ATC120523: Report on Auditor-General of South Africa on the Performance Audit of the Infrastructure Delivery Process at Provincial Departments of Basic Education, dated 23 May 2012

Public Accounts (SCOPA)

UNEMPLOYMENT INSURANCE FUND

THIRTEENTH REPORT OF THE COMMITTEE ON PUBLIC ACCOUNTS ON THE REPORT OF THE AUDITOR-GENERAL OF SOUTH AFRICA ON THE PERFORMANCE AUDIT OF THE INFRASTRUCTURE DELIVERY PROCESS AT PROVINCIAL DEPARTMENTS OF BASIC EDUCATION, DATED 23 MAY 2012

 

 

1. Background

 

The Auditor-General South Africa (the Auditor-General) conducted performance audits of the infrastructure delivery process at the Departments of Health and Basic Education as part of a transversal performance audit on infrastructure delivery.

 

The transversal report was tabled in Parliament on the 6 th September 2011. The provinces’ specific reports were tabled in their respective provincial legislatures.

 

2. Findings and recommendations

 

The Committee on Public Accounts (the Committee) heard and considered evidence on the 21 November 2011 from Members of Executive Councils (MECs) of Basic Education, Finance and Provincial Heads of Departments from the following provinces:

 

• Eastern Cape ;
• Free State ;
• KwaZulu-Natal ;
• Limpopo ;
• Mpumalanga ;
• Western Cape ;
• Gauteng ;
• North West ; and
• Northern Cape .

 

The report will address the four phases of infrastructure delivery.

 

2.1 Demand management

 

The Auditor-General identified the following:

 

a) The needs determination, planning and prioritising for the infrastructure projects were not completed on time. The needs were identified up to 13 years prior to the acquisition of resources through tenders’ being awarded. The planning phases of projects were also delayed due to:

§ Lack of capacity and qualified staff at Provincial Departments and implementing agents to ensure that comprehensive planning takes place timeously;

§ Insufficient project information at the identification stage of projects to ensure that realistic values were allocated on infrastructure budgets;

§ Some needs not being included in the initial planning which resulted in scope changes;

b) The designs for infrastructure projects were not done on time and, in some instances the design period was longer than the construction period. Standard plans were not always used and design costs were duplicated as similar infrastructure facilities were designed individually; and

c) The communication and coordination between departments, management, local authorities and /or communities were ineffective to ensure comprehensive infrastructure delivery, as all the role-players did not engage properly during the planning of the projects. Service delivery was negatively affected as the projects were put on hold or were delayed due to scope changes. Furthermore, the projects were relocated from one site to another or new structures were demolished as buildings were erected on inappropriate sites.

 

The Committee recommends that the Accounting Officer of the National Department of Basic Education ensures the following:

 

a) A specific policy that deals comprehensively with the infrastructure delivery process and guidelines be developed and implemented as a matter of urgency and it should address the following:

§ Roles and responsibilities of the National Department, Provincial Departments and implementing agents are defined clearly;

§ The process and information to be used to facilitate the needs determination that indicates how to interpret and validate statistical information and demographic trends;

§ Stakeholder interaction and consultation with community organisations, governing bodies and local authorities is conducted;

b) Proper planning is done to determine budget availability for planned infrastructure projects taking into consideration escalation costs; and

c) A formal prioritisation model to facilitate needs analysis to guarantee that urgent needs are given priority.

