ISO 10845-7:2011

INTERNATIONAL ISO
STANDARD 10845-7
First edition
2011-01-15
Construction procurement —
Part 7:
Participation of local enterprises and
labour in contracts
Marchés de construction —
Partie 7: Participation des entreprises et de la main d'oeuvre locales
dans les 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 (CPG) .4
3.2 Achieving the contract participation goal (CPG) .4
3.3 Contract participation goal (CPG) credits.5
4 Compliance with requirements .6
4.1 General .6
4.2 Substitutions.7
4.3 Bona fides of targeted enterprises.7
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 enterprise's contract with the contractor.8
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).21
Annex D (normative) Letter of undertaking from a targeted enterprise to act as a subcontractor,
supplier, manufacturer or service provider.27
Annex E (informative) Examples of how contractors can fulfil their contract participation goal
(CPG) obligations .28
Annex F (informative) Tendered contract participation goal (targeting strategy A).30
Annex G (informative) Sample tender evaluation schedule where use is made of this part of
ISO 10845 .33
Annex H (informative) Contract schedules for targeted enterprises.35
Bibliography.39

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 10845-7 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 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 10845-7:2011(E)

Construction procurement —
Part 7:
Participation of local enterprises and labour 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 local enterprises and labour on a contract for the provision of services or
engineering and construction works. A CPG may be used to measure the outcomes of a contract in relation to
the engagement of local enterprises and labour 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 in respect of two different targeting strategies: targeting
strategy A and targeting strategy B.
NOTE Annex A contains 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
[ISO 10845-5:2011, definition 2.1]
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
[ISO 10845-5:2011, definition 2.2]
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)
[ISO 10845-5:2011, definition 2.3]
2.4
contract participation goal
CPG
amount equal to the sum of
a) the wages and allowances for which the contractor contracts to engage targeted labour; and
b) the value of goods, services and works for which the contractor contracts targeted enterprises in the
performance of the contract;
exclusive of any value added tax or sales tax required by law, expressed as a percentage of the contract
amount associated with the targeting strategy that is identified in the targeting data
NOTE Adapted from ISO 10845-5:2011, definition 2.4.
2.5
contractor
person or organization that contracts to provide the goods, services or engineering and construction works
covered by the contract
[ISO 10845-1:2010, definition 3.12]
2.6
employer
person or organization intending to or entering into the contract with the contractor for the provision of goods,
services, or engineering and construction works
[ISO 10845-1:2010, definition 3.17]
2.7
employer's representative
person authorized to represent the employer and named as such in the contract data or targeting data
[ISO 10845-5:2011, definition 2.8]
2.8
main contractor
contractor who subcontracts part of his contract
[ISO 6707-2:1993, definition 3.8.13]
2.9
target area
geographic area defined in the targeting data
2 © ISO 2011 – All rights reserved

2.10
targeted enterprise
sole trader, partnership or legal entity which is
a) a business within the target area,
b) engaged in the performance of the contract, and
c) defined as the target group in the targeting data
NOTE Adapted from ISO 10845-5:2011, definition 2.15.
2.11
targeted labour
individuals who
a) are employed by the contractor in the performance of the contract,
b) are defined as the target group in the targeting data, and
c) permanently reside in the target area or who are recognized as being residents of the target area on the
basis of identification and association with and recognition by the residents of the target area
2.12
targeted manufacturer
targeted enterprise that operates or maintains a factory or establishment that produces on its premises
materials or goods required by the contractor for the performance of the contract
2.13
targeted supplier
targeted enterprise that
a) 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 in the usual course of business, and
b) engages, as its principal business and in its own name, in the purchase and sale of goods
2.14
targeting data
data, provisions and variations applicable to a particular contract
[ISO 10845-5:2011, definition 2.18]
NOTE See A.2.3 and Annex B.
2.15
targeting strategy
an approach which is pursued to make a contract participation goal an obligation of contract
[ISO 10845-5:2011, definition 2.19]
2.15.1
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)
[ISO 10845-5:2011, definition 2.19.1]
2.15.2
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.
[ISO 10845-5:2011, definition 2.19.2]
2.16
weighting
number which, depending on its value, is used to introduce a bias in favour of or against a specific target
group in the calculation of contract participation goal credits
3 Requirements
3.1 Contract participation goal (CPG)
The contractor shall engage targeted labour and targeted enterprises directly 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 not less than the contract participation goal (CPG) for the targeting strategy
specified in the targeting data.
The contractor shall, in the case of targeting strategy A, submit details of a 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 the 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 (CPG)
3.2.1 General
A contractor shall achieve the specified contract participation goal (CPG) by one of two methods, unless
otherwise specified in the targeting data.
4 © ISO 2011 – All rights reserved

