SA Bureau Standards & National Regulator for Compulsory Specifications: Annual Reports 2010/11

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Trade and Industry

11 October 2011
Chairperson: Mr B Radebe (ANC)(Acting)
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Meeting Summary

The South African Bureau of Standards (SABS) presented its Annual Report 2010/11, noting that it was now 66 years old and that the majority of its funding was received from the Department of Trade and Industry. It was stated that there was still some confusion in the minds of the public about the functions of the SABS and the National Regulator for Compulsory Specifications (NRCS), but it was clarified that the SABS mandate dealt with development of national standards, testing, certification and training. The NRCS, on the other hand, dealt with regulations and compliance with those regulations, and this function was assumed by the NRCS in 2008. In 2002, the standards were renamed as “South African National Standards”, to emphasise that they were not necessarily SABS-owned. SABS cooperated closely with the International Standards Organisation. SABS stressed that there should be one-time testing according to clearly formulated models, so that a product should not be “shopped around”. Standards of the SABS aimed to support the Industrial Policy Action Plan. It was embarking on a five-year plan, and needed to make substantial investments in new equipment to keep it up to ate. Training was done internally and externally. Some of the programmes it had instituted were outlined. It was aware of the need to improve its customer interface, to ensure that standards were not necessarily simply aligned with international standards, but that actual relevance to South Africa was considered, and to make more attempts to serve small enterprises. It had built new laboratories in the last year, but was still busy with further building, modernisation, and the capital upgrades,whilst it wanted to further improve the role and credibility and desirability of the SABS mark. SABS had achieved a clean audit, had made a higher profit than expected, and would continue along the new strategic direction to ensure that it served the public. Members were appreciative of the honest approach that took account of areas of weakness, were pleased to note assistance rendered to small enterprises, asked if SABS played a role in other countries, and questioned why its office in China had been closed.  They asked about relationships with other entities and how it would ensure that its mark was not placed on inferior products. They called for further clarity on the one-off testing, and asked if it was now adopting a stronger stance to infringements.

The National Regulator for Compulsory Specifications (NRCS) presented its Annual Report 2010/11, stressing the differences in mandate between itself and the SABS. It had been established in 2008, and although it was a local regulator, it focused also on imported, manufactured, sold, and some exported products. It liaised closely with the customs function in South African Revenue Services (SARS), and in this regard noted the growing trend that products imported might be coded one way, yet the content of the container showed that they should have been coded differently. The NRCS was not the only regulator for technical specifications. It had 60 compulsory specifications and 4 technical regulators. It primarily was responsible for administering and enforcing the regulations under its jurisdiction, and the business model set out various ways in which this would be done, including  approval, inspections, sampling and testing, and enforcement, including taking various forms of corrective action and notifying the media and public. Some of the infringements and corrective actions taken in the year were outlined. It had thirteen projects that supported the Industrial Policy Action Plan (IPAP). It had finalised the names of individuals to serve on the Advisory Forum. NRCS, as part of the Technical Infrastructure, engaged in regional and international participation. Some of the challenges it faced included the need to upgrading the IT system, and the need to fast-track competency development programmes for staff. It had achieved 57 572 inspections, was actively building new markets, but had fallen behind on its targets for timeous responses to requests for pre-market approvals. Its scope of accreditation was increased and it was registering companies trading in regulated goods. It had achieved an unqualified audit, although there was comment on certain legacy procedures on contracts, and non-compliance. It had a total income of R149 million and currently had a surplus of R26 million. The staff complement was set out, showing that it still needed to improve its gender demographics. Members asked what action would be taken in respect of harmful products, when testing would take place, questioned the comments of the Auditor-General in relation to the contracts, asked if the vacant posts were filled or still presented a challenge, and asked about the bonus payments. Members were still of the view that more stringent results should follow in respect of imports that were non-compliant or had entered the country illegally or irregularly.

 

Meeting report

\South African Bureau of Standards (SABS) Annual Report 2010/11
Members nominated and appointed Mr B Radebe (ANC) as Acting Chairperson.

Dr Bulie Mehlomakulu, Chief Executive Officer, South African Bureau of Standards, tendered an apology from the chairperson of SABS because he had another long standing commitment. He noted that the South African Bureau of Standards (SABS) was 66 years old. It received funding from the Department of Trade and Industry (dti), but there was still some confusion about its mandate and some misperceptions of possible duplication with the National Regulator for Compulsory Specifications (NRCS).

