ECC Report: Civil Engineering 2012

Department of Labour

2012-2013

Report of the Employment Conditions Commission on the investigation into Civil Engineering Sector, South Africa.


2012-2013

Table of Contents

CHAPTER ONE ............................................................................................................................. 3

1.1 BACKGROUND TO THIS INVESTIGATION..............................................................31.2 METHODOLOGY...............................................................................................................3PHASE ONE – TERMS OF REFERENCE................................................................................................4PHASE FOUR – PUBLICATION OF THE AMENDED SECTORAL DETERMINATION..................................61.3 STRUCTURE OF THE REPORT.................................................................................................6

CHAPTER TWO ............................................................................................................................ 7

2.1 INTRODUCTION.................................................................................................................72.2 SECTOR PROFILE: CIVIL ENGINEERING..................................................................72.2.2 THE POSITION OF THE CIVIL ENGINEERING INDUSTRY...................................................10CONFIDENCE INDEX.........................................................................................................................11TENDERS..........................................................................................................................................11EMPLOYMENT..................................................................................................................................12CONTRACT AWARDS........................................................................................................................13TURNOVER.......................................................................................................................................132.3 SECTOR PROFILE: BUILDING INDUSTRY................................................................142.3.1 THE POSITION OF THE BUILDING INDUSTRY....................................................................152.3.2 THE BUILDING CONFIDENCE INDEX....................................................................................16

CHAPTER THREE ...................................................................................................................... 18

DISCUSSION AND PROPOSALS ............................................................................................. 18

3.1 EXTENSION OF SCOPE TO INCLUDE BUILDING SECTOR......................................................18VIEWS OF THE BUILDING BARGAINING COUNCILS.........................................................................22VIEWS OF EMPLOYEES.....................................................................................................................22VIEWS OF THE DEPARTMENT..........................................................................................................233.2 WAGES AND ANNUAL INCREASES.........................................................................................24VIEWS OF THE EMPLOYERS.............................................................................................................25VIEWS OF THE EMPLOYEES..............................................................................................................27VIEWS OF THE DEPARTMENT..........................................................................................................273.3 DURATION OF THE SECTORAL DETERMINATION.................................................................29VIEWS OF EMPLOYERS.....................................................................................................................29VIEWS OF DEPARTMENT..................................................................................................................293.4 MINIMUM WAGE INCREASES FOR YEARS 2 AND 3..............................................................29VIEWS OF EMPLOYERS.....................................................................................................................293.5 OTHER BASIC CONDITIONS OF EMPLOYMENT DISCUSSED IN THE PUBLIC HEARINGS......30INCLEMENT WEATHER...................................................................................................................30FAMILY RESPONSIBILITY LEAVE..................................................................................................31

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ANNUAL LEAVE..............................................................................................................................32MATERNITY LEAVE........................................................................................................................33

CHAPTER FOUR ......................................................................................................................... 34

EVALUATION IN TERMS OF ECC CRITERIA....................................................................344.1 ABILITY OF EMPLOYERS TO CONDUCT THEIR BUSINESS SUCCESSFULLY AND OPERATION OF SMALL, MEDIUM OR MICRO ENTERPRISES, AND NEW ENTERPRISES.....................................344.2 THE IMPACT OF THE PROPOSED MINIMUM WAGE ON THE COST OF LIVING AND POVERTY ALLEVIATION...................................................................................................................................354.3 WAGE DIFFERENTIALS AND INEQUALITY...............................................................................364.4 THE LIKELY IMPACT OF THE PROPOSED WAGES ON CURRENT EMPLOYMENT AND THE CREATION OF EMPLOYMENT............................................................................................................36

CHAPTER FIVE .......................................................................................................................... 38

RECOMMENDATIONS OF THE ECC .................................................................................... 38

Table of FiguresTable 1: Schedule of public hearing dates, venues and attendance.....................................5Table 2: Employment Q-Q change by firm size................................................................12Table 3: Employment Contribution by firm size...............................................................13Table 4: Percentage Change in main indicators................................................................14Table 5: Current minimum hourly wages in Civil Engineering........................................24Table 6: The impact of current employment, contract awards, turnover and wages.........26Table 7: Minimum hourly rates proposed by the Department...........................................28Table 8: Minimum hourly rates proposed by the ECC......................................................38

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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.

1.1 BACKGROUND TO THIS INVESTIGATIONThe 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 determination2.

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.

1.2 METHODOLOGYA 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-1 No 75 of 1997.2 Government Gazette No 33505 dated 27 August 2010.

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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:

1. South African Federation of Civil Engineering Contractors (Employer

Representative);

2. Master Builders Association (East Cape);

3. Master Builders Association (Gauteng);

4. Master Builders Association (Western Cape);

5. Master Builders Association (Kwa-Zulu Natal);

6. 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 prevalent in the provinces as set out in the table below.

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During the public hearings, South African Federation of Civil Engineering Contractors

(SAFCEC) and National Union of Mine workers (NUM) representatives informed the

Department that they were currently engaged in wage negotiations as parties to the

National Negotiating Forum (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 VenueEmployers/ Employer Org

Employees/ Employee Reps

Eastern Cape 16/05/2012 Labour centrePort Elizabeth

11 5

Free State 23/05/2012 Protea HotelBloemfontein

6 3

Kwa-Zulu Natal

9/05/2012 Lavita LodgeDurban

6 6

Limpopo 18/05/2012 Royal HotelPolokwane

1 3

Northern Cape 26/04/2012 Provincial officeKimberly

3 0

North West 24/04/2012 Civic CentreRustenburg

1 0

Western Cape 09/05/2012 Provincial office 8 5

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10/05/2012Cape TownD’Almeida Library HallMossel Bay

8 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 44 employers 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.

