NRCS &SABS on their turnaround strategies; Committee Programme: discussion

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Trade, Industry and Competition

26 November 2019
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Portfolio Committee met with the South African Bureau of Standards and the National Regulator for Compulsory Specifications to follow up on issues raised when the entities had presented their Annual and Quarterly Reports in October 2019. The Committee had requested each entity to present a detailed turnaround strategy following a qualified audit and organisational challenges. The CEOs at the entities had been seconded from dti following problems with the previous management and boards.

The South African Bureau of Standards had been put under administration in July 2018. The period prior to that had seen systemic downgrading of operations and equipment to the point where it had impeded the ability of the Bureau of Standards to deliver services to the market, resulting in massive customer failure and a loss of revenue. The shareholder had been of the view that there were serious inabilities on the part of management. The Bureau of Standards was generating insufficient revenue from conformity assessment services to cover operational expenditure and employee expenditure accounted for 70% of administrative and operating expenditure following the increased benefits awarded to the central bargaining employees. The Bureau was also performing a broad range of “public good” services. Cash resources would be depleted by March 2021 as the Bureau currently was using the cash reserves to balance the books. The short-term plan was to stabilize the South African Bureau of Standards; the medium term plan was to fix the business and the longer term plan was to chart a new course. The Bureau had been stabilized and the current phase of fixing the business entailed an integrated Operational Excellence focus; rectifying basic business processes and initiating a more iterative process involving general and senior managers across the organisation. The Bureau was receiving facilitation support from an external specialist turnaround consultant with the requisite technical skills.

Members asked if it was it not necessary to look at a total restructuring of the institution? How had the Bureau lost such critical technical skills that the Bureau had to bring in external consultants at high costs?

The main worry by Members was the amount spent on salaries. How was the entity going to cut the salary budget? How were they going to address the financial crisis? What engagements had the Bureau had with National Treasury and what had its response been? How could they resuscitate the Bureau financially? There had been a good diagnosis of problems but what were the timeframes for the turnaround strategy? How could the dignity and competitiveness of the Bureau of Standards be restored? What was the succession plan?

The National Regulator for Compulsory Specifications needed a turnaround strategy because it had received six years of qualified audits and had experienced long turnaround times for the issuance of some pre-market approvals. Challenges included rapid senior management turnover, a fragile labour environment, inadequate ICT systems, poor performance, problems with the levy funding model and the regulatory model. A financial manager and a senior IT specialist from the State Information Technology Agency had been seconded to the Regulator to assist in the turnaround. Human Resources policies had been updated, critical posts advertised and an electronic leave management system had been implemented. Following the Auditor-General’s concerns about the estimation methodology, the methodology had been improved and all companies were registered with the Regulator. Consequence management had been implemented to ensure that all information was properly prepared for the Auditor-General. The infrastructure had been reviewed and an upgrade to the bandwidth was deemed essential. The system would be upgraded to cover all functions in a single IT architecture. ICT policies were being updated and a governance review was being undertaken. The biggest challenge facing the National Regulator had been the implementation plan. Now that there was an implementation plan, and bi-weekly reports on progress made, the Regulator believed that it was on the road to recovery.

Members were not sure about progress. One Member asked whether the only option would be to put the National Regulator under Administration. Another asked whether the current management had been given adequate opportunity to improve. Members expressed concern about the lack of specifications for part-worn tyres which was a very serious safety issue. How did the turnaround time of 120 days compare to the number of days for international best practice? What kind of relationship did the National Regulator have with the Bureau of Standards and SA National Accreditation System, especially in terms of local content verification?

Why were salaries at the entities so very high and bonuses huge when the entities were not productive? If the entities had not performed well, why were people given bonuses?

The Chairperson announced that the Committee would conduct an oversight visit to the Bureau of Standards in January 2020.

Meeting report

Opening remarks

The Chairperson welcomed everyone and the agenda was adopted without objections.

Comments by Department of Trade and Industry (dti)

Mr Lionel October, Director-General (DG), dti, stated that he was starting to see good progress at the South African Bureau of Standards (SABS) and the National Regulator for Compulsory Specifications (NRCS). There were two key issues to be addressed. Firstly, the two entities had to be moved towards a clean audit and, secondly, they had to complete the turnaround strategies to deliver better services to the private sector.  Both institutions were responsible for the safety and quality of products produced by SA companies. In terms of the industrialisation strategy, the companies produced for the internal and external market and it was important that SABS and NRCS could deliver the necessary services.

He pointed out that the dti loved clean audits. The Economic Development Department, dti and about ten entities had received clean audits so they knew that clean audits were doable as long as a clear plan was in place and the team was in place to deliver.

