• Training Manual • - CIDB

• PB • • 1 •

• Train

ing M

anual •

• 2 •

• table

of c

ontents

•

The information contained in this manual does not refer to actual scenarios, organisations and individuals. The

names of individuals and organisations are fictional. The cidb cannot be held liable for any misinterpretation of

this disclaimer, or of any information in this manual.

All rights reserved. No part of this manual be reprinted or reproduced or utilised in any form or by any electronic,

mechanical, or other means, including photocopying and recording, or in any information storage or retrieval

system without permission in writing from the cidb.

• 2 • • 3 •

• table

of c

ontents

•Introduction 1

Who is the cidb? 3

Types of Registers within cidb 5

Contractor Application Requirements 8

Application Form 18

Proof of Payment for an Application 21

Company Registration Documents 30

Tax Clearance Certificates 40

Identity Documents 43

Electrical Engineering 49

Potentially Emerging Enterprises 52

Grading Method 58

Track Records 63

Transfer of Track Records 79

Financial Statements 82

VAT Returns (VAT 201 and proof of payment) 149

Financial Sponsorship 153

Exemptions 162

Foreign Registrations 163

Upgrade and Additions 165

Registration of Holding Companies 167

Annual Updates and Three-year Renewals 169

Suspension, Deregistration and Expiry Process 171

• 1 •

1. Preface

The aim of this manual is to explain the cidb regulations to all staff working with applications for the Register of Contractors.

The manual is based on the Construction Industry Development Regulations, 2004 (as amended) as at 2 July 2013.

2. format of the manual

In each section we:

1. State the relevant information within the regulations;

2. Describe and explain the regulations as they are interpreted and commonly practised;

3. Explain what should be checked in order to assess the documents;

4. Provide examples of the documents (where applicable); and

5. Provide practical worksheets (where applicable).

This manual starts by listing the different registration requirements and then proceeds to explain each of these requirements,

the documents needed and the process to assess these documents.

3. the Purpose of the Manual

The purpose of the manual is to familiarise staff with:

1. The operations of the cidb;

2. The different registers at the cidb; and

3. The cidb regulations for the Registration of Contractors.

4. learning outcomes

The content of this manual will enable staff to:

1. Explain the cidb’s mandate, mission and strategy;

2. Explain the three types of registers at cidb;

3. Understand the basic criteria for registration;

4. Assess the basic criteria;

5. Understand the grading criteria;

6. Assess the grading criteria; and

7. Grade an application based on information received.

• IntroductIon •

• 1 • • 2 •

5. definitions of Key concepts

Available capital The amount calculated in accordance with regulation 11(3)

(Total Assets – Total Liabilities + Sponsorships = Available Capital).

Client/Employer A person, body of persons or organ of state who enters into a prime contract with a contractor

for the provision of construction works.

Construction works A combination of goods and services arranged for the development, extension, installation,

repair, maintenance, renewal, removal, renovation, alteration, dismantling or demolition of a

fixed asset including building and engineering infrastructure.

Consultant A third party employed by the client to provide professional assistance with a tender/project.

Contractor A natural person, legal person or any type of entity that tenders within the public sector to

perform construction works.

Electrical Contractors

Certificate

The Electrical Contractors Certificate is issued by the Department of Labour according to the

Electrical Installation Regulations 1992, Regulation 5, and the Occupational Health and Safety

Act 6 of 1983, amended 1992.

Financial sponsorship A financial sponsorship as contemplated in regulation 7(10).

Financial statements The annual financial statements prepared in accordance with Generally Accepted Accounting

Practices (GAAP) of the International Financial Reporting Standards (IFRS), certified by a person

who is required by law to do so.

Net asset value The sum of a contractor’s equity, retained income plus shareholders’ or members’ loans.

Principal A natural person who is a partner in a partnership, a sole proprietor, member of a close

corporation, or a director or shareholder in a company.

The Act/The

Regulations

The Construction Industry Development Board Act, 2000 (Act No 38 of 2000), 2004

(as amended) – updated until 2 July 2013.

Track record The proof of works completed by a contractor (within the five years immediately preceding

the application) for the purpose of determining his or her work capability as contemplated in

regulations 11(1) and (2) and 12(1).

• 3 •

1. establishment of the cidb – overview

The Construction Industry Development Board (cidb) – a Schedule 3A public entity – was established by Act of Parliament

(Act 38 of 2000) to promote a regulatory and developmental framework that builds:

• The construction delivery capability for South Africa’s social and economic growth.

• A proudly South African construction industry that delivers to globally competitive standards.

The cidb’s focus is on:

• Sustainable growth, capacity development and empowerment;

• Improved industry performance and best practice;

• A transformed industry, underpinned by consistent and ethical procurement practices; and

• Enhanced value to clients and society.

2. background and History

Construction plays a vital role in South Africa’s economic and social development. It provides the physical infrastructure and

backbone for economic activity. It is also a large-scale provider of employment. The legacy of Apartheid has, however, left

the South African construction industry with a number of development and transformation challenges.

These include:

• Improving effectiveness of public sector spending on physical infrastructure development and maintenance;

• Improving labour absorption, labour relations and job stability;

• Accelerating sustainable transformation through access to opportunity, finance and training;

• Reducing the impact of HIV and AIDS in construction; and

• Ensuring international competitiveness.

3. Mandate

The cidb Act mandates the Board to:

• establish a national register of contractors and of construction projects to systematically regulate, monitor and

promote the performance of the industry for sustainable growth, delivery and empowerment.

• Promote improved delivery management capacity and the uniform application of procurement policy throughout

all spheres of government.

• Promote improved performance and best practice of public and private sector clients, contractors and other

participants in the construction delivery process.

• Promote sustainable participation of the emerging sector.

• Provide strategic direction and develop effective partnerships for growth, reform and improvement of the

construction sector.

• wHo Is tHe cIdb •

• 3 • • 4 •

4. Vision

A dynamic, innovative and development organisation that provides strategic leadership and an efficient service to stakeholders,

leading to a transformed and competitive construction industry that delivers quality infrastructure, promotes economic

growth and an organisation that is caring for its employees.

5. Mission

To direct and drive an integrated construction industry development strategy that transforms the role of industry and

stakeholders for sustainable growth, improved delivery, performance and value to public and private sector clients, and

investors through strategic partnerships; to strategically and deliberately promote the empowerment of small, medium and

micro enterprises to improve their capability and grow the economy; to develop employees to be meaningful participants in

the organisation.

• 5 •

• tyPes of regIsters at tHe cIdb •

what do the regulations tell us?

Particulars to be contained in register of contractors

3. The register of contractors must, in relation to each contractor registered in terms of these Regulations, reflect:

(a) The name;

(b) The category of registration;

(c) Subject to regulation 36(2), the particulars of the contractor submitted together with the application in terms of

regulation 7, 8 or 9;

(d) The fees paid by the contractor in terms of these Regulations;

(e) Any fees owed by that contractor in terms of these Regulations;

(f) Any refund paid to that contractor;

(g) ……….

Paragraph (g) deleted by Government Notice No R8986 of 14 November 2008, published in Government Gazette

No 31603 of 14 November 2008.

(h) Any prohibition or restriction in terms of these Regulations or any other legislation, whether in South Africa or in

another country, regulating procurement of the services or goods from a registered contractor or any principals of

that contractor, prohibiting that contractor to submit a tender offer to an organ of state or authorising an organ of

state to reject a tender offer from that contractor;

Paragraph (h) substituted by Government Notice No R8986 of 14 November 2008, published in Government

Gazette No 31603 of 14 November 2008.

(i) Any court finding in terms of regulation 30;

(j) The suspension of the registration or the deregistration of that contractor or the removal of the name of that contractor

from the register;

(k) The expiry date of the contractor’s tax clearance certificate.

Paragraph (k) inserted by Government Notice No R8986 of 14 November 2008, published in Government Gazette


(l) The broad-based black economic empowerment recognition level of a contractor prescribed in terms of the Codes of

Good Practice issued under the Broad-Based Black Economic Empowerment Act, 2003 (Act 53 of 2003) from time to

time.

Paragraph (l) inserted by Government Notice No R464 of 2 July 2013, published in Government Gazette No

36629 of 2 July 2013.

1. register of contractors

what should be reflected on the register of contractors?

One of Government’s most important roles is to provide services to South African citizens. Schools, hospitals, roads and other

structures enable Government to provide these basic services. It is important for the Government to ensure that contractors

who are awarded contracts are capable and can deliver quality infrastructure cost effectively and on time.

• 5 • • 6 •

The Register of Contractors grades contractors according to their capability and capacity to perform construction contracts.

According to the CIDB Act, public sector clients must only award tenders from R30 000 and upwards in value to contractors

who are registered on the cidb Register of Contractors for all infrastructure related projects.

the Impact of the register of contractors on its stakeholders:

• Helps contractors to make better decisions when tendering, and clients to make informed decisions when awarding

contracts;

• Increases the rate of project success and thereby helps contractors to build their own track record;

• Creates a sustainable tendering and business environment for contractors; and

• Helps to level the playing field for contractors.

The cidb will foster the active contribution of stakeholders and will promote development through partnership.

2. register of Projects

The Register of Projects captures the nature, size and distribution of construction projects. The CIDB Regulations require all

clients to register projects on the cidb i-Tender. The Register of Projects establishes the basis and foundation for the Best

Practice Project Assessment Scheme.

The value thresholds for these projects are:

1. For the public sector, any project of which the value exceeds R200 000;

2. For the private sector, or a public entity listed in Schedule 2 of the Public Finance Management Act, 1 of 1999, any

project of which the value exceeds R10 million.

who is responsible for registering projects?

Employers (a person, body of persons or organ of state, who enters into a prime contract with a contractor for the provision

of construction works) are responsible for registering construction work contracts above the minimum prescribed value on

at least a monthly (public employers) or quarterly (private sector employers) basis.

benefits of being registered as a contractor with the cidb

Being registered:

1. Qualifies contractors to tender for public sector work;

2. Promotes contractor development and sustainability;

3. Builds a contractor track record with a credible institution;

4. Reduces tendering costs to clients and contractors; and

5. Provides clients with an opportunity to identify potentially emerging contractors for targeted

development support.

• 7 •

3. the i-tender

The i-Tender facilitates quick and easy electronic registration of projects by public and private sector clients.

The i-Tender is a communication facility between contractors and employers which highlight opportunities through the online

advertisement of tenders. By logging a tender notice on i-Tender, a client automatically triggers notification of the tender to

contractors in the relevant grades by SMS, email and on the cidb website.

The Construction Industry Development Board Regulations of June 2004, (as amended as at 2 July 2013), mandate public

sector clients to log all construction tenders above R200 000 on i-Tender. This includes the advert, reporting of the award,

and reporting of completion of the contract.

They also require private sector clients to award tenders in excess of R10 million online, using i-Tender. The online award of

tenders results in automatic registration of a project and simultaneously updates the contractor’s track record, which also

means that a contractor’s track record becomes verifiable.

It should be noted that for the recording of contracts on the Register of Projects both Eskom and Transnet fall within the

requirements of the private sector and are only required to record tenders for R10 million in value and above on i-Tender.

• 7 • • 8 •

• contractor aPPlIcatIon requIreMents •

1. contractor application requirements


application for registration as contractor in contractor grading designations 2 to 9

Heading substituted by Government Notice No R8986 of 14 November 2008, published in Government Gazette


7. (1) A contractor who wishes to be registered in terms of these Regulations in the categories of registration that relate

to contractor grading designations 2 to 9 as contemplated in regulation 12(1) (Table 1) must on the approved form

apply to the CIDB for that registration.

Subregulation (1) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(2) A contractor must apply to the CIDB for registration in at least one contractor grading designation.

(3) A contractor may be registered in more than one class of works but may only hold one contractor grading designation

in relation to a particular class of construction works.

(4) An application for registration must be accompanied by:

(a) The fees as shown in Schedule 2;

(b) If applicable, complete financial statements of the contractor for the two financial years preceding the application;

Paragraph (b) amended by Government Notice R842 of 18 August 2006, published in Government Gazette No

29138 of 18 August 2006.

Paragraph (b) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(c) If so requested by the CIDB, where the financial statements of a contractor are not audited, supporting evidence of

that contractor’s turnover as set out the South African Revenue Services Form VAT 201 (return for value added tax)

and proof of payment of that value added tax;

Paragraph (c) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(d) In the case of a company or a close corporation, the registration number, a certificate of incorporation and the latest

name change, if any, issued in terms of the Companies Act No 61 of 1973 or the Close Corporations Act No 69 of

1984, as the case may be and certified copies of the shareholders’ certificates of the company;

(dA) In the case of a trust, a copy of trust deed as contemplated in the Trust Property Act No 58 of 1988);

Paragraph (dA) inserted by Government Notice No R842 of 18 August 2006, published in Government Gazette

No 29138 of 18 August 2006.

(e) An original tax clearance certificate issued to the contractor by the South African Revenue Service, or in the case of a

foreign enterprise, which has not yet performed any contracts within the Republic of South Africa, proof that it has

paid all taxes due by it to the government of its country of origin;

• 9 •


Paragraph (e) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(f) Certified copies of the identity documents of the principal or principals of the contractor, but where there are more

than twenty principals, certified copies of the identity documents of only twenty principals may be submitted;

(g) If applicable, proof of financial sponsorship of the contractor as contemplated in subregulation (10);

Paragraph (g) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(h) ......

Paragraph (h) deleted by Government Notice No R464 of 2 July 2013, published in Government Gazette No

36629 of 2 July 2013.

(i) In the case of an application relating to the Electrical Engineering – designation EB class of works a certified copy of

the current certificate of registration issued by the Electrical Contracting Board of South Africa;

Paragraph (i) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(j) If applicable, certified copies of the contractor’s registration certificate issued in terms of the Housing Consumer

Protection Measures Act No 95 of 1998 and proof of current payment;

(k) If a contractor is registered under an emerging contractor development scheme, proof of that registration;

(l) Documentary proof by the employer or his or her representative of contracts completed as contemplated in regulation

11(2)(b) and 11(5)(c) and for the purpose of this paragraph, completed means the stage when the construction works

have been completed or when the construction works have reached a state of readiness for occupation, or use for the

purposes intended, although some minor work may be outstanding;

(m) Any other information required by the CIDB in relation to the category of registration of a contractor; and

(i) In a case referred to in regulation 11(4)(ii), (iii), (iv), (v) or (vii), a resolution of the company or member resolution

of the close corporation concerned sanctioning the change of name, reconstruction, amalgamation, takeover or

conversion;

(ii) In the case of a scheme of arrangement referred to in regulation 11(4)(vi), the court order sanctioning the

scheme of arrangement; or

(iii) In the case of a change in membership or members’ interest of a close corporation as contemplated in regulation

11(4)(viii), the certificate referred to in section 31 of the Close Corporations Act No 69 of 1984, stating the

current percentage of each member’s interest in the corporation.

Paragraph (lA) inserted by Government Notice No R8986 of 14 November 2008, published in Government


• 9 • • 10 •

description of the requirements

Sub-regulation (7) of the cidb regulations gives an overview of what an application for contractor registration must consist of:

(7.1) A contractor must apply for registration on the approved application form;

(7.2) A contractor must apply in at least one contractor grading designation;

(7.3) A contractor may only have one grading designation per class of works; and

(7.4) The application for registration must be accompanied by various supporting documents (these supporting documents

will be listed further in this document).

2. Verification of an application for contractor registration


7. application for registration as contractor in contractor grading designations 2 to 9

(7) The CIDB must for the purpose of assessing an application for registration and subject to section 30 of the Act, take

reasonable steps to verify the information submitted by a contractor in terms of this regulation.


The Regulations give the cidb the right to verify any information received from contractors in application for registration.

In addition to this regulation, the contractor gives the cidb the authority to verify the information that has been provided to

the cidb when he/she signs the declaration, as the following passage is included in the declaration:

“I, the undersigned, hereby: authorise: …the cidb to verify the information supplied in this form;”

The purpose of this verification is to ensure that all the documents provided are true and correct in every respect and are

free from fraudulent practices.

• 11 •

3. grading designations and classes of construction works


7. Application for registration as contractor in contractor grading designations 2 to 9.


(3) A contractor may be registered in more than one class of works but may only hold one contractor grading

designation in relation to a particular class of construction works.

17. Tender value range contractor considered capable of undertaking

A contractor registered in a contractor grading designation indicated in column 1 of the table 8 below, is considered

to be capable of undertaking a contract in the range of tender values indicated table 8 in the class of the construction

works to which the category of registration of that contractor relates.

TABLE 8: Contractor Grading Designations

Contractor Grading DesignationRange of Tender Values

Less than or equal to

1 R200 000

2 R650 000

3 R2 000 000

4 R4 000 000

5 R6 500 000

6 R13 000 000

7 R40 000 000

8 R 130 000 000

9 No Limit

Construction Industry Development Regulations, 2004 (as amended) as at 14 November 2008.


grading classes reflect the types of works for which a contractor applies for registration, eg. GB, CE, ME, EB, EP, as shown

in Schedule 3 of the Regulations.

grading designations reflect the value of the works that a contractor applies to register for. There are nine tender value

ranges, numbered 1 to 9.

The contractor may apply to be registered in several classes of works (as listed above), but may only be registered on one

grading designation per class of works. The contractor will thus only be registered on the highest grade for which he applies

and qualifies for in each class of works.

This means that he may have different grading designations for different classes of works but not for the same class of

works.

• 11 • • 12 •

table b: classes of construction works

definition basic works types examples

Civil Engineering (CE)

Construction Works primarily

concerned with materials such as

steel, concrete, earth and rock and

their application in the development,

extension, installation, maintenance,

removal, renovation, alteration,

or dismantling of building and

engineering infrastructure.

Water, sewerage, roads, railways,

harbours and transport, urban

development and municipal services.

• Structures such as cooling tower,

bridge culvert,dam, grand stand,

road, railway, reservoir, runway,

swimming pool, silo or tunnel.

• The results of operations such

as dredging, earthworks and

geotechnical processes.

• Township services, water treatment

and supply, sewerage works,

sanitation, soil conservation works,

irrigation works, storm-water and

drainage works, coastal works,

ports, harbours, airports and

pipelines.

Electrical Engineering Works – Building (EB)

Construction Works that are primarily

concerned with the installation,

extension, modification or repair of

electrical installations in or on any

premises used for the transmission

of electricity from a point of control

to a point of consumption, including

any article forming part of such an

installation.

All electrical equipment forming

an integral and permanent part of

buildings and/or structures, including

any wiring, cable jointing and

laying and electrical overhead line

construction.

• Electrical installations in buildings.

• Electrical reticulations within a plot

of land (erf) or building site.

• Standby plant and uninterrupted

power supply.

• Verification and certification of

electrical installations on premises.

Electrical Engineering Works – Infrastructure (EP)


concerned with development,

extension, installation, removal,

renovation, alteration or dismantling of

engineering infrastructure:

a) relating to the generation,

transmission and distribution of

electricity; or

b) Which cannot be classified as EB.

Electrical power generation,

transmission, control and distribution

equipment and systems.

• Power generation.

• Street and area lighting.

• Substations and protection systems.

• Township reticulations.

• Transmission lines.

• 13 •

definition basic works types examples

General Building Works (GB)

Construction Works that:

a) are primarily concerned with

the development, extension,

installation, renewal, renovation,

alteration, or dismantling of a

permanent shelter for its occupants

or contents; or

b) cannot be categorised in terms

of the definitions provided for

civil engineering works, electrical

engineering works, mechanical

engineering works, or specialist

works.

Building and ancillary works other than

those categorised as:

• Civil engineering works;

• Electrical engineering works;

• Mechanical engineering works;

• Specialist works.

• Buildings for domestic, industrial,

institutional or commercial

occupancies.

• Car ports.

• Stores.

• Walls.

Mechanical Engineering Works (ME)


concerned with the development,

extension, installation, removal,

alteration, renewal of engineering

infrastructure for gas transmission

and distribution, solid waste disposal,

heating, ventilation and cooling,

chemical works, metallurgical works,

manufacturing, food processing and

materials handling.

• Machine systems including those

relating to the environment of

building interiors.

• Gas transmission and distribution

systems.

• Pipelines.

• Materials handling, lifting

machinery, heating, ventilation and

cooling, pumps.

• Continuous process systems,

chemical works, metallurgical works,

manufacturing, food processing

such as that in concentrator

machinery and apparatus, oil and

gas wells, smelters, cyanide plants,

acid plants, metallurgical machinery,

equipment and apparatus,

and works necessary for the

beneficiation of metals, minerals,

rocks, petroleum and organic

substances or other chemical

processes.

• Air-conditioning and mechanical

ventilation.

• Boiler installations and steam

distribution.

• Central heating.

• Centralised hot water generation

• Compressed air, gas and vacuum

installations.

• Conveyor and materials handling

installations.

• Continuous process systems

involving chemical works,

metallurgical works, oil and gas

wells, acid plants, metallurgical

machinery, equipment and

apparatus, and works necessary

for the beneficiation of metals,

minerals, rocks, petroleum and

organic substance and other

chemical processes.

• Dust and sawdust extraction.

• Kitchen equipment.

• Laundry equipment.

• Refrigeration and cold rooms.

• Waste handling systems (including

compactors).

• 13 • • 14 •

Specialist Works

SB The extension, installation, repair, maintenance or renewal, or removal of asphalt.

SJ The development, installation, removal, or dismantling, as relevant, of piles and other specialised foundations for buildings and structures.

SC The development, extension, installation, removal and dismantling, as relevant, associated with building excavations, shaft sinking and lateral earth support.

SK The installation, renewal, removal, alteration or dismantling, as relevant, of road markings and signage.

SD The development, extension, installation, repair, renewal, removal or alteration of corrosion protection systems (cathodic, anodic and electrolytic).

SL The development, extension, installation, renewal, removal, renovation, alteration or dismantling of structural steelwork and scaffolding.

SE Demolition of buildings and engineering infrastructure and blasting.

SM Timber buildings and structures.

SF The development, extension, installation, renewal, removal, renovation, alteration or dismantling of fire prevention and protection infrastructure (drencher and sprinkler systems and fire installation).

SN The extension, installation, repair, maintenance, renewal, removal, renovation or alteration, as relevant, of the waterproofing of basements, roofs and walls using specialist systems.

SG The development, extension, installation, renewal, removal, renovation, alteration or dismantling of glazing, curtain walls and shop fronts.

SO The development, extension, installation, renewal, removal, alteration, or dismantling or demolition of water installations and soil and waste water drainage associated with buildings (wet services and plumbing).

SH The development, extension, installation, maintenance, renewal, removal, alteration or dismantling, as relevant, of landscaping, irrigation and horticultural works.

SQ The development, extension, installation, repairs, dismantling of precast walls, installation of wire perimeter fencing, diamond perimeter fencing, palisade steel fencing with posts and stay at intervals.

SI The development, extension, installation, repair, maintenance, renewal, removal, renovation, alteration or dismantling of lifts, escalators, travellators and hoisting machinery.

table 8: contractor gradIng desIgnatIons

Contractor Grading DesignationRange of Tender Values

Less than or equal to

1 R200 000

2 R650 000

3 R2 000 000

4 R4 000 000

5 R6 500 000

6 R13 000 000

7 R40 000 000

8 R130 000 000

9 No Limit

example:

A contractor may be graded on 2ME, 3CE and 4GB.

But a contractor may not be registered on 2GB, 3GB and 4GB

– he may only be registered on the highest grade he qualifies for in each class of works.

• 15 •

write a brief description for each of the following types of works:

civil engineering (ce)

Mechanical engineering (Me)

electrical engineering (building) (eb)

electrical engineering (Infrastructure) (eP)

general building (gb)

May a contractor be graded as a 2ce, 3Me and 4eP?

May a contractor be graded as a 3gb and 6gb?

May a contractor be graded as a 4eP, 7eb and 3gb?

worKsHeet 1questions: grading designations and classes of works (Answers on page 17)?

• 15 • • 16 •

4. supporting documents that should accompany the application for registration

Sub-regulation [7 (4) (a-m)] provides us with a detailed list of what supporting documents should be submitted when

applying for contractor registration. These supporting documents can be separated into two broad categories of documents

namely, basic and grading criteria.

basic criteria

These include the documents compulsory for all registrations and thus comprise the requirements for Grade 1 applications

(as this is the most basic grading):

1.1. application form including the signed declaration(s) (sub-regulation 7.1);

1.2. Proof of payment (sub-regulation 7.4.a);

1.3. company registration documentation (sub-regulation 7.4.d);

1.4. Valid, original tax clearance certificate (sub-regulation 7.4.e);

1.5. originally certified identity documents (sub-regulation 7.4.f); and

1.6. Valid electrical contractor’s certificate issued by the Department of Labour if the application is for Electrical

Engineering works (EB)) (sub-regulation 7.4.i.).

grading criteria

These include all the documents that are required by the regulations to grade an application for registration on a Grade 2 or

higher. These documents are used to determine the contractor’s works capability and financial capability, in order to assign

the contractor to the appropriate grading designation.

2.1. completed track record documents for each class of works applied for (sub-regulation 7.4.l);

2.2. financial statements for the two years immediately preceding the application (sub-regulation 7.4.b);

2.3. corresponding Vat returns may be required as supporting evidence for unaudited financial statements or if there is

a need for verification of the turnover. (sub-regulation 7.4.c); and

2.4. financial sponsorship if required or applicable (sub-regulation 7.4.g).

• 17 •

write a brief description for each of the following types of works:

civil engineering (ce)

Construction Works that are primarily concerned with materials such as steel, concrete, earth and rock and their

application in the development, extension, installation, maintenance, removal, renovation, alteration, or dismantling of

building and engineering infrastructure.

Mechanical engineering (Me)

Construction Works that are primarily concerned with the development, extension, installation, removal, alteration, renewal

of engineering infrastructure for gas transmission and distribution, solid waste disposal, heating, ventilation and

cooling, chemical works, metallurgical works, manufacturing, food processing and materials handling.

electrical engineering (building) (eb)

Construction Works that are primarily concerned with the installation, extension, modification or repair of electrical

installations in or on any premises used for the transmission of electricity from a point of control to a point of

consumption, including any article forming part of such an installation.

electrical engineering (Infrastructure) (eP)

Construction Works that are primarily concerned with development, extension, installation, removal, renovation, alteration

or dismantling of engineering infrastructure:

• relating to the generation, transmission and distribution of electricity; or

• which cannot be classified as eb.

general building (gb)

Construction Works that:

• Are primarily concerned with the development, extension, installation, renewal, renovation, alteration, or

dismantling of a permanent shelter for its occupants or contents; or

• Cannot be categorised in terms of the definitions provided for:

§ civil engineering works,

§ electrical engineering works,

§ Mechanical engineering works, or

§ specialist works.

May a contractor be graded as a 2ce, 3Me and 4eP?

Yes

May a contractor be graded as a 3gb and 6gb?

No

May a contactor be graded as a 4eP, 7eb and 3gb?

Yes

worKsHeet 1answers: grading designations and classes of works(Questions on page 15)

a

• 17 • • 18 •

• tHe aPPlIcatIon forM •


application for registration as contractor in contractor grading designations 2 to 9

Heading substituted by Government Notice No R8986 of 14 November 2008, published in Government Gazette


7. (1) A contractor who wishes to be registered in terms of these Regulations in the categories of registration that relate

to contractor grading designations 2 to 9 as contemplated in regulation 12(1) (Table 1) must on the approved

form apply to the CIDB for that registration.




(3) A contractor may be registered in more than one class of works but may only hold one contractor grading designation

in relation to a particular class of construction works.


An application form must be submitted with each application for registration. This is applicable to all types of applications,

including annual confirmation of particulars and any grade amendments or additions.

It is important to note that the declaration on the application form must be signed, confirming that the contractor:

• Declares specific information to the cidb;

• Understands specific information that the cidb has set out; and

• Authorises the cidb to perform specific actions.

