Minister and Department of Public Works on 1st Quarter 2011 Performance and governance of entities

Public Works and Infrastructure

29 August 2011
Chairperson: Ms M Mabuza (ANC)
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Meeting Summary

The lack of transformation in the construction industry was strongly criticised when the Department of Public Works briefed the Committee on the four public entities under its control.  Whites still represented over 66% of the professionals engaged in the sector, while emerging black contractors were being frustrated by grading regulations which effectively denied them access to major contracts.

The low level of job creation – 3 873 new jobs in the first quarter, compared to the 35 732 full year target – also came under the spotlight.

The Department’s involvement in the development of alternative construction methods, rather than bricks and mortar, to address the backlog in replacing mud schools and unsafe structures, focused attention on the need to balance the benefits of fast-track service delivery with capital intensive methods that did little to enhance job creation.

The Minister of Public Works said the general pattern that had emerged was that the Department could not spend its budget, and this created problems at the end of the financial year when funds were “dumped”, often on projects which were not important at that stage.  The Department’s role was to create work, and when one saw South Africans walking idly in the streets, one had to ask what it was doing incorrectly. 

She also
criticised the overlap of functions within the entities, the lack of a data base of all state construction projects, and the lack of reliable statistics from the Department.

She asked the Committee to allow her to put her side of the story in connection with the Public Protector’s report into two state leases, but the Chairperson said this would have to wait for a planned joint meeting of the Public Works and Police portfolio committees.


Members complained that the Committee had struggled to get the reports of the entities at the beginning of the year. These had been received eventually only two days before the budget vote of the Department. This was against the Public Finance Management Act and Auditor-General regulations, and did not give Members the opportunity to engage properly. Reports needed to be submitted on time in future so that the Committee’s oversight role was not compromised. Members asked whether the Council for the Built Environment had the human and financial capacity to oversee six professional bodies and agreed with the Minister that “dumping” at the end of financial years was a serious problem, not only nationally but also provincially, and also not only in the Department of Public Works. The Chairperson said the current Expanded Public Works Programme model was not working satisfactorily.

Meeting report

The Chairperson welcomed the Minister of Public Works, the Hon. Gwen Mahlangu-Nkabinde, to the meeting.

Mr Butcher Matutle, Acting Chief Operating Officer, Department of Public Works, said the four public entities covered in the review were the Council for the Built Environment (CBE), the Construction Industry Development Board (CIDB), Agrément South Africa (ASA) and the Independent Development Trust (IDT).   Outlining the expenditure trends for these entities during the first quarter, he reported that the expenditure of R111.1 million represented 17% of the total 2011-12 budget of R647.7 million.  Although there was a tendency for departments to under-spend in the first quarter, this performance was far below expectations.

The Council for the Built Environment was responsible for the transformation of the built environment professions, and had an oversight role in the respect of the councils responsible for engineering, architecture, property valuers, quantity surveying, landscaping, and project and construction management.  Whites still represented over 66% of the professionals engaged in the sector, with blacks making up 24,4%, coloureds 3%, Indian/Asians 6,9% and others 2.5%.  He acknowledged that the Committee had often raised concerns about this imbalance, but gave an assurance that measures were being put in place to ensure there was a fairer demographic representation.  The Built Environment Professions Bill was intended, among other matters, to address the slow pace of transformation, and following consultations with relevant stakeholders, the Department was currently reviewing the draft policy position document to incorporate proposals which had been put forward.

All issues relating to the CBE which had been raised by the Auditor-General had been fully addressed.

The Construction Industry Development Board’s mandate included the promotion of an enabling regulatory and development framework for the effective delivery of infrastructure.  Challenges related to the Construction Registers Service had been raised many times, and would be dealt with in the coming year.

The Independent Development Trust had been appointed by the Department to pilot alternative construction methods (ACMs) in the schools building programme, with a view to speeding up the process of eradicating mud schools and unsafe structures.  However, several lessons were being learnt, the most important of which were that the process was capital intensive, meaning fewer and shorter job opportunities, technology intensive, which required specialised knowledge and training, and the service providers were usually located in major centres, far from the actual construction sites. 

Describing the IDT’s progress to date against its annual targets, Mr Matutle said R546 million had already been spent on black economic empowerment (BEE) projects (annual budget R1.4 billion); R197 million on women contractors and service providers (annual budget R600 million); and 3 873 jobs created (35 732 annual target).  The target for the payment of creditors had been set at 14 days from receipt of invoice, but a turnaround time of 6.4 days had been achieved.  The IDT’s business case, aimed at transforming the organisation to meet the country’s changing needs, had been presented to the executive committee of the DPW, and should be finalised by the end of the second quarter.

Agrément South Africa’s mandate was to facilitate the introduction, application and use of satisfactory innovation and development technology within the construction industry, and had met its service delivery targets to date. 

In the field of governance, the boards of both the CIDB and Agrément had been appointed and inaugurated during June and July, while the call for nominations for the new IDT board of trustees would be published before the end of September.

Minister’s comments
The Minister said she had noted that there were a number of overlaps within the entities.  The CBE, for instance, had a large research unit, which raised the question whether a similar one was needed at the CIDB, or at the DPW itself, as they all were providing advice on the built environment.  She asked the Committee to look into this matter in the interests of reducing costs.

