Independent Development Trust (IDT) restructuring; with Minister and Deputy Minister

Public Works and Infrastructure

06 November 2018
Chairperson: Mr F Adams (ANC) (Acting)
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Meeting Summary

The Minister of Public Works told the Committee that the previous board of the Independent Development Trust (IDT) was fraught with corruption, and this claim had been substantiated by National Treasury (NT), although its findings had never been followed up. When the Chief Executive Officer (CEO) of the IDT had tried to investigated the corruption allegations, he had been suspended by the previous Chairperson. Because the NT’s recommendations were never implemented, the Department aimed to follow up on them, and the office of the Auditor General(AG) and the IDT would work together to address the challenges. The Minister stressed that the IDT performed a crucial role within the community, and therefore needed the support of both the DPW and the Committee. It should develop into the Department’s delivery arm for infrastructure. It was moving from a top-heavy organisation into a small and technical team.

The Department said it had formulated a strong mandate for approval that recommended that the IDT be established as a government agency to develop social infrastructure, commissioned by the government in a manner that would help to eradicate poverty, create employment and foster sustainable communities. This was not a disjuncture from previous mandates, and the only departure was the recommendation that the IDT should be established as a government component, and have an HR structure aligned to it. The IDT would be a core team made up of professionals appointed through panels, so they would be fulltime employees of the IDT, and this would enable them to respond quickly to demands. An HR and finance model would be implemented after the mandate had been approved.

Members complained that there had been little improvement at the IDT, and asked when it would break even instead of losing money. They suggested that contracts with clients should include consequences for non-payment. They said it was important for the IDT to clarify its role and its competitive advantages as an implementing agent. It was agreed that when the new mandate had been approved, the DPW and IDT would make a full presentation to the Committee.

Meeting report

The Acting Chairperson said that after reviewing the Independent Development Trust’s (IDT’s) organisational redesign document, he had found no new information from the last presentation. Therefore, there was no need to go through it and the Department should begin with their new presentation. The Committee needed to hear how the IDT would be restructured and how it would operate going forward so that it could be clear on they could perform its oversight function.

Minister’s Overview

Mr Thulas Nxesi, Minister of Public Works, began the meeting by giving the Committee the background of the Department’s position and challenges. The past year had been difficult for the IDT, as highlighted in the yearly audit. The challenges had been highlighted by him previously in Committee meetings after the previous Minister of Public Works had fired the previous IDT employees.

Last year, the Chairperson and Deputy Chairperson of the IDT board had been dismissed by the previous Minister and replaced by illegal appointments, as confirmed by the court, and after the court ruling, the dismissed persons had been reinstated.

The Chairperson who had been appointed after the previous incumbent had been dismissed, had a monthly retainer of R54, 000. After his reappointment, he became increasingly concerned with the high level of corruption within the IDT board. None of the remedial actions recommended in the forensic report were implemented and during this time, the implementation of the new business case of the IDT was stagnant. Neither the previous Chairperson nor his deputy had authorisation from the Master of the High Court to act as trustees, and this had raised legal questions about the board. As a result of this, the IDT client base had been reduced due to mismanagement and non-delivery. After observing due process, he had applied to the Master of the High Court for the IDT board to be disbanded.

Mr Nxesi said that the media had reported that the previous Board was corrupt, and this claim was substantiated by Treasury, although the findings were never followed up. When the chief executive officer (CEO) of the IDT had tried to investigate the corruption findings, he had been suspended by the Chairperson without a mandate from the Board, which was currently being contested.

The Department of Public Works (DPW) had entered discussions with the Ministers of Education and Finance, as most of the social infrastructure was built through their departments.

Moving forward, the Department had requested National Treasury to assist in developing a process for the IDT. The Department’s critical role was the delivery of infrastructure in poor communities. Therefore, in future it would focus on service delivery and the collection of overdue money from the IDT.

The National Treasury recommendations were never implemented, so the Department aimed to follow up on this. The office of the Auditor General (AG) and the IDT would work together to address the challenges.

Mr Nxesi stressed that the IDT was crucial for providing social infrastructure within rural communities, and therefore it needed the support of both the Department and the Committee. The IDT should develop into the delivery mechanism for public works and infrastructure.

The IDT was moving towards becoming a small and technical team. The Department currently had an interim board, but may have a permanent one soon. The permanent appointments would be made with the assistance of National Treasury in developing a new IDT business plan. The forensic findings would continue to be investigated. When the figures alone were reviewed, some may recommend disbanding the IDT, but when one considered its critical role it was clear that this action would be detrimental to those who needed it. The IDT was a national asset in terms of its experience and capacity. The Department would be assisting the IDT to increase the income stream from project management and construction projects, as well as facility management.