Please read the declaration included further in this section.

It is important that the contractor completes and signs the latest version of the correct application form for the type of

application that is being submitted.

The following types of applications have different application forms:

• Grade 1;

• Grade 2 to 9;

• Change of particulars; and

• Annual Update.

note:

• The contactor must sign the declaration on the application form. He may not type his own declaration!

• The person who signs this declaration does not necessarily have to be a member, director or a

shareholder, but whoever signs it must be authorised to act on behalf of the enterprise.

• 19 •

When a contractor is due to submit their annual confirmation of particulars, the contractor is sent a letter confirming all their

current details on the cidb register.

assessMent MetHodCheck that:

1. The correct application form has been completed.

2. The contractor declaration has been signed.

3. The date is filled in on the declaration.

4. Supporting documents are attached.

The annual confirmation of particulars cannot be processed without the supporting application form

on which the contractor particulars are confirmed.

• 19 • • 20 •

Section I DECLARATION BY CONTRACTOR

Please tick the box if you consent to the sharing of financial information supplied to the cidb with an approved and authorized financial services provider

In support of facilitating access to finance for contractor growth and development, I hereby authorize the cidb to disclose financial information to an approved and authorized financial services provider upon request for such.

I, the undersigned, hereby:

• declare that:• I am duly authorised to sign this application on behalf of the enterprise;• The information furnished, as well as all documentation submitted in support of this application, is true and correct in every respect; and have

been lawfully obtained; (Please attach a valid, original Tax Clearance Certificate.)• The enterprise will abide by the Code of Conduct for All Parties Engaged in Construction Procurement, as published by the cidb in the

Government Gazette no. 25656 of 2003. (Also available at: www.cidb.org.za);• Neither the name of the enterprise or the name of any partner, member, director, manager or person, who wholly or partly exercises, or may

exercise, control over the enterprise, appears on the Register of Tender Defaulters established in terms of the Prevention and Combating of Corrupt Activities Act of 2004;

• No partner, member, director, manager or other person, who wholly or partly exercises, or may exercise, control over the enterprise, has within the last five years been convicted of fraud or corruption;

• I will provide to the cidb any additional information that may be required with regards to this application.

• understand that:• Registration is subject to the conditions referred to on the front cover of this form;• Incomplete applications result in delays in processing.• Applications without relevant supporting documentation will not be processed.• The administration fee payable per class of works applied for is non-refundable.• The cidb will grade my enterprise based on the information provided.• False information provided or a false declaration is a punishable offence in terms of the cidb ACT, Regulations and other applicable laws.

• authorise:• The cidb to verify the information supplied in this form;• The cidb to publicly display my contractor grading designation.

Enterprise Name:

Signature:

Date: DD/MM/YYYY

Designation:

Print Name:

• 21 •

• Proof of PayMent for contractor regIstratIon •

1. Proof of Payment for an application




(a) The fees as shown in Schedule 2;

determinations in relation to fees

35. (1) If the registration of a contractor is cancelled during the period of validity of that registration for any other reason

than following a decision in terms of sections 19 or 29 of the Act, that contractor is entitled to be refunded pro

rata to the period that the contractor is not registered any more.

(2) A contractor in contractor grading designations 2 to 9 must pay the annual fee referred to in section 16(8) of

the Act and as shown in Schedule 2, in relation to the highest contractor grading designation in relation to which

that contractor is registered, on the date of registration and during the two years following, on the date of

anniversary of registration.

Subregulation (2) was substituted by Government Notice No R1121 of 23 November 2007, published in

Government Gazette No 30510 of 23 November 2007

(3) An administration fee referred to in regulation 7 must be paid in relation to each class of works applied for.

(4) If an amendment to the category status of a contractor is applied for in terms of section 17(2) of the Act, the

contractor so applying is, subject to subregulation (2), required to pay the annual fee in relation to the new contractor

grading designation pro rata to the remaining period of his, her or its registration and in the case of an amendment

of the category status to a lower contractor grading designation, that contractor is not entitled to a pro rata refund

of the annual fee that he or she has already paid.

(5) The CIDB must, on receipt of any fees in terms of these Regulations, issue a receipt to the person who paid those fees,

subject thereto that a registration certificate issued in terms of these regulations is regarded to be a receipt in terms

of this subregulation.


Gazette No 31603 of 14 January 2008.


The applicant must pay the registration fees upon application. The payment is calculated according to the grade applied for

and consists of two parts, namely:

1. The Admin fee; and

2. The Annual fee.

1. the admin fee is payable per class of works:

• On the first registration of each class of works;

• When upgrading;

• When adding a class of works;

• After three years, at which time the company is required to re-register completely.

Note: admin fees are non-refundable, regardless of the success or rejection of the application.

• 21 • • 22 •

The admin fee is either R450 or R750, depending on the grade applied for:

• Grades 1 and 2: R450 per class of works; or

• Grades 3 to 9: R750 per class of works.

2. the annual fee, is payable for the highest grade applied for:

• On the first registration;

• yearly on the anniversary of the initial registration (Annual Update);

• When upgrading to a higher class of works;

• When adding a class of works at a higher grade than already awarded;

• After three years, at which time the company is required to re-register completely;

• grade 1 applications have no annual fees and only pay the admin fee every three years.

Where more than one grade is applied for, only the annual fee applicable to the highest of these grades must be paid.

table 2: annual fees Payable in respect of the Highest contractor grading designation

Contractor Grading Designation Fee in ZAR

1 R0

2 R250

3 R350

4 R900

5 R1 750

6 R3 500

7 R9 000

8 R29 000

9 R55 000

Source: Construction Industry Development Regulations, 2004 (as amended) as at 14 November 2008.

2. calculating the fees Payable

contractor grading

designation

administration/renewal fee in

respect of each grade applied for

annual fees payable in respect of the

highest contractor grading designation

1 R450

2 R450 R250

3 R750 R350

4 R750 R900

5 R750 R1 750

6 R750 R3 500

7 R750 R9 000

8 R750 R29 000

9 R750 R55 000

Source: Construction Industry Development Regulations, 2004 (as amended) as at 14 November 2008.

• 23 •

examples of a contractor applying for more than one grading

Applying for grade 3GB and grade 4CE:

R1 500 (admin) + R900 (annual) = r2 400


R1 500 (admin) + R3 500 (annual) = r5 000


R1 500 (admin) + R29 000 (annual) = r30 500

fee calculations in action

application for Initial registration or re-registration

example 1

If a contractor applies for 1gb and 1ce

Eg Grade: Admin Fee: Annual fee:

New grade 1GB R450 No fee payable

New grade 1CE R450 No fee payable

calculation: R450 + R450 = R900

example 2

If a contractor applies for 2gb and 3ce

Eg Grade: Admin Fee: Annual fee:

New grade 2GB R450 No fee payable

New grade 3CE R750 R350

calculation: R450 + R750 + R350 = R1 550

note: the annual fee does not apply to Grade 1 applications. For a Grade 1 application there is

a set fee of R450 per class of works applied for. This is only payable again after three years upon the

re-registration of the application.

The total fee

payable is:

R900

The total fee

payable is:

R1 550

• 23 • • 24 •

application for upgrade from one grading designation to another

Once a grade has been awarded and the contractor wishes to upgrade his application, he would have to pay the pro-rated

annual fees (remember that both the admin and annual fee is payable).

example 3

If a contractor has applied for an upgrade from 1ce to 2ce

Eg Grade: Admin Fee: Annual fees:

Upgrade from 1CE (current grade)

Upgrade to 2CE R450 R250

calculation: R450 + R250 – R0 = R700

The contractor has paid the admin fees for Grade 1 and now has to pay admin and annual fees for Grade 2.

example 4

If a contractor has applied for an upgrade from 1ce to 4ce


Upgrade from 1CE none none (current grade)

Upgrade to 4CE R750 R900

calculation: R750 + R900 – R0 = R1 650

example 5

If a contractor has applied for an upgrade from 2gb to 3gb while having an existing grade 3ce


Upgrade from 2GB (current grade)

Upgrade to 3GB R750 R350

Existing 3CE none R350 (current grade)

calculation: R750 + R350 – R350 = R750

There is no annual fee payable as the highest grade has already been paid for, but the admin fee still has to be paid.

remember: When a Grade 1 contractor applies for and is awarded an upgrade from a Grade 1 class

of work to a higher grading designation, their registration now must be updated on a yearly basis.

remember: the annual fee to be paid is for the highest grade applied for. Thus if the contractor has

already been awarded a Grade 3 then he has paid for the highest grad and he can then upgrade his other

classes of works to Grade 3.

The total fee

payable is:

R700

The fee payable

is the difference of

R1 650

• 25 •

fees for an additional grade

Once the contractor has been registered and has been awarded a grading designation, the contractor may apply to add an

additional class of works to his application. Based on the grading designation (grade) applied for the contractor would have

to pay the admin fee for the new class and any pro-rated annual fee.

example 6

If a contractor has applied for an additional 3Me class of works while having

an existing 3ce grading.


Current 3CE R750 R350

Additional 3ME R750 R350

calculation: R750 + (R350 – R350) = R750

The admin fee is payable for the additional grade but there is no annual payment as the difference is R0.

example 7

should he apply for an additional class of works on grade 1


Current 1CE

Additional 1ME R450 none

calculation: R450 for each grade 1 class of works applied for (there is no annual fee)

notes:

• If the new grade applied for is the same as or lower than the grade already awarded, there will be no

additional annual fees; only the relevant admin fees are payable.

• If the new grade applied for is above the grade already awarded, the contractor will have to pay pro-

rated annual fees as well as the admin fees.

• If the contractor is already graded on a Grade 1 and wishes to add another class of works on a higher

grading designation, the Grade 1 class will be valid for three years while the class of works with a

higher grade will be subject to an annual update.

The total fee

payable is:

R750

The total fee

payable is:

R450

• 25 • • 26 •

types of Payments accepted by the cidb:

The proof of payments received can be in the form of:

1. Bank deposit (cash deposit, not a cheque deposit);

2. Electronic funds transfer; or

3. Speed-point payment using a debit or credit card (made at one of the cidb provincial offices).

NB: No cash payments may be accepted at any of the cidb offices

the cidb banking details are:

Name: CIDB

Bank: Standard Bank

Branch: Menlyn

Account: Current Account

Account number: 03 224 34 64

Branch number: 01 23 45 15

date of payment

The date of the payment should be noted and checked against the date of the application. It may happen that the application

date and the payment date do not correspond exactly, which is acceptable within reason.

speed point payments

When payments are captured, it is important that the correct reference is recorded on the system. For a speed point payment

the reference that should be used consists of the two numbers at the top of the slip. Firstly the number that starts with ‘M’...

and secondly the number that starts with ‘U’.... These numbers should both be captured as the reference for the specific

payment on the system.

assessMent MetHodThe following criteria must be verified on the proof of payment, to ensure that it is valid and correct, and has

not been altered in any way. Check that:

1. The banking details are correct (account name, account number, etc).

2. The value of the payment is correct for the grade(s) applied for.

3. The deposit slip has the bank stamp on it.

4. The date of the payment relates to the date of application.

5. The document is free from evidence of fraudulent practices.

note:

The references used on deposit slips may not always be the company name but this is acceptable none the

less. It is important that the reference used on the payment is captured on the system exactly as it appears

on the deposit slip or it will not be accurately allocated to the contractor.

• 27 •

worKsHeet 2questions: Proof of Payments(Answers on page 29)?

calculate the fees applicable in each of the following situations: a contractor is applying for a grade 6Me and 5ce for the first time

a contractor is applying for a grade 5sl, 4Me and 3sJ for the first time

a contractor is applying for a grade 4sb, 1eP and 4gb for the first time

a contractor is applying for a grade 6Me and 2ce for the first time

a contractor is currently on a 1Me and 1eb, he is applying for an upgrade to 2eb

a contractor is currently on a 1ce and 3eP, he is applying for an upgrade to 3ce

a contractor is currently on a 3gb and 5sK, he is applying for a 3 year renewal on a grade 4gb and 7sK

a contractor is currently on a 3gb and 5sK, and he wishes to add 4Me

• 27 • • 28 •

saMPles of docuMents requIred1. Speed point receipt

2. Electronic funds transfer

Note: Sample documents provided in this manual include valid and invalid documents for training purposes. Trainees should

be able to recognise which documents are genuine and which are fraudulent or have been tampered with.

• 29 •

calculate the fees applicable in each of the following situations:


Admin Fees: R750 + R750 = R1 500

Annual Fees: R3 500

Total = R1 500 + R3 500 = R5 000

a contractor is applying for a grade 5sl, 4Me and 3sJ for the first time

Admin Fees: R750 + R750 + R750 = R2 250

Annual Fees: R1 750

Total = R2 250 + R1 750 = R4 000

a contractor is applying for a grade 4sb, 1eP and 4gb for the first time

Admin Fees: R750 + R750 + 450 = R1 950

Annual Fees: R900

Total = R1 950 + R900 = R2 850


Admin Fees: R750 + R450 = R1 200

Annual Fees: R3 500

Total = R1 200 + R3 500 = R4 700

a contractor is currently on a 1Me and 1eb, he applying for an upgrade to 2eb

Admin Fees: R450

Annual Fees: R250 – R0 = R250

Total = R450 + R250 = R700

a contractor is currently on a 1ce and 3eP, he applying for an upgrade to 3ce

Admin Fees: R750

Annual Fees: R350 – R350 = 0

Total = R750 + R0 = R750.

a contractor is currently on a 3gb and 5sK, he applying for a 3 year renewal on a grade 4gb and 7sK.

Admin Fees: R750 + R750 = R1 500

Annual Fees: R9 000

Total = R1 500 + R9 000 = R10 500

a contractor is currently on a 3gb and 5sK, and he wishes to add 4Me

Admin Fees: R750

Annual Fees: R0

Total = R750 + R0 = R750

worKsHeet 2answers: grading designations and classes of works(Questions on page 27)

a

• 29 • • 30 •

note:

The cidb does not register joint ventures or consortiums between business entities.

• coMPany regIstratIon docuMents •




(d) In the case of a company or a close corporation, the registration number, a certificate of incorporation and the

latest name change, if any, issued in terms of the Companies Act No 61 of 1973 or the Close Corporations Act

No 69 of 1984, as the case may be and certified copies of the shareholders’ certificates of the company;

(dA) In the case of a trust, a copy of trust deed as contemplated in the Trust Property Act No 58 of 1988);

Paragraph (dA) inserted by Government Notice No R842 of 18 August 2006, published in Government Gazette

No 29138 of 18 August 2006.


The cidb registers different types of trading entities or enterprises. The purpose of obtaining the company registration

documentation is to confirm the type of entity registering, and who the owners/directors/members or shareholders are.

The following types of business entities may register at the cidb:

a natural Person

1. Sole proprietor

2. Partnership

note: There is no Act governing a sole trader or partnership as they are not legal entities in the eyes of the law, thus there

are no registration documents for these.

a legal Person

1. Close corporation

2. Company – (Proprietary) Ltd

3. Company – Public

4. Personal liability company

5. Trust

6. Co-operative

7. Section 21 Company (non-profit organisation)

note: These are classified as a ‘legal person’ because they have Acts governing them. These are registered at CIPC and we

require their registration documentation.

• 31 •

characteristics of different types of entities

sole Proprietorship

A sole proprietorship is a business that is owned/operated by one person. This is the simplest form of business entity.

The business has no existence separate from the owner who is called the proprietor (not a legal person). The owner must

include the income from such business in his/her own income tax return and is responsible for the payment of taxes thereon.

Only the proprietor has the authority to make decisions for the business. The proprietor assumes the risks of the business to

the extent of all of his or her assets whether used in the business or not.

some advantages of a sole proprietorship are:

1. Simple to establish and operate;

2. Owner is free to make decisions;

3. Minimum legal requirements;

4. Owner receives all the profit; and

5. Easy to discontinue the business.

some disadvantages of a sole proprietorship are:

1. Unlimited liability of the owner;

2. The individual owner is legally liable for all the debts of the business (The investments and properties of the business, as

well as any personal fixed property may be attached by creditors);

3. Limited ability to raise capital. (The business capital is limited to whatever the owner can personally secure. This limits

the growth of a business when additional capital is required. A common cause of failure of this form of business

organisation is lack of funds. This restricts the ability of a sole proprietor to operate the business effectively and survive

at an initial low profit level or to get through an economic “rough spot”); and

4. Limited skills (one individual alone has limited skills, although the owner may be able to hire employees with sought

after skills).

Partnership

A partnership (or unincorporated joint venture) is the relationship existing between two or more persons who join together

to carry on a trade, business or profession.

It is similar to a sole proprietorship except that a group of owners replaces the individual owner. A partnership is also not a

separate legal person/taxpayer.

Each partner is taxed on his/her share of the partnership profits. Each person may contribute money, property, labour or

skills, and each expects to share in the profits and losses of the business.

The number of persons who may form a partnership agreement is limited to twenty.

• 31 • • 32 •

some advantages of a partnership are:

1. Easy to establish and operate;

2. Greater financial strength;

3. Combines the different skills of the partners; and

4. Each partner has a personal interest in the business.

some disadvantages of a partnership are:

1. Unlimited liability of the partners (Each partner may be held liable for all the debts of the business. Therefore, one

partner, who is not exercising sound judgment could cause the loss of the assets of the partnership as well as the

personal assets of all the partners);

2. Authority for decision-making is shared and differences of opinion could slow down the process;

3. Not a legal entity;

4. Lesser degree of business continuity as the partnership technically dissolves every time a partner joins or leaves the

partnership; and

5. Number of partners restricted to 20, except in the case of certain professional partnerships such as accountants,

attorneys, etc.

close corporation (cc)

The CC is similar to a private company. It is a legal entity with its own legal personality and perpetual succession and must

register as a taxpayer in its own right.

The owners of the CC are the members. Members do not hold shares in the CC and therefore, have a membership interest

in the CC. This interest is expressed as a percentage.

The CC has no share capital and therefore no shareholders. Membership, generally speaking, is restricted to natural persons

or (from 11 January 2006) a trustee of an inter vivos trust or testamentary trust as contemplated in section 29(1A) or 29(2)

(b) of the Close Corporation Act, No. 69 of 1984.

The CC may not have an interest in another CC. The minimum number of members is one and the maximum number of

members is ten. For income tax purposes, a CC is dealt with as if it is a company.

some advantages of a cc are:

1. Relatively easy to establish and operate;

2. Life of the business is perpetual, that is, continues uninterrupted as members change;

3. Members have limited liability, that is, they are generally not liable for the debt of the CC (However, it should be noted

that certain tax liabilities do exist. One such liability is where an employer/vendor is a CC, every member and person

who performs functions similar to a director of a company, who controls or is regularly involved in the management of

the CC’s overall financial affairs will be personally liable for employees’ tax, value-added tax, additional tax, penalty or

interest for which the CC is liable, that is, where these taxes have not been paid to SARS within the prescribed period);

4. Transfer of ownership is easy; and

5. Fewer legal requirements than a private company.

• 33 •

some disadvantages of a cc are:

1. Number of members was restricted to a maximum of ten; and

2. More legal requirements than a sole proprietorship or partnership.

Impact of the new companies act 71of 2008 on the future of close corporations

The new Companies Act provides for the continued existence of currently registered Close Corporations (CC), but prohibits

any further registrations of new CCs. All existing CCs registered with the Companies and Intellectual Property Registration

Office (CIPRO) as of the effective date of the new Act (1 April 2008) will continue to exist, and all amendments to CCs will

be accommodated by the new Companies Intellectual Property Commission (CIPC) which was implemented at the same time

that the act was put into effect.

conversion to Private company

The new Act does not force Close Corporations to convert into companies, however due to simplified legislation, reduction of

regulatory burden, and simplicity of formation – this is encouraged. The Private Company will replace the CC as the preferred

vehicle for small and medium businesses under the new Act.

old forms new forms

CK Will remain for all CCs registered before 1st May 2011 CoR14.3 Registration certificate

Private company

A company is treated by law as a separate legal entity and must also register as a taxpayer in its own right. It has a life

separate from its owners with rights and duties of its own.

The owners of a private company are the shareholders. The managers of a private company may or may not be shareholders.

A company may not have an interest in a close corporation.

some advantages of a private company are:

1. Life of the business is perpetual, that is, it continues uninterrupted as shareholders change;

2. Shareholders have limited liability, that is, they are generally not responsible for the liabilities of the company. However,

it should be noted that certain tax liabilities do exist. One such liability is where an employer/vendor is a company, every

shareholder and director who controls or is regularly involved in the management of the company’s overall financial

affairs shall be personally liable for the employees’ tax, value-added tax, additional tax, penalty or interest for which the

company is liable, that is, where the taxes have not been paid to SARS within the prescribed period;

3. Transfer of ownership is easy;

4. Easier to raise capital and to expand;

5. Efficiency of management is maintained; and

6. Adaptable to both small and medium to large business.

some disadvantages of a private company are:

1. Subject to many legal requirements; and

2. More difficult and expensive to establish and operate than other forms of ownership.

• 33 • • 34 •

Public company

The description, advantages and disadvantages of a public company are the same as those of a private company (listed

above) except for the following:

1. There is no maximum number of shareholders;

2. The shares are traded publically on the JSE and are not privately controlled; and

3. A public company is subject to even more legal requirements as it trades on the JSE.

old forms new forms

CM1 Certificate of Incorporation CoR14.3 Registration Certificate

CM9 Certificate of change of name No prescribed form

CM29 Register of directors, Auditors and Officers CoR20.1 Annexure A Directors of External company

CM29 CoR39 Notice of change of directors

CM 23 annual return CoR30.1 Annual Return

external company

A foreign company is a company incorporated outside of South Africa, irrespective of whether it is a profit or non-profit

company or carrying on business in south Africa or not. A foreign company is required to register as an “external company”

with CIPC if it conducts or intends to conduct business in South Africa.

old forms new forms

CM49 Certificate of registration of memorandum of

external company

CoR20.2 Registration certificate of external company

CM29 Register of directors, Auditors and Officers CoR20.1 Annexure A Directors of External company

CM29 CoR39 Notice of change of directors

CM 22 Notice of registered office and postal address of

company

CoR21.1 Notice of change of registered office for company

or external company.

CM 23 annual return CoR30.1 Annual Return

CM37 Notice of person authorised to accept service on

behalf of external company

CoR21.2 Notice of person authorised to accept services

limited liability company (Inc)

A limited liability company will generally be the most suitable investment vehicle, since it allows great flexibility and can be

used for joint ventures. Two types of Limited Liability Company are possible in South Africa: public companies and private

companies. Both are created in terms of and are governed by the provisions of the Companies Act. It is a legal form of

company that provides limited liability to its owners. Like a corporation, the members of an LLC are generally shielded from

personal liability for the LLC’s debts and obligations.

forms

CoR14.3 Registration certificate

• 35 •

co-operatives

Co-operative means an autonomous association of persons united voluntarily to meet their common economic and social

needs and aspirations through a jointly owned and democratically controlled enterprise organised and operated on co-

operative principles.

Co-operatives registered under the Co-operatives Act, 1981, have registration number with the following format

“K6/3/…/…….“. However, since the implementation of the new Co-operatives Act 2005, all registrations have been done on

a new computer system at CIPC and all Co-operatives are allocated a new registration number at CIPC, which has a similar

format to the registration numbers used by Companies and Closed Corporations.

forms and kinds of co-operatives

(1) This Act provides for the registration of the following forms of co-operatives:

(a) Primary co-operative;

(b) Secondary co-operative; and

(c) Tertiary co-operative.

application to register co-operative

(1) An application to register a co-operative must be made by:

(a) A minimum of five persons in the case of a primary co-operative;

(b) A minimum of two or more primary co-operatives in the case of a secondary cooperative; and

(c) A minimum of two or more secondary co-operatives in the case of a tertiary cooperative.

liability of members

The liability of a member of a co-operative is limited to an amount equal to the nominal value of the shares, for which the

member has not paid, that the member holds in the cooperative.

note: The new co-operatives registered at CIPC will have registration that end in …/24.

note: The financials of a co-operative must be compiled by an auditor.

trust

In common law legal systems (Trust Property Control Act No 57 of 1988), a trust is a relationship whereby property (real or

personal, tangible or intangible) is held by one party for the benefit of another. A trust conventionally arises when property

is transferred by one party to be held by another party for the benefit of a third party, although it is also possible for a

legal owner to create a trust of property without transferring it to anyone else, simply by declaring that the property will

henceforth be held for the benefit of the beneficiary.

In the case of the self-declared trust, the trustor and trustee will be the same person. The trustee has legal title to the trust

property, but the beneficiaries have equitable title to the trust property (separation of control and ownership). The trustee

owes a fiduciary duty to the beneficiaries, who are the “beneficial” owners of the trust property. (Note: A trustee may be

either a natural person, or an artificial person (such as a company or a public body).

• 35 • • 36 •

trading trust

Trading trust is a trust that is established to carry out some ventures, business or trade. There are three main parties to a

trust:

1. Founder/Trustor;

2. Trustee (natural person or artificial); and

3. Beneficiaries.

The trust deed is the founding document of a trust.

• Trust deed lodged with the Mater of the high court.

• Trustees are authorised by the Master of the Supreme Court (Attorneys must get the letter of authority from the

Supreme Court).

non-Profit companies (nPc)

Non-profit companies take the place of companies limited by guarantee and section 21 companies. All of a non-profit

company’s assets and income must be used to advance its stated objectives as set out in the MOI.

old forms new forms

CM3 CoR14.3 Registration certificate

annual returns

All Profit and Non-profit companies are required by law to file its annual returns within 20 business days of the anniversary

date of its incorporation. Failing which, CIPC may assume that the company is not operational and it will be referred for

deregistration after six months.

Once a company is deregistered, it is not allowed to conduct any business in the republic.

share certificates

All Private Companies are, as prescribed in the Regulations, required to provide originally certified share certificates of all

shareholders. The certification must not be older than 3 months at the date of receipt of the application.

A share certificate is a written document, signed on behalf of the enterprise and serves as proof of ownership for a specific

number of shares.

A shareholder can either be an individual or another enterprise.

Please note that a share certificate does not have a prescribed format.

• 37 •

A share certificate must reflect the following important details:

Individual

• The name of the company that issued the shares;

• The shareholder’s name and surname; and

• Number of shares issued.

• 37 • • 38 •

enterprise

• The name of the company that issued the shares;

• The name of the enterprise that holds the shares; and

• Number of shares issued.

• 39 •

calculation of shares

example 1

A company has issued 500 shares. Joe owns 140 of these shares, Tommy owns 150, and Gerda owns 210.

Their share percentages are as follows:

Joe : 140 ÷ 500 = 28%

Tommy : 150 ÷ 500 = 30%

Gerda : 210 ÷ 500 = 42%

Total : 500 ÷ 500 = 100%

example 2

A company has issued 752 shares. Sam owns 175 shares, Tom owns 362, and Kimberly owns 215 of the total shares.


Sam : 175 ÷ 752 = 23.27%

Tom : 362 ÷ 752 = 48.14%

Kimberly : 215 ÷ 752 = 28.59%

Total : 752 ÷ 752 = 100%

example 3

A company has issued 888 shares. Jack owns 280 shares, Oliver owns 200, Stefan owns 195 and Mark owns 213 of the

total shares.


Jack : 280 ÷ 888 = 31.53%

Oliver : 200 ÷ 888 = 22.52%

Stefan : 195 ÷ 888 = 21.96%

Mark : 213 ÷ 888 = 23.99%

Total : 888 ÷ 888 = 100%

shares are calculated as:

total of individual person’s share

total of all shares

• 39 • • 40 •

• tax clearance certIfIcates •




(e) An original tax clearance certificate issued to the contractor by the South African Revenue Service, or in the case

of a foreign enterprise, which has not yet performed any contracts within the Republic of South Africa, proof

that it has paid all taxes due by it to the government of its country of origin;

Paragraph (e) substituted by Government Notice No R8986 of 14 November 2008, published in Government


36. change of particulars

(3) Despite subregulation (2), a contractor must within three months after the expiry date of his or her tax clearance

certificate, submit a current tax clearance certificate to the cidb.


