Urban Settlements Development Grant: Western Cape, City of Cape Town & Limpopo

Human Settlements, Water and Sanitation

13 March 2018
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

The City of Cape Town briefed the Committee on its progress in achieving its targets against funds allocated through the Urban Settlements Development Grant (USDG). The Committee had expressed disappointment after the last review at the city’s slow rate of implementation, and its overall level of under-spending.

Cape Town’s Human Settlements Department explained why it had been unable to meet its targets. A common problem was gang violence and unrest. Threats were made by gangs as they sought payments from contractors, and this put the contractors’ and their families’ lives at risk. The Department was working very closely with the city police, and had been keeping statistics on all the demolitions and invasions the city was experiencing. The invasions were organised, as those involved came in trucks. These illegal invasions had been keeping the city busy, especially during weekends. Other challenges involved poor constructor performance, road construction impeding upgrading projects, and the effect of the drought in the area.

Members commended the city for addressing the key issues that the Committee had identified. However, they were still concerned about the poor performance of contractors, and wanted to know if the Department could deal this challenge, and what the repercussions would be should this problem persist. They also questioned the transfer of funds from one project to the other, and wanted to know how this affected the beneficiaries of projects where funds had been moved elsewhere. They were also worried about the need to spend increased amounts on safety and security, and asked for this to be quantified, as this was becoming a major factor in the rollout of certain projects.

The Limpopo Human Settlements Department said the main challenges leading to poor performance had been:

  • Establishing a flawed contractor database, with no bias towards built industry prescripts;
  • Late appointment of service providers;
  • Late approval of developmental areas;
  • Contractor to contractor cessions, leading to poor performance;
  • Non-application of consequence management for lack of performance by contractors;
  • Poor contract management and planning (geotechs and beneficiary management);
  • Low staff morale resulting from abrupt staff movements and poor communication; and
  • Senior management operating in silos.

 

In the military veterans’ programme, the annual target for 2017/18 had been to construct 200 units, but only three units had been delivered. This was largely attributed to the economic viability of constructing the 75m² units which were demanded by the beneficiaries, instead of the 50m² national norm. A Ministers and Members of Executive Council (MINMEC) decision had been taken for provinces to revert back to 50m², as prescribed by national policy. Delays in upgrading settlements in mining villages had been the result of authorisations being required from different departments.

Members raised concerns with regard to the military veterans housing situation, and asked what efforts were in place to improve the key performance critical skills. They commented that the province’s report bore testimony to the fact that if contractors were managed well, then the performance would improve. The Chairperson was concerned about the use of radio stations to try and locate beneficiaries, questioning why houses should be built if there were no beneficiaries. 

Meeting report

Human Settlements challenges: City of Cape Town

Mr Craig Kesson, Executive Director (ED): Department of Human Settlements, City of Cape Town, described some of the challenges encountered in implementing social services through the Urban Settlements Development Grant (USDG), and the financial impact of these setbacks. Poor contractor performance had had a R3.5m impact, the water resilience programme had had a R7m impact on procurement, while staff leaving had had a R5m impact on project management capacity. The overall impact had amounted to R15.5m. The R15,5m budget at risk would be channeled to other projects: the Heideveld Early Childhood Development (ECD) centre (5.5m); the new Pelican Park clinic performing better (R6m); the new Informal Settlements Hub project (R2.3m); and other performing projects (R1.7m).  

Challenges in the implementation of human settlements projects included poor performance by the contractor in Delft, resulting to the termination of contract by the City; gang violence at the Valhalla Park project, also resulting in termination of the contract by the City; relocation and negotiations with non-qualifiers at the Morkel’s Cottages site delaying the project; and tender submissions received on small projects exceeded the subsidy quantum. The remedial actions planned involved funds in under-performing projects being transferred to performing projects, the appointment of a panel of home building contractors for housing developments, compiling a security plan upfront for projects in gang-violent areas, and experienced home building contractors to assist emerging and smaller companies.

There were no major implementation challenges in the safety and security programme. The USDG funds would be used to co-fund the construction of two new fire stations in the Masiphumelele and Lwandle vicinities. Contractors for both fire stations were appointed on 11 December 2017.

The upgrading of informal settlements and backyarders had met with “not in my backyard” (NIMBY) resistance from surrounding communities in areas like Tambo Square. There was a constant threat of land invasions on construction sites –all projects were affected – and gang and criminal-related violence towards the contractor and community in Valhalla Park. This was being addressed by funds in under-performing projects being transferred to performing projects, continued political engagements and deployment of additional security on site, the deployment of law enforcement to protect the contractor while he was working on site, and the proactive reallocation of funds during budget adjustments undertaken to reduce budgets as a result of contractors not being able to work during Quarters 1 and 2

Difficulties were also encountered in the built environment. The Heideveld Area 5 project was terminated by the City due to inadequate/poor contractor performance, and the Bishop Lavis concrete road project was under-performing because the main contractor was going into liquidation. The total value of the budget at risk due to these problems was estimated at R31 772 211. This would be channeled to other projects, such as the upgrading of Prince George project (R18.2m), the Gugulethu concrete road project (R3.5m) and the acquisition of land and other projects (R10m).

