Public Works Turnaround Strategy: Efficiency Enhancement Phase 2

Public Works and Infrastructure

22 August 2017
Chairperson: Mr F Adams (ANC)
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Meeting Summary

The Department of Public Works (DPW) together with the Property Management Trading Entity (PMTE) briefed the Committee on progress concerning Phase II of the Turnaround Strategy.

The PMTE currently managed what was traditionally the core business of DPW and today represented the largest real estate portfolio in the country. As of 31 March 2017, the entity was responsible for 29 322 parcels, 93 943 buildings, with a gross cost of around R149 billion. There are 2597 leases and the entity was spending approximately R4 billion on leases. In terms of accommodation types, 54% of the accommodation was specialised assets, 39% residential areas and 7% was offices. There was 35% of the land that was supposed to be utilised by the entity but still remained vacant. The Turnaround Strategy was due to high turnover of political and executive leadership. There was a need to develop and apply business-like principle of efficiency in the acquisition, usage and disposal of government immovable assets. There was also a failure to develop the capacity required to manage its real estate portfolio. The issue of the incomplete asset register was a major concern and a number of state properties were being underutilised whilst private sector leasing-in was expanding. From 2012 up until 2014 the focus really was on stabilisation, 2014 up until 2017/18 is on efficiency enhancement and from 2019 the focus will be on sustainability and growth.

There are a number of achievements that had been made on the stabilisation phase and these included:

  • Norms and standards for category 1 and 2 (Presidents and Executive) had been developed and being implemented.
  • Norms and standards for category 3 are being developed
  • The Presidential Handbook had been developed and adopted by Parliament
  • Supply Chain Management (SCM) being reviewed for national events including term contracts and panels for service providers.

In relation to capacity building of the PMTE, the entity finalised the approved organisational structure in collaboration with the Department of Public Service and Administration (DPSA) and National Treasury (NT) in September 2016. A dedicated industry research unit was established to inform investment decisions. A direct accountability model was adopted for each business area. There are still challenges with regards to funding limitations for ideal structure, vacancy levels on technical skills, reliance on appointments additional to the establishments. Capacity building commenced in terms of implementing technical capacity, building initiatives to address specific skills requirements. There are partnerships that had been formed to re-and up-skill DPW through tailored programmes like Property Owners Association (SAPOA) and Public Works Academy through Coega Development Corporation. The vacancies at the moment included construction project managers, engineers, architects and town planners.

The entity was recommended that the Committee should support its position as enabler of socio-economic activity as the custodian of the State’s portfolio.

Members complained that they had only received the presentation the day before the meeting and this denied them an opportunity to peruse and engage with the presentation. In addition, they asked about the strategy that is in place to deal with vacant buildings, what security measures that had been implemented in these vacant buildings so as to prevent the situation where they are being invaded by criminals and if the Committee could be provided with a copy of the completed asset register. Some Members expressed concern around challenges with the procurement process, that 35% of the land that was not being utilised for productive purpose, and that there are very few professional councils within the property sector.

The Department was expected to provide written responses by Thursday 24 August 2017.

Meeting report

Briefing by the Property Management Trading Entity (PMTE)

Mr Nkosana Kubeka, Chief Director: Property Management Operation, PMTE, said the entity was tasked with dealing with poverty alleviation, reducing inequality and redefining service delivery. The entity recognised its role as property is an important socio-economic lever to exert visible impact in driving capital formation, investment growth and social development. The challenges that are currently facing the entity included the fact that tight fiscal and economic space requires the entity to do more with less money. The PMTE still remained critical strategic priority to build value and bring savings to the State. The PMTE currently manages what was traditionally the core business of the Department of Public Works (DPW) and today represents the largest real estate portfolio in the country. As of 31 March 2017, the entity was responsible for 29 322 parcels, 93 943 buildings and the gross cost was around R149 billion. There are 2597 leases and the entity was spending approximately R4 billion on leases. In terms of accommodation types, 54% of the accommodation was specialised assets, 39% residential areas and 7% offices. 35% of the land was supposed to be utilised by the entity but still remained vacant.

