Construction Industry Development Board on its 2015/16 Annual Report, with Deputy Minister

Meeting report

Construction Industry Development Board (CIDB): Annual report

Ms Hlengiwe Khumalo, Acting Chief Executive Officer: CIDB, said that the entity aimed at strengthening and enhancing compliance in the construction industry, capacitating it to build quality infrastructure, focusing on transformation of the industry and the development of a knowledge economy. It wanted to produce excellent service.

With regard to compliance, there was a management standard that required transparency. The CIDB had issued a report on its strategy, which improved compliance. Several amendments were proposed in 2015/2016. The majority of contractors were in grade 1. Specific documentation was needed for people who were in grade 1. Tender value limit adjustments had also been focused on, and several other aspects had been monitored.

A framework for professional service providers had been developed, which looked at a register of professional services. Four classes had been developed, from p1 to p4. These had amounts and specific requirements attached to them. With regards to grade p1 and p2, the number of registered professionals required would be one official who was a professional. Two officials were required for p3 and p4. With regard to construction project management, in p1 and p2 one manager was required.  This was just a framework which had been sent for consultation with various stakeholders.

The CIDB followed up on clients who had less that a 60% compliance level. There had been a positive response from clients with regard to compliance this year. There had been 95% compliance, and these entities were listed. The CIDB had issued a report on the capacitation of the client departments, which had been finalised at the end of March. All public sector clients were allowed to attend forums. Central state entities had attended a networking forum. A report had been prepared for the roll out of the Infrastructure Delivery Management Toolkit.

Transformation was monitored by the Chief Executive Officer (CEO). In grade 9, the target had been achieved. The entity had over achieved in the area of women’s ownership. In grade 5 and 6, in both black and women’s ownership, the CIDB had been 1% below its target. Black ownership for the CIDB meant that the business in question had over 50% black representation.

The report on Small and Medium Enterprise (SME) business conditions highlighted that there was inadequate access to credit, which was constraining business. It showed a growing trajectory of funding issues. There were some shortages of skilled labour, which was a concern.

With regard to black ownership, there were higher levels of black-owned firms at the lower grades. In grades 2 to 4, there was about 80% black ownership, but there was a decline when one went up the grade scale. With regard to construction indicators, there was decreasing client satisfaction. This was probably due to the lack of work and decreasing profits.

The CIDB had hosted the 2016 postgraduate conference at the University of Cape Town (UCT). The theme had been “emerging trends in construction”. Multiple abstracts had been received.

With regard to financial sustainability, common reporting standards (CRS) and construction industry performance (CIP), the CIDB wanted to focus on issues of development. Money was to be used on management systems. A number of other related avenues had been looked at. Issues of mentoring the Contractors Development Programme (CDP) were also a key focus. This would take the bulk of the funding. Performance reports, skills development and centres of excellence, needed to be looked at also. This would be the focus where the bulk of the R482 million would be spent over the five-year period. Only R97 million would go to operations. More staff would be needed.

With regard to service excellence, 44 000 applications had been received in grade 1 and 2. 7 600 inquiries had been received and were dealt with in time. 13 out of 16 CDP’s in the public sector were registered in the electronic monitored system. There had been a 96% satisfactory response with regard to surveys.

Corporate services had focused on an optimal organisational culture. There were about 32 employees who had benefited from established programmes. Forums had been established for stakeholder consultations. A transformation framework had been discussed, and five factors were identified: governance issues; business conditions; business factors; construction skills and competencies; and development support. These needed to be altered to create effective transformation.

Among the challenges, an implementation report had not been produced because of some of the changes which National Treasury had made, but implementation would take place. The second issue dealt with implementation of a pilot procurement and management programme. This would be completed in tandem with National Treasury. The third issue dealt with unmet transformation targets. A construction report had also not been finished. Lastly, only 72% of construction registration services were completed. All backlogs had been cleared since then. The re-design of the organisational structure had been looked at further. There had been issues with delayed payments.

The CIDB had 196 employees, the majority of which were youths who contributed around 50% of the total. Regarding employment equity, 39% were males, so the majority were females. Even though there was a majority of females, they were mainly in the lower level skilled jobs, such as administration. There was a new strategy which was being looked at with regards to employment equity standards, and this would also look at employing people with disabilities. What had been done in the past was not getting results. Adverts were not getting specific responses. There were 24 job vacancies currently. There were people who were in acting positions in some of these vacancies. With regard to governance matters, a new chairperson had been appointed to the board.

On financial performance, the CIDB had incurred expenditure of R133 million, which reflected an under-spending of R11 million. The surplus for the year was R16 million. There had been a number of budget cuts amounting to R15 million, and it had been advised of future budget cuts. There had been an unqualified audit opinion. There had been irregular expenditure of R2.3 million as a result of old contracts which the entity was still paying off. A corrective action plan had been developed, to address the findings.

