ATC2002Report of the Portfolio Committee on Public Works and Infrastructure on the 2018/19 Fourth Quarter performance of the Department of Public Works and Infrastructure, the Property Management Trading Entity, dated 06 November 2019

Public Works and Infrastructure

Report of the Portfolio Committee on Public Works and Infrastructure on the 2018/19 Fourth Quarter performance of the Department of Public Works and Infrastructure, the Property Management Trading Entity, dated 06 November 2019
 

1. BACKGROUND

The Portfolio Committee on Public Works and Infrastructure (hereinafter referred to as the Committee) having considered the fourth quarter performance of the Department of  Public Works and Infrastructure (herein referred to as the Department), the Property Management Trading Entity, (PMTE) and entities [1]reporting to the Minister of Public Works for the 2018/19 financial year, reports as follows:

 

1. INTRODUCTION

Parliament has a constitutional responsibility to oversee the quarterly programme performance information of the departments and their entities in a specific financial year. The Money Bills Amendment and Related Matters Act (2009) describes the process of exercising this responsibility. It states that portfolio committees of parliament must conduct reviews of the finances of their respective departments and entities and, if required, issue recommendations on the forward use of resources. Quarterly performance reports are a vital tool used by parliamentary committees to ensure accountability and transparency in monitoring both financial and non-financial performance of the departments. Committees conduct oversight over these performance reports to fulfil Parliament’s oversight and accountability mandates in terms of the Constitution and under the rules established by the National Assembly. Except for the Constitution and the Money Bills Amendment Act, the Public Finance Management Act (PFMA) state that departments and entities are expected to prepare quarterly performance reports within 30 days after the end of each financial quarter of each year. The National Treasury issues Public Finance Regulations and practice notes, that further guide in-year non-financial and financial performance reports that the Director-General must make to the Ministers and the National Treasury. These in-year reports form the basis of the quarterly financial reports to parliament’s committees. Committees use the performance information gathered from these reports as the basis of the Budgetary Review and Recommendation Reports after analysing the Annual Reports and Annual Financial Statements of each departments and entities during October each year.

On 20 August 2019, the Committee considered the 2018/19 fourth quarter performance of the Department of Public Works and Infrastructure and the entities. The performance information was analysed as per the legislation referred to above, and was further compared in relation to the planning information contained in the Strategic Plans, Annual Performance Plan and Medium Term Strategic Framework 2015-2020.

This report provides an overview of the presentation made to the Committee. It focuses on the achievements and output in respect of the performance indicators and targets set for the financial year. The report focuses on the Fourth Quarter of  2018/19, provides a comparison between the overall expenditure performance of the Department in the 4th Quarter of 2017/18, and that of 2018/19 respectively and then outlines the findings/observations of the Committee.

 

1. MANDATE OF THE DEPARTMENT

3.1. Constitutional mandate

The Constitutional mandate is provided for in Schedule 4, Part A, of the Constitution of the Republic of South Africa: Functional Areas of Concurrent National and Provincial Legislative Competence.

3.2. Legislative mandate

The Government Immovable Asset Management Act, 2007, primarily governs the legislative mandate of this Department and the PMTE as custodian of government’s immovable properties.

The Department also provides strategic leadership of employment creation through the implementation of phase three of the Expanded Public Works Programme (EPWP). The Department plays a coordinating and capacity-enhancement role with provincial and local government counterparts to ensure the implementation of the EPWP.

It must always be kept in mind that as custodian of government’s properties, the Department is not directly providing services to client departments. The PMTE (through the nine regional offices of the Department) implements the legislative mandate described in the GIAMA and provides accommodation and maintenance services to service delivery departments, including to Parliament, and the Presidency.

The Department makes construction and professional built environment policy, and regulates the construction industry and built environment through the Construction Industry Development Board Act, 2000 (Act No. 38 of 2000) and the six Professional Council Acts that regulate the six Built Environment Professions (BEPs), and through the Council for the Built Environment Act (Act No. 43 of 2000).

