Use of consultants: Public Works & PMTE briefing

Meeting report

Mr Samuel Thobakgale, Deputy Director-General: Construction PMO and Project Management, DPW, started the presentation by contextualising the use of consultants with the background that lead to the usage of their services. In 2011, adverse audit findings and the Minister’s engagements with the Department of Public Works (DPW) had confirmed that the Department had areas of dysfunction. Thus, in November 2011, the Minister commissioned a rapid diagnostic on the state of affairs in the Department. The report detailed problems of mismanagement and misalignment and pointed to the need for fundamental reorganisation, and immediate interventions to stabilise the Department. Therefore, in January 2012, a seven-year business improvement plan was launched called the Turnaround Strategy. The core of the Turnaround Strategy had two pillars: (1) zero tolerance of fraud and corruption and (2) improving of business, which was to operationalise the Property Management Trading Entity (PMTE) with three phases. The first phase was ‘Stabilisation’ beginning in 2012, the second phase was ‘Efficiency Enhancement’ as of 2014 and would be followed by the third phase of ‘Sustainability and Growth’ from 2019 onwards. Emanating from the diagnostic report, key stabilisation actions were conceptualised as projects under the Turnaround Strategy. However, the Department discovered that to implement key projects it would need to source external providers, because internally there were time constraints and a lack of resources of both skilled and technical natures. Consultants were required for the following key projects:

• Deliver the maximum impact in the shortest period;
• Risk mitigation;
• Avoid to substantially increasing core team workload;
• Transfer of skills to identified staff within the Department of Public Works; and
• Allow better budgetary control and reduce budget overruns.

The Stabilisation phase entailed key interventions, which necessitated the procurement of external services. The key interventions mainly addressed the following within this phase:  

• Immovable Asset Register
• lean Audit
• Fighting fraud and corruption
• Lease management review
• Meeting the needs of prestige clients

By the end of the Stabilisation phase, additional areas of risk were identified and conceptualised under the Efficiency Enhancement phase, which further required the procurement of consultants. These areas were saving water, upgrading the Water Treatment Programme, energy saving and greening of government buildings; and the strategy on transforming the sector.

Mr Cox Mokgoro, CFO, DPW, explained the financial costs incurred by DPW and PMTE for the procurement of external services in an amalgamated budget, as well as the separate budgets. He also explained the purpose of each project that had required the use of consultants.

For the years 2013/14 and 2014/15 financial years, total expenses for DPW were R507 million and R466 million respectively for the outsourced services, i.e. consultants, contractors and agencies. The high expenditure in 2013/14 and 2014/15 included both the DPW and PMTE as the budget was still under the DPW Vote. However, on 1st April 2015 the transfer of the budget took place ensuring that the expenditure on external services had become distinguished between the two. The transfer of budget expenses to PMTE entailed the transfer of PMTE functions and PMTE projects, specifically the Lease Review, Immovable Asset Register and Special Investigating Unit (SIU) projects. Therefore, the total outsourced service expense of DPW for 2015 was R209 million, whilst the consolidated budgets were R490 million; followed by R189 million in 2016/17 and R470 million respectively. Additionally, the high expenditure in 2013/14 and 2014/15 for outsourced expenses by DPW under the category of Agency and Support was due to the Finance Intervention Project, which was a project to achieve a clean audit. The project has been completed resulting in the reduction of Agency and Support expenditure in subsequent years.

The consolidated expenditure by DPW and PMTE included the following projects for outsourcing: Business and Advisory services; Infrastructure and Planning; Legal Services; Contractors, and Agency and Support/ outsourced services (please peruse slides 11 and 12 of attached documentation for an explanation of each category). Notably, there was high expenditure in 2014/15 for the Contractors expenditure, because it included the presidential inauguration and state funerals. All State functions are included in this category. Also, under the category of Agency and Support, the ICT Support Services undergone redefining which had required technical skills and thus IT consultants were needed.