1.3 Structure 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 building industry and the current state of the two industries;

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

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2.1 INTRODUCTIONThe 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 same3.

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 sectors4.

A number of challenges now face the industry during post-World Cup slump and amidst

the economic downturn5.

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.

2.2 SECTOR PROFILE: CIVIL ENGINEERING

Employers

3 www.lrs.org.za/docs/Bargaining_Monitor_Sept2009. 4 http://www.isiza.co.za/magazine/current-issue. 5 http://www.isiza.co.za/magazine/current-issue.

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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- 90 000 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% (304 000), unemployment

increased by 3.7% (162 000). 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 45 000

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.

6 Act 66 of 1995 SS 95-111.7 The Quarterly Labour Force Survey (QLFS) is a household-based sample survey conducted by Statistics South Africa (Stats SA). It collects data on the labour market activities of individuals aged 15 years and above who live in South Africa.

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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.

2.2.1 Collective 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

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operation for a minimum period of 1 year or until amended by a further Agreement after

the 1 year period has expired. The parties have further agreed that the provisions in

relation to annual leave, maternity leave and family responsibility leave will be re-

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.

2.2.2 The 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 20128.

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

8 http://www.safcec.org.za.

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delays and cancellations (even after award date) is clearly having a more severe impact

on the industry.

Confidence index9

SAFCEC reported that there was a relapse in the index in the 3 rd 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 1Q1210. 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.

9 Confidence index relates to the general business outlook amongst the companies within the sector. Below fifty indicates pessimism; 0 equals’ total negativity and 100 indicate absolute optimism. 10 http://www.ber.ac.za.

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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 2011 down- 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 2011Q4

Large > 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%

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Table 3: Employment Contribution by firm size

Category Employment 2011Q3 2011Q4

Large > 1000 33.3% 31.3%

Medium Between 100 and 1000 44.4% 31.3%

Small < 100 22.2% 37.5%

Total 100.0% 100.0%

SAFCEC indicated in its submission that the above indicators demonstrate the

importance to balance SAFCEC, NUM and BCAWU’s interest against the needs of the

industry (s) and non-participating parties in negotiations, hence the sensitivity

surrounding the extension of the sectoral determination to other industries under the

auspices of the civil industry statutory processes.

Contract awards

There has been a marked turnaround in the confidence indicator around contracts

awarded to companies. What remains a concern however, is the increase in the number of

civil projects postponed, which was up to 44% y/y in 2011. The postponement rate (the

number of projects postponed expressed as a percentage of the number of tenders

advertised during the same period), increased to close to 14%, after having recovered

slightly to around 12% in the first half of 2011.The highest level since SAFCEC started

recording the data was at 16% in the 4th quarter of 2009.

Turnover

Based on turnover estimates received from members, turnover increased by more than

10% q/q during the 3rd quarter (estimates in the previous report suggest an 18% increase

which translates to a 33% nominal year on year increase), but decreased by around 1%

q/q in the 4th quarter, which is still approximately 27% higher compared to the same

quarter in 2010. This implies that the total nominal turnover in the industry for 2011 had

increased by 12.7%, or by 5.8% in real terms.

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Table 4: Percentage Change in main indicators

Indicator

6 MONTHS TO 12 MONTHS TO

2011:Q2 2011:Q3 2011:Q4 2011:Q2 2011:Q3 2011:Q4

Confidence* -25.6 -12.1 -29.3 9.8 28.3 -27.4

Tenders 17.4 14.6 6.6 25.9 39.7 12.5

Contract Awards** 760.7 484.1 241.7 44.2 222.6 377.5

Employment -5.7 2.6 -1.2 -27.3 -13.6 -3.5

Turnover 19.9 4.3 -2.5 20.0 12.6 7.7

*Confidence index measured as percentage change in cumulative net improvements.

**Contract Awards based on contracts awarded in the RSA only.

2.3 SECTOR PROFILE: BUILDING INDUSTRY

Employers

The main employer role player in the industry is the Masters Builders Association

(MBA) which is a National organisation that functions as a federation of registered

employer association representing contractors and employers operating in the building

industry and which is regulated in terms of section 107 of the Labour Relations Act. In its

Annual Report for 2011, MBA reported that the Federation’s nine Master Builders

Associations and three Affiliate Associations represent some 4000 members and provide

for some 200 000 employment opportunities from unskilled labour through to artisans,

foremen and project managers as well as owner/entrepreneurs and professionals.

Employees

Employees in the building sector are represented by a number of trade unions either in

terms of sub-sectors or in terms of regions. The following trade unions, amongst others,

organise employees in the sector: National Union of Mineworkers (NUM), Amalgamated

Union of Building Trade workers of South Africa (AUBTW), Northern Building Union/

Noordelike Bouwerkersvakbond (NBC), Building Workers’ Union (BWU), Building

Construction and Allied Workers’ Union (BCAWU), Building, Wood and Allied

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Workers’ Union of South Africa (BAWUSA), South African Woodworkers’ Union

(SAWWU).

As already indicated above, the QLFS showed that employment in the construction

industry reported an annual decrease of 45 000 (-4.4%) at Q1: 2012 compared with Q1:

2011. In Q1:2012, formal sector employment accounted for 70, 9% of total employment,

a decline of 0, 3 of a percentage point from the previous quarter. Between Q1:2011 and

Q1:2012 the majority of formal sector job losses were in the Construction (80 000).

Informal sector employment in the Construction industry increased by 35 000 during this

period.

2.3.1 The position of the building industry

The BER indicated that the Building Industry undertakes the supply of residential and

non-residential buildings and structures. In the case of residential industry, this comprises

the building of inter alia low income housing, single stand alone residential buildings,

flats and townhouses as well as additions and alterations to existing residential units.