 

 

2.2 Acquisition management

 

The Auditor-General raised specific concerns on the following:

 

a) The appointment of contractors and consultants involved in infrastructure projects were delayed, as in some instances, the bid evaluation process took longer to complete than the validity period of the bids;

b) The process was not always cost-effective as the Bid Evaluation Committees and the Bid Adjudication Committees did not consider the prescribed procurement legislation and regulations properly in evaluating, scoring and making recommendations to the Accounting Officer regarding awarding bids. This contributed to contracts being awarded to contractors that did not have the skills and capacity to execute these projects;

c) Procurement legislation, regulations and practice notes were contravened in approximately 47% of the projects audited. Where possible irregular, fruitless and wasteful expenditure was identified, the Accounting Officer was requested to investigate the matter and institute action as required by the Public Finance Management Act (PFMA);

d) In Gauteng , Limpopo and Mpumalanga , the Bid Evaluation Committees disqualified bids based on the bidding prices of prospective suppliers being too low or too high compared to a predetermined estimate. In Limpopo , this practice was followed throughout as a standard working method. These bids were excluded from the evaluation process, despite the specific prohibition of this practice in supply chain management practice notes issued by National Treasury;

e) The Construction Industry Development Board (CIDB) was established to promote and develop a framework for the construction industry to regulate the actions, practices and procedures of parties engaged in construction contracts. The Construction Industry Development Board grades contractors according to a certain criteria and the grading is indicative of the contractor’s ability to complete a certain volume of construction work. In the public sector, it is a contravention of the Construction Industry Development Board Act to appoint a contractor that is not registered, or is not registered at the correct grading. Bid Evaluation Committees did not consult the Construction Industry Development Board register to confirm the registration and grading of the bidders during the evaluation process. Contracts to the value of approximately R669,5 million were awarded to contractors for the construction and/or renovation of schools while the contractors were either not registered with the Construction Industry Development Board or were registered, but held a grading lower than required;

f) The procurement legislation and regulations prescribe a process to be followed during the appointment of contractors to ensure that the process is fair, equitable, transparent, competitive and cost effective. In Eastern Cape and Limpopo , tenders for the appointment of contractors were either not advertised in at least the Government Tender Bulletin or not advertised for a minimum of 21 days to promote a competitive bidding process. As a result, a small number of prospective suppliers submitted bids;

g) During the bid evaluation process, bids are scored to indicate the most appropriate contractor to execute the project. In the Free State , Limpopo and Western Cape provinces , contracts were awarded to contractors other than those that scored the highest number of points during the evaluation of bids. In some instances, the Bid Evaluation Committee calculated the points for certain criteria incorrectly during evaluation;

h) Bid Evaluation Committees did not sufficiently consider and verify the financial viability, available resources, capacity, ability and experience of the contractors during the appointment process. Furthermore, the Construction Industry Development Board grading was also not always used as an indicator of their ability to complete multiple contracts simultaneously;

i) The capacity of consultants to execute numerous projects simultaneously was not considered in the Free State , KwaZulu-Natal and North West provinces before awarding projects. In these Provinces, managing consultants were appointed without following the procurement prescripts and multiple contracts were awarded without considering their capacity to manage the volume of work allocated to them successfully;

j) Surety can be used to cover losses incurred later in the project due to a default on the part of the contractor. Before a contractor begins the execution of the contract, it must provide the Department with a performance surety of the amount specified in the special conditions of the contract. Providing surety on time is a suspensive condition and the Department can terminate the contract without penalty if the contractor fails to provide surety in time. In Free State and North West , contracts were awarded to contractors that were unable to provide the prescribed sureties. Sureties were therefore either waived or reduced sureties were accepted by the Provincial Department of Public Works; and

k) There was a lack of consistency on professional fees between projects implemented by the North West provincial Department of Public Works and those implemented by the Provincial Department of Basic Education. For projects implemented by the Provincial Department of Public Works, professional fees were budgeted for at a rate of 18% of the contract value, compared to the 8.5% for those projects implemented by the Provincial Department of Basic Education.

