PMTE Operationalisation

PMTE OPERATIONALIZATION PORTFOLIO COMMITTEE

05/03/23

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ContentsSECTION A1.Introduction2.Legacy3.Progress Report4.Going ForwardSECTION B - INFORMATION5.PMTE Operating Model/ Framework6.PMTE Transitional Governance Structure7.PMTE Transitional Structure 8.Possible implications for ProvincesSECTION C - INFORMATION 9.Financial Report10.Conclusion

03/05/23PORTFOLIO COMMITTEE

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SECTION A

PROGRESS REPORT ON PMTE OPERATIONALIZATION

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Vision & Mission

VISIONTo be a leading infrastructure and property management service provider for the state

MISSIONThe Mission of the PMTE is to optimize cost, speed, quality, flexibility and reliability underpinned by fair and ethical dealing for effective delivery of Public Services.

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1. Introduction• Eight consecutive years of under-performance, evidenced by progressively

worse audit outcomes, culminating in two successive years of disclaimers, indicated a clear and pressing need to restore the DPW to organisational health across all perspectives. A turnaround strategy was accordingly launched in 2012.

• The creation of a fully-functional Property Management Entity within the Department, as approved by National Treasury in 2006, is at the centre of the turnaround strategy.

• The operationalization of the Property Management Trading Entity (PMTE) is a critical and high-profile component of the turnaround plan as it will house the State’s assets, provide property management, facilities management and other services, including management of a GRAP-compliant financial system, as well as be the primary interface with client departments.


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1. Introduction (Cont.)


Prior attempts at change: projects and interventions since 2000:

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1. Introduction (Cont.)• The reasons for the lack of traction of prior projects can be summarised as follows:

o High staff turnover: (leadership)o Poor management & lack of accountability.o Lack of implementation capability and capacity.o No appropriate structure and clear role definitions; business model o Structure not aligned with internal value chain => fragmented organisation.o Lack of clear strategic intent.o Internal power plays and bureaucracy.o Lack of inclusion, consultation and change management (Culture and attitude)o Inadequate resourcing and lack of systems support; lack of innovation o Slow decision-making and approval processes

KEY FOCUS AREAS IN THE NEXT FIN YEAR: 2014/151.Property Management 2.Facilities Management


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2. Legacy2.1 Property Management


• Leasing out – neglected area (policy decisions) => aversion of using state property for state needs => property vacant and derelict.

• Client departments use out of state property (private sector leasing) – properties are not properly maintained.

• No property business can function efficiently, effectively or properly at such a nominal rental (R15/m2 ) - Market related rental will ensure that costs for facilities maintenance are provided for.

• If the state is required to make a 10% return on investment, it would require a fundamental review. We are in the process of approaching NT to endorse market related rental.

Two significant benefits: • Utilising state property at fair price – ensure sustainability (proper maintenance)• Ensure break even or surplus to be used to drive infrastructure development

(new properties, in form of government precincts – especially small towns and rural development)

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To achieve above – 1. First priority is to use existing state facilities, where they exist2. The state to invest in refurbishment of properties it currently owns,

either through state resources or allowing private sector to invest in such buildings

•Allow such refurbished buildings for state to use, failing which to lease it to private sector, based on long term contract basis, to ensure profitability.•We have developed a standardised lease agreement – to drive state maximizing its properties for service delivery or to increase its capital for further infrastructure development. •Working with NT and the newly created Chief Procurement Office (CPO), we are now in a position to benchmark leasing of properties (in and out), on the basis of price indexing, for the very first time.

“The Rode Report” gives the benchmark for property prices – very limited in that it only provide for urban areas.



• Work undertaken => provides us with information to determine prices for various categories of properties in different locations in the Country.

• We anticipate, that this would take us a further 6-9 months to introduce an base price index.

• Benefit of price indices => state will be in position to maximize its buying power of lease properties (current expenditure of 3,2 billion).

• Using price indices, we can negotiate preferential rates way below the market, in favour of longer-term lease agreements.

• State will be able to set an acceptable annual escalation rate.• NT has advised/directed => use the rate of 5,5% in September 2013.



Efficiency•We have found some properties that we are leasing, that have no client departments.=> The cancellation will save the state money•Renegotiating contracts to match the space that we are currently using which is less than what is stipulated in the contract

=> Savings

•The report of the Audit of Leases that we have jointly conducted with NT, will be finalised in Mid-February 2014



• In any property management entity, facilities management is core to the business.