The general pattern that had emerged was that the DPW could not spend its budget, and this created problems at the end of the financial year when funds were “dumped”, often on projects which were not important at that stage.  The Department’s role was to create work, and when one saw South Africans walking idly in the streets, one had to ask what it was doing incorrectly.  She said she was not happy personally with the DPW’s performance at present, and this was a message she would like to convey to the next DPW executive committee meeting.  She was ultimately responsible, and had to carry the brunt of media criticism over non-expenditure of budgeted funds.

While the process of filling vacancies in the Department was going well, she urged that more attention be given to attracting people with disabilities.

One of the requirements of the CIDB Act was the maintenance of a data base of all construction projects run by the State, but this still did not exist.  The importance of such a data base was to highlight which companies were involved in projects around the country.

She expressed concern at the grading procedure at the CIDP, as most of the lower grades were filled by blacks.  This meant none of the major construction projects would ever be in the hands of black people.  She accepted that there needed to be an entry level, but people needed to be able to progress beyond that.  The grading system needed to be reviewed so that transformation was not hindered.

While alternative construction methods would be helpful in alleviating the mud schools problem, when the backlog was eliminated, there should be a return to brick and mortar. 

The last report of the Auditor-General had not been very favourable, and the matters raised needed to be addressed.  Issues of fraud and corruption should not be hidden, and where necessary, state structures such as the judiciary and law enforcement agencies should get involved.

She welcomed the fact that the South African Local Government Association (SALGA) had new leaders, and suggested the organisation should be invited to meet with the Committee or DPW officials to establish where problems with Expanded Public Works Programme (EPWP) allocations existed.

She concluded her comments by warning the Department to ensure it provided the Committee with accurate information rather than what it thought the Committee would like to hear, so that it could fulfil its role of providing assistance where necessary.  She herself did not trust all the figures she was given, and tended to use terms such as “more or less” to avoid being caught out.

Discussion
Ms P Ngwenya-Mabila (ANC) said the Committee had struggled to get the reports of the entities at the beginning of the year, and these had been received eventually only two days before the budget vote of the Department.  She expressed concern that this did not comply with Public Finance Management Act (PFMA) and Auditor-General regulations, and did not give Members the opportunity to engage properly with the entities to understand what plans were being budgeted for, and what needed to be monitored.  These needed to be submitted on time in future so that the Committee’s oversight role was not compromised.

She asked whether the CBE had the human and financial capacity to perform an oversight role over six professional bodies, with the ability to intervene if any of them encountered problems in implementing their mandates.

She sought an assurance that when the DPW reported that all issues raised by the Auditor-General had been fully addressed, this meant that there would be no recurrence of these issues in the future.

She asked the DPW to provide the Committee with more detailed information on the state of schools under construction, such as whether they were at design stage, foundations or roof level, as this would assist with its monitoring responsibilities.

Mr K Sithole (IFP) asked what steps the DPW was taking to improve transformation in the building industry.
He said that it was known that Grades 2 and 3 were dominated by blacks, but how many made it through to Grade 9?  The 3 873 jobs created against the 35 732 full year target did not seem very good,

Mr L Gaehler (UDM) agreed with the Minister, that “dumping” at the end of financial years was a serious problem, not only nationally but also provincially, and also not only the DPW, but departments such as Education and Health as well.  This needed to be taken up at MINMEC level. 

He suggested that the CIBD policies needed to be reviewed, as construction was a cyclical business and contractors did not have continuous work guaranteed.  Small contractors consequently struggled to meet the CIBD financial reporting requirements, and were downgraded – even though the lack of work was not the contractors’ fault.  This ensured there would be no growth in the emerging contractor sector.

He criticised the fact that there had been no transformation in the professional bodies falling under the CBE, and said new legislation was needed to address this situation.

He expressed reservations about the use of alternative construction methods to deal with the schools backlog, as they were not tried and tested, would not last indefinitely, could be difficult to repair, did not create new jobs and involved the transportation of materials long distances from urban to rural areas.  Brick and mortar was a better alternative, with the added benefit of providing work for emerging black contractors.

Ms N Madlala (ANC) asked what monitoring process was employed by the IDT to monitor wage incentives to non-State sector entities, because some did not comply with the requirements of the programme.

Mr P Mnguni (COPE) said he would have preferred the Committee to have engaged with the entities on a direct basis, rather than through the DPW, to whom they reported.  The DPW was passing on what they had been told by the entities, but this information was often contradicted when members of the Committee were confronted with stories of poor performance by entities when carrying out oversight responsibilities among communities.  By the same token, its was not up to the Department to vouch that the issues raised by the Auditor-General at the entities having been fully addressed – the entities needed to speak for themselves, so that they could be held accountable.