The Department is the policy leader and makes guiding policy, ensures standardised, uniform policy for the implementation of all its legislated responsibilities. This includes the selection of EPWP beneficiaries, the data collection, verification and reporting of employment opportunities in all departments, municipalities and non-governmental organisations. It further provides professional built environment, construction, project management, and facilities management services to client departments.

This policymaking, coordinating and standard-setting responsibility of the DPW and its entities is a crucial social infrastructure task that facilitates and assists other departments to use their allocated budgetary resources effectively so that all government buildings and facilities are places of safety and security where people are welcome.

3.3. Policy mandates

• DPW White Paper: Public Works, Towards the 21st Century, 1997
• DPW White Paper: Creating an Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, 1999
• Construction Sector Transformation Charter, 2006
• Property Sector Transformation Charter, 2007
• DPW Broad-based Black Economic Empowerment Strategy, 2006
• Property Management Strategy on BBBEE, Job Creation and Poverty Alleviation, 2007
• Green Building Framework, 2011

 

 

4.overview of the department’s Expenditure per quarter

 

The Department received a budget allocation of R7.45 billion for 2018/19 with which to accomplish its priorities. It was an increase of 6.7% in nominal terms, and 1.1% in real terms (calculating the impact of inflation) from the 2017/18 adjusted appropriation of R6.99 billion. The Department’s budget was approximately 0.1% of the national appropriation by vote, excluding direct charges.

Table 1 below provides an overview of the Department’s expenditure per programme in relation to the available budget for 2018/19.

 

Table 1: 2018/19 Budget and Expenditure Vote 11 - Public Works and Infrastructure

 

In Quarter 4, R7.44 billion (or 99.5%) of the total available budget of R7.48 billion was spent. Programme 5 spent R184.6 (or 123.1%), (an over expenditure of R34.6 million), of the total available programme budget of R150.0 million. 

 

An overview of expenditure per programme from Quarter 1 to 4 shows that the Department managed to reach the accepted expenditure rates per quarter, (excluding Quarter 2), with:

• 26.7% expenditure during Quarter 1.
• 49.1% (0.9% less than 50%) expenditure during Quarter 2.
• 79.3% expenditure during Quarter 3.
• 99.5% expenditure during Quarter 4.

 

 

 

 

5.Overview of the 4th Quarter Expenditure

 

Table 2: Public Works and Infrastructure Expenditure for Quarter 4 of 2017/18 and 2018/19

 

The Department spent a total of R7.44 billion of the R7.48 billion at the end of the 4th Quarter of 2018/19. This was an increase of R516.2 million or 7.5% in nominal terms from the R6.93 billion spent during the same period in 2017/18.  

 

The allocation for 2018/19 increased by R30.0 million during the budget adjustment period. Actual spending was R39.6 million lower than the projected expenditure of R7.48 billion for this period.  Note that the reduction was mainly due to the Department declaring unspent funds under Programme 1: Administration; Programme 2: Intergovernmental Coordination; Programme 3: EPWP; and Programme 4: Property and Construction industry Policy and Research. The  funds reported as unspent for the time under review included:[2]

 

• 35.5 million - Programme 1: Administration.
• R5.4 million - Programme 2: Intergovernmental Coordination.
• R19.4 million - Programme 3: EPWP.
• R14.2 million - Programme 4: Property and Construction industry Policy and Research.

 

 

Programme 1’s projected underspending was due to delays in filling of vacant positions and late receipt of invoices for computer services, lower than projected expenditure on travel and subsistence, property payments and operating leases.

 

Programme 2’s projected underspending was for Compensation of Employees (due to delays in filling of vacant positions) and Goods and Services (due to the value of invoices received being lower than projected).

 

Programme 3’s projected underspending of R19.4 million was for Compensation of Employees (delays in the filing of vacant positions) and Goods and Services (mainly Agency and support/outsource services; infrastructure and planning services).[3]

 

Programme 4’s projected underspending of R14.2 million was for Compensation of Employees due to the delay in the appointment of the Government Technical Advisory Centre for the review of the Construction Industry Development Board Act. This was also attributed to non-payments to the Construction Charter Council because of delays in signing the relevant Memorandum of Agreement.

