Construction Industry Development Board management: Department of Public Works progress report

Meeting report

Briefing by Construction Industry Development Board (CIDB)

Mr Lufuno Nevhutalu, Chairperson, CIDB, indicated that he was appointed in March 2016 and this followed interventions by the Minister on governance challenges in the CIDB Board. There was currently no Deputy Chairperson in the Board and this would be addressed urgently. The Board operated with four Committees which focused predominantly on statutory issues as well as the core business and each Committee had a Committee Chairperson – these were members of the Board. The Board met at least four times a year. The Board as well as all its committees had approved Charters that guided and informed the terms of reference for each structure. The Board currently had an Acting Chief Executive Officer who reported directly to the Board through the Chairperson.

Mr Nevhutalu stated that in February 2016, the Board attended a governance workshop, facilitated by KPMG and this was done in conjunction with Public Works. In March 2016, the Board hosted its National Stakeholder Forum and the theme of the forum was on transformation. In April – May 2016, the Board conducted its performance assessment as well as that of its Committees. This was facilitated by Grant Thornton in order to enhance its effectiveness. The assessment recommended specific review of committees for consideration by the Board. This would consequently be followed by the review of the Charters so as to align this with the new terms of reference. In order to be able to support the revised strategy, the Board was currently embarking on an Organisational Re-design (OD). In addition to a revised staff organogram, the following OD deliverables were expected:

• Service delivery model

• Skills audit

• Competency framework

• This will inform the competency assessments at all levels

• Training strategy

• Remuneration strategy

• Revised Job Evaluation and job grading system

• Enhanced performance management system

Ms Hlengiwe Khumalo, Acting Chief Executive Officer, CIDB, mentioned that in line with the CIDB Act No. 38 of 2000, the Minister of Public Works appointed a Board (as Accounting Authority) that is tasked with a responsibility of overseeing the operations of the entity. The Board consisted of not fewer than nine, but not more than 13 members. The Board currently had 13 members and the term of office of the CIDB Board was three years. The current Board’s term officially started on 1 August 2014 and would therefore end on 31 July 2017 and Board members may not serve for more than two consecutive terms, unless the Minister considered it necessary to reappoint a member (for continuity or specific expertise). A third of the Board members must be reappointed. The future Board would be structured in a way that there would be a Chairperson of the Board, audit, risk and governance committee, a committee that is focused on human capital, registration and regulatory compliance and a committee that is primarily focused on stakeholder management. The Board would be outsourcing the secretariat service.

In relation to the remuneration of the board members, the National Treasury (NT) rates were applicable to CIDB and these were in terms of Category “S” of the National Treasury’s determination for Boards. The rates applicable were determined by the Minister of Finance. These wee reviewed annually in April to cater for cost-of-living adjustments. The Chairperson of the Board was remunerated on a rate of R608.00 per hour and R4 864.00 per day while the Vice Chairperson was on a rate of R516.00 per hour and R4 128.00 per day. An ordinary Board member is remunerated at a rate of R473.00 per hour and R3 784.00 per day. It is important to note that these rates are as at 1 April 2015 and are yet to be revised for 2016.

Discussion

Ms D Kohler-Barnard (DA) asked about the strategy in place that would be used for discontinuing with the de-registration process of the companies in the Built Environment, especially when one took into consideration companies that had been found to have been behind a criminal activity or broken many of CIDB’s crucial regulations. What was the deadline for discontinuing with the de-registration process? It would be important for the CIDB to take into consideration of the fact that there are many companies that had deliberately failed to pay the registration fees and this needed to be investigated. The CIBD would also have to deal with the reality that a blanket moratorium on de-registration could see the “fly-by nights” companies that could end up taking over and building sub-standard buildings and this had happened many times in the building of RDP houses. It would be important to know the current and long-time strategy in place in dealing with clients that had failed to comply with CIDB prescripts in terms of legislation. The Committee should be provided an update in regard to the suspended and the Acting CEO.