 

The Committee recommends that the Provincial Accounting Officer ensures the following:

 

a) Document management systems are strengthened so that all relevant documents from the initial needs determination up to project closure are available;

b) Disciplinary action is taken against responsible persons where documentation could not be submitted for auditing purposes;

c) Skilled supply chain personnel is appointed to suitable positions;

d) The Construction Industry Development Board register is consulted to determine the contractor’s capacity before bids are awarded;

e) Contractors not performing in accordance with contract specifications are reported to the Construction Industry Development Boar;

f) The independent approval of deviations from the prescribed procurement processes is defined;

g) Guidance on the evaluation of contract proposals especially with regards to the evaluation of the capacity of contractors to execute multiple contracts is conducted;

h) Coordination between the different role players to guarantee that projects can be commissioned and utilised at first handover is done; and

i) Departments follow proper management practises in the implementation of its projects so that they are able to plan and allocate adequate resources to its projects.

 

2.3 Project Management

 

The Auditor-General raised specific concerns on the following and reported as follows:

 

a) Where Provincial Departments of Basic Education do not act as implementing agents, project management is the responsibility of Provincial Departments of Public Works or service agents that Provincial Departments of Basic Education appoint to this role. Provincial Departments of Basic Education nevertheless have to play an oversight role to ensure that implementing agents fulfil their mandate as agreed and that the end product will serve their needs;

 

b) The projects selected for auditing were for the most part, either completed late or still being constructed although the contractual completion dates had passed. Where possible, the planned completion dates were compared to the actual completion dates of the projects or the progress at the time when the projects were audited;

 

c) Although contractors in the Eastern Cape , Free State , KwaZulu-Natal , Mpumalanga and North West did not make adequate progress during their contractual term, their contracts were not cancelled in a timely manner and/or delays in appointing replacement contractors occurred. In some instances, notice letters were issued but not enforced or the terms of the service level agreements to ensure the timely completion of the projects were not adhered to. When contractors were replaced, additional costs were incurred and the combined cost of the original and the replacement contractors exceeded the original contract price in some instances. The following serve as examples:

 

§ In the Eastern Cape , two projects were identified where the implementing agent did not take timely action to cancel contracts on which contractors did not show the required progress and/or where the quality of work did not meet standards. Furthermore, replacement contractors were either appointed up to seven months after the termination of the original contractors;

 

d) Contractors experienced cash flow problems that affected progress on projects negatively, as they were unable to pay their suppliers and workforce. Implementing agents made late payments to contractors in Eastern Cape , Free State , Limpopo , Mpumalanga and North West which contributed to the cash flow problems. Contractors were therefore financially unable to complete the projects. The following serves as examples:

 

§ In North West , 35% of contractors from audited projects lodged complaints during site meetings regarding late payments. This has resulted in the contractors experiencing cash flow and labour problems, which had negative effects on the timely completion of the projects. In some instances, the affected contractors had to reduce their workforce. At the Keotshepile Primary School , the cash flow problems of the contractor led to the non-payment of workers, which caused local labourers to lose interest in working for the contractor. Four claims were reported to have been outstanding for more than 91 days and a price increase of R296 458 was included on payment documentation; the increase was mostly due to late payments; and

 

e) Where Provincial Departments of Basic Education do not act as implementing agents, the Department still has the responsibility to visit projects from time to time to ensure that progress and the quality of work is in accordance with specifications as these Departments remain accountable for the expenditure of the funds on their budgets. The implementing agent carries the primary responsibility of overseeing construction work. In 58% of the projects audited in the Eastern Cape , Free State , Gauteng , KwaZulu-Natal , Limpopo , Mpumalanga , North West and Western Cape , poor quality of construction work was identified. However, this was not identified during site inspections by implementing agents, or site inspections were not conducted. In some cases, unsatisfactory work was identified but left unaddressed due to inadequate supervision and monitoring by implementing agents. In addition, Provincial Departments of Basic Education did not have the capacity to monitor the work of implementing agents. Several defects in construction were noted during site visits by audit teams.

