Independent Development Trust & Construction Industry Development Board on their Annual Reports for 2012/13, with Deputy Minister

Public Works and Infrastructure

05 November 2013
Chairperson: Ms M Mabuza (ANC)
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Meeting Summary

Two entities of the Department of Public Works – the Independent Development Trust (IDT) and the Construction Industry Development Board (CIDB) – presented their annual performance reports for the 2012/13 financial year.

The main focus of the IDT presentation was on its need for sustainability.  Its investment fund, established in 1990, had decreased to the extent that without intervention, the IDT would be able to operate for an estimated 4.5 months.  The Deputy Minister addressed the Committee on the issue, stating that the IDT was a very important entity in the Department of Public Works (DPW) family.  It had been one of the success stories in the delivery of social infrastructure in ways that were developmental, ensuring communities had a sense of ownership.  In 2006, the Cabinet had recognised that the Independent Development Trust should no longer be “independent,” which was an apartheid-era legacy.  It needed to be an integral part of the public sector infrastructure management.  Also, the “trust” was fast disappearing, precisely because the IDT was responding to the huge needs of the country.  Cabinet had decided there either needed to be a significant recapitalisation, or a new business model was required, based on managing a range of developmental projects.

However, the Cabinet had not really recognised the strategic or sustainability challenges at that time, and the DPW needed to take some responsibility for not rising to the occasion, leaving the IDT basically to fend for itself.  The IDT had then engaged primarily with the NT with a series of attempts to develop a new business model, but they had been like “two ships passing in the night.”  The NT had considered the proposals as self-interest on the part of the IDT.

Under the new Minister, the Department had seen the need to play a more active and engaging role with the IDT, to become more politically responsible, and to develop a mandate and new business model.  Belatedly, over the past eight months, the DPW had been working closely with the IDT board.  This had led to agreement on the kind of mandate required – to be the preferred programme manager for social sector infrastructure build.  The IDT had been positioned on its proven strengths.

One of the problems that had been identified was the issue of cost containment.  The existence of the trust fund had led originally to a sense of complacency, so some cost recovery measures had been by-passed.  This had given the NT the opportunity to say the IDT was looking for massive recapitalisation - but what was it doing about it themselves?  There now had to be a greater emphasis on cost containment, to avoid making the entity vulnerable to rejection.

The development of the mandate was close to completion, from which a business case needed to be developed, with both the IDT and NT involved.  There was also pressure on the DPW to be a department that did things.  This raised the question of what the relationship between the DPW and IDT should be.  This would be sorted out in the mandate – the two entities would not be competing.  One indication of this was that the DPW was seriously underspending on its infrastructure budget, so the IDT could become an important implementing arm for the Department's own infrastructure build programme.  However, the Public Finance Management Act (PFMA) and other requirements might pose challenges – and the NT might “blow the whistle” on it, or the Auditor General might require this to go to tender.  These were issues that had to be sorted out through the mandate, and then the business model.  This could take some time, and the DPW was aware that so long as there was uncertainty, this would be a reason for resignations, eroding the IDT's capacity for service delivery.  Unfortunately, the DPW had started late, but was now taking the matter seriously.

Earlier, the IDT had said it was strategically poised to be the leading public sector programme management agency, and was set to deliver programmes in excess of R6bn in 2013/14, of which social infrastructure would represent 90%. Because of its presence at the grass-roots community level, where it directly impacted on the lives of the citizens, it was ideally placed to provide reliable feedback to the government on the effectiveness of its policies.  However, this was where the IDT would have to cut back if its funding challenges were not resolved.

Members asked the IDT questions about issues raised by the Auditor General, how it was going to address the high level of staff turnover, and urged that it reduce its costs to avoid being vulnerable to allegations of self-interest when appealing for financial support.  They further sought clarity on the provinces that had been targeted for addressing infrastructure backlogs, what job opportunities had been created by the IDT and if there were any consequences for misconduct.

