ISO 10845-5:2011

INTERNATIONAL ISO
STANDARD 10845-5
First edition
2011-01-15
Construction procurement —
Part 5:
Participation of targeted enterprises in
contracts
Marchés de construction —
Partie 5: Participation des entreprises cibles aux contrats

Reference number
©
ISO 2011
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ii © ISO 2011 – All rights reserved

Contents Page
Foreword .iv
Introduction.v
1 Scope.1
2 Terms and definitions .1
3 Requirements.4
3.1 Contract participation goal.4
3.2 Achieving the contract participation goal.4
3.2.1 General .4
3.2.2 Verification of the status of targeted enterprises .4
3.2.3 Joint ventures .5
3.3 Contract participation goal credits.6
3.3.1 Granting of credits .6
3.3.2 Denial of credits.6
4 Compliance with requirements .7
4.1 General .7
4.2 Substitutions.7
4.3 Bona fides of targeted enterprises.8
5 Records .8
5.1 Submission of documentation.8
5.2 Monthly submission of supporting documentation .8
5.3 Certification of credits .8
5.4 Actions required upon completion of a targeted enterprises's contract with the contractor.9
6 Sanctions .9
Annex A (informative) Commentary.10
Annex B (informative) Preparation of targeting data associated with this part of ISO 10845 for
inclusion in the scope of work.19
Annex C (normative) Contract participation goal implementation plan (targeting strategy A).22
Annex D (normative) Letter of undertaking from a targeted enterprise to act as a subcontractor,
supplier, manufacturer or service provider.27
Annex E (normative) Joint venture disclosure form .28
Annex F (informative) Examples of how contractors can fulfil their contract participation goal
obligations .36
Annex G (informative) Tendered contract participation goal (targeting strategy A) .38
Annex H (informative) Sample tender evaluation schedule where use is made of this part of
ISO 10845 .42
Annex I (informative) Contract schedule for targeted enterprises .44
Bibliography.48

Foreword
ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies
(ISO member bodies). The work of preparing International Standards is normally carried out through ISO
technical committees. Each member body interested in a subject for which a technical committee has been
established has the right to be represented on that committee. International organizations, governmental and
non-governmental, in liaison with ISO, also take part in the work. ISO collaborates closely with the
International Electrotechnical Commission (IEC) on all matters of electrotechnical standardization.
International Standards are drafted in accordance with the rules given in the ISO/IEC Directives, Part 2.
The main task of technical committees is to prepare International Standards. Draft International Standards
adopted by the technical committees are circulated to the member bodies for voting. Publication as an
International Standard requires approval by at least 75 % of the member bodies casting a vote.
Attention is drawn to the possibility that some of the elements of this document may be the subject of patent
rights. ISO shall not be held responsible for identifying any or all such patent rights.
ISO 10845-5 was prepared by Technical Committee ISO/TC 59, Buildings and civil engineering works.
ISO 10845 consists of the following parts, under the general title Construction procurement:
⎯ Part 1: Processes, methods and procedures
⎯ Part 2: Formatting and compilation of procurement documentation
⎯ Part 3: Standard conditions of tender
⎯ Part 4: Standard conditions for the calling for expressions of interest
⎯ Part 5: Participation of targeted enterprises in contracts
⎯ Part 6: Participation of targeted partners in joint ventures in contracts
⎯ Part 7: Participation of local enterprises and labour in contracts
⎯ Part 8: Participation of targeted labour in contracts
iv © ISO 2011 – All rights reserved

Introduction
Procurement is the process which creates, manages and fulfils contracts. Procurement can, as such, be
described as a succession of logically related actions occurring or performed in a definite manner and which
culminate in the completion of a major deliverable or the attainment of a milestone. Processes, in turn, are
underpinned by methods (i.e. a documented, systematically-ordered collection of rules or approaches) and
procedures (i.e. the formal steps to be taken in the performance of a specific task), which are informed and
shaped by the policy of an organization. Methods and procedures can, likewise, be documented and linked to
processes.
It is becoming increasingly more important to consider procurement-related deliverables other than those
relating to the primary purpose of the procurement itself, particularly those relating to poverty reduction, job
creation, local economic development and local industry development. Key performance indicators relating to
the engagement of enterprises, joint venture partners, local resources and local labour in contracts are
needed to set targets in contracts or to measure procurement outcomes. Processes, procedures and methods
are required to quantify, measure and verify a contractor's performance in relation to such indicators in an
auditable manner.