Non-residential building work entails the erection of office and banks, retail and

industrial space, as well as additions to such structures.

The building survey is conducted amongst architects, quantity surveyors, main

contractors, sub-contractors (plumbers, electricians, carpenters and shop fitters),

manufacturers of building materials (cement, bricks and glass) and retailers of building

material and hardware. They are polled on issues such as demand levels, employment,

intensity of competition and constraints hampering business activity. An important

indicator obtained form this survey is business confidence. Business confidence can be

regarded as a broad perception index and will amongst others, be influenced by demand

conditions, availability or otherwise of inputs such as labour and materials, political

development and crime levels.

The results of the Q1:2012 composite FNB/BER building confidence index provide

further proof that the building sector is indeed recovering. This recovery is increasingly

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being characterised by a very moderate rise in building activity and profitability,

especially amongst main contractors, the biggest component of building.

2.3.2 The Building Confidence index

The FNB/BER building confidence increased from 29 in Q4:2011 to 34 in Q1:2012. The

higher confidence is supported by meaningful increases in activity and profitability.

Confidence index of building material manufactures

The confidence of building material manufactures rose significantly by 25 index points to

37and at 37, the confidence is at its highest level since Q1:2008.

Confidence index of building merchants

The confidence of building merchants fell to 40 from 49 index points in Q4:2011. The

decline in confidence coincides with an easing in sales values and overall profitability.

Confidence index of main contractors

The most notable feature if Q1:2012 results is the rise in the overall confidence of main

contractors which jumped from 19 to 31 index points. In this quarter residential

confidence showed a more moderate improvement, rising to 28 from 22 whilst non-

residential confidence showed a more meaningful 24 index point jump (from 14 in

Q4:2011 to 38 during this quarter.

According to the FNB/BER survey, Building work for both residential and non-

residential contractors is starting to show a more consistent increase, albeit off low levels.

However, there was a significant improvement in non-residential building work executed

compared to residential work and this in part could explain the much higher confidence

of non-residential contractors. The reason for that could be the high levels of consumer

debt and tight credit conditions continue to weigh on residential building activity with

very moderate relief coming from the affordable and low cost housing markets. At the

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same time, non-residential contractors continue to benefit from the building of shopping

centres and government led work such as the building of hospitals and schools.

Confidence index of sub- contractors

The sub-contractor confidence, which is closely linked to that of main contractors, shed 7

points to register a value of 29, the first time since 1Q2007 that sub-contractor confidence

was below that of main contractors. The “early” recovery in the additions and alterations

market which saw clients opting to expand/improve on existing space rather than to build

from scratch initially helped buoy sub-contractor confidence. This trend seems to be

turning with increasing amounts on new building work coming on board.

The confidence of residential sub-contractors registered an index value of 33, from 39 in

4Q2011. Confidence of non-residential sub-contractors also dropped 6 points (from 32 in

4Q2011 to 26 in 1Q2012).

Confidence index of architects and quantity surveyors

The two sectors which give an indication of the robustness of the building pipeline

provided mixed results during 1Q2012. The confidence of architects fell to 17 from 21

index points while that of quantity surveyors rose from 36 to 47 points (close to the

crucial 50 index point mark). Even in terms of activity there was divergence, with

architects experiencing renewed pressure in the 5 number of projects commissioned at

sketch plan phase and in the number of contracts awarded. Quantity surveyors saw the

exact opposite trend.

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CHAPTER THREE

The focus of the investigation, in line with the terms of reference, was to review

minimum wages and conditions of employment in the civil engineering sector and further

to establish the feasibility of extending the scope of application to include the building

sector under the Sectoral determination 2 for the civil engineering sector.

This chapter deals with the current dispensation in the sectoral determination in relation

to minimum wages and other related conditions of employment. In addition, it also deals

with the inputs received during the public hearings, written inputs submitted to the

Department, proposals by the Department and recommendations of the Commission.

DISCUSSION AND PROPOSALS

3.1 Extension of scope to include building sector

In South Africa, collective bargaining has particular importance because it is the

mechanism through which “regulated flexibility” will be achieved. In other words the

ability of collective bargaining to set wages and conditions of employment that balance

employee’s needs with those of employers is critical for the ability of new labour

relations system to balance the imperatives of equity and economic development.11

In economic sectors or areas that do not have collective bargaining agencies, the BCEA

allows the Minister of Labour to make sectoral determinations which then govern the

employment conditions of those sectors. The Building Sector’s collective bargaining has

historically been divided geographically. Regional bargaining structures have, in some

provinces, been sufficiently representative in the sector to establish bargaining councils.

In other provinces, bargaining councils have ceased to be representative or have not

reached the levels of representativeness necessary for the establishment and continuation

of bargaining councils.

11http://www.commerce.uct.ac.za/research_units/dpru/Employment_Promotion_Program/PDFsEPP2/ Report%202010%20Stadiums%20&%20Gautrain.pdf.

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During the 1990s, there were ten regional building bargaining councils. Since then four

have collapsed namely the Durban, Gauteng, Kroonstad and Pietermaritzburg councils.

Currently there are six regional bargaining councils; Bloemfontein, Cape of Good Hope,

East London, Kimberley, North and West Boland and Southern and Eastern Cape12.

The above Bargaining councils are operating differently with some having collective

agreements that are extended to non-parties and some with agreements that are not

extended to non-parties. Since Bargaining Councils do not cover the entire building

industry in the country, bargaining is also held in the so called Voluntary Bargaining

Forums (VBFs). These are comprised of groups of employers that have voluntarily come

together to bargain wage increases centrally with unions, but obviously any agreements

reached at that forum are only binding upon the signatories.