 

The Committee recommends that the Provincial Accounting Office ensures that:

 

a) The number of technical staff and project managers required to effectively manage complex infrastructure projects is established scientifically;

b) Project managers conduct site inspections regularly and effective monitoring of contractors;

c) Proper penalties are instituted against contractors who perform poorly;

d) Effective evaluation of skills and capacity of contractors is carried out before awarding contracts;

e) The document management system is strengthened to guarantee that all relevant documents from the initial needs determination to project closure are available;

f) There is adherence to project management principles, including monitoring, adherence to contract specifications, the issuing of variation orders and the treatment of sureties and retention monies; and

g) Disciplinary action is taken against responsible persons.

 

 

2.4 Commissioning and utilisation

 

 

The Auditor-General raised specific concerns on the following and reported as follows:

 

a) Coordination and liaison between officials at Provincial Departments of Basic Education and Public Works or implementing agents was insufficient to ensure that schools or sections of schools were used optimally at the time of commissioning. In the Eastern Cape , Free State , Gauteng , KwaZulu-Natal , North West and Western Cape , insufficient synchronisation between the times of commissioning, the appointment of staff, the availability of certain equipment and furniture to support effective teaching and learning processes led to schools not being used optimally. The following serve as examples:

 

§ In Gauteng , the Provincial Department of Basic Education’s failure to synchronise the procurement of library and computer related resources with infrastructure delivery timetables resulted in, as at 31 March 2009, computer rooms and libraries of ten schools not being used.

§ In Free State , computer rooms at the Atang Primary School were not used, as equipment was unavailable at the date of commissioning. The Provincial Department of Basic Education did not report on the project’s progress to the district office in time for them to budget for and procure the required equipment.

§ During a visit in July 2008 at the Ekuthuleni Primary School in the Western Cape , the audit team determined that the library had not been used since the school was commissioned in 26 January 2006. According to the principal, the resources for the library had been ordered two months prior to the initial completion of the school in November 2005, but had not been delivered. A visit to the school on 31 January 2011 (five years after commissioning) revealed that the library was still not fully utilised. Books in the library were donated by a charity organisation, but books ordered by the Department had not been provided;

 

b) In Eastern Cape , Free State and Western Cape , projects were completed but facilities were unused as the furniture was not issued. The facilities exceeded the needs of the learners or did not address the needs of the schools; and

c) There was insufficient coordination between the Eastern Cape Departments of Education, Justice and Constitutional Development, Social Development and Correctional Services to give effect to a court order issued in 2003 to establish a reform school in the Province. The newly constructed Special Youth Care Centre had been completed in June 2009, but has only been used since January 2011. The estimated cost of the unused reform school was R231 million. The facility was not operational as no action plans were in place for both the staffing needs and the procurement of furniture and equipment.

 

The Committee recommends that the Provincial Accounting Officers ensures that:

 

a) Unutilised or underutilised facilities are identified, recorded and investigated to determine whether it can be effectively utilised to promote service delivery;

b) Proper coordination of projects between role players is done;

c) Project management approach is adhered to so that completed projects are utilised for intended purposes;

d) Monitoring of projects usage is done; and

e) Proper disciplinary processes are taken against employees who neglect their duties and waste state resources.

 

 

3. Conclusion

 

 

The Auditor-General’s report on the infrastructure delivery process shows that there is lack of project monitoring and leadership oversight by the Department of Basic Education and the Department of Public Works which has led project delays and poor workmanship in all provinces.

 

The Department of Basic Education should take an active oversight and monitoring role over all its planned and current projects in order to eliminate delays and to ensure compliance with supply chain management processes and subsequently improvement in service delivery. The National Department of Basic Education should ensure that national norms and standards for infrastructure are developed and implemented. The Department of Cooperative Governance and Traditional Affairs, the Department of Public Works, the Public Service Commission and the National Treasury should ensure that their respective provincial departments implement these resolutions as well as resolutions from provincial SCOPAs.

 

The Committee recommends that the Executive Authority submits a progress report on all the above recommendations to the National Assembly within 60 days after the adoption of this Report by the House.

 

The Committee further recommends that the Accounting Officer submits quarterly reports on all the above-mentioned recommendations.

 

 

Report to be considered.