Report of
the Select Committee on Appropriations on the First Quarter Spending Patterns
on the Hospital Revitalisation Grant in the 2010/11 Financial Year, dated 09
March 2011
1.
Introduction
The
Select Committee on Appropriations (the Committee) convened hearings on the spending
levels on the Hospital Revitalisation Grant (HRG) for the first quarter of the 2010/11
financial year.
The hearings
emanated from the HRG second and third quarter public hearings held by the
Committee on 4 May 2010 on under/overspending of the Grant allocation for the
2009/10 financial year. During the deliberations, the provincial departments of
health raised a number of challenges that contributed to the under-spending of
the HRG allocation. Among other things were the appointment, by the provincial departments
of public works, of under-performing contractors; poor construction work by
contractors; and late payment of contractors.
The Committee
resolved that the national and provincial departments of health and public works
should be invited when the Committee conducts hearings on the HRG. The meetings took place
on 19-20 October 2010 at the Townhouse Hotel and Committee Room V227 at Parliament
of the
2. Terms of
reference
The hearings formed part of the
Committee’s ongoing interaction with provinces to monitor their spending
patterns on conditional grants allocated to them. A framework for each grant
sets out the purpose of the grant, measurable objectives, conditions,
allocation criteria, and past performance, among other things.
Provinces were requested to make
oral presentations on the Comprehensive HIV and AIDS Grant, Hospital
Revitalisation Grant, and Forensic Pathology Grant and take into consideration the following:
The national and provincial departments
of Health and Public Works were invited to appear before the Committee. The National
Department of Health was in attendance, unfortunately, the National Department
of Public Works could not honour the invitation.
The provincial departments of Health
and Public Works made joint presentations during the course of the hearings. National
Treasury was also invited to brief the Committee on the subject.
3.
Presentations
3.1
National Treasury
National Treasury reported that the
total adjusted budget for the 2009/10 financial year was R 3.5 billion, and at
the end of the financial year the provinces had spent R2.5 billion. The
provinces underspent the grant allocation by a total amount of R944 million.
For the 2010/11 financial year, the
main budget for the grant is R4 billion and the provinces projected to spend R3.9
billion by the end of the 2010/11 financial year. As at 30 June 2010, the provinces spent R836
million or 20.8 per cent. National Treasury further reported that only three
provinces had projected under-spending, that is the Province of the Eastern
Cape by R15.4 million, the Province of the Free State by R48 million and the
Province of the Northern Cape by R70 million. On the other hand, the
Table 1 (below) presents the HRG allocation
to provinces:
Table
1: Hospital Revitalisation Grant Expenditure by Provinces as at 30 June 2010
|
Province |
Main budget |
Projected outcome |
Actual spent as at 30 June 2010 |
Actual spending percentage of the main budget |
Over-spending |
Under spending |
|
|
360 660 |
345 231 |
50 921 |
14.1% |
|
15 429 |
|
|
378 426 |
330 424 |
28 888 |
7.6% |
|
48 002 |
|
|
798 609 |
798 609 |
256 378 |
32.1% |
|
|
|
|
500 815 |
500 815 |
52 535 |
10.5% |
|
|
|
|
323 425 |
323 425 |
37 346 |
11.5% |
|
|
|
|
331 657 |
371 875 |
72 797 |
21.9% |
(40 218) |
|
|
|
420 218 |
350 061 |
60 669 |
14.4% |
|
|
|
|
326 303 |
326 303 |
154 459 |
21.9% |
|
70 157 |
|
|
580 554 |
580 554 |
121 872 |
47.3% |
|
|
|
Total |
4 020 667 |
3 927 297 |
835 865 |
20.8% |
(40 218) |
133 588 |
National Treasury reported that quarterly
reports submitted by provinces are not adequate and lack details with regard to
reason/s for project delays and timeframes within which projects need to be completed.
They further
reported that many hospitals are experiencing delays and there are significant
variation orders as a result of poor planning. The variation of projects can be
costly because an initial budget can escalate and may double the original
budget. The
3.2 The National Department of Health
The National Department of Health
(NDoH) acknowledged the challenges in relation to the Hospital Revitalisation
Grant (HRG) and further said that these challenges have been of a recurring
nature for the past sixteen years. The NDoH reported that the HRG is
underperforming and that the persistent underspending of the Grant doubles from
year to year.
The NDoH reported that it has
established an Infrastructure Unit (IU) that will accelerate progress in respect
of the Health Revitalisation projects. They reported that provinces are in the
process of establishing their own IU’s and some have already done so.