INTERNATIONAL STANDARD ISO 10845-5:2011(E)

Construction procurement —
Part 5:
Participation of targeted enterprises in contracts
1 Scope
This part of ISO 10845 establishes a key performance indicator, in the form of a contract participation goal
(CPG), relating to the engagement of targeted enterprises on a contract for the provision of goods, services or
engineering and construction works. A CPG may be used to measure the outcomes of a contract in relation to
the engagement of targeted enterprises or to establish a target level of performance for the contractor to
achieve or exceed in the performance of a contract.
This part of ISO 10845 sets out the methods by which the key performance indicator is measured, quantified
and verified in the performance of the contract with respect to two different targeting strategies: targeting
strategy A and targeting strategy B (defined in Clause 2).
NOTE Annex A contains a commentary on the clauses in this part of ISO 10845. Annex B provides guidance on how
to develop the targeting data for a procurement document using this part of ISO 10845.
2 Terms and definitions
For the purposes of this document, the following terms and definitions apply.
2.1
allowance
amount provided for in the contract by the employer relating to one or more of the following:
a) the performance by the contractor of work or services that are foreseen but cannot be accurately specified
at the time that the contract was entered into;
b) work or services to be performed, or goods provided, by a subcontractor who is either nominated by the
employer or is selected by the employer in consultation with the contractor after the award of the contract;
c) provision for price adjustment for inflation; or
d) other budgetary provisions intended to cover employer risks.
2.2
commercially useful function
performance of real and actual work, or the provision of services, in the discharge of any contractual obligation
which includes, but is not limited to, the performance of a distinct element of work which the enterprise has the
skills and expertise to undertake and the responsibility for management and supervision
2.3
contract amount
financial value of the contract
a) at the time of the award of the contract, exclusive of all allowances and any value added tax or sales tax
which the law requires the employer to pay to the contractor (targeting strategy A); or
b) upon completion of all contractual obligations, exclusive of any value added tax or sales tax which the law
requires the employer to pay to the contractor (targeting strategy B)
2.4
contract participation goal
CPG
value of goods, services and works for which the contractor contracts targeted enterprises exclusive of any
value added tax or sales tax which the law requires the employer to pay to the contractor, expressed as a
percentage of the contract amount associated with the targeting strategy that is identified in the targeting data
2.5
contractor
person or organization that contracts to provide the goods, services or engineering and construction works
covered by the contract
2.6
control
possession and exercise of legal authority and power to manage the assets, goodwill and daily operations of
an enterprise, and the active and continuous exercise of appropriate managerial and financial authority and
power in determining the policies and directing the operations of the said enterprise
2.7
employer
person or organization entering into the contract with the contractor for the provision of goods, services, or
engineering and construction works
2.8
employer's representative
person authorized to represent the employer and named as such in the contract data or targeting data
2.9
joint venture
grouping of two or more contractors acting as one legal entity, where each is liable for the actions of the other
[ISO 6707-2:1993, definition 3.4.22]
2.10
manufacturer
sole trader, partnership or legal entity that operates or maintains a factory or establishment that produces on
its premises, goods required in terms of the contract
2.11
main contractor
contractor who subcontracts part of his contract
[ISO 6707-2:1993, definition 3.8.13]
2.12
ownership
legal right of possession, including the right of disposition, and sharing in all the risks and profits
commensurate with the degree of ownership interest or shareholding, as demonstrated by an examination of
the substance, rather than the form, of ownership arrangements
2 © ISO 2011 – All rights reserved

2.13
participation parameter
fraction of the contract or subcontract which may be used to represent the value of the contribution and value
of the commercially useful function performed by targeted partners in a joint venture
2.14
supplier
sole trader, partnership or legal entity that owns, operates or maintains a store, warehouse or other
establishment in which goods are bought, kept in stock and regularly sold to wholesalers, retailers or the
public (or all three) in the usual course of business
2.15
targeted enterprise
sole trader, partnership or legal entity which is engaged in the performance of the contract and defined as the
target group in the targeting data
2.16
targeted enterprise declaration affidavit
affidavit, of the format provided for in the procurement documents, which confirms the bona fides of a targeted
enterprise
2.17
targeted partner
targeted enterprise functioning as a partner in a joint venture
2.18
targeting data