Mr K Sithole (IFP) expressed concern that there was not enough that was being done in fostering transformation in the Built Environment and this was particularly the case in Grade 8 and Grade 9. Is there any plan in place to accelerate transformation in the Built Environment? It would be interesting to hear if the CIDB had any strategy in place to deal with fraud, corruption, collusion and political interference in the construction industry. He also wanted to know how the CIDB was planning to go about in the process of downgrading some of the construction companies. What mechanisms were in place to solve the issue of late payment of service providers?

Ms P Adams (ANC) wanted to know whether there was a particular reason why the Deputy Chairperson of the Board was not appointed during the creation of the current Board. It was strange to discover that the CIDB was still to conduct the skills audit of the Board members as this was supposed to be done prior to the appointment of the Board members. The CIDB should be appointing people who would be able to scrutinise the abilities that each Board member would bring to the Board. It must be commended that the CIDB would be introducing the digitisation process of services; however, this should not exclude those who were yet to enter the digital world. It would be important for the CIDB to delve into the issue of access to work opportunities and this is to ascertain whether the tenders are being distributed evenly amongst everyone. She also asked about the gender sensitivity and age-group of the Board members. It would be important for the Committee to know how well the Board was in the facilitation of the code of conduct of Board members. What was the input of Board members in the drafting of the code of conduct? It was unclear as to why the CIDB was outsourcing the secretariat services, considering the sensitivity of information that would be going to big companies.

Ms S Kopane (ANC) stated that the presentation showed that the Board had been working very well from the beginning of this year until now. It would be interesting to hear how much was spent on the governance workshop that was facilitated by KPMG and the work done by Grant Thornton. It would be important to hear if the CIDB managed to have a consultation with the trade unions as the Board was currently embarking on the Organisational Re-design as this might impact on the rights of workers. She also wanted to hear whether the CIDB managed to put the budget aside for the process of embarking on the Organisational Re-design. How much would this cost the Board? The Committee should also be briefed on the progress that had been made with regards to the court cases that was taken by some companies against the Minister of Public Works, Mr Thulas Nxesi.

Mr M Filtane (UDM) wanted to know whether there was any specific reason as to why the CIDB opted to outsource the secretariat service. What were the exact functions of the stakeholder management committee in so far as engaging with contractors was concerned? The Board should be concerned about the slow pace of development which underpinned any transformational agenda. It could perhaps be helpful if the Board had one person that would be focus exclusively on contractor development. How would the Board to go about dealing with the negative perception of the contractors against the CIDB? What was the entity doing in regard to the enhancement of contractor development?

Ms E Masehela (ANC) appreciated the presentation that had been made as it touched on the issue of registration of contractors and the late payment of service providers. It was disappointing to observe that the issue of transformation was still lagging behind as about 88% of the companies that had been registered were still in Grade 1. What was the strategy in place that would focus on fostering transformation in the Built Environment with a particular focus on improving the grading of the contractors? It would be important to hear from the CIDB on the mechanism in place to regulate the issue of sub-contracting as this was a major problem to small companies. She also asked if there was any specific reason for the outsourcing of the secretariat services.

Mr Nevhutalu responded that the matter of downgrading was linked to transformation and the growth of small companies. Downgrading had always been used as the risk management tool but this risk management tool had been applied negatively in as far as encouraging the growth of smaller companies. The statistics and figures were showing that the majority of women-owned businesses or black-owned businesses were not beyond level 6 and this was after 22 years of democracy. This was totally unacceptable. The downgrading was essentially used as a measure to almost discourage people from progressing. The CIDB had suspended the downgrading from level 1-6 at least. There was already a committee in place that would analyse how to replace the downgrading process so that the negatives could be outweighed by the positives without taking away the risk management tool. The entity would be having a Board meeting where the focus would be on coming up with a better methodology of fostering transformation as the ultimate idea and plan was to propel people.

Mr Nevhutalu indicated that the reality was that a lot of young people and women were not looking for handouts but opportunities and this was to be a major focus in the Organisational Re-design. There was hope that the CIDB would be able to see companies moving from Grade 1 to Grade 6 starting to move to Grade 7 and Grade 9 when finished with the implementation of the strategic review. It was difficult to deal with clients that had deliberately failed to comply with the prescripts of CIDB as the law was “very thin” on what the entity could actually do; hence there was a call for the review of the legislation. The appointment of the Acting CEO was done in order to stabilise the entity as it was always important to have a leader and CIDB needed to find an amicable way of dealing with the situation of the suspended CE. The CIDB lawyers and those of the suspended CEO were currently busy negotiating so that the matter could be resolved. The entity needed someone full-time who was going to be able to take the organisation forward.

