Department of Human Settlements Quarter 2 performance; North West recovery plan

Meeting report

Department of Human Settlements: 2nd Quarter Performance

Mr Mbulelo Tshangana, Director-General (DG), Department of Human Settlements (DHS), outlined the structure of the presentation.

Mr Neville Chainee, Acting DG/ Chief Operations Officer (COO), DHS, said that supporting the annual performance plan was an operational plan which detailed what each unit within DHS did in relation to its targets. He then took with the Committee through the presentation.

He said that the negotiations with mining companies had not all been easy sailing, as the DHS had been pushing the envelope in relation to the mining companies meeting their requirements with projects which focused on government supporting the private sector providing housing for its employees. Revised housing and living condition standards for the mining and minerals industry had been led by the Department of Mineral Resources (DMR), where the DHS provided the implementation policy and funding support when required.

Ms Funani Matlatsi, Chief Financial Officer (CFO): DHS, said there had been no upward or downward adjustments to the DHS budget. The 39% expenditure was in line with what it had projected, especially for programmes one and two in the operational budget. The projections that DHS had had at the beginning of the financial year had been lower than the usual 25% per quarter. However, in terms of the plans that were there and the challenges it usually faced in the first quarter, in line with projections which possibly were not ready for rollout, the DHS had had to scale down its projections. It had therefore curtailed expenditure at 48% which had also been the same percentage for transfers to provinces and metropolitan municipalities.  DHS programme three had been delayed towards the end of September, when a number of service providers had exited the data base.

Mr Tshangana said what emanated from the presentation was that the DHS still had ground to cover in achieving its Medium Term Strategic Framework (MTSF) targets. Regarding informal settlements’ upgrading, the DHS had already informed the Committee that it wanted to verify figures before it presented them.

The DHS had concluded the Medium Term Expenditure Committee (MTEC) process, and that would assist it to intervene in the title deeds aspect in 2018. It would return to the Committee to advise how it would deal with emergency housing in future.

He reminded the Committee that the DHS budget in the previous Medium Term Expenditure Framework (MTEF) had been reduced by R3 billion, so what the DHS had projected to deliver for the second quarter had changed because of the budget pressures, though the targets had not been reviewed downwards. The milestones referred to included, for example, that in the Eastern Cape (EC) the provincial DHS had contracted to deliver 9 200 houses in 2017. To date, the province had delivered more than 5 000 units.

He said once the DHS conducted its annual reality check in October, it had to arrive at a decision on what to do with provinces which were regarded as high risk provinces in terms of milestones and reaching targets. It normally moved funds from poor performing to high performing provinces to reach its projected numbers and to protect its budget. The Ministers and Members of Executive Councils Meeting (MinMEC) would decide on 16 November as to which provinces would lose part of the budget, and which would be getting additions to their budget. That would apply similarly to metros in terms of moving budgets around the metros.

Discussion

The Chairperson appreciated that the DHS had responded as per the brief it had been sent by the Committee.

Mr L Khoarai (ANC) wanted the timeframe for the conclusion of capacity building which the DHS had alluded to in its presentation. Was there a common Human Settlements resolution which could be implemented across all the provinces that had emanated from the MinMEC?

Ms M Nkadimeng (ANC) said she had not seen any progress in support for the province of Mpumalanga.

The Chairperson asked what administrative errors there had been which had led the DHS to not achieving 100% in terms of invoices being paid on time. On whose side had the oversight occurred -- the supplier or the DHS? What action had been taken to rectify the oversight?

The DHS would recall that a workshop had been considered between itself and the Committee so that it could update the Committee on revised bills and DHS programmes. She recalled that at a recent oversight to Nelson Mandela Bay municipality, the Committee had found that all the officials of the DHS at the municipality had been registered and were all at school during the Committee’s visit. How was the DHS managing capacity building so that it did not affect their operations?

How was the DHS managing the category C informal settlements?

Moqhaka Local Municipality in the Free State had bemoaned the lack of bulk infrastructure within its vicinity, with the result that the allocation from the DHS could not be used as there was no consistent water supply. Had the DHS intervened to assist in the matter, and what had been the progress?

