Construction Industry Development Board: Annual Report 2008/09 & Strategic Plan, Independent Development Trust (IDT) Annual Report 2008/09

Meeting report

Construction Industry Development Board (CIDB) presentation on 2009 strategic plan and budget, and Annual Report 2008/09
Prof Raymond Nkado, Board Chairperson, Construction Industry Development Board (CIDB), noted that the previous year the Construction Industry Development Board (CIDB) had a clean audit but that in 2008/09 it received a qualified audit report.

Mr Ronnie Khoza, Chief Executive Officer, Construction Industry Development Board, briefed the Committee on the CIDB’s future plans and the challenges which it faced in the future. Mr Khoza said that the CIDB had the dual responsibility of acting as an enabler and developer, and of acting as a regulator and enforcing compliance. The CIDB Act was discussed, and emphasis placed on capability rather than capacity.

The benefits of the Register of Contractors included the reduction of tendering costs, the promotion of standards, and the provision of information on the size, distribution, nature and development of contractors. The National Register of Projects was maintained by the fees paid by clients, and it was noted that the Best Practice Project Assessment scheme was ready for piloting.

The external context of the CIDB’s activities was that the construction industry had experienced a boom in recent years, and that government and the private sector supported it. Supporting interventions were infrastructure delivery skills and public sector delivery.

In terms of the CIDB’s internal context, Mr Khoza said that there was a need to specialise and move away from the use of consultants where possible. The Electronic Document Management System (EDMS) had been prioritised. There were strains on resources for the Construction Register Service (CRS) which had more than 72 000 registered contractors.

The numbers of contractors from grades one to nine were discussed. It was noted that the total number had risen to around 95 000 since September. There had been almost 5000 upgrades, and of these 84% were black owned businesses. The number of contractors per province was discussed briefly. Mr Khoza reported that the actual number of companies registered was 72 565, but of these, 2 258 were suspended.

Mr Khoza then outlined the strategic objectives. These included ‘value added' service delivery, a Research and Development (R&D) agenda, and procurement reform. The structure of the CIDB was discussed. Mr Khoza skipped the detailed breakdown of the programmes (but this can be seen in the attached document)

The key focus areas for 2009/10 were discussed. These included improvements on contractor registration, the up-scaling of project registration, compliance enforcement, the National Infrastructure Maintenance Strategy (NIMS), which had had budget problems, and Phase 2 of the Registers of Best Practice, which included quality, health and safety, and environment. It was noted that in future, to avoid risk, performance reports would be required for each grade.

Further focus areas included the establishment of an industry Employment Skills Development Agency (ESDA), the EDMS, and a project database to ensure projects were not repeated. It was noted that the CIDB could not develop projects itself. New Construction Contact Centres (CCC) were to be built in Limpopo and the North West.

The Stakeholder Forum was due to take place on 23 October and a formal invitation would be sent to the Chairperson if that had not already been done.

An example of how the structure for performance measurement worked was given.

Mr Peter Mongwenyana, Chief Financial Officer, CIDB, discussed the main aspects of the budget 2009/10. This included building human resource capacity, improving of the Registers of Service delivery, a focus on fraud and corruption, Phase 2 of the Registers, and the up-scaling of communications.

Mr Mongwenyana discussed the expected revenue, which came from Registers, transfer payments and interest and amounted to more than R95 million. A breakdown of how the funds would be used was also given, with over R42 million being used for personnel, R22 million used for administration, R3 million for capital, and R27 million for operational expenditure. A summary of the budget per programme was then given.
 
Annual Report
Mr Khoza highlighted the areas of importance in the Annual Report. He guided Members through the slides on the project and financial performance of the CIDB, and discussed the findings of the Auditor-General (AG).

Mr Khoza discussed several areas of performance that the CIDB had undertaken. These included the signing of Memorandums of Understanding (MoUs) with ABSA and Standard Bank in terms of the National Contractor Development Programme (NCDP), the launching of three CCCs, regulation amendments which became effective in January, and the Procurement and Delivery Management (PDM), which improved Public Sector Infrastructure Delivery (IDIP). CIDB had also developed a discussion paper on construction procurement as a profession, had initiated Construction Industry Performance (CIP), which gave institutional support, had practice guides and had prepared Best Practice schemes ready for piloting.

Mr Khoza discussed the performance of the CEO’s office, which endorsed two publications and had a compliance manager to deal with fraud and corruption.

Mr Mongwenyana noted that revenue from the government had decreased by 16%, while revenue from Registers had increased by more than 21%. Total expenditure had increased by 4.4%, the bulk of which was related to staff costs.

Mr Mongwenyana noted that fees income had decreased by 6.5%. The deficit for the year was R1, 351 million after a depreciation of R4, 238 million. Cash and cash equivalents had risen by R5, 511 million due to growing investments.

Mr Khoza said that the qualification that the CIDB received from the AG was based on prior adjustments and that the CIDB was addressing the matter. There were also two other matters of emphasis.

Mr Mongwenyana said that the qualification would be dealt with by the end of November and a dry-run would take place to ensure that the new accounting standards training would be effective. The two emphases of matter concerned the irregular expenditure on a finance lease without prior approval by the National Treasury, and the restatement of corresponding figures.

Mr Khoza assured the Committee that the CIDB would have a clean audit and that its asset register would have integrity.

Discussion
The Chairperson thanked the delegation. Members were asked to liaise and indicate whether or not it would attend the stakeholder meeting on 23 October. He noted that information on the size, distribution, nature and development of the contractors and of their projects was supposed to be included in the presentation, but this could be forwarded to the Committee.