Ms Kohler-Barnard asked if the current Acting CEO was being considered for the position of the permanent CEO.

Mr Nevhutalu replied that the CIDB had already advertised for the position and there was already a very high calibre of people that had shown interest and applied for the position. The person to be considered for the position should have a degree and a Masters in Business Administration (MBA). The five names of those that had been recommended for the position have been forwarded to the National Intelligence Agency (NIA) so as to ensure that anyone who was to be appointed was fully fit for the position. There was not much that the CIDB could do in dealing with corruption, fraud, nepotism and political interference as the law was once again very thin on what the entity could do in this regard. It must be stated that the CIBD would like to get involved in dealing with fraud, corruption, nepotism and political interference in the Built Environment but there was no legislative mandate to deal with those issues. In relation to the matter of late payment of service providers, the CIDB was working with National Treasury in resolving the matter as this was impacting negatively on small companies.

Mr Nevhatalu clarified that the entity did not have a deputy chairperson at the moment and this was a matter that would be dealt with by the Director-General. The performance of a skills audit was part of corporate governance and the Acting CEO would delve deeper on the matter. The matter of running the business according to the highest ethical standard was in the centre of CIDB’s business. The Board was well aware that its code of conduct needed to be in line with normal corporate governance including King I, King II and King III. There was a secretary who was conducting the secretariat. This individual was given a one year contract and CIDB was already reviewing that contract.

It must be stated that the CIDB together with the Minister and the Director-General was dealing with the issue of companies that had threatened to take the Minister and the entity to court. Development was one of the four pillars that the CIDB was focusing on and the entity would be failing if it was to ignore small companies. It was the intention of the CIDB to make it easier and accessible for the majority of big and SMMEs to register and renew their contracts without having to come to the CIDB offices and this was to be done online. The digitisation was to prevent too many fingers involved in the system of registration. However, the offices of the CIDB would still be kept open for the people who want to walk-in and do registration and renewal.

Ms Khumalo replied that there was a registration system within the CIDB which gave one a three year license - the Act required re-application after every three years. The three key focus areas on the renewal of the application were turnover, largest contract that had been awarded in the last five years and the available capital in terms of financials. The financials became important as they were proof of receiving an award within the past five years. The issue of performance was not one of those issues that are taken into consideration in the renewal of the application and this aligned to how the Board has approached its new strategy by looking at the pillar that was focused on the registration. The Board would be looking at the registration criteria as most of the problems like the downgrading were as a result of the criteria that was being used for registration. The Board had agreed to suspend the process of downgrading as this was affecting the contractors from Grade 2 to Grade 7. The statistics had shown that the problem of downgrading was more prevalent in Grade 1 to Grade 6 and this was where most of the SMMEs were located.

Ms Khumalo indicated that last year alone an amount of R13 billion from the construction sector was returned to the Treasury because it was not utilised and this money was for infrastructure budget that was not used. The CIDB was of the opinion that the issue of annual turnover for Grade 2s and Grade 6s should not be the deciding factor when companies were renewing their registration. The issues of the amount of capital in the bank should also not be the deciding factor for the renewal of registration for Grade 2s and Grade 6s. There was now a committee in the Board that would focus specifically on the issue of registration and regulatory compliance and the focus in future would be on even overhauling the whole registration and criteria that is being used. In relation to the issue of client departments that were failing to comply with CIDB prescripts, the Board was aware that this was a problem area and it was already in communication with the National Treasury so as to integrate the i.tender system with the e.tender system. The i.tender system is focused around the area of the advertisement of tenders and registration of projects.