She said that the non-performance on the title deeds and programme 3 was not satisfactory. The DHS would have to report back to the Committee on interventions when it returned in the third quarter.

The DHS had reported on interventions for metros that were not spending their DHS allocations. Could it update the Committee on how far it was in assisting metros one-on-one with expenditure on human settlements?

DHS Response

Mr Chainee said the DHS had gone out to tender for a supplier for a sector skills audit, but the bid had come higher than had been anticipated and budgeted for. Therefore the DHS would have to re-budget for that in January 2018.

Regarding revised plans and legislation, the DHS depended on the Committee’s programme, so it would await dates from the Committee to prepare for the workshops.

Ms Matlatsi said that outstanding invoices had been an administrative oversight, because both the DHS and the supplier were at fault. The supplier had couriered an invoice to DHS in Cape Town instead of to the head office in Tshwane. In between the invoice getting to Tshwane, 30 days lapsed. The DHS informed its suppliers regularly that there was one centre for invoices, and that had avoided the issue of invoices being sent to sub-programme managers because sometimes they would be on site, which caused delays.

Mr Johan Wallis, Acting Deputy DG: DHS, said the figures in the presentation were only for the 358 informal settlements in the 22 mining towns. Of the 1 400 feasibility studies done on informal settlements across South Africa, approximately just fewer than 30% fell under category C settlements, which had to be relocated for various reasons. The relocation of the communities currently residing in informal settlements in mining towns was being done in terms of the broader plans for each specific mining town. Further assistance was given to the communities regarding their qualification for settlements in green field settlements. Though the process was not easy, as residents were mostly miners and sometimes did not qualify to be on the Integrated Residential Development Programme (IRDP) and for placing them on Breaking New Ground (BNG) housing, the DHS was assisting as part of its broader plan and funding availability which provinces received as part of the Human Settlements Development Grant (HSDG).

Regarding the other informal settlements outside mining towns, the DHS provided technical assistance for feasibility studies, but Heads of Departments (HoDs) had to decide on the funding priorities in metros or the provinces in terms of assisting informal settlements communities.

Mr Tshangana reminded the Committee that the DHS had approximately R1 billion allocations for mining towns. The money was ring-fenced specifically for that, and any expenditure from that allocation outside of mining towns would be irregular. However, the DHS had requested National Treasury (NT) to allow the DHS to use the money for infrastructure, therefore the allocation could be used for bulk infrastructure as prescribed in the Division of Revenue Act (DoRA). However; if the DHS continued delivering Breaking New Ground (BNG) housing units in a mining town, then the target would be a hit and miss affair, as there was no mine worker earning less than R3 500 to date. Targeting the mining community, the DHS approach had to be different. therefore it had always believed the R1 billion could be leveraged to R3-R4 billion, as the R1 billion was government’s gesture that it had that amount to assist with the plight of mining communities, but mining companies also had to come on board. The transformation plans in mining towns were so that there could be integration and leveraging of more funding and partnerships with mining companies so that the conversation did not have to be about the R35 million for Moqhaka Local municipality or the R75 million for Matjhabeng Local Municipality, because those monies had to be leveraged against other funding sources.

As senior managers in government, they accounted for both the good and bad, and the DG agreed that the performance regarding the title deeds was disappointing. The DHS had realised that provinces had not been planning for title deeds and because it was a planning target, it had approached National Treasury (NT). In perfecting the title deeds programme, one had to perfect one’s upstream planning. When one opened a township register, one initiated the process of working with the deeds office to ensure everything was registered properly. Even the Western Cape (WC), which had passed the policy as early as 2012, saying that it would deliver a title deed at least three months after a unit had been completed, had not met that target.

Despite the fact that the DHS had approached NT to ring-fence money for title deeds, provinces were using the budget for something else. For example, in the previous financial year, only 50% of the budget for title deeds had been used and the remainder had been used elsewhere. The DHS had recommended to NT that the allocation for title deeds had to be a standalone grant, and to date it had received the allocation letter, which was promising. If things went well, the DHS was hoping to have a standalone title restoration grant by 2018.