A valid, original tax clearance is required for each entity that registers as a contractor at the cidb.

A valid, original tax clearance certificate should be submitted:

1. At initial application for registration;

2. Annually within 3 months of the expiry of the certificate submitted to the cidb; and

3. After three years with the application for re-registration.

In whose name should the Tax Clearance Certificate be for each entity?

entity requirements for the tax clearance certificate

Sole proprietor Must be in the name and ID number of the sole trader.

PartnershipRequired for each member of the partnership (this tax clearance certificate will be in

their personal names and show their ID numbers).

Trust In the trust’s name and trust registration number.

Close corporation

Company

Co-operative

Section 21 company

In the name of the entity with the relevant registration number.

Foreign companies In the name of the entity with the relevant registration number.

Active contractors on Grades 2 to 9 must ensure that the cidb has a valid Tax Clearance Certificate at all times. The updated

Tax Clearance Certificate must be submitted to the cidb annually within three months of the expiry of the previous certificate.

Please note this does not apply to contractors that are active on Grade 1.

• 41 •

Provided they are original and free from fraudulent practices, Tax Clearance Certificates may be accepted whether they were

issued for Good Standing or Tender Purposes.

Purpose of a tax clearance certificate (tcc)

The purpose of the Tax Clearance Certificate is to confirm that the taxpayer has not contravened the provisions of the Income

Tax Act (1962), Value Added Tax Act (1991), Employees Tax (PAYE) as contained within the Income Tax Act (1962), Skills

Development Levies Act (1999) or Unemployment Insurance Contributions Act (2002), at the date of application.

assessMent MetHodTo determine that the certificate is not fraudulent and has not been altered in any way, check that:

1. The document is original, by ensuring that:

a. The header goes right to the outside edges of each page (if there is white space to the left or right of the header

this will indicate that the document has been scanned); and

b. The watermark is clear and visible.

2. The document has not been altered in any way, by ensuring that:

a. The font is the same throughout the document;

b. The spacing stays the same throughout the document;

c. The name matches the name on the company registration document;

d. The registration number matches that on the company registration document; and

e. The year included in the certificate number (on the top right of the page) corresponds to the year on which the

certificate was approved.

3. The certificate is valid, by ensuring that:

a. It has not expired; and

b. It has a tax number.

note: The cibd does not accept expired certificates. Remember that we take 21 working days to

register an application, thus when the application is accepted the tax clearance must be valid for at least

the next 21 working days, otherwise it could expire before registration is completed, which would make

the application non-compliant.

Important note: If there is a concern that the tax clearance certificate has been changed in any way,

it can be verified by calling the SARS call centre number which appears on the certificate.

The Tax Clearance Certificate can also be verified on SARS e-filing using the certificate number.

• 41 • • 42 •

saMPles of docuMents requIred1. Tax Clearance Certificate of a Close Corporation

2. Tax Clearance Certificate of a Sole Trader

• 43 •

• IdentIty docuMents •




(f) Certified copies of the identity documents of the principal or principals of the contractor, but where there

are more than twenty principals, certified copies of the identity documents of only twenty principals may be

submitted.


Originally certified copies of the Identity Document of all the principals up to a maximum of 20 are required. The certifications

are only valid if certified by a commissioner of oaths, e.g. police certifications, post office certifications and commissioner of

oaths certifications and the certification is not older than 3 months on the date of receipt of the application.

Principals that need to submit their certified Id copies are:

• A Sole Trader;

• Partners in a Partnership;

• A member in a Close Corporation;

• A director in a Company (public or private);

• Trustees in a Trust;

• Members of a Co-operative; and

• Members of a Section 21 Company.

for south african citizens

the following originally certified documents are accepted:

1. Identity Document;

2. Temporary Identity Document, provided this temporary ID is valid at the time of assessment (remember this must then

be valid for the 21 working days needed to register the application) and that the contractor submits a copy of the

permanent ID as soon as it is received;

3. Other forms of South African identification documents that can be accepted:

a. If the principal is a minor – we will accept an originally certified birth certificate.

b. If the principal has formal refugee status in South Africa – we will accept their signed certificate from the Department

of Home Affairs confirming their status as a refugee.

the following cannot be accepted as identification for south african citizens:

1. Driver’s licence;

2. Passport;

3. Expired temporary Identity Documents (or expiring within 21 working days); and

4. Identity Documents that have been altered in any way.

• 43 • • 44 •

for non-south african citizens

the following are accepted:

1. An originally certified copy of a passport, this may be certified in either the country of origin or in South Africa (by a

Commissioner of Oaths).

Note: there is no requirement for a valid work permit for a non-South African citizen.

a south african Id number is made up as follows:

1. The first six digits indicate the birth date.

2. The second four digits indicate gender:

a. Digits from 0000 to 5000 indicate the person is female; and

b. Digits from 5001 upwards indicate the person is a male.

3. The last three digits indicate if the person is a SA citizen or not:

a. Digits starting with 08 indicate that the person is a SA citizen; and

b. Digits starting with 18 indicate that the person is NOT a SA citizen.

example 1

the Id number 840305 0025 186 indicates:

– A birth date of 5 March 1984;

– This is a female (0025 is below 5000); and

– That this person is not a SA citizen (186).

example 2

the Id number 770515 6705 087 indicates:

– A birth date of 15 May 1977;

– This is a male (6705 is above 5000); and

– That this person is a SA citizen (087).

note: if the Identity Document and company registration document indicate a different surname

for a principal but both have the same identity number (usually in the case of a female) either a marriage

certificate or divorce decree must be requested to confirm the change of name.

• 45 •

?refer to the Id number 790315 0835 087 and answer the following questions:

What do the first 6 digits mean?

What do the middle 4 digits mean?

What do the last 3 digits mean?

How old is this person on

30 August 2009?

refer to the Id number 811010 6786 189 and answer the following questions:

What do the first 6 digits mean?

What do the middle 4 digits mean?

What do the last 3 digits mean?


30 August 2009?

assessMent MetHodTo determine if all the principals’ IDs have been submitted are compliant, and are not fraudulent or altered in any way,

check that:

1. The ID copies are provided for all the principals indicated on the company registration documents;

2. No driver’s licences, expired (or expiring) temporary IDs, or passports for South African citizens have been submitted;

3. The copy of the ID is originally certified by a commissioner of oaths and the certification is not older than three

months;

4. The name and the ID number on the ID copy correspond to the details on the company registration document;

5. The ID has not been altered in any way by ensuring that:

a. The photo has not been changed or edited;

b. The wording is accurately lined up (if there are changes in the alignment of the wording, some words may

have been altered);

c. The style of the wording does not change – look at the font, font size, character spacing, etc.; and

d. There are no obvious inconsistencies on the ID (between the date of birth and gender and the digits of the ID

number).

worKsHeet 3questions: Identity documents(Answers on page 48)

• 45 • • 46 •

saMPle of docuMents requIred1. Identity Document

• 47 •

saMPle of docuMents requIred2. New smart card ID

• 47 • • 48 •

worKsHeet 3answers: Identity documents(Questions on page 45)

arefer to the Id number 790315 0835 087 and answer the following questions:

What do the first 6 digits mean? This persons’ birth date is 15 March 1979.

What do the middle 4 digits mean? This is a female (0835 is below 5000).

What do the last 3 digits mean? That this person is a SA citizen (086).


30 August 2009?

30

refer to the Id number 811010 6786 189 and answer the following questions:

What do the first 6 digits mean? This persons’ birth date is 10 October 1981.

What do the middle 4 digits mean? This is a male (6786 is above 5000).

What do the last 3 digits mean? That this person is NOT a SA citizen (189).


30 August 2009?

27

• 49 •

• electrIcal contractor’s certIfIcate •




(i) In the case of an application relating to the Electrical Engineering – designation EB class of works a certified copy

of the current certificate of registration issued by the Electrical Contracting Board of South Africa;

Paragraph (i) substituted by Government Notice No R8986 of 14 November 2008, published in Government


12. requirements in relation to contractor grading designation

(5) For the class of construction works ‘Electrical Engineering Works-designation EB’, a contractor must be in possession

of a certified copy of the current certificate of registration issued by the Electrical Contracting Board of South Africa.




As mentioned in Schedule 3: Classes of works, there are two types of electrical works, namely, EB (Electrical Engineering

Works: Building) and EP (Electrical Engineering Works: Infrastructure).

electrical engineering works

– building (eb)

electrical engineering works

– Infrastructure (eP)

def

init

ion

Construction Works that are primarily concerned with

the installation, extension, modification or repair of

electrical installations in or on any premises used

for the transmission of electricity from a point of

control to a point of consumption, including any

article forming part of such an installation.

Construction Works that are primarily concerned

with development, extension, installation, removal,

renovation, alteration or dismantling of engineering

infrastructure:

a) relating to the generation, transmission and

distribution of electricity; or

b) Which cannot be classified as EB.

bas

ic w

ork

s ty

pes

All electrical equipment forming an integral and

permanent part of buildings and/or structures,

including any wiring, cable jointing and laying and

electrical overhead line construction.

Electrical power generation, transmission, control and

distribution equipment and systems.

exam

ple

s

• Electrical installations in buildings;

• Electrical reticulations within a plot of land (erf) or

building site;

• Standby plant and uninterrupted power supply;

• Verification and certification of electrical

installations on premises.

• Power generation

• Street and area lighting

• Substations and protection systems

• Township reticulations

• Transmission lines

• 49 • • 50 •

An Electrical Contractor’s Certificate is required for any contractor wishing to register for an EB grading. The Electrical

Contractor’s Certificate is only issued by the Department of Labour and cannot be issued by any other board or association.

The Electrical Contractor’s Certificate is issued to an individual but is also in the trading name of the company. The company

is then qualified to perform an electrical installation under that person’s supervision. The Electrical Contractor’s Certificate

must thus be in the name of the company applying and have the individual’s name on it as well.

The Electrical Contractor’s Certificate is on the letterhead of the Department of Labour. It reflects the company name, name

of the technician, registration number (for both the company and the technician) as well as the effective and expiry dates.

note: Electrical Contractor’s Certificates can be valid for a period of more than a year.


1. The electrical contractors certificate is still valid (and will be valid for 21 working days after initial submission);

2. The electrical contractors certificate has the name of the company applying as the trading name;

3. The electrical contractors certificate is issued by the Department of Labour;

4. The electrical contractors certificate is issued in terms of the following regulations:

a. Electrical Installation Regulations, 1992; and

b. Occupational Health And Safety Act, 1993.

• In the EB class of works, an Electrical Contractor’s Certificate is needed as the works are directly

involved in electrical installations in buildings.

• In the EP class of works, no Electrical Contractor’s Certificate is necessary as the works are

concerned with electrical infrastructure and transmission.

• 51 •

saMPles of docuMents requIred 1. Electrical Contractor’s Certificate

• 51 • • 52 •

• PotentIally eMergIng enterPrIse status •


targeted development programmes

5. From the register of contractors, a client may identify potentially emerging contractors within particular contractor

grading designations for the purpose of development programmes that target the improvement and progress of

contractors.

cIdb to identify potential emerging enterprise status

13. The CIDB must identify whether a contractor who has applied for registration in the category contemplated in

regulation 6(1)(b), can be classified as a potentially emerging enterprise by:

(a) Identifying the principals who are previously disadvantaged persons;

(b) Establishing whether the principals who are previously disadvantaged persons own at least fifty percent of the

enterprise;

(c) Establishing whether the principals who are previously disadvantaged persons possess and exercise:

(i) The authority to manage the assets and daily operations of the enterprise; and

(ii) Appropriate managerial and financial authority in determining the policies and directing the operations of

the enterprise.


A Potentially Emerging Enterprise means an enterprise which is owned, managed and controlled by previously

disadvantaged persons.

As per the regulations the cidb must identify if a contractor can be classified as a potentially emerging enterprise by identifying:

1. Which of the principals are previously disadvantaged;

2. If the previously disadvantaged principals own 50% or more of the enterprise; and

3. If the previously disadvantaged principals have the authority to control the enterprise.

1. who do we consider as previously disadvantaged persons?

Previously disadvantaged persons are regarded by the cidb as being a Black, Indian or Coloured South African who is

overcoming business impediments arising from the legacy of apartheid.

Therefore for this purpose:

• A white woman or white disabled person is not regarded as being previously disadvantaged as they did not suffer any

business impediments under the apartheid regime.

• A Black, Indian or Coloured person from another country (e.g. Zimbabwe) is not considered as being previously

disadvantaged as he was not disadvantaged during the apartheid era and is not overcoming business impediments

arising from the legacy of apartheid.

• 53 •

2. what do we mean by ownership?

The previously disadvantaged persons identified must own 50% or more of the enterprise (this 50% may be owned by one

or more people as long as they are all considered as previously disadvantaged).

3. How do we determine if there is authority to control the enterprise?

Previously disadvantaged principals are considered to have control of the company when these persons possess and exercise:

1. The authority to manage the assets and daily operations of the enterprise;

2. Have appropriate managerial and financial authority in determining the policies and directing the operations of the

enterprise.

4. How do contractors apply for Potentially emerging status?

A contractor must apply to be registered with PE status by completing Section C(i) of the application form. It is important to

note that the contractor will not be granted PE status if they have not applied for it, as this section is used to determine the

extent of control that the previously disadvantaged persons have over the enterprise.

In this section contractors are asked to name the previously disadvantaged principals that are responsible for the day-to-day

management decisions and indicate which activities they are responsible for on the following table.

Name

Paym

ent

Aut

horis

atio

n an

d

Che

que

sign

ing

Sign

ing

and

co-s

igni

ng f

or lo

ans

Acq

uisi

tions

of

lines

of c

redi

t

Sure

ties

Maj

or P

urch

ases

or

acqu

isiti

ons

Sign

ing

Con

trac

ts

Supe

rvis

ion

of

pers

onne

l5. the benefits of having Pe status for a contractor

A client may identify potentially emerging contractors within particular contractor grading designations for the purpose of

development programmes that target the improvement and progress of contractors.

The result of this is that a contractor graded with a PE status may be allowed to tender at one grade higher than the level he

has been awarded, if a tender calls for such contractors. It is then the client’s responsibility to support that contractor through

various methods including mentorship.

• 53 • • 54 •

example 1

will this company qualify for a Pe status?

Patience, Portia and Jessica own and control a company in South Africa. They are equal partners who participate in the

management of the company equally and without preference.

ownership:

Patience (black) owns and controls 33,3% of the company

Portia (black) owns and controls 33,3% of the company

Jessica (white) owns and controls 33,3% of the company

The company has 66,6 % previously disadvantaged ownership – remember that white women are not considered as

previously disadvantaged under this regulation.

thus it is majority black owned.

control:

The company is equally controlled by the three women and is thus 66,6% black controlled.

(note: The extent of control is determined from Section C(i) of the application form, where they are requested to

indicate what each person is responsible for).

thus the company is majority black controlled.

yes this contractor will qualify for Pe status.

It is important that we realise that it is the client’s discretion to provide for such contractors and it is

not the right of a contractor to be considered on a higher grade.

• 55 •

example 2

will this company qualify for a Pe status?

Johannes, Sipho and Danie own and control a company in South Africa. They have bought 30%, 30% and 40%

respectively. Johannes and Sipho are responsible for the signing of contracts and supervision of personnel on all

contracts and Danie is responsible for ‘the office work’ which includes controlling payments, banking and surety

transactions and loan acquisitions as well as all major ordering and purchases.

ownership:

Johannes (black) owns 30% of the company

Sipho (black) owns 30% of the company

Danie (white) owns 40% of the company

thus it is majority black owned

control:

However, the decision and control of the members in their day to day duties is as follows:

Name

Paym

ent

Aut

horis

atio

n an

d

Che

que

sign

ing

Sign

ing

and

co-s

igni

ng f

or

loan

s

Acq

uisi

tions

of

lines

of

cred

it

Sure

ties

Maj

or p

urch

ases

or a

cqui

sitio

ns

Sign

ing

Con

trac

ts

Supe

rvis

ion

of

pers

onne

l

Johannes X X

Sipho X X

thus it is not majority black controlled as danie does most of the management duties.

thus this contractor will not qualify for Pe status as, although it is majority owned, it is not majority

controlled.

• 55 • • 56 •

example 3

ABC Construction applies for PE status and its membership is as follows:

Enoch 40% ownership – White

Given 30% ownership – Black South African

Happy 30% ownership – Black South African

Name

Paym

ent

Aut

horis

atio

n an

d

Che

que

sign

ing

Sign

ing

and

co-s

igni

ng f

or

loan

s

Acq

uisi

tions

of

lines

of

cred

it

Sure

ties

Maj

or p

urch

ases

or a

cqui

sitio

ns

Sign

ing

Con

trac

ts

Supe

rvis

ion

of

pers

onne

l

Enoch X X X X

Given X X X X X X

From the above example:

• Given and Happy are identified as the previously disadvantaged principals

• Given and Happy, combined, own 60% of the enterprise

• Given exercises:

– The authority to manage the assets and daily operations of the enterprise

– Appropriate managerial and financial authority to determine the policies and direct the operations of the enterprise

therefore, abc construction qualifies for Pe status

example 4

XYZ Construction applied for PE Status and its membership is as follows:

Given 70% ownership – Black South African

Happy 30% ownership – Black South African

Name

Paym

ent

Aut

horis

atio

n an

d

Che

que

sign

ing

Sign

ing

and

co-s

igni

ng f

or lo

ans

Acq

uisi

tions

of

lines

of c

redi

t

Sure

ties

Maj

or p

urch

ases

or

acqu

isiti

ons

Sign

ing

Con

trac

ts

Supe

rvis

ion

of

pers

onne

l

Happy X X X X X X X

From the above example:

• Given and Happy are both previously disadvantaged principals

• Given and Happy own 100% of the enterprise

• Happy exercises:

– The authority to manage the assets and daily operations of the enterprise

– Appropriate managerial and financial authority to determine the policies and direct the operations of the enterprise

therefore, xyZ construction qualifies for Pe status

• 57 •

assessMent MetHodIt is very difficult to verify the authenticity of the information supplied in Section C(i) of the application form for various

reasons.

1. The easiest thing that we are able to verify is the percentage of ownership. This is done by checking whether names

listed in this section are really principals of the company and their total ownership percentage by checking the

company registration documentation to ensure that they are really principals.

2. The second thing that we can verify with reasonable accuracy is whether these principals are in fact Black, Indian or

Coloured by checking their identity documents to see their picture. Remember that we said this is only reasonably

accurate, this is because the pictures on identity documents are not always clear or decisive.

3. The most difficult thing to verify is the extent of the principal’s authority and control of the enterprise. This verification

is usually done telephonically with the contractor.

Based on this information the PE status application can be verified as follows:

check that:

1. Section C(i) of the application form is completed;

2. The principals listed on the section C(i) are principals according to the company registration documentation;

3. The principals listed on the section C(i) are previously disadvantaged;

4. The principals listed on the section C(i) own 50% or more of the enterprise according to the company registration

documentation; and

5. The principals listed on the section C(i) have authority and control of the enterprise.

If there is any reason to doubt the accuracy of the information filled in Section C(i), the contractor should be contacted

and the information verified. Should the verification result in a concern as to the accuracy of the information supplied,

the file can be referred for further investigation to our forensic investigators through the Chief Assessor.

• 57 • • 58 •


Manner of determination of contractor grading designation

11. (1) The contractor grading designation of a contractor is determined by determining the least of:

(a) The financial capability of the contractor in accordance with subregulation (2); and

(b) The works capability of the contractor in accordance with subregulation (5).

(2) The financial capacity of a contractor is determined by establishing whether:

(a) The contractor’s best annual turnover over the two financial years immediately preceding the application equals

or exceeds the minimum annual turnover in the third column of Table 1 determined in relation to the financial

capability designation contemplated in regulation 12(1);

(b) The contractor during the five years immediately preceding the application has completed at least one construction

works contract of which the total contract value equals or exceeds the amount in the fourth column of Table 1

of the financial capability referred to in regulation 12(1); and

(c) The contractor has available capital calculated in accordance with subregulation (3), equal to or exceeding a

value determined in relation to the financial capability designation as contemplated in regulation 12(1).

subregulation (2) amended by government notice no r751 of 22 July 2005, published in government gazette

no 27831 of 22 July 2005 and substituted by government notice no r8986 of 14 november 2008, published

in government gazette no 31603 of 14 november 2008 and by government notice no r464 of 2 July 2013,

published in government gazette no 36629 of 2 July 2013.

(2A) and (2B) inclusive ......

subregulations (2a) and (2b) inclusive inserted by government notice no r8986 of 14 november 2008, published

in government gazette no 31603 of 14 november 2008 and deleted by government notice no r464 of 2 July

2013, published in government gazette 36629 of 2 July 2013.

(3) Available capital is calculated by adding any financial sponsorship to the sum of the net asset value of a contractor as

indicated in the contractor’s financial statements, and financial sponsorship:

(a) Where the sponsor is a registered contractor or owns 50 percent or more of the applicant contractor, may

constitute up to 100 percent of the total amount of required available capital;

(b) Where the sponsor is not a registered contractor and owns 25 percent or more of the applicant contractor, may

not exceed 75 percent of the total amount of the required available capital; and

(c) where the contractor is not a registered contractor and the sponsor owns less than 25 percent of the applicant

contractor, may not exceed 50 percent of the total amount of the required available capital.

Subregulation (3) substituted by Government Notice No R8986 of 14 November 2008, published in Government Gazette


(3A) Despite anything to the contrary in these Regulations, if an application is made in terms of these Regulations:

(i) In the case of a company, within 6 months from the end of its financial year; and

(ii) In the case of a close corporation, within 4 months from the end of its financial year, the financial statements of

the two years immediately preceding the last financial year may be taken into account.

• gradIng MetHod for a contractor’s aPPlIcatIon •

• 59 •

subregulation (3a) amended by government notice no r842 of 18 august 2006, published in government

gazette no 29138 of 18 august 2006, substituted by government notice no r8986 of 14 november 2008,

published in government gazette no 31603 of 14 november 2008.

(5) The works capability of a contractor must be determined by establishing whether:

(a) The contractor has satisfied the requirements contemplated in regulation 12(5) in relation to any specific class of

construction works; and

(b) The contractor has during the five years immediately preceding the application completed at least one construction

works contract in the category of construction works for which the contractor wishes to register, of which the

value equals or exceeds the amount of that works capability designation as contemplated in regulation 12(7).

subregulation (5) amended by government notice no r751 of 22 July 2005, published in government gazette

no 27831 of 22 July 2005 and substituted by government notice no r8986 of 14 november 2008, published

in government gazette no 31603 of 14 november 2008 and by government notice no r464 of 2 July 2013,

published in government gazette no 36629 of 2 July 2013.

requirements in relation to contractor grading designation

12. (1) The values required to determine the financial capability of a contractor are as indicated in table 1 below:

table 1

Table 1 substituted by Government Notice No R751 of 22 July 2005, published in Government Gazette No 27831 of 22

July 2005, by Government Notice No R8986 of 14 November 2008, published in Government Gazette No 31603 of 14

November 2008 and by Government Notice No R464 of 2 July 2013, published in Government Gazette No 36629 of 2

July 2013.

Upper limit, (R)

of tender value

range

Best Annual Turnover

(50% of Upper Limit of

tender value range)

Largest Contract (22.5% of

Upper Limit of tender value

range. 15 % for Grade 2)

Available capital (R) (10% of

Upper Limit of tender value

range, 5% for Grade 3 and 4)

1 R200 000 - - -

2 R650 000 - R130 000 -

3 R2 000 000 R1 000 000 R450 000 R100 000

4 R4 000 000 R2 000 000 R900 000 R200 000

5 R6 500 000 R3 250 000 R1 500 000 R650 000

6 R13 000 000 R6 500 000 R3 000 000 R1 300 000

7 R40 000 000 R20 000 000 R9 000 000 R4 000 000

8 R130 000 000 R65 000 000 R30 000 000 R13 000 000

9 No Limit R200 000 000 R90 000 000 R40 000 000

Provided that, in the case of an application for registration in:

(b) Contract or grading designation ‘3’ or ‘4’, the applicant must meet the requirement as indicated in relation to that

designation in column 4 of table 1 and at least one of the requirements so indicated in that table in column 3 or 5.


We have now established that a contractor will apply to the cidb to be graded in different grading designations and for

different classes of works.

• 59 • • 60 •

Method

The contractor must submit the basic registration requirements as well as all the grading requirements required to prove both

the works capability and financial capability.

works capability is determined by:

1. The largest completed track record within the five years immediately preceding the application; and

financial capability is determined by:

1. The best annual turnover (between the two years immediately preceding the application); and

2. The available capital (calculated from the financial statements immediately preceding the application).

specific requirements for different grades based on table 1

grade 1 None.

grade 2 1. Have completed a contract with a value not less than R130 000.

grade 3 1. Have completed a contract with a value not less than R450 000; and

2. either have an best annual turnover not less than R1 000 000;

or have available capital not less than least R100 000.

grade 4 1. Have completed a contract with a value not less than R1 000 000; and

2. either have an best annual turnover not less than R2 000 000;

or have available capital not less than R200 000.

grade 5 1. Have completed a contract with a value not less than R1 500 000;

2. and have an best annual turnover not less than R3 250 000;

3. and have available capital not less than R650 000.


2. and have an best annual turnover not less than R6 500 000;0

3. and have available capital not less than R1 300 000.










note: Grade 2 can only be graded using the value of the completed track record; there is NO

requirement for available capital or turnover.

• 61 •

?

summary of requirements for grading:

• Grade 2 is graded according to their track record.

• All grades from Grade 3 upwards need a track record and financial statements.

example 1:

If a contractor applies for 7GB and has the following information, which grade will he qualify for?

Best Annual Turnover: R 28 500 000

Available Capital: R 2 000 000

Largest Track record: R 18 200 000

Grade 6GB

question 1

If a contractor applies for 8ce and has the following information, which grade will he qualify for?




question 2

If a contractor applies for 9sK and has the following information, which grade will he qualify for?




question 3

If a contractor applies for 6sJ and has the following information, which grade will he qualify for?




worKsHeet 4questions: grading Method(Answers on following page)

• 61 • • 62 •

aquestion 1

If a contractor applies for 8ce and has the following information, which grade will he qualify for?




Grade 7CE

question 2

If a contractor applies for 9sK and has the following information, which grade will he qualify for?




Grade 8SK

question 3

If a contractor applies for 6sJ and has the following information, which grade will he qualify for?




Grade 4SJ

worKsHeet 4answers: grading Method(Questions on previous page)

• 63 •

• tracK record docuMents •


12. Requirements in relation to contractor grading designation

(7) To qualify to be categorised in a specific works capability designation as indicated in columns 1 and 2 of table 5 below,

a contractor must, in addition to the requirements of subregulation (5), have successfully completed a contract of at

least the value indicated in column 3 of table 5 below:

table 5

Table 5 substituted by Government Notice No R751 of 22 July 2005, published in Government Gazette No 27831

of 22 July 2005, by Government Notice No R18986 of 14 November 2008, published in Government Gazette

No 31603 of 14 November 2008 and by Government Notice No R464 of 2 July 2013, published in Government

Gazette No 36629 of 2 July 2013.