He added that both CEO’s had been seconded from dti following problems with the previous management and boards. Also, at the request of the Committee, financial staff to help with auditing and putting in systems as well as IT specialists had been seconded to the organisations.

Briefing by the South African Bureau of Standards

Mr Garth Strachan, Acting CEO and Administrator, informed the Committee that SABS had been put under administration in July 2018. The move had been preceded by systemic downgrading of operations and equipment to the point where it had impeded the ability of SABS to deliver services to the market resulting in massive customer failure and a loss of revenue and the shareholder was of the view that there were serious inabilities on the part of management.

Mr Strachan was accompanied by the CFO, Tina Maharaj, Certification Executive, Amanda Gcabashe and Legal Services Executive Joseph Leotlela.

Mr Strachan presented the key events that shaped SABS up until 2018 when SABS was placed under administration and co-administrators were appointed. Significant events that occurred from 2012 to 2017 included engagements with the Central Bargaining Unit which had resulted in increased benefits for workers and a R65 million per annum cost to the company. The South African National Accreditation System (SANAS) suspension of certification accreditation had caused reputational damage while the discontinuation of partial testing had led to a loss of customers. Cancelled permits/certificates led to a loss of annual fees of approximately R19 million in FY 2017, R61 million in FY 2018 and R57 million in FY 2019.

Financial challenge:

SABS was generating insufficient revenue from conformity assessment services to cover operational expenditure and employee expenditure accounted for 70% of administrative and operating expenditure following the increased benefits awarded to the central bargaining employees. SABS was also performing a broad range of “public good” services. Cash resources would be depleted by March 2021 as SABS currently needed the cash reserves to balance the books.

The short-term plan was to stabilise SABS; the medium term plan was to fix the business and the longer term plan was to chart a new course. SABS had been stabilized and the current phase of fixing the business entailed an integrated Operational Excellence focus; rectifying basic business processes and initiating a more iterative process involving general and senior managers across the organisation. SABS was receiving facilitation support from an external specialist turnaround consultant with the requisite technical skills.

Key achievements included cost containment measures and a savings of R53.5% million in total operating expenditure. SABS had secured additional funding from the dti to support capital expenditure over the short-term. Procurement interventions had overcome significant bottlenecks, improving turnaround times from 60 days to between 50 and 55 days in the past few months as well as cost savings. The roll-out of the ICT strategy was underway following the cancellation of R300 million digitalisation plan in favour of a cost effective integrated model.

Operational achievements included certification, local content verification, laboratory services, facilities, human capital, stakeholder engagement, internal audit.

Forensic investigations

-Loss of the International Automotive Task Force (IATF) Accreditation had been a severe blow and the investigation had raised a number of organizational inadequacies which had contributed to the loss of IATF accreditation. Remedial steps were being taken to address the weaknesses.

-Irregular appointments: Allegations had been made by anonymous whistle blowers concerning irregularities in the appointment to various positions in SABS between February 2015 and 30 November 2018. Legal advice was being taken on a possible recourse.

-Eskom coal testing: procedural weaknesses had been found and remedied.

Reflections on the Turnaround Plan

At the core of Phase 2 of the Turnaround plan was a secure and integrated operational and execution management plan for SABS, with strong monitoring and oversight. The plan was based on getting all the basic “nuts and bolts’ operations back to acceptable levels. Those plans would be supported by robust sales and marketing initiatives. The challenges at SABS were deep-seated and multi-layered. The turnaround plan would take time to yield optimal outcomes to return the institution to a competitive, professional services company which was able to compete in the certification and testing market, develop standards which were aligned with and supported the industrial effort and provided a cost effective and competitive service in local content verification and training.

The financial sustainability and the cash position of the SABS remained the most critical challenge for the next two years.

Discussion

Mr F Mulder (FF+) said that he had grown up to be proud of the SABS and that SA was experiencing a concerning and alarming situation. It was an extraordinary situation after state capture. SABS did not exist in isolation - it was influenced by the state capture environment and it was working in a poor economic environment. Things had started to go wrong when the restructuring began in the late 1990s. Was it not necessary to look at a total restructuring of the institute, more than what they had seen reported? How had SABS lost critical technical skills so that it had to bring in external consultants at great cost? How had that happened? SABS could not succeed without skilled personnel. Where were the skills? Why had they been allowed to leave? He believed that he had the answer but he wanted to hear it from the SABS.