Discussion

Ms D Kohler Barnard (DA) said listening to the CIDB was like listening to a child who was top of the class -- it was doing better in comparison with other Department entities. She asked why it had chosen to break from the way its normal presentation format, as this one was hard to follow. Where were the missing targets? The processing of applications seemed to be on a downward trend. In the human resource section, six dismissals were reported -- what did these entail? At the meeting on 30  August, the CIDB had admitted that R13 billion had not been spent -- what was being done about this?

Ms P Adams (ANC) asked why there was still an acting CEO, and when this would be changed. On strategic goal one, how many foreign firms did the CIDB have, and by when would this be done? When would the substantive registration requirement for grade one be finished? With regard to a register of service providers, the entity should have its eye on the ball. Transformation was needed across the board. She asked about the requirement for officials in each grade to be aligned to international standards. Why had only seven provinces been counted, with no information on the Northern and Eastern Cape? Could the CIDB give an indication of the success rate of its toolkit?

Were certificates awarded when training was completed? Referring to the shortage of skilled labour and the high proportion of employees engaged in semi-skilled and discretionary work, she asked what was the entity was doing to skill people. How much had been spent on printing the books which had been presented to the Committee? Why was internal auditing outsourced? What was the plan to create more internships?

Mr M Filtane (UDM) said the entity’s turnaround times and unqualified audit outcomes were appreciated. It was an enabling institution so that there could be transformation. What impact was made in economic terms? It was important to assess its relevance and whether there was a demand for the services it rendered. How was the entity making sure that no one slipped through the net with regard to compliance? Was there any regulation and methods to ensure that everyone complied? The absolute abandonment of safety standards was not acceptable. He suggested the development of an electronic linkage which indicated when a plan was approved, so that the CIDB could check up on this. 

How would the figures on grades’ official requirements given by the CIDB affect professionals? Given the skewed academic qualifications in South Africa, how would this affect the whole transformation programme? How would the proposed plans impact on black professionals? Taking into account the inadequate finance and constraining factors, was the CIDB in touch with government-linked financial institutions?

Ms E Masehela (ANC) referred to the registration of sub-contractors, and asked how they were going to be assisted. With regard to the capital amounts for grade contractors, was this going to be seen as another form of gate-keeping? What was the entity doing to change the situation regarding the shortage of skilled labour? There was a high number of unemployed youths -- how many had been employed? She was happy that the entity would focus on disabled people. What was the longest period for which a position had been vacant?

Mr Lufuno Nevhutalu, Chairperson: CIDB, said the appointment of the CEO was made in consultation with the Department. By next year, this would be changed, as the entity would make the appointment, which would take the organisation further.

Ms Nazreen Pandor, Board Member: CIDB, said that with regard to the inadequate access to credit facilities, the board was dealing with alignment issues. It needed to make sure that it did not cut across the mandates of other entities. Facilitation was the mandate, and not becoming a credit institution.

Ms Mandisa Fatyela-Lindie, Executive Manager: DPW, said the prompt payment regulations were not aligned to section 33 of the CIDB Act. The regulation was unconstitutional. This was being dealt with. The nice thing about the proposed legislation was that it also handled relations between the entities within the sector.

Mr Nevhutalu said that the return on investment was an important issue. The CIDB had gone into the provinces this year to measure the impact of its services. It was very clear that the return on investment was minimal. The grading system, and the impact on women and youth employment figures spoke for themselves. This was one issue which the entity would focus on. A central role was needed to be played by the CIDB in the public and private sector. It had influence, but needed more capacity.

Ms Pandor said that in order to strengthen legislation, the board had conducted a study and had realised that many people registering in grade 1 had no knowledge of the industry. The CIDB needed to protect the public also, so one of the amendments which it was proposing was to establish a number of skills requirements for grade one, to ensure that it delivered on its mandate.

Ms Khumalo said that the entity had failed to achieve what it had targeted. This was a problem, and CIDB was looking at business process engineering. It was unacceptable that with all the technology available, the entity took more than a month to complete registration processes. Over the years, administration staff had simply been added, and this was a problem. Registration processes needed to be revised. The whole system of registration criteria and processing needed to be looked at.

The achievement of nine targets by the procurement unit was a concern, and the unit had worked closely with National Treasury (NT) to ensure that targets would be met. NT had introduced new requirements which had affected the target. At the implementation stage, there had been confusion. A standard of uniformity had been developed which had been added as part of the NT standards. The CIDB was making sure that there was alignment.

With regard to the R13 billion that had gone to the NT, this had not been in the total control of the CIDB. There was a process which said that it needed to strengthen its monitoring and evaluation role. It needed to be in a position where it was able to establish links with municipalities. It needed to be active in advising the Finance Minister. The dismissals had been related largely to issues of misconduct.