• At the heart of facilities management, is a dire lack of a state infrastructure maintenance strategy nor adequate funding for the maintenance of such.

• The PMTE must ensure the National Infrastructure Maintenance Strategy (NIMS) for DPW properties is approved, funded and implemented. Such will start with DPW.

State Properties• Some state properties are in a poor condition and are deteriorating.

The asset verification process, will give us more information on the state of our properties.

• PPP could be utilised to refurbish and rehabilitate buildings to enhance service delivery.

2. Legacy2.2 Facilities Management


• As previously stated, some properties of the state (various spheres of Government) are not properly maintained.

• We are aware that there is a lack of funding for the refurbishment and maintenance of such facilities.

Private sector properties• Inadequate policies and practices => resulted in many leases expiring and

not being replaced with valid agreements. • As a result, some private landlords claim that buildings cannot be

refurbished/maintained.• OHSA violations and lock-outs have occurred.• The state needs to act decisively against such landlords.• The PMTE will have to ensure that lease properties are properly maintained

to provide decent facilities for public servants, and more importantly, for the public who rely on these services.

2. Legacy2.2 Facilities Management

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3. Progress Report 3.1 PMTE Operationalization

• As at February 2013, only a Chief Directorate of Finance was in place.

• At the beginning of the financial year a firm decision was taken to operationalize PMTE

• A Transitional Head of the PMTE and Head of Finance have been appointed to drive the full operationalization of the PMTE.

• In August 2013 a workshop was held with the Minister and DG to accelerate the process of PMTE operationalization, as well as the creation of an aspirational view of the PMTE in the long-term.


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• Key decision with NT and DPSA that PMTE would, over time, function as a Government Component rather than as a discrete Trading Entity subject to:

o Feasibility Study comprising an institutional Options Assessment and a Business Case for a Government Component.

• The PMTE Operational Plan for 2014/15 has been developed and creates a programme for the full operationalization of PMTE and its key service delivery improvements, and will drive enhanced delivery of the Department’s mandate across its property and immovable asset base.

• The staged operationalization of the PMTE will take time to complete, but it is envisaged that within two years it will have been achieved and a transition to the Government Component will have commenced.


3. Progress Report 3.1 PMTE Operationalization (Cont.)

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• A team of property management specialists have been recruited through the South African Institute for Black Property Practitioners(SAIBPP) to assist with PMTE operationalization.

• Partnership was established with STANLIB to assist with benchmarking against private sector best property management practices.

• An operating model with a matrix management approach within a portfolio arrangement, has been developed and approved.

• The high-level business case and feasibility study for operationalization of PMTE as Government Component has been developed.



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• Strategy and plan to improve debt collection and to reduce overdraft is being executed.

• The new accounting and billing system has been procured. It will go live on the 01 April 2014 – itemised billing as required by client departments.

• In order to address non-paying departments, o Time billing of clients according to landlords’ billing DPW (1 April

2014). o CFO forum

• The Economic Sectors and Employment Cluster was consulted on 06 November 2013. The cluster recommended that implications on provinces should be articulated in the PMTE Operational Plan for 2014/15 and the Feasibility Study for the Establishment of a PMGC.



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• Transfer of Immovable Assets from DPW to PMTE was approved in October 2013.

• Transfer of functions from DPW to PMTE was approved in January 2014 • Irregular expenditure – leases – special dispensation for leases• Lease Review Project has been completed.• Interns have been recruited to assist with the review process of previous

expenditure to confirm other irregular expenditure besides the reported ones.• Interns assist with verification of lease information against PMIS• High level Cabinet Memorandum on the business case for the

operationalization of the PMTE as a Government Component has been developed, and will be presented to Cabinet in Februuary 2014.



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3. Progress Report 3.2 NT Conditions for PMTE (Cont.)

