DPWI & PMTE Q1 2023/24 Performance; with Deputy Minister

Meeting report

DPWI first quarter performance report

Ms Nyeleti Makhubele, Acting Director-General (DG), said that Mr Lwazi Mahlangu, Deputy Director-General (DDG): Governance Risk and Compliance, would lead the presentation.

Mr Mahlangu described the structure of the presentation, pointing out that the ethics and fraud perception surveys had a downward target that indicated low perception, showing low levels of fraud and corruption.

In programme 1 (Administration), The compliance rate for management practices had not reached the target of 100%, as they had challenges with disciplinary cases taking longer to conclude. They also had delays in finalising Promotion of Access to Information Act (PAIA) compliance, and had experienced a slow pace of payment within 30 days.

The target for the financial performance level was not reached as there had been a delay in the transfer of the non-state sector programme transfer budget of R230 million, as well as the projected intermediary management fee linked to the transfer. The Commonwealth War Grave Commission's transfer payment was withheld, as the projected expenditure exceeded the allocated budget due to the exchange rate. Delays in finalising the procurement process for the project preparation budget resulted in no expenditure.

The target for the filling of vacancies was exceeded, but the requirements for special groups were closely missed as it had been a challenge finding women or people with disabilities who had both the required skills and management experience.

Programme 2 (Inter-governmental coordination) did not contain any quarterly targets.

The target for Programme 3 (Expanded Public Works Programme) was reached, and one report on the EPWP reporting system for validated work opportunities reported by public bodies had been submitted. A total of 328 458 EPWP work opportunities had been created across the four EPWP sectors between 1 April and 30 June. The breakdown per sector was: Environment and Culture - 77 100; Infrastructure - 146 285; Non-State Sector Community Work Programme - 14 927; and Social Sector: 90 146.

Under Programme 4 (Property and Construction Industry Policy and Research) the draft Public Works Bill had been developed and submitted to the DPWI during the fourth quarter of 2022/23. The policy branch was undertaking consultation sessions with key stakeholders on the draft Bill. Regarding the Infrastructure Development Act Amendments, the business case for establishing Infrastructure South Africa (ISA) had been submitted to the Ministers of Finance and Public Service and Administration.

As per the target, one implementation report on the status of strategic integrated projects (SIPs) was developed and submitted.

Under Programme 5 (Prestige Policy), two planned state events were supported with infrastructure, and five unplanned state events were supported with movable infrastructure. However, only 50% of movable asset requests were provided within 60 working days after approval by Prestige clients. The 50% not achieved was due to delays in the procurement process and delivery by Correctional Services.

Property Management Trading Entity (PMTE)

In Programme 1(Administration), the financial performance level reached 21% of the targeted 27%. Repair expenditure was at 10%, and far below the spending guideline, which was 20% for infrastructure. This was the worst-performing budget item. A reallocation was done during May, and would be tabled during July.

Municipal services were at 19% of the budget spent, which was below the guideline. The expenditure was based on actual consumption, and the baseline might have to be reduced slightly later in the financial year.

15% of the goods and services budget had been spent. R35m was allocated to rectification of illegally occupied properties, and R19m was allocated to the immovable asset register. Little money had been spent against these two projects.

Refurbishment expenditure was at 18%, and below the 20% spending guideline. A reallocation of this budget was done during May to realign it to the projected cash flows.

Programme 2 (Real Estate Investment Services) did not have quarterly targets.

Programme 3 (Construction Project Management) did not meet any targets. The number of design solutions completed for identified user departments reached only 77%, as the estimate was finalised late by the in-house technologist. Clients had confirmed the scope of work very late. In-house architectural services did not complete the designs on time as anticipated, and the projects suffered major delays regarding the anticipated sketch plan approval. Due to the status of facilities, the project scope changed from repair and renovation to a capital project. There were delays in the appointment of the structural engineer. The tender had to be re-advertised, and there were delays in issuing a site clearance by town planning.

