Independent Development Trust (IDT) follow-up briefing

Meeting report

Introduction
After introducing members of the Independent Development Trust (IDT) delegation to the Committee, Ms Pumla Radebe, Chairperson, IDT board, said the main purpose of the briefing was to address issues raised at the Committee’s meeting in November last year, as well as matters arising from the IDT’s subsequent responses.

Financial sustainability
Ms Thembi Nwedamwutsu, Chief Executive Officer (CEO), IDT, said there were three interdependent pillars on which the long-term sustainability of the institution were based.  These were financial sustainability, institutional integrity and the relevance of its mandate.  Key among these was its ability to remain relevant and efficient, by adding value to the country’s development priorities through programmes focused on the eradication of poverty.  Since 2005, it had used its resources to deliver its mandate, investing in innovative models of people-centred development and creating success stories for poverty eradication, and it had accepted that over time this would result in its capital base being eroded, as developmental interventions could not generate income.  This approach was adopted on the basis that the success of its programmes would guarantee the recapitalisation of the IDT.  However, the IDT had received no funding from Government since a grant of R2 billion in 1990, and with interest rates declining and expenditure increasing, only R465 million remained at the end of 2010. 

The IDT was addressing the financial sustainability challenge with a two-pronged approach.  The immediate/ short-term approach was to secure funding to maintain its operations over the 2011-13 Medium Term Expenditure Framework period, while the long-term strategy was to finalise a business case on a sustainability model which would include a restructured corporate form, and which would require a legislative process.  In the meantime, the IDT had been allocated R150 million of the R200 million requested for 2011/11. 

Ms Nwedamwutsu concluded her presentation by reaffirming the IDT’s mandate and strategic vision was directly aligned to the social policy priorities of the Government. 

Remuneration issues
Ms Radebe addressed the issue of the remuneration of board members and salaried executives, in response to a request from the Committee to provide a clear and detailed report on the matter.

She said before 2007, board members were  paid at an hourly rate.  They were now paid a base fee, plus a fee per board meeting or committee meeting.  These fees were based on comparative business models, and were market related.  Since 2008, there had been no increase in these fees, and it might therefore be necessary to do a new bench-marking exercise for 2011 fees.

As far as executive remuneration was concerned, the IDT’s strategy was to retain competent and skilled practitioners, and to relate their remuneration to market conditions, taking into account organisations of similar size, with a similar mandate and a comparable business model.  Salary levels were based on job descriptions and incentives were based on performance.  Remuneration costs had been managed within the IDT’s budget constraints.

Ms Radebe said the Consumer Price Index (CPI) was a guideline measure for determining annual increases.  Executive increases during the past three years had been 11%, 3.9% and 5% compared to the CPI increases of 11.5%, 7.1% and 4.3%.  New benchmarking would be related to the proposed restructuring programme.  Performance bonuses were designed to engender a culture of performance, although bonuses were not guaranteed and were paid at the discretion of the board.  Performance targets were based on a scale of 5, and any employee not achieving a score of at least 3.1 did not qualify for a bonus.  She said bonuses varied from a minimum of 15% to a maximum of 45% for the CEO, and from 8% to 25% for the lower management band.  She said that bonuses paid at other entities varied from 50% to 260% for a performance rated above the 3 level.  During 2010, the IDT’s executive performance bonuses varied from 26% to 36% (CEO).

Discussion
Ms C Madlopha (ANC) said it had been indicated that executive salaries were based on benchmarking with institutions of a similar size.  How many people were employed by the IDT, and what percentage of the operational budget did their salaries represent?

Mr Ian Ellis, Chief Financial Officer, IDT,  said there were 410 to 415 permanent and contract staff, whose salaries made up 55% of the budget, plus about 120 programme specific staff whose salaries were funded by the relevant government agencies.  While 55% might be considered high, it should be remembered that the IDT sold skills, and should be looked at in this context.

Ms Madlopha commented that she felt 55% was too high, and more funds should be allocated to service delivery.  She also said a performance of 3.1 on the scale of 5 might indicate a 60% level of achievement, and people were employed to deliver 100%, so bonuses should be paid only above the 100% level.

Mr L Gaehler (UDM) said he was concerned that last year the CEO had earned over R3 million – more than the President of the country – while the IDT was short of funds.  More research was necessary to verify the figures which had been presented to the Committee.

Ms Madlopha said the total remuneration package of over R3 million, including salary, travel allowance and bonus, was unacceptable to the Committee. 

The Chairperson said it was incomprehensible that the CEO should receive a higher salary than the person who was responsible for the funding of the IDT.

The Chairperson said she had seen a schedule of Directors-General (D-G) annual salaries in the City Press,  Sunday, 20 March 2011, and they were all in the region of R1.3 million.  She suggested that, if the IDT viewed itself as an extension of Government, its remuneration packages should be in line with those of Directors-General. 

Ms Radebe agreed that the IDT represented Government, but the mandate had always been to focus on community development, and to consider the “public good” rather than the “bottom line.”  She believed the quoted D-G salaries represented only the cash portion, whereas the IDT figures were a total package.  She said she would study the City Press article.

Mr Gaehler said his understanding was that while the IDT implemented programmes on behalf of Government departments, the programmes were actually managed by consultants, under the direction of the IDT.

Ms Radebe said the IDT’s skilled personnel were needed to monitor the performance of contractors, while Mr Ellis commented that the IDT’s involvement ensured local material sourcing and the employment of local labour.