Works capabilityLargest contract executed in the last 5 years

in the class of construction works applied for

(R)Designation

Maximum value of contract that a contractor

is considered capable of performing (R)

1 200 000 -

2 650 000 100 000

3 2 000 000 450 000

4 4 000 000 900 000

5 6 500 000 1 500 000

6 13 000 000 3 000 000

7 40 000 000 9 000 000

8 130 000 000 30 000 000

9 No Limit 90 000 000

Value

2. The rand value, tender value, tendered price, contract value or project value, wherever it appears in these Regulations,

includes value added tax levied under the Value-Added Tax Act, 1991 (Act No. 89 of 1991).

foreign enterprise

16. (1) The contractor grading designation of a contractor who is not based in South Africa, is determined in accordance

with these Regulations, but the monetary values are based on the exchange rate in ZAR in relation to-

(a) That contractor’s financial statements on the date of the applicable financial year-end; and

(b) The value of construction works projects completed, on the date of the completion of the applicable project.

(2) The values contemplated in subregulation (1) must include value added tax or similar taxation as levied in the

contractor’s country of origin.

Regulation (16) substituted by Government Notice No R8986 of 14 November 2008, published in Government



The contractor must submit the largest completed contract, per class of works applied for, that was completed within the

five years immediately preceding the application.

• 63 • • 64 •

There must be one track record per class of works, thus the class of works of each track record submitted must be verified.

Should a construction contract consist of more than one class of works, a breakdown must be provided by the client or

engineer confirming the values of each of the different types of works involved.

Although the cidb will accept a housing track record for the registration of a contractor on the General Building (GB) grading,

we do not register contractors to become home builders, whether they are building RDP houses, RDP toilets, normal houses

or even an entire residential complex. Such contractors must register at the NHBRC.

A track record is a contract between an employer and a contractor. Parties involved in the contract will include the employer

and the contractor.

Employers include:

1. Government departments (national or provincial departments of works, roads etc.);

2. Local authorities (municipalities);

3. State-owned enterprises (Eskom, Transnet, ACSA, etc.);

4. Public entities (IDT, SANParks, etc.);

5. Private companies (property developers, manufacturers, construction companies, etc.); and

6. Individuals (sole proprietors).

A construction contract is defined as a contract for the provision of a combination of goods and

services arranged for the development, extension, installation, repair, maintenance, renewal, removal,

renovation, alteration, dismantling or demolition of a fixed asset including building and engineering

infrastructure.

note: We also do not register suppliers. Neither materials-only suppliers nor labour-only suppliers

can register, as this type of track record cannot be used. Project managers, service providers and developers

are also not able to register on the register of contractors (a Register of Service Providers will be established

in the near future but is not yet implemented).

(See exemptions from registration in the section 8.2: Other Criteria).

note: A contractor that employs a subcontractor becomes an employer to that subcontractor.

The larger construction companies (contractors) are probably some of the largest employers in the

construction industry as they subcontract large portions of their work.

• 65 •

Contracts may be compiled according to different pricing strategies, which may differ substantially depending on the type of

work to be done and the preferences of the employer.

Pricing strategies include:

1. Lump sum (price is based on an activity schedule);

2. Bill of quantities (fixed price with provision for escalation);

3. Schedule of rates and target costs;

4. Cost plus fixed fee; and

5. Cost plus percentage fee.

Possible types of contract between an employer and a contractor

1. Contracts with a single contractor (either individuals or companies);

2. Contracts with joint ventures (consisting of either individuals or companies);

3. Subcontracts:

a. domestic subcontracts (subcontractor appointed by the main contractor at his own discretion);

b. nominated subcontracts (subcontractor nominated by the client which the main contractor is obliged to appoint

as a subcontractor); and

c. selected subcontracts (a contractor selected by the contractor in consultation with the employer in terms of the

requirements of the contract).

The contracting strategy and pricing strategy chosen will influence the form of contract used. The cidb regulates which

conditions of contract public sector employers in SA may use.

typical conditions of contract are:

1. gcc – General Conditions of Contract for Construction Works;

2. fIdIc Conditions of Contract for Construction, Conditions of Contract for Plant and Design – Build, Conditions of

Contract for FIDIC EPC/Turnkey Projects or Short Form of Contract;

3. Jbcc series 2000 Principal Building Agreement or Minor Works Agreement; or

4. nec3 Engineering and Construction Short Contract or NEC3 Engineering and Construction Contract.

These conditions of contract are usually associated with the use of standard forms for certification of work completed and

payment due as well as for the achievement of completion.

The result of these different types of pricing strategies and contracts is that the cidb will have to accept and assess different

kinds of track records. The most common track records that we receive are:

1. Re-measurable contracts;

2. Lump sum contracts;

3. Joint ventures;

4. Subcontracts;

5. Maintenance contract;

6. Turnkey projects; and

7. International contracts.

A contract may be executed by a single contractor or by a joint venture, or part of the contract could be subcontracted. Be

sure to check which contractor has executed the contract.

• 65 • • 66 •

the three primary documents of a track record:

1. Letter of Award (Signed form of Offer and Acceptance);

2. Certificate of Completion; and

3. Final or most recent Payment Certificate.

1. what is an award?

An award document is a signed form of offer and acceptance or a letter from a client to a contractor that instructs, appoints

or allows a contractor to commence the works as described in the contract.

2. what is a completion certificate?

The completion certificate is a document that shows the date on which the work was completed (final completion or

practical completion is acceptable).

3. what is a (final) Payment certificate?

At regular intervals interim payments certificates are drawn up indicating the value of work done and payment due to the

contractor as well as any variation, escalations or omissions effecting the price of the contract. The final or most recent

payment certificate will thus indicate a more accurate value of the contract than the initial value on the contract.

what documents are needed?

re-measurable contracts

A re-measurable contract is one that has an expected value for a complete project, such as building a new school, or adding

on a wing of a hospital. This type of contract could result in the client eventually paying the contractor the agreed-upon

amount at contract signing, but this value is usually only an indication of the final value of the contract, as there may be scope

changes, escalations, variations or omissions.

If the contract was completed by a single contractor the documents required are:

1. The three compulsory documents: award, completion and final payment for the contract.

If the contract was completed by a joint venture the documents required are:

1. The three compulsory documents: award, completion and final payment, and

2. a) The Joint Venture (JV) agreement. This document should stipulate the percentages of work done by each JV

member (profit share is not an acceptable indicator of the value of work to be done by each party); or

b) Should the JV agreement not stipulate the percentage split of work between the contractors, a letter from the

other members of the JV, indicating the percentages or values of the JV (this document should be signed by them

and be on their letterhead).

These must be signed by the client or consultant, and letters of award printed on the letterhead

of the client or consultant.

• 67 •

subcontracts

A subcontract is a project where a client employs a main contractor and this main contractor then awards a part of the works

to a second contractor to perform. The work is thus partially or wholly completed by a subcontractor.

If the subcontractor wishes to be recognised for the work completed the documents required are:

1. A subcontract agreement, signed by the main contractor and the subcontractor (this document must indicate a

description of the type of work done, date awarded and value of contract);

2. A confirmation of completion from the main contractor; and

3. Proof of payment for the amount claimed by the subcontractor in the form of bank statements.

A subcontract agreement is an agreement between the main contractor (who was originally awarded the contract) and a

second contractor who performs part of the works for the main contractor. This can be in the form of a letter of award, a

signed form of offer and acceptance or a signed contract.

Maintenance track records

A maintenance contract is often found within (but not limited) the EB, EP, ME or CE classes of works. When a contractor is

appointed for general maintenance and repairs of a specific facility over a specific period of time, or on a needs basis (an “as-and-

when” basis), this is considered to be a maintenance contract. There is usually no award value to this as the contractor is called

to do maintenance when it is needed. If there is an award value, this value is really only a guideline of the estimated final price.

In the case of contracts entered into on an “as-and-when” basis, the information provided at the start of the contract is

usually very different to the final value of the contract. In this type of contract, works can be undertaken through purchase

orders that specify what is to be constructed and the agreed price of the works. The contractor then invoices against the

purchase order and is paid.

The project name will usually indicate the period of the maintenance contract and the type of works covered. A maintenance

contract is usually for a set term rather than a set value.

The documents required are:

1. An award letter or signed form of offer and acceptance;

2. Proof of payment for amounts claimed by the contractor, in the form of:

a. Remittance advices (indicating the individual payments);

b. Latest progress payment (indicating the cumulative value of the contract).

If a letter from the client is received stipulating the value of work completed, this must be accompanied by the proof of

payment in the form of whether a payment certificate, remittance advice or bank statements.

The value accepted may be for the work completed for the duration of the contract at its completion, or work completed to

date if the contract is still in progress.

A JV agreement is a contract between two or more people which stipulates that the contractors

are working together on a particular project and the interest of each contractor in the project. We cannot

assume that a JV contract is carried out in a 50/50 ratio; this must be proved in writing to the cidb.

• 67 • • 68 •

turnkey projects

In this type of contract the main contractor would be responsible for the planning, design, development and construction of

the works, which will usually include several classes of works.

A contract can be for a single class of works but many contracts are in fact a combination of more than one class of works.

Cidb has interpreted the regulations to allow that the components of a contract may be used for registration in multiple

classes of works.

When the contract is a combination of more than one class of works then the following documents are needed:

1. The three compulsory documents: award, completion and final payment; and

2. A breakdown from the client or consulting engineer. This document should split up the total value of the contract

into the different values for each class of works involved. This must be a signed document on the letterhead of the

consulting engineer.

It is acceptable to use the full value of the contract for the class of works that best describes the complete works, and then

to use the value of the sub-component classes of works for the additional classes of works.

International track records

Should the contractor have a track record that was completed in another country the following documents are required:

1. The three compulsory documents (award, completion and final payment to the main contractor);

2. An originally notarised translation of any of the documents that are not written in English;

3. The exchange rate for the applicable currency, which must be retrieved from the internet (www.oanda.com) for the

completion date of the project. The value of the contract will be multiplied by this exchange rate to determine the

relative value in Rands (i.e. the final project value must be multiplied by the conversion rate on the practical completion

date); and

4. In cases where the project combines more than one class of works, the project breakdown from the consulting engineer

(again in English or with a notarised translation in English).

Private track records

The required track records documentation for private sector work should be aligned with the documents required as per the

regulation.

The required documents are therefore:

• A copy of the contract between the employer and the contractor (serves as award/appointment);

• Completion certificate; and

• Final payment certificate (if a payment certificate cannot be produced, bank statements should be requested).

note: A remittance advice is not the same as a tax invoice. A tax invoice is submitted to the client

by the contractor and once the payment is made a remittance advice is issued. Thus a tax invoice is never

requested.

• 69 •

In cases where cidb is not satisfied with the documents, reasonable measures can be taken to verify by requesting further

documents in the form of bank statements.

Individual Housing track records

Housing track records can be problematic if the client is not a department of housing or a similar body. Often the client may be

an individual homeowner. If an independent professional was involved (e.g. architect, quantity surveyor) then that professional

can provide a letter confirming the completion and final value of the work. The documents are not standardised and very

few individual homeowners will actually use any form of contract, we have therefore defined the following documents as the

documents that would most reasonably approximate the standard track record documents that we require.

The documents required are:

1. Award to the contractor from the home owner;

2. Completion to the contractor from the home owner;

3. NHBRC enrolment form (this indicates the value of the house);

4. Certificate of Occupancy from the local Municipality; and

5. Proof of payment in the form of:

a. Loan agreement/confirmation from the bank (this confirms the value of the house in a similar way that a payment

certificate would confirm the value of a normal track record); or

b. Bank statements indicating the value of the contract paid.

assessMent MetHod

Check that:

1. All the documents are addressed to and intended for the contractor applying for registration;

2. The contract name and number is the same on all the documents;

3. The documents are signed (approved) by the client or consultant and there are no visible changes to the document.

Please note that no changes can be made to a letter of award on the actual document; any changes made must

be described in a letter amending the original letter;

4. The client is the same throughout the documents;

5. The dates of the documents are in sequence and reasonable (e.g. the completion date is not before the award date

and the period is reasonable in that the value must be aligned to the period of the contract); and

6. There are no alterations or apparent fraud on any of the documentation submitted (if there are any concerns about

the authenticity of the documents submitted, the assessor is required to call the client or consultant to confirm the

validity of the track records).

In reality, the track records supplied to the cidb won’t always appear in the same format (as each client uses different

type of documentation), so we have to read the information provided carefully to identify all the required criteria within

the various documents. All the information listed must be included in the documents for us to determine the relevance

of the information.

• 69 • • 70 •

this information comprises:

1. Project name;

2. Project number;

3. Contractor’s name;

4. Client’s name;

5. Type of works done;

6. Award date;

7. Completion date; and

8. Value.

Ensure that all the information corresponds on all documentation and that all the documents are signed by and are on

the letterhead of the client/consultant.

saMPles of docuMents requIred1. JBCC Letter of Award from a consultant for a JV contract

2. JBCC Completion Certificate from a consultant for a JV contract

3. JBCC Final payment certificate from a consultant for a JV contract

4. GCC Award from the employer to a contractor

5. GCC Certificate of Completion from the employer to a contractor

6. GCC Final Approval Certificate from the employer to a contractor

7. Final Payment certificate from the employer to a contractor

8. Consultants Confirmation of a completed project.

• 71 •

TR12

31 May 2002 Massive Construction / JSN Electrical JV PO Box 9988 EAST LONDON 5200 Attention: Mr Greg Norton Dear Sir ST DOMINIC’S HOSPITAL - EAST LONDON PROPOSED ALTERATIONS AND ADDITIONS

Duly instructed by Alliance Hospitals (Pty) Ltd, and on their behalf, we confirm acceptance of your tender dated 07 May 2002 in the total amount of R12 959 100.48 inclusive of Value Added Tax for the construction and completion of the proposed alterations and addition to Alliance Hospitals (Pty) Ltd. We record the following requirements: 1. Fully priced Bills of Quantities: this has already been submitted to the Quantity Surveyors. 2. A Construction Guarantee of the type indicated in your tender document to be provided on the JBCC

form before the first Progress Meeting. We record your intention to provide an initial Construction Guarantee for R6 159 445.08 in line with the phasing programme outlined in the tender documents, with the guarantee for the balance of the work (R6,799,655.40) to follow upon final confirmation of the scope of the latter portion of the contract.

3. You are to sign the JBCC 2000 Principal Building Agreement (May 1998 edition) and associated contract documents within seven days of being notified by us that these documents are ready for signature.

4. You are to submit a Director’s Resolution authorising the contract to be signed prior to or at the time of signing the contract.

5. A detailed programme for the progress of works, clearly indicating the critical path is to be submitted to ourselves prior to, or at the first Progress Meeting.

6. You are to advise us in writing of your proposed list of domestic subcontractors, for our consideration and comment.

We wish to take this opportunity to congratulate you on the success of your tender and look forward to a mutually satisfactory completion of the contract. Structured Designs Architects & Planners (Pty) Ltd 1996/003366/07 Private Bag X10 Crystal Park Boksburg 5214 First Floor Pilot Mill House, Crystal Park, Boksburg 5201 Tel 043 701 0033 Fax 043 701 0038 Directors: A Johnson M Pema E Moses A Sauti

Structured Designs

Architects & Planners

TR13

Yours faithfully

S Viljoen Structured Designs (Pty) Ltd cc

St Dominic’s Hospital Mr C Koekemoer Speed Dial Afrox Health Care Mr C Kuhn 011-4900665 St Dominic’s Hospital Mr L Fourie Speed Dial MMP QS Mr G Cotterell Speed Dial Hamish Scott Consulting Mr A Jones Speed Dial Taylor & Ass Mr D Evans Speed Dial

Structured Designs Architects & Planners (Pty) Ltd 1996/003366/07 Private Bag X10 Crystal Park Boksburg;5214 First Floor Pilot Mill House, Crystal Park, Boksburg 5201 Tel 043 701 0033 Fax 043 701 0038 Directors: A Johnson M Pema E Moses A Sauti

TR13

Yours faithfully

S Viljoen Structured Designs (Pty) Ltd cc

St Dominic’s Hospital Mr C Koekemoer Speed Dial Afrox Health Care Mr C Kuhn 011-4900665 St Dominic’s Hospital Mr L Fourie Speed Dial MMP QS Mr G Cotterell Speed Dial Hamish Scott Consulting Mr A Jones Speed Dial Taylor & Ass Mr D Evans Speed Dial

Structured Designs Architects & Planners (Pty) Ltd 1996/003366/07 Private Bag X10 Crystal Park Boksburg;5214 First Floor Pilot Mill House, Crystal Park, Boksburg 5201 Tel 043 701 0033 Fax 043 701 0038 Directors: A Johnson M Pema E Moses A Sauti

• 71 • • 72 •

TR14

Certificate of Completion Issued in terms of 24.0, 25.0 or 26.0 of the JBCC Principal Building Agreement Employer [41.1.1] ALLIANCE HOSPITALS (PTY) LTD

Contractor [41.5.1] MASSIVE CONSTRUCTION /JSN ELECTRICAL JV

Works [41.2.1] NEW PHARMACY, NEW WARD, NEW NEO – NATAL FACILITIES.

Site [41.2.2] EXISTING ST DOMINIC’S HOSPITAL, ST MARKS ROAD, SOUTHERNWOOD, EAST LONDON. The Principal Agent hereby certifies that:

P Practical Completion

P Works Completion

P Final Completion

P Works as a whole

was achieved on:

Date: 24 March 2005

Note: Mark each box with a P or a O as is appropriate Signed by the Principal Agent for and on behalf of Alliance Hospitals (Pty) Ltd Date: Signature:

Certified by the Principal Agent as agent for the Employer

24 March 2005

Structured Designs Architects 5214 First Floor Pilot Mill House, Crystal Park, Boksburg 5201

• 73 •

TR15

• 73 • • 74 •

TR16

MASEY STATE PROVINCE P32/2/472/1A 26 November 2002 Massive Construction CC P0 Box 9988 EAST LONDON 5200 Sir, CONTRACT 2 OF 2002: THE REHABILITATION OF ROAD P101/1 IN BLOEMFONTEIN 1. Please refer to the above-mentioned contract and your tender for the execution thereof. 2. It is with pleasure that you are hereby informed that you were the successful tenderer and that the

contract was awarded to Massive Construction CC for a tendered amount of R22 781 740.62 (VAT Inc.)

3. The commencement date of the contract, according to Clause 1(1)(e) of the General Conditions of Contract, will be 3 December 2002.

4. It will be appreciated if the necessary Surety of R1 000 000.00 can be submitted on the commencement date.

5. Proof of the contractual insurances according to Clause 38 of the GCC also has to be submitted. 6. The date and time of the signing of the contract will be conveyed to you as soon as they are available.

Sincerely

…………………………………………………………………………………..

The Head: Department of Public Works, Roads and Transport. Department of Public Works, Departement van Openbare Lefapha la Mesebetsi ya Setihaba Roads & Transport Werke, Paaie & Vervoer Ditsela, le Dipa1angwa

DIRECTORATE: ROAD CONSTRUCTION & MAINTENANCE

P.O. Box 690, Bloemfontein, Republic of South Africa, Republiek van Suid-Afrika, Riphabolike ya Afrika Borwa

Tel: +27(0)51 405 5775 Fax: +27(0)51 405 5296 [email protected]

• 75 •

TR17

MASEY STATE PROVINCIAL GOVERNMENT

CERTIFICATE OF COMPLETION PROJECT NAME : The rehabilitation of road P101/1 in Bloemfontein

PROJECT NUMBER : 2/2002

CONTRACTOR : Massive Construction CC

SITE IDENTIFICATION : Bloemfontein

PORTION OF WORK ACCEPTED : The whole of the works, except the attached list of outstanding items as issued in terms of Clause 54(4) of the COLTO GCC (1998).

1. This Certificate of Completion is issued in terms of Clause 54(4) of the COLTO GCC (1998). 2. It is herewith certified that the site and the portion of works as described above, have been thoroughly

investigated by the Principle Agent on this 20th of October 2004, and that the project, except for defects and outstanding work as described in the attached list, has actually been completed according to Clause 54(4).

3. The outstanding work as per attached list must be completed by 21 November 2004, as per Clause

54(4) of the COLTO GCC (1998). 4. The Defects Liability Period shall commence on the 20 October 2004, provided that the Contractor

finishes the outstanding work by the given date.

5. The possession of the site has now reverted to the Employer. PRINCIPLE AGENT SIGNATURE NAME (PRINTED) DATE EMPLOYER SIGNATURE NAME (PRINTED) DATE CONTRACTOR SIGNATURE NAME (PRINTED) DATE

• 75 • • 76 •

TR18

MASEY STATE PROVINCIAL GOVERNMENT

FINAL APPROVAL CERTIFICATE PROJECT NAME : The rehabilitation of road P101/1 in Bloemfontein

PROJECT NUMBER : 2/2002

CONTRACTOR : Massive Construction CC

SITE IDENTIFICATION : Bloemfontein

PORTION OF WORK ACCEPTED : The whole of the works.

DATE OF COMPLETION OF WORKS: 10 May 05

1. This Final Approval Certificate is issued in terms of Clause 55(1) of the COLTO GCC (1998).

2. It is herewith certified that the site and the portion of works as described above, have been thoroughly

investigated by the Principle Agent and that the project has actually been completed according to Clause 55(1) of the COLTO GCC (1998).

3. All defects have been corrected in accordance with the Contract.

4. All claims in terms of Clause 51 of the COLTO GCC (1998) and all disputes in terms of Clause

61 of the COLTO GCC (1998) have been resolved. PRINCIPAL AGENT SIGNATURE NAME (PRINTED) DATE EMPLOYER SIGNATURE NAME (PRINTED) DATE CONTRACTOR SIGNATURE NAME (PRINTED) DATE

• 77 •

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• 77 • • 78 •

TR | 19

15 January 2008 TO WHOM IT MAY CONCERN Sir / Madam CONTRACT NO 2 OF 2002: REHABILITATION OF ROAD P101/1 IN BLOEMFONTEIN We hereby wish to confirm the following data with regard to the above-mentioned contract. 1. Client: Department of Public Works, Roads and Transport: Masey State Provincial

Government.

2. Contractor: Massive Construction CC

3. Contract Period: 15 Months starting on 3 December 2002.

4. Practical Completion: including approved extension of contractual period.

5. Final Contract Value: R30 204 636.13

We trust that all the above information meets with your requirements. Yours faithfully …………………………………………….. Karis van der Merwe.

Karis VDM Consultants Consulting Engineers and Project Managers P O Box 7867 Montana Pretoria. Tel: 012 698 5502 Fax: 012 698 6052 Email: [email protected] Directors: K van der Merwe; G van der Merwe.

Karis VDM Consultants

Consulting Engineers and Project Managers Tel: 012 698 5502 Fax: 012 698 6052 Email:

• 79 •

• transfer of tracK records •




(lA) (i) In a case referred to in regulation 11(4)(ii), (iii), (iv), (v) or (vii), a resolution of the company or member

resolution of the close corporation concerned sanctioning the change of name, reconstruction, amalgamation,

takeover or conversion;

(ii) In the case of a scheme of arrangement referred to in regulation 11(4)(vi), the court order sanctioning the

scheme of arrangement; or

(iii) In the case of a change in membership or members’ interest of a close corporation as contemplated in

regulation 11(4)(viii), the certificate referred to in section 31 of the Close Corporations Act No 69 of 1984,

stating the current percentage of each member’s interest in the corporation.

Paragraph (lA) inserted by Government Notice No R8986 of 14 November 2008, published in Government


11. Manner of determination of contractor grading designation

(4) For the purpose of determining the contractor grading designation of a contractor, the records of one contractor

may be transferred to another contractor and treated as if it were the same entity for the purpose of assessment in

the case of:

(a) The first contractor being a sole proprietor, partnership or trust who establishes a company or close corporation

in terms of the Companies Act, 1973 or the Close Corporations Act, 1984;

(b) A change of name of a company;

(c) The reconstruction of a company;

(d) The amalgamation of companies;

(e) The takeover of a company;

(f) A scheme of arrangement in terms of sections 311 to 313 of the Companies Act, 1973;

(g) The conversion of a company to a close corporation in terms of section 27 of the Close Corporations Act, 1984;

and

(h) A change in membership or members’ interests of a close corporation.

Subregulation (4) substituted by Government Notice No R8986 of 14 November 2008, published in

Government Gazette No 31603 of 14 November 2008.


The regulations have now specified in which instances the track records of one business entity may be transferred to another

entity. It is important to realise that in the eight situations listed in the regulations (where the track record may be transferred)

the operations business has not stopped, or been changed, the only change that is made is the type of legal entity.

We can therefore say, that the business itself has not changed, only the legal structure of the company may have been

altered.

• 79 • • 80 •

The records can be transferred in the following situations:

1 A Sole Proprietor becomes a Close Corporation or a Company;

2 A Partnership becomes a Close Corporation or a Company;

3 A Trust becomes a Close Corporation or a Company;

4 A Close Corporation becomes a Company, or vice versa;

5 The reconstruction of a company;

6 The amalgamation of companies;

7 The takeover of a company;

8 A change in membership or members’ interests of a close corporation; and

9 A company registered in terms of an Act undergoes only a name change for whatever reasons without changing its

principals.

In the above situations it is clear that these changes are to the legal form of the business, and the business as a whole

remains unchanged, whether the ownership has changed or not. Therefore when a business is dissolved the members (of

the old business) cannot ask for accreditation for their new business based on their previous track record because this is no

longer the same business operation.

what documents are required to verify the transfer of the track record?

1. When a Sole Proprietor becomes a Close Corporation or a Pty (Ltd):

a. Tax Clearance Certificate for the sole trader; and

b. Close corporation or Company registration documentation.

2. When a Partnership becomes a Close Corporation or a Pty (Ltd):

a. Previous partnership agreement; and


3. When a Trust becomes a Close Corporation or a Pty (Ltd):

a. Previous Trust Deed (or JM21 together with the register of trustees); and


4. When a Close Corporation becomes a Pty (Ltd), or vice versa,

a. Company conversion documents (as mentioned above in the basic criteria).

5. In the case of the re-construction of a company:

a. Letter from the Auditor explaining the re-construction.

6. In the case of the amalgamation of companies:

a. Letter from the Auditor confirming the amalgamation.

note: there is no longer any requirement regarding the substantial change of ownership of a

business when transferring a track record as the focus is on the fact the business as a whole has stayed

unchanged whether the ownership has changed or not.

• 81 •

7. In the case of the takeover of a company:

a. Letter from the Auditor confirming the takeover of a business.

8. When a change in membership or members’ interests of a close corporation occurs:

a. Updated company registration documents (as mentioned above in the basic criteria).

9. When a company registered in terms of an Act undergoes only a name change for whatever reasons without changing

its principals:

a. Company name change document (as mentioned above in the basic criteria).

assessMent MetHodIn order to transfer the records of one business to another it is important to ensure that:

1. The business as a whole remains unchanged;

2. Only the legal structure of the company changes, i.e. the business operations of the initial business must remain

unchanged;

3. Verification of the documents:

a. Where there is a reconstruction, amalgamation or takeover of a another business it is important that we

can verify this type of business transaction through an auditors letter;

b. Where there is a change from a sole Proprietor, Partnership, Trust, Close Corporation or a Company to

either a Close Corporation or a Company we can verify the change in legal structure by reviewing the CIPC

registration documents and SARS Tax Clearance Certificates; and

4. The various supporting documents are verified as described in this manual.

• 81 • • 82 •




(b) If applicable, complete financial statements of the contractor for the two financial years preceding the application;

Paragraph (b) amended by Government Notice R842 of 18 August 2006, published in Government Gazette No

29138 of 18 August 2006.

Paragraph (b) substituted by Government Notice No R8986 of 14 November 2008, published in Government



(1) The contractor grading designation of a contractor is determined by determining the least of:

(a) The financial capability of the contractor in accordance with subregulation (2); and

(b) The works capability of the contractor in accordance with subregulation (5).