 

Programme 5: Prestige Policy overspent R34.6 million under Goods and Services, for the payment of contractors to arrange three State funerals that was unforeseeable. [4]

 

5.1. Transfers and Subsidies

 

A total of R6.47 billion was allocated towards Transfers and Subsidies for the 2018/19 financial year, which was an increase of R382.5 million from the R6.09 billion allocated in 2017/18. The total amount was transferred during the 4th Quarter of 2018/19.

 

A total of R1.11 billion was allocated as Conditional Grants to Provinces and Municipalities in 2018/19, which was an increase of R21.9 million, from the R1.09 billion allocated in 2017/18.

 

• R692.9 million was allocated for the EPWP Integrated Grant for Municipalities; this was an increase of R1.4 million from the R691.5 million allocated in 2017/18. At the end of the 4th Quarter of 2018/19 the total allocation of R692.9 million was transferred to implementing departments, municipalities and non-governmental organisations.
• R416.0 million was allocated for the EPWP Integrated Grant for Provinces for 2018/19 which was an increase of R20.4 million from the R395.6 million allocated in 2017/18. A total of R416.0 million was transferred by the end of the 4th Quarter of 2018/19.
• R407.9 million was allocated to the Social Sector EPWP Integrated Grant for Provinces for 2018/19, which was an increase of R22.3 from the R385.6 million allocated in 2016/17. A total of R407.9 million was transferred by the end of the 4th Quarter of 2018/19.[5] 
• Departmental Agencies and Accounts (non-business entities) received an allocation R4.17 billion which was a decrease from the R4.2 billion received in 2017/18, of which:

 

• R500 000 was allocated to the Construction Education and Training Authority (CETA), which remains unchanged from the amount received in 2017/18. While nominally unchanged, it constitutes a decrease of 5.2% in real terms.

 

• R10.4 million was allocated to Parliamentary Villages Management Board which is an increase of R300 000 from the R10.1 million allocation for 2017/18. The CETA’s allocation was transferred in its entirety, (similar to the 1st Quarter of 2017/18), by the end of the 1st Quarter of 2018/19. 

 

• R73.3 million was allocated to the Construction Industry Development Board (cidb) for 2018/19, which is a decrease of R1.6 million (or 7.2% in real terms) from the R74.9 million allocated in the 2017/18 financial year.

 

• R4.01 billion was allocated to the Property Management Trading Entity (PMTE)[6] for 2018/19, which was an increase of R327.3 million (3.2% in real terms) from the R3.68 billion allocation of 2017/18.

 

• R50.1 million was allocated to the Council for the Built Environment (CBE) for 2017/18, which was an increase of R1.5 million from the R48.6 million allocated in the 2017/18 financial year.

 

• Agrément South Africa was allocated R30.0 million, (an increase of R900 000) from the R29.1 million allocation of 2017/18.

 

Foreign Governments and International Organisations received an allocation that was revised downward by R4.8 million to R22.7 million by the 4th Quarter, from the original allocation of R27.5 million in Quarter 1 of 2018/19. A contributing factor was the fluctuation in the foreign currency exchange rates, upon transfer. This Allocation to the Commonwealth War Graves Commission: Maintenance of Soldiers’ Graves allocation constitutes an increase of R400 000 from the R22.3 million adjusted allocated in 2017/18. Note that this was transferred to Programme 5, to pay for the three State funerals that unforeseeably arose.  

 

A total of R28.4 million was allocated to Public Corporations towards the operations of the Independent Development Trust (IDT) in 2018/19, and constitutes a decline of R82.7 million) from the R111 million allocation received in the 2017/18 financial year. The total allocation was transferred during the 1st and 2nd Quarters of 2018/19.[7]

 

The IDT is a Schedule 2 Entity and is therefore required to be self-sustaining, however, it has since required intervention by the Department and National Treasury due to the depletion of its capital base. The Committee expressed its concern about this transfer of public funds to an entity that is scheduled to make a profit through the charging of user-charges for services rendered to client departments. The Committee continues to be concerned about the future of the entity, as expressed in its findings later in this report.

