Payments within 30-day period: Public Works briefing, with Deputy Minister

Meeting report

The Chairperson welcomed the Deputy Minister, Members of the Committee, and the delegation from Department of Public Works (DPW). He said that the Minister for Public Works would not be available because of a National Council of Provinces (NCOP) meeting.

The Committee Secretary read the apologies, and Mr M Figg (DA) indicated that a guest Member from the Committee on Small Business Development, Mr R Chance (DA), would be attending the meeting.

The Chairperson said that the purpose of the meeting was to receive a brief from the DPW and the Property Management Trading Entity (PMTE) on the Enterprise Resource System (ERS), a tool proposed to be used for improving payments to suppliers within the required 30-day period.

Department of Public Works (DPW): Briefing

Mr Cox Mokgoro, Chief Financial Officer (CFO): DPW said that the operating context of the DPW included the main vote operations and the scale of operations for the Property Management Trading Entity (PMTE). The main vote operations comprised 86% of the budget for transfers and subsidies, 7% for compensation of employees, 6% for goods and services, and 1% for machinery and intangible assets.

The scale of operations for PMTE operations included facilities management, emergency maintenance, cleaning and gardening services, construction projects, payments for municipal services and property rates and leases. The PMTE processed about 14 000 payments monthly, which amounted to about R15 billion in total supplier payments. The ratio of project managers overseeing projects was about 1:20, which made payments difficult. The PMTE’s operations were further challenged because it did not have satellite offices close to service points.

Presently, the information communication technology (ICT) structure for the main vote was based on cash, while that of the PMTE was based on accruals. There was a migration from cash to the Enterprise Resource System (ERS) for online real time purposes, but it intended to use the Archibus software system, which took in the Enterprise Resource Payment (ERP) asset life cycle management. The current intervention developed by the DPW to assist with online invoice tracking was Rea Patala. He described how Rea Patala worked, and said that it had a dashboard that could be accessed by the Minister and Acting Director General (ADG) to confirm the status of invoices. Also it had a call centre for individual tracking and reporting mechanisms.

The future PMTE ICT environment transaction model Archibus, however, gave better detailed information. He said the PMTE ERP strategy gave room to update information on core business processes, such as the asset register. Archibus was a management system for real estate, infrastructure and facilities management, while Sage -- a financial management system -- was procured using generally accepted accounting principles through National Treasury’s (NT) approval to improve the PMTE’s ICT performance. Although the Sage finance module had been used since 2015, the NT’s guideline for PMTE procurement on 30 days payment had been released only on 1 April 2017. The Sage system needed to be customised for PMTE’s special requirements, such as goods and services, leasing and procurement of infrastructure for goods and services. The implementation of the Sage procurement module would automate processes such as purchase requisitions, purchase orders, invoices received, payments processed, etc, in relation to 30-day payments. He indicated time frames of October and November 2017 for ERP implementation on reactive maintenance, call centres, movable and immovable asset registers at pilot centres in Pretoria, Johannesburg and Nelspruit. The purchase model, lease and project management and preventive management would be rolled out from 2018 and 2019.

An analysis of PMTE’s 30-day payments as at 30 September 2017 and indicated that 72% of invoices were paid within 30 days, 13% were paid outside of 30 days, and 15% were unpaid.. The challenges faced by DPW in paying invoices within 30 days included the complexity of supply chain management (SCM) processes, delays experienced in capturing of invoices received while using the manual Excel system, and historical challenges. The historical challenges included the many gates of entry for invoices, no invoice tracking system, non-compliance by officers, submission of non-compliant invoices by suppliers, the integrity of information being tracked and long outstanding open orders.

The interventions by DPW were the Rea Patala-automated invoice tracking system; ministerial road shows; ongoing accruals projects and verification of valid invoices for day-to-day expenses; a CFO forum that deliberated on the status of payment levels in forum meetings; submission of payment levels and unpaid invoices to National Treasury (NT) and the Department of Planning, Monitoring and Evaluation (DPME) on a monthly basis; ongoing engagements with NT and DPME, and discussions with the Departments of Trade and Industry, Small Business Development and Public Service and Administration. He concluded by stating the recommendations of the DPW on the proposed PMTE Enterprise Resource System.

The Chairperson invited the PMTE and the DPW for additional comments, but the ADG indicated that neither had any additional comments.

Discussion

The Chairperson invited Members to interrogate the report.