data, provisions and variations that make this part of ISO 10845 applicable to a particular contract
(see Annex B)
2.19
targeting strategy
an approach which is pursued to make a contract participation goal an obligation of contract
2.19.1
targeting strategy A
targeting strategy which
a) involves the granting of tender evaluation points by the employer in the evaluation of tender offers in
return for the tendering of a contract participation goal or an undertaking to attain a specified contract
participation goal at the time that tenders are evaluated, or
b) requires a contractor to achieve a minimum specified goal in the performance of a contract, or
c) involves both (a) and (b)
2.19.2
targeting strategy B
targeting strategy which
a) involves the payment of a financial incentive to a contractor for the attainment of a specified contract
participation goal, or
b) requires the contractor to record and report on the quantum of work generated for targeted labour
NOTE Targeting strategy A bases the contract participation goal on the tendered amount minus allowances, i.e. on
the expenditure which the contractor can commit to at tender stage. This strategy allows the employer to adjust the
contract participation goal to take account of any failure to achieve such goal in the performance of the contract due to
factors which are beyond the contractor's control or are unforeseen at tender stage. Targeting strategy B measures the
contract participation goal based on the final contract value. Targeting strategy A accordingly measures the performance
of contractors in the engagement of targeted labour in relation to that which can be committed to at tender stage, whereas
targeting strategy B does so in relation to that which is finally achieved.
3 Requirements
3.1 Contract participation goal
The contractor shall engage targeted enterprises directly or indirectly in the performance of the contract to the
extent that the total monetary value of such engagements, exclusive of any value added tax or sales tax
required by law, is sufficient to achieve the contract participation goal for the targeting strategy specified in the
targeting data.
The contractor shall, in the case of targeting strategy A, submit to the employer's representative details of his
plan to achieve the contract participation goal, on the contract participation goal implementation plan form
contained in Annex C, within five working days of being instructed to do so. If no such instructions are given,
these plans shall be submitted before the submission of the first claim for payment.
NOTE The information contained in the contract participation goal implementation plan facilitates, in the first instance,
the monitoring of the performance of the contractor in terms of his contract participation goal obligations and, in the
second instance, the making of any adjustments to compensate for quantitative underruns, the elimination of items, etc.
(see Clause 6).
3.2 Achieving the contract participation goal
3.2.1 General
A contractor shall achieve the contract participation goal by any of the following means, unless otherwise
specified in the targeting data
a) Method 1: by virtue of his targeted enterprise status,
b) Method 2: by entering into a joint venture agreement with one or more targeted partners as set out in
3.2.3,
c) Method 3: by engaging one or more targeted enterprises to perform commercially useful functions in the
performance of the contract,
d) Method 4: by engaging non-targeted enterprises who, in turn, engage one or more targeted enterprises
to perform commercially useful functions in the performance of the contract,
e) Method 5: by engaging non-targeted enterprises who, in turn, enter into joint venture agreements with
one or more targeted partners as set out in 3.2.3 to perform commercially useful functions in the
performance of the contract, or
by any combination of Methods 1 to 5.
3.2.2 Verification of the status of targeted enterprises
Contractors shall submit completed targeted enterprise declaration affidavits and, where targeting strategy A
applies, letters of undertaking to act as subconsultants, subcontractors, suppliers, manufacturers or service
providers (see Annex D), with respect to each and every targeted enterprise and targeted partner whose
contribution shall be counted towards the contract participation goal. These documents shall, unless otherwise
specified in the targeting data, be submitted to the employer's representative before the submission of the first
claim for payment.
4 © ISO 2011 – All rights reserved

3.2.3 Joint ventures
3.2.3.1 General
Contractors shall develop joint venture agreements with targeted partners in order to fulfil contract
participation goal obligations.
Credits towards the achievement of the contract participation goal shall only be granted subject to compliance
with the following requirements:
a) the targeted partner shares in the following aspects of the joint venture in an appropriate and meaningful
manner, consistent with reasonable business practices:
1) ownership,
2) control,
3) management responsibilities,
4) risks, and
5) profits,
b) the targeted partner is responsible for a clearly defined portion of the contract, and
c) the targeted partner performs part of the defined portion of the contract for which he is responsible, using
his own resources or resources hired by him independently of his non-targeted partners.