Ms P Ngwenya-Mabila (ANC), Ms Madlopha and Mr Gaehler all expressed concern at the IDT’s benchmarking process, and the Chairperson agreed that as the IDT admitted it was an extension of Government, it needed to explain why it had benchmarked with the private sector, rather than Government institutions. 

Functions of the CEO
Ms Nwedamwutsu started a presentation on the role and functions of the CEO, as requested by the Committee.  However, as the Committee had not been provided with advance documentation on the subject, she was cut short by the Chairperson, who asked Members of the Committee whether the presentation should continue.  Members of the Committee agreed that the presentation should be deferred to a later date.

Eradication of Mud Schools
Mr Ayanda Makaba, IDT Executive, said the IDT had briefed the Committee on 01 March 1 2011, on the subject of mud schools, and he would address two issues raised at that meeting.

One question referred to the specific location of IDT projects, and this had been conveyed in lists included in the package supplied to members of the Committee.  Also included was a list of the many schools constructed in the past two years across the country.

The other matter involved the challenge over the payment to service providers in the Eastern Cape within the required 30 days, as a result of budget deficits in that province.  This had resulted in delays in the transfer of R40 million to the IDT, which had negatively impacted on its ability to pay the service providers.  Negotiations since the beginning of the year had resulted in progress, and the Eastern Cape Department of Education had now approved the transfer of all outstanding funds, which should start reaching the IDT this week and enable service providers to be paid.  Unfortunately, the non-payment of service providers had resulted in the IDT incurring legal costs, where companies such as Ginaker/LTA had served letters of demand for outstanding fees.

This would be remedied with the arrival of funds from the Eastern Cape.

Discussion
Mr M Rabotapi (DA) asked how many jobs were being created as a result of the IDT’s development programmes in the rural areas.

Mr Makaba said the IDT had a job creation target of between 35 000 and 40 000 a year.  In addition to this, under the Expanded Public Works Programme (EPWP), the IDT was the implementing agent for the non-State sector, where there was a target of creating a further 12 000 job opportunities.  These were focused mainly on the rural areas, where the bulk of the IDT’s programmes, such as schools and other social development initiatives, were located.

Ms Madlopha said the IDT report dated 30 January indicated that in the Northern Cape and Free State, no programmes were implemented by the Department of Basic Education since 2008, and none were planned for 2011.  Later in the report, however, it stated that seven projects were reaching completion in the Northern Cape.  She asked for clarification.

Mr Makaba said the apparent contradiction was due to the fact that one part of the report referred to Treasury-funded programmes, and the other to IDT programmes.

Ms Madlopha said there appeared to be inconsistencies in the cost of building schools in different areas.

Mr Makaba said the costs shown did not necessarily refer to the building of complete schools.  There could be additions, alterations or upgrades to existing schools.  The type and size of schools being built also influenced costs, and this was determined by the various provincial authorities.  He said the standard cost of building a small school was R5 million, a 600-learner school cost R15 million, and a 1 000-learner school cost R25 million.
The average cost of a 60 square meter classroom was R24 000, but the overall cost of a school was influenced by such factors as site works, ablution facilities, sick rooms, administration and IT facilities, laboratories, kitchens and sports fields.

Mr Gaehler asked when the outstanding payment to service providers would be finalised, and whether interest would have to be paid.

Mr Makaba said the IDT had been told the funds had been transferred last Friday, and payment would be made as soon as this was confirmed.  He added that in certain instances, the payment of interest would apply.  However, the smaller emerging contractors were generally loath to apply for interest for fear of damaging their prospects of obtaining future work.

The Chairperson raised the apparent underspending on schools in KwaZulu-Natal in 2008/09, where R60 million had been allocated, and only R34,9 million had been spent.

Mr Makaba said the balance of the money had been “rolled over” and spent in the following year.  He said the IDT often faced the problem of  the late transfer of funds, or of client Departments “dumping” funds between January and March, making it difficult to meet their targets within the reporting period.

Ms Madlopha said delays in completing work on schools could be caused by giving individual contractors too much work, so that they were unable to cope.  She also asked whether the target to complete 2 350 schools by 2014 was realistic.

Mr Makaba said the IDT had a good system for spreading the work load through a decentralised system, to ensure contractors were selected from the relevant areas.  Experience had shown that overloading created problems, and the system was designed to overcome this. 

He said the 2 350-school target was not an IDT target.  The initial R2.7 billion mud schools programme expired at the end of 2011, and the Government had allocated a further R8.2 billion for the period 2011 to 2014.  This amount had been allocated to the national Department of Basic Education, and this was the target in the campaign to eradicate mud and other inappropriate school structures.

Mr Gaehler asked whether the IDT’s programmes incorporated a maintenance plan for schools.

Mr Makaba acknowledged that the lack of maintenance posed a serious problem at schools, but the IDT did not have the power to specify maintenance plans.  However, it was using its presence as an implementer to influence government entities in this regard.

Ms N Madlala (ANC) expressed concern about the problems confronting emerging contractors, and asked whether the IDT employed consultants to help them become more efficient and productive, or was it simply a question of more emerging contractors being needed to spread the load.

Mr Makaba said that the IDT procured well over 80% of its work through emerging contractors – and in the school building projects, this would be close to 99%.  Where big projects of over R50 million were involved, like hospitals or courts, major construction companies had to be used.  The IDT had a target for the development of emerging contractors, including a specific programme for women contractors.  A development programme had been established, which involved an IDT team identifying problems among emerging contractors, and assisted them either directly or through other agencies.

The Chairperson thanked the IDT delegation, and asked it to submit a table of the schools to be built and upgraded to the Committee.  The IDT transformation programme presentation would be deferred to the next meeting.

The meeting was adjourned.