• National Treasury originally approved the establishment of the Trading Entity in March 2006 in terms of the PFMA, subject to certain conditions. Progress on these conditions are as follows:

1. Operate a separate and complete GRAP-compliant set of accounts – ACHIEVED

(See progress on Financial Policies – Slide 11)

2. Effective financial controls in place – ACHIEVED (See progress on Financial Policies – Slide 11)

3. Policy and reporting framework in place to track both commitments and cash flow – IN PROCESS (Accountability EXCO to approve)

4. All people and institutional arrangements in place – ACHIEVED (Head Office) & IN PROCESS (Regions)

5. Draft Delegations developed and responsibilities of the departmental key account managers specified - ACHIEVED


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6. DPW must seek approval from National Treasury to establish a Property Management Trading Entity. The PMTE must comply with all the conditions for trading entities contained in Treasury Regulation 19. - ACHIEVED

• A Key decision by NT and DPSA have informed however that:o PMTE be operationalized as Government Component rather than as a

discrete Trading Entity subject to: Feasibility Study OPTIONS ON CORPORATE FORM AND RATIONALISATION OF GC1. Retention of the status quo:

o Advantage = no change to institutional form / operating model o Disadvantage = no separation between the regulatory and service

delivery functions; no change in perception of clients, staff & public; and no client centric culture & drive (effectiveness and efficiency)

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2. Special Service Delivery Unit:o Advantage = same as status quo optiono Disadvantage = no separation in governance between the DPW and the

service delivery unit - same as status quo disadvantages3. Public entity outside the public service:

2. Advantage = independence and autonomy3. Disadvantage = changes to employment conditions 4. Government Component (Preferred)• ensures that the public estate remains with the public sector,• independence and autonomy,• specific-purpose vehicle (service delivery, regulatory),• ring-fence activity, and• designated budget and administrative head.

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3. Progress Report 3.3 Financial Policies(Cont.)

Approved and Implemented1.Bank and Cash2.Related parties3.Expenditure and payables 4.Accounting and reporting5.Leases and commitments6.Receivables and Revenue7.Planning and Budgeting8.Financial Misconduct In process for implementation1.GRAP compliant Itemised Accounting & billing system (Going live 1 April 2014)2.Lease Policy (Accountability Exco to be convened and approve)Not yet finalized1.Asset Management Policy (Pending discussions with Immovable asset Team)


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3. Progress Report 3.4 Audit Findings(Cont.)

PORTFOLIO COMMITTEE

Nr FINDING STATUS1. Irregular

ExpenditureRenewing leases in progress - special dispensation for leasesIn addition, lease management processes are being improved

Supplier database being updatedIdentify, verify & disclose all prior year balances from 2009 – interns appointed to verify transactions

2. Fruitless & Wasteful expenditure

KAM to source clients departments to occupy vacant properties

Continuous Education/ follow up – delegates for meetings3. Leases Lease Review Project has been completed

Still gaps: Gap identifying Project underway4. Retention liability Quantity surveyors are in process of calculating and

updating the WCS with the correct amounts

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Fully operationalizing PMTE inline with 2006 approval

Operating as GC

• New Governance Structures in place

• Improve systems & Processes

• Integration of Construction & Infrastructure Development

• Transitional Structure • Develop Operating

Frameworks for Core Business areas

• Policies & Procedures• Transitional Governance

Structure• Transfer of functions &

assets• Pricing & Finance Model• Determine IT

Requirements & Plan

DEVELOPMENT OF GOVERNMENT COMPONENT BUSINESS CASE

03/05/23

DG MINISTER

• Migration of Staff• Execute Operating

Frameworks for Core Business areas

• Design Business Processes & Systems

• Transitional Structures• Engage NT on Pricing &

Finance Model• Strategy & Performance

standards Property &Facilities Management

• Asset Investment Strategy & Policy

4. Going Forward4.1 High Level Activities – Stage Model

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4. Going Forward4.2 2014/15 High Level Activities

• Migration of Branches and staff to PMTE• Operationalization of PMTE Operating Framework• Operationalization of PMTE Governance Structures• Get PMTE Structure approved and filling of critical vacancies• Development of Property Management Strategy and property

performance standards• Development of Facilities Management strategy and Norms and

Standards• Development of funding and pricing model• Development of asset investment strategy including valuations for

market related charges.• Finalise organizational arrangements regarding shared services


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4. Going Forward4.3 Challenges

Nr Challenge Proposed Solution1. Operating Model in respect of billing

in arrears and failing to collect.Time billing of clients according to landlords’ billing DPW (1 April 2014).

2. Not operating as a business regarding debt collecting.

Ensuring specilaised collection of debt

3. Not operating as a business regarding charging market related rates per m2.

Pricing Model to be developed to ensure itemised billing per property etc.

4. Inappropriate skills – performing property management functions out of scope.

*Intensive transfer of skills to current staff through the service providers.*Appointment of skilled staff in vacant positions.

