Department of Public Works Annual Report 2009/10

Public Works and Infrastructure

18 October 2010
Chairperson: Mr G Oliphant (ANC)
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Meeting Summary

The Department of Public Works (DPW) presented its 2009/10 Annual Report. It noted that key initiatives in this year related to addressing unemployment and alleviating poverty, and improving asset management. The main initiative for poverty alleviation and unemployed was its Expanded Public Works Programme (EPWP), but there were challenges in engaging with municipalities, and trying to incentivise the projects in rural municipalities to address unemployment in both rural and urban areas. In relation to asset management, the Department conceded that this remained an ongoing challenge but that improvements had been made to movable asset registers and management, as well as asset investment management, with user departments being required to enter Service Level Agreements. There was a target to complete implementation of the Immovable Asset Management Act (GIAMA), and 11 departments had been completed to date. The problems of late payment of suppliers were being resolved, with 30-day payment periods being honoured as far as possible, and many accounts had now been reconciled. The Department had developed and was implementing an action plan to ensure that it complied with Generally Accepted Accounting Practices (GAAP), with different payment systems also being integrated. Attention was being paid to monitoring and evaluation, and to raising awareness of and creating prevention strategies for fraud.  It tried to ensure that goals were practical and were being attained. The figures in respect of leadership and intern training were set out, noting that the target for interns had been exceeded, although those for young professionals and learners had not. The Department had also set targets for energy reduction, for making all State-owned buildings accessible to people with disabilities and rehabilitating 5% of buildings each year. The progress on this was outlined. 75% of immovable assets had been properly recorded under GAAP.

The Department noted that 30% of the construction budget was put to transformation of the industry, and set out the number of registered contractors, noted a 10% increase in the number of black economic empowerment (BEE) entities participating in the property industry, and said that 686 out of the total of 3 028 leases were BEE leases. Spatial research was being done for integrated development plans. Feasibility studies had been conducted on some sites, 34 rehabilitative projects and three foreign projects were completed. The Department described the Expanded Public Works Programme (EPWP), outlining the targets and participants for youth participation and learnerships, reporting by municipalities and number of work opportunities created.

The financial performance report concentrated on explaining the instances of fruitless and wasteful expenditure and noted a deficit. However the Department had managed to report fully in line with the GAAP requirements, as required by the Public Finance Management Act. A task Team had been formed to facilitate the vesting process, and there were attempts to recruit 52 additional staff to take the process forward swiftly. The ultimate objective both of the evaluation of State-Owned properties and the attempts to comply fully with accounting standards was to increase service delivery, but the management was confident that the Department was on the right track and would be raising its targets.

Members expressed their appreciation in the improvements that the Department had made, but raised a number of concerns. They asked why of the 40 Service Level Agreements prepared, only five were signed, why it was so difficult to trace former tenants, why there were difficulties in filling vacant posts, whether the Department recorded the provinces from which appointments were made. Members asked what was being done to monitor disclosures and adjudication of tenders, and asked about the reconciliations. They questioned the achievements and challenges of EPWP projects, called for a report why the Department was paying rent when other State properties were vacant, asked about lease agreements and rehabilitation programmes, plans for skills transfer, mediation processes with contractors, and debt write-off. Both the Department and Members stressed the need to engage fully with local government and urged that the Department take steps to ensure that its image was improved through better service


Meeting report

Department of Public Works: Annual Report 2009/10
Chairperson’s opening remarks
The Chairperson congratulated the Department for the strides it had made over the past year. However, he noted that the area of Asset Management required specific focus as it remained an area of concern, despite the obvious successes mentioned by the DPW.

Mr Siviwe Dongwana, Director General, Department of Public Works, noted that in the financial year 2009/10 the planning of the Department of Public Works (DPW or the Department) was guided by the government policy priorities of poverty alleviation and addressing unemployment, building the State’s capacity to implement programmes and policies of government, making investment in productive infrastructure, and implementation of projects of government-priority. Mr Dongwana emphasised that in the previous week the DPW and municipal delegations had attended a summit that focused on many of these issues, so that he could confirm that many government officials, in both local and central government, were working towards the same aims, and looking to address the same challenges. DPW planning for both the last and current financial years was in line with government priority programmes.

The DPW also had a focus on energy efficiency, dolomite management, and on land ports of entry. Public entities had implemented, or had continued to be involved in the Independent Development Trust (IDT) – the Construction Industry Development Board (CIDB), the National Contractor Development Programme and establishment of contractor contact centres in all provinces. Through the Council for the Built Environment, there was assessment of the skills pipeline in the built environment. Agrément South Africa attended to the issuing of fit-for-purpose certificates for non-standardised products. There was increasing participation in the Innovation Hub, with a view to market alternative building materials for human settlements.