a) Method 1
1) Using Method 1, the contractor shall achieve the specified CPG by
i) virtue of the contractor's targeted enterprise status, provided that not less than 50 % of the
wages and allowances paid to employees in the performance of the contract is in respect of
targeted labour; and, if so desired,
ii) subcontracting one or more targeted enterprises to perform work in the performance of the
contract at a subcontract level.
b) Method 2
1) Using Method 2, the contractor shall achieve the specified CPG by
i) engaging targeted labour, or
ii) engaging one or more targeted enterprises to perform commercially useful functions in the
performance of the contract, or
iii) a combination of (i) and (ii).
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), in respect of 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.
3.3 Contract participation goal (CPG) credits
3.3.1 Granting of credits
Using Method 1 or Method 2, 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 and multiplying such values by the appropriate weightings for the different target areas and
different categories of targeted enterprises and targeted labour, if any, provided for in the targeting data.
a) Method 1
In the case of a contractor who is a targeted enterprise, the sum of the monetary value of the work
performed using the contractor's own employees and resources, and the monetary value of the work and
services subcontracted to targeted enterprises, subject to the provisions of 3.2.1 (a).
b) Method 2
In the case of a contractor who is not a targeted enterprise:
1) the total monetary value of the contributions made by targeted enterprises (other than targeted
suppliers) in fulfilling contractual obligations, subject to such targeted enterprises not subcontracting
more than 15 % of the value of their contributions to non-targeted enterprises;
2) 50 % of the expenditure on goods required for the contract, which are obtained from targeted
suppliers, subject to such targeted suppliers not subcontracting more than 15 % of the value of their
contributions to non-targeted enterprises; and
3) the total monetary value of wages and allowances paid by the contractor and any non-targeted
enterprise subcontractor to targeted labour.
NOTE 1 The total value of expenditures made to targeted manufacturers can be claimed.
NOTE 2 The weightings referred to usually range between 0,5 and 1,5. Where no weighting is indicated in the contract,
the weighting is assumed to be unity.
NOTE 3 Where targeted enterprises subcontract more than 15 % of the value of their contribution to non-targeted
enterprises, the credits are limited to the actual value of the contributions made by targeted enterprises.
NOTE 4 Annex E provides illustrative examples as to how a contractor can fulfil contract participation goal obligations.
3.3.2 Denial of credits
3.3.2.1 General
No credits shall be granted when the contractor
a) makes 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,
b) fails to enter into written contractual agreements with targeted labour, or
c) fails to enter into written contractual agreements with targeted enterprises.
3.3.2.2 Contractual agreements
Credits claimed towards the contract participation goal shall be denied if written contractual agreements
contain clauses which are not in accordance with the provisions of the contract and, where targeted
enterprises are contracted, contain provisions for
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 the contractor's 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 (ADR)
procedures, such as mediation or adjudication, but 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 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 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.
6 © ISO 2011 – All rights reserved

