Construction Industry Development Board & Agrement SA on their Annual Reports 2011/12

Meeting report

Construction Industry Development Board (cidb) presentation
Mr Bafana Ndendwa, cidb Board Chairperson, introduced the delegation.

Mr Gerard Naidoo, Programme Manager, cidb, said that the mandate of the cidb was to provide strategic leadership to industry stakeholders, promote sustainable growth for the emerging sector, promote improved performance and best practice, promote uniform application of policy to improve procurement and delivery management, and to monitor and regulate the performance including the registration of projects and contractors.

Mr Naidoo said that the priorities for the cidb were training and contractor development, providing quality services at construction centres, monitoring the performance of the industry, delivering industry skills, developing best practice standards, improving the cidb provincial tool-kit, complying with and enforcing regulations, and providing an efficient registration service.

Mr Naidoo listed some challenges facing cidb. These were in the form of delays in submitting frameworks, finalising the framework for the municipal tool-kit, finalising regulations and amendments, and in implementing the Contractor Recognition Scheme (CRS) and Electronic Document Management System (EDMS).

Mr Naidoo turned to the annual performance summary and impact report. The first aspect was growth and construction development. In terms of enterprise development, the National Contractor Development Programme (NCDP had been updated and published. Client capacitation had been completed in all provinces. Provincial contractor training had been held in all nine provinces, including seven catalytic projects.

Mr Naidoo said that in terms of growth and construction development, there was an average of 93.8% compliance for the accuracy of data. There had been an average compliance rate of 96.6% in terms of the 48 hour registration time. There had been an average of 92.3% for the production of registration complaint documents. In terms of industry performance monitoring, construction industry indicators had been published and applied. The Quarterly Monitor had been published. Quarterly provincial outreach communication sessions had been held in four provinces. A cidb post graduate conference had been held.

Mr Naidoo said that in terms of procurement and delivery management, public sector client training sessions had been held in all provinces. Case law reports were published quarterly and an anti-corruption strategy had been developed. In terms of infrastructure delivery, the evaluation of the impact of the cidb tool-kit had been achieved. The provincial tool-kit training had been completed. A procurement strategy had been developed for the Department of Basic Education (DBE).

Mr Naidoo said that in terms of the CRS, an efficient registration services was being provided. A 21 working day period had been achieved for compliant Grade 2 to 9 applications. Queries had been administered within the 48 hour turnaround period.

Ms Hlengiwe Khumalo, Chief Financial Officer (CFO), cidb, presented the financial results. The total revenue for the 2011/12 financial year (FY) was R118.5 million against a budgeted figure of R109.9 million. This included revenue from registers (R47.7 million, an increase of 5.9%), interest (R4.6 million, an increase of 11%), transfer payments from the Department of Public Works (DPW) (R65.9 million, a 3.6 increase from the previous FY) and other sources (R165 000).  Expenditure was R107.8 million against budgeted expenditure of R109.9 million. The amount was less than 2% more than the previous FY. Expenses included administration (R32 million), capital (R500 000), personnel (R61.1 million) and professional services (R14.2 million).

Ms Khumalo said that the surplus for the year was R6.1 million, which included R4.6 million in non-cash items. There had been a minimal decrease of less than 1% in cash and cash equivalents. Accounts payable had decreased by R1.2 million, and income received had increased by R1.2 million. She pointed out an error in the written presentation in this regard.

Ms Khumalo said that the cidb had received an unqualified audit report, but there had been some matters emphasised. Some figures had been restated regarding debts. There had been irregular expenditure of R11.8 million, an increase of R2.5 million from the previous year. Examples of irregular expenditure included problems with leases, contracts and problems regarding tenders.

Ms Khumalo said that a number of issues had been raised in the Auditor-General (AG) management letter. A correction action plan (CAP) had been developed. A dashboard document had also been developed. There would be regular meetings between the AG, CFO and Chief Executive Officer (CEO). She presented Members with a number of audit findings with the corresponding cidb action plan to rectify these, but these were not discussed.