The expenditure on consultants by PMTE alone for 2015/16 was R198 million and was R281 million in 2016/17. PMTE included additional functions and projects such as the Immovable Asset Register, anti-fraud and corruption investigations, and verification of municipal debt for government departments and SAGE/Archibus development and implementation. The verification of municipal debt for government departments was a project to acquire the R4.4 billion debt departments owed municipalities for the rental of office space as well as the collection of taxes and levies that were neglected beforehand. The Business Process Review project came about as a result of inappropriate businesses process that required re- engineering. The SAGE/Archibus development and implementation project required consultants the most for resolve, as it was the most complex. Also, the Immovable Asset Register updating and maintenance required additional investment as Directive 2 exemption came to an end on 31st March 2016 which was for an accounting period of three years. The Immovable Asset Register was to be fully compliant in 2016/17. It should be noted that SIU investigations were still ongoing in line with proclamations from the Presidency.

Discussion

Ms D Kohler-Barnard (DA) commended the results the Turnaround Strategy have begun to show and noted that the Deputy Minister was certainly on top of it. She asked if the Department aware of the attitude of the newly appointed Minister towards the Turnaround Strategy. It would be displeasing if a new hand would stop the process claiming that its undertakings were mistaken and thus appoint new consultants and service providers and hat might impact the progress made. The non-collection of taxes and levies from government buildings had existed in Cape Town beforehand, but ceased to exist since, yet it was still prevalent in the metros. The list given to the Committee outlined outstanding balances by government departments to the various municipalities was being verified. She asked if the list related directly to the outstanding rates and taxes of government buildings that departments owed. It was commendable that DPW was on top of Immovable Asset Register and she asked if an update could be provided on the provincial Immovable Asset Register. The provincial registry of government buildings was extremely difficult to determine. The lack of acute accountable information complicated the ability for resolve. It was becoming slums areas and was illegally occupied. Buildings could be renovated, blown up or sold. When will local and provincial governments complete a comprehensive Immovable Asset Register? And once completed could those lists be amalgamated with the national government list? This would ensure that one list outlined government owned buildings for the country. She also wanted clarification if the R63 million accruals for unpaid invoices within the SIU investigations related to possible interest incurred. If R63 million pertained to accruals for unpaid invoices alone, what then was the total amount investigated?

Ms D Mathebe (ANC) said the Immovable Asset Register was essential, as it could prevent government buildings ending up in the wrong hands. She also wanted R63 million accruals for unpaid invoices within the SIU investigations clarified. Within the PMTE consultant expenditure budget the amount for SIU was R79 million in 2015/16 and then almost doubled to R149 million in 2016/17, but the amount for 2016/17 included the R63 million accruals for unpaid invoices. Was corruption prevalent within the Department? How many cases of corruption were investigated within the SIU project? Critical skills were previously outsourced, because internal skills were a challenge. Which of those skills had been absorbed into the Department’s personnel by means of transfer? What are the policy guidelines for state funerals?