Neither the target for projects completed within the agreed construction period, nor the target for the completion of infrastructure projects within the approved budget, had been met due to the termination of the contracts of poor-performing contractors.

Due to delays with the appointment of consultants, there were delays in the confirmation of funds by the client departments. Projects were not in the procurement plant due to late confirmation of funds by clients. Projects that were delayed by the appointment of a structural engineer and mechanical engineer through the quotation process, were just some of the reasons why the target for the number of infrastructure sites handed over for construction was not met.

The target for the completion of infrastructure projects was not met due to the termination of contracts with under-performing contractors.

Under Programme 4 (Real Estate Management Services), the target for the letting out of underutilised vacant state-owned properties was not met due to the slow approval process.

The utilisation of vacant state-owned properties for gender-based violence GBV projects, the target to lease properties to companies in categories A, B and D of the Property Empowerment Policy ,and the target to release properties from the DPWI portfolio for development of infrastructure programmes and social economic objectives, had a 0% implementation.

Under Programme 5 (Real Estate Information & Registry), the target of three provincial immovable asset registers assessed for compliance had been achieved. 4 912 of the 5 568 immovable assets had been physically verified to validate their existence.

Under Programme 6 (Facility Management), the target to assess the condition of identified/prioritised properties was exceeded. The target to introduce maintenance contracts to reduce maintenance was exceeded. There had been an emphasis on a shift from reactive to preventative maintenance. Supply chain management (SCM) processes had impacted the implementation of term contracts in the pipeline, and some were to have been implemented in the 2022/23 financial year.

Mr Mandla Sithole, Chief Financial Officer (CFO), DPWI, informed the Committee that the total expenditure for the first quarter was R1.698 billion and was equivalent to 19% of the total adjusted budget allocation of R8.782 billion. The variance between expenditure and drawings amounted to R393 million.

Under compensation of employees, expenditure as at the end of June amounted to R129 million, and was equivalent to 22% of the budget allocation of R588 million. The negative variance of R4 million against approved drawings of R125 million was mainly due to higher than projected expenditure resulting from salary adjustments, and the variance would be aligned to the expenditure with the future drawings.

Goods and services expenditure amounted to R81 million, or 12% of the budget allocation of R695 million. The variance of R63 million against approved drawings of R144 million was mainly related to delays in the finalisation of SCM process for the ISA project preparations, late submission of financial reports from the Independent Development Trust (IDT) for the implementation of EPWP projects, and

low spending on venues and facilities due to the postponement of planned events. There was also under expenditure in training and development due to delays in coordinating planned activities.

Expenditure on transfers and subsidies amounted to R1.486 billion, and was equivalent to 20% of the budget allocation of R7.491 billion. The variance of R315 million against the approved drawings of R1.801 billion was mainly related to:

• R263 million for the EPWP non-state sector programme was withheld due to delays in signing the addendum to the Memorandum of Agreement between the DPWI and the IDT for implementing the programme.
• R23 million for the EPWP integrated grant for provinces which was withheld due to non-compliance to the Division of Revenue Act (DORA) and the non-submission of signed incentive agreements, the project list and a soft copy of the project list, resulting in a failure to spend at least 25% of the transferred amount.
• R30 million for the Commonwealth War Graves Commission due to higher than projected expenditure against the allocated budget resulting from high exchange rates. A request to process the payment exceeding the allocated budget had been approved, and the payment would be processed in July.
• Machinery and equipment expenditure amounted to R1.3 million, and was equivalent to 27% of the budgeted allocation of R8.7 million.

Ms Juanita Prinsloo, Chief Director: Financial Planning and Reporting, PMTE, said that the total budget allocation of R18.259 billion had been revised down by R662.3 million. The expenditure for the quarter had been R3.688 billion, and was equivalent to 21% of the total adjusted budget allocation of R17.596 billion.

