest acceptable tenderer.
5.2 Points in respect of status of enterprise (Ns)
A maximum of 10 (ten) potential points will be awarded in respect of the status of the enterprise. Factors with regard to status that will be considered are the following:
5.2.1. Previously Disadvantaged Individuals (PDIs) in ownership:
This will be reflected by the proportion of equity ownership, source of venture capital, risk, etc held by PDIs in the enterprise.
5.2.2 Previously Disadvantaged Individuals (PDIs) in management:
This will be reflected by the proportion of PDIs in executive positions in the enterprise, i e operating/core management meaning decision?makers and risk takers.
5.2.3 Women ownership:
This will be reflected by the proportion of equity ownership, source of venture capital, risk, etc held by females
5.2.4 Disability ownership:
This will be reflected by the proportion of equity ownership, source of venture capital, risk, etc held by disabled persons.
5.2.5 Purchasing from Previously Disadvantaged Individuals (PDI) suppliers:
This includes joint ventures or partnerships with PDIs leading to transfer of technologies or skills OR subcontracting portions, components, parts etc to PDIs.
5.2.6 These points would be awarded pro rata to the “Status of Enterprise Submitting Tenders" on the following basis:
(a) PDI Ownership (O) : 3 points for over 50 %
(b) PDI Management (M) : 3 points for over 50 %
(c) Women equity (W) : 3 points for over 50 %
(d) Disability equity (D) : 1 point for over 50 %
(e) PDI participation in joint venture or sub-contractors (J) : 3 points for over 50 %
Maximum points for each consideration will be determined as set out above. Guidance with regard to the “Status of Enterprise Submitting Tenders” is set out hereunder.
5.3 Computation of points to determine degree of preference to be taken into account in adjudication
The total number of points (NT) awarded to a tenderer is the sum of Np + Ns,
Where Ns = O + M + W + D + J
with the overriding requirement that Ns shall not under any circumstances count for more than ten points in the formula
NT = Np + Ns in (iv) below.
5.4 The successful tenderer would be the one who receives the highest number of points in the adjudication
i e Where NT = Np + Ns = highest number of points.
The points system proposed will result in a ten per cent preference for “Tenders from Target Groups” if the criteria indicated are met in full. Rand Water will in these circumstances pay up to ten per cent more for procuring the goods and services than it would on open tenders. The successful “Tender from Target Groups” would, however, have to comply in all other respects with the adjudication criteria listed in the Rules of Order of the Tender Committee except where provided for otherwise in this policy.
6. Status of Enterprise submitting tenders (including Joint Venture partners and sub-contractors)
6.1 Ownership and control
(a) A party is considered to own an enterprise if the party owns 50% or more of the enterprises equity, and shares in the profit or loss of the enterprise in the proportion to its share of the equity.
(b) A party or parties are considered to control an enterprise even though the party or parties own less than 50% of the enterprise's equity, if the block or blocks of equity the party or parties own are large as compared with any other.
(c) If it is not possible to establish an enterprise's ownership, its management (officers and directors) is deemed to be in control.
6.2 Management control
An enterprise may be deemed to control another enterprise when one or more of the following circumstances are found to exist:
(a) Interlocking management
Officers, directors, employees or principal stockholders of one enterprise serve as a working majority of the board of directors or officers of another enterprise.
b) Common facilities
One enterprise shares common office space and/or employees and/or other facilities with another enterprise, particularly where such concerns are in the same or related industry or field of business.
(c) Newly organized enterprise
Former officers, directors, principal stockholders, and/or key employees of one enterprise organize a new enterprise in the same or related industry or field of operation, and serve as its officers, directors, principal stockholders, and/or key employees, and one enterprise is furnishing or will furnish the other enterprise with subcontracts, financial or technical assistance, and/or facilities, whether for a fee or otherwise.
6.3 Contractual relationships
(a) Joint ventures
A joint venture is an association of persons and/or concerns with interests in any degree or proportion by way of contract, express or implied, consorting to engage in and carry out a single specific business venture for profit, for which purpose they combine their efforts, property, money, skill or knowledge, but not on a continuing or permanent basis for conducting business generally. A joint venture is viewed as a business entity in determining power to control its management.
(b) Franchise and license agreements
In determining whether the franchisor controls the franchise, the restraints imposed on a franchisee by its franchise agreement shall not be considered, provided that the franchisee has the right to profit from its effort and bears the risk of loss or failure, commensurate with ownership. The franchisee should prove what their contribution in acquiring the franchise was and the risk he has undertaken.
7.1 The commercial equity managers will establish, maintain and update a comprehensive database of suppliers who can be targeted to supply Rand Water with its needs and meet the objective of this policy.
7.2 The Commercial Manager will ensure that the database created above is incorporated into the general supplier=s base and that it is constantly used.
7.3 The information systems will be configured to support this initiative
8. Publicizing the Policy.
8.1 The commercial equity managers will ensure that commercial equity opportunities in Rand Water, as and when they are identified, are sufficiently advertised in newspapers and other media generally accepted as being used by target groups in order to attract them to participate.
8.2 The commercial equity managers will ensure that the Commercial Equity Policy is widely publicized, aiming at informing current and potential suppliers from target groups and Rand Water personnel and the business community and society at large of Rand Water=s initiatives in this regard.
9. Registration requirements for all Tenderers.
9.1 Statutory requirements
In order that an enterprise should be considered as a new supplier of Rand Water under this policy or continue as a supplier under the current Procurement Policy it will have to adhere to the following conditions:
(a) It must comply with statutory labour requirements.
(b) It must be registered with the South African Revenue Services and in good standing with it.
9.2 Business requirements. The enterprise:
(a) Should be a continuing and independent enterprise organized for profit (even if its ownership is in the hands of a nonprofit entity)
(b) Should provide a commercially useful function
(c) Should dedicate sufficient resources to the achievement of the performance of its obligations
10. Penalties for the abuse of the Policy.
Any supplier or potential supplier that deliberately misrepresents the facts in order to gain some advantage through this initiative will be penalized by having their enterprise removed from the Rand Water supplier register AND the directors or owners of the enterprise will be recorded and Rand Water will reserve the right not to register any new company where they are directors, owners or managers.
11. Accountability and responsibility.
Management, the General Manager - Finance, and the Commercial Manager will be accountable for the implementation of this policy.
The General Manager - Finance will provide a quarterly report on commercial equity to management and thereafter to the Board on the successes and shortcomings of the application of the policy.
12. Target setting and performance measurement.
Management will, at least annually, propose targets and the resources required for the achievement of the Commercial Equity Policy, which targets, and resources if acceptable, will be confirmed by the Board.
Management shall undertake to ensure the orientation of managers and supervisors to support the Commercial Equity Policy and the degree of this support will be assessed in the performance appraisals (i e Key Result Documents) of relevant managers.