Property Management Trading Entity challenges: Ministry & Department of Public Works briefing

Meeting report

Chairperson's opening remarks

The Chairperson welcomed the Minister of Public Works, Deputy Minister of Public Works and Department of Public Works (DPW or the Department) representatives.

She briefly spoke to a Building and Construction Indaba that the Members had attended and said this was very informative as professionals had shared their frustrations with the MPs. She emphasised that Members must ensure that professionals were registered, and noted that many professionals’ services needed to be used particularly since the DPW itself lacked so many skills.

Property Management Trading Entity and other entities of Department of Public Works: Departmental briefing
Mr Mziwonke Dlabantu, Director General, Department of Public Works, noted that the presentation would outline briefly the performance of entities falling under the Department of Public Works and would address the audit findings.

He noted that this Department was established to carry out property functions of the government. There were three entities falling under the DPW – namely the Industrial Development Trust (IDT), the Construction Industry Development Board (CIDB) and the Council for the Built Environment (CBE). The DPW held quarterly meetings where their performance and financial management was evaluated and where interventions were offered if needed.

The CBE and professional councils had 13 concurrent mandates for which the CBE must develop policy guidelines or frameworks, to ensure consistent application across the built environment professions. It had developed eleven policy frameworks so far. The outstanding policy frameworks on Standard Generation Body and Recognition of New Professions and Categories, were currently under review. It was doing studies into greenhouse gas emissions, and was dealing with Zambia and Uganda on other research projects and policies (see attached presentation for details). A brief description was also given of the main achievements of the CBE. Challenges included the slow pace of transfer, poor throughput rates in the education field and delivery constraints. A table was given of the issues raised by the Auditor-General in relation to this entity, and the action taken (see attached presentation). The Director General moved on to detail the findings of the Auditor-General. The corresponding figures for the financial year ended 31 March 2011 had to be restated, as a result of an erroneous disclosure of the provision for debt impairment, amounting to R456 000, that was discovered during the audit of the financial year ending on 31 March 2012.

The performance of Agrement SA was then set out, and it was noted that it received a clean audit with no matters of emphasis. Its transactions were subject to policies and procedures of the Council for Scientific and Industrial Research, and a draft Bill was being prepared, for tabling to Parliament.

The Independent Development Trust (IDT) had turnover to the value of R6.9 billion, against a target of R4.7 billion, and it had also exceeded the proposed targets in terms of project delivery. 56% of its total spend was on broad based black economic empowerment. It had created just over 24 500 jobs, in excess of projections, as well as work opportunities. The main challenge for the future was that it had not received the requested funding from National Treasury and this would impact on what it could achieve in future. There was also concern about the only 3% of management fees invoiced and the fact that clients were apparently reluctant to pay. IDT did not at the moment have a legal mandate to insist that they be paid. Whilst it had an unqualified audit report, and the only comments were fairly minor matters, there was nonetheless comment on lack of internal controls and leadership in relation to its work. The status of the audit queries was set out, and the presentation briefly summarised for Members again the concerns that had been expressed about its long-term sustainability. For the next two years, R50 million would be allocated to it from the general DPW “pool”. Its business case would be reviewed by National Treasury in June 2013.

The achievements for the Construction Industry Development Board (CIDB) were set out. The audit findings and what had been done to address them was also tabulated (see attached presentation). It was noted that for the 2012/13 financial year; the CIDB had engaged the assistance of an external independent auditor (KPMG) to review the performance information and alignment between the Strategic Plan, Annual Performance Plan (APP) and quarterly reports. The input received from the auditors had been used to finalise the SP and APP for the 2013/14, thus addressing the shortcomings identified previously.

The Director General indicated that there were some interventions on governance arrangements for the CBE and its management of professional councils.

The concerns about the sustainability of the IDT as a going concern had been addressed through the development of a business case, and the relevant legislation was receiving urgent attention, under the guidance of two Deputy Ministers, respectively of Public Works and Finance.

Turnaround, focusing on Property Management Trading Entity
A second presentation, on which Members focused almost exclusively in their questions, was given on the turnaround strategy ongoing in the Department, and in particular the proposals that had been put forward in relation to the Property Management Trading Entity (PMTE), a changeover to the Generally Recognised Accounting Principles (GRAP) that was being adopted and the purpose, background review and reports in relation to the turnaround. There was reference made to what would happen to the staff in this process. In addition, the financial report was presented, which notably included less spending on gardening services and a drop of revenue collection, but the reason for these was not outlined.