Mr C Kekana (ANC) noted that there was a need for skills in South Africa but that apprenticeships were not generally offered after students had completed their studies. He asked whether the CIDB interacted with the South African Council of Engineers on this matter,  because it seemed that it monitored students at a university level, and also asked whether it had been invited to attend the stakeholder meeting.

Mr Khoza said that work was done with the South African Engineering Council, and that it was in fact one of the CIDB stakeholders. Beyond the stakeholder forum, work was done with specific stakeholders. The issue of apprenticeship was being dealt with through the Employment Skills Development Agency (ESDA). The CIDB was asked by industry to create an intervention that would normally fit in with the Sector Education Training Authority (SETA). A business plan was being prepared and information was being shared with the South African Engineering Council, and as soon as funding was available, CIDB would include the creation of proper apprenticeships as one of the matters to be monitored and managed.

Mr Kekana said that the State of the Nation Address had emphasized the importance of job creation. It was said that the construction industry was one of the largest contributors to economic growth in the country, but this appeared to be a jobless growth. He said that there should be a unit in the Construction Board responsible for the monitoring of job creation, as companies were of the opinion that the use of labour intensive methods tended to yield inferior quality workmanship, but this was not necessarily the case.

Mr Khoza said that the CIDB was not directly involved with job creation, because it did not give out projects. it served as a supporting mechanism, ensuring that those who qualified for a grade were in a position to employ people. The CIDB supported labour intensive methods, and had developed such a method for road construction, which had been distributed over the previous three years. The CIDB had visited a site using this method in Limpopo, and here the quality of the work was just as good as if it had been done by mechanical methods. The challenge here was that construction could be faster using mechanical methods, and this was the decision of the client, although there were clients using labour intensive methods.

The Chairperson said that it was important to share this method in order to see if other provinces could utilise this. He asked if the CIDB was pinning all of its hopes on ESDA as a tool to address the problem of people not getting experiential training, and asked if this was the only intervention and if further explanations could be given.

Mr Khoza said that the ESDAs were normally done by the SETAs and did form part of normal training. In the construction industry, this was not happening. The CIDB had engaged with the Construction SETA to find out if that method could be included as one of the instruments used. The ESDA was seen as a national operation that industry would have to own and support, although companies could also do this on their own accord. A formal arrangement needed to be made, where negotiations could occur with contractors undertaking specific projects, to ensure that the people that were deployed received relevant training. The ESDA would have a database ensuring that deployment of people was appropriate and that there would not be any negative impact on the project, but challenges could occur in that relevant projects might happen in different areas around the country, and people would have to be moved to ensure they gained sufficient skills. The CIDB believed that this was a better approach than the ad hoc arrangements, where people were just asked to work for a period of time and then submit a report. Specific requirements were needed, such as performance in the fields of management, design and so forth. This was an additional intervention to those already running.

Mr Kekana said that when listening to the presentation, the Committee was interested in how CIDB influenced job creation, although that was not its core function. If people were not seen as a major issue then it seemed that CIDB was not aligned with the national imperatives on job creation. In their next meeting, the Committee would want to hear how the CIDB was grappling with the problem because it was a national problem and not just one of government.

The Chairperson said that ESDA was commendable and the Committee would have to follow this closely. The question of experiential training was an old one, and professional councils would be engaged with directly to see how they dealt with that matter, including how the link between this training and university training was unfolding. This was a matter that needed activism, and no ground would be covered if it was left to volunteerism, as was currently the case. 

Mr M Rabotapi (DA) asked at what level the CIDB was involved with the building of Reconstruction and Development Programme (RDP) houses in particular. He asked what monitoring mechanisms were in place to ensure that the CIDB’s good name was upheld by the contractors.

Mr Nkado said that the CIDB was not involved with the construction of RDP housing, and there was a strict separation of mandates. Homebuilders were not registered by the CIDB, but were registered with the National Homebuilders Registration Council (NHBRC), who were concerned with the building of houses. The concern about the non-performance in the area of housing was noted, but this did not fall within the CIDB’s mandate at all.

The Chairperson noted that the blame in the industry for the negative impact was being shifted to another council. The person on the ground would understand housing to fall within the construction industry, and so, rather than separating the mandates, there needed to be better coordination between the two councils. He asked what coordination existed.

Mr Khoza said that the homebuilding industry was specified as exempt from the CIDB requirements, and so homebuilding contractors did not have to register with the CIDB. “Construction” was a very general term. A  contractor who was registered in the class of 'general building' would be a contractor that could lay foundations, build walls, and put up a roof. The CIDB’s mandate was more complex than homebuilding. The CIDB would report to the Department of Public Works, while the NHBRC reported to the Department of Human Settlements. If the CIDB were to go into housing, that mandate would need to be supported financially. If the CIDB were to start delivering on housing it would be criticised as not focusing on the issues in its own mandate.

Mr Khoza agreed that this was an issue where the two institutions needed to work together. He added that work was done with the NHBRC, although the CIDB was careful not to assign blame as that led to conflict, which had caused a strain in the past. The CIDB was requested to look into the possibility of combining the two registers. However, the NHBRC register was structured for a warranty scheme, with inspectors assessing projects, which the CIDB did not have in its mandate, nor did it have the capacity to deal with this. Meetings were being organised between the CIDB and the NHBRC to see what work could be done together, but the CIDB needed to be careful and ensure that the expectations of the people were met.

Mr L Gaehler (UDM) said that NHBRC monitored the building of houses and the CIDB registered contractors. The Committee was saying that the CIDB should get involved by registering contractors for the projects undertaken.

