Independent Development Trust and Construction Industry Development Board: briefings

Meeting report

PUBLIC WORKS PORTFOLIO COMMITTEE
8 March 2005
INDEPENDENT DEVELOPMENT TRUST AND CONSTRUCTION INDUSTRY DEVELOPMENT BOARD: BRIEFINGS

Chairperson: Mr F Bhengu (ANC)

Documents handed out:
Independent Development Trust 2003/04 Annual Report (available at www.idt.org.za)
Independent Development Trust Annual Report: PowerPoint presentation
Independent Development Trust role in the Expanded Public Works Programme presentation
Construction Industry Development Board 2003/04 Annual Report (available at www.cidb.org.za)

SUMMARY
The Independent Development Trust (IDT) presented their Annual Report for the 2003/04 financial year, the legislative context and their Compliance Report. The Annual Report presentation focussed on the opening statements, infrastructure, social development and poverty relief, organisational highlights, annual financial statements and the trustees’ report. They also discussed the IDP’s role regarding the Extended Public Works Programme (EPWP). The Committee asked questions relating to, among other matters, the implementation of EPWP, fraud, the IDP’s lack of activity in Limpopo, and delays in payment.

The Construction Industry Development Board (CIDB) presented its Annual Report for the financial year of 2003/04. They concentrated on the CIDB’s functions and role, challenges, the creation of registers of contractors and projects. The Committee discussed issues such as fronting, the role of established contractors, transformation and competitiveness.

MINUTES

Independent Development Trust (IDT) briefing
The Chairperson said that the Committee should have visited some of the IDT’s projects in the provinces so that they could have engaged with them appropriately. He said that the Committee would accept their report, but that they would undertake visits to the provinces to make recommendations.

Ms Edith Vries (Group Executive: Business Development) said that in their 2004/05 corporate plan, the IDT declared that they would undertake a strategic shift to focus on the developmental outcomes and impact of their projects rather than the developmental outputs. Regarding their compliance report, Ms Vries said that it should be measured against the PFMA requirements.

Ms Vries said that they had various board committees. These were the Audit, Risk and Compliance Committee, the Strategic Planning and Programme Committee, the Human Resources Committee and the Remuneration Committee.

The IDT’s internal reporting and monitoring system was institutionalised, and was thus not a once off event. This included Quarterly Unit reports, Quarterly Corporate Performance reports, a Mid-year review, annually at the end of September, and a year end review, annually in April. They also had a performance management system.

Ms Vries discussed the opening statements of the report by stating that the executive authority called for an intensifying of their policies and a focus on poverty eradication. She said that the accounting authority stated that they have set and met their targets. She also said that a new CEO had been appointed.

Regarding the performance of her organisation, Ms Vries said that they had reduced the infrastructure backlogs in the Eastern Cape, KwaZulu-Natal and the North West. They have also strengthened community institutions and aided in skills development and employment creation. She also mentioned several social development and poverty relief projects.

Ms Vries mentioned some organisational highlights and said that their organisational structure had changed in line with their shift in focus from outputs to outcomes.

Ms Vries referred to comments made by the Auditor General to illustrate that their financial statements were in order. However, some problems were identified. These were delays in submitting annual financial statements, weaknesses in internal control, non-compliance with the PFMA and payroll irregularities. Ms Vries assured the Committee that the Auditor General did not think that these matters were very serious.

She told of an incident of fraud within the IDT, amounting to approximately R526 000. Two employees were suspended on 3 June 2004, and a forensic audit was concluded on 18 June 2004. On 25 June 2004 a disciplinary hearing was held which led to the dismissal of these employees. They also implicated two other employees, who were also suspended. They were later cleared in a deeper forensic investigation and reinstated.

Ms Vries outlined some of the strategic issues that were contained in the report of the board of trustees. This spoke about what their strategic objectives were, their targets and performance.

Ms Vries said that the IDT had done well. She said real development was evident over a number of years and was not measurable in a quantitative manner. She said they expected to see results in terms of what could be measured. This remained a challenge.