Mr D Macpherson (DA) welcomed Ms Fubbs, the previous Chairperson of the Committee, who was seated at the back of the room. He said that when people were asked how they went bankrupt, they always said that it went slowly at first and then rapidly. He had said publicly that Mr Strachan was the best person to manage the crisis that SABS was in, but when he looked at the figures, he got the rapid feeling. Mr Strachan could institute a turnaround plan but the expenditure that he was going to have to take on, was the employee costs. He would need biblical strength because that was the real elephant in the room. No organisation in the world could pay up to 70% of its budget on employee costs and remain financially viable. For him the real question was how he was going to tackle employee costs. He wanted Mr Strachan to take him through that plan because insolvency was on the horizon.

He also asked for the schedule of bonuses paid over the past three years and he saw from the shake of Mr Strachan’s head that there were no bonuses budgeted for the current financial year, which was a good answer.

Mr Macpherson asked what engagements SABS had had with National Treasury and what its response had been. His personal view was that any additional funding would only be a plaster unless accompanied by staff cutting and restructuring.

Mr M Cuthbert (DA) saw concrete deliverables attached to the report but no timelines. There was a good diagnosis of problems but what were the timeframes? The timelines had to be included so that the Committee would understand the plan going forward. The Committee had to be assured that SABS would not be under Administration in perpetuity. He did not get the feeling from the presentation that there was a clear path forward. He was happy to be given the timelines either by Mr Strachan in the meeting, or in writing at a later stage so that the Committee could understand when the plans would be carried out by the administration team.

Ms T Mantashe (ANC) expressed her delight at seeing Ms Fubbs. Her biggest worry about SABS was the amount spent on salaries. How were they going to cut it? It was not possible to spend 70% of the budget on salaries. How could the Bureau implement the vision without more money and where would it get money? How would the team bring back the dignity and competitiveness of SABS? Why bring in consultant engineers when there were in-house engineers? How had Mr Strachan cushioned things for when his secondment came to an end in January?

Mr S Mbuyane (ANC) welcomed Ms Fubbs. How were they going to address the financial crisis? How could they resuscitate SABS financially? He was worried about the Cost of Employees (CoE) at 70%. What was the purpose of the skills audit? What skills were needed and what operational structure and organizational design did the team want to achieve? What did the reduction of the Executive mean?

He added that the IT system was critical. Why had the IT system been cancelled and now the Committee was told that there was no IT system? Currently there was no management system. What did they want to do in the turnaround about IT? What was the recruitment strategy because now SABS had engineering consultants? He thought that it would be better to employ the engineers as that would be cheaper than bringing them in as consultants.  The financial cost of coal testing investigation was another problem. How much had it cost and how was the entity going to recoup the costs? Was all of that information in the report of the investigation?

Ms J Hermans (ANC) welcomed the former Chair: to be recognised with such warmth was a legacy that all should strive towards. She asked about the consequences of the CEO’s term coming to an end at the end of January 2020. What was the transitional arrangement or should the Committee look for his term to be extended? The QBlock debacle had resulted in the loss of millions of Rand and now SABS was going to use part of the money given by dti for equipment to try and fix it. It was a huge misstep in the construction of QBlock. What was the consequence management? Why was the specification erroneous?

She asked if there had been no industrial action or threat of industrial action in the light of not giving bonuses. It would be very unusual for there not to be some activity. She asked for a detailed plan relating to the increase in revenue so that the Committee could see if the organisation would survive 2021. Insufficient succession plans were an audit finding. Was there a new succession plan in place?

The Chairperson welcomed the previous Chairperson and invited Ms Fubbs to speak if she wished to do so. Ms Fubbs declined.

The Chairperson asked how SABS was managing natural attribution. What engagements was SABS having with the Central Bargaining Unit because that was a strategic platform to get strategic support and to present a plan?

Mr Strachan agreed with Mr Mulder that the poor market conditions were impacting on SABS because companies were struggling, but it was difficult to measure the impact. There was no doubt, however, that companies that were struggling could not afford to have new standards developed. He stated, with respect, that Mr Mulder was wrong about the restructuring. Restructuring of SABS had started in the late 1980’s with the liberalisation of the SA economy. SABS was run by whites for whites in the past. The loss of skills and the difficult process of transition had to happen and the difficulty of such processes should not be underestimated. Perhaps the management at the time could have done better but that was a call that someone else had to make. SABS was currently doing a skills audit and finding out precisely what was required, especially in the laboratories.