Mr Khoza said that contractors involved with homebuilding did actually register with the NHBRC. CIDB’s regulations excluded the registration of homebuilding contractors and two separate registers were needed for these contractors. This would remain the case until the mandate changed.

The Chairperson asked for clarity as to whether CIDB was involved with housing at all, specifically in cases where a contractor undertook homebuilding projects.

Mr Khoza said that if a homebuilder also undertook building projects in other areas, then he or she would register with both the NHBRC and the CIDB. The rules that the institutions used to deal with contractors differed. In the case of CIDB, contractors registered so that sanctions could be imposed if things went awry. If work was being done in another field, then the rules would not necessarily apply. Regulations between the two organisations would be difficult. For example, CIDB did not have warranty schemes for homeowners who registered with the NHBRC after their homes were built. This generated significant revenue for the NHBRC, which the CIDB did not have, and conflict would be generated because of such differences. The CIDB was concerned with the quality of housing, and stated that all construction training needed to be of a set standard, whether it went into housing or into other fields. The important point was that the registers served completely different purposes.

Mr S Masango (DA) said that there was great confusion amongst people on the ground who did not know with which institution to register. He was worried that it cost a great deal to register each year with the CIDB. Mr Masango said he was aware of many people who were building houses that were registered with CIDB, and when asked why these were not registered with the NHBRC, would reply that 'it was the same thing'. A system was needed to be in place that did not limit people to only building in one field of construction. If a contractor who was registered with CIDB wanted to build a house, he or she would be unable to get a loan from a bank because of not being registered with NHBRC.

Mr Kekana agreed that integration of the two bodies was needed. If, in a certain area, houses were constructed well but roads were not, then the overall impression would be negative, regardless of where the responsibility lay. An umbrella body needed to exist because construction was seen holistically.

Mr Rabotapi asked for his question about monitoring mechanisms to be answered.

The Chairperson noted that this had been responded to, along the technical lines that technically separated the regulation of the NHBRC and the CIDB. A government system was needed that integrated the two bodies, and this was a major political matter, and the CIDB could not be disengaged on the process.

Ms N Madlala (ANC) noted that in the budget, a high percentage of income came from the registering of contractors. She asked how much the registration cost, and if this differed according to skills or level.

Mr Khoza said that income was collected from those who wanted to be registered. Smaller amounts were collected for grades one to three. The Register was not designed to make a profit, but its maintenance costs should be paid for by those who used it. Membership was not campaigned, and only gave a license for trade, on a similar basis as a driver's license. The money that was accrued was used to assess contractors when they first applied, and for maintenance purposes. Grade nine contractors paid R 55 000 to maintain their information, while grade one contractors did not pay for the first three year period as they were regarded as entry level contractors. The amount paid for grade two was R250, for grade three, R750 and so forth.

Ms Madlala asked what the Construction Registers Services (CRS) three-year validity period was for, and how it was monitored.

Mr Khoza said that the three-year validity was set out in the Act. Three months before that period came to an end, contractors were required to apply to see if they still deserved the same grade. This was a standard risk management tool that was used throughout the world. In South Africa, three years was chosen, but this was under review to ensure that contractors were not disadvantaged. This needed to be supported by a development programme, and work needed to be done in partnership with government.

Mr Khoza said that monitoring was more difficult than it appeared. There were more than 100 000 accounts and it was easy to miss a payment or not maintain an account properly because in many cases these were small amounts. People managed groups of contractors' accounts, but it was a delicate process. For example, a person may have paid R450, and the refund must happen accordingly. If a person wished to apply for another class of work, then he or she would be required to make additional payments only if the work fell under a higher grade, in which case there would be an adjustment. For each grade, the funds must be accounted for, and these differed greatly.

Ms Madlala noted that one of the challenges highlighted in the presentation was the strain on resources and systems. She asked for further details on this.

Mr Khoza said that the CIDB was expecting a total of 10 000 to 12 000 contractors to have registered on the CIDB system, but the numbers had been significantly higher, with more than 72 000 having registered. More people needed to be employed to deal with the significant excess.

Ms Madlala said that the presentation indicated that there were only Memorandums of Understanding (MoUs) with ABSA and Standard Bank. She asked if there were any other institutions that had MoUs.

Mr Khoza said that MoUs had been signed with banks as they prepared themselves to support contractors. MoUs had now been signed with FNB, ABSA and Standard Bank. Nedbank was in the pipeline, along with NURCHA and Ithala Bank, which supported homebuilders.

Ms N Ngcengwane (ANC) asked why 2 258 companies were suspended.

Mr Khoza said that the companies' registration had been suspended. If, for example, a company failed to submit a value added tax clearance certificate, the system would automatically suspend the company, but it would not be deregistered. As soon as it submitted the necessary documentation the suspension would be lifted.

Ms Ngcengwane noted that the presentation had mentioned that 84% of companies were black owned. She asked how many companies in the higher grades were owned by black people, specifically grade nine companies, and how these were distributed among the provinces.

Mr Khoza said that since CIDB had been established, the statistics shown had indicated that there had more than 5 000 upgrades on the system, and of those, 84% were black owned. Monitoring was done because as information came into the CIDB it would be added to the statistics. If a company applied for a grade seven, but it fell short, it would be captured on the system according to the level that the documentation reflected. Of all the companies registered, 95% were black owned, with the definition of “black owned” being a company that had more than 50% black ownership. Grade nine contractors were an area of concern, because the shares in the companies were publicly traded by individuals. Grades six, seven and eight were still governed by single owners in many cases, but there were risks around this and multiple ownership structures were encouraged.

