The Construction Sector Charter was formally promulgated as a Sector Code on 4 May 2009.

The Charter incorporates its own scorecards for the measurement of B-BBEE compliance by enterprises within the sector.

As is the case with the general B-BBEE Codes of Good Practice, previously promulgated on 9 February 2007, the Construction Sector Code consists of a series of 'Statements'.  Statement 2000 sets out the general principles upon which Code Series 2000 (the series of Statements in the Construction Sector Charter) is based.

Statement 2000 deals, amongst other things, with the scoring of unincorporated joint ventures.

Statement 2000 stipulates that unincorporated joint ventures are to submit a consolidated scorecard and verification certificate, pooling the B-BBEE data pertaining to the participating entities.  The data applicable to each participant are for this purpose to be 'weighted' in accordance with 'the shareholder agreement pertaining to the specific joint venture'.  Statement 2000, by way of elucidation, goes on to say that if ' ... two companies enter into an unincorporated joint venture, their respective scores in terms of the construction charter will be weighed (sic) according to their level of shareholding in the joint venture and added together for a combined score out of 100'.

The use of the terms 'shareholder' and 'shareholder agreement' fits awkwardly with the notion of an unincorporated joint venture.  Presumably what was intended is that in weighting the pooled data one is to have regard to the profit shares of each participant.

The difficulty with premising the weighting of data (in this case, B-BBEE scores) on profit participation is that it will not accommodate some forms of joint venture.  In order to avoid the legal pitfalls associated with partnership arrangements (which are predicated upon profit-sharing) joint ventures may sometimes be cast in the form of a so-called 'strict joint venture'.  In a strict joint venture, Enterprise A might contract to erect the walls of a factory, while Enterprise B (under the joint contract) contracts to erect the roof, with the participants sharing, not in profits, but in the gross amounts payable to the joint venturers. 

Thus Enterprise A might share in two-thirds of the contractual payments, and Enterprise B in a third of such payments.  In such cases it may be difficult, at the outset, to determine how these shares in gross payments may ultimately translate into respective shares in profits arising from the joint venture.  Provision ought properly to be made, in Statement 2000, for the parties' B-BBEE data to be weighted, in the case of strict joint ventures, on the basis of their respective shares in gross receipts.

The strict joint venture ought sensibly to be addressed in Statement 2000 because of the legal and commercial advantages of such strict joint ventures.  By avoiding the creation of a partnership (through sharing in gross receipts and not in profits) participants in strict joint ventures are not faced with the hazard of joint and several liability for each other's debts.

As matters stand, strict joint ventures cannot present consolidated scorecards.  The dispensation in Statement 2000 being premised upon profit-sharing, it can only be applied to profit-sharing arrangements.

Both in South Africa and elsewhere, the construction and mining industries took the lead in resorting to strict joint venture arrangements as a means of avoiding joint and several liability.  It is, accordingly, remarkable that the Construction Sector Charter fails to address strict joint venture arrangements.  This deficiency should be remedied.

ENDS

Issued by Claire Densham Communications on behalf of Mazars Moores Rowland

Contact Mazars: Wouter Scholtz or Noleen Hepburn 021 818 5000.

Contact Claire Densham Communications: Claire Densham or Sibongi Delihlazo 021-914-9353; 082 906 3201