He added that SABS had engineers but not structural engineers and an infrastructure and laboratory equipment upgrade needed a multi-disciplinary team of engineers to design the specifications for the tenders that would have to go out. If SABS did not do that, there was no way of ensuring that the errors of Q Block were not repeated. Money could not be put into a capex programme which was not fit for purpose, which was what had happened in Q Block. He pointed out, with respect, that it was not cost effective to employ highly paid engineers but more cost effective to get them in when needed to do very specific pieces of work. It would not be wise to add such highly paid jobs to the already large salary budget.

Mr Strachan stated that, in respect of the 70% cost of renumeration, including benefits, he could supply a schedule of bonuses paid. However, he asked the Committee to bear in mind that when the Administrators took over in July 2018, bonuses had been promised and legally SABS had been obliged to pay those bonuses. The ship had been turned around and no bonuses had since been paid nor would be paid. The Executive had agreed on a 2.8% salary increase but the collective bargaining process had resulted in increases from 5% to 7% for those employees in that process.

Mr Strachan informed Mr Macpherson that SABS was undertaking a deep-dive cost compliance, cost cutting and revenue generating plan which would be ready by the time of the visit by the Committee to SABS on 21 January 2020. He did not want to send the wrong messages to Labour. SABS regarded labour as an important stakeholder and he met with labour weekly. He informed Ms Hermans that re-organisation was a difficult process that would require a shift within the organisation. There was a skew in the wrong direction in terms of technical support to frontline staff. There were opportunities for natural attrition. There had to be a degree of caution to ensure that the wrong signals were not sent to staff. SABS would brief the Committee in full on 21 January 2020.

Mr Strachan agreed with Ms Mantashe that the dignity of the institution was important. As the institution had declined over time, successive waves of employees had forgotten what good looked like in the laboratories, good in presentation on the factory floor, good being at work and on time, good in the work productivity and throughput through the laboratories. The issue of organisation culture change was key. As organisational expert had said about the culture of an institution: culture trumps strategy and eats strategy for breakfast and lunch. Culture was the critical question that management was grappling with.

He explained to Mr Mbuyane that he had set out the financial crisis but maybe he needed to take the Committee through the detailed financial reports as set out in the integrated Annual Report and the Corporate Plan. He had erred on the side of not providing too much detail. It was not correct to say that there were no systems or processes in the institution. For example, when a sample arrived at the gate, it went through laboratories, invoicing, etc. until the sample was returned to the company. They were complex systems but they were degraded. Systems from sample management to the complex integrated systems to an IT system that had to link the Standards Division with the Certification Division with the Testing Division with the Finance Division with the Call Centre and the Sales and Marketing Division were very complex processes that had to be put in place. The previous management believed that a R300 million IT system would be a magic wand. The Administrators’ view was that they had to get the company working properly, fix basic problems and not impose an IT system on a dysfunctional SABS as it might make the problem worse. They had to get the audit processes working and then they could get a more cost-effect IT system. They were taking a more staggered, calibrated approach.

Mr Strachan told Mr Mbuyane that the reduction of the Executive was natural attrition. Three members of the Executive had resigned and the posts had not been filled. SABS was going into a process of finding the right organisational structure before adding well-paid executive managers to the employee budget. There was a succession plan and he had full confidence in the Executive. A robust transition process was planned for his departure. He left the detail to the DG to explain.

He regretted that the team had been unable to persuade Mr Cuthbert that a turnaround was taking place but he would provide Mr Cuthbert with very specific target dates, although he did not think it was a good management device as it could be a rod to break one’s back. There were target dates for all managers and when the Committee visited SABS, he could put on a screen the shared drives showing the models and the dates for meeting targets and how, when a target was not being met, red lights went through to the Administrators and Acting CEO for intervention.

He agreed with the Chairperson that natural attrition was on the radar but SABS did not want to lose critical skilled people and was looking at getting highly qualified retired engineers to return on a part-time basis to do skills transfer. SABS already had 12 interns from the University of Pretoria. SABS had 34 laboratories and management was working on developing cross-functional teams so that engineers could work in more than one laboratory.

Mr October noted that a number of Members had asked about the staff issue and how that related to critical funding. He assured them that when any funding was given by dti, it was only for upgrading and local content verification. Not one cent went to staff costs and benefits. All dti funding went to the upgrading of equipment in which there had been no investment for 20 years although the equipment used to be world class. SABS had the only facility in the Southern hemisphere to test power generation etc., so dti was investing in capital.