Ms Vries explained why they had weaknesses in certain areas. She said they saw an increase in transactions and their human resources have not matched this increase. They also experienced a gap in the executive leadership in their finance department. They appointed a new executive, but it was a bad choice and the person left them. Therefore their leadership in the finance department was still void. She also said that their IT system was not fully optimised. One electronic transaction was converted into 13 manual transactions.

Corrective action was facilitated when they brought in external consultants. She was sure that the matters raised by the Auditor General would be resolved by the next audit. She assured the Committee it would not be a problem in the next year.

Regarding their strategic challenges, she said that some agencies, for instance Telkom, were wealth creation agencies, while other agencies were helping wealth redistribution. She said if the IDT had to focus on budget, it might not be able to fulfil their redistributive function. She said they had to work smarter through greater integration.

Ms Vries suggested that the relationship between the Committee and the IDT be strengthened. She thereby invited the Committee to attend their year-end performance review (5-6 April 2004) and to participate in CEO provincial visits during May, July, September and November.

The IDT’s role in the Extended Public Works Programme (EPWP)
Ms Vries understood the importance of the Extended Public Works Programme. She said they had to add value to the programme. She said it indicated a shift in focus -- the government was making a bold public commitment. Ms Vries also noted the importance of sustainable development.

Ms Vries said that the IDT had a competitive advantage concerning the EPWP, as they had been involved in several projects, and that they would learn from those experiences in terms of their contribution to EPWP.

Ms Vries said the ISRDP and the EPWP were both long term programmes, reliant on the same budget. She said the EPWP were a presidential programme with a central vision, but the solutions were localised. She also said that the political and strategic intent was correct, but the politicians came with political nuances, while the officials came to it with regulatory perspectives. This was a problem. They were deadline-driven, and did not look at the lessons learned.

Regarding community mobilisation, Ms Vries said that rural communities had the capacity to contribute to national revenue. She said these communities had needs, and if they wanted sustainable development the communities had to be mobilised.

Ms Vries understood that the EPWP was a ‘Marshall Plan’, but it did not state clearly how many full-time jobs would be created. She said that the one million jobs the President said would be created in five years was not a number, but people. She propagated people-centred development solutions.

The IDT’s role in the EPWP would be to support provincial EPWP lead departments in the co-ordination of the programme as well as supporting the National Department of Public Works in implementing the Maintenance on Public Buildings (MPB) programme. They would also act as a Programme Implementing Agency (PIA), aid in community facilitation, database management and capacity building.

Ms Vries presented a list of agreements with other agencies, as well as a table that indicated the current status of their work in the provinces. The IDT was not involved in Limpopo.

Ms Vries described the challenges the IDT foresaw regarding EPWP. She said that the EPWP was sometimes seen as a Public Works programme, and not as a national programme. The management of the programme was also placed in different places, which made unclear who accounted for delivery.

Discussion
The Chairperson was satisfied that they touched on the key aspects of EPWP. He remarked that it was a reflection of good management.

Mr LD Maduma (ANC) said that it would be a futile exercise if they came up with a programme, but there had been implementation on the ground level. It should be seen as a challenge. There were many loopholes, as the bulk of the money went to consultants, who were approved by implementing agencies who might receive kickbacks. Ms Vries said that politicians understood that they wanted support, but officials gave them the run-around. She did not exclude the fact that officials could get kickbacks from other organisations, but not in the IDT.

Mr Maduma also asked that they look at training, as there was a huge challenge of unskilled people. He said they must have a programme to skill people after the completion of their piecemeal jobs. Mr Maduma asked how the IDT would assist in closing the gap between the rich and poor. He said the rich became richer, because they were skilled, and the poor got poorer, because they were unskilled.

Relating to the fraud cause Ms Vries mentioned, Mr Maduma asked if any legal procedures were followed to recover the money, as fraud would mean that the state would be loosing money. Mr K Moonsamy (ANC) said that fraud was a serious matter. He wanted to know how long it took to discover the fraud within the IDT. Ms Vries said that the matter was handed to the police for criminal proceedings, and they even had the Scorpions involved, as one of the aggressors’ partners was a high ranking official in the South African Police Service. She said the people were not arrested. She said it took them relatively long to discover the fraud, because of the shortages of staff they experienced in the finance department. Ms Vries said external auditors told them that the payroll was the most vulnerable area for fraud.

