Department Transport and Public Works & Government Motor Transport 2020/21 Annual Report and Audit Outcomes

Meeting report

Engagement between the Committee and the AGSA
This section of the meeting was closed to the public.

Once the public section of the meeting resumed, the Chairperson welcomed the public back. He thanked the Minister and Director-General (DG) of the Western Cape Department of Transport and Public Works (DTPW) for being present. The Committee appreciated the presence of the MEC at its meeting. He said there would be an opportunity for any members of the public to ask their questions to the Department and entity on the Annual Report at the end of the meeting. The meeting was advertised in three newspapers and in three different languages.

Mr Daylin Mitchell, Western Cape Provincial Minister of Transport and Public Works, thanked the Committee for allowing the Department to defend its annual financial report for 2020/21. The Department looked forward to a robust engagement.

Ms Jacqui Gooch, Head of Department (HOD), DTPW, indicated that the Department and Government Motor Transport (GMT) maintained its clean audit record for 2020/21. The Department achieved a 98.5% spend of its budget. The 2020/21 financial year raised a number of problems for the Department and required it to respond in various ways. It went through a number of adjustment budget processes and the Department acknowledged that there were potential risks to revenue. The Department acknowledged the works of its teams who work through lockdown to ensure the Department can respond to issues and reach its objectives. She indicated the difference between the previous years is the level of uncertainty how the Department works. The decision taken in one financial year can have an impact spanning across multiple years given the nature of the Department’s business regarding infrastructure. She indicated that the previous engagements the Department had with the Committee went well. She thanked the Committee for the opportunity to engage and committed to respond any issues the Committee raises. She acknowledged the hard work of the Department’s team who tried its best to respond and meet the requirements of the citizens of the Western Cape (WC).

Section C of the Annual Report of the DTPW and GMT
The Chairperson asked if the Members had any comments or questions while looking closely at Section C and E of the DTPW and GMT’s annual report.

Ms D Baartman (DA) commended the Minister and Department for achieving a clean audit despite the infrastructure demands of the WC due to the pandemic. She referred to Section C of the report and said that the Department of Human Settlements (DHS) has existing contracts and invited other departments to join the contract. Her understanding of the contracts is that it is a framework agreement of the Supply Chain Management (SCM) processes but the Department’s contract is not a framework agreement. She asked the CFO how did this happen because the Department must ask for permission if it is going into a framework agreement. She stated colloquially that the DTPW cannot ‘piggy back’ on another Departments contract. She referred to Section C page 163 of the report and indicated that one of the risk identified is the insufficient supply of electricity. The Committee acknowledged that it has been a year of the pandemic and load-shedding and that the private and the public sector’s economic development were affected. She asked for more clarity on the risk identified and what impact did load-shedding have on the programmes in the annual report. She then asked what the Department planned to manage this risk going forward. The Committee faces challenges of logging on to meeting if there is load-shedding and this is a small example in comparison to the programmes the Department runs. She referred to the format of the report and asked why the report is in portrait and not horizontal.

Ms Gooch replied to the question about risk management of electricity that the Department specifically listed it given the impact on office accommodation. Historically, when load-shedding started, the Department put in place a program for the implementation of generators across the necessary building from an office accommodation perspective. The Department has continued to focus and include it because as load-shedding increases it puts a strain on the general infrastructure team regarding the provision of diesel and ensuring that the generators are maintained. The Department have ensured that the correct process is in place to try and limit the impact of load-shedding. The emphasis on electricity is important considering the Departments link with CEI and the Department of the Premier because server rooms must be kept at optimal temperature so it does not overheat. This will ensure that equipment does not need to be replaced. She further replied that load-shedding did not have a substantial impact because of the plans in place the Department could respond to the risk. The reason why the electricity supply is important is because of the Department’s link with school programs and the link between ESKOM and the supplied areas. There is a delay sometimes in this regard and for this reason the Department wants to work closely with ESKOM personnel so that the connections of electricity supply can be made quickly for schools. The Department does face difficulty but is working with ESKOM to address the issues. She replied to the question about format that the columns were made wider to be more readable and apologised for this.