Mr Dongwana noted that there were some challenges for the Department. However, despite these, progress was made, and measures had been put in place to try to head off and eradicate those challenges as swiftly as possible. Internal controls were put in place to better manage the adjudication of tenders, to prevent fraud and corruption. Risk management and web-based reporting still remained a challenge for the DPW, as did lease management and the vesting process.

Ms Cathy Motsisi, Chief Financial Officer, Department of Public Works, addressed issues of finance and supply chain management (SCM). She noted that there were no concerns around the movable assets. The assets register was developed and fully functional. All assets previously unaccounted for were now accounted for. Ms Motsisi reported that the problem of late payment of suppliers had been ongoing, but it was now in the process of being resolved. Operation Re Ya Patala (a Call Centre) was established to honour a 30 day payment notice. There had now been extensive reconciliations made in this system on many accounts. In the past, migration of accounts was not done properly, so this prevented payments from being processed on time and correctly. With the new system, payments could be re-prioritised, so the budget could be properly augmented.

She noted that DPW had developed and implemented an action plan to ensure that it complied with the Generally Accepted Accounting Practices (GAAP). The integration of the different payment systems, through iE Works, was completed during the year to create a reliable business system. This enabled the linking of capital budget to properties.

Mr Lucky Mochalibane,
Acting Deputy Director General: Corporate Services, DPW, reported on Monitoring and Evaluation. He noted that much work was still to be done to ensure that everything was above board. DPW had to create awareness of fraud and look to a prevention strategy. This was an issue for the internal audit and investigation services. Secondly, the fraud prevention strategy must be updated. Although a strategy was in place, DPW saw this as an ongoing exercise and was conscious that blockages should not occur. It had set targets which it wanted to reach, and these were always specific and measurable. It was necessary to ensure that goals were practical and visible.

Mr Stanley Henderson, Acting Deputy Director General: Expanded Public Works Programmes (EPWP), DPW, reported on Corporate Services, specifically the sub-programme of leadership training and internship of young professionals, and the mentorship programme. There was a target number of 269 for young professionals in the Department. To date a number of 106 had been reached. Of those, three were interns who were enrolled in a Young Professional Programme. The target number for interns was 250, and to date 276 had been reached, with 19 being absorbed internally into the DPW, and 26 being interns appointed externally. Of the target of 258 for learners, 74 had been reached. Of those 74, 13 learners were absorbed internally into the Department, and 10 were appointed externally. The target for artisan trainees was 147, but 29 had been trained, of whom one had been absorbed internally. Five young professionals had obtained registration, two in the field of Property Valuation, one as a Town Planner, one as a Quantity Surveyor and one Architect. Sixty four learners completed the learnership programme. One artisan trainee obtained a trade certificate.

Ms Sasa Subban, Deputy Director General: Asset Investment Management (AIM), DPW, reported on Asset Investment Management. She noted that all user departments were now required to enter into Service Level Agreements (SLAs) with the DPW, and cited that she had recently met with the Department of Defence to talk over such an agreement. She spoke about the need for effective and efficient asset management and Government Immovable Asset Management Act (GIAMA) implementation. The exercise was thus far completed for 11 departments.

In regard to energy consumption, DPW had achieved a 10% reduction in consumption, with 17 buildings retrofitted, saving 3 ,473 Kw/H.

She noted that priority was being given to making all State-owned buildings accessible to people with disabilities, with a target set for ensuring this in 200 buildings per year. So far, there were 114 buildings in construction, 38 completed and 22 in design and procurement.

With regard to the valuation of the State property portfolio, Ms Subban noted that the remaining 30% of the portfolio was valued at 31 March 2010, with valuations currently rated at R1 or at cost. The percentage of State owned buildings targeted for rehabilitation each year was targeted at 5%. Services were completed at Civitas, Merebank and Bluff, five were in construction, and 37 were in planning. The total number of immovable assets on the Department’s register that now complied with GAAP requirements was 108 562, or 75%.

Ms Subban then addressed the transformation of the construction industry, saying that 30% of the construction budget was put towards the transformation of the industry, by 31 March 2010. The Incubator Programme registered 136 contractors on a system, costing R66 million. In the transformed property industry, there had been a 10% increase in the number of Black Economic Empowerment (BEE) entities participating in the property industry, with 686 out of the total of 3 028 leases being BEE leases.

53 State owned buildings had been rehabilitated, and were compliant with occupational health and safety and national building standards legislation. Spatial research for integrated development plans, pursuant to Inner City Regeneration, had been conducted. Feasibility studies had been concluded for the Statistics SA Head Office, and there had been clearance of the required sites in progress for Berea Park and Salvokop. Consultants would be appointed to assist with planning for regeneration. Lastly, as part of the six development plans for three towns and three cities by March 2010, 34 Rehabilitation and Maintenance Programme (RAMP) projects were completed. Three foreign projects were completed. Civitas Head Office was completed for the Department of Health, and so was Phase I of the Waterkloof Air Force Runway, and three year lift management and maintenance programme on all State owned properties.