(2) The financial capacity of a contractor is determined by establishing whether:

(a) The contractor’s best annual turnover over the two financial years immediately preceding the application

equals or exceeds the minimum annual turnover in the third column of Table 1 determined in relation to the

financial capability designation contemplated in regulation 12(1);

(b) The contractor during the five years immediately preceding the application has completed at least one

construction works contract of which the total contract value equals or exceeds the amount in the fourth

column of Table 1 of the financial capability referred to in regulation 12(1); and

(c) The contractor has available capital calculated in accordance with subregulation (3), equal to or exceeding a

value determined in relation to the financial capability designation as contemplated in regulation 12(1).

Subregulation (2) amended by Government Notice No R751 of 22 July 2005, published in Government Gazette

No 27831 of 22 July 2005 and substituted by Government Notice No R8986 of 14 November 2008, published

in Government Gazette No 31603 of 14 November 2008 and by Government Notice No R464 of 2 July 2013,

published in Government Gazette No 36629 of 2 July 2013.



(3A) Despite anything to the contrary in these Regulations, if an application is made in terms of these Regulations:

(i) In the case of a company, within 6 months from the end of its financial year; and

(ii) In the case of a close corporation, within 4 months from the end of its financial year,

the financial statements of the two years immediately preceding the last financial year may be taken into account.

Subregulation (3A) amended by Government Notice No R842 of 18 August 2006, published in Government

Gazette No 29138 of 18 August 2006, substituted by Government Notice No R8986 of 14 November 2008,

published in Government Gazette No 31603 of 14 November 2008.

• fInancIal stateMents •

• 83 •

Value

2. The rand value, tender value, tendered price, contract value or project value, wherever it appears in these Regulations,

includes value added tax levied under the Value-Added Tax Act, 1991 (Act No. 89 of 1991).

2(A). Wherever in these Regulations financial statements are referred to, it means financial statements prepared in

accordance with Generally Accepted Accounting Practice (GAAP) or the International Financial Reporting Standard (IFRS),

and certified by a person who is by law required to certify those financial statements, if any.

Regulation (2A) inserted by Government Notice No R8986 of 14 November 2008, published in Government


1. Introduction to financial statements

Introduction to financial accounting

Accounting can be defined as an information system that provides information about the results of a business’ performance

and its economic position.

The objective when starting any business is to maximise profit. The goal of maximising profit cannot be materialised unless

there is constant monitoring through management and governance.

Financial accounting generates financial statements which provide information most relevant to users which are outside the

company.

Before we look at calculating the best annual turnover or the available capital it is important to have an idea of how to read

financial statements. With this in mind we now take a brief look at the financial statements and some of the important

documents contained within these financial statements.

The purpose of financial statements is to give an indication of how financially healthy a business is at any given time.

The primary documents within a financial statement:

1. Accounting Officer’s report (or Auditor’s/Independent Reviewer’s report);

2. Members’ Approval (or Directors Responsibility and Approval);

3. Balance Sheet or Statement of Financial Position;

4. Income Statement or Statement of Comprehensive Income;

5. Statement of Changes in Equity;

6. Cash Flow Statement; and

7. Notes to the financial statements.

2. the purpose of each of these documents

2.1. accounting officer’s report (or auditor’s/Independent reviewer’s report)

• Tells us who compiled the financial statements and how.

• This is where the Accounting officer/Auditor confirms that he/she has compiled these financial statements, who they

are, their contact details, their professional institution, and their practice number.

• This report also indicates whether the financials are compiled in terms of GAAP or IFRS or any other legislation that may

be applicable to the type of business.

• 83 • • 84 •

2.2. Members’ approval (or directors’ responsibility and approval)

• This is where the principals of the business approve that they are satisfied with the financial statements and they agree

with the content of the financial statements. The most important aspect of this report is that the member must sign the

financials to indicate that he approves the contents of the financial statements.

• There are different ways of including this report in the financial statements, as there is no prescribed format for this

report according to GAAP.

The most common style of member’s reports are:

• A single page on its own where it states that financial statements are approved by the board of directors/members.

• At the bottom of the table of contents (index) there is a place where the members are required to sign. This doesn’t

have to state anything in particular (in wording) because just by signing the document the members indicate that they

approve the financial statements.

2.3. Income statement or statement of comprehensive Income

The purpose of the Income Statement is to show managers and investors whether the business has made a profit or loss

during the period being reported.

The Income Statement is one of the major financial statements used by accountants and business owners because it shows

the profitability of a company during the time interval specified.

Profit/Loss calculation: Total Income – Total Expenses = Total Profit or loss

2.4. balance sheet or statement of financial Position

A Balance Sheet is a summary of a business’ assets, liabilities and owners’ equity on a specific date (e.g. at the end of its

financial year).

A Balance Sheet is often described as a snapshot/photo of a company’s financial position; this is because it only applies to

a single point in time.

A Balance Sheet has three parts: assets, liabilities and owners’ equity. The difference between the assets and the liabilities is

known as the Net Assets Value of the company. According to the accounting equation, Owners’ Equity = Assets – Liabilities.

this compares:

Everything you physically have (Assets) vs to what you still have to pay (Liabilities)

And determines what you are really worth/what you really own (Equity)

The principals may NOT sign the actual financial statements (i.e. the Balance sheet, Income statement,

notes etc.) as this then indicates that they only approve that specific page.

• 85 •

2.5. statement of changes in equity

The Statement of Changes in Equity records all changes in the equity of a business in this statement. It uses the profit or loss

from the Income Statement and provides information to the Balance Sheet.

This statement becomes the link between the Income Statement and the Balance Sheet, as it reconciles the net worth of

the business.

This statement shows the balance of the capital at the beginning and the end of the financial period, and lists all transactions

that have changed the balance of the company’s equity at the end of the year. The retained earnings account on the Balance

Sheet represents the closing balance on the Statement of Changes in Equity.

2.6. cash flow statement

A Cash Flow Statement, also known as Statement of Cash Flows, is a financial statement that shows how changes in Balance

Sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and

financing activities. Essentially, the Cash Flow Statement is concerned with the flow of cash in and out of the business. The

Cash Flow Statement is distinct from the Income Statement and Balance Sheet because it does not include the amount

of future incoming and outgoing cash that has been recorded on credit. The Cash Flow Statement allows investors to

understand how a company’s operations are running, where its money is coming from, and how it is being spent.

2.7. notes to the financial statements

GAAP requires that all financial statements have notes to the financial statements. The Notes to the financial statements are

additional notes and information added to the end of the financial statements to provide the reader with more information.

These notes explain the calculation of specific items in the financial statements and thus provide a more comprehensive

assessment of a company’s financial condition.

The information contained within the notes not only supplements financial statement information, but they clarify line-items

that are part of the financial statements.

3. How to read and understand these documents for the purpose of cidb registration

The documents and their components will be explained in the following order:

3.1. Income Statement:

• Turnover

• Expenses

• How does an Income Statement work?

3.2. Balance sheet:

• Assets

• Liabilities

• Owners’ equity

• How does a Balance Sheet work?

3.3. Statement of Changes in Equity:

• How does a Statement of Changes in Equity work?

• 85 • • 86 •

3.4. Notes to the financial statements:

• Why are the Notes to the financial statements important?

3.1 the Income statement

The purpose of the income statement is to show managers and investors whether the business has made a profit or loss

during the period being reported.

The Income Statement is one of the major financial statements used by accountants and business owners because it shows

the profitability of a company during the time interval specified.

turnover

In business, revenue (turnover) is income that a company

receives from its normal business activities, usually from the

sale of goods and services to customers.

Income can include revenue from:

• Sale of goods

• Services to customers

• Interest

• Dividends or royalties paid to them by other

companies

synonyms:

• sales

• revenue

• income

expenses

Expenses are cash outflows or other decreases of assets

or incurrence of liabilities from producing goods, rendering

services, or carrying out other activities of the business.

expenses include:

• cost of sales expenses (expenses incurred in

selling products)

- purchase of raw material

- sales commissions

- shipping of finished goods

• general and administrative expenses (expenses

of managing the business)

- insurance

- water and electricity

- office rent

- telephone

- office supplies

- catering

- bank charges

- entertainment

- training

How does an Income statement work?

An income statement is really just a big list of income (everything you earn) and expenses (everything you pay).

It is as simple as:

Sales – cost of sales = Gross profit

Gross profit – expenses = Net Profit before taxation

Net Profit before taxation – taxation = Net profit

• 87 •

In a tabular format it would appear as follows:

Income/Turnover

– Cost of sales

= Gross profit

– Expenses

= Net profit before tax

– Taxation

= Net profit after tax

Although the income statement separates the expenses into cost of sales and administration expenses, we will not focus

on this, as we far as we are concerned for the purposes of this training any expenses to a business are listed as general and

administrative.

Therefore when viewing the Income statement we must only remember the following equation.

calculation of the Income statement:

Income/Turnover

– All Expenses

= Net profit before tax

– Taxation

= net profit after tax

example 1

Joe has a small stall where he sells doughnuts on weekends. It costs him R550 for the ingredients and he sells R1 000

worth of doughnuts each day.

what profit does he make each day?

Sales: R1 000

– Cost of sales R550

= gross profit r450

example 2

Joe has a small stall where he sells doughnuts on weekends. It costs him R550 for the ingredients and R100 to hire the

stall per day. He sells R1 000 worth of doughnuts each day (he does not pay tax).

what profit does he make each day?

Sales: R1 000

– Cost of sales R550

– Expenses R100

= net profit before tax r350

• 87 • • 88 •

example 3

Manny has his own car repair shop at his home. On 29 February 2008 Manny tells you that:

• He has repaired 10 cars this year

• He has paid R125 000 on parts for the cars

• He has bought tools that he needed for various repairs to the value of R30 000

• He has also drawn a salary of R56 000

• His business received R400 000 over the financial year and he pays 10% tax on profits

calculate how much profit he has made by drawing up an income statement.

Sales: R400 000

– Cost of sales R125 000 (for parts)

– Expenses Tools R30 000

– Expenses Salary R56 000

= Net profit before tax R189 000

– Taxation R 18 900

= net profit after tax r 170 100

example of a simplified Income statement

notes 2013 2012

r r

Revenue 750 000 480 000

Less: Cost of sales -389 000 -298 000

gross IncoMe 361 000 182 000

less: exPendIture -180 593 -139 588

Accounting officer’s remuneration 1 500 1 500

Computer expenses 640 458

Depreciation 1 2 600 4 385

Entertainment and refreshments 211 150

Insurance and security costs 3 569 2 256

Interest paid 541 925

Member’s remuneration 34 522 30 528

Motor vehicle running expenses 35 865 24 444

Stationery 350 453

Rent, water and electricity 18 523 13 466

Salaries and wages 59 086 45 862

Staff training 3 528 2 400

Telephone and facsimile 19 658 12 761

net IncoMe/(loss) before taxation 180 407 42 412

Less: Taxation 2 54 122 12 723

net IncoMe/(loss) for the year 126 285 29 688

remember: These are

expenses needed to sell

products.

remember: These are

expenses needed to run

the business.

• 89 •

? worKsHeet 5questions: financial statements(Answers on page 143)

question 1

Gerda works as a company secretary but she also sells make-up in her spare time. Consider the following information

for Gerda’s personal business:

• The make-up costs her R10 per unit of eye shadow and she sells each unit for R20

• She sells R4 000 worth of make up every month (200 units)

• She estimates that the telephone costs for these sales are R900 and that the petrol she uses to make these sales is R600

• Gerda pays 10% tax on the profit value

draw up an Income statement to calculate how much profit she makes

question 2

Martha has started her own business which does gardening services for businesses in Johannesburg. Consider the

following information for Martha’s personal business:

• Martha pays 4 staff R4 000 monthly and has paid a total of R188 000

• Martha had to buy equipment for R160 000 to start her business

• Martha has used R80 000 petrol

• Martha currently has monthly contracts with 32 businesses for her gardening services

• Her total income for the year has been R465 000 and pays no tax

draw up an income statement to calculate how much profit she makes

• 89 • • 90 •

3.2 the balance sheet

A balance sheet is a summary of a business’ assets, liabilities and ownership equity on a specific date (e.g. at the end of its

financial year).

The purpose of a balance sheet is to determine a company’s financial position. It is often described as a snapshot/photo of

the company’s financial of this is because it only applies to a single point in time.

A Balance Sheet has three parts: assets, liabilities and owners’ equity. The difference between the assets and the liabilities is

known as the Net Assets Value of the company. According to the accounting equation, Owners’ Equity = Assets – Liabilities.

assets

An asset is defined as a probable future economic benefit obtained or controlled by a particular entity. Assets are objects

which have a sellable value and have the potential to earn value in the future (assets can be both tangible (physical) and

intangible (non-physical)

non- current assets current assets

Non-current assets, also known as Property, Plant, and

Equipment, are assets and property which cannot easily be

converted into cash.

fixed assets normally include items such as:

• Land and buildings

• Motor vehicles

• Furniture

• Office equipment

• Computers

• Plant and machinery

synonyms: non-current assets, long-term assets

A current asset is an asset on the Balance Sheet which

is expected to be sold or otherwise used up in the near

future, usually within one year.

typical current assets include:

• Cash

• Cash equivalents (bank)

• Accounts receivable (debtors)

• Petty cash

• Inventory

• Short-term investments

synonyms: liquid assets, short-term assets

liabilities

A liability is defined as an obligation of an entity arising from past transactions or events.

A liability is thus something that is owed to another person, in accounting we express this in a rand value owed by the entity

to another entity.

• 91 •

non- current liabilities current liabilities

These liabilities are reasonably expected not to be paid up

within a year. i.e. it will take more than one year to settle

the amount owed.

they usually include:

• Issued long-term bonds

- Mortgage bonds

• Long-term loans:

- Vehicle hire purchase

- Personal loans

- Study loans

synonyms: fixed liabilities, long-term liabilities

These liabilities are reasonably expected to be paid up

within a year. i.e. it will take less than one year to settle the

amount owed.

they usually include payables such as:

• Wages

• Overdrafts

• Taxes

• Accounts payables (creditors)

synonyms: short-term liabilities

owner’s equity

Owners’ Equity is the remaining interest in all assets after all liabilities are paid.

At the start of a business, owners put some money into the business to finance assets and annually, the profits of the

business add to this amount or the losses reduce this amount.

After liabilities have been accounted for, the positive remainder is deemed the owner’s interest in the business.

share capital

This the amount of funds invested in the business by the

shareholders in return for a share in the business.

synonym: Member’s interest

retained earnings

These are profits earned in previous years which have not

been paid out to the owners. This is to keep cash in the

company for operational or growth reasons.

synonym: accumulated profit

net asset Value

net assets are sometimes called the net worth, or owners’ equity of a company, which is calculated as assets minus

liabilities. Net assets represent the amount by which assets exceed liabilities. This net worth is therefore also called equity.

Net assets or equity is the difference between the value of assets owned by the enterprise and liabilities incurred.

equation: total assets – total liabilities = net asset Value

• 91 • • 92 •

How does the balance sheet work?

the accounting equation:

a = Assets (what the enterprise owns) • l = Liabilities (what the enterprise owes)

e = Equity (what the owner’s interest in the enterprise is)

note:

a = e + l (everything you put in + everything borrowed = all you have)

e = a – l (everything you have – everything you owe = everything you put in)

l = a – e (everything you have – everything you put in = everything you owe)

The following examples show how the accounting equation always balances:

You have bought a car for R100 000 through finance from the bank.

Asset: Vehicle = R100 000 Liability: Loan at Bank = R100 000

(Although you have the car, it is really owned by the bank until you have paid the loan off)

After 6 months you have paid off R20 000 on the car.


Equity: How much you own = R20 000

(Now the car is only partially owned by the bank as you have partially paid for the car)

After 1 year you have managed to pay off R45 000 on the car.



(Now the car is only partially owned by the bank as you have partially paid for the car)

After 2 years you have managed to pay off the car completely.

Asset: Vehicle = R100 000 Liability: Loan at Bank = R0


(Now the car is completely yours as you have fully paid for the car)

AAssets

EOwner’s Equity

LLiabilities= +

remember: If you think of a scale, the two sides of the scale must always balance.

assets = equity + liability

• 93 •

the accounting equation in action

example 1

M. Man has a small business which he operates from home.

On 30 November he tells you that:

•The total assets in his business are R100 000, and

•The value of his liabilities is R35 000.

calculate the equity of M. Man’s business:

E = A – L

E = R100 000 – R35 000

E = R65 000

example 2

A. Apple has a small business which he operates from home.

On 30 July he tells you that:

•The equity in his business is R10 000, and

•The value of his liabilities is R35 000.

calculate the assets of a. apple’s business:

A = E + L

A = R10 000 + R35 000

A = R45 000

example 3

B. Brown has a small business which he operates from home.

On 30 April he tells you that:

•The equity in his business is R30 000, and

•The value of his assets is R42 000.

calculate the liabilities of b. brown’s business:

L = A – E

L = R42 000 – R30 000

L = R12 000

?

?

?

R100 000

- R35 000

R10 000

- R35 000

R42 000

- R30 0000

• 93 • • 94 •

example of a simplified balance sheet

balance sheet of xyZ at 29 february 2008

2008 2007

assets

Fixed Assets 50 000 58 000

Property, plant and equipment 50 000 58 000

Current Assets 1 850 1 265

Cash and bank 100 85

Inventories 1 000 760

Accounts receivable 750 420

Total Assets 51 850 59 265

equIty and lIabIlItIes

Equity and Reserves 600 455

Member’s interest 100 100

Retained income 500 355

Fixed Liabilities 45 000 51 500

Mortgage bond 45 000 51 500

Current Liabilities 6 250 7 310

Accounts payable 2 600 2 850

Short-term loans 2 650 3 540

Tax due 1 000 920

Total Equity and Liabilities 51 850 59 265

600 + 45 000 + 6

250 = 51 850

The top and

bottom balance

• 95 •

? worKsHeet 6questions: financial statements 2(Answers on page 144)

question 1

J. Jason is the owner of ABC Construction CC. On 30 November 2007, ABC Construction has the following information:

1. ABC owns equipment valued at R100 000.

2. Clients owe him R40 000 for services completed.

3. ABC owes DEF suppliers R20 000.

4. ABC has R10 000 in the bank.

1. calculate the total assets of abe construction

2. calculate the total liabilities of abe construction

3. calculate the owner’s equity (naV) of abe construction

question 2

J. Jason is the owner of ABC Construction CC. On 31 December 2007 ABC Construction has the same information as in

Question 1 above but also has the following additional information:

1. ABC Construction now owes tax of R30 000

1. recalculate the total assets of abc construction

2. recalculate the total liabilities

• 95 • • 96 •

3. recalculate the total equity

question 3

can you put the values in question 2 above into a balance sheet?

Balance Sheet of ABC on 31 December 2007

assets

Non-Current Assets (this is the total of everything in the block)

Current Assets (this is the total of everything in the block)

total assets (this is the total of all the assets)


Equity and Reserves (this is the total of everything in the block)

Non-Current Liabilities (this is the total of everything in the block)

total equity and liabilities (this is the total of all the equity and liabilities)

• 97 •

3.3. statement of changes in equity

After the Income Statement has been completed and the net profit for the year has been calculated, the next step is to

transfer this profit to the Balance Sheet. When the profit is transferred to the Balance Sheet it can either be transferred

straight to the Balance Sheet, or it can be transferred through a Statement of Changes in Equity.

When the net profit or loss is transferred straight to the balance sheet the exact value is transferred. Whereas when a

Statement of Changes in Equity is used, the transferred value will differ from the profit/loss value. The statement is important

because it breaks the value down into its various components.

The Statement of Changes in Equity uses information from the Income Statement and provides information to the Balance

Sheet. All changes in the equity of a company must be reported in this statement. It is set out in a way that shows the

changes in the equity of an entity in detail, thus this statement becomes the link between the Income Statement and the

Balance Sheet, as it reconciles the net worth of the business.

This statement shows the balance of the capital at the beginning and the end of the financial period, and lists all transactions

that have changed the balance of the company’s equity at the end of the year. The retained earnings account on the Balance

Sheet represents the closing balance on the Statement of Changes in Equity.

these transactions include:

• additional capital investment – when more capital as added to the company.

• drawings – when capital is withdrawn from the company.

• Profit for the year – the net profit for the company after taxes have been paid.

• loss for the year – the net loss for the company after taxes have been paid.

• selling of additional shares – increase in capital due to the sale of additional shares.

• repurchases of shares – when the capital decreases due to the ‘buy back’ of shares from shareholders.

• Payment of dividends – where shareholders are paid a share of the profit at the end of the financial year and the

value of the retained earnings thus decreases.

the format is:

Balance at beginning of year,

plus/minus changes (as listed above)

Balance at end of year (Note this will be the balance at beginning of year for the next year)

the statement of changes in equity in action

example 1

Terry has started his company with R500 capital, and has made R1 000 profit after tax. He has also withdrawn R100

from the capital he invested in the company for personal use.

what capital value will be reflected on the balance sheet?

capital retained Income total

Balance at beginning of the year R500 - R 500

+ Profit/Loss for the year R1 000 R1 500

– Drawings R100 R 100

Balance at end of year R400 r1 000 R1 400

• 97 • • 98 •

example 2a

In 2012 Lawrence Construction Pty (Ltd) had R1 000 capital and sold additional 100 shares at R5 a share, thus increasing

the share capital by R500. Company profit for the year amounted to R1 200.

what capital value will be reflected on the balance sheet end of 2012?

Capital Retained Income Total Equity

Balance beginning of the year R1 000 - R1 000

Changes in equity R500 - R1 500

Profit for the year R1 200 R2 700

Balance at end of year R1 500 R1 200 R2 700

example 2b

In 2013 Lawrence Construction earned a profit of R5 000.

what capital value will be reflected on the balance sheet end of 2013?

Capital Retained Income Total Equity

Balance at beginning of year R1 500 R1 200 R2 700

Profit for the Year R5 000 R5 000

Balance at end of year R1 500 R6 200 R7 700

example of a simplified statement in changes of equity

Members

contributions

retained

Income total equity

Balance at 1 March 2011 - - -


Contributions introduced R50 000 R50 000

total changes R50 000 R100 000 R150 000

Balance at 1 March 2012 R50 000 R100 000 R150 000

Changes in equity


total changes R80 000 R80 000

Balance at 28 Feb 2013 R50 000

R180 000

R230 000

• 99 •


question 1

In 2004 Sam started his company with R100 capital, and after his first year of trading he made a profit of R3 000 after tax

in 2005 Sam realised that he would have to buy a new truck to increase his sales, in order to do this he put in an additional

R40 000 into the company which was used to buy the truck. That year Sam’s business made R10 000 profit after tax.

compile the statement of changes in equity for sams’ business

Members contributions retained Income total equity

Balance at 1 March 2004

Profit for the year

Contributions introduced

total changes

Balance at 1 March 2006

Changes in equity

Profit for the year

total changes

Balance at 28 Feb 2007

question 2

In 2007 Sam decided that his business is growing steadily and he can afford to take some money out of the business in

order to pay for his daughters’ wedding. He therefore withdrew R25 000 for his personal use. That year Sam made a

loss of R7 500 after tax.

using the balances from the first question compile the statement of changes in equity for sams’ business



Profit for the year

Contributions introduced

total changes


• 99 • • 100 •

3.4 notes to the financial statements

GAAP requires all financial statements to have notes to the financial statements. The Notes to the Financial Statements are

additional notes and information added to the end of the financial statements to provide the reader with more information.

These notes explain the computation of specific items in the financial statements and thus provide a more comprehensive

assessment of a company’s financial condition.

Notes to Financial Statements can be information on debt, going concerns, accounts or contingent liabilities, or contextual

information explaining the financial numbers (e.g. to indicate a lawsuit). The information contained within the notes not only

supplements financial statement information, but they clarify line-items that are part of the financial statements.

Notes to the Financial Statements are also used to explain the method of accounting used to prepare the financial statements

(all publicly traded companies are required to use accrual basis accounting for financial reporting purposes), and they explain

(provide breakdowns of) how particular accounts have been represented. In consolidated financial statements, all subsidiaries

should be listed in the notes as well as the amount of ownership (controlling interest) that the parent company has in the

subsidiary companies.

The notes to the financial statements are required for all financial statements according to GAAP.

there are a few different types of notes:

1. accounting policy note

a. This note must state that the financial statements comply with GAAP;

b. The basis of revenue measurement and other policies must be disclosed.

2. additional information on items in the financial statements

a. A note must disclose the source of revenue;

b. The property, plant and equipment (PPE) note must disclose the opening carrying value and the closing

carrying value of the assets for the financial period.

3. other disclosures

a. Contingencies, accrued and pre-paid expenses must be explained;

b. Shareholders loans must be explained in terms of security, interest and repayment.

• 101 •

typical topics covered in the notes:

• the revenue note

This must include the source of the turnover/revenue that is recorded, and it may also indicate whether it is VAT inclusive

or exclusive. We will assume that if there is no comment the turnover is VAT excluded and must thus add VAT to the value

indicated, unless the notes indicate that the turnover is VAT included.

• the property, plant and equipment note

This indicates the value of the specific assets at the beginning of the year, accounts for additional assets, the sale or scrapping

of assets, depreciation and appreciation. The final value of all the assets both individually and a total are then shown as a

result of all the transactions. This final value is the value indicated on the Balance Sheet.

• Members’/shareholders’ loans

The shareholders’ loans are calculated as a liability (usually long term) and this note further explains the conditions of the

loan(s). This note will include details such as value of the loan, security on the loan, the interest agreed upon for the loan

and the repayment terms of the loan.

• subsidiaries

Should there be any subsidiary companies, their names will be listed as affiliated companies in the notes.

• Mergers and acquisitions

If a company buys out another company as a going concern, the purchase will be recorded in the financial statements

immediately succeeding the acquisition. If one or more companies merge, this will also be indicated on the financial

statements immediately succeeding the merger.

note:

• Members’ loans refer to loans from members to the business, not loans from the business to its

members.

• Loans from affiliated businesses or subsidiary companies cannot be used as members’ loans (these

are regarded as liabilities).

It is important that cidb knows the value of any loan and who the loan was from, because although

technically a loan is a liability, cidb has opted to recognise this as an investment in the company and thus

regards it as capital/equity rather than as a liability. The result of this is that the value of the liabilities

decreases and the equity of the company increases.

• 101 • • 102 •

examples of the notes to the financial statements

1. revenue

“Revenue comprises the amounts invoiced to customers for construction services rendered, net of discounts and value-added

taxation“.

1.2. revenue recognition

“Interest is recognised on a time proportion basis”.

Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to

the buyer“.

(This usually tells you about the type of turnover that was recognised and on what basis).

2. Member’s contributions

Member’s loan 150 000

150 000

The loan is unsecured, bears no interest, and has no set date for repayment terms (this usually tells you about the type of

long term loan that is listed in the Balance Sheet, if the loan was from the members or from a financial institution).

3. Property, plant and equipment

1.4 Motor vehicles 574 117

Cost 656 729

Opening balance 111 579

Additions 582 430

Disposals -37 281

Accumulated depreciation -82 612

Opening balance 13 018

Disposals -9 320

Depreciation for the year 78 914

(This usually tells you about the type of property, plant and equipment that the business owns, what it was bought for, what

it is worth today and how the calculation was done to determine the value of the asset today).

• 103 •

notes to the financial statements in action

example 1: revenue note

The turnover of Lettie’s Construction is as follows:

2007: R100 000

2008: R200 000

calculate the value of the turnover including Vat.

100 000 x 1,14 = R114 000

200 000 x 1,14 = R228 000

why are we using 1,14?

Because VAT is 14% of the total turnover,

and the total turnover is 100% of the turnover,

we want to calculate the turnover plus the 14% VAT

which means we need to calculate 100% + 14% = 114%

example 2: revenue note

The turnover of Sonny’s Construction is as follows:

2007: R500 000

2008: R700 000

calculate the value of the turnover including Vat.

