Independent Development Trust and Agrément South Africa 2022/23 Annual Performance Plans; with Minister

Meeting report

Chairperson’s introductory remarks
The Chairperson welcomed all present and took the Committee through the meeting agenda. The Committee would be briefed by the Independent Development Trust (IDT) and Agrément South Africa (Agrément) on their Annual Performance Plans for the upcoming Budget Vote, 2022/23.

Independent Development Trust (IDT) Annual Performance Plan 2022/23
Ms Zimbini Hill, Interim Chairperson, IDT, said that the current board of trustees had been working on the following priorities:

- The reconfiguration process to find a suitable shape and form for the IDT;
- A customer-centric value proposition;
- Improving stakeholder relations through regular engagement with stakeholders;
- Trying to generate new business from current and new clients;
- Recruiting suitably qualified staff to fill critical vacant positions;
- Reviewing the entity’s business processes and acquiring enabling technology to improve efficiency; and
- Improving audit outcomes to realise the goals in the Annual Performance Plan (APP), and acquiring additional support from the stakeholder.

Ms Tebogo Malaka, acting Chief Executive Officer (CEO), IDT, presented the Trust’s APP. She explained that the IDT’s strategic intent was informed by the following realities:

- The state continued to experience an alarmingly huge capacity deficit to meet the demand for public infrastructure delivery. Disjointed implementation mechanism, non-compliance with established delivery systems, and implementation inefficiencies undermine demands for fiscal prudence in the delivery of public infrastructure.
- Project cost overrun (delivery inefficiencies), overspending (inflated cost of delivery), and lack of integration and alignment of public infrastructure delivery lead to significant losses.

Ms Malaka said that the IDT's past challenges, including failures in revenue generation and poor service delivery, had had an adverse impact on its ability to fund its operating costs, thereby threatening its going concern status. Since the appointment of its new board at the end of 2021, various actions had been taken to address the challenges:

- Client engagement efforts, to ensure a good working relationship with clients which are bearing positive results;
- Efforts toward entity transformation and its reconfiguration (future form and status) are underway;
- Obsolete enabling technology is being addressed; and
- Vacancies are being filled.

Long-term assumptions about external conditions necessary for the IDT’s plans to be successful included:

- The IDT retains its mandate and its status as a programme implementing agent and an entity of government;
- The IDT will remain a Schedule 2 entity for the next three years irrespective of a proposal for a new corporate form (and name);
- The IDT becomes a going concern over the next three years; and
- The IDT will attract sufficient value of business portfolio year on year.

Assumptions about internal conditions included:

- The IDT will have sufficient capacity and resources (people and finances);
- The IDT will timeously resource itself with appropriate enabling technology;
- The organisation's design, structure, and processes are fit for purpose;
- The IDT has developed and implemented an appropriate organisational culture that is client-centric and conducive of excellent results; and
- The IDT is able to attract and retain the right and required skills when and where they are needed.

Pillars of the IDT’s three-year strategy included:

- Building organisational capability fit for purpose;
- Re-focusing and streamlining its client service offering;
- Securing the entity’s financial sustainability; and
- Aligning with medium-term strategic framework (MTSF) priorities and outcomes.

Ms Malaka outlined the IDT’s medium-term performance targets in terms of three key outcomes:
- Increased access to quality social infrastructure. The target for projects completed on time and within budget would be increased from 75% to 80% from 2023/24;
- A transformed built environment. The target for percentage of weighted broad-based black economic empowerment (BBBEE) spending would be increased from 75% to 80% from 2023/24, and a new round of the Contractor Development Programme would be initiated; and
- Optimised job opportunities. The target for the number of construction work opportunities created would increase slightly over the medium term.

The IDT was aiming for total expenditure on programmes of between R5bn and R6bn per year over the medium term, which was the amount calculated to enable the Trust to break even and start building reserves.

Ms Clarinda Simpson, Chief Financial Officer (CFO), IDT, took the Committee through the IDT’s 2022/23 – 2024/25 budget framework. The main components were planned programme expenditure, revenue as derived from management fees, operational expenditure, and capital expenditure, and she summarised the budget and estimated expenditure for each component, with particular focus on operational expenditure. The IDT had experienced an operating deficit of R107m in 2022/23 and this deficit was projected to decline over the medium term. It would need between R2.1bn and R1.4bn of new projects per year to break even without state grants.