Ms Khumalo said that R63 000 had been incurred as a result of fruitless and wasteful expenditure. A cellular telephone had been stolen, resulting in R29 000 being paid for airtime. The theft had not been reported timeously. A further R33 000 had been charged as an interest penalty for withdrawn funds.

Discussion
Ms C Madlopha (ANC) found that some of the targets were ambiguous. It was not clear if some of these targets had been achieved. She made reference to the provincial road-shows, awareness campaigns and contractor development programmes. She would like to see a copy of the advice brochure. Some target achievements were only quoted as percentages where she would like to see these coupled to actual numbers. She asked how many staff members had been trained in the provinces. In one case an achievement was listed without a corresponding target. She wanted to know which provinces had been targets for the outreach campaign. She wanted clarification on the frameworks which had or had not been achieved.

Mr M Swathe (DA) wanted to know why no upgrade information had been listed for North West and the Northern Cape. A document would have been developed and tabled at the MinMEC, while in another part of the report it was stated that the document had been completed. There were many grade one contractors, but there seemed to be no development in the other gradings.

Mr K Sithole (IFP) also noted the non-achievement of certain targets, and wanted to know what was happening. In terms of maintenance, a target of reporting had not been achieved. The target regarding the EDMS had not been achieved. The AG had reported that the accounting authority had not exercised sufficient oversight. He asked if the leadership was exercising its powers.

Ms N Madlala (ANC) asked what was delaying the development of the tool-kit. She was also curious about the selection of the four provinces.

Ms N Ngcengwane (ANC) asked how many contractors had attended the workshop. She asked what steps had been taken to address wasteful expenditure. There was a lack of management oversight and discipline. She asked when a turnaround could be effected. R500 000 of goods and services had been procured without proper process.

Mr L Gaehler (UDM) also wanted more clarification on the targets. While provinces were targeted for awareness campaigns and oversight, the same did not seem to be happening at municipal level. The Minister had signed off on the regulations. He asked when these would be published. The pace of transformation was slow. One needed to know what could be done to change this problem. He asked if there was any resolution on the Grade One contractors. The intention had been to terminate this grade. The figure of R650 000 was no longer practical in the current economic climate. There was a perception that the contract system was a way to make easy money. On the post-graduate conference on skills development, he said that the country was sitting on a time bomb. When the stadiums had been built for the football World Cup, much of the labour force had come from neighbouring countries such as Mozambique. There should be a process of tracing and monitoring the employment of the youth. Something had to be developed. Many matriculants and even engineers could not find work. A proper skills audit was needed so that a database of skilled persons could be compiled.

Ms A Dreyer (DA) was interested by the spread amongst the provinces. KwaZulu-Natal (KZN) had the highest number of contractors. Gauteng had the highest number of higher grade contractors due to the presence of several national head offices in the province. She asked why there were so many in KZN, and requested a breakdown by company and project. In the summary of disciplinary action, she asked if any cases had been finalised since March. She was concerned about the lack of action in the civil service where transgressions had occurred. It was not clear what was meant by late payments. Some sub-contractors were going bankrupt as a result of delayed payments. She noted the suggestion of naming and shaming defaulters, and asked what progress had been made.

The Chairperson wanted an explanation on payments for cellphone airtime. There was some irregularity with lottery payments. More expansion was needed on the municipal tool-kit. She had requested assistance on this, which was still not forthcoming. She asked why the internal audit function had been outsourced to KPMG. The audit fees had increased substantially. There had been increases in many aspects, such as Board remuneration and stationery. She congratulated cidb where there had been cost savings.

Ms Madlopha said that there were very capable internal auditors, and asked why outsourcing was needed. The matters raised by the AG had been repeated for three years, and she wanted to know the reason.

Mr Ndendwa listed the questions posed. When the Board had started at cidb, the Board had started by visiting the provinces to ascertain at first hand what the issues were. All the provinces had been visited. An example was the downgrading of contractors. Several issues had been identified. A need had been seen to have the cidb decentralised. This process was still under way. Direct input had been received from the market. He wanted to see two national stakeholder forums. The first would be to air problems, and the second would provide feedback on questions raised earlier.