There were no major implementation challenges in the urban integration programme.

However, in the area of water and sanitation, emergency ater projects related to the drought were taking priority, which was impacting on both procurement processes and project management capacity. The drought project involving the Cape Flats aquifer (budget R111.7m) was progressing well, although unforeseen challenges may be experienced. USDG funds for storm water rehabilitation would be R2.5m underspent, but funds could not be viremented between rates-funded and tariff-funded projects. The Department would prioritise its spending on the USDG portion of projects, and the Borchards Quarry and Athlone waste water treatment works (WWTW) could be fast-tracked.

Electricity generation and distribution saw a poor performance by the contractor in Delft affecting street light installation, while the contractor on the Valhalla Park project opted to terminate the streetlights and reticulation contract due to dangerous gang violence. There was difficulty in appointing contractors in Masiphumelele and Lourensia Park. A delay in Forest Village cost an estimated R7m, while there were also problems with the appointment of a civil contractor for the Edward Avenue project. Funds were transferred to performing projects where possible.

Mr Kesson said changes in respect of USDG funds could be adjusted only during the January adjustment budget, seven months after the start of the financial year. This process dealt with approved rollovers, as well as transfers from non-performing projects. Funds transfers outside of the adjustments budgets were limited to the virement policy, which only allowed for transfers within directorates, which meant that the City could transfer USDG funds (in-year) between directorates only once a year.

Human Settlements report: Limpopo

Ms Ngaka Dumalisile, Head of Department (HOD), Limpopo Human Settlements Department, said the HSDG budget allocation for 2017/18 financial year was R1 319 493 000. A roll over budget of R86 968 had been approved, making the total budget R1 406 461 000. The national DHS had since taken R150m away from the province, and the remaining budget was R1 256 461 000. With this allocated budget, the department was expected to deliver 9 956 housing units and 5 151 serviced sites, as per the approved business plan. As the rollover budget accounted for 939 housing units, the total target for housing units for the current financial year was 10 895. As at 8 March, expenditure stood at R1 087 263 060, or 86.5% of the available budget, so the Department still had R169 197 939 to spend. On 26 March, it would remit R150m to the Housing Development Agency (HDA), and the balance would go towards payment of contractors.

The main challenges leading to poor performance were:

  • Establishing a flawed contractor database, with no bias towards built industry prescripts;
  • Late appointment of service providers;
  • Late approval of developmental areas;
  • Contractor to contractor cessions, leading to poor performance;
  • Non-application of consequence management for lack of performance by contractors;
  • Poor contract management and planning (geotechs and beneficiary management);
  • Low staff morale resulting from abrupt staff movements and poor communication; and
  • Senior management operating in silos.

 

Factors involved in the progress of the recovery plan included one-on-one meetings with contractors. The office of the HOD had convened meetings with high performing, average as well as poor performing contractors, to agree with them on fast tracking completion of units and increasing productivity. Contractors’ performance was assessed, and a categorisation of the currently appointed contractors was undertaken, resulting in the termination on non-performing contractors and letters for non-performance being issued. The HOD chaired contract management meetings, and the committee continued to hold regular meetings with senior management every week to assess progress and map out intervention measures on poor performing contractors. Additional capacity and support was provided to specific directorates, while additional capacity was sought from the HDA in order to assist the department with planning and project pipelining. This included a town planner, a land legal person, and a civil engineer.

Ms Dumalisile described the HDA’ s contribution to the recovery plan. The agency was currently implementing several projects on behalf of the Department, and it had been agreed that it should accelerate delivery. It had appointed five high capacity contractors for 5 000 units. Two had assumed site and had already cast 72 foundations. Two other contractors would move on site soon. The fifth contractor had since turned down the earlier appointment, and a replacement was being finalised. The HDA had submitted a detailed implementation plan. During the third quarter, 770 sites had been delivered against a target of 1 165, while 2 534 units were delivered against a target of 2 555.

Interventions during the third quarter had included meetings with affected municipalities, and a follow-up to get clearance certificates signed. Ward councilors and committees were assisting in tracing approved beneficiaries, and announcements would be presented in three languages on the radio. Meetings were arranged with affected municipalities to confirm the status of the signing of transfer documents to be submitted to state attorney. There were ongoing engagements with contractors, especially poor performers.