There were 34 foreign firms out of a total of over 120 000. Twelve were in grade 9, three in grade 8, and 19 between grades 2 and 7. On registering professional service providers, there was a serious problem with regard to transformation, and this needed to be looked at. On international best practice, she told the Committee that the bulk of what the CIDB was doing was drawn from the examples of the Australian and Singaporean CIDB’s. The provinces which were not shown in the presentation were sitting between 60% and 90%.

A study would be conducted to look at the effect of the toolkit which was being used. Training was not accredited. Better interventions were needed here. Departments were being capacitated, and this was what the CIDB was doing.

With skilled labour, there were issues of access to work opportunities and issues regarding sub-contractors. With semi-skilled labour, half of those employed were youths. 86% of employees were at the semi-skilled level. A lot of these youths were administrators and data capturers. The bulk of the CIDB’s work was dealing with the registration of contractors. She agreed that transformation was inadequate. Five key themes were identified: regulation, development, evaluation, transformation and high performance. Issues of transformation needed to be identified and addressed.

With regard to outsourcing the internal audit unit, she said that the CIDB was embarking on the internal redesign of the entity. There was a need to use unemployed graduates within its administration section. It needed to take stock of what it wanted to about internships. These would be focus areas. With regard to qualified professions, there was a proposal as there was a problem with government. Most government programmes were being outsourced. Professionals were needed, and regulation around this was paramount.

The CIDB needed to work with other entities to have a more effective impact. The CIDB would send a report to the Committee on the issue of sub-contractors. The three key issues identified were delayed payments, bid-shopping and poor quality work by sub-contractors. It had become important for the CIDB to regulate sub-contractors. It wanted to overhaul the whole system. The longest established vacant position could possibly be the CEO, which had been vacant for about two years. The plan was to address the whole issue.

Mr Filtane said he appreciated the comprehensive responses. On the issue of irregular expenditure, he understood that one someone had acted contrary to established company regulations, so the matter needed to be considered a criminal matter. Why were cases of irregular expenditure not criminalised? Why was this matter not taken to the courts once some evidence had been found? He said that the Committee and the CIDB shared the same sentiments about linking up with other departments and portfolio committees. Important engagements with partners and efficiency were needed.

Ms Kohler Barnard said that what Mr Filtane had raised was true. In some entities, people were fired for irregular expenditure, but she could not understand why some people who had been fired for terrible acts, were still employed again in other entities. She asked where the nine grades had come from, and whether they were based on international standards. Would cutting them down to seven or six be more efficient?  

The Chairperson asked about irregular expenditure. There had been four issues on problem contracts. What were people doing to deal with such situations? There needed to be a way of following up on individuals.

Ms Khumalo said that the R2 million in irregular expenditure were offences related to the supply chain management framework. Services had, however, been rendered. These involved issues where there would be no tax clearance, and the CIDB had continued paying the service provider. These issues had been dealt with. Some staff had been given written warnings. Contracts had been cancelled when clients provided new tax clearance certificates. Some gave the entity tax clearances with a new name, or in joint ventures. The CIDB cancelled such contracts. Some contracts had resulted in irregular expenditure. The CIDB welcomed the suggestion of a direct linkage with other committees.

She said she would not want to speculate if the nine grades were benchmarked internationally, but on the basis that the entity had visited many overseas locations, she assumed that the CIDB grades had been taken from international standards. There was a sub-committee of the board which was looking at this. More or fewer grades could possibly be used.

Mr Nevhutalu said the Special Investigation Unit (SIU) was very busy at the CIDB, carrying out all sorts of investigations. It was very expensive to run. He suggested the CIDB needed to pick a country similar to South Africa which could be visited, which the Department would review.

Mr Jeremy Cronin, Deputy Minister: Department of Public Works, said that the DPW was satisfied with the CIDB and its performance. He reinforced the point that grade 1 needed to be looked at. It was a huge drag on the institution, and raised false expectations. It created the myth that everyone could be an entrepreneur. This set up millions of unemployed people, and led them to failure.

He said the Department was working on a policy with regard to the CIDB. There was decreasing client satisfaction. The reasons given did not make sense, unless one listened to the Acting CEO. Through an emerging contractor lens, increased requirements were an issue, while through the public lens, quality and safety were needed, which subsequently led to the increased requirements.

The CIDB mandate was strategic leadership in the industry. One could not measure the CIDB and investment within the economy. Black monopoly capital could be as detrimental as white monopoly capital. The CIDB’s strategic leadership was about Black Economic Empowerment (BEE), but there were other issues such as safety which needed to be looked at. Safety was poor. He asked which country in the world had 37% unemployment. Unemployment was a public interest crisis. The ministry was not working with its entities closely enough, and needed to raise public interest issues with them.

The Chairperson thanked the CIDB for its presentation, and the meeting was adjourned.