5. Protracted decision making and approval processes.

Streamline decision making process through revised delegation.



SECTION B - FOR INFORMATION

OPERATING FRAMEWORK AND TRANSITIONAL STRUCTURE

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5. PMTE Operating Model/ Framework


PMTE OPERATING MODEL FRAMEWORK

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• Immoveable Asset Register => core of PMTE/PMGC operations. o Relevant and updated information to comply with governance, management

and investment requirements. o Register centralised at Head Office level but as conditions allow will devolve.

• Asset Investment Functionso Primarily - enhance economic and operational efficiencies of all assets held

by means of exercising strategic policy options. o Therefore - Head Office function where inter alia investment decisions will be

made.• Portfolio Management Office => multi-disciplinary team

o integrates client needs, o asset management options; and o property / facilities management realities within a particular portfolio.

• Properties and Facilities Management (a separate Property branch has been approved previously by the DPSA but has never been implemented fully).


5. PMTE Operating Model/ Framework (Cont..)

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5. PMTE Operating Model/ Framework (Cont..)

• Matrix Management Approach - segmented into various portfolios that can be designated in any of the following ways: -o Client department o Grouping of client departments (Smaller departments); or.o Unallocated (inactive) assets portfolios.

• Benefitso improved accountability, o streamlined customer care structures, o minimisation of duplication; and o equalising options for workload management across portfolios.

• Skills and capacity across regional areas also taken into account in portfolio segmentation process.

• A streamlined business processes required to: assist effective and timely implementation. (Current system is cumbersome and involves duplicate steps that will be eradicated in the revised business model)


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6. PMTE Transitional Governance Structure


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7. PMTE Transitional StructureDESIGN PRINCIPLES


• The PMTE is designed to be more client centric. o Capabilities will be developed that best support client needs.o Structures will be created and scaled to align with particular clients need to

ensure depth and breadth of support.o Client participation at all levels and formal signatory on leases where these

are appropriate to meet need.• Design lean & mean PMTE structure for quick and expedient decision making.• All Head office functions are represented in the Zones/Clusters. This should not be

perceived as duplication, but will ensure:o efficient and effective implementation of mandates, standards and operational

policieso Depth of expertise is made available in the Zone/Clustero Knowledge and market intelligence is gathered regionally and fed to Head

Office to improve the Strategic Knowledge Management (Centre of Excellence)

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7. PMTE Transitional Structure


A draft organisational structure that supports the proposed operating model

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7. PMTE Transitional Structure

03/05/23

Proposed PMTE Structure

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7. PMTE Transitional StructureHEAD OF PMTE

03/05/23

• To provide strategic leadership to PMTE Executive Management.• Provide the required linkage between the Minister, Director General and the

Executive Management Team.• Develop and implement high-level strategies, take major decisions, manage

the overall PMTE operations and resources. • Conduct PMTE strategic review of performance on a regular basis to

determine whether the entity is meeting its short-and long-term objectives• Establish and maintain an effective system of communications throughout

PMTE to ensure that the responsibilities, authorities, stakeholders and accountabilities of all executives are clearly defined and understood.

• Act as the principal PMTE Public Relations Officer and represent PMTE with major government departments & entities, Landlords etc.

• Establish and coordinate PMTE governance structures.• Develop and operationalize PMTE policies and procedures.• Facilitate operationalization of PMTE to PMGC.

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7. PMTE Transitional StructureChief Investment Officer

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• Highly specialised Chief Operations Officer type position in Asset Investment and Property Management environment

• The Chief Investment Officer provides specialized executive management support to the Head of PMTE in the management of the state asset investment portfolios.

• The Chief Investment Officer (CIO) oversees a team of property investment professionals that are responsible for the management and monitoring of investment activities of the state owned properties and maintaining good relations with client departments and other key stakeholders.

• The CIO is responsible for the development short-term and long-term investment policies.

• Develop Asset Investment and Management policy and strategy.• Establish operating framework, business plans and budgets.• Develop Asset Investment Business processes, and mapping thereof. • Develop Asset Investment performance standards, operational policies &

procedures.PORTFOLIO COMMITTEE

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7. PMTE Transitional StructureProperty Management Functions at Head Office

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• Develop and review Property Management policy and strategy.• Establish operating framework, business plan and budgets.• Develop business processes, and map business processes. • Develop performance standards, operational policies and procedures.• Establish IT systems that support business processes.• Develop procurement strategy for office space and lease management

framework. • Establish and manage Centres of excellence• Develop norms and standards for property management.