Mr Kubeka explained the historical context to the turnaround strategy – previously, there was an unstable strategic direction that was being taken and this was due to high turnover of political and executive leadership. There was a need to develop and apply business-like principles of efficiency in the acquisition, usage and disposal of government immovable assets. There was also a failure to develop the capacity required to manage the entity’s real estate portfolio. The issue of the incomplete asset register was a major concern and a number of state properties were being underutilised whilst private sector leasing-in was expanding. The entity also noted that the ICT system was not supporting the core business; there was inappropriate organisational structure and multiple negative audit outcomes. The stabilisation of the Department was due to historical poor performance and lack of adequate management and financial controls. From 2012 up until 2014 the focus really was on stabilisation , 2014 up until 2017/18 is on efficiency enhancement and from 2019 the focus will be on sustainability and growth.

There are a number of achievements that had been made on the stabilisation phase and these included:

  • Norms and standards for category 1 and 2 (Presidents and Executive) had been developed and being implemented.
  • Norms and standards for category 3 are being developed
  • The Presidential Handbook had been developed and adopted by Parliament
  • Supply Chain Management (SCM) being reviewed for national events including term contracts and panels for service providers.

Mr Khubeka stated that the entity was able finalise the approved organisational structure in collaboration with the Department of Public Service and Administration (DPSA) and National Treasure in September 2016. A dedicated industry research unit was established to inform investment decisions. A direct accountability model was adopted for each business area. There are still challenges with regards to funding limitations for ideal structure, vacancy levels on technical skills, reliance on appointments additional to the establishments. Capacity building commenced in terms of implementing technical capacity, building initiatives to address specific skills requirements. There are partnerships that had been formed to re-and up-skill DPW through tailored programmes like Property Owners Association (SAPOA) and Public Works Academy through Coega Development Corporation (CDC). The vacancies at the moment included construction project managers, engineers, architects and town planners. In order to mitigate against vacancies, skills gap candidates will be identified in critical areas and places in a candidacy programme. The candidates will be placed with candidates that are contracted by DPW. The retiring DPW technical employees will be identified as mentors when they retire and placed in the programme to support the candidacy programme

The PMTE managed to complete land parcels under the custodians of DPW from 2012/13 financial year and this was something to be proud about. DPW moved from a disclaimer to a qualification for immovable assets for 2012/13. In terms of procurement reforms, the Department is currently implementing the use of panels of professional consultants per province or region who are appointed through an open tender process. The benefit of this initiative is not only an expedited procurement process but also a cost saving as the fees charged are discounted below the Council rates. This would also be helpful in a number of areas like:

  • Reduction of government rental expense
  • Achieve effective and efficiency delivery of accommodation to user departments
  • Shorten turnaround timer on delivery of accommodation as well as to comply with the Constitution and NT prescripts on procurement 

Mr Herman Pienaar, Director: Financial Planning, PMTE, highlighted that the entity aimed to stimulate economic activity particularly at small harbours and state coastal property development. This is to ensure territorial integrity through the management of small harbours and coastal properties. There is also urban and rural development that is aimed at developing government precincts in collaboration with municipalities, provinces and sector departments in 40 urban areas and 40 rural targeted municipalities. This plan will prioritise addressing spatial imbalances, develop project pipeline that supports integrated development and also reduce the lease portfolio. In essence, this supports radical economic transformation based on infrastructure development, job creation and economic stimulus. The entity aimed to develop urban areas like Mbombela, Polokwane, Secunda, Motlosana and Vredenburg. In rural areas, the places to be developed included Idutywa, Mount Fletcher, Howick, Mandeni, KwaMhlanga and many more. In terms of transformation, the focus would be on changing the patterns of ownership by looking at designated groups like black, disabled people and women. PMTE will also be looking at empowering emerging players and improving participation on a broader level.

Mr Pienaar pointed out that the current user charges on accommodation are based on properties occupied before 2006 and does not take into account any new facilities built or upgraded in the last 10 years. There is strategic reprioritisation that is planning to offset the challenges that are faced by the entity, particularly on goods and services and dealing with high vacancy levels on technical skills and limitations of streamlined structure.

In conclusion, the entity acknowledged its obligation to focus on financial sustainability, introducing creative cost cutting measures and cost recovery measures and then developing a financial sustainability model. The entity recommended that the Committee should support its position as enabler of socio-economic activity as the custodian of the State’s portfolio. The Committee should also note the need for reasonable user-charges to cover total operational costs like maintenance, rates, custodian service fee and capacity planning. The Committee should also endorse government’s investment in the PMTE as a vehicle that stimulates inclusive growth.