Mr Ndendwa noted that many critical staff members had been lost. Soon after the Board had been appointed, the CEO had resigned, followed by the CFO and the Human Resources (HR). These vacancies had since been filled.

Mr Ndendwa said that the Grade One contractor issued was being addressed. The vast majority of the contractors were at this level. It was clear that a proper development curriculum was needed for contractors. A proper test and registration process was needed. This was crippling the development of the cidb. A lot of these contractors were not contactable.

Mr Ndendwa agreed that the R650 000 threshold was not realistic. A full report on how to upgrade the contractors and the threshold would soon be compiled. Contractors could not be developed under current arrangements. There was corruption in the process in terms of the set asides. These could be a great tool for development, but tended to be abused by those with computer access. There was a document on transformation which would become available in the following few weeks.

Mr Ndendwa agreed on the need for skills development. Projects should be provided. He was hoping that this process would develop. Market access must be ensured through the development of major black-owned businesses at a Grade Nine level.

Mr Ndendwa said that the utilisation of young graduates was a problem. The Councils should be aligned with transformation initiatives, and the Committee should assist with this.

Mr Gaehler said that development of skills should be a contractual requirement.

Mr Ndendwa agreed, but there was a general lack of goodwill to develop the industry on these lines. There seemed to be a lot needing to be dealt with. Staged contracts were a problem, and he could not see why single contracts were not possible. Parliamentary help was needed.

The Chairperson said that cidb should fight its own battles. There was no sense of urgency in the entities. If there was a burning issue, the entity concerned should take action. She mentioned an example of how municipalities were at fault and the tool-kit was badly needed.

Mr Naidoo said that a much longer presentation would have been needed to address all issues to the depth required by Members. More detail could be provided should Members request it. There had been road-shows in all provinces. The empty block in the presentation was a printing error, as that target had been achieved. Four brochures were available, and copies would be forwarded to the Committee. They were also available on the website and at provincial offices. He agreed that targets should be fully quantified. All staff had been trained in generic performance management and business plans, and a needs analysis had been held regarding specific training requirements. He did have detailed information. The four provinces were selected in order to make the greatest impact with limited resources. Testing and pilot programmes were needed. These provinces were Gauteng, KZN, Western and Eastern Cape. The choices were made on the basis of the number of registrations. The other provinces had been targeted in the current FY.

Mr Naidoo said that the requirement of contractors at different levels should be determined by the needs in each province. Identical capacity was not required in each province. Cidb should look at building capacity in terms of grades four to seven. The National Contractor Development Programme (NCDP) had already gone to MinMEC. The Delivery Paper had been developed later, but had gone to MinMEC in the current FY. There were a number of enabling processes to ensure growth and movement at a more rapid rate.

Mr Naidoo said that there was a full table regarding training. There were different priorities in the provinces. The infrastructure development training had been developed, tailored to the requirements in individual provinces. A roll out plan had been developed. He hoped to see it cascaded to all levels in the current FY. Information was being migrated and the process should be finished by October. The delay in financing had been addressed and the process had been finalised. The inputs would be consolidated into a report to the Minister. The report should be finalised by January 2013. There was a Corrective Action Plan (CAP) in place to deal with fruitless and wasteful expenditure. This would also apply to the cellphone expenditure situation. Corrective actions were being taken where contractors had transgressed. There was a “name and shame” campaign, with the contractor being withdrawn from the cidb database for a period of time. A paper would be presented on the delayed payment issue. Late payments were defined as the public sector not paying a contractor, with a knock-on effect for sub-contractors.

Ms Dreyer said the contractors were normally paid by the Department concerned, but the problem was with a delay in payments cascading down to sub-contractors. People were suffering as a result.

Mr Gaehler added that the issue would not be resolved because of the way in which contracts were issued. Money was not being ring-fenced, and was used for other purposes.

Mr Naidoo found the comments useful. He recommended that legislation should be introduced to regulate the payment process.

