Construction Contract with CIDB Grade

November 7, 2020

The National Contractor Development Program was developed by government to promote capacity, equity ownership, skills as well as performance across the various CIDB grade levels. This task was given to the CIDB, and as such, the CIDB had to develop mechanisms for cross pollination among the different CIDB levels. One of these mechanisms is the recognition of joint ventures as well as sub contract agreements within the public sector.

For this reason, companies that have a lower CIDB level, can actually qualify for CIDB grade higher than one notch, by getting into a joint venture agreement with one or more other contractors registered on the CIDB’s database. The CIDB even recommends companies to use the standard joint venture agreements published on most construction body websites.

One of these is the South African Federation of Constructions Engineering Contracts as well as the Joint Buildings Contracts Committee. The standard terms on these contract templates, are designed to contain clauses that will ensure equitable share of managerial, skills share as well as contributions by the various parties.

More companies are encouraged to join the joint ventures especially at lower levels. Joint contracts start at level 3. What this means is that there is no joint venture combinations available at the CIDB entry level 1, however, 3 grade 2 companies can enter into a joint venture, to be recognized at a CIDB level 3 whereas 2 grade 8 can join to form a grade 9.

There are various combinations that can be made which can be found on the CIDB’s website however, the CIDB also offers what they call the electronic grading calculator, which can be used to determine the joint venture CIDB level agreement that can be achieved simply by entering the CRS numbers of active CIDB contractors.

Getting a company to partner up on a joint venture, is one of the quickest & effective ways of securing a government construction tender, one level above your engineering firms notch. The arrangements for a joint venture, are quite easy. All it takes is for the combination companies to be in good standing at the CIDB at the time of the application as well as a joint venture agreement signed amongst the parties.

As I said before, joint venture agreement templates approved by the CIDB can be found easily on the CIDB’s website in PDF format, converted into word documents and customized according to the party’s requirements. They do not cost a cent and you do not have to involve lawyers as long as the terms are fair & equitable to both parties.

One rule that is important when forming a joint venture, is that there has to be a lead contractor. The lead contractor is more like the principal contractor of the project and the lead contractor has to be at least one notch below the required CIDB level. For example, if the lead contractor, is aiming for a grade 9, that lead contractor must already be registered on grade 8.

The great thing about Joint venture agreements is that the awarding departments is not normally too concerned with the detailed terms of the joint agreement, unless of course, the tender was advertised in terms of what they call a targeted group or preferential procurement requirement.

For example, if the targeted group is black women, then the joint venture would be best formed by companies that have a majority shareholding of black women. Ownership, managerial as well as skills transfer must be equitably demonstrated in such a joint venture. These kind of joint venture agreements are specifically governed by the South African National Standards manual referred to as the SANS1914.

If a construction contract calls for such an undertaking, it would be best to get hold of this manual in order to develop a joint venture agreement that is aligned to the minimum requirements contained within this manual. Please do not waste your resources trying to obtain a lawyer to draft a contract for you in this regard without following the requirements of the SANS1914 unless you want to reduce the chances of your joint venture bid from succeeding.

To conclude in this article, a joint venture agreement is a good way to secure a construction contract one notch above your current existing CIDB grade.

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