The timelines for the Property Management Trading entity (see attached presentation for details) was also given.

Discussion
The Chairperson asked about the modified cash value accounting under the Generally Recognised Accounting Principles (GRAP) and asked if there was any guarantee that this would solve the problems. She noted that in the 2011/12 year, the Auditor-General (AG) had raised fourteen concerns and asked if all of them had been addressed by the DPW.

Ms P Ngwenya-Mabila (ANC) asked the DPW to use a bigger font for its written presentations.

Ms Ngwenya-Mabila wanted to know why there was a drop of revenue, and such delays since 2007. She pointed out that the department has been showing difficulties for years and was worried about how the plan would be implemented this time around, considering its lack of compliance and the poor financial performance to date.

Ms Ngwenya-Mabila questioned the amounts shown as spent on page 9, and was not quite sure where these were then followed through. She asked also that the DPW clarify why there was an under spending in the “Cleaning and Gardening” category and asked the Department to detail the items included in the 'other' category, for accounting purposes.

Ms A Dreyer (DA) followed up on Ms Ngwenya-Mabila's comment about the implementation of the Department's plan, pointing out that nothing had been happening and there were few achievements over the last seven years.

The Chairperson requested that Ms Dreyer be specific and detail more precisely what, in her opinion, was not happening.

Ms Dreyer clarified that her remarks specifically related to the admission, at the beginning of the presentation, that the performance of the Property Management and Trading Entity (PMTE) was not satisfactory. She noted that state buildings and assets were falling apart because there was lack of maintenance by this Department. She did not understand why DPW was essentially “creating a department within a department” with the entities. She referred to the departments shown in orange and red on page 5 of the presentation and emphasised that property management was key to them. She did not agree with the new strategy and asked that PMTE be disbanded and that the Department operate as a single entity.

The Chairperson pleaded with the Members of the Committee to be sensitive and contribute comments and questions that would help to build the Department. She clarified that PMTE was not in fact a new strategy but one that had been implemented for quite some time, and suggested that instead of merely criticising, Members must try rather to propose solutions.

Mr K Sithole (IFP) had a concern that everything that was listed for PMTE merely sounded like repetition and there was nothing that seemed to actually move along the new initiatives. He asked if the DPW had a new strategy to collect revenue, and whether the DPW was requesting specific assistance from Parliament. 

Mr Sithole asked the Department if it had predicted that they may be resistance from the trade unions, and how it planned to handle any resistance that might occur.

Mr M Swathe (DA) asked about the drop in revenue collection from 99% to 78%, and how, with the new entity and restructuring, this could be improved to get the collection back up to 100%.

Mr Swathe asked if the DPW would acknowledge the leases that had been signed by the Department.

Ms N Ngcengwane (ANC) noted that the Auditor General had stated that the collection of the revenue must be done on a 30-days basis, otherwise there were negative implications on small, medium and micro enterprises (SMMEs), if they had to wait for payment. She noted in this regard that Gardening Services only received 50% of its payment.

Mr Swathe wanted more clarity on the functioning method of the PMTE, in light of the new structure, and particularly wanted details on how the Head of Finance and Chief Financial Officer would be working together, if this was to happen. In addition, he was not clear whether the Head of PMTE would be appointed from externally, or whether it would be an internal appointment. In regard to the human resources at PMTE, he asked if it was intended that any people would be retrenched from some branches, if their skills were no longer relevant in the new structures.

Ms C Madlopha (ANC) was clear on the point that the Head of Finance would now be under the Chief Financial Officer, and reporting to that person directly. She noted that this change was directly connected to what the Minister had said in a previous presentation in regard to the fact that this was part of the turnaround strategy. She reminded her colleagues that the re-structuring issue was one raised by Members previously, that the PMTE was huge and that DPW needed to have a unit that would be accountable for certain issues raised by the Auditor-General.

Ms Madlopha asked if it was possible to do away with private leases, and focus on maintaining government facilities.

Ms Madlopha noted that the asset register was not yet finalised and there was lack of control over properties. She wondered if the implementation of GRAP would be successful in addressing the issues that were raised by the Auditor-General. She emphasised to her colleagues that they must focus on the turnaround strategy, because the Minister had made it clear that he would revisit what was already happening. She disagreed with Ms Dreyer's suggestion that PMTE be removed, stating that under the new strategy, even the regions would be accountable. She believed that the Minister must be congratulated on this model. 