The cleaning and gardening budget was at 22% expenditure against a budget allocation of R376 m. This was just below the guideline, and a possible underspending was being projected.

Private leases' expenditure was at 23%. The allocation was based on inputs from the regions detailing the individual contracts. This was a recoverable budget, and the revenue would adjust in line with the expenditure.

The maintenance budget was at 30% expenditure against a budget of R1.7 billion. This was above the expenditure guideline and a concern, as the budget allocation was lower than the previous year due to the budget cuts imposed. Expenditure was increasing every month.

Repair expenditure was at 10% -- far below the spending guideline of 20% for infrastructure. This was the worst-performing budget item. A reallocation had been done during May, and would be tabled at the IBC during July.

Municipal services spent 19% of the budget, which was below the guideline. The expenditure was based on actual consumption, and the baseline might have to be reduced slightly, later in the financial year.

Compensation of employees stood at 22% of the R2.1 billion budget. This was below the guideline, and although there were still vacancies, expenditure was being incurred on contract positions. An underspending was being projected, which should decrease due to the lifting of a moratorium on the filling of positions.

Goods and services had spent 15% of the budget. R35m was allocated to the rectification of illegally occupied properties, and R19m was allocated to the immovable asset register. Little money had been spent against these two projects.

23% of the allocation of R1.9 billion for property rates had been spent by the end of June. This was just below the guideline, and would be monitored. Expenditure should increase from July, when municipalities implement their increases.

Refurbishments expenditure was at 18%, and below the spending guideline of 20%. A reallocation of this budget was done during May to realign the budgets to projected cash flows. This would be tabled at the IBC during July.

DPW infrastructure expenditure was at 12%, and far below the spending guideline of 20%. A reallocation of this budget was done during May to realign it to the projected cash flows. This would be tabled at the IBC during July. The entity might have to surrender a portion of the budget during the adjusted estimates of national expenditure (ENE).

Machinery and equipment expenditure amounted to 32% of the allocation. The budget would be monitored to ensure that no overspending occurs.

Client capital expenditure was at 16% and below the 20% spending guideline.

See attached for full presentation

Discussion

Ms A Siwisa (EFF) commented that there had been a slight improvement, but it was unsatisfactory. She asked if there was any consequence management within the DPWI and the PMTE. She was concerned that the PMTE would not be able to function in the near future due to a lack of funds. The DPWI were not meeting their targets, and one of the reasons for that was the poor performance of contractors. She asked if contractors were blacklisted, and if the Department had put measures in place to ensure contractors were performing. The Department had also mentioned that they were moving to proactive maintenance. She referred to a specific incident where the ablutions in Acacia Park were problematic, and commented that this did not show proactive maintenance.

Mr E Mathebula (ANC) asked if corruption and ethical misconduct were based on perception. He asked if his understanding of the explanation was correct -- that the Department was saying that the more people were aware, the more corrupt the Department was. He was concerned, as he was of the view that fact was very different from perception. He asked if there were incidents of corruption and misconduct, how big the problem was, and how it affected the Department.

He asked if the 60-day turn-around of disciplinary processes was a rule of thumb, and pointed out that the Department should be mindful that people abused disciplinary processes.

He raised his concern about the low spending rate, and asked how the Department would be able to spend the budget at 19% per quarter. Low spending had a direct and negative impact on service delivery. He finally asked if the Department was trying to recoup the R10 million from municipalities.

Mr W Thring (ACDP) said it had been mentioned that the Department was consulting with stakeholders on the Public Works Bill, and asked when these consultations would be concluded. He said that the completion of this bill was essential for the efficient work of the Department.

He raised his concern that the PMTE had met only 50% of the repair target. He was concerned that the presentation was playing with numbers to save face. Such representation would come back to bite the Department in future.

He also expressed concern about the lack of payment by client departments. This trend spoke to a lack of will and loopholes, including no consequences for non-payment.