It had also approached the Department Rural Development and Land Reform (DRDLR) armed with a legal opinion on how to tackle title deeds in rural areas. If it took more than three months for urban title deeds to be transferred between a seller and a buyer, it would not take three months for the BNG units which DHS were delivering. The studies the DHS had commissioned had concluded that the DHS was implementing a transferring and conveyance arrangement for a first world in a third world country, so  there was a need for a special dispensation for conveyance in the country.

He said that MinMEC was an accounting platform between DGs and HoDs, and the sessions could be difficult sometimes as DGs accounted for everyone, including HoDs’ performance in Parliament, good or bad. Mr Leshabe Rampedi, a former city manager and HoD was currently assisting Gauteng province with running the ‘war room’ in that province. The secondment had been done by thr DHS and things were improving, but the DHS eventually wanted provinces to demonstrate leadership and stability. If the Committee would review struggling provinces, a positive correlation would be found between poor management at the executive level, and lack of stability and poor performance at the operational level. For example, Gauteng had had five HoDs over the last five years. That kind of change of leadership affected the stability of an organisation, and Gauteng had not only lost HoDs but also a few DDGs as well. Because the province had the biggest budget and the biggest pipeline, it had struggled with decision making in the back office, so that regional officials were being frustrated. If the DHS felt it had done everything possible to assist a province improve its performance, the last recourse was to shift the budget to better performing provinces.

With such challenges, the intergovernmental fiscal arrangement (IGFA)in SA at some point would have to be reviewed so that when Departments intervened in provinces there were strong tools to intervene with timeously, as the current IGFA was simply inadequate, expensive and hampered the three spheres of government from working timeously in dealing with problems as the they arose.

Currently the DHS was assisting the North West province with performance improvement, as the province would present to the Committee.

The Chairperson said that she had not heard anyone speaking to performance on human settlements in metros.

Ms Matlatsi said that as the DG had just mentioned, IGFA related to metros. The DHS had experienced a challenge with the city of Johannesburg in 2016, and amongst the measures it had put in place in Cape Town were the same services that had been used with the Gauteng province under Mr Rampedi.

Looking at the other metros the challenge was that they always wanted to spend towards the end of the financial year, as they started planning in the year of implementation, while the DHS had always maintained that the budgeting year was when the project had to start.

Mr Tshangana said in terms of figures, the city of Johannesburg was in trouble even in 2017 and Ekurhuleni was also not out of the woods yet.. The DHS was concerned about Cape Town as it had never spent 100% of its Urban Settlements Development Grant (USDG) allocations since the programme had started. Therefore hard decisions would have to be taken for the 2017/18 financial years, as in the current climate of fiscal pressures, the NT was almost certain to not grant roll-overs. Therefore the decision to move funds from poor performing to high performing metros was not to punish them, but to protect the budget.   

North West Recovery Plan: Status Report to Parliament

Mr Ephraim Motoko, Head: Department of Local Government & Human Settlements (DLG&HS),North West, said the Committee was aware of the challenges the North West (NW) was faced with regarding its poor performance.

As of 30 September 2017, NW had spent 32% of its budget compared to the figure which had been given by the DHS. That had been because the NW had included in its figures what it had not spent in the previous financial year as well. The province had delivered only 2 603 housing units out of 6 631 targeted units. It also had delivered 975 of the expected 2 715 sites, and 9186 title deeds of the expected 69 000 title deeds.

He then read the rest of the presentation to the Committee, and said that by October 2017 the under-performing contractors had been ceding their work to the newly-appointed contractors. This had delayed work on sites.

When the Committee had done oversight in NW in August, there had been critical unfilled vacancies which had created some of the major challenges in the province’s DLG&HS capacity. There had also been instability issues with the administrative leadership, where over a 24-month period four HoDs had left the provincial Department. The positions of chief director (CD) DLG& HS and structural engineer had since been filled after the Committee’s oversight visit, and the province was at the selection stage for the appointment of regional directors.

The DLG&HS had had problems with Community Residential Units (CRUs) in Mafikeng and Matlosana. However, the Mafikeng ones had been allocated to tenants. A developing problem was that there was no electricity at the CRUs, but the municipality was working on the problem. The ones in Matlosana were also currently being handed over to tenants.