Mr L Gaehler (UDM) also clarified that this plan by the Minister was a turn around strategy, but wanted to know how the Department would get a separate Director General, and whether it was intending to head-hunt. 

Mr Gaehler had concerns over the amounts that should be spent on maintenance and pointed out that he would like to see a limit placed on spending on maintenance, for he feared that otherwise it could cost millions.

Mr Gaehler also thought that private leases were also a huge problem and he wanted to know whether the right people to deal with this had been appointed. If not, they he wanted to know when this could be expected.

Mr Gaehler was in general happy with the strategy, but, like his colleagues, he wondered if GRAP would tackle the previous problems with the invoicing, pointing out that in some instances it seemed that the client departments just did not want to pay.

Ms N November spoke in Afrikaans.

Ms A Dreyer wanted to respond, at this point, to the comments made by the Chairperson about her contribution to the discussion.

The Chairperson asked Ms Dreyer to be respectful towards other people, and to address them properly, if she also wanted to be respected.

Ms Dreyer said she gained the impression that the Chairperson was simply trying to “shut me up”. She noted that the role of this Committee was to critically hold the government to account.

The Chairperson said it seemed that Ms Dreyer did not want to learn; she had even joined the meeting after the strategic plan was presented.

Ms Dreyer indicated that there was no point in staying any longer.

The Minister and Deputy Minister asked Ms Dreyer not to leave the meeting, but to wait and hear the answers that they wanted to give in response to the questions.

Mr Thulas Nxesi, Minister of Public Works, responded that the PMTE was at the core of Public Works, and that it needed to have divisions. This proposed structure was, therefore, a direct response to the Auditor-General's comments. The strategy used by the Department was the “Seven-S model”, which outlined that the key to a Department was to ensure that the structure talked directly to the vision. He recalled that there was, previously, chaos and an absence of skills in the right places in the DPW, and whatever was now proposed was intended to make the DPW work efficiently.

The Minister said that PMTE was indeed a branch within the Department. There was currently a debate as to whether it should be privatised, be a separate entity or be a branch within a Department. In relation to the property management functions, the Minister said the Department was working on getting highly specialised people, whether by retraining those who already were working in the DPW,  or getting new people from the market-place, as had been done with the new Chief Financial Officer, Mr Cox Mokgoro. Once the DPW was fully clear on its vision, it would be embarking on a major recruitment drive

The Minister reminded Members that they had previously raised questions on what would be done with staff who were not qualified. This was a challenge, when people had been employed on a permanent basis, as it led to legal battles. One of the initiatives was that the senior staff members would be asked to re-apply for their positions. However, this would take time and the whole turnaround strategy would in fact also be enriched, over time. He added that DPW must also advise where it saw gaps in the strategy. Everyone shared the responsibility t build a vibrant Department and  he did not shy away from the Committee. He attended these meetings precisely because he wanted to listen to the evaluations, as he recognised that the turnaround strategy still had a long way to go. All in all, there must be coordination in order to move forward properly. 

The Director General added that the whole property management function perhaps had not received the necessary attention in the past. The right people must be put in place, to maintain the public works facilities. The current approach that was being taken to procurement meant that the Department was always “begging”  from the industry.

The Director General commented on the questions around GRAP and said that DPW was making sure that it would be properly structured. It would not be difficult to comply with GRAP, but it might not be able to comply immediately with each and every requirement of GRAAP 17. However, he added that by the end of 2015, the DPW should be compliant.

The Director General suggested that it might be useful to have some workshops, where people's views on the strategy could be put on the table.

Mr Magubane asked for clarity on how the revenue drop from 99% to 78% would be improved.

Mr Cox Mokgoro, Chief Financial Officer, Department of Public Works, said that this was a consequence of the fact that the DPW recovered its money from various other departments. It was not so much that the departments did not want to pay, but there had been issues with the invoicing, and that was mentioned by the Auditor-General. The Department indeed needed to be able to issue monthly statements. However, he was reluctant to say that the adoption of GRAP would mean that the revenue would improve. GRAP was simply a basis of accounting. It did not change the actual structures.