Discussion

Mr M Figg (DA) firstly complained about the fact that he only had to receive the presentation the day before the meeting as he had been denied of enough opportunity to peruse and engage with the presentation. Further, he said it would be important to hear about the strategy that is in place to deal with vacant buildings. It was also unclear as to whether there were any security measures that had been implemented in these vacant buildings so as to prevent the situation where they are being invaded by criminals. It was good to hear that there is a completed asset register in place and perhaps the Committee should be provided with such copy of the asset register. The Committee should be briefed on the action that had been taken to deal with those individuals that are alleged to have committed corrupt activities.  It would be useful for the Committee to be forwarded with the before and after organisational structure of the entity.

Mr Figg said that the Committee should be briefed on the reason for the increased operational cost within the entity as this was not highlighted in the presentation. It was unclear as to whether the entity had enough capacity to manage the operation of an academy, as this was a function that could be delegated to the Department of Higher Education and Training (DHET). It was concerning to see that there are still concerns around the procurement process as this was supposed to be taken care by the procurement office. There were long leases in the past and it would be interesting to see how the entity would negotiate the new lease agreements. The conversion of houses to guest houses could put more burden on the fiscus as they would require maintenance and most of the officials who would stay in those houses are based in Pretoria. It is important to ascertain whether it would not be ideal for the Department to transfer some of the properties to various government departments so as to reduce operational cost.

Mr M Filtane (UDM) expressed concern that the presentation was very thin on the benefits to be provided to small businesses, small operators with not enough land, capital and infrastructure. It was disappointing to hear that there is about 35% of the land that was not being utilised for productive purpose and this had been flagged in the previous meetings. It must be highlighted that the issue of land had been a heated topic in the fifth Parliament and therefore this is something that the Department and the entity needed to take into consideration. It was unclear if there are urgent steps that had been taken with regards to prioritising project management as this would be important for the efficiency of the entity. The Department would need to take a firm action on creating leadership stability within the Department. The stabilisation of leadership would be beneficial in the long-term for the Department. The slow progress in fostering transformation within the sector was a huge concern for the Committee as it was claimed that this was because of poor upgrading by Black professionals. It was unclear as to what it is exactly that the Department was doing to get to the bottom of this problem.

Ms E Masehela (ANC) appreciated the presentation that had been made but wanted the entity and the Department to translate the good plans into a reality on the ground. What was the update concerning the exorbitant rentals that are being paid by the entity for renting the buildings? What was causing the high turnover of professionals and the solutions that could be implemented to deal with this problem? It was concerning to see that there are very few professional councils within the property sector and the Department needed to do something about this. It was absurd to note that the entity had very few black professionals considering that the institutions of higher learning were producing enough qualified professionals that were sitting at home. It was unclear as to who will be mentoring the new professionals that would be entering the sector as to whether it would be retired professionals. The use of retired professionals could be a major concern as these individuals are often the actual gatekeepers.

Ms Masehela asked that the Committee be provided with progress on the turning of rural areas into towns as it seemed like the areas that had been identified were not real deep rural areas. What was the progress that had been made on ensuring that buildings would be accessible to disabled people as this was also one of the priorities of the entity.

Ms P Adams (ANC) also expressed concern that she only received the presentation the day before and this was something that the Committee needed to take up further. The Committee should be provided with progress with regards to the operationalisation of the PMTE as this was something important to be flagged. It was unclear as to whether a credible asset register had been completed and could be forwarded to the Committee. Is there any skills audit that is being conducted by the Department in order to get qualified individuals? The provision of mentoring was important but the Committee needed to start seeing this mentorship yielding good results. The fact that there are so many vacancies within the entity proved that the mentorship programme was really not effective.

Ms Adams said that it was also worrying to see that there was no mention of the DHET in the presentation considering the need for young professionals. There was also no mention of the collaboration with other client departments in order to reduce the operational cost. What is the impact of the assistance that is being provided by the Cubans?  The Committee should be provided with the breakdown of the retired officials and those that are still in the mentoring phase. What was the progress on the electronic tender system to be introduced to reduce too many fingers in the tender process? It would be important to hear whether there is any effective monitoring of the utility service.

The Chairperson suggested that the Department should provide written responses by Thursday 24 August 2017 as Members had to rush to a memorial service of the late ANC Member, Mr Trevor Bonhomme.

The meeting was adjourned.

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