Introduction to the Interim National Defence Force Services Commission, Status report on procurement process in Department of Defence; Briefing by the Office of the Auditor-General

Meeting report

In her introduction to the presentation by the Interim National Defence Force Services Commission (INDFSC) to the Committee, the Minister of Defence, Lindiwe Sisulu, said that the INDFSC had been established, on an interim basis, as a result of a need for a new dispensation for the Defence Force. The Commission’s Terms of Reference were the same as was previously discussed with the Committee. As there was a feeling that the dates set for the meeting of the Commission’s objectives might have been a bit ambitious given the tasks at hand, the Commission should submit a report to the Committee as well as the Ministry in order to establish the necessary regulatory framework and amendments.

Interim National Defence Force Services Commission (INDFSC) briefing
In his presentation, Judge L Bosielo (Chairperson of INDFSC) said that the Commission had met for the first time on 5 October 2009. During the preliminary discussions, which were held in order to understand the mandate given to it, the Commission came to realise how big and expansive their mandate was. In order to meet this mandate more effectively, a sub-committee was formed. The sub-committee’s role was to identify the issues which the Commission needed to prioritise. Out of the discussions which arose from the working document, which the sub-committee put before the Commission, the Commission had prepared a draft programme. The Commission’s Terms of Reference were as follows:
▪ To advise and make recommendations on a unique service dispensation outside the ambit of the Public Service in respect of members of the SANDF;
▪ To advise and make recommendations regarding amendments to the regulatory framework in order to give effect to this unique dispensation;
▪ To investigate, provide expert advice and make recommendations regarding the remuneration and conditions of service of members of the SANDF.

The proposed framework of the Interim INDFSC stood as follows:
▪ The interim NDFSC would continue its work until a permanent Commission was established;
▪ It would not, in the short-term, adopt a particular stance nor make any pronouncements regarding the trade unions in the military;
▪ The challenge it faced was that of limited timeframes as the minister had requested for the Commission to provide her with an interim report by December 2009;
▪ The Commission had established that it would need to divide its work into short- and medium-term approaches in order to obtain the overall objectives set by the Minister;
▪ The Commission would initially spend time determining the nature and scale of the problem before embarking on proposing solutions.

The Commission was mindful of the importance of, as well as the public interest in, these initiatives. It therefore needed to be broadly representative in order to maintain its impartiality, credibility and public confidence. In this regard the following stakeholders had been identified: the Portfolio Committee on Defence and Military Veterans, political parties represented in Parliament, the Minister in the Department on Public Service and Administration, members of the Public Service Commission, the Minister of Finance and National Treasury, Minister of State Security and the Intelligence Department, the Defence Staff Council, Military Command Council and the various arms of State regarding the core challenges military members face on a daily basis, ordinary members of the Defence Force and unit commands, the Defence Force Inspector-General, the Directorate of Human Resources policy and those of the service arms, the Chaplain-General and other religious officials who administer to the needs of members of the SANDF, military veterans associations, members of the Defence Force and their representatives, including trade unions (meetings with these trade unions would take place on a ‘without prejudice’ basis, that is, no preference would be expressed for or against the existence of military trade unions. The views of COSATU or other Trade Union Federations would be canvassed at a later stage) and representatives of Civil Society, especially those functioning within the security sector.

The Commission had identified key issues it felt needed prioritisation in the short-term for engagement with the various stakeholders:
1) Command and Control: This included command- and control-related programmes or issues; military chain of command; discipline and morale within the SANDF; grievance mechanisms and procedures; service conditions; current state of infrastructure, facilities and equipment.
2) Defence Commitments: This included the ability of the SANDF to meet its defence commitments; the defence budget as a percentage of the GDP and its impact on defence commitments; split of the defence budget in terms of capital, operational and personnel spending; adequacy of training within the SANDF; military ranking and related salary grading; and the possible effect of under-spending on morale within the SANDF.
3) Transformational Issues: This included: implementation of the Civic Education Programme, especially regarding military professionalism; education and training programmes for diversity and equal opportunity; success of the military evaluation programme and the willingness of the middle ranks to implement the processes.
4) Civil-Military Relations. Matters to be discussed here included: the role of Parliament in oversight over the Defence Force; the role of the Defence Secretariat and their role in supporting the Minister in civic control and its implication for defence strategy, planning and commitment; operational control and organisational structure challenges.
5) Service Conditions: This included: determination of the military service to provide for the SANDF versus the Public Service; functioning of the Military Bargaining Council; military ranking, grading of posts and salary structure and the short- and long-term implications thereof; local benchmarking with other services, that is,  SAPS and Intelligence; international benchmarking in both the system and ranking; the application of the grievance mechanism and intelligence from the servicemen’s perspective.
6) Legislative Issues: This included the Defence Amendment Bill - enactment of a permanent NDFSC; rulings of the Constitutional Court and their legal implications; implementation of the Labour Relations Act; SANDF general regulations; unique service conditions for the SANDF; rules of engagement for military trade unions; how violations of court rulings by military trade unions and SANDF members should be dealt with.