Ms L Mjobo (ANC) said that the previous week Mr Adams spoke in Afrikaans and he couldn’t understand properly. She suggested that in subsequent meetings the Committee needed to get interpreters. She appreciated the report and the attendance of the Deputy Minister but when speaking about public works in rural areas visa-vie how the department’s report detailed the work of DPW she was doubtful that municipalities would concur; because DPW were saying they were paying for services whilst municipalities bemoaned non-payment by various departments. She also asked that abbreviations had to be explained during presentations as well as detailed breakdowns of invoices separating payments per province.

Mr Chance asked if the DPW had set targets for 30-day payments, and how the targets aligned with the DPME. He asked for clarity on whether the DPW was paying small or big businesses. Had it identified beaurocracy in payments, and whether it could simplify the payment process? Had the regulations on the payment for small businesses been implemented? He asked if the DPW had had any interaction with National Treasury (NT) on the payment to small businesses, as failure to pay small businesses could lead to liquidation. Had the DPW had any deliberations with NT on the liquidation of some assets?

Mr M Filtane (UDM) asked why the amount for emergency maintenance was higher than the amount for facilities maintenance. What steps were being taken to narrow down the ratio of project managers overseeing projects from 1:20? He asked why the DPW regional officers were not involved in the public works processes. Were service providers able to log on to the DPW site, and if not, why? He asked how many officials dealt with a single invoice and the reason for the number of officials. Why was the current DPW system not able to point out the official responsible for processing invoices, and what mechanism had it fashioned to fix the challenge? How much would PMTE’s payment efficiency improve when the ERS was rolled out in 2017/18? Why had the DPW procured a system that complicated and compromised payments within 30 days?

The Chairperson observed that the Committee had not arranged an interpreter, and mandated the support officials to arrange for an interpreter at the next meeting.

Ms P Adams (ANC) expressed employment equity concerns, and remarked that the Deputy Minister and the ADG needed to ensure that DPW had more gender representation. What did the DPW categorise as “day to day emergencies,” and when was a lease active? She asked about the criteria used to allocate projects to project managers, because some projects were big and some were small. What was the function of provincial managers if project managers had the bulk of the work? Why did satellite offices not exist if this could assist with payments? Why was it the ADG who checked the status of projects on the Rea Patala dashboard, how often did the ADG track the project status, and what was the impact of the tracking? She sought clarity on the Sage procurement module and the challenges experienced with Sage since 2015. She also asked if the DPW had implemented the regulations of National Treasury (NT) on the Sage procurement module.

Had the DPW engaged with NT regarding the challenges faced on the complex SCM processes? How effective were call centres in addressing payment complaints? What were the timeframes for piloting ERP implementation? She asked for clarity on lease management, the number of potential disputes, the outcomes of the potential disputes and who the third party was. What was the route for processing invoices, and why were invoices not sent directly to registry? What had been the administrative impact of the Minister’s road shows and the impact or the relationship between regional and provincial managers?

Mr D Ryder (DA) observed that DPW had stated that SCM complexity was a challenge to paying contractors within 30 days. He therefore asked if officials that were processing payments were actually performing their duties and were being held accountable. He expressed concern at the ratio of one project manager to 20 projects, and asked for an update of school construction in the Eastern Cape. Why was the DPW not represented in Northern Cape, considering that it had the largest land mass? He asked when Rea Patala would be 100% operational. He congratulated the DPW on achieving 72% payment of invoices within 30 days, but asked for the previous years’ figures. He also asked if DPW had a creditors’ age analysis report. What did the DPW do when an invoice was not paid within 30 days? He suggested that procuring new software would not solve the challenges encountered in paying contractors within 30 days. He emphasised the importance of paying invoices within 30 days, because it had an effect on the cash flow and performance of service providers, and could lead to the liquidation of small businesses.

Mr Figg asked if there was a regulation that provided that businesses must be paid within 30 days. Were day to day emergencies managed from a central point, or did clients have regional representatives. He asked if the buildings in municipalities were all occupied, and if market-related rates were paid for the use of these assets. How many project managers were needed for the 3 600 projects currently handled by the DPW? Why was the DPW not able to work with the NT regulations on the current system available? He congratulated the DPW on the creation of an asset register, and asked how it managed assets valued at R1. He remarked that the Sage software was not complex, but the staff were not conversant with it, so the DPW had to train its staff on the use of on SAGE.

Ms E Masehela (ANC) also expressed concern over the ratio of one project manager to 20 projects and asked why the DPW was not addressing its vacancy rate. Lease management was another concern, and she asked about the strategy used to manage maintenance in a planned way when construction was initiated. Why had Sage had not been fully implemented since 2015? She remarked that it was a serious oversight that DPW could not track the official responsible for processing payments for a specific invoice.