He concluded that the Department had a clear direction now.

IDT Organisational Redesign

Adv Sam Vukela, Director General: DPW, said the presentation would focus on details of the IDT and the steps the Department was taking to address the noted challenges. He echoed the Minister, stating that the Department would be going forward with working with the IDT and National Treasury.

Presentation on the IDT by the Chief Director of the Department of Public Works

Mr Devan Pillay, Chief Director: DPW, described the IDT background and its history from 2006 to 2012. The main challenges had been an inability to generate sufficient funds, an ineffective core function, which was part of the mandate, and long term sustainability.

He highlighted the process of establishing a public entity needed for restructuring of the IDT which the Department would have to follow, and what had transpired previously. When developing a business case for Cabinet to approve, a clear mandate that describes the market environment had to be developed. The draft’s aim was to highlight the delivery of social infrastructure and the previous core function of IDT. Based on the previous mandate, a human resources structure had been included in the operational plan. The entire process had been costed. In the absence of a formally approved mandate, an HR structure had been developed as well as a finance model, but it was not a complete reconfiguration that allowed the IDT to meet its core mandate. This lack of reconfiguration was Treasury’s main concern. Once a business model was approved by Cabinet, a public entity which operated outside of government with a relevant shareholder, was created through legislation.

Moving on to the revised business case, he said the key concerns were whether to establish the IDT as a schedule 2 entity, and the mandate creep. After some meetings in 2015, the main concern had been that the IDT would enter a province and work with a provincial department without going to the provincial DPW. This had negatively affected the relationship with the provincial public works departments. The mandate creep then became a challenge in terms of the delivery of the assets that did not meet the DPW criteria. As a result, the DPW distanced itself from the assets. This was a challenge that the Department was addressing.

He indicated the Department’s budget for the IDT through out the years -- approximately R600 million -- and said that the funds had not allowed the Department to efficiently and adequately fulfil their mandate.

The Department had formulated a strong mandate for approval that was similar to a mandate brought forward in 1997. The draft mandate recommended that the IDT be established as a government agency to develop social infrastructure, commissioned by the government in a manner that would help to eradicate poverty, create employment and foster sustainable communities. This was not a disjuncture from previous mandates, and the only departure was the recommendation that the IDT should be established as a government component, and have an HR structure aligned to it.

The IDT would be a core team made up of professionals appointed through panels, so they would be fulltime employees of the IDT and this would enable them to respond quickly to demands. An HR and finance model would be implemented after the mandate had been approved. Without an approved mandate, seeking finance would become difficult and result in poor delivery.

The Chairperson asked the Committee if it would like the IDT to present, or to begin with questions. The Committee decided to forgo a presentation, and to continue with posing questions.

Discussion

Mr M Filtane (UDM) said that neither the Minister nor Mr Pillay had spoke about the IDT' risk profile. The presentation should have focused on the risk profile and how the Department would address it, because this had been a long stating concern. He asked how the top heavy structure of the IDT would be addressed. How would the non-payment by clients be circumvented? There should be a clear procedure by the DPW as it was ultimately its responsibility. Lastly, he asked how the IDT business model was implemented without approval from the Executive.

Me M Figg (DA) said that as usual, there had been little improvement with the IDT. He asked when the IDT was planning on breaking even and not losing money annually. The biggest concern with the IDT was its expenditure. He observed that in the document handed out, it was stated that the collection rate was 75%, but in the Annual Report it was given as 67%. The budget for the IDT in the previous financial year had been R5 billion, but only R4.31 billion had been used. He suggested that given these discrepancies, it was likely that the IDT’s challenges were greater than what had been presented by the Department. The Department should have provided more concrete solutions.

Mr D Ryder (DA) said that the document provided did not accomplish what it aimed to do, which was a briefing on the IDT restructuring process. He referred to previous Budgetary Review and Recommendations Report (BRRR) meetings, and echoed a question that had been raised – what was the IDT’s purpose, and what did it aim to accomplish? He said the Committee was still unclear about the IDT’s purpose and had anticipated some clarity on this, but had not received it.

He said that the issue of the mandate had become important. The only way the Department and the Committee could move forward successfully was with a clearly defined IDT role. The presentation indicated that the mandate was approved, but then states it was a developing mandate. He said the IDT’s main function was to be an implementing agent which focused on social infrastructure. Implementing agents’ fees ranged from 4.5% to 10%, and the BRRR highlights that the IDT was at the lower end, with 4%, which was positive. However, there were at least 10 other implementing agents that had been contracted by the DPW, therefore it was competing with other agents.