The Construction Industry Development Board reported that a major challenge had been encountered in changing over from the old contractor registration system to a new IT-based system.  This had impacted very negatively on its performance targets.  However, the situation had been resolved, and since July the registration backlog had been eliminated.  It was now aiming for registration within 14 days.  A number of standards for best practice and guidelines had not been finalised due to the unexpectedly long consultative processes with stakeholders.  The anti-corruption model had not been finalised, as alternative models – beside the Construction Sector Transparency (CoST) initiative – were being explored.

On the positive side, client capacitation had been completed at all provinces to promote awareness of the National Contractor Development Programme (NCDP) framework and guidelines.  Contractor training had been completed in all nine provinces to support contractor development and increase participation of the emerging sector.  Contractor “tips and advice” brochures had been issued to several thousand contractors, and the quarterly contractor satisfaction report indicated that contractors were satisfied with the overall service provided at provincial offices.  A number of monitoring performance reports had been produced and communicated to stakeholders, one of which measured the state of development and transformation in the industry, while another was indicating that conditions were beginning to improve, with the rate of labour-shedding slowing down.

Members criticised the lack of information on human resource issues, and sought clarification on the grading system.  They asked about the impact of the fraud awareness workshops, and expressed concern over the lack of disciplinary action over irregular expenditure and the level of subsistence costs and consultancy fees.
 

Meeting report

The Chairperson welcomed the delegation from the Independent Development Trust (IDT), and expressed appreciation for the presence of the Deputy Minister of the Department of Public Works, Mr Jeremy Cronin.

Briefing by Independent Development Trust (IDT)
Ms Thembi Nwedamutsu, Chief Executive Officer (CEO), IDT, introduced the entity's presentation by saying its primary purpose was to be a development agency, mandated to support the government with the implementation of its programmes aimed at enabling poor communities to continuously improve their quality of life.  This rationale was important in the context of the presentation, which would highlight the challenge the IDT was facing to remain sustainable in the future.  The IDT had originally been formed to use its own resources, based on the R2bn endowment fund it had been given in 1990. The IDT had been using these funds over the years in engaging with its strategic partners in implementing programmes, but the presentation would point to the need to seek a new funding model.

Strategically, the IDT was poised to be the leading public sector programme management agency, and was set to deliver programmes in excess of R6bn in 2013/14, of which social infrastructure would represent 90%. Because of its presence at the grass-roots community level, where it directly impacted on the lives of the citizens, it was ideally placed to provide reliable feedback to the government on the effectiveness of its policies.  However, this was where the IDT would have to cut back if its funding challenges were not resolved.

After outlining the Trust's strategic goals and objectives, Ms Nwedamutsu said the IDT's status as a “going concern” was in a fragile state owing to the erosion of its main fund.  The Department of Public Works (DPW) was developing a business case for the sustainability of the IDT.  In the intervening period – before the new mandate and funding model were determined – it would be necessary for bridging finance to be provided to safeguard its solvency, which was under threat. Cabinet had identified the need for recapitalisation or a different, but secure, funding model back in 2006, but had not yet made a decision as the DPW was still developing the business case.  Meanwhile, National Treasury (NT) had made an allocation of R50m a year for the next three years, but this would be insufficient to secure financial solvency.  For its part, the IDT had developed a plan to institute improvements in service offering, upscale capacity and institute operational efficiency, which it aimed to introduce at the beginning of 2014.  Unfortunately, this intervention was likely to result in some job losses.  The objective was for the IDT to break even, and finance its own costs.

The entity had planned to spend R4.5bn on all its programmes in 2012/13, but had actually achieved R5.648bn.  Of this, R3.554bn (63%) had been spent on BBBEE programmes – above target – but the value of contracts awarded to women, R1.035bn (18%), fell below the 25% targeted.  The approximate value of youth spend, at R652m (12%), was also below the 15% targeted.  The number of job opportunities created by the IDT was 34 534, against a target of 30 000, while the number of job opportunities created through the Expanded Public Works Programme (EPWP) reached 42 447, against a target of 30 000.  Since 2001/02, the IDT's annual programme expenditure had grown from R300m to R5.647bn.  The current expenditure was dominated by spending on educational facilities (50%), followed by health care facilities (19%).  KwaZulu-Natal was the province where the largest proportion of IDT’s funds was spent – just over R1.7bn, or 32.1% of the total.  Mpumalanga (14.7%), Eastern Cape (11.9%) and Gauteng (11.5%) were the next highest provinces.