Adv Chantal Smith, Chief Financial Officer (CFO), DTPW, replied to the question about SCM processes that there are times when the Department will participate in an arranged contract by another department. It happens when the departments share the same mandate or one of the department’s tests the open market and has a contract in place. It does not need to be a framework contract it can also be an ad hoc term contract and it has to allow other Departments to participate. For the contract that was mentioned the mandate solely sits with the DHS, however the services of other departments might be needed. The contract consists of an interdepartmental claim which is a ‘claim back’ of the expenditure that was incurred by the relevant departments. This is done if another department cannot take part in the tender processes and the sole mandate is with the DHS. If another department was involved in the tender process it would be identified as unauthorised expenditure and is not allowed.

The Chairperson asked the Department how much money the contract of the service provider cost.

Ms Gooch replied that the matter is with the DHS and did not know what cost the contract incurred.

The Chairperson noted that the DTPW paid the DHS for the services rendered and asked if this is correct.

Ms Gooch replied that the Department did not have the information at hand.

Ms Baartman indicated that she did not the dispute the fact that a department can join the contract of another department. She said that her previous question posed did not refer to service delivery in the contract. The question is based on accounting and finance and asked if a term contract does not stem from an overarching agreement based on pre-existing conditions. The Department must have a framework agreement and a process to implement the agreement. She knows about transversal-contracts and that the DTPW becomes the principal administrator in specific goods, services and infrastructure that are procured by the WC. The WC and the DHS have a specific mandate and when it comes to consultation the Department of the Premier becomes the main stakeholder. In some cases the Provincial Treasury becomes the main stakeholder. She asked why the contract of the Department was not a framework agreement and what procurement methods were used for the term-contract. She admitted that she could be wrong and asked for more clarity on the matter.

Adv Smith asked for more clarity on the question. She noted that the question is based on accounting and asked how Ms Baartman interpreted a framework contract. The DTPW a framework contract in construction procurement means that it will implement a framework where there are not actual quantities available at the time the tender is posted. The DTPW will not have the required work of the tender. The DTPW only has the nature of the work, the areas the Department will award it to multiple contractors. Contractors are awarded the tenders per region and the contract is limited in the nature of the work required. The timeframe is normally three years. She asked for more clarity so that she can reply accordingly.

Ms Baartman posed the question because the question arouse in the Auditor-General’s (AG’s) report. She indicated that she agreed with what the CFO mentioned about the procurement processes. The reason it was flagged by the AG and presented to the Committee is that the contract is allowed however it did not follow the necessary process. She asked why a different method of procurement was followed and not the procurement method that the AG prescribed that should have been followed.

Adv Smith replied that it is strange if the AG has prescribed a procurement method. The procurement methods depend on the nature of the services and availability of the service providers. The question about the procurement method must be directed to the DHS because it made a decision based on its needs and market analysis.

The Chairperson said that the AG indicated in paragraph 5.4 of its report that ‘the acquisition of goods and services…..that such participation and reinvestment will not comply with the requirements of DR 16A 3.1A…… effectively the Department received services from the service provider without following a procurement process. He then asked if this provided clarity for the CFO or if the AG got it wrong.

Adv Smith replied that it was flagged in the Department’s management report as an emerging risk. The AG did not raise the issue with the Department and asked if any question relating to this issue. When looking specifically at 16A 3.1 the Department will have to analyse it and determine what it requires. When talking to the development of an efficient SCM system for any institution the Departments SCM allows for the participation in other institution’s contracts. The Departments SCM allows for interdepartmental claims where it is not the mandate of the DTPW. This issue was not audited or question by the AG to which the Department could reply to. This statement was flagged in the management report at the end of the audit outcome.

A representative of the Auditor-General of South Africa (AGSA) replied to the issues about the procurement processes explaining the AG cannot prescribe procurement methods to departments. The AG did not advise the DHS on which procurement methods to follow. The process must be decided by the accounting officer (AO) and officials of the departments. This is the regulations put into place by National Treasury (NT). The AG’s office reads these regulations and audit’s or inspects the procurement method to ensure that the correct processes were followed in the procurement of goods and services. The audit outcome will indicate if there is a shortcoming in the process for a specific contract and if the prescripts of NT were not followed. The contract in question is the DHS’s contract with other departments to provide services and being reimbursed without following a proper procurement process. NT puts out prescripts on how framework agreements must be procured. If departments do not follow proper procedures the AG will flag it in the audit outcome, as an emerging risk. The procurement process will then be labelled as irregular expenditure. An investigation will then be launched to determine if the irregular expenditure must be condoned.      