3.2.3.2 Participation parameter
The participation parameter shall be equated to the lesser of
a) the financial value of the contract for which the targeted partner is responsible, and
b) twice the financial value of the contract which the targeted partner performs using his own resources or
resources hired by him independently of his non-targeted partners,
expressed as a fraction of the contract amount or value of the work performed by the joint venture.
EXAMPLE If targeted partners within a joint venture have, in total, a participation parameter of 0,15 in a contract with
a contract amount of USD 10 million, the targeted partners are responsible for work to the certified value of at least
USD 1,5 million (0,15 × USD 10 million). Work to the value of at least USD 750 000 (50 % of USD 1,5 million) is carried
out using their own resources or resources hired by them independently of their non-targeted partners.
3.2.3.3 Joint venture disclosure forms
Details of any joint ventures developed with targeted partners shall be disclosed on the joint venture
disclosure form (see Annex E) and shall be submitted before the submission of the first payment certificate or
as otherwise agreed, in writing, with the employer.
3.3 Contract participation goal credits
3.3.1 Granting of credits
Credits towards the contract participation goal shall be granted by converting the value of the following
(exclusive of any value added tax or sales tax required by law) to a percentage of the contract amount, as
relevant:
a) the total monetary value of the contributions made by targeted enterprises, other than targeted
enterprises who are suppliers, in fulfilling contractual obligations, subject to such targeted enterprises not
subcontracting more than 15 % of the value of their contribution to non-targeted enterprises;
b) 50 % of the expenditure on goods required for the contract, which are obtained from suppliers who are
targeted enterprises, subject to such enterprises not subcontracting more than 15 % of the value of their
contribution to non-targeted enterprises;
c) the total monetary value of expenditures made to manufacturers who are targeted enterprises;
d) the total monetary value with respect to fees or commissions charged by targeted enterprises, which in
the opinion of the employer are reasonable, justifiable, and not excessive when compared with fees or
commissions normally allowed for similar services, with respect to:
1) the provision of professional, technical or managerial services, including those required for the
acquisition of essential personnel, facilities, equipment and goods necessary for the performance of
the contract,
2) the delivery of goods required in the performance of the contract (but not the cost of the goods
themselves) when the transporter or delivery service is not also the manufacturer or supplier (or
both), and
3) the provision of any bonds or insurance policies specifically required for the performance of the
contract;
e) the total monetary value of the contributions made by joint ventures with targeted partners multiplied by
the associated participation parameter with respect to each targeted partner, subject to compliance with
the requirements of 3.2.3, and the total monetary value of such contributions being halved where such
joint venture is a supplier who is not a main contractor; and
f) in the case of a contractor who is a targeted enterprise, the monetary value of the work performed using
his own employees and resources and 10 percent of the value of the subcontracts to non-targeted
enterprises.
NOTE 1 The credits calculated in terms of (a) to (e) apply also with respect to non-targeted enterprises engaged by the
contractor in the performance of the contract, should such enterprises comply with the relevant requirements. Annex F
provides illustrative examples as to how a contractor can fulfil his contract participation goal obligations.
NOTE 2 Where targeted enterprises subcontract more than 15 % of the value of the contribution to non-targeted
enterprises, the credits are limited to the actual value of the contributions made by targeted enterprises.
3.3.2 Denial of credits
3.3.2.1 Case 1
No credits shall be granted should the contractor make a direct payment to a supplier, manufacturer or plant
hire or lease company on behalf of a targeted enterprise when such payment is recovered by making
deductions from payments to the targeted enterprise in connection with the contract; or should the contractor
fail to enter into written contractual agreements with the relevant targeted enterprises.
6 © ISO 2011 – All rights reserved

3.3.2.2 Case 2
Credits claimed towards the contract participation goal shall be denied where written contractual agreements
contain any of the following:
a) a right to set off in favour of the employing contractor not provided for by law;
b) authoritarian rights given to the employing contractor or his agent, with no recourse to independent
adjudication in the event of a dispute arising;
c) payment procedures based on a pay-when-paid system;
d) a dispute resolution process which does not include inexpensive alternative dispute resolution procedures,
such as mediation or adjudication, but which only makes use of formal proceedings such as arbitration or
litigation; or
e) conditions which are more onerous than those which exist in the main contract.