The IDT had a staff complement of 371, with 441 funded positions.  The 67 vacancies were a serious concern, because many of those leaving were high level staff, such as general managers and programme implementation managers -the built environment professionals – whose skills were sorely needed.  Of the 50 employees whose services were terminated, 26 had resigned.

The IDT had received its eleventh consecutive unqualified audit report, but it included an emphasis of statement which referred to “the existence of a material uncertainty on future operational needs that may cast significant doubt on the IDT's ability to operate as a going concern.”  The report also highlighted material misstatements of expenditure and revenue which were identified and subsequently corrected, procurement of goods and services through unacceptable processes, and effective steps not being taken to prevent fruitless and wasteful expenditure or to collect all moneys due.  An audit action plan had been prepared and approved to address the issues raised by the Auditor General.

Ms Nwedamutswu said that with its funds almost depleted, the organisation now had to rely on a funding allocation from NT, either wholly or partly, or generate sufficient management fees from clients to fund the operating expenditure.  The cost containment strategy sought to balance the increasing demand for the IDT's services and the resources required to meet that demand, with the need to control and limit cost increases.

Mr Ian Ellis, Chief Financial Officer, IDT, demonstrated the impact of the entity's declining available funds on its ability to sustain its operations.  At the end of March this year, R173.7m had been available.  By the end of September, this had dropped to only R140m.  If monthly expenses averaged R40 000, the entity could continue operating for only another 4.5 months.  The situation was critical.  There was a danger that resources would be reduced to the extent that performance would be compromised.  An analysis of administration expenditure showed that the organisation had had to spend over R35m on consultancy fees (nearly 60% above budget) to acquire skills not available within the IDT.

Ms Nwedamutswu concluded the presentation by insisting that although the IDT was in a precarious position, it should pursue its existing mandate geared at eradicating poverty, inequality and reducing unemployment, maintaining an integrated development approach in its social infrastructure delivery, enabling community ownership.  She appealed to the Committee for support in its efforts to secure long-term funding from the government.

Discussion
Ms A Dreyer (DA) asked what steps had been taken to address the procurement, fruitless and wasteful expenditure and money collection issues raised by the Auditor General. Why had so many people resigned?  There had also been 22 cases of misconduct – what had been the consequences?

Ms N November (ANC) asked how the IDT was going to reverse the loss of vital senior management from its ranks because without them, the organisation would not survive.

Ms P Ngwenya-Mabila (ANC) urged the entity to reduce its travelling and accommodation expenses, in line with the Minister of Finance's recent directive.  It needed a plan to deal with the late payment of VAT, to avoid fruitless and wasteful expenditure affecting audit rating.  Which client departments had outstanding management fees owing to the IDT?  Finally, she said that the organisation should target achieving a clean audit for 2013/14.

Mr K Sithole (IFP) sought clarity on the provinces that had been targeted for addressing infrastructure backlogs, and what the timeframe was for the filling of staff vacancies.

Ms N Madlala (ANC) asked whether the fact that the IDT had over-achieved some of its targets had resulted in money being withdrawn from its investment fund.  In addition, she asked what skills had not been available within the entity, which had required an over-expenditure on consultants.

Ms P Ngwenya-Mabila (ANC) addressed several issues. Firstly, she agreed that while expenditure on consultants had declined, it needed to be further reduced.  Secondly, she commented that although the entity had an internal risk management unit, it still spent over R3m on audit fees.  Thirdly, she asked if the Committee be given an update on the latest developments in addressing the sustainability issue.