Adv Smith replied to Ms Baartman’s follow-up question that considering the quote NT ‘that the AO may participate in a contract arranged by another organ of state’. Where departments do not have the mandate but another department does have the mandate, that nothing stops the AO from approaching the other department for the procurement of services. The DTPW will never put out a service rendered by the particular contractor. She indicated that the comment he made was aimed at an MP. The AG responded to frameworks and the issue has nothing to do with frameworks. Frameworks refer to one specific procurement method and it could be anything like, the DTPW putting out a limited bid that links the DTPW, DHS and the Department of Education. The market analysis of the DTPW might indicate that there is only one contractor that can render a specific service, then that would be the method that will be followed. The CFO indicated matters must not be conflated bringing together requirements of participation frameworks with the participation of other contracts. The AG had no point to ask the DTPW a question regarding the contractor so that there is any veracity to a statement made that indicates that there is an irregularity about the contract in question.

Ms Baartman asked the Department if the original procurement binds the DTPW when the contract was first advertised.

Adv Smith replied that it did not bind the DTPW because it falls in the mandate of the DHS, although it was a service rendered to the entire provincial government.

Section E of the Annual Report of the DTPW and GMT

Ms Baartman referred to page 306 speaking to compliance with local content. The section in the report only looked at steel products and regulations. She asked the Department to provide more clarity on what this section entails and the compliance issues.

Ms Gooch replied that it was irregular expenditure of the previous financial year which was condoned for this financial year. She requested that the Chairperson allow her time to prepare a detailed response.

The Chairperson allowed it. He referred to page 224 the cost of the listed consultants accumulated over R10 million and asked the Department what services the consultants provided. He said that the DTPW operates efficiently and asked if the work of the consultants could not have been conducted internally. He then referred to page 246 and said that the amount is a very large amount of money. The cost incurred by consultant business and advisory services (CBAS) accumulated to R117.333 million and the cost incurred as indicated on page 260 is R188 million. He asked what was the nature of the services rendered and if it could not be done internally.

Ms Gooch replied to the Chairperson’s question about page 242 which is Section D of the report. When the Department checks for consultation service, it first determines if the work can be done internally. The nature of the work done is outlined in the table provided on page 224 and speaks to the expertise that the DTPW does not have or require the services for a particular product and for a certain period of time. The large amount that the Chairperson flagged on page 224 relates to the professional team and support for the water business continuity plan (WBCP). If the Committee can recall, as a result of the drought, the WC and led by the DTPW with a water continuity perspective needed to put systems in place to limit the impact of a drought. As a result the consultants such as a geo-hydrologist assisted the Department with oversight work because it does not have that expertise. The DTPW do not have vacancies for these positions and will not need the position on a daily basis. It is for this reason that this type of work is outsourced. The other consultants that are listed in the report are for empowered impact assessments (EIA). The Department has shared these assessments with its Standing Committee. When the Department undertakes infrastructure projects in order to include in the tender documents the empowerment targets consultants are hired to do assessments. The assessment is conducted on the area the project will take place and what opportunities there are for local suppliers. It also includes the type of skills that are available in the community. Through this assessment targets are identified and put into tenders. The DTPW does not have the personnel to implement and monitor the project and will hire consultants to assist in this regard. This is indicated in pages 224 and 225 of the report.
She noted the amounts that the Chairperson flagged regarding the appropriation statements and CBAS. She replied that if the Committee takes into account the work of the Department regarding professional fees for the design of buildings and roads. The Department has work in the environment and transport operation space which requires assistance from consultants. A few examples will be the Covid-19 responses such as the red dot programs and the blue dot programs, which require external professional teams to assist the Department. This is what is shown in the appropriation statements.