The Committee had also raised the issue of accreditation of Rustenburg, and the DLG&HS were confirming that the municipality had a level two accreditation, but that it had not been allocated any funds or projects. The DLG&HS had met the municipality on two separate occasions and agreement had been reached that Rustenburg would be allocated projects and programmes with effect from 1 April 2018. It had also been agreed that Rustenburg had to build capacity first to convince the DLG&HS that it could run programmes and also repay the money which the DLG&HS had previously paid over to Rustenburg. The Department had agreed with the South African Local Government Association (SALGA) that it would not hand over money and functions to any municipality if they had not fully accounted for the previous tranches of money allocated.

The relationship between the National Home Builders Registration Council (NHBRC) and the DLG&HS had improved since the Committee’s oversight and the two bodies had held a joint inspectors’ training session. The two bodies had also agreed on a joint programme to visit municipalities regarding a way forward on undevelopable areas in NW.

He said that the Committee would recall that the DLG&HS had reported that NW was unable to develop in Tlokwe, Stilfontein and parts of Klerksdorp because of dolomite.

At Meriting Extensions 4 & 5, there had been houses built under electricity pylons which seemed to conduct electricity. The DLG&HS had engaged Eskom on the matter, but Eskom was resisting relocation and rebuilding of the structures.

The Chairperson congratulated the DLG&HS on the two appointments it had made.

Mr Tshangana said that the NW had struggled with its procurement processes in 2017, and the rule had always been that for one to achieve, procurement had to be completed in 2017 for the work that would start in 2018.

He said that he would be meeting with the MEC of the NW to ensure that the province established a ‘war room,’ as Mr Motoko and the MEC had started a process of engaging the contractors on a regular basis to get a progress update on the work.

It was also unfortunate, but the DHS probably would have no choice but to move funds from the NW to other provinces, but the decision would have to be taken by the MinMEC on 22 November.

Discussion

Ms V Bam-Mugwanya (ANC) was concerned about the shifting and changing of contractors through the ceding of contracts, and whether this had any legal consequences. She also wanted to know why NW was not giving site establishment to its contractors. What was the actual challenge with the contractors -- how were they selected for work? Was there no legal recourse to follow against Eskom regarding the relocation in Meriting?

Mr S Malatsi (DA) said during the Committee’s oversight in NW, the DLG&HS had committed to two projects where tenants would be settled within the following two weeks. Had occupation actually taken place? The ceding of contracts from one group to another group of contractors seemed to speak to weaknesses in the finalisation of awarding contracts and the myriad reasons such a high number of individual contractors were unable to deliver at the expected rates. What was the capacity of the DLG&HS to find replacement and capable contractors after the failure of the original contractor to deliver?

Though it had filled critical vacancies in its establishment, what would be done differently going forward; as there seemed to be a challenge in contractor management before allocation, and being able to measure whether a successful bidder had the capacity to deliver at the expected contract rate and size? How satisfied was the DLG& HS that the new contractors would deliver by the expected deadlines?

How had the intervention from the DHS been received by the NW province?

Mr M Wolmarans (ANC) asked whether there had been timeframes set for the poor performing contractors to finish the incomplete structures which they had initiated. What had caused the dip in performance immediately after September 2017?

Mr M Bara (DA) said it seemed wasteful and unnecessary to allow long time contractors to finish incomplete structures which they had struggled to finish in the first instance in the allocated period of time. There had to be consequences for non-performing contractors.

Mr Khoarai asked how there could be a lack of beneficiaries for government housing projects? Could that be clarified for him?

The Chairperson said contractor management plans were things that DHS had to look into with provinces as it seemed to permeate struggling and poorly performing provinces. Additionally, the beneficiary management system or lack thereof in NW probably needed the DHS to explain to the Committee whether it had a national plan for beneficiary management.

What had been the progress on appointments of regional managers? Had the structural engineer who had accompanied the Committee during its oversight at NW, been appointed permanently by the DLG&HS?

NW Response

Mr Motoko confirmed that the structural engineer who had accompanied the Committee had indeed been appointed permanently.