Mr October assured the Committee that both Mr Strachan and the CEO of the National Regulator for Compulsory Specifications (NRCS) knew that early action was important. Dti had been cutting staff for five years as it had seen the trend of cutting employee costs. He knew that SABS had to immediately start right-sizing by dealing with attrition, a moratorium on employment and no bonuses to prevent a big retrenchment at the end of the day. That had been the dti advice to all entities. Competition was critical and SABS was improving competitiveness. The private sector was benefitting from lower costs for services because of competition. That was good for the industry. SABS was there to service the private sector so that the private sector could create jobs. Industry needed qualifications and if they could get the qualifications cheaper, it was better for them and the economy.  SABS was working on areas where there was no competition, such as in the auto industry. If SABS could get that testing back, the private sector would run to them because it would be cheaper than going overseas. Government did not need to subsidise where private industry could do the job more cheaply. Mr Strachan talked about right-sizing because there was plenty of work. SABS had lost Toyota which employs 8 000 people and made R60 to R70 million a year. If SABS got its capability back, the future was bright because there was a world class core in SABS.

Regarding the CEO position, the DG explained that Mr Strachan was just starting to find his feet and to get another change manager would be a setback as the person would first have to learn the ropes. Dti wanted to extend Mr Strachan’s appointment so that the entity was fixed before a new board was appointed. He believed that the team was on course, but the Committee would be provided with more definite dates and timelines.

The Chairperson noted that it was important to have a professional team. The intervention was looking at a process of stabilisation. It was about the competitive space that SABS was in because if there was a vacuum, someone else would move in.

Mr Macpherson asked Mr Strachan what the current headcount was and what it needed to be so that the Committee could see the gap and how deep it needed to be.

Mr Mbuyane asked about the relationship between SABS, the NRCS and SANAS.

Mr October explained that the relationship between SANAS, NRCS and SABS was improving but, to a certain degree, SANAS had to stand apart as it was responsible for testing and accrediting laboratories. The dti had created a technical infrastructure team and that was working well and there was a sharing of practice between the institutions. SABS and NRCS used to be one institution and dti was strengthening the links between the two so that they could work closely together.

What was the right size and what services had to be provided?  SABS was the only one that could do the auto testing and the electricity generators. Many companies had asked SABS to improve because they wanted to use the services of SABS. He and the team would soon inform the Committee of the right size but they would allow private sector to do work where It could be done more cheaply by the private sector. The point of competition was to lower prices.

Mr Strachan stated that the existing head count was 879. He could not guess the optimal figure. The ratio of support to technicians was skewed the wrong way so he wanted to see what staff were doing and whether they were fully and gainfully employed, and what they were employed on. The assessment included the many offices around the country. Regarding coal testing, he explained that SABS had employed 120 people in minerals testing some years ago but that figure was down to 18. Competition was good for the economy but SABS had lost massive business to low-cost specialized niche testing in the area of minerals. The optimal headcount would include difficult decisions, such as whether or not to stay in the mineral space. He said it was premature to give an optimal count before the new year.

The Chairperson was pleased to hear that the Acting CEO would be staying on.

Ms Mantashe thanked the Acting CEO for defending the democratic SA when he said that the mess in SABS began before 1994.

Briefing by National Regulator for Compulsory Specifications (NRCS)

Mr Edward Mamadise, CEO, NRCS, was accompanied by the Manager Strategy and Risk, Mr Edward Matemba and Acting Chief Information Officer, Ms Nomathemba Majola, who had been seconded by the State Information Technology Agency (SITA) to assist the NRCS.

Mr Mamadise stated that the NCRS needed a turnaround strategy because it had received six years of qualified audits and had experienced long turnaround times for the issuance of some pre-market approval. Challenges included rapid senior management turnover, a fragile labour environment, inadequate ICT systems, poor performance, problems with the levy funding model and the regulatory model.

The Financial Manager and the IT specialist had been seconded and the NRCS was bringing in staff to work with the secondees. Human Resources policies had been updated, critical posts advertised and an electronic leave management system had been implemented. Following the Auditor-General’s concerns about the estimation methodology, the methodology had been improved and all companies were registered with the NRCS. The NRCS had implemented consequence management to ensure that all information was properly prepared for the Auditor-General.

Letters of Authority

Letters of Authority were being issuing much more timeously. The majority of approvals were close to 100% in under 30 days. The NRCS had not properly implemented a cancelled or declined cancellation policy but the CEO had insisted that the policy be implemented from 1 November 2019 and was currently in practice. The problem with Letters of Approvals for electro-technical testing was being addressed. Additional administrative support would ensure that tests were more efficiently captured. NRCS was considering requesting staff to work overtime during the December shutdown period to ensure that there was no backlog in January after the festive season closure.