In addition, plant level collective bargaining takes place between individual employers

and the representative trade unions in regions falling outside the bargaining councils and

VBFs. Again there are many employees who are not members of the trade union parties

to these voluntary forums and there are many employers, including many of the

subcontractors, who are not members of these forums.

A study on the state of collective bargaining in South Africa13 revealed that it is possible

that more councils will collapse in the years ahead, particularly smaller local councils.

So, the bargaining council system in the building industry faces some serious challenges.

One major threat is the issue of representivity and the requirements in the LRA for

extending collective agreements. The more employers and employees that do not join the

employer’s organisations and trade unions that participate on councils, the harder it is for

bargaining councils to maintain the necessary level of representivity to have their

agreements extended to non-parties (i.e. the firms and employees who are not members

of party employer’s organisation and unions).

12 www.lrs.org.za/docs/Bargaining_Monitor_Sept2009. 13 http://www.dukeviuworkshop.org/images/stories/Godfrey_report1.pdf.

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http://www.dukeviuworkshop.org/images/stories/Godfrey_report1.pdf

http://www.lrs.org.za/docs/Bargaining_Monitor_Sept2009


2012-2013

The study also revealed that if a council does not have its agreement extended to non-

parties, there is a strong possibility that it will collapse in the short to medium-term.

Employers that are bound by the agreement through their membership of the party

employer’s organisation will be undercut by non-party competitors. The obvious

response of many will be to leave the employer’s organisation so that they are no longer

bound by the council’s agreement. The logic of this process will be the eventual demise

of the council.

A piece of research conducted on the industrial action in the construction of Gautrain and

2010 soccer stadiums14, revealed that the building sector’s recruitment policy which

provides that 70% of employees must be drawn form the local area has some profound

implications for industrial relations in the sector. The purpose of this policy requirement

is to ensure that there is poverty alleviation in the local communities, but the local

employees are generally unskilled or semi-skilled and therefore, appointed to the lower

grades and on limited duration contracts (LDCs). The research also revealed that LDC

employees are notoriously difficult to organise because they are in employment for a

short period of time and they often do not see any benefit to joining a union or paying a

subscription fee.

Views of employers

On its submission to the Department, SAFCEC recommended that under the current

situation the building and civil engineering sectors should not be regulated in a single

sectoral determination. SAFCEC proposed that a proper investigation should be done to

give consideration to this highly sensitive and diverse market, and it should be done

separately from the normal public hearings process or from the wage review

investigation.

During the public hearings, employers throughout the country acknowledged that

employees in the building sub-sector needed protection or a regulation tool, but

14http://www.commerce.uct.ac.za/research_units/dpru/Employment_Promotion_Program/PDFsEPP2/ Report%202010%20Stadiums%20&%20Gautrain.pdf.

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maintained that the extension of the civil engineering determination to the building sector

was not an option since the sectors are fundamentally different and the wage rates are

very far apart at present. Employers warned that aligning the two sub-sectors would have

unintended consequences, and it might lead to massive job losses in the building industry.

The Gauteng Masters Builders Association (GMBA) proposed that collective bargaining

should be structured between these sectors before an extension could be considered. The

GMBA also mentioned that the civil engineering sector comprises mainly large scale

contracts while the building industry deals mainly with smaller projects which rely on

large numbers of workers with different skills, hence the different remuneration models.

The Master Builders Association (Eastern Cape) (MBA-EC) submitted their written

inputs, which strongly contested the inclusion of the building industry under the civil

engineering determination. They proposed that a full scale investigation on the conditions

of employment in the building industry should be conducted and that a proper

understanding is gained of the various collective bargaining regimes which are currently

in operation throughout the building industry.

MBA-EC also argued that a merger of the two sectors would not be feasible because of

the distinctions between the civil engineering and the building sector. They submitted

that Civil engineering contractors generally rely more heavily on state work (public

works projects) whereas the majority of employers in the Building industry rely mainly

on private and residential sector building work. This has therefore made employers in the

building industry to favour a more regional approach in determining collective bargaining

in which client’s circumstances, availability of work and other local issues are taken into

account when determining conditions of employment and setting minimum wages. They

further submitted that over the years the Building and Civil engineering industry

employers have on a number of occasions agreed upon demarcation principles in order to

clearly define the distinction between the two industries.15

15 Demarcation between the Building and Civil Engineering industries.

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The Kwa-Zulu Natal Masters Builders & Allied Industries Association mentioned that

the rates stipulated in the civil engineering determination are way too high and the merger

of the two sectors would be detrimental to the building sector. They warned that if the

two sectors are combined, there would be an increase in building costs, which would

ultimately lead to reduced demand, resulting in closure of many contractors and severe

job losses. The association proposed a separate sectoral determination for the building

sector if there was a need to extend protection.

The Master Builders and Allied Trades Association Western Cape (MBAWC) submitted

that it represents the interest of the Bargaining Council of Cape of Good Hope and

proposed that a sectoral determination could be considered as a measure of regulation for

employers and employees not covered by a collective agreement concluded at a

bargaining council. However, the bargaining council argued that the building sector

should not be combined with civil engineering because the two sectors are different and

have different challenges.

Views of the Building Bargaining Councils

The Bloemfontein Bargaining Council acknowledged that employees in the building sub-

sector needed some sort of protection or regulation tool, but maintained that a separate

sectoral determination should be established to cover the employers and employees that

are currently not covered by a bargaining council. They further submitted that merging

these two sectors will create problems because the civil engineering determination

already stipulates high minimum rates than those paid in the building sector.

Views of employees

In their submission to the Department, NUM proposed for the merger of the two sectors.