Credits shall be denied should targeted enterprises not adhere to statutory labour practices or fail to perform
commercially useful functions.
4 Compliance with requirements
4.1 General
The contractor shall enter into written contractual agreements with all the targeted enterprises and targeted
partners cited in the contract participation goal implementation plan and shall, as soon as is practicable,
furnish the employer's representative with copies of such agreements and the written acceptances thereof.
The contract to be performed by the targeted enterprises and targeted partners shall, in the case of targeting
strategy A, thereafter neither be reduced in scope, nor terminated without the prior written approval of the
employer's representative, which shall not be unreasonably withheld or delayed.
4.2 Substitutions
Where targeting strategy A applies and in the event that, through no fault of the contractor, a contracted
targeted enterprise is found to be
a) unable to perform,
b) unable to perform on time,
c) unable to produce acceptable work,
d) unwilling to perform work required, or
e) not fit to perform the service;
the contractor shall notify the employer's representative of the apparent necessity to reduce or terminate such
a targeted enterprise's contract, citing the reasons therefor.
In the event that the employer approves the contractor's request to be relieved of his obligation to make use of
a contracted targeted enterprise, the contractor shall either provide a substitute targeted enterprise to take
over the contract, or engage a targeted enterprise on another aspect of the contract so as to secure the
required credits to achieve the contract participation goal. The contractor shall, in such circumstances, submit
to the employer a targeted enterprise declaration affidavit with respect to the proposed substitute targeted
enterprise, and supply details of the nature and value of the contract which shall be performed by such an
enterprise.
Contracts with contracted targeted enterprises may only be terminated, and new contracts entered into with
substitute targeted enterprises for the purpose of securing credits towards the contract participation goal, with
the employer's approval, which shall not be unreasonably withheld. Where the employer approves such
substitutions, the contractor shall comply with all the requirements of this part of ISO 10845.
The employer may, at his sole discretion and upon the basis of evidence submitted by the contractor in
support of fruitless efforts in good faith to secure substitute targeted enterprise participation, grant a waiver
with respect to contract participation goal obligations.
NOTE Subclause 4.2 is only applicable where targeting strategy A applies.
4.3 Bona fides of targeted enterprises
Where, in the case of targeting strategy A, an enterprise under contract was initially considered to be a
targeted enterprise but is later discovered not to be so, or is found not to be creditable towards contract
participation goals, the employer may consider a partial waiver of the contractor's obligations towards the
achievement of the contract participation goal with respect to such a targeted enterprise, should the contractor
satisfactorily demonstrate that he was justified in believing the enterprise to be a targeted enterprise and that
eligibility standards were not violated.
5 Records
5.1 Submission of documentation
The contractor shall submit all the documentation required in terms of 3.1, 3.2.2, 3.2.3, 4.1 and 4.2 in a timely
manner and, together with his programme of activities, a schedule which clearly indicates the expected
delivery dates of goods provided by targeted enterprises or the commencement and completion dates of work
and services to be performed by all the targeted enterprises engaged on the contract for the purpose of
securing credits towards the contract participation goal. This schedule shall be updated by the contractor
whenever a change in programme occurs.
5.2 Monthly submission of supporting documentation
The contractor shall prepare and submit on a monthly basis to the employer's representative, on or before the
date specified in the targeting data and, in a form approved by the employer's representative, the following:
a) a brief report which describes the commercially useful functions performed by the targeted enterprises
and targeted partners in the performance of the contract, both during the interim period and on a
cumulative basis; and
b) a schedule reflecting the estimated total value of the contracts, the cumulative value of the contracts and
the value of goods provided or work and services performed (or both) over the period for which payment
is claimed with respect to each and every targeted enterprise and targeted partner.
Should random inspections conducted by the employer's representative on targeted enterprise activities
indicate that such enterprises are not performing in accordance with the requirements of this part of
ISO 10845, the contractor shall provide, in addition to the monthly reporting requirements, separate weekly
resource returns and any other relevant information with respect to such targeted enterprises in a format
approved by the employer's representative.