There was a backlog of 411 units in the military veterans’ programme. The annual target for 2017/18 was 200 units, but only three units had been delivered. There had been gross under-performance, which was largely attributed to the economic viability of constructing 75m² units which were demanded by the beneficiaries, instead of the 50m² national norm. The province had acceded to the demands of the Military Veterans at that time. A Ministers and Members of Executive Council (MINMEC) decision had been taken for provinces to revert back to 50m², as prescribed by national policy. The Executing Authority had since rescinded the decision of 75m². The HDA, as the implementing agent, had been informed of this decision.

Challenges had been experienced with the mining towns programme in Elias Motsoaledi, Fetakgomo-Tubatse 476, Thabazimbi and Lephalale. Elias Motsoaledi and Fetakgomo-Tubatse did not have projects on serviced sites as the process of upgrading informal settlements was still under way. The delay was as a result of authorisations being required from different departments. Thabazimbi had returned its allocation for units as a result of not having development areas. Interventions involved service providers being appointed to formalise informal settlements and carry out township proclamations, while sites were serviced in Thabazimbi in order to construct top structures.

While implementing Phase 2 of the strategic intervention recovery plan, a further assessment of factors militating against the provincial Department’s progress was conducted. This was followed by a two-day strategic plan session in January, which focused on finding solutions. This had resulted in the adoption of the following strategic goals:

  • A new multi-layered database of contractors would be established, incorporating Construction Industry Development Board (CIDB) grading and National Home Builders Registration Council (NHBRC) registration. Terms of reference (ToR) had been developed and the Bid Adjudication Committee (BAC) had assessed the ToR. Advertisements would be published before end of the current financial year
  • The Department had started terminating non-performing contractors, as 14 non-performing contractors were terminated. Twelve contractors had since been appointed to deliver the 782 units left by terminated contractors. Due to continuous assessment of contractor performance, the second batch of terminations was currently under way. The Department was in the process of introducing a performance reduction matrix and delivery schedule as a standard addendum to the current Departmental contract. There would be continuous contract reviews as a part of tightening contract management.
  • The rollout of the Employee Performance Management System (EPMS) for effective and efficient project management would be done by 31 March.
  • From 1 February, contractor to contractor cessions were no longer accepted unless they were related to material supply, and were approved by the Department.
  • The Department was now allowing only 50% of geotechnical to be paid at the foundation phase, and the balance would be paid on completion of a housing structure.
  • A project planning cycle would commence in April and be completed in August every year. This would ensure that there was enough time to develop a credible business plan. This meant starting planning now for the 2019/20 financial year.

Discussion

Ms V Bam-Mugwanya (ANC) referred to the Pelican Park clinic, saying there was a high incidence of respiratory problems as there was a stench in the area, allegedly coming from the Zeekoevlei dam in the area. As it was more of a health hazard situation than a human settlements challenge, she wanted to know how the CoCT was dealing with it.

The Chairperson commended the CoCT, but stressed that she should not be commending them as one could not commended a fish for swimming. She asked if the Department had sufficient capacity, or needed assistance. She commented that the presentation had projected a 100% spending, and wanted to know what miracle the City would come up with to ensure that 100% was actually spent.

CoCT’s response

The CoCT responded that to deal with the poor performance of contractors, legal contracts had been put in place and they had amended their clauses and put in penalty clauses. They had standardised a methodological approach, identified skills they needed to attract, and were dealing with the uncertainty over the payment of tranches. They had blacklisted under-performing contractors on their database. The CoCT did not leave projects cancelled or abandon them due to poor performance, but would rather delay them.

They stressed the importance of eliminating gang violence and unrest, expressing concern about the intimidation of contractors, specifically in the Valhalla park area. They said that threats were made by gangs as they sought payments from contractors, and this put the contractors’ and their families’ lives at risk. This was a huge challenge for the CoCT.

Regarding capacity, the CoCT said they had restructured the city, identified a lack of capacity, and project managers were appointed annually. They stressed that they were still new in this role, however, and had been engaging with various departments in a quest to ensure best performance.

In respect of respiratory diseases, the CoCT submitted that these were lifestyle diseases and that information was provided to the clinics. They acknowledged that the flow of water supply was one cause of this scourge.

Ms Riana Pretorius, CoCT Director of Informal Settlements, who worked very closely with the city police, had been keeping statistics on all the demolitions and invasions the city was facing. She reported that the invasions were organised, as those involved came in trucks. These illegal invasions had been keeping the City busy, especially during weekends.

National DHS

The Director General (DG) of the National DHS said that the CoCT should try its best not to shift funds from one project to another. He stressed that there were performance reviews in place, and the figures presented here came directly from the CoCT, and that they needed to manage the risk of losing the money back to the fiscus. The CoCT had sat at 24% of spending in December, which meant they were at risk of facing lack of delivery, and rather than lose the money back to the fiscus, it should stay within the Department.