The mandate of SABS was, however, quite clear. Its core functions were to develop national standards, to do testing, and certification (with the SABS Mark), and to undertake training. SABS was a Public Finance Management Act Schedule 3B entity. About 77% of its total revenue came from a government funding grant. It was well known and held in high esteem internationally, and its affiliation with the International Standards Organisation (ISO) enabled the SABS to have a strong connection with other standards bodies worldwide.

Dr Mehlomakulu said that a lot of the standards had originated between the 1940s and 1980s, when the work of the standards authorities was supported handsomely by the State. After 1990 there was a bigger drive to commercialisation to drive the value chain. After 1990 this had created some uncertainty and SABS lost some expertise and technology cohesion to an independent entity. In 2002, there was a call for the standards to be referred to as South African National Standards (SANS), to ensure openness and that the standards should not be SABS-owned. In 2008 there was an undertaking that the regulations functions be removed from the SABS to an independent entity.

SABS had a strategic priority of ensuring that there was trust in the value-added standardisation and conformity assessment services by equivalent peer organisations. It sought to achieve confidence by ,both domestic and foreign markets. The standards should support the Industrial Policy Action Plan (IPAP). There should be growth to support sustainability of SABS services. The SABS thus aimed to have a product tested only once, through a fixed format. It had worked with the dti to fast track standards in the IPAP process.

In the 2010/11 year, SABS embarked on the first stage in implementation of the five year strategy to 2016. It needed to reinvest in boosting revenue. Some complaints were made through dti that SABS was partially engaging in testing of products from abroad. It would have to invest in more expensive equipment, to maintain its relevance and own capabilities, and to ensure that it was doing the testing, rather than private firms (some of whom comprised former employees of SABS). Its training was done both internally and externally.  There was a specific methodology to setting standards, and a consciousness that the standards must develop the economy

The SABS embarked on a baseline assessment to highlight some programmes that would be geared to establishment of the SABS Academy. It had looked into implementation of the Enterprise Project Management Office (EPMO) and also looked into having a centralised customer service interface, in view of the fact that it recognised that in the past, SABS had showed a poor culture of service, and had been arrogant. It was also recognised that SABS should be reaching out to small, medium and micro enterprises (SMMEs). Slow turnaround times – especially on solar heaters – had been a problem. It was necessary to have better laboratory implementation management systems (LIMS).

The performance scores against the business plan were set out (see attached presentation for details). Mehlomakulu highlighted that not as many SANSs were produced as targeted, because there had been a shift in focus from quality to relevance. Although it had aligned with international standards, the alignment was not necessarily measured against standards that would directly benefit and achieve growth in South African industries. SABS was working on an IT tool to assist in new tools for delivery on time.

Ms Elis Lefteris, Acting Chief Financial Officer, South African Bureau of Standards, tabled the income statement. She noted that the SABS had generated commercial revenue (or external revenue) of R394.55 million, of which 50% arose in respect of testing services, 45% from certification services and 5% from sale of services. Its government grant increased by 2% to R156.88 million. There were some savings, because maintenance was sourced in-house. Expenditure was closely monitored to ensure that it remained low. This resulted in a net 10% profit return.

In relation to the financial position, she noted that property and plant had increased substantially, because of the building of a new laboratory building, also intangible assets were reduced, largely relating to software for the revised IT infrastructure. The total of available-for-sale investments had increased (see attached presentation).

Dr Mehlomakulu alluded to the difficulties that SABS had in getting new certification skills accredited.

Dr Mehlomakulu noted that SABS was still busy with new laboratories, which would be completed in the following year, modernisation of the organisation, which was supported by the board, the release of R100 million for capital expenditure. It was still aiming for improved engagement with industry bodies, and wanted to improve the role of the SABS mark and reinforce it in industry.

He concluded that the SABS had achieved a clean audit, had made a higher profit than expected and that its strategic direction for the next five years was now established and should better service the public and industry.

Discussion
The Acting Chairperson expressed appreciation for the honest and frank assessment of matters on which the SABS still needed further work. He was pleased to note assistance to SMMEs.

Ms C Kotsi (COPE) asked how significant the role of SABS was, and how many similar institutions were functioning. She asked what the reasons had been for the closure of the office in China. She asked what role SABS might play in Africa, especially in neighbouring countries, and asked whether SABS was legislatively mandated as the ultimate authority in accredited standards.