Discussion
Mr J Lorimer (DA) put forward a suggestion that the Commission also engage with Social Welfare organisations within the SANDF and also look into contraventions of court orders by those in the military command. How would the Commission decide whom to engage within the ranks of the stakeholders it named? Did the Commission accept the breakdown in relations between the military command and members of the SANDF as a starting point?

Mr A Ismail (INDFSC ) answered that the Commission would find it useful to engage with social welfare organisations. The Commission had planned on engaging those found at all levels of the military chain of command. It had been suggested that open, face-to-face meetings be held with all members, at different levels in the chain of command, and not their only representatives.

Prof R Christie (INDFSC) added that, although the recent protests by SANDF members clearly showed command failure, there had not been a general failure of command in the Defence Force. With less than 1.5% of the country’s annual GDP spent on defence, events such as these were likely to occur.

Mr D Maynier (DA) said many of the problems the Commission would be dealing with were longstanding ones within the Defence Force. Would the Commission be making suggestions around military trade unions so as to satisfy constitutionally enshrined labour rights without the existence of military trade unions?  How was the Commission planning on determining the nature and extent of the problems it had to deal with? Was the Commission planning on tackling the issue of political appointments in the officer core?

Mr Ismail answered that the Commission would ask unions how they saw their role and look into why soldiers spoke through unions rather than looking at grievance procedures. The important issue was the terms of engagement between military unions and government. The Commission would look into the matter of favouritism when it came to appointments.

Mr L Mphahlele (PAC) asked whether it was only part of its short-term strategy not to make pronouncements on military trade unions. Organisations dealing with military veterans should also be listed among the stakeholders the Commission had identified.  The word ‘servicemen’ should be changed to one that was less gender-specific.

Mr Ismail answered that the term ‘servicemen’ was an established term and was unsure of whether this could be changed.

The Chairperson said the Commission should not deal with legislation, but rather leave this to the Committee. Discussions should be held on how the Portfolio Committee could help in explaining the decisions taken by the Commission. This would minimise confusion as well as show Parliament’s support of the Commission.

Judge Bosielo replied that, although the Commission was aware of the issues it faced, it was not yet in a position to clear these issues as it was only recently established. Effective solutions to the problems would be found after engagement with the stakeholders identified.

Gen B Holomisa added that the matter of future unionisation in the SANDF would be dealt with by the Commission. Could the Committee assist the Commission in adding another term of reference in order to clarify its mandate around this issue?

Mr L Tholo (Cope) asked the Minister how she felt about the Commission.

The Minister answered that her intention in attending the meeting was to introduce the Commission to the Committee. One of the Commission’s first ports of call was the Defence Force as it was this environment that the Commission planned to improve. The establishment of the Commission was something the Defence Force had been looking forward to for the past ten years. The Commission’s work should not undermine the clear existing chain of command and control within the military. Given the short timeframe with which the Commission had to work, she hoped that the most important matters would be dealt with. Most important of these was the firm establishment of a different dispensation. She would accept advice, from both legal practitioners and the military, on the matter of SANDF members disagreeing with their Commanders-in-Chief policy direction. She was pleased with the establishment of the Commission as well as its members.

Mr Ismail answered that the security of the country was beyond those of party political interests. The members of the Commission would therefore do what is necessary to ensure that the security interests of the country were not jeopardised.

Office of the Auditor-General on Department of Defence audit report 2008/09
In his presentation to the Committee, Mr T Eloff (Senior Manager: Auditor-General) said that it had qualified on one aspect, which was Goods and Services – Consultant Expenditure. Here it was found that the person who certified the service in the procurement did not perform their duties. Other weaknesses were identified in Fruitless and Wasteful Expenditure. The success of the procurement system depended largely on the members who were executing it. If the Auditor-General identified non-compliance it would follow up on these cases and this could result in a qualification.

Mr. Maynier asked what the name of the company in the AMG deal was. What was the value of contract? Could the Committee have a copy of the management report in respect of that particular deal?

Mr Eloff answered that the contract value stood at R193 million and was in respect of delivering services.

