Provincial Departments of Health on Over- or Under-Expenditure on Hospital Revitalisation Grant: Public Hearings on Challenges Raised

Meeting report

National Treasury Presentation
In his presentation, Mr Edgar Sishi, Director, National Treasury, said that, as at 31 December 2009, provinces were projecting to under-spend on the total Hospital Revitalisation Grant by R535 098 000. Year-on-year growth for this period stood at -1.2%. As at 31 March 2010 provinces had, however, under-spent by R944 650 000. As the end of June 2010 provinces were projecting to under-spend by R133 588 000. In relation to overall health expenditure, provinces were projecting to spend 39% of the total budget. Of the R8.838 billion allocated for capital expenditure, provinces had projected to spend R2.579 billion (or 29.2%). Spending here had seen a year-on-year growth of -2.2%. As at the end of August 2010 provinces were projecting to spend 30.4% of the allocated budget. The quarterly reports submitted by provinces were found to inadequate and lacking in detail around timeframes and the reasons for delays. Many hospitals experienced delays and significant variation orders as a result of poor planning. The poor performance of contractors impacted negatively on both the quality and timely completion of projects. The planning of projects did not take full account of the cost and procurement of equipment and maintenance. The national department also needed to enhance its monitoring and evaluation, with project sites needing to be visited at least twice a year.

Discussion
Mr C De Beer (ANC, Northern Cape) asked which national department should enhance its monitoring and evaluation.

Mr Sishi answered that, though the grant sat on the budget vote of the national Department of Health, the Department of Public Works was also involved in this regard. The main responsibility here however rested with the Department of Health.

Ms Dorothy Mahlangu, Gauteng MEC for Health, said that in order to improve the quality of the reports submitted, these should not be submitted before they were signed and approved by the relevant MECs.

Briefing by the Minister of Health
In his briefing to the Committee, the Hon. Mr Aaron Motsoaledi, Minister of Health, bemoaned the fact that the Minister of Public Works was not in attendance at the meeting. As very little had changed over the past sixteen years, changes would need to be effected soon. Infrastructure formed part of the Department’s 10-point plan and was, as such, one of its major priorities. It had therefore agreed to establish an Infrastructure Unit which would be headed by engineers. Part of this Unit’s responsibilities would be to undertake a diagnostic look at what went wrong in the effective delivery of health infrastructure as well look at possible ways forward in this regard.

Mr. M Shaker, Head of Infrastructure Unit, Department of Health, added that although Health Revitalisation Programme projects made up only 19% of the Department’s total projects, it made up 45% of its total budget.  The fact that 610 projects were at retention phase and 210 projects had been cancelled showed poor project management. It had been found that there was also limited technical capacity as well as limited capacity on the part of implementing agents. There were also high cost and time overruns at project level. A synopsis of current deficiencies included poor management of professional service providers, poor management of implementing agent, inadequate norms and standards, poor input into quality planning, design and specification, frequent and costly changes on the scope of works and poor quality and quantity of project spending.

Deficiencies on the part of the Department of Public Works included poor input into quality planning, design and specification, inadequate project management, poor and lengthy procurement processes, abandonment or non-closure of many projects and the fact that the state was always the loser in fee negotiations with professional service providers.

Problems around infrastructure included under-expenditure doubling every year, providers being rewarded for poor performance, the need for site visits to be undertaken by Provincial Projects Progress Review Committees.

Discussion
Mr M Makhubela (COPE, Limpopo) asked whether there was any point in continuing the meeting given that the Minister of Public Works was not in attendance.

The Chairperson responded that the Department of Public Works was consistent in not attending meetings called by the Committee. Although the Committee had been assured that the Minister would be in attendance, this was not the case. The Committee would engage with the Chief Whip around securing a meeting with the Minister and other representatives of the Department.

A representative of the Gauteng Department of Public Works said that professional fees should be capped at 15%. National Treasury also needed to be engaged around finding out what the norms were in relation to pricing. Projects needed to be sped up in line with budgets. Added, cash flows were unrealistic.

Ms Mahlangu said that all provinces should be given a chance to complete all incomplete projects. Why was the Department of Health obliged to use the Department of Public Works as its implementing agent and not, in the case of the latter Department not delivering or performing poorly, approach the private sector?

Mr Motsoaledi responded that there was no law which obliged provinces to do this. If it was felt that the Department of Public Works was either underperforming or incapable of delivering, then it was the prerogative of the relevant provincial Department of Health to source another implanting agent. Health MECs across all the provinces as well as Ministers of other relevant Departments would soon be called to sign performance agreements with the President in order to address the issue of poor performance in this regard. Added, if provinces could not spend their allocated budgets, these unspent monies would be transferred back to the National Treasury.

Mpumalanga Department of Health Presentation
Mr J Mahlangu, Head of Department, Mpumalanga Department of Health, said that the province currently had three projects under the Hospital Revitalisation Programme, none of which were complete. These projects faced challenges mainly in the form of variation orders and contractors being issued with penalties due to poor workmanship. In order to address these challenges a joint task team had been established between the provincial department and the provincial Department of Public Works at both MEC and Head of Department (HOD) levels. Each project was also overseen by its own steering committees which, in turn, were made up of both departments. Appointments were done according to the Division of Revenue Act, site visits were regularly undertaken and monthly and quarterly reports were submitted to National and Provincial Treasuries as well as the National Department of Health. Joint responsibility was also taken in instances where there were variation orders. Some of the challenges still being faced included slow spending, performance monitoring and variation orders. Although these challenges still existed many improvements had resulted out of the establishment of the joint task team.