Adv Smith replied to the question about local content that it referred to the provision of safety protective clothing in general infrastructure and not Covid-19 measures. The amount accumulated was R117 880 and the DTPW awarded the contract to a supplier. The supplier indicated that it bought the clothing items from a local supplier however the local supplier provided imported goods. The issue related to the fact that the supplier who claimed 100% of the amount because the clothing was purchased from a local supplier. The AG deemed it irregular expenditure because the clothing was imported.

The Chairperson noted that page 224 was part of Section D. He asked the DG to provide more clarity because the DG made reference to projects like blue dot and red dot projects because the work is not done internally.

Ms Gooch replied that she tried to indicate that with the Department’s team, there are time periods in projects where project specialists are required. Therefore in packaging and supporting the Department’s staff, there is a professional team that assists the Department. Engineers and architects will assist the Department infrastructure teams with design and structure delivery.  There are a number of consultants who assist the Department in the environment and transport spaces and other public spaces. For example the DTPW hires information technology (IT) specialists for the hub on the data, technology and system. The amounts referred to also covers the consultants that are classified for mediation services with the minibus taxi industry and others. From an accounting perspective all of the types of services and the expenditure are brought together under the single item under the appropriation statement.

The Chairperson highlighted that the wording of ‘consultants’ might be wrong if it refers to projects as a whole.

Ms Gooch agreed and said that a consultant hired works on a project which define and required targets and work. It is not a general approach and unfortunately that is articulated in terms of the SCA. Consultants is the correct terminology and that is where the expenditure is reported.

Minister Mitchell thanked the Committee for the opportunity to engage. He commended the hard work of the HOD and the team considering the difficult circumstances for the previous financial year. He then thanked his predecessor for laying a solid foundation for what was achieved in the previous financial year.

Ms Gooch thanked the Committee for the engagement and acknowledged the questions that it posed. She highlighted that if the Committee flags an issue the Committee will notify the Department about the issue. She apologised for the delay in two responses. She lastly thanked all the support that the Department receives from suppliers, service providers and others and that the Department cannot achieve everything it has. She also expressed her gratitude to the external role players and municipalities for its continued support. She commended the 2 500 officials at the DTPW for their hard work during difficult circumstances.

The Chairperson of the Audit Committee (AC) expressed her support towards the HOD of the DTPW and its Minister because she knows they are hard working. She wished the new Chairperson of the AC and the AC all the best going forward.

The AG thanked the Committee for the opportunity to present its findings on the DTPW of the WC.

The Chairperson thanked the Minister, Department’s representatives and the AG for being available. He indicated that the Committee does not intend to make the Department look bad but only ask the important questions. This is done in order for the Committee to fulfil its role of holding its Department and Executive accountable and to ensure that there is good governance in the WC legislature. The Chairperson indicated that the Department may excuse themselves from the meeting.

The Chairperson asked the Committed if it did not recommend any resolutions. He said he did not know how to deal with the issue where the AG and Department do not agree on a matter.

Committee Resolutions
Mr R Mackenzie (DA) said that it is a good sign if the AG does not agree with the Department because the purpose of a Chapter 9 institution is to hold the executive to account. He suggested that the Committee be provided with the correct understanding of the frameworks. The Committee notes that Department joins other departments in contract. To avoid further confusion with the Department, the correct understanding must be communicated from an expert in the Department.

The Chairperson indicated that the expert should be from National Treasury (NT). If this resolution is taken up by the Committee then it can receive a guideline and a presentation from the NT because both the AG and Department were adamant about their points.

Mr Mackenzie agreed and indicated that the NT must provide the Committee with sample agreements with procurement processes with will give the Committee more understanding.

The Chairperson noted that the comment made by Mr Mackenzie referred to the issue surrounding the DHS and the red dot project.

Ms Baartman agreed with the Chairperson and Mr Mackenzie and said that the CFO of the Department misunderstood the question. She indicated that she did not want to argue in the virtual meeting. She wanted an understanding of how the procurement methodology works and not that the Department cannot use it.

The Chairperson suggested that the Committee must request a detailed report of the consultants used because it is a large expenditure. He indicated to the HOD that the wording might be incorrect and will be listed as outside expenditure because the cost incurred by consultants amounts to over R305 million. 

The Chairperson thanked the Committee Members for being present.

The meeting was adjourned.