Mr Stanley Henderson reported on the Expanded Public Works Programme (EPWP). He outlined the numbers of youth participating in the national youth services. Specifically, there was a target of 6 000, with a deliverable outcome of 2 500 in the service. The number of learners participating in the Vuk’uphile learnerships was expected to reach 1 000, but the outcome had been 511 participants. The total number of municipalities reporting on EPWP was targeted at 85, but 130 had reported (153%). The number of work opportunities created was targeted at 550 000, but 625 859 (114%) were achieved.

Ms Lydia Bici, Deputy Director General: Policy, DPW, spoke about analysing students’ study behaviour – their choice of study course, why they chose particular tertiary options, and why they chose particular professions. It was important also to identify the problems at high school and universities and with registrations. A number of role players determined employment and learnership choices.

Ms Cathy Motsisi then delivered a presentation on the Department’s financial performance and audit. She noted that the auditors had reported upon fruitless and irregular expenditure.

In respect of an amount of R30,8 million, she said that this amount included R5 million from prior years, and had arisen through failure to follow proper procurement processes, with the necessary three quotations not being obtained and tax clearance certificates not attached. In respect of an amount of R392 000, this related to cases in Johannesburg where some clients had vacated buildings before the end of their lease contracts. Irregular expenditure of R264 million was reported, due to lack of proper authorisation (R4.2 million), no tax clearance certificates obtained (R82 million), no supporting documents (R109 million), or improper procurement processes followed (R69 million).

Ms Motsisi noted that, for the first time ever, the DPW had managed to report fully in line with the GAAP requirements, as required by the Public Finance Management Act (PFMA). She also noted that there was a deficit of R57,623 million.

Ms Motsisi again summarised the reasons for the Auditor-General’s audit findings, but noted that a Task Team had been formed to facilitate the vesting process. She noted an attempt to recruit and employ 52 additional staff members to assist in taking the process forward as swiftly as possible. There were also discussions with Western Cape and Eastern Cape provinces to discuss how both of these provincial departments had addressed similar issues.

Mr Dongwane then highlighted the critical concerns for the DPW. The most important was the irregular expenditure, which was worrying because it related to processes and systems, and also indicated that people were acting incorrectly. There were other matters that needed to be examined, including the Asset Register and the Ministerial Committee. He was expecting a report from the Accountant General. There would be an evaluation of all State owned properties, following by the necessary registration processes. However, the question must be asked what the ultimate objective of this was. Similarly, it was necessary to be aware of why accounting standards must be fully met. The issue of valuation of properties for the disposal of other government agencies would be an ongoing matter, and he admitted that it would be a while before the Department had everything correct. However, he remained optimistic that the Department was on the right track although he conceded that it could do far more to improve its performance, and reach its targets, which were, at the moment, quite low. He mentioned that it was difficult to attract the correct skills to the areas in which they were required. A further challenge was the need to ensure proper communication with service contractors so that they produced the necessary documentation.

The Chairperson noted that DPW had made progress with its asset registration, and had managed to avoid repeating the mistakes of the past.

Discussion
Ms N Madlala (ANC) asked why 40 Service Level Agreements had been prepared, yet only five had been signed.

Ms Subban responded that 40 SLA documents had been distributed to various departments or suppliers, to ensure that there was agreement on levels of compliance with both the supplier and the DPW. However, questions on timing and cost had prevented all parties apart from 5 from responding thus far. 99% user acknowledgement had been received.

Mr Madlala asked, in relation to the comment on fruitless and irregular expenditure, why it was difficult to trace a tenant who had left a building, as surely some details were recorded that made it possible to do so.

Ms Subban responded that, even with identity numbers, it was not always possible to track people, and the cost of tracing as well would end up with the landlord, which was still regarded as fruitless expenditure.

Ms N November (ANC) congratulated the DPW on its progress to date. However, she noted that not all the vacancies had been filled in this year, and asked what had happened. She also asked whether the statistics showed from which provinces or regions the young professionals were being recruited.

Mr Henderson responded that not all vacancies were able to be filled internally, and in fact the number of applications received had slowed down, which resulted in certain appointments being put on hold. Young professionals who were appointed were in training. Sometimes they were offered better opportunities outside the DPW, particularly in Levels 2 to 8. It would be preferable for requests for vacancies to be filed in batches, so that the similarities and differences between the applicants could be more easily seen. He added that to date no attempt had been made to differentiate from which regions the trainees and interns were drawn.

Mr M Rabotapi (DA) asked what the Department was doing to address the issues around disclosing and adjudication of tenders.