Mr J van der Linde (DA) asked whether the job opportunities referred to were full-time, or just the EPWP three-month programmes.

Deputy Minister on IDT sustainability
Minister Cronin said that the IDT delegation would respond to the Committee's requests for additional details.  He would like to take the opportunity to share his thoughts on the sustainability of the entity, which was the issue that the IDT was underlining.

The IDT was a very important entity in the DPW family.  It had been one of the success stories in the delivery of social infrastructure in ways that were developmental, ensuring communities had a sense of ownership.  In 2006, the Cabinet had recognised that the IDT should no longer be “independent,” which was an apartheid-era legacy.  It needed to be an integral part of the public sector. Also, the “trust” was fast disappearing, precisely because the IDT was responding to the huge need. Cabinet had decided that there either needed to be a significant recapitalisation, or a new business model, based on managing a range of developmental projects.

However, Cabinet had not really recognised the strategic or sustainability challenges at that time, and the DPW needed to take some responsibility for not rising to the occasion, leaving the IDT basically to fend for itself.  The IDT had then engaged primarily with the NT with a series of attempts to develop a new business model, but it had been like “two ships passing in the night.”  The NT had considered the proposals as self-interest on the part of the IDT.

Under the new Minister, Mr Nxesi, the Department had seen the need to play a more active and engaging role with the IDT, to become more politically responsible, and to develop a mandate and new business model.  Belatedly, over the past eight months, the DPW had been working closely with the IDT board.  This had led to agreement on the kind of mandate required – to be the preferred programme manager for social sector infrastructure build.  The IDT had been positioned on its proven strengths.

One of the problems that had been identified was the issue of cost containment.  The existence of the trust fund had led originally to a sense of complacency, so some cost recovery measures had been by-passed.  This gave NT the opportunity to say the IDT was looking for massive recapitalisation, but what was it doing about it personally.  There now had to be a greater emphasis on cost containment to avoid making the entity vulnerable to rejection.

The development of the mandate was close to completion, from which a business case needed to be developed, with both the IDT and NT involved.  There was also pressure on the DPW to be a department that did things.  This raised the question of what the relationship between the DPW and IDT should be.  This would be sorted out in the mandate – the two entities would not be competing.  One indication of this was that the DPW was seriously underspending on its infrastructure budget, so the IDT could become an important implementing arm for the Department's own infrastructure build programme.  However, the Public Finance Management Act (PFMA) and other requirements might pose challenges – and the NT might “blow the whistle” on it, or the Auditor General might require this to go to tender.  These were issues that had to be sorted out through the mandate, and then the business model.  This could take some time, and the DPW was aware that so long as there was uncertainty, this would be a reason for resignations, eroding the IDT's capacity for service delivery.  Unfortunately, the DPW had started late, but was now taking the matter seriously.

In referring to EPWP work opportunities, the presentation had been talking about the number of people who had benefited from participating in EPWP programmes.  So the DPW was correctly putting pressure on the IDT to increase the labour intensity of the work it was doing.  Unfortunately, these were not full-time jobs, rather work opportunities, so the DPW would like the IDT to focus on the maintenance of infrastructure, which was a massive problem in South Africa.   These would be semi-permanent, ongoing and locally-based opportunities for participation in the public employment programme.

IDT response
Ms Nwedamutswu responded to a range of questions posed by Members.

The “goods and services” issue which had drawn adverse comment from the AG had been the result of the IDT conducting a pilot project at the request of the DPW, and using contractors which had not been registered with the Construction Industry Development Board (CIDB).  As this had been a pilot, it was felt this had been a little unfair.

The three employees who had been dismissed had, after investigation, been found guilty of fraud.  One issue was still with the Special Investigation Unit (SIU). 

The main reason for the high level of resignations was the IDT's uncertain future. Two cases of misconduct had been investigated in the current year, and would be reported on in the next annual report.

The vacant positions and interim appointments were the result of a moratorium which had been placed on appointments until the future of the organisation had been determined.