ICT Modernisation

The Chief Information Officer (CIO) had reviewed the infrastructure and identified that the voice-over IP was using bandwidth and that it was essential to upgrade the bandwidth. The system had been inherited from SABS and had 700 upgrades. As it was running on Oracle, Oracle would assist in upgrading the system. The financial system (JDE) needed to be upgraded to resolve the audit findings. The system was going to cover all functions in a single IT architecture.  IT security architecture was being adapted to secure the various customers of NRCS. ICT policies were being updated and a governance review was being undertaken.

Mr Mamadise stated that the biggest challenge facing the NCRS had been the implementation plan. Now that there was an implementation plan, the managers were reporting to him bi-weekly on progress made on the action plan.

Comments by the DG

Mr October stated that, in response to the Auditor-General’s findings, he had seconded someone from dti to help clean up the NCRS. It was a very technical, granular exercise that had to be done. A person would be permanently appointed to NRCS by January and that person would be trained, as well as other officials in the NRCS. Consequences management was following for those whose inadequacies had led to the qualified audit but dti would be putting in the proper skills.

Discussion

The Chairperson noted that team building had already started at the NRCS.

Mr Macpherson asked the DG why, for the nearly six years that he, Mr Macpherson, had been on the Committee, none of the four turnarounds had materialised, nor had they succeeded in dealing with the ICT infrastructure, the Letters of Authority (LOAs) or the audit findings. The dates for the ICT infrastructure were two years past the implementation date.

He took the comments by the CEO, who was a very nice gentleman, with scepticism when he said that he had plans and would be delivering. Was the only option not to put NRCS under Administration, to clear the decks and address the challenges? A lot of the problems had been inherited and because of structural challenges and way NRCS was managed, the CEO could not deal with the issues.  The roll-over of LOAs was pretty much the same as in the previous report. There was a perpetual rolling over of the LOAs. There was no capacity or ability to deal with it.

Mr Macpherson expressed concern about the issue of part-worn tyres, which had not been dealt with to date. A feasibility study had been done by the NRCS and it had recognised all the very serious issues around safety problems and a lack of regulation but the report, without input from stakeholders, had said that it was not a problem of the NRCS. It was a SAPS problem but no one knew how many tyres were coming over the border. He believed that structural problems such as the issue with the tyres had to be addressed or such things would continue to filter into the SA society.

Mr Cuthbert asked how the turnaround time of 120 days compared to the number of days for international best practice. What was the international benchmark turnaround time compared to the NRCS’s turnaround time? As he was new to the Committee, he did not know how long the CEO had been in office but was the current management not partially responsible for the poor audit? Against whom was consequence management being taken?

Mr Mbuyane said that the electronic management of leave was a turnaround. That was one corner that the NRCS had turned. But the organisational design and structure had not been done and the CEO wanted to fill positions. Why had he not done the skills audit and the organisational plan before he started to fill positions. If he was turning the business around, he could not maintain current staffing and there might be people who could be moved. He was pleased that there were clear timelines for the ICT turnaround. Was the NRCS using the SAPS payroll system or its own? Which of the 12 key performance indicators was the NRCS prioritising for 2018/19 and how successful had the NRCS been?

Mr Mbuyane added that the120 days for LOAs had to be minimised. The cancellation date of 30 days was important and had to be implemented. If the 120 days timeframe could be turned around, it would help with the income. What was NRCS’s relationship with SABS and SANAS, especially in terms of local content verification? That was key and would enable the NRCS to turn the corner.

Ms Mantashe asked if the Committee could have a copy of the progress report on dealing with the Auditor-General’s findings so that the committee could check on progress in that regard?

Ms Mantashe was concerned about critical vacant positions to be filled by 31 Match 2020. Management had not yet done the audit of skills and developed the organisational structure but they had already identified critical positions. Was that not going to widen the gap between management and labour? That was a challenge. She did not understand how the NRCS could fill critical positions when other issues had not been addressed.

She suggested that the DG needed to look at the high salaries at entities. Salaries at the entities were very high, but the entities were not productive. People were given huge bonuses. For what? If the entities had not performed well, why were people given bonuses? Executives at the entities earned high salaries but they required bail-outs every day. Government needed value for money. She had been a shop steward in her other life and the reality was that a bonus had to be linked to good performance. Workers should up their action so that government could get value for money.

Mr Mamadise responded to the question about part-worn tyres. There had been a feasibility study. There were no testing facilities for tyres in the country, making it impossible or very difficult to set a specification. There was no standard, so SABS would have to develop the standard. Enforcement of standards for part-worn tyres would be impossible because the origin was a factor and the tyres were sold on street corners. It was a fragmented issues in that the International Trade Administration Commission (ITAC) was responsible for the import of part-worn tyres. It would need an integrated approach between the industry, SABS, ITEC and NRCS.