R500 000 x 1,14 = R570 000

R700 000 x 1,14 = R798 000

4. determining the compliancy of the financial statements

In order to determine the compliancy of financial statements we will have to be able to determine the following:

4.1. The ’latest’ financial statements;

4.2. Who should compile the financial statements for the different types of entities; and

4.3. Which institution should the Accounting Officer be registered with.

4.1. the ‘latest’ financial statements

The Regulations require contractors to submit the financial statements for the two years immediately preceding the

application. It can become difficult to determine which statements these should be.

This depends on:

• The month of the company’s year-end;

• The grace period allowed for financial statements to be prepared:

1. Since the inception of the new Companies 71 of 2008, there is a grace period of six months after the end of the

financial year for all financial statements.

• 103 • • 104 •

Thus, if financial statements compiled in 2012 are actually for the financial period 1 March 2011 – 28 February 2012, from

1 March 2012 the transactions will be included in the 2013 financial statements.

For a business with a financial year ending on 28 February, the financial statements for that period must be available by

September (six months grace period).

draft and Management financial statements

A contractor may submit interim financial statements if they have been compiled as set out above. If the financial statements

are not compiled by the appropriate person, or if they are management financials or draft financials, they cannot be accepted.

Financial statements that are not the ‘latest’ (i.e. are the previous years’ financial statements) may be used to determine the

best annual turnover, not the available capital. The available capital cannot be calculated based on older financial statements;

such financials would therefore limit the application to a maximum of Grade 4.

note:

• If the financial statements say “period ended” – it is an interim financial statement, for a period of e.g. three months.

• If the financial statements say “year ended” – it is an annual financial statement.

• The available capital can only be calculated from the latest accepted financial statements.

Draft and Management statements are not valid as they are not checked for accuracy or validity by the accountant and there

is no guarantee that the principles of GAAP were adhered to.

Interim financial statements

Interim financial statements compiled by an accounting officer can be used because they are compiled in the same way

as year-end financials adhering to all the same procedures and requirements prescribed by GAAP. The VAT returns may, in

certain instances, be requested verify their authenticity.

Interim financial statements that have been audited are also acceptable no matter how long the period is.

who should compile the financial statements for the different types of entities?

Annual financial statements for a Public Company must be audited and in the case of any other company must be audited

if required to by regulations i.e. public interest score – this will depend on whether the company is operating in a space that

can be defined as having public interest. Therefore, it can be assumed that certain private companies will need to have their

annual financial statements audited, whilst some will fall outside the sphere of public interest and will not have to be audited,

but only reviewed or can even be exempt from audit and review.

This means that should the application be submitted within six months after the end of the

company’s financial year, we can use the previous years’ financial statements, as it is accepted that the

latest financial statements are not yet available.

note: The year in which the financial statements are compiled is a fiscal/financial year not a calendar year.

• 105 •

Other companies will either be audited voluntarily at the option of the company or independently reviewed in a manner that

will have to satisfy the regulations to be made by the Minister.

A bookkeeper may compile the financial statements for a Sole Trader, but they must still be compiled in terms of GAAP for

them to be considered as acceptable.

which institution should the accounting officer be registered with?

The Accounting Officer must be registered with one of the following institutions:

The Chartered Institute of Management Accountants (CIMA)

The Southern African Institute of Chartered Accountants (SAICA)

The Southern African Institute of Chartered Secretaries and Administrators (ICSA)

The Association of Certified Chartered Accountants (ACCA)

The Southern African Institute for Business Accountants (SAIBA)

South African Institute of Professional Accountants (SAIPA)

The Institute of Administration and Commerce in South Africa (IAC)

Accountants and auditors registered in terms of the Public Accountants’ and Auditors’ Act 1951 (IRBA)

why are only these institutions accepted and not others?

The Minister (of trade and industry) periodically publishes the names of those institutions whose members are qualified to

perform the duties of an accounting officer. It is therefore these specific institutions with which we require the accounting

officers to be registered.

The accounting officer and auditors’ practice numbers must be confirmed with each of the respective accounting institutions

by the assessors.

When financial statements are audited the auditor’s report must clearly specify which pages were audited. Where financial

statements are compiled by an accounting officer, the accounting officers report must indicate that the principles of GAAP

were adhered to.

5. calculations for the grading of a contractor

As mentioned in the Grading Method section of this manual, a contractor may apply for a grading designation 1 to 9,

and each of these grading designations is subject to specific requirements that the contractor must meet in terms of these

grading designations.

For grades 3 to 9, the contractor must meet specific requirements in terms of their best annual turnover and their available

capital.

1. best annual turnover

This can either be the latest year’s turnover or that of the year immediately preceding it. In other words the best (largest)

turnover, VAT included, must fall within the two financial years immediately preceding the application.

• 105 • • 106 •

The turnover is calculated by:

• Determining which of the turnovers is the highest in the 2 years immediately preceding the application; and

• Multiplying this value by 1,14 to obtain the VAT included turnover.

2. available capital

This is calculated in the following way:

• Current Assets + Non-current Assets = Total Assets

• Current Liabilities + Non-current Liabilities = Total Liabilities

• Net Asset Value = Total Assets – Total Liabilities

Members’ loans

For the purposes of calculating the available capital of a contractor, the cidb has decided to help the contractor meet the

required minimum target by using any members’ loans that may be on the financial statement as a sponsorship to the

business.

Although a members’ loan is technically a liability according to GAAP, we have decided to use this as a sponsorship because

this is capital put into the business by the members and will not be subject to many of the legal requirements of a normal

loan. The members will not require that the business pay back the loan when it will damage or disadvantage the business to

do so, whereas a loan must be repaid to a financial institution regardless of the financial wellbeing of the business.

The members’ loans may be subject to interest being accrued (or not), this is only reasonable as the business is getting the

benefit of using the capital which the members would have otherwise invested and earned interest on.

the calculation for contractor grading in action

example 1

H. Henry Construction has the following information:

• Total Assets: R500 000

• Total Liabilities: R300 000

• Included in the total liabilities is R100 000 worth of members’ loans

calculate the total available capital of H. Henry

(Total Assets – Total liabilities) + Members’ loans

(R500 000 – R300 000) + R100 000

= R200 000 + R100 000

= R300 000

available capital = net asset Value + financial sponsorship

• 107 •

example 2

M. Mega has the following information on his Balance Sheet:

• Total Assets: R1 000 000


• Included in the total liabilities is R150 000 worth of members’ loans

calculate the total available capital of M. Mega


(R1 000 000 – R800 000) + R150 000

R200 000 + R150 000

= R350 000

• 107 • • 108 •

question 1

Jacqui Traders has the following information on their Balance Sheet:



• Member’s loan from M. Jackson: R80 000

• Member’s loan from J. Jackson: R120 000

calculate the total available capital of Jacqui traders

question 2

Greater Construction has the following information on their Balance Sheet:

• Member’s loan from G. Nel R200 000



calculate the total available capital of greater construction

question 3

Nadia Construction has the following information on their Balance Sheet:

• Member’s loan from M Martin: R150 000

• Total Liabilities: R1 000 000


calculate the total available capital of nadia construction


• 109 •

assessMent MetHod1. determine who should compile the financial statements based on the type of entity:

a. Accounting officer; or

b. Auditor.

2. to determine if the financial statements are compliant check that the financial statements:

a. Are for the contractor applying (name and registration number);

b. Are for the two years immediately preceding the application;

c. Are compiled by the correct person (accounting officer/auditor);

d. Are signed by the members on the members’ report;

e. Include a signed report by the accounting officer or auditor, as applicable:

• By an accounting officer, in terms of GAAP (check that the accounting officers report includes the accurate

information as described earlier); or

• By an auditor and it is audited (the auditors’ report will indicate what pages are audited);

f. Include the accounting officer’s practice number, and the institution with which he/ she is registered, to

establish if they are registered on one of the institutions listed above;

g. Are complete, that is, include all the pages (i.e. no missing pages);

h. Are accurately compiled and free from fraudulent practices by checking that:

• The balance sheet balances;

• The balances on the balance sheet correspond to the balances in the notes; and

• The profit/loss value is correctly transferred (to either the balance sheet or the statement of changes in

equity).

3. determine if the company meets the requirements for the grade applied for:

a. Calculate the Available Capital;

b. Calculate the Best Annual Turnover (remember to add the VAT if necessary); and

c. Determine at which grade both these values meet the minimum requirements.

4. assessors must verify the accounting officers practice number.

The practice number and institution that is given for the Accounting officer must be checked to ensure that the person

is indeed actively registered and is qualified to practice as an Accounting Officer through the institution.

you can now assess the compliancy a full set of financial statements,

and you can now also grade a contractor based on these financials!

• 109 • • 110 •

saMPles of docuMents requIred1. Financial Statements prepared by an Accounting Officer

2. Financial statements prepared by an Auditor

FS| 39

MASSIVE CONSTRUCTION CC

Registration number 2006/002233/23

ANNUAL FINANCIAL STATEMENTS for the year ended 31 AUGUST 2007

FS| 40

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 ANNUAL FINANCIAL STATEMENTS for the year ended 31 AUGUST 2007 The following reports and statements comprise the annual financial statements presented to the member: CONTENTS PAGE Report of the accounting officer 2 Income statement 3 Balance sheet 4 Statement of change in equity 5 Notes to the annual financial statements 6 - 9 The annual financial statements set out on pages 3 to 9 were approved by the member and signed on 9 November 2007 by: Members: __________________________ G Malala __________________________ G Nel __________________________ G Modiba

• 111 •

FS| 41

Tel: (+27 12) 808 9407 Fax: (+27 12) 808 9408 Email: [email protected] P O Box 9787 Montana Park, 8460

ANTON – TIMO CC

Unit 7, Montana Business Park Swaaltjie Street 8460

Chartered Accountants (SA) Practice No.: 00256855

Income Tax Consultants Business Advisors

To: The Members MASSIVE CONSTRUCTION CC REPORT OF THE ACCOUNTING OFFICER We have performed the duties of Accounting Officer to Massive Construction CC for the year ended

31 August 2007 as required by the Companies Act 71 of 2008. No audit is required by the

Act to be carried out and no audit was conducted.

The annual financial statements set out on pages 3 to 10 are the responsibility of the member. We have

determined that the annual financial statements are in agreement with the accounting records and have done

so by adopting such procedures and conducting such enquiries in relation to the books of account and records

as we considered necessary in the circumstances. We also reviewed the accounting policies which have been

represented to us as having been applied in the preparation of the annual financial statements and we

consider that they are appropriate to the business.

_________________________

ANTON – TIMO CC

Chartered Accountants (SA)

Johannesburg

9 November 2007

ANTON – TIMO CC Reg. No. 1956/00297/23

Directors: B. Timo BCom Dip Acc RAA CA (SA) Assisted by: A Janson BCom (Acc) BA,

• 111 • • 112 •

FS| 42

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 INCOME STATEMENT for the year ended 31 August 2007 2007 2006 Notes R R INCOME 2,443,877 250,143 Revenue 5,303,708 856,702 Less: Cost of sales (2,859,831) (606,559) OTHER INCOME 5,593 222 Interest received 571 222 Profit on disposal of motor vehicle 5,022 0 GROSS INCOME 2,449,469 250,365 LESS: EXPENDITURE (995,491) (381,022) Accounting officer’s remuneration - accounting fees 24,745 8,750 - current year provision 5,350 4,850 Bank charges 7,996 7,455 Cleaning 600 2,059 Consulting fees 545 2,000 Computer expenses 640 3,387 Depreciation 4 107,832 39,123 Entertainment and refreshments 1,302 12,904 Equipment rental 0 2,042 Insurance and security costs 56,824 12,376 Interest paid 3,047 3,499 Legal fees 1,060 0 Member’s remuneration 360,000 180,000 Motor vehicle running expenses 203,182 24,444 Postage and delivery charges 2,182 0 Printing and stationery 16,860 2,598 Rent, water and electricity 44,875 13,466 Repairs and maintenance 35,363 9,520 Salaries and wages 77,766 20,000 SARS - penalties and interest 0 374 Staff training 1,146 2,400 Staff welfare 13,920 9,623 Subscriptions and membership fees 0 5,590 Tenders 3,450 1,800 Telephone and facsimile 26,807 12,761 NET INCOME / (LOSS) before taxation 1,453,978 (130,656) Less: Taxation 7 (384,179) 0 NET INCOME / (LOSS) for the year 1,069,799 (130,656)

3

• 113 •

FS| 43

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 BALANCE SHEET at 31 August 2007

Notes 2007

2006

ASSETS

R

R

Non-current assets Property, plant and equipment 4 1,458,420

150,948

Current assets

2,551,890

321,568 Stock and work in progress

513,899

13,899

Amount due from contract customers 8 204,914

306,775 Cash and cash equivalents 5 1,134,077

895

Retention value of contract 699,000

0

Total assets

4,010,310

472,516

EQUITY AND LIABILITIES

Equity and reserves

944,595

-125,204 Members interest 6 100

100

Accumulated income / (deficit) 944,495

-125,304

Non-current liabilities 2,249,247

297,117 Interest bearing liability

6

587000

- 297,117 Non-interest bearing liability 1,662,247

Current liabilities

816,468

300,604 Trade and other payables

310,113

213,625

SARS - Income Tax 7 381,962

2,660 SARS - VAT

124,393

20,024

Bank overdraft

0

64,294

Total equity and liabilities 4,010,310

472,516

4

• 113 • • 114 •

FS| 44

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 STATEMENT OF CHANGES IN EQUITY for the year ended 31 August 2007 Members’

interest Accumulated

income / (deficit) Total

Balance 1 September 2005 100 5,352 5,451

Net (loss) for the year 0 (130,656) (130,656) Balance 1 September 2006 100 (125,304) (125,204) Net profit for the year 0 1,069,799 1,069,799 Balance 31 August 2007 100 944,495 944,595

5

• 115 •

FS| 45

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 NOTES TO THE ANNUAL FINANCIAL STATEMENTS at 31 AUGUST 2007 The annual statements are prepared on the historical cost basis and comply with generally accepted accounting practice as prescribed by the accounting standards issued by the South African Institute of Chartered Accountants that are applicable for this year, except where indicated below. The financial statements incorporate the following principal accounting policies, which have consistently been applied with those of the previous year: 1. REVENUE Revenue comprises the amounts invoiced to customers for construction services rendered, net of discounts and value-added taxation. 2. REVENUE RECOGNITION Interest is recognised on a time proportion basis. Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. 3. FINANCIAL INSTRUMENTS Trade and other receivables The accounts receivable balance consists of invoices generated to clients for the rendering of construction engineering services. All accounts receivable are considered collectable with an average repayment period of two months and there is no significant credit risk. Stock and work in progress The stock and work in progress balance consists of uncompleted projects to clients for construction services. Trade and other payables The accounts payable consists of normal trade creditors that relate to goods and services supplied in the last month. All accounts payables are considered payable on an average repayment period of one month. 4 PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Land and buildings are not depreciated. Property, plant and equipment are stated at cost, which include the costs of installation and transportation. Depreciation is provided for on the straight line method at the following rates which are considered adequate to reduce the values of the assets over their useful lives to estimated residual values: Computer equipment 33% Furniture and fittings 20% Motor vehicles 20% Office equipment 20%

6

• 115 • • 116 •

FS| 46

MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (contined) at 31 August 2007

2007 2006 4. PROPERTY, PLANT AND EQUIPMENT R R 4.1 Land and buildings 842,064 0 Cost 842,064 0 Erf 392, Lindhaven Township 4.2 Computer equipment 1,232 7,365 Cost 41,315 34,205 Opening balance 34,205 32,063 Additions 7,110 2,142 Accumulated depreciation -40,083 -26,840 Opening balance 26,840 15,612 Depreciation for the year 13,243 11,228 4.3 Furniture and fittings 11,049 2,718 Cost 12,826 2,921 Opening balance 2,921 0 Additions 9,905 2,921 Accumulated depreciation -1,778 -203 Opening balance 203 0 Depreciation for the year 1,575 203 4.4 Motor vehicles 574,117 98,561 Cost 656,729 111,579 Opening balance 111,579 0 Additions 582,430 111,579 Disposals -37,281 0 Accumulated depreciation -82,612 -13,018 Opening balance 13,018 0 Disposals -9,320 0 Depreciation for the year 78,914 13,018 4.5 Office equipment 29,959 42,304 Cost 75,124 73,370 Opening balance 73,370 73,370 Additions 1,754 0 Accumulated depreciation -45,165 -31,066 Opening balance 31,066 16,392 Depreciation for the year 14,099 14,674 1,458,420 150,948

7

• 117 •

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MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (contined) at 31 August 2007 5. CASH AND CASH EQUIVALENTS 2007 2006 Cash and cash equivalents are made up as follows: ABSA bank account: savings 5,930 154 ABSA bank account: Cheque account / (overdraft) 799,625 -64,294 ABSA Market Link account 327,932 0 Petty cash 590 740 6. MEMBER’S NET INVESTMENT Member’s interest: G Nel 33.4% 33.4% G Malala 33.4% 33.4% G Modiba 33.4% 33.4% Balance at beginning of year 171,913 305,086 Net income / (loss) 1,069,799 -130,656 Loan introduced 1,365,130 -2,517 Balance at end of year 2,606,842 171,913 Represented by: Member’s contributions 100 100 Accumulated income / (deficit) 944,495 -125,304 Member’s loan G Nel 1,662,247 297,117 2,606,842 171,913

The loan is unsecured, bears no interest, and has no set date for repayment. The member ceded her loan account to ABSA on 12 August 2005.

8

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MASSIVE CONSTRUCTION CC Registration number 2006/002233/23 NOTES TO THE ANNUAL FINANCIAL STATEMENTS at 31 August 2007 - continued 2007 2006 7. TAXATION R R The taxation liability was calculated as follows: NET INCOME / (LOSS) per income statement 1,453,978 -130,656 Add back: permanent differences: Legal fees 1,060 0 SARS - penalties and interest 0 374 Assessed taxation loss carried forward -130,282 0 TAXABLE INCOME / (LOSS) 1,324,756 -130,282

Taxation on taxable income @ 29% 384,179 0

Tax liability for the year 384,179 . Tax liability from the previous year 0 2,660 Less: Provisional tax paid: first period -1,109 Less: Provisional tax paid: second period -1,109 Total tax liability due 381,962 2,660

8. AMOUNT DUE FROM CONTRACT CUSTOMERS Contract costs incurred to date 421,563 0 Profit recognised to date 297,250 0 718,813 0 Work certified to date -513,899 0 204,914 0

9. CASH FLOW STATEMENT No cash flow statement has been prepared, since the member is of the opinion that it would have no significant influence on the users of the financial information.

9

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108)

Financial statements

for the year ended 30 April 2007

• 119 • • 120 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007

Index _____________________________________________________________________________________

The reports and statements set out below comprise the financial statements presented to the shareholders:

Index Page

Report of the Independent Auditors 2- 3

Directors’ Responsibilities and Approval 4

Directors Report 5

Balance Sheet 6

Income Statement 7

Statement of Changes in Equity 8

Cash Flow Statement 9

Accounting Policies 10- 15

Notes to the Financial Statements 16- 19

The following supplementary information does not form part of the financial statements and is unaudited:

Detailed Income statement 20-21

Tax computation 22

_______________________________________________________________________________________________

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6 DeWaal street, Moreletta, Pretoria

P. O. Box 374 Moreletta, Pretoria, 0085 [email protected]

Report of the Independent Auditors To the shareholders of Maximum Construction (Proprietary) Limited We have audited the accompanying financial statements of Maximum Construction (Proprietary) Limited, which comprise the directors’ report, the balance sheet as at 30 April 2007, the income statement, the statement of changes in equity and cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 5to 18. Directors’ Responsibility for the Financial Statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice, and in the manner required by the Companies Act in South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. Opinion We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the company as of 30 April 2007, and cf its financial performance and its cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice, and in the manner required by the Companies Act in South Africa.

2 _____________________________________________________________________________________________ H. Masson (managing director) J. Kallahad, P Pretorius, T Hall. Reg. no: 1995 / 00665588/07

• 121 • • 122 •

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Report of the Independent Auditors

Accounting and Secretarial Duties

Without qualifying our opinion, we draw your attention to the fact that with the written consent of all shareholders, we have performed certain accounting and secretarial duties.

Supplementary In formation

We draw your attention to the fact that with the supplementary information set out on pages 19 to 21 does not form part of the financial statements and is presented as additional information. We have not audited this information and accordingly do not express an opinion thereon.

______________________________ INTRINSIC AUDITING (PTY) LTD Chartered Accountants (S.A.) Registered Auditors (IRBA)

DATE:____________________________

3 ________________________________________________________________________________________________ H. Masson (managing director) J. Kallahad, P Pretorius, T Hall. Reg. no: 1995 / 00665588/07

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Directors’ Responsibilities and Approval

The directors are required by the Companies Act in South Africa, to maintain adequate accounting records and are responsible for the content and integrity of the financial statements and related financial information included in this report. It is their responsibility to ensure that the financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. The external auditors are engaged to express an independent opinion on the financial statements. The financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The directors have reviewed the company’s cash flow forecast for the year to 30 April 2008 and, in the light of this review and the current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. Although the board of directors is primarily responsible for the financial affairs of the company, they are supported by the company’s external auditors. The external auditors are responsible for independently reviewing and reporting on the company’s financial statements. The financial statements have been examined by the company’s external auditors and their report is presented on page 2. The financial statements set out on pages 5 to 21, which have been prepared on the going concern basis, were approved by the board of directors on ________________________and signed on its behalf by: _____________________________ ______________________________ Director Director

4

• 123 • • 124 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Directors’ Report The directors submit their report for the year ended 30Apr11 2007. 1. Review of activities Main business and operations The company is engaged in construction and operates in South Africa. The operating results and state of affairs of the company are fully set out in the attached financial statements and do not in our opinion require any further comment. Net profit of the company was R 1,257,716 (2006: profit R 951,456), after taxation of R 454,621 (2006: R 932,696). 2. Post balance sheet events The directors are not aware of any matter or circumstance arising since the end of the financial year. 3. Authorised and issued share capital There were no changes in the authorised or issued share capital of the company during the year under review. 4. Non-current assets Details of major changes in the nature of the non-current assets of the company during the year are reflected in note 2 of the financial statements. 5. Dividends No dividends were declared or paid to the shareholders during the year. 6. Directors The directors of the company during the year and to the date of this report are as follows: Name K Hastings O Martins K Liebenerg 7. Secretary The secretary of the company is Intrinsic Auditing (Pty) Ltd. Buiness Address 6 DeWaal street,

Moreletta, Pretoria

Postal Address P. O. Box 374

Moreletta, Pretoria, 0085

8. Auditors Intrinsic Auditing (Pty) Ltd will continue in office in accordance with section 270(2) of the Companies Act.

5 _______________________________________________________________________________________

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Balance Sheet Figures in Rand Note(s) 2007 2006

Assets Non-Current Assets Property, plant and equipment Other financial assets

2 3

2,245 -

137,418 818,595

2,245 956,013

Current Assets Inventories Trade and other receivables Retention debtors Cash and cash equivalents

5 6

7

981,644 6,894,604 4,296,452 3,029,422

465,620 8,174,904 3,178,002

2,000

15,202,322 11,840,526

Total Assets

15,204,567 12,796,539 Equity and Liabilities Equity Share capital Retained income

8

120 1,684,923

120 427,207

1,685,043 427,327

Liabilities

Non-Current Liabilities Other financial liabilities Deferred tax

9 4

3,354,891 1,184,570

954,516 921,620

4,539,461 1,876,136

Current Liabilities Current tax payable Trade and other payables Provisions Bank overdraft

11 10 7

202,747 6,280,407

211727 2,285,182

11,076 7,518,165

111,482 2,852,353

8,980,063 10,493,076

Total Liabilities

13,519,524 12,369,212 Total Equity and Liabilities

15,204,567 12,796,539

6

• 125 • • 126 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Income Statement Figures in Rand Note(s) 2007 2006 Revenue Cost of sales

12

76,429,071

(63,029,863)

64,130,439

(51,444,360) Gross profit Other income Operating expenses

13,399,208 1,368,416

(12,779,893)

12,686,079 920,363

(11,471,005) Operating profit Investment revenue Finance costs

13 14

1,987,731 24,342

(299,736)

2,135,437 66,154

(317,439) Profit before taxation Taxation

1,712,337 (454,621)

1,884,152 (932,696)

Profit for the period 1,257,716 951,456

7

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Statement of Changes in Equity

Figures in Rand Note(s) Share capital Retained income Total equity Balance at 01 May 2005 Changes in equity Profit for the year

120

(524,249)

. 951,456

(524,129)

951,456

Total changes - 951,456 951,456 Balance at 01 May 2006 Changes in equity Profit for the year

120

427,207

1,257,716

427,327

1,257,716

Total changes - 1,257,716 1257,716 Balance at 30 April 2007 120 1,684,923 1,685,043

8

• 127 • • 128 •

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Cash Flow Statement Figures in Rand Note(s) 2007 2006 Cash flows from operating activities

Cash receipts from customers Cash paid to suppliers and employees

77,751492 (76,116,462)

66090,876 (67,323,349)

Cash generated from (used in) operations Interest income Finance costs

15 1,635,030 24,342

(299,736)

(1,232.473) 66,154

(317,439) Net cash from operating activities 1,359,636 (1,483,758) Cash flows from investing activities

Purchase of property, plant and equipment Sale of property, plant and equipment Proceeds from loans from group companies Purchase of financial assets Sale of financial assets Purchase of other asset

2 2

(1,123) 135,560

- 2,598,604

(1,780,009) (1.118,450)

. -

313,909 - . -

Net cash from investing activities (165,418) 313,909 Cash flows from financing activities

Repayment of other financial liabilities Other non-cash item

2,400,375 -

(98,965) 50,273

Net cash from financing activities 2,400,375 (48,692) Total cash movement for the period Cash at the beginning of the period

3,594,593

(2,850,353)

(1,218,541) (1,631,812)

Total cash at end of the period 7 744,240 (2,850,353)

9

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1. Presentation of Financial Statements The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice, and the Companies Act in South Africa. The financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. These accounting policies are consistent with the previous period. 1.1 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the company; and • the cost of the item can be measured reliably. Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included in the cost of property, plant and equipment. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses. The residual value and the useful life of each asset are reviewed at each financial period-end. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 1.2 Financial instruments Initial recognition The company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial assets and financial liabilities are recognised on the company’s balance sheet when the company becomes party to the contractual provisions of the instrument. Loans to (from) group companies These include loans to holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.

10

• 129 • • 130 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1.2 Financial instruments (continued) Subsequently these loans are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. On loans receivable an impairment loss is recognised in profit or loss when there is objective evidence that it is impaired. The impairment is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Bank overdraft and borrowings Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the company’s accounting policy for borrowing costs. Held for trading financial assets Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are measured initially and subsequently at fair value, gains and losses arising from changes in fair value are included in profit or loss for the period.

11

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1.2 Financial instruments (continued) Derivatives Derivative financial instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Held to maturity and loans and receivables These financial assets are initially measured at fair value plus direct transaction costs. At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the arriortised cost would have been had the impairment not been recognised. Financial assets that the company has the positive intention and ability to hold to maturity are classified as held to maturity. 1.3 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

12

• 131 • • 132 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1.3 Tax (continued) A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. 1.4 Impairment of assets The company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the company estimates the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, the company also:

• tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period.