Mr M Filtane (UDM) asked if an amount for state funerals can be speculated, and if so, if was there available budget. Does DPW have an overall policy on the use of consultants? Were consequence management practices followed and implemented within DPW? Upon appointment of an employee there was an assumption that identification of a need for a given set of functions to be done was made. However, if the appointee faltered adequate delivery of the function and accordingly required the support of consultants, how had the Department dealt with the employee’s failure? Besides the aspects of corruption and fraud, was the employee called into account by means of Consequence Management? He wanted to know if there was a benchmark allocation for the hiring of consultants. If the Department itself admitted to the lack of internal capacity for certain functions, how was oversight over the consultants pragmatically enforced? For instance, if the services of an engineer was engaged, how and who would oversee the engineer to ensure accountability that the work was actually being done and in order? This question stemmed from an adverse situation within discussion by the Portfolio Committee on Rural Development. The said project was entrusted to someone who was merely qualified as a social worker and subsequently over R100 million of state funds were wasted due to inability to have undertaken the project in the first place. The person just had an undergraduate degree that was ill suited for the task, but somehow he/she was employed by government irrespective of the capacity that was required for successful completion. One could only imagine how frequently the error of affording opportunities to ill suited candidates had occurred. Usually contracts would cost R30 million to R40 million within a financial year, and if it suddenly escalated to R70 million to R99 million, either corruption was evident to unnecessarily extend the contract for additional financial gain, or the contractor had no clue of how much the project would actually cost. Does DPW have adequate internal staff to manage the progress of hired consultants? Slides 4 and 5 explained the diagnostics that initially lead to the use of consultants, but the solutions proposed related to different problems or issues. On slide 14 there was a category specifying ‘Verification of municipal debt for Government Departments’ that amounted to R10 million for 2016/17, yet within the Budget Vote last week the Minister of Cooperative Governance and Traditional Affairs (COGTA) cited owing balances of billions. What was the exact total owed regarding this matter? Why was this money owed and why was the need for consultants to salvage these outstanding balances paramount? He wanted to know if a comparative study was ever conducted to work out how much money would be needed to properly remunerate qualified persons, i.e. if they were to be permanently employed with benefits. If such comparative study including the ‘cost to company’ of the consultants in a permanent post was done, it would justify that either the expenditure on consultants were higher than absorbing them or were considerably lower than permanent recruitment and would predict the most viable option. Whether the comparative study was done from a competence perspective or cost perspective, had DPW ever conducted such comparative study- yes of no? If not, why has such study not yet been done?

Ms P Adams (ANC) referenced the Technical Assistance Unit (TAU) diagnostic findings on slide 4 and she asked what was decided on the ‘large number of bad debtors’. She wanted to know at what stage would DPW no longer lack these internal capacities and skills and what measures have been sought to improve the internal capacity to further deliver on these projects. She referred to slide 8 and wanted to know why these additional risks were identified now and not at the outset of the Turnaround Strategy. Slide 11 stated that  ‘expenditure classified under legal services relate to payments to the State Attorney and for legal services rendered by other organisations’, which poses the query: why were the services of other legal organisations relied upon, as the services of the State Attorney could have sufficiently sufficed? Since the Asset Register was aimed to become GRAP compliant by 2016/17, she wanted to know how far the process was and would the target for this financial year be reached. 

The Chairperson noted that in 2014 the then Minister of had attended a Portfolio Committee meeting and had advised collaboration with the Department of Higher Education and Training (DHET) to involve Higher Education Institutions (HEIs) by means of recruiting their graduates into the public sector. Full-time recruitment of professionals was also recommended as a replacement to reliance on consultants. Yet three years later positive advancement on such recommendation was not evident. It was abnormal that three years later the recruiting professionals was still a problem, because surely remedial action to invoke change should have been enforced by now. Consultancy was consuming government funds year-on-year, yet it was a recurring problem, as alternative strategies were not sought for let alone implemented for the sake of positive change. For example, in the field of construction, prices were seemingly volatile and hypothetically, if one was to acquire a quotation initially a brick may cost R1, but upon return to the same manufacturer the brick would later cost R2.50 instead. The price escalated on the basis of interest in his/her service and/or products and was not because the actual cost price had doubled within a span of a day. The same notion was evident with consultants, because the disparity of their rates between initial quotation and actual charges were vast. What was DPW doing in terms of recruiting skilled professionals, especially since the then Minister had promised its resolve in 2014? Fulltime employment of skilled professionals from the construction industry might not be feasible, but shall prove viable in the long run.