Ms Khumalo clarified that the mandate of the CIDB was to promote unity throughout all spheres of government and also to monitor the performance of the industry. There was a lot that was done by the CIDB on capacitation of the client departments including municipalities. There was now a new standard for infrastructure development and procurement management that Treasury had introduced and this standard has incorporated the entire standard of uniformity of the CIDB that looked at the issue of capacitation in the public sector. In relation to the matter of transformation, the CIDB had identified five factors that need to be scrutinised in terms of transformation and the focus was on procurement, issues of business factors, conditions under which the contractors operated in, skills competences and the developmental support of the contractors. The stance that the Board had taken in regard to downgrading was indirectly responding to the issue of transformation. The new strategy that the Board had embarked on had taken transformation at the centre of everything. The partnership had been identified as a key strategic intervention to deliver on transformation. The CIDB was working very closely with the Treasury in attending to the issue of late payment of service providers. It must be pointed out that some of the shortcomings in the performance of the CIDB were as a result of the CIDB Act. The Department of Public Works was currently reviewing this legislation.

Ms Khumalo stated that the skills audit that was being conducted was for the staff and not necessarily the Board members and what was done for Board members as per the requirement of governance processes is to do a performance assessment of both the Board and its committees. The Minister had an interest in making sure that the Board was delivering on the mandate. The governance workshop that was done by KPMG costed about R120 000 and this was for the entire Board including the secretariat and senior management. The budget for the performance assessment of the Board and its committees as well as the peer reviews of all Board members costed about R190 000. In relation to the issue of Organisation Re-design, the Board had appointed the task-team that was overseeing the Organisational Re-design process. There was a project steering committee under the task team that was a representative of all stakeholders or departments under the CIDB. There were currently about five departments within the CIDB and there were representatives from each department including National Education, Health and Allied Workers (NEHAWU). CIDB was working very closely with Work Dynamics, an agency that assisted it with the Organisational Re-design.

Ms Khumalo said it was still difficult to determine the cost implications on the Organisational Re-design as CIDB was still awaiting the finalisation of the skills audit. Part of the strategy of enhancing the services of the CIDB was to keep up with technological trends and this was where the digitisation of the registration process was coming in. However, as already indicated by the Chairperson the Board, there would still be walk-in offices for those who preferred to do the registration manually. The CIDB was focused on the informing policies of government that related to issues of procurement, best practices and the practice notes in so far as they related to infrastructure development and delivery management. There was a specific committee that would be focused on registration and regulatory compliance. CIDB had recently conducted a study that would pay more attention to the kind of people who were in Grade 1 and whether these were even contractors or people from all walks of life. It was unfortunate that the registration process of the CIDB allowed anyone to register as a contractor and this was predominantly in the Grade 1 contractors. The entity was currently in the process of cleaning up the registration requirements at least in so far as the entry level was concerned. This was not to say that the entity would be putting in measures that were going to make it extremely difficult for people to register.

Ms Khumalo responded that CIDB had put in place standards that sought to regulate sub-contracting arrangements in the sector. CIDB had noted that most of the contractors were able to access infrastructure through sub-contracting arrangements and there was a lot of abuse that happened in this particular arrangement. The Board currently had thirteen members and there were five females in the Board. The review of the CIDB Act would provide assistance in terms of making sure that there was an input from all stakeholders on what the CIDB could do. The Board had taken a decision to outsource the secretariat service because there was no company secretary within the structure of the Board. The current Board had agreed that it was one of the responsibilities of the Board and therefore the secretariat would need to be incorporated within the structure of the Board. The Board had also resolved that the location of the secretariat service should be determined by the Organisational Re-design.

The committee on the stakeholder management was a new committee and all these new committees were brought about by the assessment that was done and the effectiveness of these new committees would start on 01 September 2016. The committee on the stakeholder management would be responsible for overseeing who the CIDB was partnering with and ensure that the partners that were brought on board could be able to assist the entity in achieving its mandate, focusing on issue of transformation, regulation and development. CIDB was aware of the fact that some of the initiatives that had been put in place have not really yielded the expected results. CIDB launched the Contractor Development Plan in 2012 and this is one of the tools that was aimed at improving the Built Environment. However, the uptake by client departments was extremely low and the client departments in this instance included those from national, provincial and local level. There would also be a focus on ensuring that the contractors are able to move up the ladder in terms of grading so as to be able to be self-sustainable. In relation to the negative perception of contractors towards CIDB, the best that the entity could do is to deliver on its strategy and the Board was now mainly focused on the impact of the CIDB on its interventions.