Department of Defence on its procurement process
Mr Mthobisi Zondi (Deputy Director: Defence Logistics, Department of Defence) said that the aim of the Department’s presentation was to orientate members of the Committee with the procurement process within the Department.

Definitions of terms used read as follows: Authorising Entity – a board or committee established to monitor compliance to procedures and to authorise compliance to procedures and to authorise id submissions; Delegan – a person or entity who had powers delegated upon them; JIT – Just-in-Time (a concept of rapid deliveries and inventory reductions); Material Value Chain – the process, system and infrastructure pertaining to the movement and handling of material from requisition to disposal; Procurement Entity – a Department of Defence entity whose primary function was to procure or sell goods/ services; SCM – Supply Chain Management; TQM – Total Quality Management (concept of continuous improvement with emphasis on quality throughout the supply chain); Transversal Contracts – centrally-managed contracts applicable to more than one Government department.

The discussion revolved around the General Defence Account (GDA) or FMS folio 01. Of the R32 billion allocated to the Department of Defence, two-thirds went into the general expense accounts. The remaining third of its budget made up the Special Defence Account, which was primarily executed through Armscor. The GDA was executed through the Department.

The objectives of the procurement process were as follows: To support the Material Value Chain in accomplishing optimal material readiness; To ensure delivery of cost-effective quality services to services/ divisions through good procurement practices; To align procurement systems and processes with the Department’s Strategic Objectives; To ensure compliance of the procurement execution process with the Government Risk and Compliance (GRC) framework; To develop partnership arrangements with suppliers and other procuring organisations and explore opportunities for SC collaboration (i.e. the Department took a long-term approach to service delivery as opposed to short-term, transactional approach); To promote the principles of Broad-Based Black Economic Empowerment (BBBEE), industry development and environmental sustainability.

The Department’s procurement process was governed by Section 217 of the South African Constitution and Section 38 (1)(a)(iii) of the PFMA, both of which call for procurement systems which were “fair, competitive, transparent, equitable and cost-effective”. Other prescripts applicable to its procurement process were: the Preferential Procurement Policy Framework Act 5 of 2000, the National Treasury Supply Chain Management Practice Notes, the Department of Defence Instruction, the Joint Defence Publication (the main execution-level document), the Secretary for Defence Delegations and the BBBEE Act.

In the procurement process, the role-players were: the end user, the procurement unit/ centre, the procurement committees, the depot/ unit and Finance. The process started when the end user initiated the requirement(s), drew up the specifics and stated the budget available. The procurement unit then, after verifying the requirements, received and the captured the price quotations or bids.  After the technical evaluation acceptance had been completed, it was sent back to the procurement centre for bid evaluation. The technical evaluation was then done by the end user who examined how each bid complied with technical specifications. Those responsible for drawing up the specifications and those doing the evaluations of tenders were different people. This ensured that there was a separation of duties, as required by National Treasury guidelines.

Once this part of the process had been completed, it would then go back to the procurement units where the bids were evaluated for BBBEE or Historically Disadvantaged Individual (HDI) adherence as well as price and other commercial aspects. After this there would be a recommendation by the technical and procurement teams. This recommendation would then go to the procurement committee, which would either approve or reject the recommendation. If the recommendation was approved, the procurement centre would request financial authority which would, in turn, be approved by the end user. A letter of acceptance or Government Order would then be sent to the approved supplier informing them of the approval and giving them the go-ahead to provide the required product or services. Once the product or service had been received or delivered, certification was given, stating as much and allowed for the supplier to be paid. Every effort was made to ensure that all necessary documentation be kept in order so as to ensure suppliers were paid within the required 30-day period.

With procurement execution there were Procurement Service Centres which looked after the consolidation of all documents as well as the collection of all service requirements. Procurement took place at corporate level which centralised it. Purchasing was done through contracts, bids and/or price quotations. Procurement transactions fell within the following categories: Petty Cash – up to R5 000; Price Quotations – below R500 000; Bids – more than R500 000; and Contract Items – any value.

The Regional Procurement Committee could authorise up to R1 million; the Corporate Commercial Procurement Sub-Committee could authorise up to R5 million; the Corporate Commercial Procurement Committee could authorise up to R10 million; and the Departmental Commercial Procurement Committee could authorise an unlimited amount as delegated by the Accounting Officer.

Alternative Service Delivery entailed an establishment whose role it was to evaluate anything which needed to be outsourced before it was to be outsourced. It had to be agreed upon, however, that the necessary skills did not exist internally and thus necessitated outsourcing of said skills.