Response by the Deputy Minister of Public Works

Mr Jeremy Cronin, Deputy Minister, DPW, appreciated the inputs from the Members. On the new Minister he said an extensive hand-over process had been undertaken. He said he took political responsibility for the decisions made within the Turnaround Strategy. Trends of the Department showed that in spite of persistent reliance on consultants the funds spent on them had significantly decreased since the time their services have first become necessary. In 2014, it was just the main vote that amounted to R507 million on outsourced services and by 2016/17 the consolidated expenditure on consultants by both DPW and PMTE amounted to R470 million. He agreed that it should be lower. Additionally, if inflation and the volatility of services were considered, the total value spent on outsourced services was then decreased by tens of millions in real terms. The next important point to make was that the money spent on outsourced services was not necessarily private consultants used in the SIU investigations. It was iET SA consultants as well as consultants from Cougar Crane Services - were public sector entities. Such would mandate that those in the public sector should no longer act in silos, because it was wastage of state funding. The transversal use of public capacity rather than building a DPW or PMTE SIU was a waste of resources and would be inappropriate, because it was not DPW’s mandate. The Department needed to have a degree of invested capacity, which would ensure an effective and professional public capacity.

DPW did not anticipate or know of any upcoming state funerals. Something such as inauguration could be planned for in advance as it could be foreseen. The point raised by Honourable Filtane was absolutely right: unless there was a core capacity within PMTE and DPW to manage the consultants that were drawn in for issues that were not day-to-day the situation could be exploited. For example a sudden massive state funeral such as that of the late President Mandela would require the services of consultants for the occasion, but could not justify permanent retention of such staff. Without proper internal monitoring the employment of such temporary services could prove exhaustive beyond its scope. Notwithstanding the possibility of exploitation, a day in which the services of zero consultants were utilised would cease to exist. The hiring of professionals could not be done independently of proper structures that were approved by Department of Public Service and Administration (DPSA).

The Deputy Minister that to significantly professionalise what DPW was doing in the property management space proved to be a challenge. This was partly due to migration of DPW staff to PMTE which warranted upgrading of the current skill set as opposed to hiring new employees with the necessary skill set and ideal profile required. There were many instances in the past of labour relations issues that posed a challenge as well.

A lot of money was spent on the SIU, because it was a project that required the correct skill set and the Department did not have the internal capacity for it. Therefore, within the handover process to the new Minister, one of the topics discussed was whether less money should be invested in the SIU, but if so, what would the outcomes be? DPW was of the view that the professionals employed for SIU was working quite hard, but it was uncertain if they were working smart enough to timeously resolve the investigations. DPW was one of the big spenders on the SIU and had three running proclamations made by the President regarding it. Every government department spent money on consultants and this will not stop. It meant the questions whether internal capacity would reach a point to negate the usage of consultants could be redirected to ask that when the money was spent on consultants had it resulted with the impact that was intended.

Mr Paul Serote, Head: PMTE, DPW, responded and said DPW had different fields that required consultants. The risk posed, which also served as a risk for the market was that the age of the professional engineers and professionals were either nearing retirement or over the age 40. Some of the professionals of DPW were retiring. A formal capacity building program was launched this year in collaboration with Cougar Crane Services. The focus of the programs was to review the technologies and the candidates of professionals within the Department. The focus was converting the system into professional status by absorbing young professionals into a development program. The Department had allocated R43 million for 10 engineers or professionals that were candidates for each field that required consultants, which meant that each would be remunerated at R500 000 per annum. This was now pursed against an upgrade of the annual budget for projects that currently needed them.  

Ms Kohler-Barnard asked if it was it 10 professionals for each department or are those 10 to oversee the departments.

Mr Serote replied that it was 10 candidates per profession. Additionally, in terms of the occupation dispensation and salary determination by DPSA, the 10 qualified persons would be recruited within each engineering field at a ‘cost to company’ rate of R500 000 per person, which collectively would amount to R43 million, inclusive of the technologies required. On employing of professionals, he said advertisements of the posts were made, but it should be kept in mind that these posts competed with the private sector, which was highly competitive. The structure has been directed to spend money on new entrants and developing them over a period of three to five years to make them professional after which they might be absorbed into the public sector.