Mr Khoza showed a slide indicating the number of black owned companies, which was not included the presentation and would be given to the Committee at a later date. The number of woman-owned companies was also indicated.

Ms Ngcengwane asked if the Construction Contact Centres (CCCs) were the same ones that the CIDB had before.

Mr Khoza said that the CIDB had started establishing CCCs a few of years ago, with the first being established in KwaZulu-Natal in 2007. There was going to be one CCC in each province, and the only two that remained to be established were in Limpopo and the North West.

Ms Ngcengwane asked for further details on fraud and corruption and what measures were in place to prevent this.

Mr Khoza said that there was a forensics organisation that helped with fraud and corruption issues, and it investigated both staff and contractors. Those who were found guilty were disciplined and information on those who had successfully been prosecuted was published both in Government Gazettes and on the CIDB website. The CIDB had also begun giving information on who had committed fraud to the commercial press.

Ms Ngcengwane said that according to the AG's report, there were a number of issues of concern, dealing with non-stated intangible assets and so forth. One of these was the irregular expenditure of over R356 000, and she requested further details of this.

Mr Mongwenyana said that Page 99, note number two, of the Annual Report related to leases that CIDB had entered into. The National Treasury (NT) had issued Practice Note 5 of 2006/07, saying that an operating lease or a finance lease could be entered into, but that in respect of a finance lease relating to operating equipment, the contract could not exceed three years. The CIDB had entered into a contact that exceeded the three year period, but subsequently had applied for condonation from the NT with regard to that contract.

Ms Ngcengwane said that she believed that the Construction Charter was the responsibility of the CIDB, but it was never presented to the Committee, and she asked why that was so.

Mr Khoza said that the Construction Charter was owned by the Department of Public Works, although the CIDB had played an important role in it, by funding the third party review which led to the gazetting of Section 9 codes. The CIDB was also part of the Steering Committee within the Charter group that ensured that it would be moved forward.

Mr Khoza said the CIDB would reflect Black Economic Empowerment (BEE) scores of each construction company on its website, with a disclaimer that these were assessed by other parties.

The Chairperson asked if the CIDB 'was comfortable' on the general question of internal controls and risk management.

Mr Nkado said that the Board was distressed by the AG’s qualification, which had come as a surprise because the Audit Committee had reported that things were going well throughout the year. The Board had been assured that the issues that had resulted in the qualification would be sorted out in a few months, and the Board was confident that this would be the case. Added to this, the personnel vacancies in the CFO’s office would also be filled.

The Chairperson thanked Mr Nkado for the assurance and noted that it would be recorded. He said that the CIDB would be given the benefit of the doubt in that regard.

Mr L Gaehler (UDM) said that the Committee needed to take the issue of having two separate bodies registering contractors further.

Mr Gaehler said that the majority of contractors were rated as Grade 1, but the amounts they could access in terms of tenders were approximately R300 000. He said that most government Departments issued tenders of approximately R500 000, and asked what the likelihood was that those contractors would be upgraded past Grade 1, to a level where they could access those tenders.

Mr Khoza said that there was planning being done to up the limit on tenders for Grade 1 up to R500 000. If this was done, the limit for Grade 2 would also have to be raised, but this was being considered.

Mr Gaehler noted that some contractors remained in their grades due to late payments by some Departments, and asked what was being done to assist those contractors.

Mr Khoza said that between 2007 and 2008, the CIDB had conducted a study on the context of late payments. In the case where Department of Public Works was the implementing agent and the Department of Education was the client, the problem lay with the location of the budget and the mechanisms of transfer. Master Builders South Africa (MBSA) had also conducted a similar study recently, and the Minister of Public Works was committed to dealing with the issue from that office as well.

Mr Gaehler was concerned that most banks who dealt with black contractors gave them prime-plus rates, while established contractors were given prime-minus. He asked if assistance could be given to those contractors through the MoUs.

Mr Khoza said that at that stage it was difficult to dictate to the banks how they should conduct their business, but discussions would be held regarding the problems that the banks had faced. The banks tended to favour those whom they knew were reliable in paying back the funds. The CIDB needed to deal with the banks and ensure that loans were given to contractors who had guaranteed projects with governmental departments, and then to ensure that the departments actually paid on time.

Mr Gaehler asked if visits with stakeholders were conducted at a provincial level, and when the CIDB planned to conduct these visits, as many stakeholders in the provinces seemed to be disgruntled.

Mr Khoza said that interaction with stakeholders happened continuously at a provincial level. There were some problems in the previous year, due to budget constraints. Generally, interaction at a provincial level happened after the stakeholder forum meeting. The Woman in Construction Awards had been conducted for the first time in the provinces this year, and had been used as a platform to indicate what challenges the industry faced.

The Chairperson said that a proposal needed to be developed, budget constraints permitting, dealing with provincial road-shows, to deal with stakeholders at that level. 

Mr Masango asked for clarity on what the criteria used for grading were, and whether a contractor had to wait for the three year period before being upgraded.