Mr Mamadise told Mr Cuthbert that 120 days was too long but the entity needed to get down to 120 days and then revise the time. There was no comparable structure in the world as NRCS was a single body doing all standards whereas other bodies dealt with only one standard. He acknowledged that there was, however, room for improvement.

He added that the consequence management was taking place because most of the audit findings had been in the Human Resources division and in finance. That was where consequence management was being implemented and those people were not part of the delegation before the Committee.

Mr Mamadise informed Mr Mbuyane that the NRCS had been working on the organisational redesign. Five steps had been completed and the organisation was currently doing the micro-structure design. The organisation had had to take a decision as to whether it wanted a moratorium on filling posts when there were immediate critical capacity gaps and the organisation needed to continue. Some gaps had to be filled for the NRCS to fulfill its mandate. The job grading process would follow after the microstructure had been completed. All existing staff would fall into a pool and a process of skills matching would be followed. A migration policy still had to be developed.

He explained that the NRCS had concluded a Memorandum of Understanding (MoU) with SABS. The model of the infrastructure of the entities was such that the mandate of the four entities overlapped. For example, he relied on SABS for testing capacity for compulsory specifications.  If the SABS did not test, he would not be able to enforce compulsory specifications. The MoU strengthened the good relationship between the two entities and working teams had been established, even at the operational level, to ensure cooperation and support for each other in the fulfilment of government’s objectives.

Mr Mamadise noted the comment on the salaries of the entities. The process of organizational review would address salary disparity.

Mr October agreed with Mr Macpherson that key to the problem areas was the quality of management team and not having the right management team in place. In plain English, they were taking disciplinary action against people responsible for the qualified audit in finance and in HR. In the previous meeting, the CFO had been present and it was her team that had been responsible and action had been taken against her and others.

Mr October reminded that Committee that the NRCS, like SABS, had had a board but the management and the board had been involved in the corruption so a change had been made and the NRCS now fell directly under the dti, so change was easier than it had been at SABS. NRCS was no longer an independent entity. There had been a lot of difficulty in getting disciplinary actions processed by the Department of Public Service and Administration (DPSA). Disciplinary processes were being outsourced to the Bargaining Chamber and the Commission for Conciliation, Mediation and Arbitration (CCMA), etc and there was an interminable wait. Because of the problems and difficulties that had arisen as a results of the delays in disciplinary action, the dti had decided to insource the process and would train Deputy Director-Generals, Chief Directors and Directors on how to chair disciplinary enquiries as had happened in the past. Dti also intended training entities on how to manage the disciplinary process. The DG commented that those in the meeting who were former trade unionists, and he had also been the Senior Commissioner at the CCMA, would know that a disciplinary process could be completed in a couple of weeks. Currently it was taking around 12 months but with the new model of insourced disciplinary action, there would be a much quicker turnaround time.

Mr October agreed with Mr Cuthbert that they could check best practice in other countries, even if it was done differently, and then they could come back to the Committee on the question of the time.  He noted that Mr Mbuyane kept asking about relationships. He pointed out that SABS and NRCS had been married but were divorced as it had been international best practice at the time but he wondered whether it had been a strategic error, so dti was cancelling the divorce and trying to get them back together, at least in a federal structure with firewalls between. The NRCS would look at the part-worn tyres issue again.

Regarding bonuses, he had been with dti for 18 years, nine of those years as DG, but he had never received a bonus. A bonus was not a right, but perhaps entities had been abusing their independence in awarding themselves bonuses.

Mr Macpherson welcomed the DG’s comments and views, especially around part-worn tyres, as one had to find ways of doing things, not reasons why not, especially as it had been identified as a risk to human safety by the NRCS itself. It was not possible to identify something as a risk and then not do anything about it. He thanked the DG and was looking forward to some action in that regard.

Mr Cuthbert welcomed the reforms in disciplinary process but wanted an update on the Chief Director who had been suspended on full pay for over two years. Perhaps the new style of disciplinary action could be applied to that person if he was still on the payroll. He found it ridiculous that someone could be paid for over two years when he was suspended pending disciplinary action. It was a waste of taxpayers’ money and did not do the public any good. He wanted to know that in the cases of those suspended for over a year, the reviewed disciplinary process would be applied.

Mr Mbuyane commented that it was good that the ICT plan was in place as that was critical. The ICT plan held all departments to ransom. Checking critical positions versus structure and design was necessary. NRCS had to check whether it needed new staff before it bloated the structure.