The union alleged that most established companies have both Building and Civil

Engineering divisions, and that employers sometimes transfer workers to the lowest

division in order to circumvent the rates of the civil engineering determination. They

argued that the separation of these two sectors has serious consequences on the wages

and conditions of employment for building industry workers and reinforces inequalities

between the sectors amongst workers doing the same levels of work.

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The general feeling of employees throughout the country was that the scope of the civil

engineering determination should be extended to include the building sector. They

mentioned that the skills levels that are needed from the two sub-sectors are the same;

therefore there should not be a distinction in the conditions of employment and wages.

They also argued that employers draw employees from the same pool and utilise them

either on civil engineering or building projects, performing the same work. Employees

further alleged that employers would automatically categorise employees as building

employees in order to circumvent the civil engineering determination rates.

Views of the Department

The Department would like to point out that the building sector has no standardisation

when it comes to the collective bargaining process. The building industry has some

regionally specific bargaining councils with collective agreements about wages and

conditions of employment that have been extended to non-parties in terms of section 32

(2) of the Labour Relations Act, but in many regions there is no bargaining council and

wages and terms and conditions of employment are determined at site level.

In other regions there are voluntary bargaining forums where unions and some employers

negotiate wages and terms and conditions of employment, but these are only binding on

the parties. Due to the nature of these structures, parties can withdraw whenever they

choose from the agreement. Again there are many employees who are not members of the

trade union parties to these voluntary forums and there are many employers, including

many of the subcontractors, who are not members of these forums.

Collective bargaining is a function of trade union strength and trade union strength is a

function of there being significant number of workers in standard employment, massed

together in the same workplace. The difficulties of organising in this sector are well

known to the Department. The reasons relate primarily to the short duration of projects

and the extensive use of Limited duration contracts (LDCs). The Department is also

mindful of the fact that when trade unions are not strong enough to wield any significant

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bargaining power for the employees, employees are left susceptible to less favourable

terms and conditions of employment.

As the public hearings did not provide enough information on the levels of vulnerability

of employees in the building industry, and given the fact that the two sectors have

different categories of employees, the Department recommends that a study of the

building sector be commissioned in order to establish the following:

i. The levels of vulnerability within the building sector;

ii. The scope of the determination

iii. The impact that the conditions in the civil engineering sectoral determination will

have on the sector without affecting employment levels;

iv. The current collective bargaining regimes in place in the building sector;

v. The level of wages currently paid in the sector; and

The study will further recommend the appropriate form of regulation for the sector

considering the existence of different Bargaining Councils in the country.

3.2 Wages and annual increases

The current wage dispensation, including annual increases, was fixed for a period of two

years; hence the new wage dispensation must be in place by 1 September 2012. The

current wages in the sectoral determination are reflected in Table 5 below.

The table below indicates the minimum wages for workers in the Civil Engineering

Sector since 2008.

Table 5: Current minimum hourly wages in Civil Engineering

Grade

01/0

9/20

08-

31/0

8/20

09

%

01/0

9/20

09-

31/0

8/20

10

%

01/0

9/20

10-

31/0

8/20

11

%

01/0

9/20

11-

31/0

8/20

12

%

01/0

9/20

12-

31/0

8/20

13

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1 14:00 12% 15.68 11.2% 17.43 8.8% 18.97 8.07% 20.50

2 14.40 12% 16.13 9.5% 17.66 8% 19.07

Wag

e in

crea

ses t

o be

neg

otia

ted

3 14.80 12% 16.58 9.5% 18.15 8% 19.60

4 15.30 12% 17.14 9.5% 18.77 8% 20.27

5 18.30 12% 20.50 9.5% 22.45 8% 24.25

6 20.80 12% 23.30 9.5% 25.50 8% 27.54

7 23.80 12% 26.66 9.5% 29.20 8% 31.54

8 26.70 12% 29.90 9.5% 32.74 8% 35.36

9 30.15 12% 33.77 9.5% 37.00 8% 39.96

The civil engineering sector previously had two sets of minimum wages, one for

employees in the rural areas and another for employees in the urban areas. The sector has

since narrowed the gap between rural and urban wages in the country and came up with a

single minimum wage for the entire sector.The sector also agreed on the grades which

were ultimately published as part of the sectoral determination.

In order to maintain stability in the sector, the above grades were provided by the sector

to the Department to publish from 2008. The grades range from a general worker as grade

1 up to an artisan as grade 9. The current minimum rate of a general worker (grade 1) is

R18.97 and artisan (grade 9) is R39.96 per hour.

Views of the employers

SAFCEC indicated in its submission to the Department that in addition to the increases

negotiated with the unions, members of SAFCEC awarded their employees an additional

9.5% across the board increase in September 2011.SAFCEC urged the Department to

note the historic changes in wages and conditions of employment that have been

published in recent years. They submitted that major increases were granted in the past,

even much higher for the rural areas in order to rectify certain disparities. The

organization submitted that companies have endured extra ordinary increases in order to

achieve an alignment between rural and urban areas but that future increases should not

exceed the rate of inflation.

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The table below gives an indication of the impact of current employment, contract

awards, turnover and salaries and wages.

Table 6: The impact of current employment, contract awards, turnover and wages.