• tests goodwill acquired in a business combination for impairment annually. If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease. Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash- generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order:

• first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit and • then, to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the

unit.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

13

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FS| 63

MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1.4 Impairment of Assets (continued) A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase. 1.5 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. If the company reacquires its own equity instruments, those are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the company’s own equity instruments. Consideration paid or received shall be recognised directly in equity. 1.6 Provisions and contingencies Provisions are recognised when:

• the company has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the

obligation; • and a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised for future operating losses. If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. A constructive obligation to restructure arises only when an entity:

• has a detailed formal plan for the restructuring, identifying at least: o the business or part of a business concerned; o the principal locations affected; o the location, function, and approximate number of employees who will be compensated for

terminating their services; o the expenditures that will be undertaken; and o when the plan will be implemented; and

• has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

14

• 133 • • 134 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Accounting Policies 1.6 Provisions and contingencies (continued) After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of:

• the amount that would be recognised as a provision; and • the amount initially recognised less cumulative amortisation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 16. 1.7 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred.

15

• 135 •

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MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Notes to the Financial Statements

Figures in Rand 2007 2006 2. Property, plant and equipment 2007 2006

Cost /

Valuation Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

Lease hold improvements - - - 135,560 - 135560 Plant and machinery 36,358 (36,358) - 36,358 (36,358) - Motor vehicles - - - 313,291 (313,291) - Office equipment 25,649 (23,404) 2,245 25,649 (23,791) 1,858 IT equipment 45,052 (45,052) - 45,052 (45,052) - Total 107,059 (104,814) 2,245 555,910 (418,492) 137,418 Reconciliation of property, plant and equipment - 2007

Opening Balance

Additions Disposals Depreciation Total

Lease hold improvements 135,560 - (135,560) - - Office equipment 1,858 1,123 - (736) 2,245

137,418 1,123 (135,560) (736) 2,245

3. Other financial assets Loans and receivables Feather Holdings Trust

- 818,595

The unsecured loan bears interest as agreed by the parties from time to time and has no fixed terms of repayment. Non-current assets Loans and receivables

-

818,595

4. Deferred tax

Deferred tax asset (liability) Other deferred tax (1,184,570) (921,620) Reconciliation of deferred tax asset (liability)

At beginning of the year Originating temporary difference on retentions

(921,620) (262,950)

(921,620) -

(1,184,570) (921,620)

5. Inventories

Work-in-progress

981,844 485,620

16

• 135 • • 136 •

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Figures in Rand 2007 2006 6. Trade and other receivables

Trade receivables Deposits

6,802,624 91,980

8,124,173 50,731

6,894,604 8,174,904

7. Cash and cash equivalents Cash and cash equivalents consist of:

Cash on hand 6,600 2,000 Short-term deposits 3,022,822 - Bank overdraft (2,285,182) (2,852,353)

744,240 ( 2,850,353)

Current assets 3,029,422 2,000 Current liabilities (2,285,182) (2,852,353)

744,240 (2,850,353)

The banking facilities of the company are secured by unlimited suretyship by Maximum Security (Proprietary) Limited and Feather Holdings Trust supported by security in their own name as well as limited surety by Erf 454/344 Maximum Investments (Proprietary) Limited to the amount of R6,520,000; limited surety by Maximum Security Trust to the amount of R6,520,000; limited surety by LL van Der Hof to the amount of R4,955,200; limited surety by MK Venter to the amount of R260,800; limited surety of F Mc Donald to the amount of R391 200 and limited surety by DC Opperman to the amount of R91 2,800. Furthermore, the debtors of the company are ceded to the bank. 8. Share capital Authorised 4000 Ordinary shares of R1 each 4,000 4,000 Issued 120 Ordinary shares of R1 each 120 120 9. Other Financial Liabilities. Held at amortized cost ABSA Bank - Term loan

847,906 954,516

The loan bears interest at an effective rate linked to prime bank overdraft rate and is repayable in monthly installments of R24,802 over the remaining period of 76 months.

.

Feather Holdings Trust 2,506,985 The unsecured loan bears interest as agreed by the parties from time to

time and has no fixed terms of repayment.

3,354,891 954,516

Non-current liabilities At amortized cost 3,354,891 954,516

17

• 137 •

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Figures in Rand

2007 2006

10. Provisions

Reconciliation of provisions -2007 Opening Balance Additions Total

Leave pay provision 111,482 100,245 211,727

11. Trade and other payables

Trade payables

4,205,193 4,828,598 VAT

181,725 727,346

Accruals

118,720 738,245 Sundry payables

1,774,769 1,223,976

6,280,407 7,518,165

12. Revenue Sale of goods

76,429,071 64,130,439

13. Investment revenue Interest revenue

Other interest

24,342 66,154

14. Finance costs Bank

299,274 315,250

Other interest paid

462 2,189

299,736 317,439

15. Cash generated from (used in) operations

Profit before taxation

1,712,337 1,884,152 Adjustments for: Depreciation and amortization

736 1,263

Interest received

(24,342) (68,154) Finance costs

299,736 317,439

Movements in provisions

100,246 (358,071) Changes in working capital: Inventories

(496,224) ((231,233)

Trade and other receivables

1,280,300 (6,958,121) Trade and other payables

(1,237,758) 4,178,252

1,635,030 (1,232,473)

18

• 137 • • 138 •

FS| 68

MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30Apr11 2007 Notes to the Financial Statements Figures in Rand 2007 2006 16. Contingencies The company secures the debt of Maximum Security (Proprietary) Limited through a session of its loan account in favour of ABSA bank. The company secures the debt of Maximum Construction Trust through a session of its loan account in favour of ABSA bank. The company secures the debt of En 454/344 Maximum Investments (Proprietary) Limited through a session of its loan account in favour of ABSA bank. The company secures the debt of Feather Holdings Trust through a session of its loan account in favour of ABSA bank. 17. Related parties Relationships Holding Trust Feather Holdings Trust Trust with common trustee/director Maximum Plant Trust Related party balances Loan accounts Owing by related parties Feather Holdings Trust 2,506,985 - Baseline Plant Trust - - 389,907 Related party transactions Rent paid to related parties Baseline Plant Trust 9,218,317 3,994,243 Administration fees paid to related parties Feather Holdings Trust 1,961,606 836,804

19

• 139 •

FS| 69

MAXIMUM CONSTRUCTION (PROPRIETARY) LIMITED (Registration number 19821003420108) Financial Statements for the year ended 30 April 2007 Detailed Income statement Figures in Rand Note(s) 2007 2006 Revenue Construction contracts

76,429,071

64,130,439

Construction costs

(63,029,863) (51,444,360) Gross profit

13,399,208 12,686,079

Other income

Discount received

878,555 717,375 Insurance claims received

489,861 202,988

Interest received 13 24,342 66,154

1,392,758 986,517

Expenses (Refer to next page)

(12,779,893) (11,471,005) Operating profit Finance costs

14

2,012,073 (299,736)

2,201,591 (317,439)

Profit before taxation Taxation

1,712,337 454,621

1,884,152 932,696

Profit for the period

1,257,716 951,456

20

• 139 • • 140 •

FS| 70


Detailed List of Expenses Figures in Rand Note(s) 2007 2006

Operating expenses

Administration and management fees 1961606 836,804 Advertising 15,827 7,561 Auditors remuneration 63,000 160,692 Bank charges 108,998 107,786 Computer expenses 90,017 74,438 Consulting and professional fees 42,105 -

Depreciation, amortization and impairments 736 1,263 Donations 4,000 5,820 Employee costs 5,779,689 5,479,459 Entertainment 72,350 76,560 Gifts 25,030 31,826 Insurance 1,038,859 938,754 Lease rentals on operating lease 67,371 66,000 Legal expenses 131,578 71,251 Licences 114,956 166,789 Motor vehicle expenses 2,733 10,910 General expenses 20,970 42,260 Petrol and oil 1,087,137 1,222,591 Printing and stationery 86,377 89,193 Protective clothing 3,327 10,040 Repairs and maintenance 1,588,179 1,632,114 RSC Levies 9,334 57,896 Satelite surveillance 82,289 59,701 Security 15,056 44,050 Subscriptions 46,460 11,863 Telephone and fax 199,534 185,716 Training 34,112 22,459 Travel - local 79,237 49,263 Utilities 9,026 7,946

12,779,893 11,471,005

The supplementary information presented does not form part of the financial statements and is unaudited

21

• 141 •

FS| 71


Tax Computation Net income per income statement 1,712,337 Permanent differences 3,245048 Traffic fines 4,400 Donations 4,000 Legal fees 58,647 Retention- 2006 3,178,001 4,957,385 Temporary differences

Retention - 2007 (4,296,452) Taxable income for 2007 660,933 Taxation thereon at 29c in the Rand 191,671

Tax liability Amount owing / (prepaid) at the beginning of year 11,076 Tax owing/(prepaid) for the current year Normal tax 191,671 Per calculation 191,671 1st provisional payment - - 2nd provisional payment - - Amount owing / (prepaid) at the end of year 202,747

The supplementary information presented does not form part of the financial statements and is unaudited

22

• 141 • • 142 •


question 1

assess the first sample of financial statements that are prepared by an accounting officer (for a close corporation) as per the assessment method above. The only assumption you can make is that the year of this

financial statement is the latest financial year.

1.1 Write down everything that you have checked as per the check list above.

1.2 Then Grade the contractor based on these financial statements (complete this step whether you have found the

financials compliant or non compliant).

question 2

assess the second sample of audited financial statements (for a Private company) as per the assessment method above. The only assumption you can make is that the year of this financial statement is the latest financial year.


1.2 Then Grade the contractor based on these financial statements, (complete this step whether you have found the

financials compliant or non compliant).

• 143 •

a worKsHeet 5answers: financial statements 1(Questions on page 89)

question 1

Gerda works as a company secretary but she also sells make-up is her spare time. Consider the following information for

Gerda’s personal business:

• The make-up costs her R10 per unit of eye shadow and she sells each unit for R20.

• She sells R4 000 worth of make up every month (200 units).

• She estimates that the telephone costs for these sales are R900 and that the petrol she uses to make these sales is R600.

• Gerda pays 10% tax on the profit value.

draw up an income statement to calculate how much profit she makes.

Sales: R4 000

– Cost of sales R2 000 (this is the cost of the product at R10 x 200 units)

– Expenses Telephone R900

– Expenses Petrol R600

= Net profit before tax R500

– Taxation R50 (R500 x 0,10)

= net profit after tax r450

question 2

Martha has started her own business which does gardening services for businesses in Johannesburg. Consider the

following information for Martha’s personal business:

• Martha pays 4 staff R4 000 monthly and has paid a total of R188 000.

• Martha had to buy equipment for R160 000 to start her business.

• Martha has used R80 000 petrol.

• Martha currently has monthly contracts with 32 businesses for her gardening services.

• Her total income for the year has been R465 000 and pays no tax.

draw up an income statement to calculate how much profit she makes.

Sales: R465 000

– Expenses Salaries R188 000

– Expenses Equipment R160 000

– Expenses Petrol R80 000

= Net profit before tax R37 000

• 143 • • 144 •


question 1.

J. Jason is the owner of ABC Construction CC. On 30 November 2007, ABC Construction has the following information:

1. ABC owns equipment valued at R100 000.

2. Clients owe him R40 000 for services completed.

3. ABC owes DEF suppliers R20 000.

4. ABC has R10 000 in the bank.

1. calculate the total assets of abe constructionFixed Assets: Equipment = R100 000

Current Assets: Debtors = R40 000

Cash = R10 000

Total Assets: = R150 000

2. calculate the total liabilities of abe construction Current Liabilities: Creditors = R20 000

Total Liabilities: = R20 000

3. calculate the owner’s equity (naV) of abe constructionOwner’s Equity = Total assets – Total liabilities

Owner’s Equity = R150 000 – R20 000

Owner’s Equity = R130 000

question 2

J. Jason is the owner of ABC Construction CC. On 31 December 2007 ABC Construction has the same information as in

Question 1 above but also has the following additional information: ABC Construction now owes tax of R30 000.

1. recalculate the total assets of abc constructionFixed Assets: Equipment = R100 000

Current Assets: Debtors = R40 000

Cash = R10 000

Total Assets: = R150 000

2. recalculate the total liabilitiesFixed Liabilities: = R 0

Current Liabilities: Creditors = R20 000

Tax = R30 000

Total Liabilities: = R50 000

3. recalculate the total equitystep 3: calculate the owner’s equityOwner’s Equity = Total assets – Total liabilities

Owner’s Equity = R150 000 – R50 000

Owner’s Equity = R100 000

• 145 •

a worKsHeet 6answers: financial statements 2 (continued)

question 3

can you put the values in question 2 above into a balance sheet?

Balance Sheet of ABC on 31 December 2007

assets

Fixed Assets 100 000

Property, plant and Equipment 100 000

Current Assets 50 000

Debtors 40 000

Cash 10 000

Total Assets 150 000


Equity and Reserves 100 000

Retained Income 100 000

Current Liabilities 50 000

Creditors 20 000

Tax 30 000

Total Equity and Liabilities 150 000

• 145 • • 146 •


question 1

In 2004 Sam started his company with R100 capital, and after his first year of trading he made a profit of R3 000 after

tax. in 2005 Sam realised that he would have to buy a new truck to increase his sales, in order to do this he put in an

additional R40 000 into the company which was used to buy the truck. That year Sam’s business made R10 000 profit

after tax.

compile the statement of changes in equity for sams’ business.


Balance at 1 March 2004 - - -


Contributions introduced R100 R3 100

total changes R100 R3 000 R3 100

Balance at 1 March 2006 R100 R3 000 R3 100

Changes in equity R40 000 R43 100



Balance at 28 Feb 2007 R40 100 R13 000 R53 100

question 2

In 2007 Sam decided that his business is growing steadily and he can afford to take some money out of the business in

order to pay for his daughters’ wedding. He therefore withdrew R25 000 for his personal use. That year Sam made a

loss of R7 500 after tax.

using the balances from the first question compile the statement of changes in equity for sams’ business.



Profit for the year - R7 500 R45 600

Contributions introduced - R25 000 R20 600



• 147 •

worKsHeet 8answers: financial statements 4(Questions on page 108)

question 1

Jacqui Traders has the following information on their balance sheet:



• Member’s loan from M. Jackson: R80 000

• Member’s loan from J. Jackson: R120 000

calculate the total available capital of Jacqui traders


= (R600 000 – R500 000) + R120 000 + R80 000

= R100 000 + R120 000 + R80 000

= R300 000

question 2

Greater Construction has the following information on their balance sheet:

• Member’s loan from G. Nel: R200 000



calculate the total available capital of greater construction


= (R900 000 – R900 000 ) + R200 000

= R0 + R200 000

= R200 000

question 3

Nadia Construction has the following information on their balance sheet:

• Members loan from M Martin: R150 000.

• Total Liabilities: R1 000 000


calculate the total available capital of nadia construction


(R800 000 – R1 000 000) + R150 000

= –R200 000 + R150 000

= – R50 000

a

• 147 • • 148 •


question 1

assess the first sample of financial statements that are prepared by an accounting officer (for a close corporation) as per the assessment method above. The only assumption you can make is that the year of this

financial statement is the latest financial year.



financials compliant or non compliant). the financial statements are compliant.These must be compiled by an accounting officer as it is a CCContractor is Massive Construction CCThis is the latest year – as per assumption This is compiled by an accounting officer as requiredThe members report is signedThe report states both phrases listed aboveThe accountants practice number and registered institution is includedAll the pages are includedThe balance sheet balancesThe balances on the balance sheet correspond to those on the notesThe profit is correctly transferred through the statement of changes in equityAvailable Capital: R4 010 310 – R3 065 715 + R1 662 247 = R2 606 842Best Annual turnover: R2 786 019,80Grade suggested: Method A = 4 Method B = 6

question 2

assess the second sample of audited financial statements (for a Private company) as per the assessment method above. The only assumption you can make is that the year of this financial statement is the latest financial year.



financials compliant or non compliant). the financial statements are not compliant.These must be compiled by an Auditor as it is a (Pty) LtdContractor is Maximum Construction (Pty) LtdThis is the latest year – as per assumption This is audited as requiredThe directors report is signedThe report states which pages are auditedAll auditors must be registered at IRBA (no practice number required)All the pages are includedd the balance sheet does not balance! this makes it non compliant. d the balances on the balance sheet do not correspond to those on the notes•Inventory on the balance sheet reflects r981 644 where the notes reflect r981 844•this makes it non compliant.The profit is correctly transferred through the statement of changes in equity• Available Capital: R15 204 367 – R4 539 461 – R8 980 063 = R1 684 843 (line items added up = correct)• Available Capital: R15 204 567 – R4 539 461 – R8 980 063 = R1 685 043 (totals are used = wrong)Best Annual turnover: R87 129 140,94Grade suggested: Method A = 6 Method B = 5

• 149 •




(c) If so requested by the CIDB, where the financial statements of a contractor are not audited, supporting evidence of

that contractor’s turnover as set out the South African Revenue Services Form VAT 201 (return for value added tax) and

proof of payment of that value added tax;

(7) The CIDB must for the purpose of assessing an application for registration and subject to section 30 of the Act, take

reasonable steps to verify the information submitted by a contractor in terms of this regulation.


For the purpose of this manual a ‘VAT return’ consists of a VAT201 and its corresponding or proof of payment from SARS.

• VAT 201 is the return for remittance of VAT (from the contractor to SARS)

• Proof of payment is the acknowledgement of payment received (issued from SARS to the contractor)

VAT returns are usually done every second month but can also be done monthly and semi-annually (although this is

uncommon). We will thus assume that in general there are six of VAT201s for each financial year.

These documents may be requested when the financial statements are not audited and if there is a need for the turnover to

be verified, e.g. if the turnover from one year to another has increased dramatically.

The turnover for the 2 month period is indicated on each VAT201 in order to calculate the total amount of VAT that is

payable to SARS. The total VAT payable to SARS is calculated as total Vat owed to SARS less total VAT paid by the contractor

to other suppliers for goods and services.

1. How is Vat calculated?

Every time we buy a product at a store we are paying a price that includes VAT to that store owner and this store owner must

in turn pay this VAT to SARS. What we need to keep in mind is that when the store owner bought the product to resell, he

too paid the price including VAT to his supplier, and so it goes on.

Surely SARS can’t expect to receive 14% VAT for each time the same product is bought and sold?

The solution to this is that each ‘seller’ will pay his portion of the VAT to SARS, which is calculated as follows:

1. Every time we buy stock for resale we will pay the price including VAT to that supplier – this is called “Input tax” – you

can view this as “money you have already paid into the VAT amount”.

2. When we then re-sell this same stock we will receive the price including VAT from that customer – this is called “Output

tax” – you can view this as “money you will have to pay out of your company to contribute to the VAT amount”.

• Vat returns •

• 149 • • 150 •

example 1:

You buy old furniture for R114 (vat incl.) and you resell it to an antique collector for R228 (vat incl.).

If this was your only turnover received – how much VAT would you have to pay SARS?

transaction 1: you buy furniture for r114.

You pay the Seller Seller receives VAT payable to SARS by Seller is

R114 R100 R14

transaction 2: you sell furniture for r228.

Customer pays you You (seller) receive VAT payable to SARS by you (seller) is

R228 R200 R28

SARS should not receive R42 (R14 + R28) as indicated above, so to find the difference that is owed to SARS the

difference between what you have paid and what is payable must be calculated.

Total VAT owed by you to SARS: (Total Output Tax) R28

Minus Total VAT you have paid to the seller: (Total Input Tax) _ R14

Equals total Vat payable to sars (amount Payable) = r14

2. calculating the total turnover from the Vat 201s

The turnover is found in the Section A of the VAT 201 which calculates the ‘Output Tax’ and it is specifically listed in block

“1” under the title “consideration (incl. VAT)”.

to calculate the total turnover:

The turnover value on each of the VAT 201’s must be added together.

This total should be equal to the total turnover (including VAT) recognised on the year’s financial statements. The totals may

vary slightly but if the difference is very large the application may be referred to the Chief Assessor for further investigation.

Process of Verification

In order for the Turnover on the financial statements to be accepted, the total Turnover on the VAT201s must not be less

than 90% of the Turnover reflected on the financial statements.

Please note that should the Turnover on the VAT Returns be less than 90% of the Turnover on the financial statements, the

financial statements will then be deemed non-compliant. The Turnover on the VAT Returns will then be utilized to grade the

contractor.

It is important to note that this turnover is including VAT which will be important to take into

consideration comparing the total of the turnover according to the VAT201’s against the turnover indicated

on the financial statements as this amount is excluding VAT.

• 151 •

exampleThe contractor has supplied financial statements for the year end February 2012 and 2013.

2013 2012

Turnover: 20 000 000 8 750 000

In this case an Assessor might need to verify why the Turnover has doubled during the 2013 financial year. The Assessor

will then request VAT Returns from 1 March 2012 to 28 February 2013, and from 1 March 2012 to 28 February 2013. The

contractor then opts to supply VAT Returns for the said period. After thorough assessment and calculation, the Assessor

finds that the contractor’s VAT Returns only add up to R18 500 000.

The calculation is as follows: 20 000 000 x 90% = 18 000 000

This means that the Turnover on the VAT Returns supplied cannot be less than R18 000 000. In this case the VAT Returns

add up to R18 500 000, which is acceptable and therefore the financials are compliant.

Alternatively, if the Turnover calculated from the VAT Returns was found to be R17 800 000, the financial statements

would be deemed non-compliant and the contractor would then be downgraded to Grade 4.

3. Verifying the turnover calculated on the Vat201 using the proof of payment

When calculating the turnover it should be considered that the VAT201 from which we take this turnover is completed by

the contractor and submitted to SARS which means that the same document can be easily manipulated and submitted to

the cidb and not to SARS.

It is for this reason that we request that the proof of payment form SARS be submitted to the cidb as well. This will enable

us to verify that the amount indicated on the VAT201 as the VAT amount payable corresponds to what SARS has received.

(Remember the amount payable is calculated directly from the indicated turnover).

In order to verify that the documents correspond:

The values must be compared between the final amount payable on the VAT201 and the amount allocated (of the payment re-

ceived) to Tax on the proof of payment. These must be the same, if this is not the same then the documents do not correspond.


1. All the VAT 201s for the year are submitted.

2. The VAT returns are for the company applying.

3. The tax period of each VAT201 falls within the specified financial year.

4. The value indicated as the ‘amount payable’ on the VAT201 corresponds with the ‘amount allocated to Tax’

on the proof of payment.

5. The VAT201’s are signed by the accountant or principals.

6. The total turnover on the VAT201s must not be less than 90% of the turnover reflected on the financial

statements.

7. Should the turnover on the VAT201s be less than 90% of the turnover on the financial statements, the

financial statements will then be deemed non-compliant.

8. The turnover on the VAT201s will then be utilised to grade the contractor.

• 151 • • 152 •

• 153 •

• fInancIal sPonsorsHIPs •




(g) If applicable, proof of financial sponsorship of the contractor as contemplated in subregulation (10);

Paragraph (g) substituted by Government Notice No R8986 of 14 November 2008, published in Government


(10) A financial sponsorship referred to in these Regulations must be a collectable financial guarantee by one person to

another (the beneficiary):

(a) For a fixed amount;

(b) Is available to the beneficiary as and when required;

(c) To support the operations of the contractor concerned to complete his or her projects;

(d) If applicable, available to a third person, such as a bank, to advance funds or such as a supplier, to advance a line

of credit;

(e) If applicable, in a form acceptable to any financial institution in South Africa as defined in the Financial Services

Board Act, 97 of 1990; and

(f) If not provided by a financial institution, to an amount which does not exceed 15% of the sponsor’s net asset

value as determined from the sponsor’s latest financial statements.




(a) Where the sponsor is a registered contractor or owns 50 percent or more of the applicant contractor, may

constitute up to 100 percent of the total amount of required available capital;

(b) Where the sponsor is not a registered contractor and owns 25 percent or more of the applicant contractor, may

not exceed 75 percent of the total amount of the required available capital; and where the contractor is not a

registered contractor and the sponsor owns less than 25 percent of the applicant contractor, may not exceed 50

percent of the total amount of the required available capital.




A sponsorship may be used to increase a contractors’ available capital if the available capital calculated from the company’s

latest financial statements does not qualify them for the grade applied for.

The regulations define the criteria that a sponsorship must conform to, and also specifies certain limitations to the amount

of sponsorship that may be used by a contractor to meet the grading requirements.

• 153 • • 154 •

criteria for a valid sponsorship

According to the regulations a sponsorship is subject to the following criteria in order for it to be a valid sponsorship:

criteria explanation

The sponsorship must be a collectable financial guarantee

by one person to another.

This means that the sponsorship must be available in cash

for the person to actually receive and make use of.

1. For a determined amount The exact value of the sponsorship must be specified. The

cidb cannot assume or guess a value for the sponsorship as

the sponsor must commit to this amount.

2. Available for at least 1 year The sponsorship must be available for at least 1 year

3. To support operations of the contractor concerned in

order to complete projects

The sponsorship must not be dependent on anything and

the sponsor may not tell the contractor what to use the

sponsorship for. A sponsorship must be available for the

contractor to receive and use in his daily operations.

4. Available to the beneficiary as and when required The sponsorship must be easily available from the sponsor

when the contractor needs it.

5. If applicable, available to a third person, such as a bank,

to advance funds or such as a supplier, to advance a line

of credit

This means that a bank overdraft facility can be used as a

sponsorship. But this is the only line of credit that we will use

as a sponsorship. We will use all of the sponsorship and it

will not be subject to the next criteria.

6. If not provided by a financial institution, to an amount

which does not exceed 15% of the sponsor’s net asset

value as determined from the sponsor’s latest financial

statements

If the sponsorship is not provided by a bank, then the cidb

places a limit on the total value that a sponsor may pledge

to give a contractor. This is done to keep a realistic value for

these sponsorships and to protect the sponsor from over

committing.

The limit is 15 % of the sponsors NAV. (calculated from the

latest financial statement)

The sponsorship must meet all these criteria, and if it does not meet even one of these criteria it cannot be considered a

valid sponsorship.

The sponsor’s latest financial statements have to be provided in order to determine their Net Asset Value, which will in turn

be used to determine the maximum amount of sponsorship that may be offered.

the cidb also limits how much of the available capital may be sponsored

The cidb has decided to limit the total amount of the Available Capital that may be sponsored to meet a grading requirement.

This is done to limit the risk of contractors being graded on grades but the contractor has no Available Capital themselves

and the grading is awarded on the basis of a sponsorship only.

• 155 •

the regulations have defined 3 classes of sponsorships

These classes are determined based on the relationship between the sponsor and the applicant contractor.

class

determining the relationship

between the sponsor and the

applicant contractor

limit of available capital that

may be sponsored

Minimum available capital that

the applicant contractor must

have

a Where the sponsor is a cidb

registered contractor; or

Where the sponsor is a company

with more than 50% interest in

the applicant contractor.

Can sponsor up to 100% of the

required Available Capital for the

grade that the contractor is applying

for.

There is no minimum requirement

of Available Capital for the

contractor.

b Where the sponsor is a company

with 25% or more interest in the

applicant contractor.




for.

The contractor must have at least

25% of the required Available

Capital for the grade that they are

applying for.

c Where the sponsor is a company

with less than 25% interest in the

applicant contractor.




for.

The contractor must have at least

50% of the required Available

Capital for the grade that they are

applying for.

the sponsor

The sponsor referred to in these classifications must be the owner of the shares required.

Therefore if a company is sponsoring the applicant contractor, the sponsoring company itself must have interest in the

applicant contractor. This interest cannot be owned by the principals of the sponsoring company.

the limit

Each of the 3 classes of sponsorship relationships have their own limit of how much of the Available Capital may be

sponsored. This is because the more interest the sponsor has in the survival of the applicant contractor, the more reliable the

sponsorship is and the more willing the sponsor will be to assist and support the contractor.

This limit applies to the Available Capital required per grade, and limits the amount of the Available Capital that may be

sponsored. In doing this we force the contractor to have a minimum percentage of the required Available Capital themselves.

How do the two limits work together?

