Department of Transport & Public Works debt mitigation; CIDB Grade 9 tender risks; CIDB Grades 1 & 2 service providers

Meeting report

DTPW Issues Raised in Public Accounts Committee Annual Report

Voluntary Rebuild Programme

Ms Jacqueline Gooch, Head of Department (HOD): Department of Transport and Public Works (DTPW), said that the first part of the presentation would address the risks that had been raised regarding the competitive tendering process at the Construction Industry Development Board (CIDB) Grade 9 that had been jeopardised, including the supporting mechanism to CIDB Grades 1 and 2 service providers.

Adv Chantal Smith, Deputy Director General (DDG): Finance, DTPW, said that the risk regarding Grade 9 contractors entailed allegations of collusive bidding practices by the highest grade CIDB contractors, jeopardising the competitive tendering process in respect of large projects planned for procurement by the Department. The CIDB regulated the sector as a whole, both public and private.

The impact of this was that it depleted the pool of potential contractors, and necessitated the deliberate splitting of contracts or induced extended construction periods for longer than the intended time frames, to target lower-graded contractors. It also encouraged fraud and corruption.

Certain control procedures had been implemented, and they included:

• Taking up the matter in the Departmental strategic risk register, as it impacted potentially all infrastructure components;
• The Department had conducted their own investigation into contracts procured during the period;
• The Competition Commission had conducted investigations and penalties had been imposed. Part of the Competition Commission’s role was to ensure fair competition;
• The CIDB had conducted its own investigations/commission of enquiry. The CIDB regulated the sector and its dealings with the public sector, and used the outcomes of the Competition Commission to do its work and impose penalties;
• Only Ministers were privy to the interim report/findings of the CIDB. Only the Competition Commission’s report was made public.

  

The matter was very sensitive because this meant that all the big Grade 9 contractors who were found guilty would face penalties and potentially not be able to do business anymore, so it was political. What had been made public was the Voluntary Rebuild Programme, which was not necessarily voluntary, because it meant that anybody who was found guilty of collusion according to the Competition Commission’s report, had to participate in the programme. The money they had to pay in penalties had to go to a central fund with National Treasury, where the contractors had to give back to the communities. This was because the collusion involved taxpayers’ money.

The DTPW had also conducted its own control procedures and they were:

• The Companies and Intellectual Property Commission (CIPC) checked for ownership and company profile verification to ensure that companies did not exchange hands without the DTPW understanding what the impact of that would be;
• Conducting of compliance checks;
• Due diligence and risk assessments;
• Look at the National Treasury database;
• SARS checks, to ensure compliance with tax and good standing with SARS.

A letter had been written to the CIDB, requesting feedback on their investigation as well as any action items for the DTPW, otherwise the Department would proceed and close-out the matter as a risk for the DTPW. This was because, in the absence of anything else, these contractors were still registered with the CIDB. The Voluntary Rebuild Programme was a settlement between the CIDB and the contractors, and so the DTPW had no leg to stand on for not doing business with them as long as they were still registered with the CIDB.

Discussion

Mr D Joseph (DA) asked how Advocate Smith knew about the matter -- whether it was through work experience, or just general knowledge of the subject.

Mr S Tyatyam (ANC) required clarity about the Voluntary Rebuild Programme which affected companies who had participated in the collusion. He wanted to know to what extent the programme was effective and whether the amounts of money re-invested by the companies were known.

With regards to the Minister being privy to the report, was there any norm or rule in the CIDB document that spoke to amnesty, if needed, particularly for Grade 9 contractors? He suggested that if it was any other grade, they probably would not be getting this amnesty.

Adv Smith responded that she knew the subject from her work experience, and said she had been driving the supply chain in the Department since its inception by National Treasury.

The Rebuild Programme was an ongoing programme. The difficulty was to understand that if these companies were destroyed, what the loss of the country would be. In addition to the money lost through collusion, the concern was how that money could be taken back and re-invested in the community. The balancing of these two issues was probably the motivation behind the Programme.

Collectively, there were 15 companies and the money that they had to give to the Rebuild Programme was R1.46 billion, which was the largest fine by the Competition Commission in this area since its existence. These companies were not all Western Cape companies, nor did they conduct business only in the Western Cape. They were more or less forced through the system, because they were the companies with “old money” and they were the companies that the Government wanted to use to assist in building up the smaller contractors. Many sub-contractors were dependent on these companies. The aim, therefore, had been to find a balance in order to invest back into the community from which the money had been taken.

No money had been invested by the Western Cape province. It was getting money back from the contractors into a fund, which was then invested back into infrastructure.

