Johannesburg Stock Exchange-listed construction and engineering giant WBHO remains optimistic that a resolution can be reached in the ongoing dispute between major construction firms and the South African National Roads Agency (Sanral) regarding the agency’s new preferential procurement guidelines for its tendering process.
According to WBHO CEO Wolfgang Neff, it is crucial for rationality to prevail amid the disagreement with Sanral. Neff pointed out the apparent inconsistency of allocating five points for 100% black ownership, as this would mean the government would be paying a premium for utilizing 100% black-owned businesses. In the case of WBHO, he emphasized that the company’s management does not possess substantial ownership, with executive ownership standing at less than 1%. WBHO is primarily owned by its staff members through Akani, holding a 20% stake, while the Public Investment Corporation (PIC) and various pension funds also have significant ownership shares.
Neff questioned the logic behind Sanral’s new preferential procurement policy, highlighting another criterion that mandates main contractors to subcontract more than 35% of the project. He argued that Sanral projects are highly complex, and the main contractor assumes significant risks and provides guarantees. Subcontracting critical work to entities lacking the necessary experience and skill set, according to Neff, would be exceedingly risky and nonsensical.
Sanral has found itself embroiled in a high court challenge following its alleged unilateral introduction of the new preferential procurement scoring system earlier this year. This new system significantly reduces the importance of Broad-Based Black Economic Empowerment (B-BBEE) Act ratings for most bidders.
H&I Construction, a company based in Cape Town, filed an urgent application to restrain Sanral from implementing the new scoring system during the adjudication of specific tenders. The case was heard in the High Court in Gqeberha in July, with the judgment still pending. WBHO has also sought to join Part B of H&I Construction’s application aimed at reviewing and setting aside the new scoring system.
H&I Construction challenged Sanral’s decision to alter its scoring system for tender awards on the grounds that it did not comply with the requirements set out by Section 2 of the Preferential Procurement Policy Framework Act 5 of 2000 and that it was introduced without proper consultation with affected parties.
Francis Chemaly, the commercial manager at H&I Construction, asserted that Sanral’s proposed new scoring system is unconstitutional, irrational, and therefore subject to review based on legality and the Promotion of Administrative Justice Act. Chemaly argued that the new system is so unfair, irrational, uncompetitive, and cost-prohibitive that potential bidders, including H&I Construction, would be unable to submit viable, cost-effective bids and hope to secure contracts if Sanral proceeds with its implementation.
The new scoring system introduced by Sanral followed a February 2022 Constitutional Court ruling that found former Finance Minister Pravin Gordhan had overstepped his authority by promulgating new regulations in 2017. These regulations introduced pre-qualification B-BBEE criteria that bidders had to meet before progressing to the next bidding stage. The defeat in the Constitutional Court prompted current Finance Minister Enoch Godongwana to repeal the 2017 regulations and replace them with new regulations in 2022, allowing state organs to establish their own preferential procurement policies.
WBHO and other major construction companies have much at stake due to the new scoring system. Neff noted that the increased activity from Sanral led to a 43% surge in activity within WBHO’s local roadwork sector during the financial year ending in June 2023. The company’s road and earthworks division saw a 131% increase in its order book, which stood at R14.78 billion at the end of June 2023, compared to R6.4 billion the previous year. Roadworks now constitute 62% of WBHO’s enlarged order book, up from 26% in the prior year. The company’s consolidated order book also grew by 43%, reaching R32.5 billion at the end of June 2023, up from R22.2 billion the previous year.
Neff expressed optimism that Sanral has many projects out for tender and in the pipeline, but the procurement issue must be resolved for contracts to be awarded. He emphasized the importance of reason prevailing, as there is ample work available for construction firms in South Africa.