5.3 Certification of credits
The employer's representative shall certify the value of the credits counted towards the contract participation
goal whenever a claim for payment is issued to the employer, and shall notify the contractor of this amount.
8 © ISO 2011 – All rights reserved

5.4 Actions required upon completion of a targeted enterprise's contract with
the contractor
The contractor shall, upon completion of each individual targeted enterprise's contract, issue a completion
certificate and certify the amount paid to such targeted enterprises. He shall submit the certificates,
counter-certified by the relevant targeted enterprises, to the employer's representative for record-keeping
purposes. The contractor shall furnish justification to the employer whenever it is not possible to obtain such
counter-certification.
6 Sanctions
In the event that, and where targeting strategy A applies, the contractor fails to substantiate that any failure to
achieve the contract participation goal was due to
a) quantitative underruns,
b) the elimination by the employer of items included in the contract participation goal, or
c) any other reason beyond the contractor's control which may be acceptable to the employer,
the sanctions provided for in the contract shall apply.
NOTE 1 The contract establishes the sanctions that apply. These are set out in a tender evaluation schedule, the
scope of work or contract data. Sanctions where tender evaluation points are granted with respect to a tendered CPG or
where a minimum CPG is specified (i.e. targeting strategy A) are usually applied in the form of
a) financial penalties, typically formulated on the difference between the contracted contract participation goal and the
contract participation goal achieved in the performance of the contract;
b) the rejection of claims for payments as being incomplete should the appropriate supporting documentation not be
provided; and
c) the issuing of completion certificates only after the certificates described in 5.4 are received.
NOTE 2 No sanctions in the form of financial penalties are applied where the CPGs are used only to measure and
report on the quantum of economic activity generated by a contract for targeted enterprises (i.e. targeting strategy B). The
sanction where financial incentives are applied is simply that the incentive is not paid if the target is not attained.
Annex A
(informative)
Commentary
NOTE 1 This annex includes background information on this part of ISO 10845, guidance on its use and suggestions
on good practice. The clauses in the commentary refer directly to the respective clauses in this part of ISO 10845, e.g. A.1
refers to Clause 1.
NOTE 2 This part of ISO 10845 can be referenced in procurement documents, usually in the scope of work or a tender
evaluation schedule (see ISO 10845-2).
A.1 Commentary on scope
The purpose of this part of ISO 10845 is to standardize the manner in which targets (contract participation
goals) are set and measured in relation to the participation of targeted enterprises in goods, engineering and
construction works or service contracts. These targets (contract participation goals) can be used, in addition to
measuring and reporting on a key performance indicator which reflects the quantum of business generated
with respect to targeted enterprises through the performance of the contract, depending upon prevailing
legislation, to
a) reserve a portion of the contract work for specified target groups by setting minimum contract participation
goals,
b) establish the basis for the awarding of tender evaluation points in proportion to the quantum of the
contract participation goal (CPG) that is tendered, or
c) establish performance targets for the payment of financial incentives relating to the attainment of key
performance indicators.
It should be noted that (a) and (b) above can be used in combination with each other should tender evaluation
points be granted for tendering a contract participation goal which exceeds a minimum value.
Public sector procurement is frequently governed by local and international laws. Employers need to be aware
that they are responsible for the correct application of this part of ISO 10845 and ensure that such application
is consistent with prevailing legislation. Compliance with this part of ISO 10845 cannot confer immunity from
legal obligations. If doubt exists, legal advice should be sought.
NOTE Annex G provides an example of a tendered contract participation goal calculation. Annex H provides an
example of a tender evaluation schedule which enables this part of ISO 10845 to be used for tender evaluation purposes.
A.2 Commentary on terms and definitions
A.2.1 Targeting data
This part of ISO 10845 should be referenced in the scope of work or the tender evaluation schedule along with
associated targeting data in accordance with the guidance provided in Annex B (see ISO 10845-2).
10 © ISO 2011 – All rights reserved

A.2.2 Targeted enterprise
A.2.2.1 General considerations
Enterprises can be targeted upon the basis of
a) locality (domicile),
b) status as a small, medium, or micro enterprise,
c) ownership, operational responsibilities and control, (or a combination thereof), by marginalized population
groups, or
d) a combination of (a), (b) and (c).
Targeting can either be on a generic or an area-bound (localized) basis, for example businesses owned by
women (generic), or business enterprises within a geographical region (area-bound).