It has been receiving funding from the Department from 2011/12 to the present. The following allocations were made to the IDT:[8]

 

• 2011/12: R150 million.
• 2012/13: R50.8 million.
• 2013/14: R100 million.
• 2014/15: R50 million. 

 

The R50 million received by the IDT in the 2015/16 financial year was reportedly the final allocation transferred by the Department. However, the IDT received R11.9 million in 2016/17 and R111.1 million in 2017/18. The R111.1 million was shifted from Programmes 1, 2, 3 and 4 to Programme 4, for the projected budget shortfall of the IDT.[9]

 

6.Non-Profit Institutions

 

A total of R720.1 million was allocated to the Non-Profit Institutions in 2018/19, which is an increase of R96.2 million from the R623.9 million allocated in 2017/18. The allocation was disaggregated into the following two Non-State Sector allocations:

 

• The Non-State Sector: Work Opportunities was allocated R690.4 million for 2018/19, which is an increase of R94.6 million from the R595.8 million allocated in 2017/18. The total allocation was spent by the end of the 4th Quarter of 2018/19.

 

• The Non-State Sector: Non-Wage Costs was allocated R29.7 million in 2018/19, which is an increase of R1.6 million from the R28.1 million allocated in 2017/18. The total allocation was spent at the end of the 4th Quarter of 2018/19.

 

7.Current Payments

 

A total of R990.5 million was allocated to Current Payments for 2017/18, which is an increase of R111.9 million from the R878.6 million allocated in 2018/19. Of this amount, R518.3 million was allocated to Compensation of Employees, which was an increase of R59.9 million from the R458.4 million allocated in 2017/18.[10]

 

At the end of the 4th Quarter of 2018/19, R496.4 million was spent on Compensation of Employees, which was an increase of R51.5 million from the R444.9 million spent in 2017/18.

 

Goods and Services received an allocation of R471.8 million for 2018/19, which was an increase of R53.4 million from the R418.4 million allocated in 2017/18. A total of R465.0 million was spent at the end of the 4th Quarter of 2018/19, which was an increase of R95.4 million from the R369.6 million spent during the same period in 2017/18.

 

Interest and Rent on Land received an adjusted allocation of R400 000 for 2018/19, a decline of R1.4 from R1.8 million for 2017/18.[11]

 

Payment for Capital Assets received an allocation of R21.7 million for 2018/19, which was an increase of R3.7 million from the R18.0 million adjusted allocation in 2017/18.[12] A total of R9.5 million was spent at the end of the 4th Quarter.

 

1. FINDINGS AND OBSERVATIONS

 

The Portfolio Committee raised the following concerns observations and findings:

 

8.1. The Department had to explain how it collaborated with the Department of Human Settlements to ensure the use of the innovative fit-for-purpose construction technologies and building materials that Agrément SA tested and certified.

8.2. The Committee wanted to get an understanding of how much state-owned land parcels were in existence, both within and outside of the borders of the country. According to a report submitted to the Department by the Department of International Relations and Cooperation (DIRCO), 13 properties that were in surplus at the time, five in Germany and five in Namibia.

8.3. In the report presented, a total of 4000 internship placements could not be made. According to the Committee, this scenario was unacceptable especially considering the current unemployment statistics in the country.

8.4. On fraud and corruption, 100% of cases that were reported had disciplinary hearings held. Specific statistics of the impact that the SIU investigations were having on alleged corrupt activities, were provided to the Committee. The Department reported at the time that another proclamation was on its way to the President regarding lifestyle audits of the DPWI and PMTE personnel and leadership. The Minister volunteered herself and all the Senior Management of the Department as the first layer of leadership to undergo such lifestyle audits.