Mr Dongwana responded that it was very difficult for the Department always to police human behaviour in the workplace. Often, people knew that they had been awarded a tender, because information had been leaked, although they were not advised of it formally by a senior team member. This undermined the whole process. He agreed that financial disclosure needed to be dealt with effectively.

Mr Rabotapi also questioned the issue of reconciling differences in the Report at year end.

Mr Dongwana said that Ms Motsisi’s report had already shown that reconciliations were done at a macro level, but not at unit or individual level. 90% of these reconciliations were now being done, directly linked to individual reconciliations. A separate date was needed, month-by-month to make it possible to do an evaluation on fair market value.

Mr P Ntshiqela (COPE) asked about poverty alleviation, specifically through EPWP projects.

Mr Henderson stated that the obvious solution to poverty was employment, which was the basis of the EPWP projects. The greatest challenge to the projects involved in the EPWP was expanding the rural footprint, and making the projects more accessible to rural communities and the municipalities that serviced them. There was little incentive for EPWP projects in rural municipalities, when compared to urban municipalities, which negatively affected the support for these projects. There was a challenge of how technical support should design projects to create maximum opportunities, looking to the future.

Mr Ntshiqela asked why the Department needed to pay rent on other buildings when existing State owned buildings were standing vacant.

Mr Samuels said that Ms Bici could perhaps answer on the under-utilisation of the project.

The Chairperson suggested that perhaps a full written response should be prepared by DPW and submitted to the Committee in answer to this question.

The Chairperson also noted that Members watched to see how matters were being followed up in constituencies, and noted the need for a system to track what was being done. DPW had unfortunately been criticised in the past and must be careful that its actions did not tarnish its image.

Mr Rabotapi asked what the DPW had done about occupied buildings.

Ms Subban responded that various buildings were in the rehabilitation programme, for example Civitas and H D de Wit. Most options were long term leases from National Treasury, and had started over the past two years. The Department had revisited all State immovable property stock and had appointed consultants to assess all structures.

Ms N Ngcengwane (ANC) enquired about policy regulation and Asset Management, asking whether the responsibilities lay with local government or provincial government.

Ms Ngcengwane enquired about the apparent disjuncture between what was agreed to last year in relation to the new Department of Rural Development and Land Reform and asked for clarity.

Ms Bici responded that there had been recommendations made for changes to the legislation. However, DPW had to engage with local government on some of the processes before taking matters to the Minister for approval. The submission was currently with the Minister.

She noted that the bill dealing with the professional councils in the built environment had been withdrawn for further consultation. There were issues around accreditation of universities, and registration with the professional councils. It was necessary to have all the policies in place before trying to finalise the matter.

Ms Ngcengwane wanted to know if the Department had a plan for skills transfer from old or retiring employees to the new generation.

Mr Dongwana answered that DPW had received many requests to retain those employees who would be normally due for retirement within the next two to three years. On the one hand this would keep former skills in the organisation, but on the other the question must be asked whether a person who, over the whole of his or her employment, had not managed to transfer skills, could be expected suddenly to do so in only two or three years.

Mr W Doman (DA) asked how the issues around the Immovable Assets Register could be resolved.

Mr Doman enquired whether the Department was finding that it needed to enter into many mediation processes with contractors, and how the Department dealt with calls from them.

Mr Dongwana said that the issue of unpaid contractors was important, particularly when it reached the level of the Director-General or higher, when it was regarded as a challenge. The Department attempted to isolate these challenges, and to negotiate in an attempt to resolve the problems and improve the situation.

Mr Doman asked about buildings not leased at market value.

Ms Subban said that all buildings that were leased were done according to market related benchmarks, as profiled by the State’s largest portfolio report. However, the issue was sometimes compounded by the demands that the tenants made in respect of installations. Most of the tenants were government departments.

Mr Doman questioned the writing off of debts in accounts.

Ms Motsisi responded that the Department was working to find out ways to recover amounts.

Mr D Kekana (ANC) wondered how the DPW could persuade a municipality that was uninterested in EPWP projects to take them on.

Mr Dongwana reiterated that the role of local government was vital to DPW. This had been made clear to the delegates at the summit to which he had referred earlier. The message had been clear and strong that matters were not to stop after the summit, but must progress. The new targets were far more aggressive, particularly given the levels of unemployment and poverty, and in light of the history behind the skills issue.

The Chairperson said that the Committee did not want to have to keep coming back to express their concern on the same issues. It was necessary to go deeply into issues and to ask searching questions. It was useful to deal with policy issues, but no amount of policy negotiation would assist a department to perform. He urged that the Department should not be satisfied with what it had done in the past, but constantly to strive to do more, and do it better. He too highlighted the importance of the meeting between local and central government, again referring to the summit, noting the salient messages coming out of it, and saying that they needed to be taken forward. The DPW could not afford to make mistakes.

The meeting was adjourned.


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