Ms Khumalo said that there had been shortcomings in the leadership of cidb. These had been addressed. Not much had been done to address these issues as the organisation had grown. A supply chain manager had now been appointed. The whole framework had to be aligned to internal policies. Delegations of authority were being reviewed. Training of officials in the different bid committees was important. Cidb was working on issues. She had developed an irregular expenditure register. She had communicated the zero tolerance approach which would be taken in future. More financial issues would be subject to internal controls. An interim audit should be carried out. This would help to address issues. In the following week she would have a meeting with leadership to finalise disciplinary issues.

Ms Khumalo said that her analysis of the environment was leading her to issue a policy on cellular telephones.  The cidb took out contracts for qualifying individuals, and this policy should be reviewed. It might be better to pay an allowance for business use of personal phones. A policy was needed on the loss of company assets. There were various accounts, such as investment accounts. Funds were transferred where needed. In the 2011/12 FY there had been a need to withdraw money from the investment account.

Ms Khumalo had observed that there was a three year contract with KPMG. She had already consulted with Treasury on how the cidb could conduct its own internal audit. The spending in the previous FY had increased slightly to about R13 000. The contract was for three years.

Ms Khumalo said that various matters relating to operating expenses had been raised.

The Chairperson stopped the CFO. The remaining questions should be answered in writing. She asked what had happened to the official that had lost the company cellphone with the resulting expense of about R29 000.

Mr Ndendwa had learned about the cellphone on taking office. It had gone missing on a Friday and the bill of R29 000 had been run up by the Monday. This was possible with the transfer of airtime credit to other accounts.

Agrement South Africa presentation
Mr Pepi Silinga, Board Chairperson, Agrement South Africa (ASA), said that ASA was a small entity. It was run as a programme by the Council for Scientific and Industrial Research (CSIR). The CSIR had been noted as the best managed entity by the AG for the 2010/11 FY. The most recent ranking was not yet available. ASA had achieved a clean audit.

Mr Joe Odhiambo, CEO, ASA, introduced the other members of the delegation. ASA was small but of strategic importance. It was there to support government policy. He believed that many of the products that it certified addressed the government priority areas of poverty, unemployment and inequality. Some of its products were suitable for use in the rural areas. Their products provided technical advantages to those currently on offer. It supported the DPW in its service delivery. They could be delivered quicker than conventional products on offer, were easier to transport, and provided skills and employment opportunities in areas where they were employed.

Mr Odhiambo said that ASA was in its 43rd year of existence. Most targets had been superseded in terms of performance. An application included various technical specifications and drawings. A lot of effort was needed for it to be accepted. Certain criteria had to be met. An evaluation offer also went into considerable detail, including testing specifications. The figures presented might be modest, but were in line with similar bodies worldwide. ASA had surpassed its performance targets and had achieved better outputs than planned.

Mr Odhiambo added that there was interaction with other DPW entities. It had been involved with technologies to build new schools. It had assisted with the transformation of professional bodies. ASA had been involved in various community projects. All targets for the FY had been met or exceeded.

Mr Odhiambo said that the Annual Report (AR) had been tabled in Parliament. It was looking for a different governance model. ASA was funded by, and reported to, DPW. It was performing well and in accordance with its mandate. If it had a legal mandate it could achieve more. Further financial support would lead to better results. The Board consisted of eight members, appointed for a three year term. The Chairperson was appointed by the Minister of Public Works. Strategic planning sessions were held annually. The Board met at least four times annually. There was a follow through from the initiatives of the previous Board. A clean audit report had been received, and ASA had been hailed as an example of good management.

Mr Odhiambo presented a brief profile of the members of the Board. It consisted of some very highly qualified individuals. The Board was doing an excellent job with strategic overview.  The Technical Committee was part of the Technical Agency of the CSIR. ASA relied on technical expertise from the industry in order to assist them in assessing projects. Some products were innovative, and an independent assessment was needed.

Mr Odhiambo said that the role of the CSIR was to work on product development. ASA carried out technical assessments on the fitness for purpose. National standards were developed as a separate activity, which was the preserve of the South African Bureau of Standards (SABS). ASA was a member of the World Federation of Technical Assessment Organisations, and the only member from Africa. An approval by one member body was accepted by all the other members.