See presentation for further details

Agrément SA Annual Performance Plan 2022/23
Mr Jeffrey Mahachi, acting Chairperson, Agrément, highlighted major initiatives being undertaken in 2022/23, including the eco-labelling system which it hoped would be incorporated into the Department of Public Works and Infrastructure (DPWI) specifications, and the development of a green-rating tool for public buildings. He anticipated that 2022/23 would see Agrément making a big impact and showing its relevance in the aftermath of the flooding disaster in KwaZulu-Natal in April 2022.

Mr Richard Somanje, CEO, Agrément, reported that continued to implement its COVID-19 business continuity strategy. He provided an overview of the two initiatives mentioned by the acting Chairperson. The eco-labelling system would address issues such as indoor air quality, comfort, environmental, material and energy resource conservation, and would be incorporated into DPWI’s Standard Specifications for construction-related works. The green rating tool for public buildings was still being formulated. It would be used to rate the environmental friendliness of existing and new public buildings. He presented a statement of Agrément’s financial performance, showing that it had balanced revenue and expenses in 2021/22 and expected to continue to do so over the medium term.  He discussed Agrément’s performance in the period 2018-2021, its performance targets for 2022-2025 and risk management framework in terms of the following outcomes:

- Optimised use of non-standardised construction-related products and systems;
- A resilient, ethical and capable entity; and
- Industrialisation and growing a productive economy.

Mr Somanje recalled that during its previous presentation to the Committee, the Committee had expressed concern about Agrément’s low public profile. Since then, Agrément had identified nine community radio stations through which it could advertise its existence. The executive manager and acting CEO had also done radio interviews on SAfm. The response to these activities had been positive. Agrément was beginning to realise how important media campaigning was. It had begun working on a project to advertise on television.

Mr Mahachi added that Mr Somanje has been appointed as Agrément’s new permanent CEO, effective from 1 April 2022, after the tragic loss of the former CEO.

See presentation for further details

Discussion
Ms A Siwisa (EFF) asked whether companies that had requested Agrément to test their material were South African companies. Were there any “novice” companies using very simple material, such as the two girls who had started using waste products to make bricks, and was Agrément assisting these novices? Had Agrément advocated interested parties to test their material, and did it assist financially strained people, given that testing material involved some costs? Had Agrément engaged contractors and recommended some of the material they tested to other South African companies, which may lead to job creation? Why had Agrément provided for 4% irregular expenditure in its budget? It showed a lack of confidence in its own abilities. Did the Minister plan to involve or convince the Department of Human Settlements (DHS) or contractors to use the material that is being tested and recommended by Agrément? She also requested timeframes for Agrément’s planned initiatives. She observed that the IDT had mentioned some promising projects, and recalled that in another meeting the Construction Industry Development Board (CIDB) had reported that contractors have not been renewing contracts due to lack of work. The IDT and CIDB worked hand-in-hand. Could the Minister explain the apparent contradiction between the positions of the two entities?

Ms S Graham (DA) was thrilled about Agrément’s progress in advertising its work and encouraged it to continue marketing itself. She observed that there seemed to be renewed vigour at the IDT. It was great that the IDT’s focus was client-centric, but was even more excited that the IDT has become commercially-minded. It was a general failing across government that entities forgot that they were allowed to make money on projects. She drew attention to the mention of Strategic Infrastructure Plans (SIPs) in the APP and asked whether any SIPs had actually been allocated to the IDT. She thought that the IDT still lacked sufficient certainty of its mandate. Perhaps it could look at transforming itself to focus on other areas, such as facilities management, repair, refurbishment, maintenance assessments and upgrading of infrastructure. Areas such as these might provide more certainty of income than new projects, where there was a level of distrust of the IDT in the market. It should look at working with Infrastructure SA. She noted that it was difficult to assess the IDT’s performance targets without seeing previous years’ performance. She observed that not only the IDT but also the CIDB, the Council for the Built Environment (CBE) and the DPWI all had contractor development programmes. Surely it would make more sense to create a centralised contractor development programme, rather than for each entity and the Department to be running individual contractor programmes? Was the escalation and management fee not already introduced as part of IDT’s projects because it was still waiting for confirmation from National Treasury, and was this an imperative? Would the IDT be doing a new organogram once it has decided on its new direction? What was the meaning of ‘replaced facilities’ on slide 19, and what did the 60% spend on travel refer to on slide 28? It could not be 60% of the whole budget. She was also concerned that money that could be earned by the IDT was being lost by outsourcing work to consultants.