Ms TP Nwamitwa-Shilubana (ANC) asked why Limpopo was omitted. She also asked for clarity concerning delays in payments and collateral. Ms Vries answered that the IDT had satellite offices in the provinces. The Departments in the provinces needed to recognise the IDT, for them to enter, as they could not do so by their own accord. This did not happen in Limpopo. She said they were doing what they could. Ms Vries conceded that their stakeholder management could be improved. Ms Vries said that their provincial departments dealt with the payment and collateral of service providers. She agreed that one could not have emerging contractors waiting 90 days for payment. She said it was unfortunate and something they had to work on. She said the problem was that different parts of the organisation blamed one another. She said it related to issues of control. Ms Mwamitwa-Shilubana, referring to Limpopo, said that they still found that Departments were resistant to giving projects to the IDT. She suggested that their national office should intervene by going to the premier. The Chairperson believed that this was the Committee’s role.

Mr Moonsamy also asked for more statistics on the projects and its beneficiaries. Ms Vries said that those statistics were available in the Annual Report Book. Mr Moonsamy also enquired about emerging contractors and training. The IDT dealt with training, and in 90% of their projects they were using emerging contractors.

Mr Moonsamy said that buildings lying idle were a problem and that there should be an end put to it. He said these buildings should be put to use. Ms Vries said he could get a report on the maintenance of buildings. He was also told that the IDT was not in charge of the implementation of maintenance of buildings, but in the facilitation and co-ordination of training.

An ANC Member asked if the boundaries between the IDT and the Department of Public Works were blurred. He also wanted to know how much success they had with the enhancement of local government. Lastly, he wanted to know in what areas they had projects in the Western Cape. Ms Vries conceded that the boundaries between the IDT and the Department of Public Works were blurred and that ‘double-dipping’ occurred. Mr Williams said that they only recently became involved with support programmes in the Western Cape. They were supporting the Central Karoo Municipality, amongst others. They were also involved in a programme for the Department of Social Services, helping with urban renewal in Mitchell’s Plain and Khayalitsha. They also provided support for local governments in Project Consolidate.

The Chairperson said that the provincial departments, and the National Department of Public Works did not mention that the IDT played a key role. He asked how their relationship with the department was co-ordinated. Mr Maduma illustrated his agreement with the Chairperson by saying that the National Department of Public Works did not mention the IDT as part of the Maintenance on Buildings project. Ms Vries said the fact that the IDT were not well known is part of their history, or how they evolved. She said their role had changed and the organisation needed to transform. She said they took the decision to be behind the government, in the background, never taking credit for the projects. She said their role was to enable government to improve infrastructure and advise government. She also said that they declared 2005 as the year of communication; they would claim what they had delivered and what value they added.

Mr Maduma asked if the training they were providing to Public Works also picked up on the EPWP and if they were contributing to skills development. He also asked if they had a relationship with SALGA (South African Local Government Association), as there was the problem of capacity. Ms Vries said they had no relationship with SALGA. It was identified as something that they needed to do. She said they should find a niche where to help. She said when this was done they would come back with a report.

An ANC member asked if the provincial departments’ reluctance to work with them affected their budget. He also asked if they had sufficient work. He also wanted to know how much of their budget went to work and salaries. The Chairperson asked how they attracted retainers. Ms Vries answered that they did not end up with roll-overs. She explained that they got money from project implementation agreements and that that money was used for institutional capacity building. She said their budget grew. For 2005 it would be R1, 3 billion, and for 2006 it would be R1,4 billion. She said they would like to have the views of the shareholders. She said they were pretty close to their projections. In the financial year of 2003/04 they spent 73% of their project funds, and she said she could tell the Committee why the rest had not been spent.

Ms Vries said they had to acquire a retention strategy and that they had particular weaknesses in their human resources department. She said there were contradictions around their remuneration strategy.

The Chairperson asked if there were any outstanding agreements with clients affecting programmes that had not been signed. Ms Vries said she could not give a clear answer, but she would forward an analysis of initiatives and agreements still pending.

The Chairperson said that they would need a full day’s workshop to determine the role of the IDT.

