Table of Contents
CHAPTER ONE
1.1BACKGROUND TO THIS INVESTIGATION
1.2METHODOLOGY
Phase One – Terms of reference
Phase Four – Publication of the amended sectoral determination
1.3Structure of the Report
CHAPTER TWO
2.1INTRODUCTION
2.2SECTOR PROFILE: CIVIL ENGINEERING
2.2.2The position of the civil engineering industry
Confidence index
Tenders
Employment
Contract awards
Turnover
2.3SECTOR PROFILE: BUILDING INDUSTRY
2.3.1The position of the building industry
2.3.2The Building Confidence index
CHAPTER THREE
DISCUSSION AND PROPOSALS
3.1Extension of scope to include building sector
Views of the Building Bargaining Councils
Views of employees
Views of the Department
3.2Wages and annual increases
Views of the employers
Views of the employees
Views of the Department
3.3Duration of the sectoral determination
Views of employers
Views of Department
3.4Minimum wage increases for years 2 and 3
Views of employers
3.5Other basic conditions of employment discussed in the public hearings.
Inclement weather
Family Responsibility Leave
Annual leave
Maternity leave
CHAPTER FOUR
EVALUATION IN TERMS OF ECC CRITERIA
4.1Ability of employers to conduct their business successfully and operation of small, medium or micro enterprises, and new enterprises.
4.2The impact of the proposed minimum wage on the cost of living and poverty alleviation
4.3Wage differentials and inequality
4.4The likely impact of the proposed wages on current employment and the creation of employment
CHAPTER FIVE
RECOMMENDATIONS OF THE ECC
Table of Figures
Table 1: Schedule of public hearing dates, venues and attendance
Table 2: Employment Q-Q change by firm size
Table 3: Employment Contribution by firm size
Table 4: Percentage Change in main indicators
Table 5: Current minimum hourly wages in Civil Engineering
Table 6: The impact of current employment, contract awards, turnover and wages.
Table 7: Minimum hourly rates proposed by the Department
Table 8: Minimum hourly rates proposed by the ECC
CHAPTER ONE
The Employment Conditions Commission (ECC) has the pleasure of presenting its report and recommendations into the review of the Sectoral Determination for the Civil Engineering Sector. This report is presented in accordance with section 54 (4) and 62(1) of the Basic Conditions of Employment Act (BCEA).[1] In making its recommendations, the ECC took into account the considerations set out in section 54(3) of the BCEA, to the extent to which they are appropriate.
1.1BACKGROUND TO THIS INVESTIGATION
The current civil engineering sectoral determination was published on 27 August 2010. The provision in respect of conditions of employment and the minimum wages became applicable on the 1st September 2010.The wage dispensation, including annual increases, was fixed for a period of two years; The rates will remain in operation until 31 August 2012, therefore the new wage dispensation must be in place by 1 September 2012. The minimum wage rates for Grade 1 however, shall increase on 1 September 2012 by 8.07% to R20.50, as per the current sectoral determination[2].
Most of the terms contained in the sectoral determination, including wages were informed by and mirror the collective agreement reached by the employers and trade unions in the sector in their last round of wage negotiations in 2010. Indeed, this has been the norm in the sector.
1.2METHODOLOGY
A four-phased project framework was developed for the investigation.
Phase One – Terms of reference
A notice was published in the Government Gazette No. 34980 on 27 January 2012 inviting interested parties to make written representations within 60 days to the Director-General on their views about a review of the conditions of employment and wages in the civil engineering sector.
The terms of reference for this investigation were as follows:
“to review wages and the conditions of employment and the feasibility of extending the scope of Civil Engineering Sector to cover the Building and Construction sector in the Sectoral Determination 2, Civil Engineering Sector, South Africa”.
In response to the notice, five written submissions were received from the following organisations:
- South African Federation of Civil Engineering Contractors (Employer Representative);
- Master Builders Association (East Cape);
- Master Builders Association (Gauteng);
- Master Builders Association (Western Cape);
- Master Builders Association (Kwa-Zulu Natal);
- National Union of Mine workers (Employee representative).