Ms D Mathebe (ANC) asked for clarity on the true reflection of DPW properties that were under lease, as captured in the asset register of DPW. She commented that the DPW had not mentioned the specific provinces in which the 3 600 projects were taking place.

The Chairperson said that Ms Mathebe had expressed concern on the true reflection of DPW-leased properties, because the Committee was not convinced that the asset register had been properly updated across the country. He also remarked that the Committee was concerned about the challenges of the complex SCM process that had been given as a reason for non-payment within the 30-day period. He asked for an update on using the National Youth Service to maintain properties. He supported the comments that failure to pay small businesses that were still growing was unacceptable, as they could become liquidated. He emphasised that the Constitution supported training, assistance and empowerment of small businesses that were previously disadvantaged.

Deputy Minister Cronin said that the understanding of the DPW had been that questions would be limited to the briefing on the Enterprise Resource System, a tool that would be used to improve payments to suppliers within the 30-day period. The DPW could give the Committee detailed updates on the illegal stolen properties, based on the asset register. The Department was convinced that the asset register had been completed, but the major challenge was the valuation of the assets, as indicated by the Auditor General of South Africa (AGSA).

He updated the Committee on the progress of the National Youth Service answered questions related to emergency maintenance. He said the DPW was working with NT on construction emergencies, which differed from the procurement of consumables. The Minister performed road shows to ensure that each party understood the implications of 30-day payment periods. The DPW was not considering the liquidation of assets based on budget challenges, but was considering the disposal of such buildings, although some had been leased out.

The DPW was upfront about the challenges indicated by the AGSA and was reviewing steps to site satellite offices in regions to assist in the payment of contractors within 30 days. The Eastern Cape’s school construction programme was handled by the province, but there was a national initiative to re-construct schools built with mud in the Eastern Cape.

Mr Filtane asked the DPW to give specific answers.

The Chairperson appealed to Mr Filtane to allow other members of the Deputy Minister’s team an opportunity to answer questions before follow-up questions were asked.

Mr Vukela said that the DPW would send written reports to the Committee on assets that were recommended for disposal, to assist with the necessary funding. It had implemented strategies to recruit relevant officials in a gender-sensitive manner, and written reports would be sent to the Committee. The performance agreements signed with Deputy DGs now included compliance with the 30-day payment rule. He agreed that facilities and maintenance management agreements needed to be part of the agreements on DPW-commissioned projects. The rationale for facilities management would be presented to the Committee in a written report.

Mr Ernest Ledwaba, Chief Director: ICT, DPW, admitted that clients were not yet able to log on to the DPW system to track invoices. He indicated that ERP was an end-to-end programme which allowed the sourcing of information on invoices at any stage. ERP also had back-ups and redundant lines which could take over when other lines were down. The ERP programme Archibus had different modules, hence training on ERP would be done in modules. He explained the process of the roll-out of each module.

Ms Belinda van der Merwe, Deputy Director General: Technical Finance, PMTE, said that Sage had been approved by National Treasury, but the DPW presently worked with cash systems, while the PMTE systems worked on an accrual basis.

Mr Mokgoro indicated that the DPW’s past challenges had triggered the decision to use Rea Patala in the interim to address the challenges and facilitate consequence management. The DPW would brief the Committee on the challenges it faced with maintenance. It knew were its assets were, and its only challenge was getting the market price. The detailed report on assets and the audit report would be presented to the Committee. National Treasury had regulations in the Public Finance Management Act (PFMA) to assist with the payment of small businesses, and the DPW was implementing strategies to deal with its SCM challenges.

The DPW had approved funds for emergency work, such as fixing a light bulb, but departments did not apply the funds to emergency work. The payments for municipal services by the DPW were for occupied facilities, and 95% of the DPW’s facilities were occupied. The detailed report on the projects of DPW, by province, would be sent to the Committee in a written report. He indicated that the 72% statistic for payment within 30 days included unpaid invoices, while the 85% statistic was the achievement for invoices paid within 30 days to contractors.

Ms Van Der Merwe said that the target for payment in the performance plan was 100%, and payment to contractors within 30 days was supported by Regulation 8.2.3.

Mr Ledwaba said that the future Geographical Information System (GIS) tool would indicate the location of the leases.

The Chairperson asked Mr Filtane if his questions had been handled, and informed him that the Committee would still engage with the DPW in the week ahead. He requested written reports on questions not answered and presentations in the engagements in the week ahead. He advised the DPW not to forget to consider transformation issues and ensure transparency at all times.

The meeting was adjourned.