Construction Industry Development Board briefing
The Chairperson said that the Committee should have visited some of the Construction Industry Development Board’s projects in the provinces to do fact-finding to say that what was in their report, was correct. He said the Committee would go in the future, and if there were any shortcomings, they would make recommendations. He said in the meantime they would accept it as an interim report.

Mr Spencer Hodgson (CEO: CIDB) said his organisation had a regulatory and development function. They provided help to create a macro-framework for better delivery, empowerment and job creation. A major challenge was the absence of a built environment. He said it was a challenge to create a more equitable environment.

Mr Hodgson said the board had been appointed by the Minister and they had developed the entire construction industry. The board was drawn from both the public and private sectors.

Their role was defined as creating total delivery capability to deliver social development in South Africa through sustainable and rapid transformation and also to ensure improved performance and global standards in the industry. Their key instruments are legislation passed by Parliament, which enabled them to regulate procurement and setting up a register of contractors and projects.

Registers of contractors and projects
Mr Hodgson said most of the work on the register of contractors was done in a pilot project in Limpopo. The registers are important in creating a regulatory framework.

One of the challenges they faced was that contractors would find a job, but after its completion they would not soon find a job again. Therefore sustainable development is not happening. A further challenge is that projects were not well delivered.

The register of contractors aimed to assist effective procurement and contractor development. Mr Hodgson said they should be through the major roll-out of the project by the end of the year.

Challenge of growth
Mr Hodgson believed that the construction industry needed to double their output. This would create a huge opportunity for growth and empowerment. He said it is a huge challenge, which should be more targeted. He said an enterprise development conference would be convened. He said the register would create an opportunity to focus on development support.

Mr Hodgson said South Africa is a big country with a very dispersed industry and a dispersed clientele. To address this they have finalised a library of procurement best practices and prescribed standards for uniformity and in procurement, which would be rolled out this year.

Co-operation
Mr Hodgson said they worked with the National Treasury and the Development Bank of South Africa.

Discussion
Ms Mwamitwa-Shilubana asked what would happen to contractors who were not registered. Mr Hodgson said that contractors must register, otherwise they could not be appointed by law. He said this is why they took a phased approach to the roll-out of the project. Mr Hodgson said the register should not be seen as a barrier. He said it created an opportunity to plug the gaps that they did not know of before. He said it is not a barrier, because you would not want a R50 million contract to go to a grade one contractor. Any client who wanted to take a grade three contractor for a job of a higher grade, could do so, but then they must ensure development support.

Mr Moonsamy asked what role big construction companies were playing. Mr Hodgson said an industry charter was in the process of being drafted. He said this is very important. The charter was initiated by the industry. All stakeholders were included and as far as Mr Hodgson knew, the process was on track to be finished in June or July. He said broad based Black Economic Empowerment (BEE) was also playing a role to ensure that big companies did something in this regard. Mr Silinga said that established contractors only went into partnership with emergent contractors on public contracts, and not on private contracts.

Mr Moonsamy also asked to what extend the previously disadvantaged participated. He asked what lessons they have learned from the registering. Mr Hodgson said they learned from the 1000 contractors registered that the vast majority was black and that 64% was women. He said you could also see where the gaps were, and used the fact that very few mechanical engineers were black owned. The differences in grading also became evident. Mr Silinga added that students for the industry were 70% white and 30% at technikons. Currently 65%
were black and 35% white.

Mr Maduma said competitiveness was important, but that the way in which it was interpreted lead to the maintenance of the status quo regarding access to the market. He said the legacy of the past meant that capacity became a serious problem. He said the bulk of contracts went to previously advantaged contractors. Mr Maduma asked how they were assisting emerging contractors.

Mr Pepi Silinga (CIDB Board Chairperson) agreed that capacity was a serious problem. He said they had a number of interventions. He said that emerging contractors were reliant on the public sector for contracts, where cash flow was a problem. He said the public sector should stick to their agreements. He said the proliferation of different specifications was also a barrier to entry, as a small contractor would have to get familiar with all of these different specifications. He said this should be consolidated, so that there would not be more than five different sets of specifications. Another intervention could be packaging large projects into smaller projects, given to different emerging contractors. He said this would be a very practical way to deal with access to finance. He said each contract had to be designed properly. Another intervention was the contractor management contract, which required that contractors must be taught life skill, for instance, how to tender. Big contractors also gave access to equipment to smaller contractors. This required a strategic understanding from established contractors. The last intervention Mr Silinga mentioned was the sharing of a back-office. This entailed an agreement amongst contractors to share expertise, like accountants.