The following deficiencies are the
contributing factors to many challenges that the Grant is faced with:
•
Poor management of the professional
service providers in many cases;
•
Poor management of the implementing
agent;
•
Inadequate norms and standards;
•
Poor input into quality planning,
design, specification. Voluminous but very inadequate project briefs (poor
planning), inadequate and wrong design, wrong health technology and other
equipment and frequent and costly
modifications (poor planning);
•
Frequent and costly changes on the
scope of works;
•
Poor quality and quantity of
project spending contributing to late payments;
•
Lack of, or poor involvement of
the management of the facilities under revitalisation and to some extent other
stakeholders;
•
Poor oversight, communication,
coordination and reporting;
•
Poor performance of the roles and
responsibilities by the health departments in the project development and
management cycle;
•
Inadequate project management
systems in place;
•
The State is always the loser in fee negotiations (if any) with professional
service providers;
•
Ignoring the potential savings on
repetitive designs and documentations in many instances;
•
Poor and lengthy procurement
process, sometimes taking eight to nine months before the contract is awarded;
•
Poor contract management,
administration and communication contribute to high costs and time over-run; many variation orders;
abandoned projects or never-ending projects; poor quality workmanship of the
contractors and late payment; and
•
Non-closure of many projects. Files
are still open and retention moneys are not paid as building plans and manuals
are not produced or are not delivered to the client. Some projects are
outstanding for the past seven years.
The NDoH presented figures that show
the HRG underspending pattern and how the underspending have doubled from year
to year.
•
Year 1 -2006/07: R
199. 158 million
•
Year 2 -2007/08: R 273. 226 million
•
Year 3 -2008/09: R
472. 564 million
•
Year 4 -2009/10: R
813. 614 million
•
Year 5 -2010/11: R
1.6 billion (NDoH projected figure for underspending)
The NDoH reported that based on the
first and second quarter reports of the 2010/11 financial year, it appears as
if the Grant would be underspent by R1.6 billion (projected under-expenditure).
For the first quarter, the Grant was underspent by 16 per cent. The NDoH added
that, based on the spending patterns by provinces, only R2 887 854 will be
spent by the end of the 2010/11 financial year.
The NDoH indicated that provinces
are not compelled to use the services of the public works departments as implementing
agents.
3.3
The
The
The Province reported that it had three
HRG projects, namely, the
On the Grant challenges, the
Province reported that the
Furthermore, in some projects,
consultants and contractors do not supervise projects and that leads to slow
progress. They added that the design architects duplicate bills of contracts
and that some designs do not comply with health norms and standards. In
addition, inadequacy of the project scope leads to variation orders.
3.4
The
The
The Province reported that it is not
experiencing any challenges with respect to contractors and consultants. The main challenge has been cash flow that affected the
performance of sub-contractors on site as payments are not done on time. The
Province indicated that it has implemented a 21 day invoice system to ensure timely
payment of creditors.
The Province indicated
that it has a good working relationship with the Provincial Department of
Infrastructure Development. The Province
further reported that a task team
was formed at the beginning of the 2010/11 financial year, comprised of the
NDoH,
3.5 The
The
3.5.1
The Province reported that R47
million was budgeted for this project but R54.9 million had been spent as at 30
September 2010. According to the outstanding work, the Province is projecting
to spend R93.9 million on this project by the end of the 2010/11 financial
year.
3.5.2
For this
project, the Province reported that a sum of R46.5 million was budgeted but R79 million had already been spent as at
30 September 2010 and the total expenditure is projected to amount to R96 million when the project is completed by
the end of the 2010/11 financial year. The Province reported that the main
contractor on this project failed to deliver the project on time and some of
the installations were of poor quality and had to be reinstalled.
3.5.3
On this
project, the Province reported that the budget was R96 million and R43 million
had been spent as at 30 September 2010. They added that there is outstanding
project work, including extensions to
the makeshift hospital, staff accommodation and feeder facilities. A total of
R111 million is projected to be spent on this project by the end of the 2010/11
financial year. The Province further reported that the first contractor on the
project was liquidated and the contract was terminated on 08 March 2010. A
second contractor was appointed on 27 July 2010.
3.5.4
The Province reported that R96 million
was budgeted for this project and R24.7 million had been spent as at 30 September 2010. The Province
further reported that it has projected to spend R96 million on this project by the
end of the 2010/11 financial year.