Dr Buli Mehlomakhulu said that capacity in Africa was limited. In other countries, the function was performed either by a government department or by revenue-generating entities. He noted that the office in China was closed because of certain difficulties around the contract, and the fact that all ratification had to be done through a Chinese entity, which was not in line with the SABS mandate.

Mr N Gcwabaza (ANC) sought clarity on the use of “SANS” as opposed to “SABS”. He asked if there was a good relationship between SABS and the customs officials. He asked what SABS did to ensure that its mark would not be placed on or endorsement given to inferior products. He also questioned what approach the SABS had to any infringements, noting that in the past a soft approach had been taken where any offenders were merely reprimanded

Dr Mehlomakhulu said that SABS was the only body that worked with ISO, and that the standard would be either set by SABS or the ISO.

Mr J Smalle (DA) enquired if there were any agreements between dti and SABS and private institutions, whereby there would be sharing of testing, in order to promote training and acquisition of expertise. He asked how, if products were tested only once, there could be assurance against and protection of customers against inferior products.

Dr Buli Mehlomakhulu said that the reason for a one-off test was that the product must go rigorous testing in a single procedure, rather than being tested several times at several places. It was thus necessary to ensure that a unit standard was development, that would be recognised internationally.

Mr T Harris (DA) asked about the grant that SABS received from government, asked if that was comparable to the international practice, and whether there were perhaps other international models that could be adopted.

Mr Harris asked for further clarity on the confusion between the SABS and NRCS.

Dr Mehlomakhulu responded that the confusion was attributed to the fact that the NRCS was “born out of” SABS, and the media often confused the two entities. He stressed that the NRCS dealt with regulations, whilst SABS dealt with testing and accreditation.

Ms P Lebenya (IFP) wanted to know what the SABS was doing about instances where the quality of goods found in some large chain stores may differ from store to store, and was, in particular, of lower quality in the rural towns compared to the major cities.

Dr Mehlomakhulu said that fell within the mandate of the NRCS and not of the SABS.

The Acting Chairperson asked why the SABS set high targets which it had not met. He wondered if SABS had done the testing of materials that were used for construction of the Reconstruction and Development Programme (RDP) houses.

Dr Mehlomakhulu answered that these targets assisted SABS in working extra hard to meet its goals. SABS had to be honest on the challenges, but also had to show that it was on the right path to improve on the past. Poor quality RDP houses were built when there was poor cohesion in the country, when government departments had gone outside the quality assurance processes, and only called for testing once the houses had been built. Of course, it was impossible to test a standing structure and have the materials properly enrolled. The NRCS was now having to police the situation, as it was clear that in some cases the mark had been abused.

National Regulator for Compulsory Specifications: Annual Report 2010/11
The Acting Chairperson summarised that the previous presentation had shown that there still seemed to be some confusion in the minds of the public between the SABS and the National Regulator for Compulsory Specifications (NRCS).

Mr David Block, Acting Chairperson, NRCS, introduced the team of presenters and outlined briefly what the presentation would include

Mr Moses Moeletsi, Chief Executive Officer, NRCS, noted that the NRCS Act had established the NRCS as a regulator in 2008, after which all regulatory functions previously with the SABS had been transferred to the NRCS. He noted that the work of the NRCS and SABS should not overlap, as the primary function of the NRCS was to create regulations that would protect consumers.

He noted that the NRCS was a local regulator, but it also focused on imported, manufactured, sold, and some exported products. It worked according to a risk-based model and therefore had some close liaison with the Customs function of South African Revenue Services (SARS). There had been a growing trend that products perhaps should be imported under coding for what should be in the container, yet a different code was reflected. He noted that the mandate of the NRCS extended also to the Trade Methodology Act. He noted that in some instances, medical equipment might not be of similar standards. The NRCS was not the only regulator in relation to technical services, and there were also other regulators across other national departments.

The NRCS was of the opinion that the current best regulatory practice was to reference applicable standards or part of those standards in the technical regulations compulsory specification. The NRCS had 60 compulsory specifications and 4 technical regulators  (see attached presentation). The NRCS business model around enforcement of regulations showed that the NRCS was primarily responsible for administering and enforcing the regulations under its jurisdiction. The business model which would support this function would consist of various activities, including approval of products, inspections, sampling and testing, enforcement -if non-compliance was proved – including corrective action, and / or destruction, and/or notification to the media and public. Some of the corrective actions that the NRCS had taken related to various sectors (see attached presentation).