Mr Mokgoro responded and said that the debt that reflected for the verification of municipal debt indeed related to the outstanding rates and taxes of government buildings that comprised of the ownership and consumption involved, such as water and electricity etc. The Department reviewed the debt that had existed at 1st April 2015, which was R5.4 billion collectively for the years preceding it. Due to the project, R3.5 billion was confirmed as municipal and governmental departments’ debt. On the Asset Register, he said the custodian framework entailed six custodian national departments, of which DPW was the first major custodian followed by the Department of Rural Development. There were provincial custodians of the assets in the provinces. Because of the new custodian framework there needed to be a lot of reconciliations and allocations. From the national level, as far back to the start of the Asset Register, reconciliation of national and provincial assets was made annually.

The SIU’s R63 million accrual debt meant that the services were received from the services provider, but it was not yet paid for. Therefore, including the R179 million for the ongoing investigations, there was an additional amount of R63 million outstanding.

On internal skills, he said that where possible the upgrade of internal skills was done extensively. Due to governmental programmes 107 unemployed graduates were awarded internships of which 61 got employed in the private sector after the internship and 46 were employed within the public sector. In November 2016 DPW received approval to populate the internal structure with the requisite skill set to address new requirements. Another foreseeable challenge was that irrespective of how hard government could train an employee, ultimately the outcome of their performance was as a result of their capacity that was beyond extensive training. There was a policy that guided consultants, a part from the supply chain management (SCM). There was a process to follow, because a clear indication or demonstration was needed that internal capacity for the project under review was lacking. Internal needs were assessed against internal capacity to see if external support was necessary.

DPW supported the principles of Consequence Management and has details regarding the processes that it followed. If an employee was not performing, that employee will receive support. If the employee cannot be supported or failed after support, he/she would be reappointed elsewhere. However, due to the National Framework Agreement that obligated migration and reshuffling of employees it was established that no employee would suffer retrenchment as a result of the Turnaround Strategy, which was constraining for the Department that has 6 000 employees. There were many staff members in the in the system currently that could not readily do their newly appointed role and/or job specifications. Admittedly, it was an unintended consequence that a shuffled employee might be appointed a job that they could not do, and if that was discovered the necessary support would be granted first before penalising the employee with Consequence Management.

Mr Mokgoro said the correlation between diagnostics and interventions were not necessarily misaligned. Upon scrutiny of the diagnostics the interventions does correlate but those cited were specific to the first phase. For instance, within the first phase it was highlighted that the correction of the Asset Register was fundamental. Another fundamental aspect was operationalising PMTE as well as conducting a Clean Audit Project to stabilise DPW. One could re-engineer business processes and core functions, but if it was done whilst the back offices were in disarray, it was futile. It was discovered that the Clean Audit Project was beyond just receiving a clean audit outcome, because it was imperative that the back offices should have a clean audit outcome too. The correlation was evident, but it was expressed in phases. The next phase would deal with public service policy.

In terms of the comparative study, Mr Mokgoro said the aspect of time played a pivotal role in determining whether consultants were to made permanent or not, depending on the needs of the project. On the outstanding debt of 2.4 billion, he said it was accumulated long before. An intense process to deal with old debt was underway to such an extent that a TAU with National Treasury was established. The current debt was as a result of the operating model and was paid for timeously within a three-month period. The accumulated R2.4 billion owing balance was reduced to R600 000.

On identified risks when the Stabilisation phase began, he said it was unforeseen that 92 000 structures would be involved, and its enormity had introduced other unprecedented risks too. In terms of the State Attorney, DPW did not engage directly with legal services and the given description may be misleading. The GRAP 2016/17 compliance was concluded in the Asset Register of 2016/17. However, it was not audited the preceding financial and the additions and movements of disposals of assets shall be edited accordingly in 2017.