The formulation of definitions for targeted enterprises can determine the success, or otherwise, of secondary
procurement policies, as the business environment can respond to, and structure itself around, such policies.
For example, a loose definition can promote fronting (practices which are against the spirit or provisions of this
part of ISO 10845) which can ultimately undermine the integrity and intent of a policy. An ambiguous definition
can promote collusion between procurement officers and suppliers (“gatekeeping”), as discretion invariably
needs to be exercised to determine whether or not a business is a targeted enterprise. Too wide a definition
can promote tokenism, as businesses that have some sort of the desired characteristics are permitted to
derive benefit from the policy. Too tight a definition, on the other hand, can promote a culture of elitism, as too
few businesses qualify. An inappropriate definition can promote the status quo and give a false impression of
business empowerment.
Definitions for targeted enterprises should be contractually enforceable and mirror the intent of the secondary
procurement policy. Poor definitions are often indicative of ill-defined policies.
A.2.2.2 Ownership of targeted enterprises
Ownership, including the right of disposition and sharing in the risks and profits commensurate with the
degree of ownership, is, from a procurement point of view, particularly important in privately-owned companies
as this issue lies at the heart of any programme of economic empowerment.
Ownership of publicly-listed companies is usually not a relevant characteristic, except where concessions are
granted, as such companies are rarely able to exercise control over who acquires shares. In public sector
concessions, however, ownership can be used to allow disadvantaged communities to acquire shares in new
ventures, particularly in fields in which no empowerment companies are operating. This often presents
challenges to empowerment consortia, who have to raise the necessary capital to purchase such shares up
front. Various innovative mechanisms, including “buy back” options and the financing of such share purchases
until such time as dividends and earnings from operating the concession can redeem the loans, are frequently
used to enable empowerment companies to take advantage of the opportunities presented.
It is important to clearly define what constitutes ownership for an empowerment company in a given situation.
It is also important to examine interlocking ownership between empowerment companies to establish factors
such as control and independence.
The level of ownership necessary to constitute an empowerment company, as such, also should be carefully
considered, as well as how, in practice, it can be monitored. The level of ownership in small businesses
should be such that it is significant and is not readily open to manipulation.
A.2.2.3 Control of targeted enterprises
Control of targeted enterprises lies at the heart of empowerment initiatives. Control of a targeted enterprise by
a disadvantaged group of individuals is fundamental to empowerment. Ownership is often linked to control but
this is not, in all instances, feasible, or even desirable. In publicly-listed companies it might not be possible
and in consortia arising from concessions, too onerous. Control over an enterprise, from an empowerment
perspective, should result in the policies implemented being effective, both in terms of business success and
employee empowerment.
Control of a business should centre around the authority and power to manage the assets, goodwill and daily
operations of the business, the determination of policies and the directing of business operations. Indicators of
control include ownership, management responsibilities, and the assumption of risk. Factors such as who
makes major financial decisions (e.g. those pertaining to major purchases and acquisitions and the acquisition
of lines of credit) and major management decisions (e.g. those pertaining to hiring and firing of senior
personnel and supervision of office control) demonstrate control. In larger companies, an absolute majority of
voting rights on boards in the hands of targeted population groups can demonstrate control.
A.2.2.4 Operational responsibilities
The person holding operational responsibilities within an enterprise might also be an empowerment issue. In
public companies, operational responsibility is important. In such enterprises, consideration should be given to
levels of reporting, particularly to executive directors, in order to understand in whose hands the operational
control of an enterprise lies. In small companies, this is not usually an important consideration as owners are
frequently responsible for the operation of an enterprise.
A.2.2.5 Independence of targeted enterprises
A critical issue with respect to empowerment companies is whether or not they are independent, i.e. whether
they are free of direct or indirect control from another company, particularly by a non-empowerment company
(some measure of control by financial institutions is acceptable.) Over-dependency on another company is
usually indicative of fronting. The practice of some companies to set up employees in front companies, which
they effectively manipulate and control in order to access contracts, undermines the objectives of
empowerment.
Interdependence should not be confused with independence. In franchises, for example, the franchiser usually
contributes the brand, the management systems and promotional resources, whilst the franchisee puts up the
capital and supplies the operating resources. Such a relat
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