During the public hearings, further written submissions were received from the constituents of the above-mentioned organisations at the provincial level, which were similar to the submissions forwarded by their national offices.
Phase Two – Consultation with stakeholders
This phase involved meeting with stakeholders through the public hearing process. Invitations for the public hearings were issued through the Department’s provincial offices and labour centres. A schedule for these public hearings was also published on the department’s website in order to ensure enough participation.Public hearings were scheduled to take cognisance of the areas where civil engineering and building activities are more prevalentin the provinces as set out in the table below.
During the public hearings, South African Federation of Civil Engineering Contractors (SAFCEC) andNational Union of Mine workers(NUM) representatives informed the Department that they were currently engaged in wage negotiations as parties to the National NegotiatingForum (NNF). However, for the benefit of the public hearings the parties made their individual submissions on behalf of their constituencies.
Despite all the efforts to improve attendance and participation, employee attendance was disappointing at most of the public hearings. Trade unions indicated that the time that these public hearing sessions are held make it impossible for the employees to attend and proposed that, in order for these hearings to be a success, the Department should in future hold the hearings on Saturday and Sunday or conduct site visits in order to maximise employee participation..
Table 1 below indicates places visited together with the attendance profile of stakeholders for each hearing.
Table 1: Schedule of public hearing dates, venues and attendance
Province / Date / Venue / Employers/ Employer Org / Employees/ Employee RepsEastern Cape / 16/05/2012 / Labour centre
Port Elizabeth / 11 / 5
Free State / 23/05/2012 / Protea Hotel
Bloemfontein / 6 / 3
Kwa-Zulu Natal / 9/05/2012 / Lavita Lodge
Durban / 6 / 6
Limpopo / 18/05/2012 / Royal Hotel
Polokwane / 1 / 3
Northern Cape / 26/04/2012 / Provincial office
Kimberly / 3 / 0
North West / 24/04/2012 / Civic Centre
Rustenburg / 1 / 0
Western Cape / 09/05/2012
10/05/2012 / Provincial office
Cape Town
D’Almeida Library Hall
Mossel Bay / 8
8 / 5
1
Total / 44 / 23
As reflected in Table 1 above, public hearings were not well attended, especially the employee representation.
The hearings thus provided information from a total of 44employers and 23 employees. It should further be noted that the representation was both from individual employees and employers as well as those representing organised business and labour.
Phase Three – ECC Process
During this stage, the Employment Conditions Commission (ECC) deliberated on the consolidated report prepared by the Department on the basis of the written submissions forwarded to the Department and inputs captured during the public hearings.
Phase Four – Publication of the amended sectoral determination
This phase will see the publication of amendments to the sectoral determination in the Government Gazette, once approved by the Minister and subsequent awareness-raising.
1.3Structure of the Report
The report consists of the following chapters:
- Chapter 2 of this report outlines the sector profiles of both civil engineering and the buildingindustry and the current state of the twoindustries;
- Chapter 3 focuses on the findings of the investigation and resultant proposals;
- Chapter 4 focuses on the proposals in light of the criteria that the Commission has to consider; and
- Chapter 5 summarises the recommendations by the Commission.
CHAPTER TWO
2.1INTRODUCTION
The construction industry in South Africa is divided into two sectors: the civil engineering sector and the building sector. The building sector comprises the erection, completion and renovation of buildings and structures. Civil engineering involves the construction of infrastructure such as roads, bridges, dams and other structures excluding buildings. There are stark contrasts between the collective bargaining arrangements in the two sectors. While the civil engineering sector has a single bargaining forum, collective bargaining in the building sector is highly fragmented. The wages also differ between the two sectors even though many of the work tasks are the same[3].
The South African construction and engineering sector was pre-occupied for some time by the execution of significant infrastructure projects in preparation for the 2010 FIFA World Cup. Most of these contracts had been awarded prior to the global economic slowdown and shielded many employers from the worst of the recession. After the World Cup, the industry had been faced with replenishing order books and experienced delays in contract awards and a general slowdown in certain sectors[4].