Mr Khoza said that the CIDB decided on the criteria used, and that this was public knowledge. There were two capabilities used as part of the criteria/ Financial capability  was used where the contractor did not necessarily need to have money, but did have access to money. Works capability referred to the situation where a contractor had civil engineering skills, and it would get projects related to that. In Grade 1 there were no barriers. For Grades 2 to 4, the contractor would be requested to provide information on its turnover to see whether it could be looked at favourably by banks or by sponsorship. Criteria for Grades 2 to 9 were at different levels, and the higher the grade, the stricter were the criteria. The role played by the CIDB was to give contractors their trading licenses. If a client was building a bridge valued at R250 million, it would contact CIDB and ask for contractors of Grade 9, but it could also take a contractor of Grade 8 with a potentially emerging (PE) status, to do the same project, provided that it could support them. It was all based on tender value ranges, and for a particular level project the client would say that it would accept a certain grade or higher.

Mr Khoza said that upgrading happened all the time. The three year period of renewal allowed for the re-assessment of a contractor, and was done for the benefit of those contractors that had not applied for upgrading. The contractor did not have to accept the offer of an upgrade. Downgrading also occurred because some contractors could not maintain their grade.

Mr Masango asked what the incentives of registering with the CIDB were, and if there were job constraints on those who were not registered.

Mr Khoza said that the benefits were that it provided the CIDB with information on who was involved in the industry, which in turn allowed the industry to be properly regulated. The Act stated that any contractor who wanted to participate in a public tendering system must be registered with the CIDB and must be assessed to have a particular grade. The CIDB had done the basic work for clients, and the process of appointing a suitable contractor happened more quickly than in the past. Another benefit that would be looked into was that of contractors supplying tax clearance certificates. Current practice was that these were provided both at registration with the CIDB and as part of the tender process, but the latter could be removed as tax clearance would already be provided to the CIDB.

Mr Masango asked who was responsible for deciding which contractors were awarded tenders.

Mr Masango noted that the development of contractors had been done in Limpopo, and it was felt that their grade should have increased due to the development. This had not been the case and he requested an explanation for this.

Mr Khoza said that Limpopo was a pilot project and the intention was not to develop contractors, but rather to pilot the CIDB’s requirements for standards of uniformity of tender documents, which aimed to make them simpler. Old tender documents differed according to who was drafting them, but the CIDB had aligned these and simplified them. The CIDB had also gone on to say that a simplified form of contract was also needed, and the clients would justify their choice of forms of contract, which would allow the contractors to be aware of what form of contract was being used without necessarily involving lawyers. If contractors were unable to estimate quantities themselves, they would still need to hire a quantity surveyor to fulfil that task.

Mr Masango said that often when people received tenders, they had to employ consultants merely to fill in the forms, which were not user-friendly. He asked what was being done to remedy that situation.

Mr Masango asked if the focus on health, safety, and environment was a duplication of the duties of the CBE.

Mr Khoza said that CBE dealt with six member councils and professionals on an individual basis. The CIDB would in future have a register of professional service providers, but as companies rather than individuals. CBE dealt with professionals, while the CIDB dealt with the physical asset. Overlap did occur, but there was consultation between the two organisations.

Mr Masango asked what support had been given for the 2010 Soccer World Cup.

Mr Khoza said that CIDB supported 2010 in terms of procurement advice. Host cities were not familiar with the requirements of CIDB, and advice was given to them on how to estimate which grades of contractors could undertake the projects. The CIDB had then stepped out of the process so as not to cause conflict between the employers and the contractors.

The Chairperson said that the question of the duplication of CBE duties must be responded to.

Mr Nkado said that health and safety was the responsibility of everyone in the construction industry. The CBE looked at the issue from the point of view of professionals, and the CIDB looked at it from the point of view of the entire industry, and so there was a necessary overlap. However, this was useful to prevent any gaps occurring.

The Chairperson agreed that health and safety was a concern for everyone.

Mr T Magama (ANC) noted that the AG had raised the issue that the strategic plan was not submitted on time, and there were no clear functional lines of responsibility. Both of these had been raised in the previous audit report. He noted that Mr Nkado had given assurances that the matters were being dealt with. However, that did not deal with the issue that employees, who may well have received bonuses in the past financial year, had not performed properly. This was a serious matter that CIDB would have to resolve.

The Chairperson noted that the warning had been duly given.

Mr Gaehler said that some requirements did not assist disadvantaged contractors. One of the requirements for a contractor to be upgraded was that he or she must be in good financial standing. However, most of the lower graded contractors were assisted by development bodies. Also, the assessment of a contractors' past work over only the past three years was problematic, because a contractor may have had major projects earlier than that, and the market appeared to be flooded with larger projects going to the already established companies. Some flexibility was needed for those emerging contractors.

Mr Masango asked if all government departments made use of the CIDB register, and who decided what companies would be given contracts.

Ms N November (ANC) said that she was concerned with the issues on pages 74, 75 and 76 of the Annual Report.

Ms Ngwengwane noted that the definition for “black owned” was that more than 50% of the company was black owned. This was problematic, because in some cases this was a front for white owned businesses. She asked if the CIDB could detect fronting.

Mr Khoza said that fronting was difficult to detect, and the CIDB would only become aware of it if a fellow contractor informed them about it. When CIDB asked companies for details on their ownership, the information would be checked through an organisation that confirmed the information when the contractor was registered. He said that if a company was more than 50% black owned it was still difficult to discover if there was fronting, but contractors were told that they needed to be aware of their rights in joint ventures. This was a serious matter, and a system needed to be developed to detect fronting, not only in the construction industry.

Ms Ngwengwane said that a visit had been conducted to a hospital that was being built in Gauteng, valued at R300 million. One Grade 9 contractor was awarded the tender. Enquiries were made about how many black sub-contractors were being employed, but elicited the response that the project was too complicated for such sub-contractors. This was of grave concern. Government should not be paying so much to those who were already wealthy and advantaged.