Mr Thobakgale added that the complexities were inherent to the environment. DPW would look at the needs that a particular department or situation would have and devise a structure and appoint a team accordingly. The medium term framework (MTF) allocation for compensation of employees was locked at R1 billion per annum. To streamline the structure was to make do with what DPW had up until it would become a self-sustained model.

Dr Filtane asked for clarity on the statement.

Mr Thobakgale explained that in the work with National Treasury on Property Management there was no benchmark allocation. Also, queries regarding what had actually constituted as functional building were not definitively confirmed yet. For instance, would a dysfunctional air-conditioning facility indicate that the building was faulty? What aspects would outline the characteristics of a functional building? Therefore, as part of the upgrading of skills the relevant employees were given the same Property Management degree as that of prestigious universities in South Africa to ensure that the employees were well-equipped with knowledge of the property sector.

Mr Filtane asked what the Department was doing to determine the number of professionals required on a fulltime basis. Was collaboration with DHET to take place? Moreover, since the policy prescribed no retrenchments, even to the point that support would be extended to those who could not perform in their new appointments, how would incompetent employers be adequately dealt with?

Mr Thobakgale replied that that one of the immediate commitments made were the establishment of a professional services branch, which was meant to build the internal capacity and was not just for DPW but also for the State as a whole. It was established that due to the Turnaround Strategy reshuffling of personnel would take place and with that realignment no employee should lose their job. However, if employees were wrongly allocated a different job as a result of the reshuffling, because after the appointment it was discovered that the employees could not do their new job, DPW could not retrench them on the basis of ‘incompetence’ since DPW had reshuffled their occupation. Government employees have rights that were to be respected and there were laws that were to be adhered too. Thus, if the new appointment lacked the capacity sufficient support should first be provided for.

Mr Filtane noted that in other words the Department retained staff members even though they were not performing.

Mr Thobakgale clarified that non-performing employees first required rehabilitation in to upgrade skills. Only if all remedial actions were pursued, but yet the staff member consistently or blatantly fails to perform only then would the steps of Consequence Management apply. The Department was engaging with the Operation Bring Back (OBB) project in which properties that were unlawfully occupied and taken from the State before 2015 was returned and/or cleared of illegal occupants.

Ms Kohler-Barnard said some of the buildings were rat-infested, in a state of disgust and had lice. Of these approximately 17 000 were sub-standard and more than 1 200 condemnable and beyond a state of repair. She asked if it would it be sold off or would each and every building be subjected to a feasibility study – it would be such an expansive amount of work that it actually could not be completed in this lifetime. What will DPW do with those buildings, because to conduct feasibility studies on all of it would be overwhelming?

Mr Thobakgale explained that the reality of the situation was that no investment could be made independent of feasibility studies and following the relevant processes. Admittedly, it was a problem, because once the 17 000 properties were identified for investment analysis then it poses the question of where he money will come from. As part of the programme to implement facilities management that deals with the relevant aspects, an initial 300 buildings would be undertaken, which meant that significant buildings were addressed first. Examples were Telkom Tower that has undergone a comprehensive evaluation. Comprehensive assessment done by DPW included two to three reports that required integration. A fully comprehensive and technical list on the air-conditioning in the building covered 110 000 square meters alone which was quiet complex. The comprehensive report served as the basis to review a feasibility analysis. An advantage of having started with the 300 buildings was that it gave the opportunity to strengthen structures by highlighting issues to note and which to ignore. After the 300, 700 would be evaluated followed by a further 1 500 buildings. Currently, the public sector has a 96% occupancy rate of government-owned buildings.

The Chairperson commended by DPW. The work of the Committee was to provide oversight to this essential Department since South Africa works because the public service works. If proper oversight was not enforced, it would have a snowball effect on ground level.

Mr Filtane appreciated the high occupancy rate of 96% of government buildings.

The Chairperson said DPW was moving in the right direction. He thanked everyone.  

The meeting was adjourned.