3.5.5 General De la Rey/Lichtenburg Hospital
The Province reported that R35
million was budgeted for this project and nothing has been spent as the project
is still at the planning stage.
In total, R204 million
(63 per cent) of the Hospital Revitalisation Grant has been spent. The Province
explained that the majority of its spending was on medical equipment for the
commissioning of Moses Kotane and
3.6 The
The
Overall, the Province reported that
there were 11 HRG projects by the end of the second quarter of the 2010/11 financial
year, and R101 million had been spent. Moreover, the
Province reported that the absence of a project management system by implementing
agents makes Grant management ineffective. However, the Provincial Department
of Public Works is in the process of sourcing a web-based project management
tool. In addition, the Province indicated that scarcity of project managers
within the health sector poses a serious challenge. In summary, the Province’s projects
are on track, but at different stages.
3.7
The
The
The Province further reported that
omissions and additions above 20 per cent (allowable) variation, were approved
by the Provincial Department of Public Works, but not supported by the Provincial
Department of Health.
On HRG challenges as a result of
under-performing contractors, the Province reported that although mechanisms to
deal with non-performing contractors are covered in the contracts, there are
delays in invoking the penalties. They added that project delays have a
negative effect on projects with dependencies - where a particular project phase
needs to be completed in order to embark on another project phase. The Province
further reported that there are inconsistencies in adherence to the reporting
and coordination requirements within the service level agreements. The Province
acknowledged that there is low spending on the Grant.
3.8
The Province of the
The
Province of the
3.8.1
This
project has been delayed due to slow delivery by the contractor. The contractor
has been replaced, but the project has additional costs to the amount of R380
million, and it is making good progress.
The
Province reported that the initial cost of the project was R290 million which has
escalated to R740 million. This project was started in 2006 and should have
been completed in 2008.
3.8.2
The
budgeted cost of this project was R836 million of which R278 million had been
spent by the end of the second quarter of the 2010/11 financial year and this project
is expected to be completed in 2012.
3.8.3 De
Aar Hospital project
This
project was started in 2010 and is expected to be completed in 2012 at a cost
of R400 million (initial budget).
3.8.4
This
project was started in 2006 and was completed in 2008. However, in 2009
additional work was added at a cost of R80 million and the project is 98 per cent
complete.
The
following three projects are at the planning stage:
The Province also reported that contractors
are unable to meet the monthly deliverables as per their set programmes due to
insufficient capacity in their companies. Under-performance by contractors
leads to underspending on the Grant. In addition, the Province reported that
poor coordination between the contractors, consultants and implementing agents
leads to further delays on projects.
3.9 The
Province of the
The Province of the
The Province
further reported that the Free State Psychiatric project was at the technical
documentation stage where the bill of quantities was being processed and it was
expected to be finalised by the end of November 2010. The Province also reported
that Mangaung District and
The Province reported that only R62.8 million (19 per cent) of the 2010/11 financial year HRG budget had been spent by
the end of the second quarter. The Province explained that the underspending was
due to a lack of internal capacity; poor planning, delays in bid
evaluation and adjudication, poor contract management, delayed decision making,
and transfer challenges.
3.10
The Province of the
The Province of the
1.
2. Dr
Malizo Mpehle Hospital
3.
4. St
Elizabeth's Hospital
5.
6. St Patrick's Hospital
7.
The Province reported that it did not
have capacity challenges, however, some of the projects have been delayed due
to, among other things, pending court decisions, delays in awarding contracts
and poor performance by contractors.
The Province indicated that the performance
of contractors and consultants varied between very good and poor. The Provincial
Department of Public Works had terminated the services of consultants and
contractors whose performance was poor, for example Setkor Engineers and Ilima
Projects, the latter for poor performance at the Holy Cross and Komani
Hospitals.
3.11 The
Province of the
The Province of the
1.
2.
3. Mitchell’s
4. Paarl Hospital
5. Tygerberg Hospital
6. Valkenberg Hospital
7. Vredenburg Hospital
8.
The Province indicated that its
projects are on schedule and the contractors are doing well to meet deadlines. The contractor at the
4.
Key Observations
After interacting with the provincial
departments of health and of public works, and the National Department of
Health and National Treasury, the Committee observed the following:
5.
Recommendations
Having considered the joint presentations
by the provincial departments of health and public works on the spending
patterns on the Hospital Revitalisation Grant in the first and second quarters
of the 2010/11 financial year, the Select Committee on Appropriations recommends that the National Council of
Provinces considers the following:
Report to be considered.