The Chairperson said that government had a responsibility to ask who benefited from the funding that it gave. The situation should not arise where the cream of the funding was given to Grade 9 contractors, and, for example, no women contractors could benefit. It was important that the people benefited from not just the money, but from the growth in expertise and training. A mechanism should be built into the process to deal with that matter. It was important to engage with the profile of the Grade 9 contractors because they could take on projects of any size, and there was definitely 'gate-keeping' taking place on that level, but also on lower levels. The matters arising during this meeting must receive further attention at a much more strategic level.

The Chairperson added that the question of the Charter may also need to be revisited, in terms of implementation and that should be noted.

The Chairperson said that it was important to build a credible, representative construction industry, and he believed that this should not take more than approximately five years to achieve.

Mr Khoza said that, for the first time, a strategic plan had been submitted by the end of September, and work had been done on this with the Department earlier in the year. A materiality framework had also been submitted. This would be sent through, along with the strategic and business plans, in the future.

Mr Khoza said that the problem with the lines of responsibility had been fixed. This had affected the Chief Financial Officer’s department and in future the CFO would sign for everything personally.

Mr Khoza said there was a need to hold discussions with stakeholders at a provincial level. This would be addressed after the stakeholder forum, and some of the discussion points would be taken to provincial stakeholders. There was interaction with provinces. Stakeholder Forum membership comprised people nominated by different sectors of the construction industry.

Mr Khoza said that the CIDB also provided guidelines on how projects could be broken up. It would allow a project that was supposed to be done by a higher grade to be done by a number of lower grades, provided that the client agreed. Guidelines were also provided on how projects, such as schools, could be aggregated and given to a contractor, which would allow for easier projects management. This information could be shared with the Committee. The CIDB only gave a license to trade and the people responsible for implementing contractor development were those that awarded projects. He added that the CIDB was going out of its way to capacitate its clients.

Mr Khoza said that the breaking up of projects, as discussed, was how the CIDB dealt with a single contractor taking on a massive project. He said that in a future meeting, the CIDB should explain the potentially emerging (PE) status of contractors, as it was an underused tool in the industry. Client departments were afraid of promising to give support to emerging contractors and then being unable to fulfil that promise.

Mr Khoza said that the CIDB was fully aware of the R787 billion that was going to go to the construction industry, and hoped that his would be unpacked quickly so contractors could become aware of what 'slice of the cake' they would receive.

Mr Nkado said that the issue of excluding black firms on major projects was of great concern. In the building of hospitals, sophisticated skills were required and, for example, complex equipment such as X-ray machines would need to be housed in rooms that were properly built to certain specifications, and properly installed.  However, there were basic tasks, such as the laying of foundations, building partition walls and so forth, also required. In the case of the Orlando Stadium, the city of Johannesburg had required, in its procurement form, which was provided by the CIDB, that the main contractor must involve emerging contractors in the project, and this was monitored in terms of value. In addition to the submission made by the main contractor, the City employed consultants to audit the project. It was important that black firms attained higher levels, but it was also important that people accessed work in order to build a track record.

Mr Nkado said that the Board had constantly reflected on the issues that had arisen during this meeting, especially the empowerment of black contractors. Based on feedback from certain stakeholder groups, the CIDB had scrutinised its grading criteria and had undertaken to use the following two years (at the most) to have a thorough and complete review of the criteria used to measure contractors against the grades. There was also awareness that the industry must not be compromised, and the country must not be exposed to delivery problems in the long term. The Board was also aware of economic employment pressure, and the Board had passed a resolution on this. A proposal was to be made to the Minister to suspend the downscaling of contractors while the criteria were refined. A much more focused look at the CIDB’s intervention, on the development aspect of the industry, would also occur, but this would be done cautiously as the CIDB had also gone far in developing Phase 2 of its Register. This would recognise contractors in terms of health and safety records, successful delivery of projects and advancement. The CIDB would like to link those, as it reviewed the criteria for registration.

Mr Nkado assured the Committee that CIDB was conscious of the responsibility of ensuring that the industry was developed and that delivery occurred. He emphasized that the Board took the AG’s qualification very seriously, and it was committed to achieving a clean audit the next year and in future.

Independent Development Trust (IDT) Annual Report 2008/09 briefing
Ms Thembi Nwedamutswu, CEO, Independent Development Trust (IDT) reported to the Committee on the IDT’s performance over the 2008/09 year.

Ms Nwedamutswu discussed the IDT’s compliance statement. The Executive Authorities statement was discussed and it was noted that the IDT had proudly received its seventh consecutive clean audit report, and that the Annual Report had been endorsed.

The Chairperson's report was then discussed. This noted that the IDT operated in a dynamic and changing environment, had experienced challenges with the executive authority and changes in the Board, and had had its first long term strategic vision approved. The challenges faced were largely out of the IDT’s control.

Ms Nwedamutswu then discussed the Trustees’ Report. The structure of the Board and its responsibilities were explained. The Board had functioned properly, with the attendance of its members. The Committees of the Board were also discussed briefly.

Ms Nwedamutswu tabled and took Members through the financial overview of the IDT. There had been sound financial management practices, and the application of resources according to budget allocations. Under expenditure of 0.85% had occurred during the reporting period. Of the R150 million approved for poverty alleviation, R94 million had been spent.

Ms Nwedamutswu described the review of programme recoverables that had been undertaken. This involved the verification and aging of all programme-related transactions since the 2005/06 financial year. The results were tested and the Board approved the write-off of R57.7 million to appropriately restate the balance sheet. This did not represent wasted resources as clients were satisfied, and this exposure was unlikely to recur.