The NDHS noted that quarterly reviews were undertaken by all the metros, and they looked at the trends among the provinces. Over time they wanted to see to what extent the cities were moving to the upgrading of informal settlements per city, as the HSDG grant was for that. The NDHS did engage with cities to help overcome the problems they encountered, and the framework allowed the cities to shift funds from one project to the other, but how they did this was entirely up to a city itself. It expected every city to use the window presented to them to allow for the shifting of funds on projects, but the under-performance was an issue that needed to be resolved, as well as under-spending.

In August 2017, the NDHS had warned the metros that they would monitor them from the beginning of the year, so that by the time the year ended they were in a position to know which project funds were being allocated to which project, after the monitoring of the first quarter. The Department had corresponded with the CoCT, while they were at a stage of withholding the second tranche, when they then had to re-allocate those funds from the National Treasury. When they had concluded on the second tranche, they would release the funds to the CoCT.

The NDHS DG reported that last year the Department had been monitoring the CoCT very closely, and during their meeting last year they had wanted to take funds of about R150 million, as they were worried about the pace the projects were moving. He conceded that they had been doing this consistently since 2012, and that the former Head of Human Settlements had had a series of meetings with the CoCT. He commented that the presentation made last week had been useful, but only for planning purposes. The worry now was on the in-year construction. They held each other accountable, and there had to be consequence management. They were frank and brutal at these meetings because they had to ensure that the funds were used. The HOD of the Western Cape DHS was a beneficiary of the funds that had been moved to them, and he would attest to this. There was nothing personal in this matter, as it was done solely to retain the funds and not have them returned to the fiscus.

Discussion

Ms Dumalisile said that the Limpopo DHS had been sent back to improve the province’s performance and return to the Portfolio Committee after having made improvements, as they had been slacking in their construction projects. She also accounted for the intervention plan presented previously regarding the province’s performance.

Mr M Wolmarans (ANC) applauded the progress made by the Limpopo province, but raised concerns with regard to the military veterans, as the presentation had made the Members wonder whether the province had military veterans or not. They wanted to know how the province planned to reconcile its performance, and what efforts were in place to improve the key performance critical skills.

Mr M Bara (DA) commented that the report bore testimony to the fact that if contractors were managed well, then the performance would improve. It was clear that the province had not done a good job previously, and commended them on turning the situation around.

The Chairperson was concerned about the use of radio stations to try and locate beneficiaries. She said this was becoming troublesome, because the next question would be: why build houses if there were no beneficiaries? The last time the Limpopo HSD had presented to the Committee, there had been an issue over land, and she wanted to hear a progress report on that. She also wanted a report on its dealings with the HDA, as they had been transferring money to them, and she wanted to know if this relationship with HDA was not masking matters to make their Department appear good. She stressed that this request was so that the Committee did not come back to a point where fingers would be pointed at the HDA.

Limpopo HSD’s response

Ms Dumalisile responded that Limpopo was currently sitting with a lot of contractors on the ground, and the challenge they had experienced was a combination of poor performance from contractors and the Department not playing its part to correct this. They had amended the clauses in their contracts, but had failed to implement them. However, now they were implementing them strictly. Previously they had compromised on some standards, but now they were strict on hiring contractors registered with the NHBRC.

About the profiling of contractors, the HOD said that five contractors had been contracted through the HDA’s intervention. They had been faced with the challenge of having scattered contractors, and had now split them within the five regions. This had created some efficiency, as there was less travel on the contractors’ side.

With regard to the HDA, the department had signed a contract with them that in the event that there was a lack of delivery, they would then take over and ensure that the challenge was solved.

The Limpopo Department had been filling the vacancies in middle management and senior management, and that their very own managers were faced with capacity challenges with regards to skills, and they were currently busy capacitating to ensure efficiency.

The military veterans’ work was being handled by the HDA.

Thabazimbi was a mining town and part of the Phakisa programme, and the Department had since re-dedicated themselves to that project, which they were synchronising with other projects. The Department had had to do a special project to service sites, and in the 2018/19 year they should be able to deliver.

The problem with beneficiaries arose in the urban areas. People moved due to job opportunities that they received from time to time. This should not be a major concern, but that they would need the Department to communicate properly with them.

The Chairperson said that the Department now had a responsibility to maintain what it had done. However, they should keep doing better as it seemed that they had the potential to do so. She appreciated that had heeded some of the advice and acted on the queries raised previously. This showed that coming in front of the Committee was not a punishment, but a matter of showing seriousness in their mandate.

The meeting was adjourned.

 

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