She agreed that from an amnesty perspective, it did not send the right message, but one had to keep in mind which mechanism to use to basically force these companies to give back to the communities; because legal battles were tedious and did not guarantee a positive outcome. From the perspective of the CIDB and the Competition Commission, this was the most effective way to ensure that the money was re-invested back into the community.

The programme was countrywide and was controlled nationally.

The Chairperson commented that the scenario was a “win-win” situation and was better than going through legal battles. What was important was what was ploughed back and it worked, and this was the value of it.

Mr Tyatyam said that he understood that the issue was national and not provincial, but R1.46 billion was a small amount compared to what had been lost or looted in the process. Although the money was national, the province ought to oversee taxpayers’ money. What he found difficult was the agreement that they could not blacklist or have the contractors arrested because they were needed to mentor upcoming businesses. This affirmed the perception that if one had money, one could go free. He was not putting this issue to the Department, because this was a national issue, but it needed to be raised.

Mr Joseph commented that he agreed with the Mr Tyatyam that the public was being robbed of many other services.

In terms of the agreement, he enquired whether any laws had been passed by government through National Treasury, to ensure that what was agreed on actually happened. What had happened after the settlements/agreements? He said that there must be accountability from the companies, and enquired as to who was responsible for monitoring and whether or not follow-up had been done.

Ms C Beerwinkel (ANC) said that the ease with which these companies could pay back the money bothered her. She wanted to know how long -- or if – they had been prohibited for a certain period from conducting business, or if it was just a matter of paying back the money.

Adv. Smith responded that the companies were not prohibited from doing business for any period of time. The Department had nothing to do with the outcome of the decisions that had been taken, because as a Department they were not impacted by this from the perspective that they did business with them, or that they had colluded with any of their tenderers.

The criminal justice system failed a victim every day, in that it strikes deals. The Competition Commission which was empowered by the Act to make certain decisions, had decided on a lenient approach. The deal was that the Companies come forward voluntarily and disclose the full state of their corruption, and for that they had been fined a penalty. That had not translated to criminal charges of corruption.

The body that organised and monitored the sector also had a mandate to decide on punishment, but to date there was nothing on the CIDB website to suggest that one may not conduct business with the companies, based on the Competition Commission’s findings.

While there may not be agreement with the outcome from an administrative perspective, it was what it was. The Department could only do what was expected of them in ensuring that they did not do business in a way that promoted collusive practices.

The programme was national, and therefore the CIDB did the monitoring, together with the Competition Commission and possibly the National Treasury as well.

Mr D Mitchell (DA) wanted to know whose responsibility it was to lay criminal charges.

Adv. Smith responded that both the Competition Commission and the CIDB were obligated to take certain steps in terms of their own legislation governing them. The people in authority over how the sector should function were the people that sat with the reports and were obligated to deal with them.

Mr Mitchell said that as public servants, the ethics and the obligations surely vested in them as well.

Mr Joseph expressed concern with the response that the DTPW did not have information on the Rebuild Programme. The Rebuild Programme had to manifest itself through the provinces’ procurement policies etc, so it did not make sense that they did not have information as a Department.

Adv. Smith said that if they had evidence -- which they did not -- then they would have an equal obligation to lay charges, so they had to physically ask CIDB for evidence. What the Department do if they pick up a red flag of fraud, is report it for investigation.

She had not said that the Department could not give them information. The initial question from the Member was what legislation had been passed. From a national perspective, there was nothing, but since then the National Treasury had done work to ensure that the government did have information. In respect of getting information, she had meant information on the successes of the programme and the like. That information was available. There was no information, even on how to access the Rebuild Programme, so they would make a concerted effort to find this information.

Ms Gooch said that funds paid in terms of penalties had gone to the Tirisano Fund through the National Treasury, and it outlined what they used the money for, like bursaries.

Ms Beerwinkel raised the issue about the current supply chain management (SCM) malpractice and corruption, and asked whether Adv Smith could give a presentation on how SCM fell through the cracks.

The Chairperson said that that would be discussed later as a Committee.

Support mechanisms for small contractors

Adv Smith said that the second part of the presentation was with regards to the support mechanisms for CIDB Grade 1 and 2 contractors, which was the lowest spectrum. The Grade 1s and 2s were by far the majority in the registry. Government would never have that number of opportunities to afford each one an opportunity. The problem was that the contractors were survivalist contractors -- they were job-seekers, and many of them did not know how to run a business, and did not have the expertise. As the Department, they went out into the community to inform them about the basics of procurement and the basic registration of a business.