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7. PMTE Transitional StructureFacilities Management Functions at Head Office

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• Develop and review Facilities Management policy and strategy.• Establish operating framework, structure, business plan and budgets.• Develop business processes, and map business processes. • Develop performance standards, operational policies and procedures.• Establish IT systems that support business processes.• Ensure compliance to relevant Building Health & Safety acts -

Building compliance & Health and safety management.• Develop environmental efficient building strategies e.g. low energy

lighting, waste collection.

PMTE OPERATIONALISATION PLAN

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8. Possible implications for Provinces

• Asset Register norms and standards as well as guidelines which may apply to provinces.

• iE-works roll out to provinces• Lease Management Framework• Guidelines on:

o Asset Investment o Property Managemento Facilities managemento Accounting Framework

• Sharing of Services• Collaboration on development, creation and use of government assets and

development of government precincts in small towns



SECTION C - FOR INFORMATION

FINANCIAL REPORT

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9. Financial Report9.1 Current Approach (Financial Model 1)

• All Functions have been transferred, but expenses related to these functions have not been transferred yet.

• Salaries still remain within DPW (PMTE staff)• Implication

o Non-itemised billing, o augmentation increasing, o increasing losses, o increasing overdraft,


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NOTES:•Salaries for PMTE personnel transferred to PMTE• Expenses related to functions included to PMTE•Augmentation decreasing•Implication

o Decreased losses from March 2015 – 2021o Reduce overdraft


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Property Management Trading EntityProjections March 2014 to March 2021

Projections Statement of Financial Performance Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000RevenueRevenue from exchange transactions 9 560 742 10 590 831 11 743 194 13 033 591 14 479 935 16 102 604 17 924 789 19 972 897 Revenue from non exchange transactions ‑ 798 560 838 488 880 412 510 627 329 255 242 267 202 654 38 269

Total revenue 10 359 302 11 429 319 12 623 606 13 544 218 14 809 190 16 344 870 18 127 443 20 011 167

Total expenses 9 197 468 12 696 091 13 458 260 14 259 949 15 121 229 16 553 772 18 175 940 20 019 750

Surplus / (deficit) for the year 1 161 834 -1 266 772 -834 653 -715 732 -312 039 -208 901 -48 497 -8 584

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9. Financial Report9.2 Financial Model 2

NOTES:•Salaries for PMTE personnel transferred to PMTE•Expenses related to functions included to PMTE•Augmentation decreasing•State Accommodation Charges 10% increase due to billing per space occupied from 2017 •State Accommodation Charges replacing private leases from 2018 by 15% per annum •Rental Debtors Charged at Market Related Rates •Private Accommodation Charges replaced by State Accommodation from 2018 by 15% per annum •Return on Investment (5% of R4 bj) •Implication

o Increased profits from March 2017 – 2021o Reduce overdraft


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9. Financial Report9.2 Financial Model 2


Property Management Trading EntityProjections March 2014 to March 2021

Projections Statement of Financial Performance Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000RevenueRevenue from exchange transactions 9 560 742 10 600 431 11 953 562 13 819 350 15 352 774 17 075 522 19 012 731 21 193 043 Revenue from non exchange transactions ‑ 798 560 838 488 880 412 510 627 329 255 242 267 202 654 38 269

Total revenue 10 359 302 11 438 919 12 833 974 14 329 977 15 682 029 17 317 789 19 215 385 21 231 313

Total expenses 9 197 468 12 696 091 13 458 260 14 259 949 15 121 229 16 553 772 18 175 940 20 019 750

Surplus / (deficit) for the year 1 161 834 -1 257 172 -624 285 70 027 560 800 764 017 1 039 445 1 211 562

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10. Conclusion

At the end of the day, the yardstick that we shall all be judged by is one and one only: and that is, are we, through our endeavours here, creating the basis to better the lives of all South Africans!

•OPENING ADDRESS BY PRESIDENT NELSON MANDELA: PRESIDENT'S BUDGET DEBATE•Cape Town, 18 August 1994


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• National Department of Public Works (NDPW)• Head Office: Public Works

CGO BuildingCnr Bosman and MadibaPretoria CentralPrivate Bag X65Pretoria0001

• Website: http://www.publicworks.gov.za

03/05/23

End

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PMTE Operationalisation