Employment Turnover

(nominal)

Contract

Awards

Salaries and

Wages

Price

Index

2000 56 674 8 669 595 494 5 978 561 149 1 918 581 483 100

2001 71 065 11 723 000 614 11 354 639 627 2 594 300 036 108.9

2002 89 806 17 138 501 083 17 853 493 240 3 792 750 290 126

2003 93 867 17 701 840 728 16 115 728 749 3 917 417 353 129.9

2004 86 819 17 180 281 073 18 472 212 159 3 801 996 201 133.8

2005 99 636 20 999 901 277 22 938 418 409 4 647 278 153 143

2006 113 870 25 783 535 490 31 732 192 509 5 705 896 404 153.1

2007 156 706 38 472 602 944 40 972 794 543 8 513 987 032 166.1

2008 196 596 58 063 639 993 67 874 089 264 12 849 483 530 199.7

2009 174 927 51 147 261 584 34 379 086 476 11 318 888 989 197.7

2010 105 591 32 744 103 366 33 364 001 767 7 246 270 075 203.3

2011 101 854 36 888 136 573 55 704 877 126 8 163 344 624 216.1

SAFCEC argued that the implication of total cost of employment to company, as per

collective agreement or determination, should be used as the basis to evaluate the impact

that these processes have on the overall employment cost.

SAFCEC also believes that inflation linked principles must be applied to determine what

the adjustment to total cost of employment should be. The organization further submitted

that any consideration to total cost of employment increases must be considered in line

with the specific and current global economic realities and with due cognizance of the

employment and recessionary impacts thereof.

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The overall input from employers throughout the country was that wage increases should

be pegged between 6% and 8%. Employers also proposed that consideration should be

given to the fact that the non-wage demands are also further increasing the total

employment cost, thus affecting the viability of the civil engineering industry. However,

in most of the areas visited employers cautioned against a double-digit increment,

arguing that it would have an adverse impact on the sector, resulting in major layoffs and

closure of many businesses.

Views of the employees

NUM’s submission to Department was that the minimum wages should be increased by

15% across the board. BCAWU also submitted that a 15% increase across the board

would be the ideal increment.

Some employees in Cape Town, Bloemfontein and Durban proposed that increases be

pegged between 8% and 10%. They further indicated that increases for grade one should

be pegged higher than the other grades due to fact that they are the most vulnerable.

In Durban, NUM proposed that the job grading system should be investigated and

reviewed to cater for recognition of prior learning and employees with certain skills level

and also to ensure that the gap between these grades is closed. They submitted that the

minimum wages should be increased by 30%-40% for grade 1 and 20% for other grades.

Employees argued that the work they do is labour-intensive and does not match the rate

of pay they receive in reality and most of them move to other provinces with their

employers for projects, which means more costs. They also cited the rising cost of food,

transport, school fees and the cost of living in general as the reason for their proposal.

They also mentioned that increases on electricity also add more financial burden on their

budgets, which affect affordability.


The Department is mindful of the fact that the South African construction sector has been

facing a recession due to completion of construction projects, several which were FIFA

soccer world cup related. The challenge, however, remains the fact that employees are

Page 27 of 41


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faced with an increasing cost of living, which can only be addressed through wage

increases. We are also optimistic, however, that the South African Government’s

infrastructure investment plans should provide significant headroom for the industry,

particularly by the key parastatals such as Eskom and Transnet.Therefore setting the

minimum wages at a reasonable level might be sensible in order to ensure that companies

do not shutdown, downsize or retrench employees.

Given the above mentioned challenges that employers and employees are facing, in order

to ease the financial burden from the employees and to ensure that employers still

continue with their businesses successfully, the Department proposes that:

For the period 1 September 2012 to 31 August 2013, the wage for Task Grade 1 will

be R20.50 per hour, which amounts to an increase of 8.07% as per the current sectoral

determination.

For the period 1 September 2012 to 31 August 2013, the minimum hourly wage rate

applicable for Task Grade 2 to 9, be increased by 8% as per table 8 below,

The table below represents the proposal by the Department on the new minimum wages.

Table 7: Minimum hourly rates proposed by the Department

Grade Current Rates 01/09/2012 - 31/08/2013

Task Grade 1/Patterson A1 R18.97 R20.50


Task Grade3/ Patterson A3 R19.60 R21.17

Task Grade4/Patterson B1 R20.27 R21.89

Task Grade 5/Patterson B2 R24.25 R26.19

Task Grade6/ Patterson B3 R27.54 R29.74



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Task Grade 9/ Patterson C1 R39.96 R43.16

3.3 Duration of the sectoral determination

Views of employers

Employers in general throughout the country indicated that the new minimum wages

should be determined for two or three years period in order to ensure peace and stability

in the industry and also to assist employers and project owners in their planning for costs

and expenditure, particularly in the view of the National Infrastructure development

programme.

Views of employees

The unions (NUM & BCAWU) present at the hearings indicated that minimum wages

should be determined for one year in order for them to negotiate with employers on

economic conditions of that particular year. They also indicated that if the CPI rate was

above 10%, they could agree that the wages be determined for two to three years.

Views of Department

The Department notes that sectoral determinations are normally reviewed after three

years but because of the pending application for the registration of a Bargaining council,

the Department recommends that the sectoral determination be reviewed for a period of

one year.

3.4 Minimum wage increases for years 2 and 3

Views of employers

In its submission to the department, SAFCEC cautioned that accelerated and additional

improvements in employment conditions will adversely affect the civil engineering

industry and specifically smaller and upcoming contractor sustainability, even more so,

under current market conditions. SAFCEC further indicated its concern about the current

economic outlook and the lack of consistent work for the SMMEs.

Employers throughout the country indicated that even though increases would improve

the income of employees, high increases would also place a significantly increased

liability on employers and the potential viability of their businesses. They therefore

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differed on their proposals with some proposing an increase of CPI only and others

proposing that an increase of CPI or 8% if the CPI is less than 6% for years 2 & 3 of the

review.

Views of employees

BAWUSA proposed that wages be increased by CPI plus 3% for year 2 and some

employees proposed a 10% increase for years 2 & 3. They argued that the approach of

using CPI and adding a small percentage rate on the inflation does not observe the criteria

set out in the BCEA which compels the sectoral determination to address poverty and

challenges posed by cost of living. They indicated that the wage increase should improve

their living conditions and address the challenges posed by the cost of living.