Ms Nwedamutswu discussed the main fund and other sources of income, including income from the investment of the main fund. The balance was R948 million. The fund performance was monitored by an Investments Committee and there was an increase capacity to recover costs from the public sector. A costing model had also been developed.

Ms Nwedamutswu discussed the IDT’s financial performance. She noted that the 'Mud- Schools' project was of concern, and that funding had been delayed because of challenges in identifying schools.

Ms Nwedamutswu highlighted the IDT’s long term financial sustainability. The IDT had been established in 1990 with a R2 billion grant, and had until 2005 been using the investment income from the balance of the grant to cover its operations. However, the capital base was depleting and the financial sustainability after the 2011/12 financial year was a challenge. The IDT had recorded its future funding requirements with the National Treasury.

Ms Nwedamutswu discussed risk management, where the key players were the Accounting Authority, Executive Management, and the Risk Champions.

Ms Nwedamutswu the presented and went through the CEO’s report in great detail. This had set out the of 11 out of 15 key performance indicators (KPIs) and targets. Social infrastructure delivery occurred mostly in rural areas, with the Eastern Cape accounting for the largest proportion of this. 24 contractors were involved with the 'Mud-School' project and of those, 88% were women. The target for the enrolment of woman contractors in the Contractor Development Programme was exceeded, and 25 women contractors were upgraded on the CIDB grading system. 

Ms Nwedamutswu said that the IDT had received an unqualified audit report, with one emphasis of matter which related to the R56 million. She assured the Committee that that was not a loss.

Ms Nwedamutswu noted that the IDT’s financial statements were fully compliant with the Generally Accepted Accounting Practices (GAAP), that the expenditure base exceeded the revenue generation capacity, which was volatile, and that there was a deliberate thrust to increase cost recoveries on managed infrastructure programmes.

Ms Nwedamutswu was aware that the Committee had not had a chance to see the IDT ‘at work' during that year and extended an invitation to the Members  to visit projects.

Discussion
The Chairperson said that more elaboration was needed on Stage 2 of the Expanded Public Works Programme (EPWP) and on poverty eradication, but congratulated the IDT on its seven consecutive clean audits. He asked if the cost saving strategy could be shared with the Committee. He noted that there were some additional slides shown during the presentation and asked if these could be sent to Members.

Mr Vukani Mthintso, Executive Head: Integrated Development Services, IDT, said that IDT did have a presentation for the EPWP, but suggested that a more detailed presentation could be given at a later point. The IDT was lead by the Department of Public Works on that, but it played a specific role in terms of implementation support. The IDT was initially contracted in July to look at the non-State sector, and the Community Works programme and how these delivered on their targets. The targets amounted to about 20 000 work opportunities. Currently, there had been around 15 500 work opportunities. It was hoped that by December the 20 000 target would be reached.

The Chairperson said that this issue should not be rushed, as there needed to be time for engagement. The Committee would meet with the Department on 3 November, and the EPWP formed part of what the Committee wanted to discuss then.

Ms Nwedamutswu said that the cost saving strategy would be made available to the Committee.

Ms Edith Vries, Executive Head in the CEO’s Office, IDT said that the additional information in the presentation was in the Annual Report. She showed a number of slides depicting the IDT’s improvement in terms of the growth of its business portfolio, and the manner in which funding was distributed amongst the provinces. Of particular concern was a slide showing the distribution of funding amounting to R2.7 billion for the 'Mud-Schools' project, where the NT had distributed funds directly to the provinces. The IDT had only been able to liaise with four provinces on the spending of those funds, and the rest had spent the money elsewhere because the money had been given as part of the Division of Revenue. Pictures were shown of a newly built school in Dalisoka, an area about 60 km from Mthatha.

Ms Nwedamutswu added that it was important that the project began in one of the most depressed areas in the country.

The Chairperson asked who was responsible for approving the anti-poverty strategy.

Ms Nwedamutswu said that it needed to be approved by government, but said that the IDT was involved in the process. There was also interaction with the Provinces and municipalities, as it was critical that a national strategy existed.

The Chairperson asked what the timeframe for this was.

Ms Nwedamutswu said that she had no idea where the process was.

Mr Masango said that having R57 million written off was not good for business, and asked what had been done to recover those funds because those funds reflected overspending by client departments.

Ms Nwedamutswu said that the recovery process for the R57 million had started.

Mr Tom Moir, CFO, IDT said that the programme recoverables was an exercise that management had undertaken in 2008, and that had been used as a tool for enhancing the IDT’s financial processes, as recoverables were an area that could be improved upon. On an annual basis the programme recoverables on the balance sheets were increasing. The item was difficult to detect because the IDT had a rolling balance, due to the fact that it funded all programme related costs out of its own funds, and as and when departments made funding for a particular programme available, the IDT then undertook recovery against those transfers. This exposed the IDT to a number of risks, such as interest exposure and the possibility of default. It was decided that the practice should stop and dedicated bank accounts had been opened. All departmental monies were transferred to these accounts, with all the interest belonging to the Department. Since the old process ceased in June 2008, a detailed new process had begun of analysing all transactions in programme recoverables.