Mr Mziwonke Dlabantu, Director-General, Department of Public Works, stated that the appointment of the Board is done in line with each entities’ legislation and all appointments of boards should be done by the Minister of Public Works.

The Chairperson wanted to know the steps that were taken against companies that had been found guilty in the collusion saga.

Mr Filtane requested information on why an amount of R13 billion that was dedicated for infrastructure development was returned to the National Treasury. What are the corrective steps that could be taken to ensure that this huge amount of under-expenditure was prevented?

Ms Masihela asked if there was any mechanism in place to assist women in the construction industry in order to be able to match up with their counterparts. The Committee should be briefed on the situation presently in terms of the representation of women in the construction industry, particularly Black women. The matter of R13 billion that was returned to the National Treasury was also worrying as there were many contractors who were not given any form of job for projects.

Ms B Matebe (ANC) also expressed concern in regard to the slow pace of transformation in the CIDB and wondered whether there was any timeline for the review of the CIDB Act in order to respond to the transformation agenda. It was absurd that an amount of R13 billion could be returned to the National Treasury while a high amount of people in the country were still unemployed.

Ms Khumalo replied that none of the companies that were involved in the corruption saga were downgraded and this was because our Constitution was clear that “you are innocent until proven guilty”. The mere fact that the process had not been finalised meant the entity could not sanction any of those companies until the matter was finalised.

Mr Nevhatalu also added that the legislation was not giving CIDB more power to introduce punitive measures whenever when these big companies were misbehaving. There was a need for the framework that would be able to punish those who are misbehaving and this would assist in attracting those who are interested in investing in the industry.

Ms Kopane asked what had happened to the settlement of R291 million that was paid by nine out of eleven companies that were found guilty of contravening with the prescripts of CIDB.

Ms Khumalo reiterated that all the companies that had been involved in the collusion saga would not be downgraded as all those companies still qualified on the three key focus areas on the renewal of the application. This was why, in terms of the new strategy, there was a focus on the issue of renewal of registration and the whole registration process. It must be clarified that the CIDB had not necessarily been paid any settlement amount but the settlements that had been paid for those companies that were involved in collusion were those that had been charged by the Competition Commission. CIDB was engaging with National Treasury to tackle the problem of under-expenditure. One of the reasons for the introduction of the procurement reform by the National Treasury was in response to the perennial problem of under-expenditure.

The National Treasury had been identified as the main strategic partner of the CIDB in fostering transformation in the industry. There should be a mechanism in place on the client competent standard in order to tackle the problem of under-spending by all spheres of government, particularly local government. There should be other ways of delivering infrastructure in the country and this could be done by awarding more funds to those client departments that seemed to be delivering on their mandate. Infrastructure is one of the key elements that would assist in stimulating the economy of the country. The South African Women in Construction Industry (SAWCI) still existed and mainly focused on the representation of women in the construction industry. CIDB was also looking at the capacity of government to deliver on infrastructure projects and this was to minimise the kind of returns that go back to the Treasury because of under-spending.

Mr Imtiaz Fazel, Deputy Director General: Governance, Risk and Compliance, DPW, indicated that the Department had a policy framework in place that guided oversight and governance of the CIDB. The CIBD and other entities were very closely aligned to what the Department was doing and this was evident when the entity participated in the Cabinet Lekgotla. The Department of Planning, Monitoring and Evaluation (DPME) had given the Department the sole custody of overseeing the public entities and this was to ensure that the planning process within the public entities, including the CIDB, were in compliance with the government planning framework and properly aligned to what the Department was envisioning going forward. The Department was having an engagement with public entities at least once every quarter where the entities were required to present quarterly performance reports. The Minister hawe commissioned the signing of shareholder compact for the public entities and the shareholder compacts are a requirement as part of the Treasury regulations. The shareholder compact was designed to strengthen the relationship between the Department, Minister as well as the public entities with an aim of engaging each other and meet certain obligations.

The meeting was adjourned.