These contractors may only tender for a maximum of R200 000 -- the total value of the quote may not exceed this. The profit that they get would not go back to the business to sustain it. Thus the Department had designed a framework in which they ensured that these contractors did not compete with the big ones. The framework contract was one contract divided into classes of work, and these contracts were awarded to a number of contractors in a certain area. This taught them how to complete a tender document, and they did not have to worry about where the next job was coming from because they received the tenders in their area. This enabled to them to tender for jobs of a higher value.

The problem was that there were too many such contractors, and the DTPW was unable to cater for all of them. This issue had been raised with the legislature and with the CIDB, and they were not stopping the registration of the Grade 1 and 2 contractors.

Ms Gooch referred to the table on page 11 (refer to document) in terms of the second column (maximum value), and said if they did not have Grade 8s available to them, the maximum value would be R130 million, and road contracts were way more than R130 million. This meant they would have to break up those tenders if there were no Grade 8s.

The chairperson said that they had put a lot of effort into supporting Grade 1 and 2 contractors, and wanted to know if a record of their progress had been kept. How effective had the Department’s intervention been, and was it bearing any fruit?

Mr Tyatyam said that he hoped the presentation was only for this Committee, because some of the descriptions used to describe the Grade 1 and 2 contractors would result in a fight with the contractors. Some of them were not necessarily unskilled -- some were professionals who had their places of work to enter this field.

While the framework was in process, what was being done to prepare other contractors? How many years were being taken to set up the programme, so that others who were not part of the programme did not complain about being left out.

Adv Smith responded that the framework was one intervention, but it was not the only tendering mechanism that they had. The grade 1s were registered and were linked, so they got notifications for when tenders were available etc. There would never be enough opportunities to cater for all the Grade 1s and 2s, as there was too many registered.

These contractors competed against each other in the same class of contractors. She agreed with the point raised that they were not necessarily unskilled. However, there were those which had no skills and they were trying to skill them through the Expanded Public Works Programme (EPWP) but were limited by funds. They tried to link them up with the bigger contractors and make sure that the big contractors used the smaller contractors in a particular area. There were other mechanisms employed, the issue was that they had limited resources therefore they targeted only a limited number

Contractors that tendered for the Department were not likely to tender for the City of Cape Town. As a Department, they registered them regardless of who they decided to tender with, and as they moved through the grading, a report was done. They reported on each tender awarded and on each tender planned, so they had the records. Compared to the number of grade 1s and 2s registered, they were not doing nearly enough, but this was due to the limited funds. There was new risk now, and that was that the grade 8s and 9s were failing, so what chance did a grade 1 have? They were concerned that external factors, or the environment in the country, were not conducive for the programmes of development for contractors. So, to answer whether the intervention was effective or not, in terms of the contractors they had invested in, it was bearing fruit, but in terms of what they would still like to do, it was not effective.

Mr Joseph said that there was a need to build the economy, but the necessary skills were unavailable. How were they able to promote the skills that were needed through their awareness programmes?

Ms M Maseko (DA) wanted to know when the Department started to identify that these skills were necessary and had to be attended to. How did they monitor the children towards tertiary level to see if there was value attached to their programmes?

Ms Gooch said that the Department had developed a strategic talent plan to try and figure what the necessary skills were, and how to attend to it. Fundamentally, a skill set was required from what they currently had and from an internal view, they had started having that conversation. What they had started to do -- which would be discussed next -- was to identify and attend to the potentially limiting factor of learners without the requisite grades, particularly in maths and science, which were the two required subjects for studying engineering, architecture etc.

The Department was looking at an approach for government and society to deal with how they could get growth and development in those communities. It was also trying to find a way towards a sustainable environment for the communities through buy-in and investment from the communities. This could also bring economic opportunities for the communities, such as opportunities to create small businesses for their own community members.

Support for disadvantaged students

Ms Fezeka Rayi, Director: Property Development Process (PDP), DTPW, said that the second component of the presentation concerned the value that was derived from the risk which highlighted the limited capability of students from disadvantaged communities to be admitted and pass mathematics and related subjects at higher education institutions.

The key aims of the Masakh’iSizwe (MiS) bursary were to address the issue of skills shortage and to empower youth from disadvantaged backgrounds. In order for this to be done, the status quo needed to be challenged. The barriers faced include funding, geographical location and the quality of education.

The impact of the risk was highlighted, and she referred to the interventions employed by the DTPW. It was concluded that the MiS bursary not only provided funding, but it also aimed to unlock and maximise the academic potential of bursars.