Mr Moir said that that analysis went as far back as 2001, when the balance was taken over from a cash accounting system that the IDT had until then. From a cash accounting system, the kind of information that was needed to convert to a GAAP platform was not necessarily available. There had been some difficulty in the verification of balances that were taken over pre-2001. The IDT had taken all the transactional detail, and had verified that against a number of criteria that were set, prior to making any recommendations to the Board. The AG’s team was involved with the process and supported the criteria as being comprehensive, and putting a fair and objective position to the Board in terms of the potential recovery of the funds. The probability of recovering money that went back pre-2006, in terms of the legal prescription period, was basically zero. Based on this, the IDT came to the conclusion that it was not sacrificing any financial benefit that it might derive in the future, from departments.

Mr Moir said that the money related to book entries and not to physical cash that had been lost in the process. Each and every cent was accounted for in actual programmes delivered on the ground and taken over by the departments involved. This could not occur again. The process had continued since 2006, and the exposure of the organisation was much less than it had been pre-2006, and it had a good and legitimate claim against departments.

Mr Masango said that the strategy plan spoke about R1.5 million, and said that the budget should follow that strategy plan. If other departments were relied on for funding, then targets would not be reached each year.

Ms Nwedamutswu said that the IDT was responsive to infrastructure portfolios because it was appointed by a department, and, in terms of IDT’s mandate, it was a development agency that supported government in the implementation of government programmes. Government would appoint the IDT, for example, to handle R1.2 billion to build schools, which it identified and funded. The IDT had put a target in its corporate plan, which noted that for that financial year it had a capacity to spend so much. If government could not give the budget, then the IDT could not implement the school project. The current scope, and the schools identified in Mpumalanga, were identified and were in the IDT’s order book, but no money was received to implement the project there. This was an unfortunate situation where planning had been done to implement a project, but there were no resources available to execute the project.

Mr Masango noted that eight schools were completed and handed over, and asked where the rest were, as only one was discussed. He was particularly interested in what work had been done in Mpumalanga.

Ms Vries said that the delegation did not have the names of the other schools in Mpumalanga, but four schools that were committed to by IDT had been completed. The names of the schools could be provided to the Committee at a later date.

Mr Masango was unhappy with the money that IDT spent on remuneration, and asked why the CEO received so much. He said the Remuneration Board should come and report to the Committee on that issue.

Ms Vries said that salaries were benchmarked annually against those of similar institutions, and should be viewed in that context. The salaries shown in the Annual Report were a total cost to the company and included medical aid, cell phone allowances and a percentage for bonuses, based on performance.

The Chairperson noted that there were two points on which Mr Masango felt very strongly, but that the point that IDT made was understood.

Ms Ngcengwane asked how many 'mud-schools' there were, how many had been transformed, and how many were left according to the IDTs research.

Ms Ngcengwane noted that the dumping of funding at the last minute by client departments had been a problem in the past, and that this could cause problems in terms of audit reports. She commended the IDT on the number of women contractors and risk management champions.

Mr Moir said that fiscal dumping was no longer a problem.

The Chairperson said that the first question was answered by the 'mud-schools' report.

Ms Madlala noted that the IDT seemed serious about improving the lives of women, and asked what the specific jobs that were given, and whether these were permanent or temporary.

Mr Mthintso said that more was done than mere job creation for woman contractors. There was a focus on gender mainstreaming and ensuring women would get greater opportunities in decision making. The IDT also supported a number of programmes, one of the main ones being the 'Caravan of Development', which in itself employed community workers at the lowest level. The IDT also supported the Progressive Women's Movement of South Africa, which provided a platform for women to engage in decision-making. There was a range of support given to women's groups with the aim of gender mainstreaming. The majority of beneficiaries of projects, and the contractors, were women.

Mr Masango noted on page 21 of the Annual Report that the Chairperson of the Strategic Planning and Programmes Committee was absent more often than the members, and said that something needed to be done about that.

Mr Masango reiterated the request that the IDT send the names of the eight schools to the Committee.

Mr Kekana said that IDT had shown successes in dealing with commercial banks and ensuring that loans were given, and that this could provide a valuable lesson to the rest of the country.

Mr Mthintso said that the IDT was entering into discussions with commercial banks about how to share lessons around that particular area of work, not only with school deliveries, but with human settlements as well. Various models were also being explored that fell within the ambit of cooperative development, dealing with the access to credit, and making available assets work for communities. The cooperative model was one of these.

The Chairperson asked what the nature of the jobs profiled for woman were.

Ms Vries said that work that was done in the infrastructure sector became permanent in the sense that so much funding was available for infrastructure development. Added to this, there were a number of woman contractors that had moved up in terms of CIDB grading, which influenced the value of contracts they could receive and the number of people they could employ. In terms of the Development Caravan, the IDT had given support for the development of a training programme for a category of community mobiliser called 'Social Auxiliary Workers', which was being piloted in Limpopo and KwaZulu Natal, and employed 60 women. Support was given in the form of negotiations, where the IDT would say that the training model that was created was accredited by SETA, demonstrating how people could be used in the eradication of poverty. The IDT also had a poverty relief programme.

The Chairperson said that what was being done for woman was good, but the quality of the training needed to be looked at. The Committee, as part of its oversight, would engage with the IDT on poverty alleviation and would follow up on the strategy in terms of its timeframe. The issue of salaries would be engaged with amongst the Committee members to see whether the remuneration committee should actually be called in. He requested that the IDT send its strategy to the Committee. There were concerns about the vacancy rate of 22%, and this gap needed to be closed as there was a tendency to use this as a cost saving strategy by some, but it was unacceptable in terms of the high level of unemployment in the country. The question of the programme rollout and delays would be flagged as an issue that might require assistance from the Committee to be given. The grading of women had been raised sharply with the CIDB. He requested that the IDT keep the Committee updated on the evaluation process which it was completing

The meeting was adjourned.