Mr Maduma asked how they dealt with fronting, and how they were capacitated to do so. Mr Hodgson replied that the question of fronting was a two way street. He said as long as they were going to put pressure on the market place, they would get fronting as a response. He said fronting were more prevalent in areas where there were not a lot of capacity. Sometimes jobs were just sold. This had to be managed. He said he did not have answers to it, but that the registers would help. It was a challenge for the entire industry. An environment of whistle-blowing was needed. He said all stakeholders had to be involved. Mr Silinga said that it should be stipulated in the tenders that fronting was a misrepresentation to the extent to which it would be a basis for disqualification if found out. He said if the benefits outweigh the risks fronting would take place, but if they could there was the risk of disqualification from the register, it could help. He said that it was an ongoing challenge that needed to be addressed.

A Member from the ANC asked how they were attracting the youth to the industry. Mr Hodgson said it was a big challenge to attract the youth to the industry. He thought a Construction Industry Week would be a good idea. A proposal in this regard was submitted to the Department of Public Works. He said they needed a very big focus to raise the level of awareness. He invited the Committee to their offices so that he could show them more detail on this. Mr Silinga said that the improved performance of the industry would enhance its image. He said there has been a post-graduate conference, which attracted a bit of corporate sponsorship.

Mr SE Opperman (DA) asked if the board were fully involved with the problems. Mr Silinga said that the board was addressing the root causes of the problems. Mr Opperman asked if there were examples of people who came through the system. He also asked if the backlog on the maintenance of buildings was a viable option to sustain jobs. Mr Silinga agreed that it did provide an opportunity for sustainable work, but the right skills must be employed. He said that the contracts often went to the lowest price, but that these contractors were often not competent, which lead to an unsustainable environment, as the projects would not be completed.

Mr Maduma enquired about the capacity surrounding the tender process. Mr Hodgson said it was a very important issue. He said the CIDB was not provincially based. It needed to be addressed.

Mr Maduma said that there was a problem with the Department of Public Works’ disposal of equipment, as they did not make arrangements with emerging contractors to acquire equipment. He said only established contractors had the opportunity to acquire equipment, which meant the emerging contractors were kept reliant on the established contractors. He said the CIDB’s intervention in this regard would go a long way in helping the emerging contractors. Mr Hodgson said the charter process had representation of all the different stakeholders. He said the appropriate response would be that of the associations. He said the CIDB could assist associations to fulfil this function. He said they could find out whether departments would dispose of their equipment and whether they had a policy regarding black contractors.

Mr Maduma said that women felt that they are intruders in the industry. He asked how women were assisted. He said it posed a challenge. Ms Bridgette Moorosi (CIDB: Financial Officer) said the gender balance in the industry was changing. The industry was not as bullish as it has been in the past regarding female participation. She said the issue was not only to improve capacity, but also to get more participation from women. She said the issue was deliberated for the charter and it is not a one-sided affair. Mr Maduma did not agree. Mr Moorosi said that she did not mean that the industry was perfect, but it was not as bad as it has been. She said that they were looking at ways to improve the situation. Mr Silinga concurred that some progress was made on the gender issue, but there were still a lot to be done. He suggested that in some projects women turned out to be the best contractors. He said they were doing sociological studies to find out why this was the case.

The Chairperson urged the CIDB to look further than the Department of Public Works. He asked if they were really well known outside the Department and if they realised that they are an important organisation. He wanted the organisation to popularise themselves, and he wanted to see independence. Regarding the awareness week he said there must be some form of indaba to ensure that the week does not only take place in the Western Cape and Gauteng, but in the other provinces as well. The Chairperson wanted to drive the department, because of the importance of ensuring that they would do their level best in the following five years.

The meeting was adjourned.