Transversal Contracts were controlled and managed by the Department which held it. While co-ordination and administration of these contracts took place at a corporate procurement level, execution happened with the end user and monitoring and compliance took place at GRC level.

Common products/services were managed by the Department’s central procurement level. While co-ordination happened at corporate procurement level, execution took place with the end user and compliance and monitoring at GRC level.

The control and management of division-specific services also took place at the Department’s central procurement level. Co-ordination and administration took place at corporate procurement level, and execution with the end user. Monitoring and compliance was also done at GRC level.

The main issue with the design principles was to separate the oversight function from the execution function. The system had to allow for pro-active monitoring as well as centralised control and localised execution.

Discussion
The Chairperson asked how the control system worked. How long did the procurement process take?

Mr Mzoli (DoD) answered that there were various systems in place which aimed at ensuring quality assurance in the procurement process. For any payments to be finalised the following documents were required: a delivery note; invoice; receipt voucher; order/ contract; and a completion certificate. The process up until which bids were awarded could take up to 90 days. Bids were advertised in the Government Tender Bulletin to which all prospective suppliers had access. The price quotations system was a speedier process which could take up to two weeks. The time spent on these processes varied on the complexity of the requirement.

Mr A Mlangeni (ANC) asked whether the Department called for tenders before purchasing something. With all the control mechanisms in place, how did irregular expenditure arise?

Mr Mzoli answered that the Department had contracts with certain suppliers. With other products or services that were needed, it would depend on the cost of the requirement. If costs exceeded R500 000 the National Treasury required it to call for open tenders. If it was lower than R500 000, price quotations would be requested. This was a speedier process.

Irregular expenditure was expenditure that occurred without having followed the proper procedure. The process to condone this entailed ascertaining, firstly, whether it was a bona fide requirement and, secondly, whether there had been any malicious intent. The former could be regularised by the Accounting Officer following considerations such as urgency of need for the product/service. The latter involved the deliberate non-compliance with procedure. In such cases a disciplinary hearing would be held.

Mr Maynier asked whether the Department representatives had any business interests and whether these had been declared.

All three representatives (Mr Zondi, Mr R Naidoo - Director of Material Governance, and Major General J Nkonyane – Chief Logistics) replied that they had declared their interests.

The Acting Secretary of Defence, Mr Tsepe Motumi, added that their declarations were on file, though he could not with accuracy say what the contents of these declarations were. In terms of the Public Service regulations, Senior Management Service members had to submit financial disclosures by the end of each financial year.

Mr Tholo asked what the department’s policy was on officials involved in the tendering process holding outside business interests.

Mr Naidoo answered that there was a policy in place, called the Joint Defence Publication which governed procurement execution in the Department of Defence. If a Department employee wished to tender for work within Government there was no rule which prevented that employee from doing so. The employee would, however, have to declare this business interest to the relevant superiors. Tenders could then be submitted, provided that Department time and resources were not used for this purpose.

The Chairperson asked what the implication was of there being no legislation preventing officials in the Department from tendering for Department work.

Mr Naidoo answered that this situation was not unique to the Department, but was in fact national legislation.

Mr Mlangeni said that legislation should be passed which would remedy the anomaly of an official working in the Department being allowed to tender for work within the Department.

Mr Lorimer asked whether the proper procedures had been adhered to in the unexploded ordinance tender.

Mr Naidoo answered that the procurement process that was overseen with this tender was in line with the procurement presentation that was followed by the Department. The Department’s prescripts on procurement as well as national legislation had been complied with. It was also in accordance with the Joint Defence Publication on Procurement.

The Chairperson asked how this process was run. Who was the authority that had made the decision on this tender?

Mr Naidoo answered that the Department’s procurement entity had received a requirement to put a tender in place to clear unexploded ordinance. As the land in question was designated for restitution, it was deemed to be an urgent matter. The procurement entity then drew up a terms of reference in which various criteria which would be used in evaluating all the proposals were spelt out. After the terms of reference were approved, the procurement entity advertised the requirement in the Government Tender Bulletin. The tenders were received and evaluated. Bidders were invited to present their proposals to the Department. The client put forward a recommendation to the tender board. In accepting this tender, the Department passed over the tender that scored the highest points and a decision was taken to accept the second-highest scoring tender. This was done as objective criteria had existed which allowed for another tender to be awarded the tender.

Major General Nkonyane said that it was the board’s decision that, irrespective the high price and considering functionality, the company to which the tender was awarded was the only company the Department could grant the tender. This was decided upon particularly within light of the risks associated with the service which was to be rendered.

The meeting was adjourned.