He suggested that if the IDT was to be viable, then the Department and the IDT should clarify its role and how it differentiated from private companies doing the same thing. More money could be allocated to the IDT if its mandate covered more than the mandates of commercial or privately owned entities. He asked if there was a real business case to approve and extend the IDT mandate. He said that project managers in the IDT were overworked, with each having approximately 35 projects at one time as opposed to the suggested ideal of 10.

He asked what the actual IDT draft mandate was, why it had not been approved, and why the Committee should support the IDT.

Ms Masehela asked what the strategy was to collect the outstanding payments, and how the Department would implement what it had presented.

DPW’s response

Adv Vukela answered the question on the top heavy structure of the IDT, saying that the IDT had begun with the restructuring process, focusing on project management. The main challenge was the lack of funds due to non-payment. Resources were needed to support the IDT, and the Department was currently in talks to address this. Once a task team involving the Treasury and Public Works was established, the Department could seek out funds to ensure that the IDT moved forward.

The Department was ready to engage with non-paying clients and to listen to the challenges which were hindering their payment. He added that the IDT was necessary, because no entity was currently focused on social infrastructure and facilitation in the way the IDT was.

Mr Pillay said most of the Committee’s questions were concerned with the IDT mandate. He addressed the questions by highlighting Page 12 of his document, and said that the new proposed mandate had been reflected and was awaiting approval.

If the IDT was approved there were various organisational structures that had to be taken into consideration. Firstly, it would operate outside of the public sector as stipulated by the Public Finance Management Act (PFMA). It could be scheduled as 2A, 3A or 3B. If it was to be scheduled as 2A, then it had to be able to compete with the private sector, be able to raise its own revenue, and its revenue must be able to meet all its costs. This would require the IDT to operate completely independently of the state.

If the IDT was scheduled as 3A, then it must function as a regulatory institution for the state. This would allow for it to receive funding from the state. At the moment, it does not qualify for schedule 3A.

The best option was to schedule the IDT as 3D, which meant it would be a national government business. This schedule would require it to operate independently of the Department, so it would have a board and would not answer directly to the Minister (a shareholder).

Registering the IDT as a 3B required it to operate independently and make a profit. In the Department’s business case, it proposes that the IDT operate with a government component. Its function would be within the public sector and it would be governed by the Public Service Act, which automatically builds in a number of operating structures. Therefore, the concerns around the HR structure and salaries would be addressed. The Department had asked the Government Technical Advisory Centre (GTAC) to assist with the risks associated with this.

Regarding the question on the risk profile, the section of the presentation 8 titled ‘Current Concerns in Business Case’ listed the risk factors, and clarified that the Department had identified and addressed them. There were two main challenges with payment by public bodies. Firstly, some clients simply did not pay due to lack of funds in the department and secondly, when they were unsure of the asset delivery by the IDT. Non-payment due to dissatisfaction of asset delivery usually occurred when the DPW refused to register the asset on the provincial asset register .This was usually due to the IDT not meeting the asset criteria.

He added that the proposed mandate had been not approved because it had not been escalated to the Executive level, and had stayed at the administration level. He could not explain why this had transpired.

Mr Pillay said it was necessary for the IDT to exist because its role within social infrastructure was crucial. Research showed that communities took better care of an asset when it was involved in the delivery of it, as it fostered a feeling of ownership. He added that government was not able to do this alone.

Mr Jeremy Cronin, Deputy Minister, DPW, echoed Mr Ryder and said that the Department must take responsibility for every process that was connected to the Department, such as the restructuring of the IDT. He added that asking if the IDT should exist was like asking if any entity like the DPW should exist.

He said that the history of long delays within the departments was due to the Executive not signing off on initiatives, as well as a high level of corruption, such as high salaries within the previous board. The current Department had delayed because the IDT was being developed along with the Treasury. When the Department had gone to the Treasury for support for the IDT, it would refuse based on structural problems. He added that the mandate had not been dismissed, but was being considered by the Executive.

If all concerned in the DPW agreed at a political level that the IDT must exist, then the Department could move forward on restructuring, starting with taking the proposed mandate to Cabinet. The Department aimed to take the proposed mandate to Cabinet before the end of the year. This would enable the Department to have responsibility and insight on removing the board. Making the IDT a government component would enable the DPW to fully engage and manage it.