A number of challenges now face the industry during post-World Cup slumpand amidst the economic downturn[5].
The severity of the situation is highlighted in the SAFCEC’s ‘State of the Civil Engineering Industry Report’ for the first quarter of 2012. SAFCEC indicates that a decline in the sector is clearly visible, and along with it is dropping employment figures, capital expenditure, tender activity and contract awards. Projects across the public and private sectors are being decelerated, postponed and re-scoped.
2.2SECTOR PROFILE: CIVIL ENGINEERING
Employers
The main employer role-player in the industry is the South African Federation of Civil Engineering Contractors (SAFCEC). SAFCEC is registered as an Employers Organisation constituted in terms of the Labour Relations Act.[6] It reportedly represents 368 registered contractors, employing approximately 70 000- 90000 employees.
The proportion of Civil Engineering Contractors registered with the Construction Industry Development Board (CIDB) are 63.4 % for level 9, 49% for levels 8 and 7, 21% for levels 6, 5 and 4, 7 % for Emerging contractors levels 3, 2, and 1.
Employees
According to the Quarterly Labour Force Survey (QLFS)[7] for 1st quarter which was released by Stats SA in May 2012, the number of persons in the labour force in South Africa increased by 466 000 between Q1:2011 and Q1:2012.The QLFS revealed that compared to a year ago, employment increased by 2.3%(304000), unemployment increased by 3.7% (162000). Formal sector employment increased by 290 000 jobs while Informal sector employment decreased by 73 000 jobs.
Employment in the construction industry reported an annual decrease of 45000 employees (-4.4%) at Q1:2012 compared with Q1:2011. A quarterly decline of 71 000 (-6.7%) between Q4:2011 and Q1:2012 was recorded suggesting that the government’s infrastructure spending programme has not yet had an effect on the labour market.
In its submission to the Commission on 26 March 2012, SAFCEC reported that the outlook for new employment opportunities in the industry remains weak, as only 20% of the firms expect to hire staff in the next quarter (Q1:2012). SAFCEC reported that the majority of firms expect to maintain current staff levels, although 23% expect to lay off staff in the 4th quarter.
With regard to employee representatives, NUM submitted that it represented 63 000 members and Building and Construction Allied Workers Union(BCAWU) claimed to represent 35 000 active members in 2010. The unions have indicated that union membership within the civil engineering sector is often difficult to estimate as employment is largely based on limited duration contracts.
2.2.1Collective Bargaining in the sector
The Civil Engineering sector does not have a bargaining council, but has a National Negotiating Forum (NNF), which consists of one employer’s organisation and two trade unions. The employers are represented by SAFCEC and employees are represented by NUM and BCAWU.
The NNF was established in 1996, and has traditionally negotiated with the unions on wages and other conditions of employment in order to create some stability in the industry. The parties to the NNF have been investigating the possibility of establishing a Bargaining Council for the Civil Engineering Industry (BCCEI) and in its submission to the Commission; SAFCEC indicated that an application has been submitted to the Registrar of Department of Labour for the registration of the Bargaining council.
Despite this, collective agreements concluded in the NNF have always been forwarded to the Department as an input document in the reviewing process of the sectoral determination. The Department has always encouraged parties, in line with the spirit and aims of the Labour Relations Act 66 of 1995, to strive for self-regulation in their working arrangements, including terms and conditions of service. Hence collective agreements, such as those concluded by the parties in the NNF, have always been endorsed by the ECC in its recommendations.
In 2012, the first round of negotiations in the sector commenced on the 28 March 2012, the parties have agreed in principle on wage increases for a period of one year but have not yet signed the agreement.They have agreed that the wage increases will remain in operation for a minimum period of 1 year or until amended by a further Agreement after the 1 year period has expired. The partieshave furtheragreed that the provisions in relation to annual leave, maternity leave and family responsibility leave will bere-negotiated upon the registration of the Civil Engineering bargaining council.
The Department has however not received the agreement from the parties and will therefore not consider it during this review.