8.5. It was reported at the time that there were no contractors incubated in the PMTE and DPWI incubation programme during the period under review.

8.6. The Committee deemed state of immovable assets managed by the PMTE as health hazards in spite of substantial public funds being allocated for its maintenance. The Department had to explain how it was planning to improve its maintenance of state immovable properties to move away from ad hoc maintenance, to scheduled maintenance. This had budgetary allocation consequences that required specific attention in future quarterly financial and non-financial reporting to the Committee.

8.7. Having noted that the Public Works Academy project was not implemented as per stated targets and indicators in planning documents, Members of the Committee wanted to know how the Department was going to capacitate the PMTE. Contrary to the evidence provided in the report that targets and indicators were not reached, the Director-General responded that components of the envisioned Public Works and Infrastructure Academy were already running as programmes in the Department. The objective was focused on the necessary built environment professional skills that were required to properly operationalize the PMTE to unlock the value of the total immovable assets on the Immovable Asset Register.

8.8. Members expressed their concern that under-expenditure reported by the Department would have a negative impact on service delivery.

8.9. Regarding Parliamentary Villages, it was reported that R10 million was allocated, but that the state of the Acacia Park Village in particular, depicted a totally different picture. The Department had to explain what informed the allocation of funds to Members ’residences at the Parliamentary Villages, and how much was actually spent for this purpose. The Deputy Minister mentioned that there was a plan to refurbish the Parliamentary Villages. Members would be moved to the new apartments while the houses were being rebuilt using innovative, green building materials and systems.

8.10. According to the Department, pricing and leasing by client departments were highly regulated and the National Treasury played a pivotal role in that process.

8.11. The Department acknowledged that its Policy Unit lacked capacity. It was observed that there were two organograms that were presented by the Department, therefore the Committee wanted to establish why and when that would be sorted out.

8.12. The Department had previously indicated that showers would be installed in the residences of the Members in Parliamentary Villages but that had not happened to date.

8.13. The reporting structure was unclear and there was no correlation between performance and expenditure.

8.14. The Department continues to experience challenges with the fluctuation in the exchange rate when making payments to the Commonwealth War Graves Commission: Maintenance of Soldiers’ Graves. This sometimes results in over and/or under expenditure under this sub-programme.

1. The Department has realigned its main and sub-programmes and highlighted the role of the PMTE, to ensure that it provides accommodation, and manages the real estate of National Government.[13] With the transformed arrangement (where the PMTE is a separate, ring-fenced Government component within the Department acting as an implementer in the property and construction business), the Department’s role will be that of a regulator.

 

1. The Department further reduced its expenditure on consultants and outsourced services as it was in the process of ensuring that the staff within the Department execute the necessary functions.

 

1. The Department reported slow spending under Compensation of Employees and Goods and Services. This is mainly due to non-filling of vacancies or payment for goods and services under Programmes 1; 2; 3 and 4. 

 

 

 

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[1] The performance of the entities were not the specific focus during the quarterly performance review. It must be noted that while there is not a focus on each of the entities on their own, the budgetary allocations reported on and the analyses of the transfers from Programme 4 deals with an aspect of the financial transfers of entities from one quarter to the next. The Committee gives full effect to this aspect of its legal oversight mandate during the annual financial performance review in October each year.

[2] National Treasury (2019c), p. 47.

[3] National Treasury (2019c), p. 47.

[4] National Treasury (2019c), p. 47.

[5] National Treasury (2019), p. 48.

[6] The allocation for the Property Management Trading Entity (PMTE) falls under Programme 4. In 2015/16 the PMTE, was operationalised from having functioned as a Trading Account since its inception in April 2006.

[7] National Treasury (2019c), p. 48.

[8] Department of Public Works (2015), p. 57.

[9] National Treasury (2018), p. 47.

[10] National Treasury (2019c), p. 46.

[11] National Treasury (2019c), p. 46.

[12] National Treasury (2019), p. 46.

[13] Govender, M. (2015b), Slide 2.