The NRCS had embarked on a range of thirteen projects that supported the Industrial Policy Action Plan (IPAP). It had finalised the names of individuals to serve on the Advisory Forum. NRCS, as part of the Technical Infrastructure, engaged in regional and international participation.

He noted that challenges facing the NRCS included the need to invest in upgrading the IT system, and the need to fast-track competency development programmes for staff.
 
The NRCS’s strategic goals for the 2010/11 year were outlined. In pursuance of these it had targeted achieving 52 940 inspections and had executed 57 572. It had actively accessed and built new markets for maximum coverage. It had, however, achieved only to a level of 82.7% on its targets to respond to requests for pre-market approvals within 110 days. New regulations for the NRCS were promulgated and became effective during January 2011. It had increased its scope of accreditation and was now also registering companies trading in regulated goods.

Mr Moeletsi noted that the NRCS board consisted of nine members and it had held nine board meetings. The three Board committees held regular meetings in line with the mandate.

Mr Moeletsi then presented on the financial issues. He noted that the NRCS managed to achieve a surplus of R26 million. It had had a total income of R149 million, although the R33 million that it received in government grants had decreased from the previous year. Its expenditure had increased by R6 million. The Auditor General said that the financial statements were presented fairly, there were no material findings on the annual performance report and the audit had been unqualified for three consecutive years.

NRCS had 58% black employees, 15% coloured employees, 23% white and 4% Indian, and 38% of its staff complement were female. Mr Moeletsi noted that items pulled from shelves were supposed to be destroyed or returned to the country of origin, if they did not meet requirements. He said that if any staff were found to have colluded, they would be formally disciplined and if necessary charged with a criminal offence.

Discussion
The Acting Chairperson wanted to know what the NRCS would do about products that might, for instance, harm schoolchildren.

Mr Moeletsi said that the first point of departure was to ascertain how the product had come into the country or reached the shelves. The NRCS would examine the product to see if it was to be approved, or consider whether the matter fell under another regulator. Counterfeit products would, for instance, be under the control of the customs authorities.

Ms P Lebenya wanted to know when the testing process would take place.

Ms Lebenya asked about the comment of the Auditor-General that there had been some non-compliance on regulations.

Mr Werner van der Merwe, Chief Financial Officer, NRCS, noted that the NRCS had been changed from a Schedule 3B entity to a Schedule 3A entity. The contracts referred to were entered into during 2009, when the Schedule 3B policies were applied and this was essentially a legacy issue. The Board had now approved the 3A policies and the contracts were shortly due to end.

Mr J Smalle sought clarity on the challenges of vacant posts, which resulted in certain inspections not being carried out, and asked if these posts were still vacant. He also enquired what the 161 Letters of Certification referred to.

Mr Moeletsi said that acting positions would no longer apply from the following year; this had arisen because the strategy had not originally spoken to the structure but this would be resolved between December 2011 and March 2012.

He noted that the Letters Of Certification applied to casino gambling. Here, there had been some challenges in the software, and there was no external malfunction or non compliance. The NCRS was working on this issue.

Mr Smalle asked who would approve the bonuses.

Mr van der Merwe said that the only bonus paid was for the Chief Executive Officer, and this was determined in terms of the performance agreement between the incumbent and Board, and were approved by the Board.

Ms Kotsi asked if there was not a need for more stringent action of imports, especially from China,  that might be compromising standards. She noted that Chinese imports and interventions were not creating jobs as needed in South Africa. She also enquired what was being done about goods that were imported but were found to be irregular.

Ms F Khumalo (ANC) commented that everyone in South Africa must be part of the solution, so SARS and NRCS must continue to work together, and the involvement of the police would also be helpful.

Mr Moeletsi noted that NRCS was in consultation with SARS, and in the two weeks that the entities had worked together they had indeed discovered goods that did not go through the correct channels. They would continue to work on eradication. Tyres that did not comply with regulations were sold, and the sales were stopped.

Mr X Mabaso (ANC) shared a concern about cars that were imported through the Durban harbour, but which could not be registered in South Africa and asked if the NRCS was aware of this, and whether it might have contributed to road accidents.

Mr Moeletsi confirmed that the NRCS was made aware of this, but was still not sure how the cars had entered the country. If a vehicle had been converted, it would have to be referred back for a compliance check. There was no evidence to support links between these vehicles and accidents.

The Acting Chairperson felt very strongly that not a strong enough stance was being taken.

The meeting was
adjourned.



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