The reduction in travel and accommodation costs was being addressed.  Capacity at provincial and regional level was being improved, and video conferencing was cutting down travel costs for meetings.

The only fruitless and wasteful expenditure issue was related to the printing of the previous annual report, and the VAT problem had been sorted out.  A postal strike at the time had been partly responsible.

The IDT had done everything possible to recover funds from departments owing management fees, and there had been a big improvement.  The amount outstanding was R36m.  The Committee would be sent a list of the departments involved.

The organisation would do its best to achieve a clean audit, but it would be hampered by the issue of sustainability – as a matter of emphasis – which was beyond its control.

Consultants' fees were dominated by external audit costs.  The entity did not have forensic investigation capacity and this required outside intervention.

Mr Ellis said it was critical for the IDT to monitor its sustainability closely, such as identifying the worsening situation between March and September.  It also focused management on the need to implement its cost containment strategy.

The Chairperson said the Committee shared the IDT's concern about its sustainability, recognising that this could lead to retrenchments which would adversely affect service delivery.  She urged the organisation to work quickly to develop a new business plan.

Briefing by Construction Industry Development Board (CIDB)
Ms Zanele Ntombela, Board Member, CIDB, apologised for the absence of the Chairman, the Deputy Chairman, the Chief Executive Officer and the Chief Financial Officer, all of whom were indisposed.

 After Members of the Committee had debated whether the presentation should be allowed to continue, in the  absence of senior management, the Deputy Minister intervened and suggested it might be “ill advised” to postpone the meeting so near to the end of the parliamentary session.   He added that formal apologies should have been submitted.

The Chairperson ruled that the presentation should proceed.


Dr Rodney Milford, Programme Manager, CIDB, said the key focus of the entity was to promote the sustainable growth of the construction industry.  Its priorities were the development of contractors, the monitoring of industry performance, industry skills development, best practice standards, infrastructure delivery improvement, compliance and enforcement of regulations, and efficient registration services.

A major challenge had been encountered in changing over from the old contractor registration system to a new IT-based system.   This had impacted very negatively on performance targets.  However, the situation had been resolved and since July the registration backlog had been eliminated.  It was now aiming for registration within 14 days.  A number of standards for best practice and guidelines had not been finalised due to the unexpectedly long consultative process with stakeholders. The anti-corruption model had not been finalised, as alternative models – beside the Construction Sector Transparency (CoST) initiative – were being explored.

On the positive side, client capacitation had been completed in all provinces to promote awareness of the National Contractor Development Programme (NCDP) framework and guidelines.  Contractor training had been completed in all nine provinces to support contractor development and increase participation of the emerging sector.  Contractor “tips and advice” brochures had been issued to several thousand contractors, and the quarterly contractor satisfaction report indicated that contractors were satisfied with the overall service provided at provincial offices.  A number of monitoring performance reports had been produced and communicated to stakeholders, one of which measured the state of development and transformation in the industry, while another was indicating that conditions were beginning to improve, with the rate of labour-shedding slowing down.  

Turning to infrastructure delivery improvement, the annual assessment report to monitor the application and maintenance of the Infrastructure Delivery Management Toolkit (IDMT) had been produced as part of feedback to the Infrastructure Development Improvement Project (IDIP) partners.  Construction procurement workshops had been held to educate procurement officers in adhering to the requirements of the industry.  Case law reports had been published on a quarterly basis to alert stakeholders on the outcome of court cases that had an impact on the construction industry.  All Construction Register Services (CRS) staff had attended a workshop on fraud and ethics as part of measures to minimise the risk of internal fraud and unethical behaviour due to the nature of their work.  Fraud and corruption were not tolerated in the CIBD.

A review of the CIDB's financial statement showed expenditure of R121.7m exceeding income of R115.1m by R6.6m.  After taking loss on disposals into account, the total deficit amounted to just over R7m.