Mr Mokgoro noted that the slow spending on cleaning and gardening was to do with multiple reasons, which might include slow invoicing. Sometimes the client departments were slow to pay, as  Mr Gaehler rightly pointed out. The DPW had put in place a task team to make sure that these matters were resolved more quickly.

Mr Mokgoro explained that the “other” payments were a grouping of smaller costs. He did not want to waste time detailing them here, but said he would send through a list to Members.

Mr Mokgoro confirmed that the DPW was focusing on doing away with private leases, and believed that in the long-term, this was indeed achievable.

Mr Dhaya Govender, Team Leader, Department of Public Works, said that the Ministry was engaging with the trade unions and was moving beyond its own department. He emphasised the difference between finding a quick-fix to all the problems, and building on what was already there. This required a process of restructuring, and it had been confirmed that this was crucial. The Director General could retrench, according to the mandate placed by the trade unions, but there would also be an opportunity to retrain other individuals and even perhaps employ new people. While the enrichment may be in the long-term, there needed to be a start made on it. The problem over the years had been the fact that various Ministers had entered and embarked on new strategies, but when they left the Ministry, there still had to be new models put in place. Now, there was a focus on building from what was already there.

Ms Dreyer wanted to point out that the privatisation model could be a proper model for property management, because if a building was owned privately, the owners maintained it far better than publicly owned buildings.

Mr Govender agreed that private owners indeed looked after their buildings because they want to make profit from them, but the cost here was to the taxpayer. That was the reason why there was borrowing from the market. In the long-term, there were, as the Minister had highlighted, many debates.

Mr Magubane asked whether there were people in the Department with relevant skills. In particular, he asked if the problems around itemised billing had arisen because the Department had been inefficient.

Ms Ngcengwane said that it had been discussed previously that a Youth Service would be used to train young people to acquire skills that could help them be absorbed by this Department. 

Ms Ngwenya-Mabila asked if there was any progress on the situation with the Department of Home Affairs and its office accommodation. She also asked if the DPW yet had a database of all state-owned buildings, so that they could be readily identified.

Mr Gaehler and Mr Sithole asked inaudible questions.

Mr Swathe wanted to know the time frame of this strategy would be, and if it would be addressing the issues raised only after it had been approved by the Cabinet.

Mr Jeremy Cronin, Deputy Minister of Public Works, acknowledged the frustrations raised, including the length of time that it had taken for the Department to implement the turnaround strategy. He agreed that part of the problem was that Ministers would be appointed and replaced, and that people were becoming increasingly sceptical of the DPW in particular. People working in the DPW had got into a certain way f working and comfort zone, and this raised the opportunity for financial mismanagement. He agreed that the structure had fallen outside of a proper structure, which was why the Minister and Deputy Minister were present at the meetings that spoke about these matters. Perhaps one of the issues was the generalisation and complexity of departments in a democratic society, and this was problematic in this particular branch.

Mr Cronin agreed with Mr Gaehler's comment that maintenance spending must have limits and there must be clear management in this. He continued to give a brief contrast between construction and maintenance, particularly as they related to job creation, noting that construction was temporary and depended on the length of the project, whilst maintenance could run for a long time. He added that the government did not yet fully appreciate the opportunities that the government facilities presented.

Mr Cronin noted that the implementation time for this strategy was intended to be July (and he corrected a reference in the presentation to August). However, the timeframes set out in the presentation related to the budgeting cycle, so both the alternatives given were possible. He agreed that the DPW would still have to package and present this strategy properly and get it approve by the Cabinet, National Treasury and Auditor-General.

Mr Cronin agreed that the National Youth Service initiatives could link in perfectly to maintenance and the struggle of youth unemployment, and the DPW had programmes to further this.

Finally, Mr Cronin endorsed the need to get the invoicing system right within the Department. At the moment there were still challenges with slow invoicing.

The Director General responded that the monthly basis of recording was crucial in order to move the Department in the right direction, and although the DPW was not yet able to do this, when it had done so then monthly statements would be issued, and this was all part of the turnaround strategy.

Mr Peter Chiapasco, Acting Deputy Director General, DPW, noted that the Department was busy compiling the user asset management plan, and that the DPW would be reporting on it annually. It would include full details of the accommodation requirement, which meant that all departments was required to submit details to National Treasury and DPW by 31 July. Matters such as Department of Home Affairs requirements would be set there.

The meeting was adjourned.