Ms M Hicklin (DA) noted that IDT’s budget assumed a static staff complement of 247 people in the medium term, but elsewhere it had said that it was banking on additional staff. How would these additional staff be accommodated in the budget? She was excited that Agrément was advertising itself. It should create transverses links to inform municipalities, provinces, and national departments such as the DHS about innovative building techniques and products that are on offer because these certified products should revolutionise how housing backlogs and future green housing developments could be addressed. They must be aggressively marketed, and it must be Agrément ’s goal to have them incorporated into all tender documents. The footprint for green products must be increased in the years to come. However, she did not see anything in Agrément s APP regarding a solid marketing strategy. She also observed that Agrément had exceeded its R21.7m budget even though it had a staff vacancy rate of 40%. If it had its full staff complement, how would it cope? It seemed to be in serious trouble. It desperately needed staff and marketing, but it was overspending on its staff complement. While she was over the moon about its marketing, Agrément needed to look at its structure and the way it was running the business.

Ms S Van Schalkwyk (ANC) asked whether the IDT had measures in place and sufficient capacity to ensure effective revenue generation. This had always been a problem. If the IDT wanted to be a sustainable institution it needed to be able to render services, keep track of its revenue and earn it. She was also worried about Agrément’s vacancy rate and increased expenditure in terms of compensation of its employees. What impact would staff shortages have on its future and how did it plan to recruit and fill vacancies, while developing its current employees to ensure that it acquires specialist skills and better staff? Did Agrément have a sufficient budget to recruit and train competent staff, in line with its approved organogram? What was the impact of key vacancies such as the CEO, procurement manager, procurement specialist, and quality assurance officer on Agrément’s ability to effectively deliver on its mandate? She also observed that while there was a CFO, there was also a vacant position of ‘financial officer.’ What were the roles of these two positions, and were they both really necessary?

The Chairperson also commended Agrément on implementing its marketing strategy. She noted that Agrément had indicated that it would be working with DHS and looked forward to seeing the results of this work. She observed that many of the entities in the DPWI tended to work in silos. She welcomed the fact that the IDT seemed to have turned a corner since 2019, when it was almost shut down, but warned that it might get into trouble again if it relied too much on uncertain projections of contractors. She called on the Minister to see that the Department worked with Agrément on the demolition of temporary structures in Acacia Park with asbestos roofing. The Department should work with Agrément to provide new houses such as the house the Committee saw on its visit to Agrément. It was not necessary to build with brick and mortar. That time had come and gone and buildings now had to follow a green way. If the entities did not work in silos they would be much more effective.

Minister response  
Minister of Public Works and Infrastructure, Ms Patricia de Lille, said that the Department had sent KwaZulu-Natal member of the executive council (MEC) for Human Settlements, Mr Jomo Sibiya, information about Agrément’s alternative building methods, and she undertook to share it with the Committee. She would meet with MEC Sibiya and Agrément the next day to discuss the proposals. She would also share the methods with the national Minister of Human Settlements, and Agrément would be asked to do a presentation at the next joint meeting of ministers and MECs. On the IDT, she recalled the 25 November 2020 cabinet resolution that she should submit a roadmap and turnaround plan for the IDT’s reconfiguration and transformation. Since then the Department has appointed the Government Technical Advisory Centre (GTAC) to assist the IDT to develop reconfiguration options. The IDT had also appointed new trustees with effect from 1 July 2021 and she had requested the trustees to consider the options for the transformation and reconfiguration. The trustees had applied themselves to that task. The board of the IDT had resolved that there were no cogent reasons why the IDT should not remain a Schedule 2 entity, although it agreed that its corporate form should be changed from that of a trust to align it with other schedule 2 entities. The Department had paid GTAC R1.5m for the first phase of the roadmap. She was currently in the process of completing a Cabinet memorandum that would go through the economic cluster and then the Economic Cabinet Committee. She was aiming to have it before Cabinet before the end of June. She observed that IDT’s critical challenge would be to secure new business, and there was an explicit need to get a huge amount of work from national programmes. On IDT's going concern status, she observed that the IDT acknowledged its financial concerns, which she shared. There needed to be engagements with National Treasury, and the Department would try its best to assist the IDT to approach National Treasury because it would be classified as a bail-out. The total value of bail-outs for the IDT since 2013 was R673m, but she was cautious but hopeful because of the plan the IDT had produced. She would include the amount required in her Cabinet memorandum. She said that the suggestion to pursue maintenance contracts was a brilliant idea, as the number of complaints the Department was receiving about poorly maintained infrastructure was increasing. The Department has also failed to appoint a full time Deputy Director-General after it had been ordered to begin the appointment process again by Minister [of employment and labour] Thulas Nxesi. The image of the IDT now needed to change: the Department needed to convince Cabinet to give the new board a chance. She offered to report on the work done by GTAC, which had requested funding for the second phase of the roadmap. She requested about two months for the Department to engage with National Treasury on financial issues, after which it could return to the Committee to give feedback.