Mr Odhiambo said that the financial allocation for ASA was modest. He hoped that other agencies could produce the same level of work. Training opportunities were provided. ASA had achieved a 92% ratio of black and female staff members. The certification was done at a higher level by a Technical Committee. The capacity of this body had been enhanced. Transformation had been addressed.

Mr Odhiambo listed the academic qualifications of members of the ASA. Shared services were used which proved to be more efficient and cost-effective. The staff complement was twelve and a demographic breakdown was provided.

Mr Odhiambo said that ASA worked under the Minister of Public Works. Funds for ASA were ring-fenced for their use, and could not be touched by the CSIR. An unqualified report had been received. He said that the grant income had increased by 6.7% to R8.7 million. Other income was provided by clients. Increased income in this field was due to more work being done. The total income was R9.8 million. This consisted of revenue from grants (R8.3 million), contracts (R1.5 million), the private sector (R1.3 million), the public sector (R99 thousand) and the international sector (R113 thousand).

Mr Odhiambo listed the expenditure. Employee remuneration had increased by less than 6%. Depreciation had increased slightly. Operating increases had increased due to an increased scope of work and more testing. It had been a good FY. Total operating expenditure was R9.9 million. Of this amount, employee remuneration was R5.1 million, depreciation R370 thousand and operating expenses R4.4 million.

Mr Odhiambo showed Members photographs of work done on the Gombani project in Venda. Modern houses had been provided for the residents. They had made their own bricks with local compacted soil and a little bit of cement. Local women had been employed to make the bricks. More such projects would put an end to strikes. Another project was using a system to build schools much quicker using prefabricated materials. Products had to be cost-effective. Community upliftment must be ensured, and projects had to be sustainable.

Mr Odhiambo said that new standards had been promulgate in 2011. ASA had been nominated as the agency to oversee environmental projects. This was an important role. Energy should be saved. Electronic processing was increasing the speed of the application process. ASA might not be known to the general public, but did have specialised equipment which could be used. One example was a device that could simulate the ageing process of materials to test their durability. Alternative business technologies were also promoted. There was a site in the Western Cape. There was research and development team working with the Department of Human Settlements (DHS).

Discussion
The Chairperson was impressed by the presentation. She hoped that other agencies would follow their good and passionate example.

Mr Sithole asked about the life cycle of the ASA products. He asked about co-operation with the municipalities. He asked how widespread their marketing offices were. He asked how many jobs were being created.

Ms Ngcengwane was worried about the backlog in housing. It would be good if the products developed by ASA could be used more widely to address this backlog. She asked if there were any exports being made. The agency was expanding. She asked if there were any vacancies. She had studied the AR. It was a good document. The Board members were remunerated for attending board meetings, but she could not find details in the report.

Mr N Magubane (ANC) could see the passion. He was happy that the SABS was involved. He asked if any work was being done by municipalities. The rural areas were controlled by chiefs, and he asked if there was any interaction with municipalities. He suspected that all the schools and academic partners were located in urban areas. He asked if there had been any defects in the agency's products.

Mr Swathe asked if ASA wanted to have the capacity to expand and eventually move away from the control of the CSIR. Their products were helping certain communities. He asked if there was co-operation with municipalities. He asked how communities were chosen to receive the benefit of the products. He asked whether the recipients of bursaries were still studying, and what deployments were in place.

The Chairperson said that ASA was an agency to certify materials and construction techniques. They did not build themselves.

Mr Gaehler said that a number of issues had been raised. A lot was being done on a limited income. He asked if there had been any agreements to promote the services of ASA. People should be taught to help themselves. Products should be displayed in areas where there was a need. In a country plagued by skills shortages, the matriculation figures were not good. Mindsets could be changed so that children could take up the technical route, especially in the rural areas.

The Chairperson asked if the lifespan of houses was being compromised by the quality of cement. Government did not have a right to interfere, but poor quality cement was being dumped in South Africa. She asked if South Africa was running out of bitumen. She asked what consequences there would be for maintenance and expansion of the road network. Pothole repairs did not last. She asked if the chemicals used were of the correct substance.

