What the CIDB reads from your financial statements
How the CIDB uses a contractor's turnover and available capital to set its grade, and how to keep books that support the application year after year.
By Achekam · · 4 min read · For Construction businesses in South Africa
A contractor applying for a higher CIDB grade usually thinks first about the projects it has completed. The CIDB looks just as hard at the financial statements. A contractor with an impressive project list and weak, late or inconsistent financial statements can find its application capped at a lower grade than its work deserves.
The financial side of grading is not complicated, but it is unforgiving. It looks at specific figures, from specific years, and it rewards contractors whose books were in order long before they applied. This article explains what the CIDB assesses, how financial sponsorship works, what it takes to keep a grade once you have it, and how to keep books that make the next application straightforward.
Two determinants: track record and available capital
The CIDB describes a contractor's grade as its licence to trade with government, certifying it as capable of delivering projects up to a pre-determined contract value in a given class of works. It says grading rests on two determinants: track record and available capital. Track record is about the projects the contractor has completed. Available capital is about its financial capacity, and that is where the financial statements come in.
The CIDB's requirements for grading set out both determinants and the figures for each grade.
For context, the CIDB lists the maximum contract value a contractor is considered capable of performing as R500 000 for grade 1, rising through R1 000 000 for grade 2 and R3 000 000 for grade 3 to R200 000 000 for grade 8, with no limit for grade 9.
Best annual turnover over the past two years
To assess available capital, the CIDB looks at the contractor's financial statements for the immediate past two years and uses the best annual turnover of the two. At the time of writing, the minimum best annual turnover for each grade is:
| Grade | Minimum best annual turnover |
|---|---|
| 3 | R1 000 000 |
| 4 | R2 000 000 |
| 5 | R3 250 000 |
| 6 | R6 500 000 |
| 7 | R20 000 000 |
| 8 | R65 000 000 |
| 9 | R200 000 000 |
The matching available-capital figures run from R100 000 for grade 3 to R40 000 000 for grade 9.
Two practical consequences follow. First, the CIDB uses the better of two years, so a single weak year does not sink an application, but two weak years will. Second, the figures come from financial statements, so statements that are late, incomplete or not yet signed off cannot be used.
Financial sponsorship
A contractor whose own capital falls short can sometimes rely on someone else's. The CIDB explains that a financial sponsorship is a surety or similar undertaking by a third party, covering the contractor's liabilities if it cannot meet its financial obligations. It adds that a sponsor which is not a financial institution may not sponsor more than 15% of its net asset value.
That limit matters for family businesses and groups, where a director or a related company is the natural sponsor. The sponsor's own financial statements need to show enough net assets to support the amount sponsored.
Keeping the grade once you have it
A grade is not permanent. The CIDB says a grade is valid for three years, must be updated annually with the annual fee during that period, and is suspended if it is not updated for two consecutive years. Annual updates do not apply to grade 1 contractors.
Each annual update is a reason to have current financial information ready. A contractor that produces its financial statements months after year end will find every update a scramble.
Closed months and management accounts
Financial statements that support a grading application start with books that are kept properly through the year. Achekam's general ledger lists every posted line, and the trial balance shows each account for all time, for a period or at a date, and says whether debits equal credits. Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, both added up from the business's own journals and exportable as PDF or CSV.
Months can be soft-closed, hard-closed and locked. A closed month refuses postings from every source, and reopening a hard close needs a second approver. Closing each month once it has been reviewed means the turnover in the year-end trial balance is the turnover that was reported all year, which is what an accountant preparing grading statements needs.
A business can appoint its accounting firm in Achekam by the firm's Achekam address or firm code, as accountant, auditor, tax practitioner, payroll provider or adviser, with an access level, and the firm accepts or declines. The accountant who turns the books into financial statements then works from the same ledger the business keeps.
What the books do not produce yet
One limit to plan around: Achekam's books do not produce a cash flow statement. A full set of annual financial statements includes one, so your accountant will prepare it as part of the year-end statements rather than taking it straight from the system.
A short checklist for a contractor planning a grade upgrade:
- Close every month on time, and review the trial balance each quarter.
- Have annual financial statements prepared promptly after year end.
- Check the best of the last two years' turnover against the grade you want.
- If a sponsor is needed, confirm the sponsor's net asset value early.
- Diarise the annual update so the grade is never at risk of suspension.
For the tender limits that each grade unlocks, see CIDB grades and the tenders you may bid for; for presenting the same figures to a lender, read the figures a bank wants for a contractor's facility.
The CIDB grades a contractor on figures it has already produced. The time to prepare for the next grade is the year before you apply.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