Mr Cronin stated that their proposal included a professional-heavy structure that was light on administration within the IDT. As it currently existed, the IDT required R6 billion to R7 billion in revenue, with a staff of 300.

The IDT should exist, but he agreed that it could not exist in its current state. The DPW and the IDT needed to move quickly without corruption and in one direction. The mandate had not been taken to Cabinet, therefore the presentation was not as comprehensive and detailed as it could have been. The Department now had a direction. The task ahead was difficult, but the Department would endeavour to have faster turnaround times.

Minister Nxesi added that the Department aimed to have a highly technical IDT and remove the established top-heavy structure. This would mean a difficult restructuring. He concluded that the main mesagge from the session was that the Committee required quick and clear timeframes.

Further discussion

Mr Filtane had two suggestions. The first was to tighten the contracts between the IDT and the clients by including strict consequences for non-payment. Secondly, the Department should define the IDT's comparative advantages.

Mr Figg added that the IDT would not develop until restructuring took place. The unions, taxpayers, legislation and the Treasury would all have issues, but this should not be the Department’s and IDT's main concern. They should not be too concerned about unions because they had to move forward.

Mr Ryder said that the Committee appreciated the Department presenting the proposal to the Committee before it went to Cabinet. He asked the Department to continue to include the Committee in every stage of the process.

He said that the mandate did not address differentiation. The Committee required the IDT to implement projects in different ways, and the differentiation should be highlighted in the mandate. The mandate was currently fraught with negativity about corruption and it needed to reinvent itself into a positive and palatable image. The mandate had to be prioritised and the Department would have to work faster, because it was not ideal for it to have another problematic audit report.

Mr K Sithole (IFP) asked if there was a Memorandum of Understanding (MoU) between the Department and the clients of IDT. Did the leadership have a strategy to monitor fruitless and wasteful expenditure? The DPW must have oversight of the IDT, as failure of the IDT reflected a failure of the Department. He also enquired about the working mechanism between the IDT and the Department.

The Acting Chairperson informed the Members that the Parliamentary programme had been changed, and he therefore proposed that the IDT and the Department conclude their development process and present first thing next year.

He said that for the first few years, the Committee had not been concerned with IDT, despite the DPW requesting assistance from the Committee to source funds for the IDT. The Committee had refused, and that had been damaging. The Committee needed to be proactive and assist the DPW in following up on non-payment. Withdrawing funding would be counter-productive, because the IDT had done necessary work in rural areas.

Mr Vukela answered Mr Sithole’s question on the relationship between the DPW and the IDT, stating that there was DPW branch that was concerned with managing the relationship between the Department and the IDT. He added that MoUs were not used, but it was something the Department would explore. The new mandate included a protocol agreement which would ensure oversight of the IDT by the Department, as well as a productive working relationship between the Department and clients.

Mr Cronin echoed the members and stated that the Department would aim to work faster. He added that contracts were a challenge within the entire government structure. He said that government "fails to row and just steers". Each Department had to be able to contract effectively. He endorsed Mr Ryder’s comment that the Department’s responsibility was to define its comparative advantage, whereas the IDT’s responsibility was to be competitive. Both the DPW and the IDT were under capacity, and he asked how the Department could better coordinate scarce skills. The IDT worked as an implementing agent, but nationally or provincially, the DPW had to sign off.

The Acting Chairperson advised the IDT’s CEO not to be deterred by politics and politicians, and said that his main job was to deliver.

Mr Nxesi said there were some challenges that the Department could do little to address, because they were present not only in the DPW, but across all departments. He suggested that the Committee contact the Chairpersons of other Committees to enquire as to why their departments had not paid. He supported the proposal by the Acting Chairperson to be proactive in claiming unpaid payments.

He added that Mr Sithole's question on contracts was very important and should be posed to the whole of government, because it was an organisational challenge. He concluded that the DPW had to be clear about the structure, strategy, skills and the systems of the IDT, including the monitoring and evaluation.

The Chairperson, Mr H Mmemezi (ANC) arrived and the Acting Chairperson gave him a summary of what had been discussed.

The Chairperson thanked the Acting Chairperson for steering the session. He also thanked the Minister and the Members for attending. He added that he felt the IDT should have presented, as it was responsible for implementation. It was the place for the IDT to speak, because it was the IDT that had failed and not the Department.

Mr Figg suggested that the IDT present at the next meeting.

The Acting Chairperson explained that the IDT and the Department were waiting for approval from the Executive, therefore it may be more productive for the two entities to give a full and comprehensive presentation when their mandate had been approved.

The meeting was adjourned.

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