Mr Silinga said that there was a general problem in government of working in silos. There was limited engagement with municipalities and provincial departments due to a shortage of finances. He had not known that Agrement even existed before joining the entity. Marketing had been too modest. Budget was a big issue. One advantage of being an independent entity would be the possibility of increasing the footprint. Board remuneration was not covered in the document. He would be surprised if the total remuneration was equal to the fees for one director at another entity. It was a labour of love. Strict controls were in place, and all Treasury regulations were followed. The state owned enterprises were a different ball game. There were no performance bonuses at ASA.

Mr Silinga said that there had been dialogue on more independence. Circumstances had changed over 43 years. Dumping of building materials was a growing trend. Legislation had taken a long time. Treasury was insisting that a proper financial mandate should be in place. Entrepreneurs were often asked if they would engage in promotion of ASA. These contractors were often working on an extremely tight budget. Old specifications were often used, such as the lime content in cement, rather than spending money on new products. In many cases the new projects were faster and more efficient.

Mr Silinga said that the South African economy was based largely on a monopolistic approach. Bitumen was part of the crude oil refining process. Companies often did not act in the national interest. Some intervention might be needed to ensure a better manufacturing solution. Companies wanted to share costs but not profits. Bitumen was one of the casualties. There were serious pollution problems in the areas surrounding refineries.

Mr Odhiambo said that the life cycle of a building should be fifty years. Presentations were made to all municipalities. The ASA had a presence in Pretoria and Port Elizabeth, and was looking to appoint someone in Cape Town after a previous incumbent had resigned. ASA technology could be used to tackle the housing backlogs. Many products were exported on the basis of ASA certification. When the South African National Roads Agency resurfaced roads, they used a thin layer certified by ASA. Vacancies were advertised internally. Board members were remunerated to the extent of R14 000 for the year. Schools were built by the Independent Development Trust and DPW, many of them in the Eastern Cape. In terms of quality management, any allegations of a misdemeanour were investigated. Quality audits were carried out annually. Suspension or withdrawal could follow as a consequence for non -compliance. The selection of Gombani was a DPW initiative, using the poverty index. The bursary recipients were still undergoing tertiary training and would be absorbed into the organisation. The brick making machine needed to be demonstrated in rural areas. This was needed in every village. If the women built the houses the country would be improved. There was a campaign run during Schools week. The selection was made by the education departments. A programme was run for the benefit of the children. An alternative technology was being developed to improve the quality of cement, which was the only building product covered by national standards. This fell under the SABS. Untested cement might still be sold off a bakkie. The problem of pothole repairs had been addressed by a mixture of cold-mix asphalt. Problems should be identified before potholes developed.

Ms Ngcengwane said that paving bricks were being used for access roads. She asked if the bricks could be sourced from local communities. If the brick making machines could be developed in conjunction with the further education and training colleges, work could be created in the rural communities.

Mr Gaehler commented that there was a lot of cheap building material available in Umtata. These materials were imported from Pakistan and were landed at Durban. There was no quality monitoring at the harbour. Beautiful looking houses were being erected, but were of poor quality. The same was happening with meat sales.

The Chairperson noted that Eskom would increase its tariffs by 100%. CSIR had developed a pilot project using cow dung as fuel. She asked why government was not coming up with such proposals. In the rural areas of Malaysia, an NGO collected newspapers. These were recycled as bricks and used as fuel. She asked why there could not be better quality stoves using such materials for heating. Such bricks could also be used for building purposes.

Mr Silinga replied that he had done research on brick making machines made in Kenya. There was a problem with the economic structure. The cost of these machines was R140 000, but they could be bought from Kenya for R80 000. Different sizes and shapes could be accommodated. This would create more unskilled jobs. All implementing agents should take note, and there had to be a focus on alternate energy sources such as cow dung and the newspaper bricks. If building materials were imported, these might not be for human dwellings but for some other purpose. In a country like South Africa where literacy levels were low and people were poor, it was possible that sub-standard materials might be used and warnings might be ignored. There had been fatalities as a result of the use of such materials.

The meeting was adjourned.