Discussion

Mr Mitchell wanted to know the number of female and male bursars.

Mr Joseph said that it had been mentioned in the presentation that there were certain external factors, and wanted to know what they were. With regard to their preference for learners with disabilities, what contribution was the Department making toward skills education in the Western Cape? How was the Department building institutional knowledge capacity internally? What was their plan for the transfer of knowledge?

Ms Maseko said that there was a huge need for skills development. The support given by the Department was at the tertiary level -- how could they make this information accessible to learners at lower levels, particularly in rural areas? Community development workers (CDWs) should be used to go to the schools in the rural areas, where there was limited or no access to information on bursaries. How could they be more proactive instead of reactive, as a Department; understanding that this was not their core business?

Mr Tyatyam asked at which level the DTPW engaged with the learners, and wanted to know if there was a programme that started interacting with the students at earlier grades, particularly Grade 10, when learners chose their subjects.

With regards to the external risks raised, he agreed that the social conditions did affect students when they went to tertiary institutions, but even students coming from well-off families were influenced by the change of environment. He enquired about how they ensured that the learners maintained discipline; as they had said that they did not have students that failed at the first year level.

He wanted to know how the Department had divided its support for rural and urban learners.

The presentation mentioned only universities -- were there were any programmes for technical and vocational education and training (TVET) colleges, which could play a particular role in skills development?

Regarding the training of engineers, he wanted to know whether there were engineers in other industries being trained, such as for the marine and aviation industries.

The Chairperson commented that if one invested in a child in the earlier grades, way before university, then children in disadvantaged schools may be able to be at the same level as children from other schools. He was not sure when there would be equal education, and wanted to know how the Department was assisting with bridging the gap, to give the disadvantaged child a better chance.

Mr Mitchell said that Stellenbosch University had a bridging programme and had space for only 24 learners. Was there any way the Department could have a link to subsidise learners in such a programme, to increase its capacity.

The Chairperson emphasised that they understood that this was not the Department’s core business, but since they had been working in this sector, they want to know what their contribution was.

Department’s response

Ms Rayi responded that the quality of education that children received in disadvantaged schools was not getting them anywhere if there was no additional support. The Department assisted non-governmental organisations (NGOs) to help students. They also had NGOs that worked with learners at the secondary level. They also maintained relationships with the universities and in some cases learners were admitted after the selection process; as at the time of selection they had no funding.

The Education Department did have a strategy to ensure that there was a plan for maths and science, but she was uncertain how it worked. As a Department, they try to assist and they do so via NGOs. For admission to the University of Cape Town (UCT) and Stellenbosch, a 75% pass was required. Besides the academic reports, these institutions still used their independent assessments where students had failed because they had not been allowed to use a calculator. Schools needed to capacitate students to be able to work/pass without calculators.

With regards to their preference of women and learners with disabilities, they worked through the NGOs to assist the schools of excellence, and they tried to convince the schools to enrol children, but the Department did not make the decisions.

When the learners graduated, they were employed by the Department and acted as mentors for current bursars on the programme. The background of the bursars was usually in the annual records.

Ms Gooch said that in terms of where they fitted in regard to the strategic goals of the government, they created opportunities for growth and jobs through developing the skills that were necessary to grow the economy. As a Department, they also had their own objectives to reach which spoke to creating opportunities.

Regarding the TVET colleges, they had other programmes which were artisan based, but which were small programmes due to budget constraints.

The team went out to schools and to Thusong centres to promote the programme, and sent information to schools through the Education Department. They also advertised on their website.

With regard to institutional knowledge, there was a professional development and mentoring programme that they had developed. However, if members older than 60 took the employee severance plan (ESP) package, and it was approved, they would lose years and years of experience in terms of institutional memory as a Department.

Urban was deemed to be the city of Cape Town, and rural was everything outside of the city. One of the approaches of Masakh’iSizwe was acknowledging that the professionals that came through did not all have to work for the government, so they wanted to be able to create opportunities for graduates to work in municipalities and in the private sector. They also identified people who came from outside the City, as they were more likely to want to go back to work in their communities, as they had links with their communities.

They interacted with students regularly and also had campus coordinators who regularly interacted with students, and were able to deal with any reports of problems.

The Department did not issue bursaries for the marine and aviation industries at the moment. This was because the programme had started through the it identifying a need in the Department, and it did not have a mandate in aviation and marine at this point.

The Department linked with the schools through the NGOs. In many respects, it was too late at grade 10, because the foundation for maths and science was at primary school level and the Department was not reaching down to that level, so a lot of work still needed to be done.