A representative from the Mpumalanga Department of Public Works added that 8 out of twenty projects had been completed. Weekly meetings were undertaken in order to alleviate this backlog. Individual programmes were revised in order to provide timeframes by when these projects were to be completed. Though these timeframes had not as yet been finalised, details around this could be provided to the Committee if requested to do so.

Discussion
Mr Motsoaledi congratulated the province on their performance though asked for the speedy completion of certain projects.

Gauteng Department of Health presentation
Ms Mahlangu said that the Department held weekly meetings with the provincial DID in order to gauge the progress of projects. Weekly meetings were also held in order to look into the issue of invoicing. The Department was confident that this collaboration would see it spend 100% of its allocated budget. Site visits were also undertaken by officials and project teams. The resident engineer and technical assistance team which assisted the Department also went towards ensuring adequate healthcare infrastructure.

Discussion
Mr Motsoaledi said that he was satisfied the province had systems in place to deliver in this regard. The only outstanding issue which needed to be addressed was that of monitoring. The issue of payment and invoicing would also be included as part of the performance agreements to be signed with the President.

North West Department of Health Presentation
In his presentation Mr Vuyo Mbulawa, Acting Head of Department, North West Department of Health, said that the province had requested a budget adjustment of R111 million in order to cover the costs of projects. The Vryburg hospital project had been problematic in that sub-contractors and consultants had underperformed. One of the contractors had claimed time-delay costs of R24 million. This was being disputed by the Department as it was the responsibility of the Department of Public Works to manage their performance. The Brits hospital project had also seen a complete stoppage as a result of the contractor going under liquidation. A settlement agreement entered into by the Department of Public Works and a service provider had resulted in a contractor claiming R26 million. This was also being disputed by the Department as the Department of Public Works should be liable for this too. The provincial Department of Public Works had initiated a project that sought to reclaim its mandate. This was being opposed by the Department.

Discussion
Mr Motsoaledi said that the contracts should be renegotiated in order to avoid potentially lengthy and costly legal battles. Mr Shakir could assist the Department with these renegotiations.

Ms Mahlangu said that the fact the Brits hospital project was incomplete was affecting services at certain Gauteng hospitals as these were overcrowded.

Mr Mbulawa said that these legal battles had arisen as a result of those projects being implemented by the Department of Public Works. The problem came in when service level agreements were entered into and expecting the Department to pay. The service level agreement the Department had tried to enter into between it and the Department of Public Works was not working effectively. It was therefore working on building capacity internally so as to implement projects itself. The Department welcomed the suggestion of working together with Mr Shaker.

The Minister of Health said the National Department would be playing a bigger oversight role when it came to monies being paid out in such instances.

KwaZulu-Natal Presentation
Ms Maggie Govender, MEC for Public Works, KwaZulu-Natal, said that the two provincial Departments had, for some time, been working together on the Hospital Revitalisation Programme.

A representative of the Department of Health added that as spending on projects had been slow the Department had revised its budget. Six of its 11 projects were currently off the ground. Some of the challenges faced with projects included variation orders, appeals and rescheduling. The revised budget would see that the Department spent its entire budget.

A representative of the Department of Public Works said that each projects had a joint project management team. Steering committee meetings were held quarterly and Department of Health held weekly meetings around the progress of projects. For the 2010/ 11 financial year there had been no termination of contractor contracts. If however a contractor was found to be underperforming or delaying a project, penalties were imposed. Although delays experiences as a result of tender appeals had resulted in under-expenditure, these issues have been resolved. The terms of appointment of professional service providers was also being reviewed. Project managers were also being introduced to manage professional disciplines within the various projects in order to eliminate conflict of interest and other risks. The two Departments submitted joint monthly reports to the Department of Health and other implementing agents. Capacity constraints within both Departments included the lack of project management systems. These constraints were however being addressed.

Discussion
Mr Shaker said that the appointment of a separate project manager could potentially be more costly. Project-based cash flow needed to be monitored vigorously.

Limpopo Department of Health Presentation
A representative of the Limpopo Department of Health said that some of the challenges the Department faced included the high volume of complex health infrastructure projects versus the limited pool of professionals, compromise of on-site supervision, turnaround time at procurement and contract termination levels. Capacity constraints within the Department of Public Works included many consultants not registered with the relevant council. Monitoring was executed by various dedicated personnel. Although the performance of contractors and consultants was managed by implementing agents, there were still some issues around underperformance. There was also inconsistency in the reports submitted by both Departments. The conditions of the grant needed to be reviewed in order to allow for internal flexibility.

A representative of the Department of Public Works added that Clerks of Work were permanently on site at all the various projects, whose duty it was to oversee the progress of these projects. All consultants and project managers were registered with the relevant council.

Discussion
Mr Motsoaledi asked why there were conflicting reports of consultants not being registered.

The Department of Health representative answered that project managers were qualified but not as yet registered with the relevant body and were currently working for the Department of Public Works.

Mr Masoziwe asked what was meant behind the need for internal flexibility.

The Department of Public Works representative answered that stringent processes had to be followed and approved at national level which was a lengthy process. If this was reviewed, approval could be done at provincial level. These issues have been highlighted to the National Department of Health and were being addressed.

Mr Motsoaledi said that according to the PFMA, Accounting Officers were allowed 8% flexibility. Any additional flexibility needed approval at national level.

The meeting was adjourned.