The Department proposes that wages be increased for a period of one year pending the

application for a civil engineering bargaining council.

3.5 Other basic conditions of employment discussed in the public hearings.

During the public hearings employees submitted other inputs on a number of issues. The

issues include the following:

a) Inclement weather;

b) Family responsibility leave;

c) Severance pay;

d) Annual leave;

e) Annual bonus;

f) Maternity leave; and

g) Provident fund.

Inclement weather

In terms of the sectoral determination, whenever the ordinary hours of work are reduced

on account of inclement weather for the employee who has reported for work, the

employee will be paid for eight hours increasing to nine hours effective from 1

September 2012.

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NUM and BCAWU submitted that there should be no loss of pay for employees due to

inclement weather.


The Department supports the provision as per the current sectoral determination that

whenever the ordinary hours of work are reduced on account of inclement weather for the

employee who has reported for work, the employee will be paid for nine hours provided

the employee has at the request of the employer, remained at the workplace during this

period.

Family Responsibility Leave

In terms of the sectoral determination, employees who have been in employment for

longer than four months with the same employer and who work at least four days a week

are entitled to four days paid family responsibility leave per annum.


The unions proposed seven days paid family responsibility leave during each annual

leave cycle. They argued that the employees have bigger families and have homes that

are distant from their workplaces, therefore four days per year is insufficient.


The Department recommends that the four days family responsibility leave currently

provided for in the sectoral determination should remain.

Severance package

In terms of the sectoral determination, employees are entitled to one week’s remuneration

for every completed year of continuous service with that employer in the event of

termination of employment based on operational requirements.

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Employees proposed two week’s severance pay must be given to employees on

termination of employment based on operational requirements. They argued that the one

week of severance pay is not sufficient because the employee is responsible for the

termination of employment and that the employer is responsible for ensuring that all the

employees that are to be dismissed are treated fairly.


The Department supports the provision to increase severance pay entitlement to two

weeks’ salary for employees who have more than ten years of continuous service with the

same employer and to retain the one week’s salary for employees with ten years or less

continuous service as per the current sectoral determination.

Annual leave

In terms of the sectoral determination, an employer shall grant to an employee who has

completed less than five (5) continuous years’ service but who has been in employment

for longer than four (4) months in the aggregate, 15 working days leave. An employer

shall grant an employee who has completed five (5) continuous years’ of service with that

employer 18 working days leave from 1 September 2012.


Employees proposed 30 days of annual leave or four weeks per annum. They argued that

the current provision is insufficient since they do not reside with their families, so they

need extra days to travel to their respective homes. NUM and BCAWU on the other hand

proposed 18 days annual leave.


The Department proposes that the parties re-negotiate the provision of annual leave upon

the registration of the Civil engineering bargaining council, therefore the status quo on

annual leave which provides that an employee who has completed less than five

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continuous years’ service but who has been in employment for longer than four months in

the aggregate will receive 15 working days leave and an employee who has completed

five continuous years’ of service with that employer will receive 18 working days leave

should remain.

Maternity leave

In terms of the sectoral determination, an employee is entitled to at least four consecutive

months’ maternity leave. The sectoral determination also provides that an employee must

receive 20% of her normal weekly wage, provided she has been continuously in service for

two years before the expected date of birth and must remain in service for 1 year after birth.


Employees proposed six months’ maternity leave with full pay. They argued that the

industry has started to employ more women, but maternity provisions in the sectoral

determination do not make conditions conducive for women. NUM & BCAWU on the

other hand proposed four month’s maternity leave with full pay.


The Department proposes that the provision relating to maternity leave as per the current

determination remain as is and be re-negotiated upon the registration of the Civil

engineering bargaining council.

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CHAPTER FOUR

EVALUATION IN TERMS OF ECC CRITERIA

4.1 Ability of employers to conduct their business successfully and operation of

small, medium or micro enterprises, and new enterprises.

South Africa’s construction companies had a profitable build up to the 2012 soccer world

cup as the large number of large construction and infrastructure projects filled their order

books. The new or upgraded stadia and airports provided the major construction

companies with billion rand orders and allowed them to be successful. After 2010, the

industry experienced delays in contract awards and a general slowdown in the sectors.

Government’s massive infrastructure development drive for the year 2012 and beyond is

intended to underpin economic growth and job creation, to support enterprise

development, and to enhance the transformation of the construction industry.

The construction industry is one of the largest employers in the country, which would

explain why the figure of R846billion is being used to allay fears of workflow and job

creation. But the number is shrouded in mystery, and sceptics are becoming increasingly

vocal about the legitimacy of the figure16.

In Government’s Medium-Term Economic Framework (MTEF), last year’s R787billion

budget was revised to the R846billion to be spent until 2013. This figure is made up of

the infrastructure budgets of national, provincial and local government departments, as

well as public-private partnerships (PPPs). According to the National Treasury, non-

financial public enterprises, such as Eskom, Transnet and SANRAL, make up the largest

share of the spending, contributing 53.6% (R453.7bn) of the total. Spending by

municipalities is the second largest contributor, making up 17.5%17.

Given the government’s commitment to infrastructure projects and contracts currently

underway such as Medupi coal-fired power plant, Kusile coal-fired power plant and the

Gauteng Freeway improvement programme, the industry is expected to recover and that

16 http://www.aveng.co.za/financials/annual_reports. 17 http://www.isiza.co.za/magazine/current-issue.

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2012-2013

has been revealed by the FNB/BER construction results for quarter 2 of 2012. The

FNB/BER construction confidence index rose for the 3rd consecutive quarter, from 34

index points to 38 during 2Q2012. This also marks the highest level of the index since the

end of 2009. The results suggest that the recovery is gaining momentum with

construction activity in particular picking up noticeably.