He described transformation in the construction sector as a “
pipe-dream,” with the CIBD acting as a door-keeper to regulate the movement of contractors in grades 2, 3 and 4.  He gave the example of grade 3 and grade 4 companies combining their resources to win a tender, but being downgraded to a Grade 2 by the CIBD.  He accused the entity of putting transformation into reverse gear, instead of moving forward.  The Engineering Council of South Africa (ECSA) had refused to sign a memorandum of understanding with the CBE as it was “earmarked for previously advantaged individuals,” and newly qualified black engineers had no prospects.  He suggested that the role of these entities should be reviewed, particularly as the bulk of their budgets were spent on salaries, rather than projects.

Ms C Madlopha (ANC) also expressed concern over the slow pace of transformation in the built environment, and in this regard, it was important to get clarity on the status of the CBE Bill.

She said the use of alternative construction methods posed the dilemma of whether priority should be given to fast-track service delivery, or to job creation.  In her view, service delivery was key.

Ms N November (ANC) asked the Department to provide a detailed list of the offices of its entities, at both provincial and regional level, so that members to the Committee could refer problems unearthed during oversight visits – for instance, the use of inferior materials for building houses – to the responsible entity.

The Chairperson said the current EPWP model was not working satisfactorily, and it had been agreed at a recent portfolio committee meeting that the DPW would be asked to liaise with the National Treasury and come back with a better way to make it work, but so far there had been no response.  The DPW had also been asked to organise a workshop with municipalities to discuss the EPWP, and again, there had been no response.  There had also been no response to a memorandum from contractors in the Eastern Cape, which had been forwarded to the DPW from the Committee.

She said the Committee needed to be informed of the steps being taken by the DPW on climate change, as Parliament had requested last week that all departments must submit their plans.

She endorsed the Minister’s comments regarding the accuracy of figures presented to the Committee, saying this was a serious problem as far as the DPW was concerned.

Mr Matutle said a wide variety of issues had been raised, and it would be necessary in many instances to get feedback from the entities concerned to ensure an accurate response.

The failure of certain entities to meet their reporting deadlines had been noted, and the Department would be following up strongly to ensure this did not happen in future.

He undertook to provide the Committee with details of the Department’s expenditure in the area of transformation, and while there had been marginal improvements in the demographic breakdown of the built environment in favour of blacks, coloureds and Indian/Asians, he agreed that far greater inroads needed to be made.

He said the DPW needed to look into the impact which alternative construction methods was having on job creation.  Speedier construction meant that jobs were not lasting the 100 days needed to claim incentive grants.  He also felt that although specialised materials were involved, it should be possible for black entrepreneurs to manufacture some of the materials used in these projects.

Lists of addresses and the names of key employees at provincial and regional offices of the entities would be forwarded to the Committee.

In response to a query regarding the training of women in the construction environment, he said the industry had traditionally been male and white, and the focus of training the women had been mainly on financial and project management.

The EPWP model problems had been robustly discussed at a meeting with National Treasury, where the challenge of too few claims being received from the provinces and municipalities was highlighted.  Feedback on some of the proposed changes would be made soon. 

At the moment, the IDT had been given the responsibility to monitor wage incentives to non-State sector entities, as well as compliance issues, but more detail would be provided to the Committee at a later date.

The concerns over the accuracy of figures presented by the Department were being taken very seriously, and improvements would continue to be made.

Mr Matutle gave an assurance that the issues raised by the Auditor-General at the CBE would not recur, as careful monitoring would ensure no problems would arise in future.

He said the lack of black representation between Grades 5 and 9 was a serious problem, and agreed that contractors suffered downgrading when they were unable to land contracts.  The financial requirements needed to be reviewed.

Mr Gaehler said black contractors’ bank balances should not be used as a tool by the CIDB to determine their grading, and a change of policy was needed.

Mr Devan Pillay, Chief Director: Construction Policy Development, DPW, said the CIDB was aware of the number of challenges facing it, and for the past 18 months it had been engaging with the emerging sector to address their concerns.  This would lead to the roll out of contractor development programmes in all provinces during the next six months.

He pointed out that the contractors’ register was a risk mitigating tool, ensuring only capable contractors were allowed to handle big contracts.  However, he agreed that above Grade 6, there was no transformation, and the Department was meeting with the industry to see how black representation could be boosted in Grades 7 to 9.

As far as the CBE Bill was concerned, further discussions had not resulted in any major change in the policy position, and the document would be finalised within the next few weeks.

The Minister said it was important for the entities themselves to be present at portfolio committee meetings, as unanswered questions meant more meetings were needed, and this was costly and time-wasting.

Referring to the climate change issue, she said the DPW had been mandated to pilot energy-efficiency programmes at state buildings, to set an example for the country to follow, but there had been no action yet.

The Public Protector’s Report
The Minister said she wanted to raise the issue of the Public Protector’s report on two leases, so that Members could hear her side of the story.  She had wanted to do so a month ago, but the President’s decision to refer the matter to Parliament had prevented this, and this was proving a great disappointment to her.

Several members said the issue was not on the agenda, and it was inappropriate to consider the matter, although Mr J Steenhuizen (DA) felt the longer the matter was delayed, the more it appeared as if something was being hidden.

However, the Chairperson pointed out that it already been agreed that the matter would be discussed at a joint meeting of the Public Works and Police Portfolio Committees, and only the date of the meeting needed to be finalised.

The meeting was adjourned.


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