• 155 • • 156 •

sponsor applicant contractor

The sponsor is limited to

sponsoring up to a

maximum of:

15% of the

sponsors

net asset Value

The relationship between the contractor and the sponsor will determine how much of the

Available Capital may be sponsored and how much the contractor may have to provide.

A: 100% of the required available capital may be sponsored.

B: 75% of the required available capital may be sponsored but the contractor has to

provide at least 25% of the required Available Capital.

C: 50% of the required available capital may be sponsored but the contractor has to

provide at least 50% of the required Available Capital.

It is important to note that we must check both these limits when determining the value of the sponsorship.

steps used in determining the value of a sponsorship:

1. Ensure that the sponsorship meets all the criteria to be a valid sponsorship.

2. Determine the value of the sponsorship offered:

a. Determine the amount that the contractor is willing to sponsor;

b. Determine the Net Asset Value of the sponsor;

c. Determine how much he can sponsor as the 15% of his NAV; and

d. Determine the lowest value between the two values.

3. Determine the value of the sponsorship that can be accepted:

a. Determine the relationship between the sponsor and the contractor;

b. Determine which class this relationship falls into (A, B or C); and

c. Determine the limit of the Available Capital that may be sponsored based on the relationship and the grade applied

for.

4. Determine the actual sponsorship, which is the lowest value between; the value of the sponsorship being offered, and

the value of the sponsorship that can be accepted.

5. Determine the contractors Available Capital but adding the actual sponsorship to the contractors own Net Asset Value.

6. Determine if the Available Capital meets the requirement for the grade the contractor has applied for:

a. If this AC meets the requirement for the grade applied, this calculation ends here; and

b. If this AC does not meet the requirement for the grade applied the calculation must be performed again for the

next grade below this one.

It is important that the calculation is performed again for each grade because the actual sponsorship is determined partly by

the grade applied for.

• 157 •

example 1

Sponsor Company A is willing to sponsor Contractor C R3 000 000 as the owners of these companies are old school

friends. Sponsor A has a Net Asset Value of R2 500 000 and Contractor C has a Net Asset Value of R1 000 000.

Contractor C is applying for 7GB Determine the value of AC and see if he meets the 7GB requirements (assume the

sponsorship meets all the required criteria to be a valid sponsorship and we are using method A).

1. the sponsorship is assumed to be valid.

2. the value of the sponsorship is: r375 000

a. The sponsor is willing to sponsor R3 000 000

b. The sponsors available capital is R2 500 000

c. 15% of the sponsors NAV is (R2 500 000 x 0,15) = R375 000

d. The sponsorship is limited to: R375 000

3. the maximum value of the sponsorship that can be accepted is r2 000 000

a. The owners of the companies are old friends and there is no ownership between the two companies

b. This falls in class C (limit of 50% of the required AC)

c. (R4 000 000 x 0,50) = R2 000 000

4. the value that can be sponsored is the lowest between what he is allowed to sponsor R2 000 000 and what he

is able to sponsor R375 000 which is in this case = r375 000

5. the contractors net asset Value is r1 000 000

6. the contractor’s available capital is r1 375 000 (R1 000 000 + R375 000)

a. This does not meet the required capital for grade 7GB and therefore the calculation must be repeated again

for grade 6GB

example 2

the example above must now be calculated for grade 6gb.

Sponsor Company A is willing to sponsor Contractor C R3 000 000 as the owners of these companies are old school

friends. Sponsor A has a Net Asset Value of R2 500 000 and Contractor C has a Net Asset Value of R1 000 000.

Contractor C is applying for 7GB, but did not meet this requirement, therefore determine the value of the AC and see if

he meets the 6GB requirements (assume the sponsorship meets all the required criteria to be a valid sponsorship and we

are using method A).



a. The sponsor is willing to sponsor R3 000 000




3. the maximum value of the sponsorship that can be accepted is r650 000

a. The owners of the companies are old friends and there is no ownership between the two companies

b. This falls in class C (limit of 50% of the required AC)

c. (R1 300 000 x 0,50) = R650 000

4. the value that can be sponsored is the lowest between what he is allowed to sponsor r650 000 and what he is

able to sponsor R375 000 which is in this case = r375 000

5. the contractors net asset Value is r1 000 000

6. the contractors available capital is r1 375 000 (R1 000 000 + R375 000)

a. This meets the required capital for grade 6GB

• 157 • • 158 •

example 3

Sponsor Company X is willing to sponsor Contractor Y R500 000 as the sponsor company X owns 30% of the shares

of Contractor Y. Sponsor X has a Net Asset Value of R4 500 000 and Contractor Y has a Net Asset Value of R550 000.

Contractor Y is applying for 6GB. Determine the value of AC and see if he meets the 6GB requirements (assume the

sponsorship meets all the required criteria to be a valid sponsorship).



a. The sponsor is willing to sponsor R500 000




3. the maximum value of the sponsorship that can be accepted is r975 000

a. Company X owns 30% shares in Contractor Y

b. This falls in class B (limit of 75% of the required AC)

c. (R1 300,000 x 0,75) = R975 000

4. the value that can be sponsored is the lowest between what he is allowed to sponsor R975 000 and what he is

able to sponsor R500 000 which is in this case = r500 000

5. the contractors net asset Value is r550 000

6. the contractors available capital is r1 050 000 (r550 000 + r500 000)

a. This meets the required capital for grade 5

determining the Maximum contribution of sponsorship to available capital (ac)

sponsor typeMaximum contribution of sponsorship to available capital

designation amount

cidb registered contractor (with excess available

capital) or company with more than 50%

shareholding in applicant (may sponsor up to

100% of the required AC)

3 R 100 000

4 R 200 000

5 R 650 000

6 R 1 300 000

7 R 4 000 000

8 R 13 000 000

9 R 40 000 000

Company with 25% or more shareholding

in applicant (may sponsor up to 75% of the

required AC)

3 R 75 000

4 R 150 000

5 R 487 500

6 R 975 000

7 R 3 000 000

8 R 9 750 000

9 R 30 000 000

Company with less than 25% shareholding

in applicant (may sponsor up to 50% of the

required AC)

3 R 50 000

4 R 100 000

5 R 325 000

6 R 650 000

7 R 2 000 000

8 R 6 500 000

9 R 20 000 000

• 159 •

the three types of sponsorships that will be accepted:

1. A bank overdraft facility in the name of the company applying;

2. Investment facility:

i. An investment facility in the name of a member of the company (not in the name of the company applying);

3. Sponsorship from an affiliate company.

The table above must be used to determine the total value that can be sponsored in different scenarios.

the documents required to support the three types of sponsorship

1. In the case of a bank overdraft facility in the name of the company applying:

a. Letter from the bank, which must:

i. Be on the bank’s letterhead;

ii. Be signed by a representative of the bank;

iii. State the exact value currently available (i.e. it must not be pending any qualifications or have any conditions

that need to be fulfilled);

iv. State the exact type of facility the amount is available from (i.e. it cannot be general facilities);

v. Shows that the overdraft is for the company applying; and

vi. Not be older than 12 months (the newer the better).

2. In the case of an investment facility in the name of a member of the company applying:

a. Letter from the bank, which must:

i. Be on the bank’s letterhead;

ii. Be signed by a representative of the bank;

iii. Be in the name of a member of the company applying, not in the name of the company (this is because all

investments in the name of the company must already be reflected in the financial statements)

iv. State the exact value of the investment;

v. State the exact type of facility in which the amount is invested (i.e. it cannot be general facilities);

b. Six months of the investment’s bank statements to prove the value of the investment (this is to provide us with a

fair representation of the current state of the investment).

3. In the case of sponsorship from another company:

a. Letter of sponsorship undertaking from the sponsoring company:

i. If the sponsoring company is a CC, a members resolution letter (that is approved by the member(s) who own

50% or more of interest in the business) is required;

ii. If the sponsoring company is a private or public company, then the letter must be in the form of a Board

Resolution (with resolution number) to sponsor the company applying.

b. The letter must indicate:

i. A determined amount;

ii. That the sponsorship is available for a period of not less than one year;

iii. That the sponsorship is to support operations of the contractor concerned in order to complete projects;

iv. That the sponsorship is available to the beneficiary as and when required;

c. The latest financial statements of the sponsoring company to prove that the company has sufficient Net Asset

Value to sponsor the company.

• 159 • • 160 •

assessMent MetHod1. the sponsorship is valid:

Check that the sponsorship is:

i. A collectable financial guarantee by one person to another.

ii. For a determined amount.

iii. Available for at least 1 year.

iv. Can be used to support operations of the contractor concerned in order to complete projects (it must not be

project specific or have any conditions).

v. Available to the contractor as and when required.

2. the documents are correct based on the type of sponsorship:

2.a. Bank overdraft facility in the name of the company applying:

Check that:

i. The letter from the bank is on a letterhead of the bank.

ii. The letter is signed.

iii. The exact amount of the current overdraft facility is stated.

iv. The type facility available is clearly stated.

v. The overdraft available is for the company applying.

2.b. Investment facility in the name of a member of the company applying:

Check that:

i. The letter from the bank is on a letterhead of the bank.

ii. It is signed on behalf of the bank.

iii. The investment must be in the name of a member from the company applying (this may not be in the name

of the company).

iv. It states the exact value of the investment.

v. The exact type of facility in which the amount is invested.

vi. Six months investment bank statements accompany the letter to prove the value of the investment (this is to

provide us with a fair representation of the current state of the investment).

2.c. Sponsorship from another company:

Check that:

i. A letter of undertaking from the sponsoring company is attached:

• If the sponsoring company is a CC, a signed letter from the members is required;

• If the sponsoring company is a private or public company, then the letter must be in the form of a Board

Resolution (with resolution number) to sponsor the company applying.

ii. The letter includes the exact amount of sponsorship.

iii. The latest financial statements of the sponsoring company accompany the letter to prove that the company

has the Net Asset Value (NAV) to sponsor the company.

iv. The financial statements are compiled in accordance with the legal requirements of that type of company.

• 161 •

saMPle of docuMent requIred1. Overdraft confirmation letter

SP15

18 August 2013

TO WHOM IT MAY CONCERN

MASSIVE CONSTRUCTION CC REG NO. 2006/002233/23

This letter serves to confirm that our corporate client, Massive Construction CC holds an account in our books. This account is satisfactorily conducted and there are no dishonours on record. We further confirm that they currently enjoy an overdraft facility with us for the amount of R1,500,000.00 and further guarantees with us to the value of R5,400,000.00. The total value of the facilities available to them with our bank is R6,900,000.00. This client is considered good for all business. J Hepbron Tersia James Client Portfolio Director Desk Portfolio Executive CONFIDENTIALITY NOTICE: The information contained in this communication is confidential to the sender and is intended only for use of the addressee. Unauthorised use, disclosure or copying is strictly prohibited and may be unlawful. Hammer Mill House, Quartzite Rd, Selborne, 5214 P0 Box 18317 Tecoma 52l4 South Africa Telephone (2711)502 2313 Facsimile (2711) 502 2320 email [email protected] A division of the FirstRand Bank Limited Req. No. 1939/001225/07

• 161 • • 162 •

• exeMPtIons •


exemption

4. (1) Any contractor who is registered as a homebuilder in terms of section 10 of the Housing Consumer Protection

Measures Act, 95 of 1998, read with the General Regulations Regarding Housing Consumer Protection Measures,

R.1406, published by Gazette No. 20658 of 1 December 1999, is exempt from registration in terms of these

Regulations for the purpose of construction works in relation to the provision of a home as contemplated in

those Regulations.



(2) A contractor who undertakes a construction works contract substantially consisting of the provision of labour is

exempt from registration in terms of these Regulations.

Subregulation (2) substituted by Government Notice R751 of 22 July 2005, published in Government Notice No

27831 of 22 July 2005.

(3) A contractor who undertakes a construction works contract substantially consisting of the provision of supplies, is

exempt from registration in terms of these Regulations.

Subregulation (3) inserted by Government Notice No R8986 of 14 November 2008, published in Government



The cidb registers contractors who are participating by tendering for public contracts within the construction industry but not

all contractors need to be registered with the cidb.

Three types of contractors are exempt from registering at the cidb – contractors who undertake construction works contracts

that are:

1. The construction of houses;

2. Substantially consisting of the provision of labour; and

3. Substantially consisting of the provision of supply.

assessMent MetHodWhen checking a track record ensure it is not substantially for the supply of labour or materials.

This can be done by reading the title of the project as well as the contents of the track record documents as well

as telephonically verifying the type of works done with either the contractor or the employer.

• 163 •

• foreIgn regIstratIons •


7. application for registration as contractor in contractor grading designations 2 to 9.

(9) In the case of an application for registration by a contactor whose supporting documents are not in English, that

application must be accompanied by an English translation of those documents, prepared by a sworn translator.

Subregulations (8) and (9) inserted by Government Notice No R842 of 18 August 2006, published in Government

Gazette No. 29138 of 18 August 2006.

(4)(e) An original tax clearance certificate issued to the contractor by the South African Revenue Service, or in the

case of a foreign enterprise, which has not yet performed any contracts within the Republic of South Africa,

proof that it has paid all taxes due by it to the government of its country of origin;

16. foreign enterprise

(1) The contractor grading designation of a contractor who is not based in South Africa, is determined in accordance

with these Regulations, but the monetary values are based on the exchange rate in ZAR in relation to:

(a) That contractor’s financial statements, on the date of the applicable financial year-end, and

(b) The value of construction works projects completed, on the date of the completion of the applicable project,

(2) The values must include value added tax or similar taxation as levied in the contractor’s country of origin.


When a contractor submits an application for the registration of an external company it is important that all the required

documents are submitted (Yes – ALL the relevant documents are required).

• Application form (with signed declaration);

• Proof of payment;

• Company registration documentation from CIPC;

• Valid and original Tax Clearance Certificate from SARS;

• Originally certified passports of foreign principals who are not South African residents;

• Electrical contractors certificate (if applying for Electrical Engineering works) issued by the Department of Labour.

note that no international versions of electrical contractors certificate will be accepted;

• Track record: which may have been completed anywhere in the world:

a. One for each class of works applied;

• Financial statements:

a. For the two years immediately preceding the application;

b. Must be in accordance with International Financial Reporting Standards;

c. Must be audited.

• 163 • • 164 •

notes:

• If any of the above documents are not in English a translation of the documents which is notarised

by a sworn translator must accompany the original document. This translation must be the originally

notarised copy, remember that copy of the notarised translation will not be accepted.

• The certification on the passports must not be older than 3 months

assessMent MetHodThe documents submitted should be assessed as instructed for each of the different documents already discussed.

The additional documents (over and above the standard application requirements) that may be required should be

attached:

1. The originally notarised translation of any document not originally issued in English; and

2. The original document being translated (in the foreign language).

• 165 •

• aPPlIcatIons for uPgrades and addItIonal classes of worKs •


application for amendment of category status

8. (1) An application in terms of section 17(2) of the Act must be done on the approved form and the contractor

concerned must ensure that any information required in terms of regulation 7(4) that has changed since that

contractor’s first application or latest confirmation of particulars, is supported by the evidence required in terms

of regulation 7(4).

(2) Subject to subregulation (1), regulations 7 and 10 apply to an application in terms of section 17(2) with the

necessary changes.

Regulation as amended,

• Paragraph (1)(a) substituted by Government Notice No R 842 of 18 August 2006, published in Government

Gazette No 29138 of 18 August 2006.

• Paragraph (1)(dA) substituted by Government Notice No R842 of 18 August 2006, published in Government

Gazette No 29138 of 18 August 2006.

• Subregulations (1A) and (1B) inserted by Government Notice No R842 of 18 August 2006, published in

Government Gazette No 29138 of 18 August 2006, substituted by Government Notice No R8986 of 14

November 2008, published Government Gazette No 31603 of 14 November 2008.


In order for a grading designation previously granted by the assessment committee to be upgraded or an additional grade

to be added to a previously granted grading designation, the contractor must apply on the approved application form and

attach the required documents.

appeal vs. upgrade – what is the difference?

appeal

Should a contractor wish to appeal a grading granted by the assessment committee, he is free to do so. Such an appeal

must be based on the information previously provided and previously used to determine the grade awarded. Thus there

can be no new information provided.

upgrade

Should a contractor wish to be graded on a higher grade than previously awarded, and provides the required documents

to review his grading, he is free to apply for this.

As soon as there are any additional documents provided for the review of a contractors grading,

it must be processed as an upgrade as the information being assessed is no longer

the same and needs to be re-assessed.

• 165 • • 166 •

documents required for upgrades/additions

grade 1

If a contractor is on a grade 1 or a higher grade and adds another grade 1 class of works:

• Completed and signed grade 1 application form; and

• Proof of payment.

grade 2 – 9

Upgrade from grade 1:

• Completed and signed grade 2 to 9 application form;

• Company registration documents;

• Certified copies of identity documents;

• Valid and original Tax Clearance Certificate;


• Track record; and

• Financial statements (if applicable).

upgrade from a higher grade:

• Completed and signed grade 2 to 9 application form;


• Track record (if this is not already on record); and

• Financial statements (if applicable).

NB: Assessors must not verify basic documents when a contractor is upgrading from a higher grade as this would have

been previously verified, unless in a case where the contractor deliberately hands in updated company registration

documents as a prompt to amend his details on the register.

tax clearance certificate

Upgrades and Additions must still be accepted and processed even in a case where the Tax Clearance Certificate has

expired. The system will automatically suspend the contractor.

Pe status

Unless the contractor submits updated company registration documents, the contractor’s PE status must remain for the

duration of the 3-year period whether the application form is ticked or not.

Remember that an application for an upgrade or additional class of works cannot be accepted within three months of the

Annual Update or 3-Year renewal:

• In the case of the Annual Update, this should be done before the application for an Upgrade or Addition; and

• In the case of a 3-Year renewal, the application for an Upgrade or Addition may be processed with the 3-year renewal

as this is technically an entirely new registration.

assessMent MetHodAll the applicable assessment methods and procedures should be followed for each of the documents submitted.

• 167 •

• HoldIng coMPanIes •


There are no regulations specific to holding companies.


In today’s economy it often happens that several companies are structured into one holding company that they work

through. This gives them both financial strength and technical/knowledge support.

application registration requirements for a holding company

1. from the holding company

The following documents must be for the holding company itself:

1. Application form (with the correct contact info for the holding company, etc.);

2. Company registration documents;

3. Tax Clearance Certificate;

4. Identity Documents of the main principles of the company;

5. Proof of payment; and

6. Financial statements.

2. from the subsidiaries

The following may be submitted from any of the subsidiaries of the holding company:

1. Largest completed track record within the five years immediately preceding the application; and

2. Electrical contractors certificate (if applicable).

These holding companies can register at the cidb, but the registration is a little different as the actual

holding company usually does very little work itself and is more of a legal support to its subsidiaries. Thus

we accept documents from both the holding company and the subsidiaries, but some of the documents

are required specifically from the holding company whilst others may be from a subsidiary.

note: transfer of track record

The holding company may use the track record of a subsidiary company to register at the cidb but the

subsidiary company cannot use a track record in the name of the holding company. This is because the

subsidiary company is owned and is under the control of the holding company.

• 167 • • 168 •

assessMent MetHodThe validity, accuracy and authenticity of all the required documents must be checked as per the assessment

methods described above.

Check that the following documents are for the holding company (by ensuring that they are really in the name of

the holding company):

1. Application form (with the correct contact info for the holding company, etc.);

2. Company registration documents;

3. Tax Clearance Certificate;

4. Identity Documents of the main principles of the company;

5. Proof of payment; and

6. Financial statements.

Check that the following documents are provided from either the holding company or from a valid subsidiary:

1. Largest completed track record within the last five years; and

2. Electrical contractors certificate.

The validity of a subsidiary can be determined by:

1. Checking the financial statements, where it is usually stipulated who the subsidiaries are (the financial

statements will usually be in the form of an Annual Report as a holding company is usually a (Pty) Ltd).

2. A letter from the auditors confirming who the subsidiaries of the holding company are (on their letterhead

and signed) if it is not clear in the financial statements.

• 169 •

• annual uPdates and tHree-year renewals •


renewal of registration

9. These regulations apply with the necessary changes to an application for the renewal of registration in terms of

section 20 of the Act.

35. determinations in relation to fees

(2) A contractor in contractor grading designations 2 to 9 must pay the annual fee referred to in section 16(8) of the

Act and as shown in Schedule 2, in relation to the highest contractor grading designation in relation to which that

contractor is registered, on the date of registration and during the two years following, on the date of anniversary of

registration.

Subregulation (2) was substituted by Government Notice No R1121 of 23 November 2007, published in

Government Gazette No 30510 of 23 November 2007

change of particulars

36. (1) A contractor or organ of state must, if any particulars with regard to the relevant registration in terms of these

Regulations changes, notify the CIDB accordingly.

(2) A contractor must on the date referred to in regulation 35(2), confirm his or particulars on the approved form.


annual update

Once graded and registered at the cidb, a contractor will have to pay an annual fee in relation to the highest grading

designation on which that contractor is registered, payable every year on the anniversary of the date of registration.

example 1

If the contractor ‘Bobo Electrical’ has been registered on the following Grades: 4EE, 2ME, 6GB on 15 June 2012 and is due

to pay for his annual fee on 15 June 2013.

what will the contractor have to pay for his annual update?

He would pay R3 500 00 as this is the annual fee for the highest grade he is registered on – Grade 6.

This annual fee will be payable for the two years following the initial registration at cidb. During these two years there will be

no review of the rating granted unless the contractor requests this and provides information for an upgrade or an additional

grade, as discussed above.

The Annual Update can be processed once the appropriate payment is received and an Annual Update form is completed

and signed.

• 169 • • 170 •

three-year renewals

On the third anniversary of the initial registration, the contractor will have to re-register, and their grade will be reviewed

based on the updated information provided. The application for the three-year renewal must be verified and assessed in

exactly the same way as for a new application, that is, following all the steps as set out above. This review could lead to the

contractor remaining on the same grade, being upgraded or even being downgraded, according to the information provided

at that point.

note: the Annual Update must still be processed if either the Tax Clearance Certificate or the

electrical contractors’ certificate has expired. This will automatically be suspended by the system.

• 171 •

• susPensIon and deregIstratIon •


suspension and deregistration

27. (1) The registration of a contractor who remains in arrears in respect of the payment of his or her annual fees for

a period in excess of 90 days despite notification of the fact, must be suspended until those arrears are paid in

full or arrangement for such payment has been made with the CIDB to its satisfaction.

(2) The registration of a contractor who fails to submit an original tax clearance certificate in accordance with

regulation 7, or a confirmation of particulars in accordance with regulation 36(2), must be suspended until that

original tax clearance certificate or confirmation of particulars has been so submitted.

(3) If a contractor has not rectified his or her failure to comply with these Regulations as contemplated in

subregulations (1) or (2) on the date one year after the suspension referred to in subregulation (1), or if the

arrangements made in terms of subregulation (1) are not honoured by the contractor concerned, the name of

that contractor must be removed from the register of contractors.

(4) The name of a contractor may be removed from the register of contractors if that contractor-

(a) has permanently been prohibited from submitting a tender offer to an organ of state in terms of any

legislation;

(b) has requested the CIDB in writing to remove his or her name from the register; or

(c) has been found guilty in terms of regulation 29 of any non-compliance with Code of Conduct.

Paragraph (c) substituted by Government Notice No R8986 of 14 November 2008, published in Government



There are various documents that the contractors are required to submit to the cidb throughout their registration as a

contractor. Should these documents not be received the cidb will take action and suspend these contractors and if the

required documents are still not received, this may lead to de-registration from the Register of Contractors.

1. to which grades do these regulations apply?

grade 1

Grade 1 applications are not required to submit updated documents annually and thus cannot be suspended for not

submitting such information. Only the 3 year renewal is required for Grade 1 contractors.

Grade 1s are not required to submit the following documents after the initial registration:

• Tax Clearance certificates

• Annual updates (only the 3 Year renewal is required)

• Electrical Contractors Certificate

grade 2 to 9

Grade 2 to 9 applications are required to submit updated documents annually and will be suspended if these documents are

not received on time.

• 171 • • 172 •

Grade 2 to 9 are required to submit the following documents:

• Tax Clearance Certificate

• Annual Updates

• Electrical Contractors Certificate

Should the above mentioned updated documents not be received the contractors registration will be suspended, but the

contractors registration cannot stay suspended indefinitely, therefore we have implemented the De-registration and Expiry

of contractors’ registration.

2. suspension and de-registration process followed in accordance with the cidb

regulations:

A contractor may be suspended for the duration of 1 year only after which, if he has not rectified the reason for the

suspension he will be De-registered. If not rectified, the contractor can stay de-registered until the 3 year renewal becomes

due at which point the registration Expires immediately.

suspension de-registration expiry

de-registration

This status of De-registration will last until either:

1. The contractor rectifies the reason for the initial suspension, by submitting the required document as well as paying any

outstanding annual fees that have incurred during the suspension and de-registration period or

2. The contractors’ 3 Year Renewal becomes due and registration Expires immediately

A contractor that is suspended for not updating the Electrical Contractors Certificate, may not be de-registered as this

suspension applies to one class of works only and not to the contractors’ registration itself. Therefore the class of works may

stay suspended until the contractor submits the Electrical Contractors Certificate or until the 3 Year Renewal is due.

Remember: During Suspension and De-registration the contractor may not be awarded tenders.

expiry

Once the contractors’ registration has reached expiry, the contractors name is removed from the register and the contractor

will be required to submit a full application for re-registration.

If a contractor has a renewal application in progress at the time of expiry (that was submitted before the expiry of the three

year registration period) then that registration must still be immediately and automatically expired on the Register. When the

renewal application is processed the expiry is lifted and the next three year registration cycle commences.

The same CRM number will be used for the contractor when the re-registration is completed.

• 173 •

example 1: Process for tax clearance certificate suspension:

1 January 2010 – Initial registration

31 July 2010 – tax clearance expires

3 Month Grace Period before suspension

31 october 2010 – suspension for tcc not received

Suspension can last for up to 1 yearTo become active again the updated TCC plus any

outstanding annual fees incurred must be submitted.

31 July 2011 – deregistered for tcc not received

De-Registration can last up to the Expiry of the

registration

To become active again the current (updated) TCC

plus any outstanding annual fees incurred must be

submitted.

1 January 2013 – registration expired (for 3 year renewal)

Once the 3 Year Renewal date is reached, the

registration expires immediately

To become active again a full application for

re-registration must be submitted. (The outstanding

annual fees incurred fall away, only the new re-regis-

tration fees are payable)

• 173 • • 174 •

example 2: Process for annual update suspension:


1 January 2011 – annual update is due


1 april 2011 – suspension for annual update not received

Suspension can last for up to 1 year.To become active again the outstanding annual fees

must be submitted plus an updated TCC if needed.

1 January 2012 – deregistered for annual update not received

De-Registration can last up to the Expiry of the

registration

To become active again all the outstanding annual

fees incurred must be submitted plus a (current)

updated TCC.

1 January 2013 – registration expired (on date of 3 year renewal)

Once the 3 Year Renewal date is reached the


To become active again a full application for re-

registration must be submitted. (The outstanding

annual fees incurred fall away, only the new re-

registration fees are payable)

• 175 •

example 3: Process for electrical contractors certificate suspension:


28 february 2010 – electrical contractors certificate expires.


28 May 2010 – eb class of works suspended for electrical contractors certificate not received

Suspension of the EB class of works can last until the

Expiry of the registration

To become active again the outstanding Electrical

Contractors Certificate must be submitted.

1 January 2013 – registration expired (on date of 3 year renewal)

Once the 3 Year Renewal date is reached the


To become active again a full application for re-

registration must be submitted. (The outstanding

annual fees incurred fall away, only the new re-

registration fees are payable)

• 175 • • 176 •

notes

• 177 •

notes

• 177 • • 178 •

notes

• 179 •