Ms Mantashe noted that NRCS was a scarce skill entity and hoped that there would be HR development so that there would not be retrenchments of people with scarce skills during restructuring.  She did not agree with putting NRCS under administration. The CEO had not long been put in the position and the Committee had to give him a space to show that his plan could work. The Committee could not want to chop and change people before they had had a chance.

Mr Mulder had said that he had mentioned the possible restructuring of SABS and NRCS. He was pleased to hear what the DG had said, i.e. that it might be necessary to combine the two structures because that was what he was getting at. Extraordinary events required extraordinary measures.

Mr October agreed with Ms Mantashe that they had to stand behind the management teams that they had put in place. He was fully behind Mr Mamadise.

The disciplinary case that Mr Cuthbert was talking about was currently before the Public Service Commission. In order to maintain its clean audit, the dti had a zero tolerance for fraud and corruption, so as soon as there was an allegation, the person was suspended. As the Committee knew, dti managed its contracts very well. Dti had had a contract with EOH Technology and EOH had given dti a bill for “a lot of money” and the dti had refused to pay but the CD, as the IT Manager, had tried to make the dti pay. He had written to the bargaining council on several occasions, explaining that the delays were unacceptable. He now had an undertaking that the process would be completed by the end of January 2020.  He added that, because of the long delays, he had taken disciplinary action himself against him and had prepared a disciplinary enquiry but the court had interdicted dti because the matter was before the Bargaining Chamber Arbitration, and dti could, therefore, not deal with it. Dti was the one that was fighting corruption but dti was always getting into trouble. He had taken legal advice and so he was waiting for the process to be concluded.

The Chairperson noted that the Committee could be assured that there was capacity in the teams and a level of competence for the job and there was a sense of timeframes. The Committee brought support but it was relying on the team.

Mr Mamadise reassured Ms Mantashe that the NRCS had a programme to upskill people who did not meet the criteria for the new organizational structure. The NRCS did not want to retrench staff but make the organisation more productive.

The Chairperson concluded the discussions. On 21 January 2019, the Committee would possibly visit SABS as it would add a lot of value and the Members would be able to interact with the broader teams. He thanked the teams for their reports. The Committee would follow through in the coming year to get a sense of progress.

Committee Programme

The Chairperson referred to the draft programme for oversight visits and the programme for the first quarter 2020.

The Committee Secretary, Mr Andre Hermans, stated that the dates had not yet been finalised by the Joint Programming Committee but there had been discussion with the Programming staff who had suggested the dates proposed. Only after the Joint Programme Committee had met could the Committee formally adopt the programme. The proposal was for a two-week oversight visit in Gauteng, which included a Saturday, ended on Thursday 6 February 2020. It was a draft for discussion and input by Members.

Mr Macpherson noted that it would be a first for an oversight visit on a Saturday. He had a problem as weekends were for constituents and he would be in his constituency on Saturday. He was hoping that there was a meeting with the National Lotteries Commission.

The Committee Content Advisor explained that because the Committee was expecting a holistic gambling Bill, the staff had scheduled a day where Members could see all modes of gambling, including bingo which was only available in Gauteng and not in the Western Cape.

The Chairperson explained that the idea was to maximise the opportunity. The programme would be finalised at the meeting the following Tuesday.

Mr Mbuyane proposed that, in principle, the proposed dates and programme be tentatively approved by the Committee.

Mr Macpherson reiterated that he would not be available on a Saturday. He also noted that where the Committee had stayed in Pretoria previously, extra visitors had offered services that had not been required, and he did not want to stay there again.

The Chairperson commented that the Committee was permitted to meet on a Saturday, although Mr Macpherson would be with his constituency on the Saturday.

Ms Mantashe said that the Committee could not be held back by one person and seconded the proposal to adopt the programme in principle.

Mr Macpherson asked for his objection to be noted.

The Chairperson said that he would note it as an apology.

The Secretary said that the First Quarter programme from 11 February would include all those entities that the Committee had wanted to follow up on plus some issues that had fallen off the programme for the current Quarter. The Content Advisor would prepare a rationale for each of the proposed meetings. Two items had been removed from the First Quarter Programme as the Committee would be having training and a workshop in the First Quarter.

Mr Macpherson noted that the National Lottery Commission (NLC) continued to be a huge issue and he thought that it would be critically important for the Committee to re-engage with the NLC in the first Quarter 2020.

The Chairperson confirmed the programme for the following Tuesday. The Committee would adopt the Committee Programmes as well as the Second Quarter Reports from the Economic Development Department and dti and prepare a report for the House.

Closing remarks

The Chairperson thanked Members for their attendance.

The meeting was adjourned.

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