IDT responses
Ms Malaka said that the Department has been supportive of the new board and everything it had achieved so far. It had been working hard to change the IDT to ensure that it is transformed. She said that the IDT has been contributing to SIPs 6, 12, 13, and 14. She undertook to include previous years’ performance targets in presentations going forward. The target on ‘new or replaced facilities’ was based on current business and a projection of some new business. She acknowledged that there were various entities that had contractor development programmes and said she would bring the suggestion to meetings with the other entities. The IDT had been negotiating new management fees with its clients and National Treasury was not a stumbling block in this regard. It has sent a submission to Treasury highlighting its intention to increase the management fee Treasury had given its inputs and suggestions on how it could be done. The IDT was currently finalising the practice note on the implementation of the management fee that would then be circulated to client departments. She said that the IDT was putting measures in place in line with its reconfiguration plan to ensure that with the additional revenue the IDT would be generating it would be able to implement those measures.

Ms Simpson said that the 60% travel expenses referred to the percentage of the total travel budget that was project-related. The remaining 40% was administration-related. On the staff complement being static, she explained that the IDT currently had 203 employees but had budgeted for a staff complement of 247. The R197 million total for employee costs included provision for new recruits.

Agrément responses
Mr Mahachi said that Agrément had certified both local and international products. When looking at specific materials such as waste, Agrément’s certification had various performance tests including fire resistance, water penetration resistance and structural strength. Products made from waste often satisfied only some requirements and failed others, usually water penetration resistance. Agrément could not allow construction systems to be used for human settlements or any other social infrastructure if it failed even one performance requirement. Because Agrément had a limited budget, it could not assist material designers financially but it did offer technical advice. In most cases, designers had to go back to the lab to improve the material so that all the requirements could be satisfied. Meeting all performance requirements was quite a challenge, particularly for people bringing products in for the first time, but Agrément assisted them from a knowledge point of view to address the shortfalls of their products.

Mr Somanje added that part of Agrément’s marketing strategy was to identify innovators and products that it could assist in bringing to market. It had read about the two girls Ms Siwisa was referring to in the newspapers and had eventually met up with them. Before this, they had not known about Agrément. This was the kind of awareness among the public that Agrément was trying to create. The 5% projected irregular expenditure was based on the experience of previous years when irregular expenditure had been incurred. It was not that it lacked confidence in the system, but it recognised that it was not foolproof. He appreciated the acknowledgement of Agrément’s improvement in marketing but admitted there was much still to be done to make its existence known. He explained that Agrément’s 40% vacancy rate reflected its long-term staff planning, and the staff complement was expected to remain at or near its current level in the short term. These vacancies would be frozen so that they did not reflect as vacancies in its reporting. On the overspending, he explained that it was due to the contract element of the cost of employment that had been funded by retention. It included contract employees who were funded by National Treasury outside Agrément’s approved budget. Agrément had formed a strategic partnership with the South African Institution of Civil Engineering (SAICE) to obtain specialist engineering skills side  Agrément had sponsored some of SAICE’s young engineer awards. SAICE also had a database of retired engineers that could mentor young engineers. Agrément was looking at utilising this to capacitate its current staff to operate at specialist level. Agrément was also looking at other engineering disciplines under the CIDB to form strategic alliances. He reported that interviews for the CFO position had been scheduled for the following week.

Closing
The Chairperson appreciated the new direction that IDT was taking and hoped that it would not fall into the same traps it had fallen into before. The Minister and the new board should remain firm that IDT must not be closed, and IDT's employees should not face retrenchment, given the unemployment situation in the country. She remarked that Agrément was a shining star in the Department and commended it for its successful marketing efforts.

The meeting was adjourned.