Mr T Mashele (ANC) asked if the poor performance of contractors could be as a result of a lack of clear instructions to them. Was there any consequence management when there was poor performance by contractors?

He asked what the impact was of the delay in transfers, especially if EPWP funding was delayed. He said that underspending of the Department directly impacted poverty alleviation and economic growth.

The Chairperson stated that as much as she understood there were processes that had to be followed, with the high rate of unemployment, it was essential that the Department and provinces had to submit their requests in time to ensure that money was received and there were no delays. The underspending on refurbishment and maintenance was concerning, as it was still reactive and there was no programme. There was no routine maintenance or plan, resulting in reactive work.

Department's response

Ms Makhubele indicated there had been a delay in the circular distribution regarding the letting of properties. The circular had been approved and would be actioned on 1 October. She reminded the Committee about the different categories of companies, and that the allocation of companies must comply with the allocation to the respective categories.

She said the wetland around Acacia Park was causing problems with the ablution facilities. An engineering solution was required, and the DPWI was working with the city to solve the problem, but it would take some time.

She said the question as to whether the PMTE would survive in its current form, was challenging. She confirmed that PMTE’s functions would remain, but whether it would revert back to the Department or stay as the PMTE was unsure. There were bigger questions to be answered.

Mr Sithole suggested that the Committee invite Treasury to explain to them the impact of the shortfall on the PMTE. He also indicated that there had been a slight improvement in the spending during the second quarter, and that they were monitoring it. He said that the R10 million mentioned was money paid on behalf of client departments, and not owed to the Department by municipalities.

Mr Mahlangu said a survey was done around fraud and corruption, as they wanted to know how the Department was perceived and if people reported fraud. This assisted the Department in its preparation of fraud awareness campaigns. They had done a comparison of the tips received on the fraud line with the results of the survey, and had adjusted the awareness campaigns accordingly.

Mr Ignatius Ariyo, Chief Director: Infrastructure Sector, EPWP, said that the delay in transfers was due to a change in process. The Department wanted to streamline reporting and compliance. They realised that it had had a negative impact, and they were working on a catch-up plan. Additional recruitment had been put in place and there would be no further delays. They further addressed delays by helping affected departments with business plans and engaging proactively with departments and municipalities.

Further discussion

Mr Mashele stated that the delay in transfers was not about the spending of the money, but the impact it had on the recipients that were not employed.

Ms Siwisa asked what the plan and purpose were of the land that would be sold by the Department. She reminded the Committee that there had been a previous request that National Treasury attend a Committee meeting to explain why there were budget cuts for the PMTE, and what they would do to rescue the entity. She asked what would be done if Treasury decided no more funds were available for the entity.

Mr Sithole indicated that there were around 59 000 properties for which rates were not received, and 2 500 leased to the private sector. One of the money-generating options the PMTE had was to lease properties to the private sector.

Mr Richard Samuel, Acting DDG: Facilities Management, said the Minister and Deputy Minister had directed that proactive maintenance must be expedited. This would be done through in-sourcing, but due diligence would be done before appointing contractors.

Ms Bernice Swarts, Deputy Minister of Public Works and Infrastructure, apologised for her late connection at the start of the meeting due to cut lines. She thanked the Committee for their comments on the report, especially the discussion around the EPWP fund transfers, and said they would make sure to pay special attention to the matter. She also indicated that their response to service delivery would improve as soon as the PMTE had filled the current vacancies.

She had taken note of the concerns around underspending. She indicated that the Department had started to address the matter by asking branches to list their six priority areas and to ensure that spending was in line with these priority areas.

She said the Department would accept advice on what had to be improved and confirmed the promise that a maintenance plan would be presented to the Committee.

The Chairperson concluded by reiterating that the Committee would always frown upon underspending.

Adoption of minutes

The minutes of the Committee's meeting on 19 September were adopted.

The meeting was adjourned.