The CIDB had received an unqualified audit report from the AG, with no matters of emphasis.  However, the entity had achieved only 53% of its planned targets.  The main reasons were that the time required for achievement had been under-estimated, there had been unexpected delays, and consultations had been protracted.  It was now a high priority to ensure that all targets were SMART-aligned, and signs of improvement had already been noted.  The AG had raised some findings, in response to which the CIDB had designed a Corrective Action Plan (CAP) monitoring tool, setting down time lines, responsibilities and specific actions.

Discussion
Mr Sithole said page 132 of the Annual Report indicated irregular expenditure had been incurred, and that no disciplinary action had been taken against staff, who had resigned.  This meant there had been no consequences, which was a concern.

Ms Ngwenya-Mabila criticised the presentation for failing to include a section on the CIDB's human resource capacity in the summary document.  She was also concerned that the entity had spent 99% of its budget, but had achieved only 53% of its targets.  Had the fraud awareness workshops had any impact, or were officials still undermining the policies that were in place?  Why were case law reports circulated?  Many of the CIDB's plans seemed to be awaiting public comment, so more details were required to indicate when they would be implemented.  What languages were being used in the CIDB manuals, as not all contractors were literate or understood English?  When would the anti-corruption model be finalised? 

Ms November asked if the CIBD could provide Members with copies of its brochure, so that they could understand what it was about.

Ms Madlala asked for clarification on the grading system, as it was not clear how people were spread between grades 1 and 9.

Ms Ngcengwane expressed concern about the level of subsistence costs and consulting fees.  She asked if the regional offices were linked to the new IT system.

Deputy Minister Cronin commented that the DPW did not fully understand the huge potential existing in the CIDB.  For instance, the training and certification of public officials in the area of procurement was a “brilliant idea.”  A lot of effort was going into development, and it was important to ensure that the industry was not dominated by the big players.  In order to promote job creation, there needed to be a focus on labour intensity.  Big companies obviously found machines more easily to control than unionised workers, and he felt the government was not putting enough pressure on them to become more labour intensive.

Dr Milford addressed the issues that had been raised by Members.

He said the problem facing the CIDB in connection with the fraud issues, and imposing consequences, was that there had been no supply chain management policies in place, so no follow-up action would have been successful.  The policies were now in place.

While the human resources situation had been covered in the annual report (pages 64 and 65), it had been omitted from the presentation.  It would be included in future presentations.

Regarding the 53% achievement against target, many of the targets had since been completed.  Detailed reasons for the non-achievement, and the corrective action, were included at the back of the Annual Report.

The case law reports were about cases where contractors and clients end up in court, and were not about cases involving the CIBD.  They were monitored to see if they impacted upon the CIDB's future regulations.

Dr Milford said all tender documents were published in English, but admitted that the CIBD needed to use various languages to communicate through its brochures.  It had done so in the past, but needed to do more in the future.

The anti-corruption model was scheduled to be finalised by March next year.  Regarding the impact of the fraud awareness programmes, aimed at the CIDB's own staff, there had not been a single internal case in the past three or four years, so it would appear to be having a positive impact.

Copies of the brochures would be forwarded to the Committee.

Changes had not been made to the grades, only to the registration system, where the electronic changeover had not gone as planned.  In the next presentation, the CIDB would elaborate on the trends, although it could be said that there had been a rapid increase in registrations.  However, transformation was not progressing well in the upper grades, and this was something the CIDB needed to address.

Mr Sfiso Nsibande, Financial Manager, CIBD, responded to criticism of the level of consultancy fees and travelling costs, saying that the entity was aware of the issue, and was trying to make greater use of skills in-house.

Mr Milford confirmed that the CIDB was linked electronically to its provincial offices, which was helping with fraud prevention.  Documents were now scanned at the point of collection and then forwarded electronically for further processing.  This ensured that documents could not be altered, and were better able to be tracked.

The Chairperson thanked the CIDB delegation for their engagement, and said she hoped they were being successful in dealing with the issue of collusion.

The meeting was adjourned.
 

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