2.2.2The position of the civil engineering industry
The civil engineering sector has always been dogged by its cyclical nature, with its services in high demand during period of intense development, and in low demand when development spending is cut to cool over-heated economies.
In its submission to the Commission, SAFCEC raised its concerns about the Small,Medium and Micro Enterprises who have expressed real concern about the sustainability of their businesses as a result of the economic downturn and lack of consistent work. SAFCEC further reported that profitability in the sector has deteriorated in the 3rd quarter of 2011, following a hopeful recovery in the 1st quarter, but did rebound in the 4th quarter of 2011. They further argued that accelerated and additional improvements in employment conditions will adversely affect the civil engineering industry and specifically smaller and upcoming BEE contractor’s sustainability, even more so, under current market conditions.
The following five indicators (summarised in Table 4) reflect actual figures compiled by SAFCEC on their state of the civil industry report for the 1st quarter of 2012[8].
SAFCEC reported that there are some confounding trends in the indicators, probably typical in a period of turning points, especially through the tough periods. However, while the industry seems to be shedding staff (at overall level), the value of contracts awarded has increased substantially in the past four quarters. The impact of projects delays and cancellations (even after award date) is clearly having a more severe impact on the industry.
Confidence index[9]
SAFCEC reported that there was a relapse in the index in the 3rd quarter, but similar to what happened in 2010, levels rebounded strongly in the 4th quarter to a net satisfaction rate of 87 (up from 42 in 2011Q3, compared to 99 in 2010Q4). SAFCEC has indicated that while the outlook for business was not highly optimistic, the majority of respondents viewed the outlook for business as satisfactory (as opposed to rather poor in the last few surveys).
On its report on the state of the Civil Construction Industry, the First National Bank/ Bureau for Economic Research (FNB/BER) indicated that the confidence index rose from 21 in Q3:2011 and 26 in Q4:2011to 34 during 1Q12[10]. The FNB/BER has viewed the rise in confidence to be underpinned by continued improvements in activity levels and profitability. Despite these more positive results, the demand for new construction work remained relatively weak, the cyclical recovery still being in its early stages.
Tenders
There has been a marked improvement in the confidence expressed by members with regards to tender activity since the 1st quarter of 2011. More than 60% of members reported consistently that tender activity has been satisfactory, with an increasing percentage saying it was “better than satisfactory” in the 4th quarter.
The FNB/BER has also established on its report that the tender activity increased for the fifth straight quarter in Q1:2012, pointing to a more sustained (albeit slow) recovery. However, the rate of increase moderated slightly compared to the second half of last year. The research indicates that Construction activity flowed from a number of sectors and primarily from existing or on going projects.
Within the public sector, work by Transnet (on the expansion of port facilities and the new multi-products pipeline between Durban and Gauteng) and some work from Eskom (on their Medupi, Kusile and Ingula power station projects) continued to support expenditure by public corporations. As for the government, spending on roads, water and waste water management projects remained dominant, especially at the municipal level.
Construction work within the private sector emanated mainly from the mining sector. This was on the back of still relatively high commodity prices and in preparation for an expected increase in coal demand once Eskom’s new power stations come on line.
Employment
SAFCEC indicated that Employment dipped in the 4th quarter of 2011down- 1.2 %) to an estimated 98 837 (half of the peak in 2008Q4 when over 202 000 people were employed).For the purpose of the survey, SAFCEC categorised the responses into large, medium and small firms based on reported employment. The 2011Q4 survey was evenly distributed between large, medium and small firms (based on total employment), but it was the larger firms that decreased employment (down 2.5% quarter on quarter), while medium and smaller firms increased employment by 3.9% and 10.7% respectively. The larger firms contributed over 80% of total employment.
Table 2: Employment Q-Q change by firm size
Category / Employment / 2011Q3 / 2011Q4Large / > 1000 / -3.5% / -2.5%
Medium / Between 100 and 1000 / 11.8% / 4.0%
Small / < 100 / -15.6% / 10.7%
Total / -2.1% / -1.2%
% of firms with positive growth / 38.9% / 37.5%
Table 3: Employment Contribution by firm size