He reiterated that the province’s under-performance was based on of the instability at the leadership level of the DLG&HS because in October 2015, the then acting HoD had left when the Department was supposed to be dealing with procurement. An acting HoD had then held the position for only two months at the end of the same year; and from January to March 2016 there had been a third HoD. He had taken over at the beginning of April 2016 and had had to restart the whole procurement process. That had hindered the work immensely, but he was undertaking that by the end of November 2017, the DLG&HS would have initiated procurement for 2018, even though its Annual Performance Plan (APP) had not been approved yet.

There could indeed be litigation by contractors regarding the ceding of contracts, but the DLG&HS had intervened in that manner only when poor performing contractors had acknowledged that they had not been coping, despite all the assistance offered by the DLG&HS.

He said that Eskom seemed to be willing to take responsibility for the Meriting relocations pending further persuasion by the DLG&HS, but it first wanted to do testing, as he had reported earlier.

Mr Motoko said the Mafikeng CRUs had not been occupied by the beginning of September 2017, as the Mafikeng local municipality had distanced itself from the project. When the NW Housing Corporation (NWHC) was to do the work, the municipality had developed such interest that it had claimed the programme. Though people had eventually been allocated the CRUs, this had been delayed by the electrification challenges from Eskom. Some people had occupied the CRUs, while others were waiting for electrification. In Matlosana, tenants had occupied their CRUs, although the challenges of electrification also affecting those dwellings.

Mr Motoko said the DHS was assisting the DLG& HS with project management, and the NW provincial government itself had enrolled all its DLG&HS managers for project management courses.

The timeframes for the completion of outstanding work by poor performing contractors were that they had signed schedules of what would be delivered from October 2017 to the end of March 2018. The contractors had increased their teams, materials and hours of work to ensure that they kept to the timeframes.

The DLG&HS had encountered beneficiary shortages in places like Maltosana and Rustenburg, where people were mobile. When it had wanted to construct for people who were on its list it would find that they were no longer traceable or no longer qualified or had benefited already somewhere else in the province.

Mr Vusi Bidi, Chief Director: DLG&HS, NW said the DHS had intervened in the DLG&HS’s value chain specifically, conducting weekly meetings with performance teams, inspecting requests and claims processes, and had monitored operational matters which allowed the DLG&HS to follow up on other matters. The DHS had also compiled a monitoring tool which compelled the regions in NW to report on a weekly basis on milestones achieved. Prior to that, the DHS had projected on claims that were to be submitted weekly on the basis of having engaged developers which had given DLG&HS a positive performance in September. The current strategy was that for all developers which were not performing, the DLG&HS had already started scaling down and taking over unused stands and had contracted capacitated developers and would dictate to its bid Committees regarding their selection of developers’ categories.

Mr Muzi Mashabane, Director: DLG&HS, NW said due to past experience, where site establishment was abused by contractors claiming exorbitant amounts when the grant function was handled by municipalities, the DLG&HS had opted to pay for milestone deliverables on the ground instead of site establishment. On its database, it categorised contractors according to their capacity and information submitted and evaluated by it. The same database was used to select contractors.

Mr Tshangana reminded the Committee that the Minister of Human Settlements had spoken of reviewing supply chain management (SCM) in human settlements, as the price of a house was fixed within the quantum and one had to ask what the contractors were competing for when the DHS went to tender. Discounting everything the DHS knew about settlements, the only competing aspect amongst contractors was functional technical capacity. The DHS had discussed with the Chief Procurement Officer (CPO) what the most innovative way of procuring products and services for human settlements would be. The CFO’s forum had appointed a service provider to assist the DHS to standardize procurement products for human settlements, and one area which the DHS had not perfected was the relationship between suppliers and a contractor. That meant if 60-70% of building a house went to supplies and the DHS left that to the contractors and did not go out to tender, the DHS would be price takers instead of price makers. Operating with a R2.2 billion budget in the NW province, the Department had to be able to influence material prices, as it bought in bulk, so the benefits could be passed on to beneficiaries and the contractors. Possibly the DHS would have to return and present the results of the work the service provider had done, together with NT, as the DHS wanted to procure differently for housing.

The DHS would present at its next appearance before the Committee on the issue of beneficiaries.

The Committee also adopted its minutes of 7 November 2017 without any amendments.

The meeting was adjourned.