The results found that some of the biggest new projects came from public corporations

including Eskom, Trans-Caledon Tunnel Authority, SANRAL and Transnet as they

managed to secure financing and consequently award tenders for projects announced

some time ago. Additional work was also commissioned by the government, more

specifically the provinces and for smaller projects which will cater for the Small Medium

and Micro Enterprise (SMME) employers.

The Commission is optimistic that its recommendation will not impede the ability of

employers and SMMEs to conduct their businesses successfully. Furthermore the BCEA

allows for employers to apply for a ministerial determination in the event that they may

face economic challenges which will result into a negative effect in conducting their

businesses successfully and therefore flexibility does exist to deal with these situations.

4.2 The impact of the proposed minimum wage on the cost of living and poverty

alleviation

Rising food and commodity prices pose a threat to poor households, adding to social and

economic strains in emerging and developing economies. Stats SA reported that the

increase in SA’s consumer price index (CPI), which the Reserve Bank uses to target

inflation, was 5.7% year-on-year in April 2012 from 6.1% y/y in March 2012. CPI

increased 0.1% month on month (m/m) in May from 0. 4% in April.

The annual average consumer rate was 5.0% in 2011 from 4.3% in 2010. The Reserve

Bank expected inflation to average 6.0% in 2012‚ and to moderate to a 5.5% average in

2013. The food and non-alcoholic beverages index decreased by 0.2% between April and

May, while the annual rate decreased to 6.6% in May from 8.7% in April.

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Between April and May, the annual inflation rate for bread and cereals increased by 0.2%

while milk, eggs and cheese increased 0.7% y. In the same period, inflation for

vegetables decreased by 0.7%, while meat fell by 1.0%. The transport index on the other

hand rose by 0.4% between the two months, mainly due to a 28c/litre increase in the price

of petrol.

This therefore poses a challenge in trying to strike a balance when setting minimum wage

in response to the challenges posed by the cost of living. The increase is intended to

improve the lives of workers. Considering the current rise in food prices, electricity, and

transport, the proposed increases pegged at eight per cent will attempt to address

concerns faced by those earning low wages which reduces their standards of living.

The proposed minimum wage might not be able to deal with the challenges raised above

but should be able to ensure that workers can afford to purchase basic foodstuff for their

families as the bulk of their wage is spent on food.

4.3 Wage differentials and inequality

The sectoral determination introduced a grading system, which was long overdue in the

sector. The grading system, although it creates a wage gap between the employees, is

aimed at recognising the skills and the contribution of each employee. The current

Commission recommendation promotes just that, although different categories of

employees have different responsibilities and skills, and this gap might seem excessive.

4.4 The likely impact of the proposed wages on current employment and the

creation of employment

The Quarterly Labour Force Survey released by Stats SA indicated that eemployment in

the construction industry reported an annual decrease of 45 000 employees (-4.4%) in

Q1:2012 compared with Q1:2011, suggesting that the government’s infrastructure

spending programme has not yet had an effect on the labour market.

The FNB/BER results on the other hand reveal that employment levels in the

construction sector have increased modestly in quarter two of 2012. This might indicate

that the massive investment in the construction of roads, ports, railways and other

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infrastructure is starting to set in motion the creation of many construction sector jobs in

various parts of the country. In his address to Parliament on infrastructure development

cluster, former Transport Minister Sibusiso Ndebele, indicated that Government`s

construction programme would sustain between 50 000 and 100 000 jobs in the

construction sector in the next three years.

The increases as recommended are not likely to have a significant impact on employment

levels, especially on small businesses and the proposed infrastructure programme is likely

to assist in job creation in the sector. However, it should be noted with caution that the

long lead times in awarding tenders and infrastructural development cost increases,

including increased cost of employment, may have a negative impact on small

businesses.

The Commission is therefore of the view that the proposed increases will not only assist

in job creation and reduce staff turnover in the industry, but they will also have a major

impact on staff retention.

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CHAPTER FIVE

RECOMMENDATIONS OF THE ECCMinimum wages

The ECC recommends that the new minimum wages should be increased by 8.07% for

task grade 1 as per the current sectoral determination and by 8.0% for task grade 2-9 as

per the table below. The ECC further recommends that the new minimum wages should

remain in place for a period of one year, commencing on 1 September 2012.

Table 8: Minimum hourly rates proposed by the ECC

Grade Current Rates 01/09/2012 - 31/08/2013



Task Grade3/ Patterson A3 R19.60 R21.17

Task Grade4/Patterson B1 R20.27 R21.89


Task Grade6/ Patterson B3 R27.54 R29.74



Task Grade 9/ Patterson C1 R39.96 R43.16

Extension of the scope of the sectoral determination to include the building sector

The ECC recommends that given the information at hand, it is not appropriate for the scope of

application of the civil engineering sectoral determination to be extended to include the building

sector. The ECC recommends that a separate investigation should be conducted to establish the

levels of vulnerability within the building sector; the impact that the conditions in the

civil engineering sectoral determination will have on the sector without affecting

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employment levels, the current collective bargaining regimes in place in the building

sector and the level of wages currently paid in the sector.

Duration of the sectoral determination and minimum wage increases

The ECC recommends that the sectoral determination be reviewed for a period of one

year pending application for the registration of a Bargaining council.

Other basic conditions of employment issues: family responsibility leave; severance

pay; annual leave; maternity leave, hours of work and inclement weather

The ECC is of the view that the conditions in the current sectoral determination on these

specified basic conditions are adequate and there is no need to change the determination.

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Documents

ECC Report: Civil Engineering 2012