The contractor who makes use of targeted labour for the purpose of securing credits shall enter into written
contracts with all the individuals classed as targeted labour and, during the performance of the contract,
furnish the employer's representative with copies or pro formas of all contracts entered into.
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.
In the event that the employer approves the contractor's request to be relieved of the 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 in respect of 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 the employer's 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 in respect of 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 in respect of 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 accordance with 3.1, 3.2.2, 4.1, 4.2 and 5.2 in a
timely manner and, together with a programme of activities, a schedule which indicates clearly the expected
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 date occurs.
5.2 Monthly submission of supporting documentation
The contractor shall prepare and submit monthly to the employer's representative, on or before the date
specified in the targeting data, 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 in
the performance of the contract, both over the interim period and on a cumulative basis;
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 in respect of each and every targeted enterprise performing commercially useful functions;
c) a schedule which lists the names, identity numbers, gender, trade/occupation, period of employment,
employment number and the like, as directed by the employer's representative, together with the
respective wage rates and allowances payable in respect of targeted labour, including the monetary value
of wages and allowances paid both on a cumulative basis and over the period for which payment is
claimed; and
d) a schedule of wages and allowances paid to all employees, indicating the status of such employees,
where the contractor fulfils the contract participation goal obligations by virtue of the contractor's targeted
enterprise status as a main contractor.
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 in respect of 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.
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. The contractor 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.
The contractor shall, upon termination of the services of the individuals classed as targeted labour engaged in
activities relating to the performance of the contract, certify the amount paid to such individuals and submit the
certificate, counter-certified by the relevant individual, to the employer's representative for record-keeping
purposes.
8 © ISO 2011 – All rights reserved

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 contracted to targeted enterprises, 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 (see ISO 10845-2). Sanctions where tender evaluation points are granted in respect of 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 should be incorporated into procurement documents by reference, 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 18045 is to standardize the manner in which targets (contract participation
goals) are set and measured in relation to the use of local resources in engineering and construction works or
service contracts. These targets (contract participation goals) in addition to measuring and reporting on a key
performance indicator which reflects the quantum of business generated in respect of targeted enterprises
through the performance of the contract, can, depending upon prevailing legislation, be used to
a) reserve a portion of the contract work for specified target groups through the setting of minimum contract
participation goals,
b) establish the basis for the awarding of tender evaluation points in proportion to the quantum of the 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 ensuring 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 1 Annex F provides an example of a tendered contract participation goal calculation. Annex G provides an
example of a tender evaluation schedule which enables this part of ISO 10845 to be used for tender evaluation purposes.
NOTE 2 Procuring entities are often confronted with the fact that two or more communities fall within the geographical
location of a contract. The targeting of specific communities to the exclusion of all other communities is often not desirable
for the following reasons:
a) not all communities possess the necessary capacity (whether in terms of physical, financial, or skills resources) to be
able to participate in contracts; as a result, the effectiveness of procurement as an instrument of policy can be
eroded, as the supply of resources might not be able to meet the demand created by the procurement arrangements;
b) exclusivity can set precedents; similar approaches by neighbouring communities can be demanded, which might
result in embargoes on trade and employment creation for communities who might have benefited from a previous
contract.
The defining of targeted labour and targeted enterprises on the basis of their geographical locality demands consultation
with communities and their representatives. It is necessary to establish how opportunities and work can be secured for the
local community, but not to the absolute exclusion of neighbouring communities. Relative weighting of areas in and around
the contract area can help to overcome the pitfalls associated with area-based targeting.
10 © ISO 2011 – All rights reserved

A.2 Commentary on terms and definitions
A.2.1 Targeted enterprise
A.2.1.1 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 women-owned business
enterprises (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 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.2.1.2 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, should also 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.2.1.3 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, it might be 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.2.1.4 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.2.1.5 Independence of targeted enterprises
A critical issue in respect of empowerment companies is whether or not they are independent, i.e. free of
direct or indirect control from another company, particularly by a non-empowerment company. (Some
measure of control by financial institutions can be 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 relationship can be described as interdependence. If,
however, the franchisee were to act merely as a conduit and to add limited value, the relationship would be
one of dependency. The acid test for independence in such instances would be the market value of the
franchisee's business.
A.2.1.6 Size of enterprises
The size of an enterprise can be a consideration in some programmes. Internationally recognized criteria for
the determination of the size of a business typically include
a) the total number of employees,
b) the value of fixed assets,
c) the paid-up capital,
d) the annual turnover, and
e) the annual volume of physical production.
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The following factors can be taken into account when formulating definitions of the sizes of companies:
f) Affiliation: turnover might have to be considered together with the turnovers of the enterprise's affiliates
in order to prevent the enterprise from forming affiliated enterprises in order to maintain its size status.
[Enterprises are affiliates when, either directly or indirectly, one enterprise controls or has the power to
control the other; a third party (or parties) controls or has the
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