Subsidising bridging programmes at universities was a wonderful idea which the Department could try to pursue, taking into consideration the limited amount of funds.

Ms Maseko referred to the name Masakh’iSizwe, and suggested that students who received these bursaries could be ambassadors for these bursaries and motivate other younger learners in the disadvantaged areas where they had come from. She said there was a lack of artisans in general, particularly in the rural areas. The challenge was that children in rural areas were not exposed to these opportunities. There needed to be a way to ensure that teachers also motivated the learners.

Ms Rayi responded that one of the aims of the bursary was to instil a sense of social responsibility in the bursars, who had a responsibility to assist other learners. They already had an ambassador system. The only catch was the attendance was low in areas outside the city.

DTPW financial challenges

Mr Johan Fabricius, Director: Financial Accounting (FA), DTPW, said that the third component of the presentation was in connection with the current and older departmental debts that had been incurred during the 2016/17 financial year, including the mechanism that was in place in the Department to minimise, if unable to mitigate, such an occurrence.

The challenges faced were:

• No bad debt had been written off;
• Lack of policies relating to pensioners / indigent tenants;
• Inherited debt -- properties taken over after relinquishment by users with debt;
• Historical debt to the value of R89.424 million..

To address the outstanding debt, the Department had constituted a task team. Other interventions implemented since 1 April 2017 included:

• A standard operating procedure (SOP) implemented from 1 April 2017, to address the late submission of concluded leases to the finance component, resulting in the tenant starting with arrears (foster accountability);
• Recruitment of credit controller and financial controller posts had been funde;.
• Fortnightly meetings were being arranged with legal services and the state attorney to deal with historical handed-over debt (write-offs) and to fast track new handover matters
• Addressing the top 30 rental accounts, which represented 26% of the outstanding debt.

Discussion

Mr Joseph asked where the policy about pensioners came in, and whether NT had approved the policy. If not, would they still continue with market prices? He wanted to know how much money had been spent by the Department on getting the money.

Mr Tyatyam referred to the issue of the Department being owed money (see page 27 of document), and said that 47% was quite a huge amount. It was a problem when ex-employees owed this much -- what measures had been put in place to ensure that this issue did not continue? He asked why the money owed could not be taken from the people’s pensions, and whether there were any contractual agreements signed, to ensure that people paid their debts.

Ms Beerwinkel referred to page 24, and pointed out that Further Education and Training (FET) colleges had a debt of R47 million last year. She wanted to know the reason the colleges gave for accumulating that debt and how much of it the Department had been able to recover in the current year. She wanted to know how much debt the Department was owed for parking, and why parking was singled out in the category. Referring to page 28, she asked whether the type of debtor that sat in that 30 rental account was part of those who had been mentioned or whether they were different. She also wanted to know what the money that they owed was.

Department’s response

Adv Smith responded that of all the historical debt, classed together, the biggest load from a volume perspective was parking debt. From a monitoring perspective, it was insignificant, but from an accounting and debt management perspective, it became significant. They had set up a task team to address this issue. One of the major issues, from a departmental perspective, was that the staff creating debts were the same staff who were trying to get municipalities to process fast services accounts, which was a nightmare on its own. From a parking perspective, it could take from a week to up to a year to have it loaded on to the Personnel Administration System (Persal) so that it could be deducted. By that time, there was already a historic debt for the year and this was what accumulated. The major big ticket items were the universities, with whom they had agreements and from whom they had been able to get a huge quantum of the large outstanding debt.

Regarding the 30 rental accounts, it was important to understand who the money was being received from, and who the debtor was. How could they justify paying a debt collector to chase a pensioner that did not have the money? Therefore the review of the policies was high on the agenda. Fixing the policies that lent themselves to incurring the debt was the other part, apart from just collecting the debt.

Ms Gooch clarified that the 47% in terms of the amount owed by ex-employees, was the increase from one year to the next, and not the total owed. There was R1million that they were recovering from an individual from the R4.5 million outstanding from employees. They were not allowed to let anyone go home with less than R2 500 a month, after deductions.

Regarding the FET colleges, they had been able to get the figure down close to R11millon. Some of the money was from their own Department renting a complex. The bulk of it was money that they were sure they would get back.

Ms Beerwinkel referred to page 27 which referred to the debt employees consisting of “leave without pay.” She asked how people who were indebted to the Department could take leave without pay.

Mr Fabricius explained that they would call in to say they could not come in, but they did not have any more leave days, so that money had to be deducted.

The meeting was adjourned.