Department of Labour briefing on progress made with Information Communication Technology (ICT) transition

Meeting report

Opening remarks
The Chairperson lamented the fact that the presentation was not very clear on factors that influenced the Information Communication Technology (ICT) strategy of the Department of Labour (DoL).  He suggested that the Department should try to highlight the strategic areas, so that focus was given to those areas that were relevant to the purpose of the meeting.

Department of Labour presentation
Mr Nkosinathi Nhleko, Director General (DG): DoL, said the Department had entered into a termination support period of 12 months, within which the current service provider had to deliver on the outstanding deliverables. It was expected that the contractor would deliver in terms of the public-private partnership (PPP), and hand the ICT environment back to the DoL.  Delivery aspects of the contract included such matters as the institutional memory, in terms of information, licences and contracts.

At its last appearance in Parliament, the Department had indicated it had finalised the ICT strategy, but also that it would look at a combination of multi-vendor and in-house resources for ICT services. It was stated that PricewaterhouseCoopers (PWC) had been appointed as transaction advisor to develop specifications for tenders. The expectation was that PWC would assist with the process of service agreements and that tenders would be issued.   The DoL had reviewed its situation and some issues had cropped up. The presentation dealt with these matters.

Mr Vikash Sirkisson, Acting Chief Information Officer (CIO): DoL, said the original intention was to develop an ICT strategy and move towards a future ICT landscape. The strategy contained two approaches -- a multi-vendor environment, and an in-house capability. In order to achieve this, PWC had been appointed as an advisor. There were factors that had impacted on the strategy, such as compliance with the State Information Technology Agency (SITA) Act, the budget, and Section 197 of the Labour Relations Act (LRA). With three months to go, there had been deviation from the strategy and the Department still needed to stabilise its ICT service.

The SITA legislation required that Government departments acquire certain services from or through SITA. The Department had a limited budget for ICT, and as a result had had to prioritise which services could be pursued. The LRA Section had had to be factored in, in order to understand which resources had to be taken over by the Department.

One of the key risks to the future ICT environment was the fact that there was no adequate funding for the ICT strategy. The Department had to rationalise the current funding and prioritise ICT continuity. There was insufficient time for a transition period and an adequate handover process.

Mitigation of these risks would have included taking the resources of the EOH consultancy company in to the DoL establishment, and that would come with the necessary intellectual property that was required. There was no IT continuity plan for when the EOH contract came to an end in November 2013. That would be addressed during the process of absorbing EOH’s resources (staff complement). However, SITA was also assisting, as a further contingency plan.

Four options had been looked at to address DoL’s strategy in delivering ICT. The first one was bringing in resources through LRA’s Section 197 to provide IT services, and for SITA to provide outstanding services that fell within its mandatory services. This was a feasible option as it would allow DoL to have IT continuity and stabilisation post-November 2013 - the termination date. The second option was to have SITA take on the IT services with EOH resources. This was not feasible, because SITA had gone through its own transformation and already had redundant staff. Thirdly, the plan would have been to appoint SITA as full IT service provider. This was also not feasible, given SITA’s human resource challenges. Lastly, taking on EOH’s resources through Section 197 had been considered. This required the Department to take on all EOH resources in terms of the Section 197, and have a full internal staff complement to provide all IT services.

The DoL had looked at its internal employee relations and legal services in terms of Section 197, and had concluded that it was applicable in this case. External senior counsel advice had been sought, and it was agreed that Section 197 was applicable. EOH also had sought external legal advice, and that also supported the view. In terms of Section 197, neither party could choose which resources it wanted. All the leave accruals and pension funds needed to be transferred to the DoL, and terms and conditions of employment had to remain unchanged.

The Department was compelled, through Section 197, to take over EOH resources and this was the most complex and time-consuming option, which had the potential to become protracted.

The Chairperson interjected and said EOH had been described as a company that provided services to DoL when the Committee had visited the Department in Pretoria. But now, continual reference was being made to “EOH resources”.   He asked for clarification.

Mr Sirkisson replied that EOH was the partner that provided termination support to the Department for the IT services. The “resources” referred to were the people the company employed to provide the service to the Department.

He continued with the presentation and said a three-phased process was planned for the take-on. First, it would be the management layer, then the critical staff and lastly, the balance of staff. The Department was very low on internal IT skills. The delay in implementing LRA Section 197 might affect the transfer of employees, as well as possible litigations resulting from the process, and insufficient budget.

Mitigation strategies had included establishing a dedicated human resource management team to manage Section 197 processes. Various skills from different units, such as legal, employee relations and human resources, had been drawn into the team, and they would ensure proper implementation of Section 197. The Department was also rationalising funding for ICT continuity.  The team was finalising matters, and there was continuous risk monitoring and management. The services of PWC had been terminated as they would no longer be required. Focus would be given solely to the staff take-over and IT continuity. No tenders would be issued, and DoL would liaise with SITA for additional services. The Department had stopped all current appointments in the ICT; the take-on would fill the structure. One key implication was that there would be an increased unfunded financial burden on the DoL and its entities.

The DoL had finalised a paper on how Section 197 should be applied, but was challenged as to how over 200 employees would be accommodated in 131 positions. The Department intended to take-over operational staff, while the view of EOH was that all staff needed to be taken over. Coupled to this challenge was the fact that some EOH employees earned above the government-approved salary scales.  The DoL would be responsible for the EOH PPP employees if agreement was not reached by 30 November.

Mr Nhleko said the Department had finalised the ICT strategy, and that it had been approved. Components of the strategy were being implemented, but this was dependent on the availability of funds.  Four employees at EOH were paid a salary equivalent to premiers; below them, 12 employees received salaries equivalent to DGs; and 22 were at salary levels of Chief Directors. The pyramid was misaligned all the way down. Section 197 had huge implications for the Department from a financial and structural point of view. He replied to the questions that had been sent by the Committee regarding the ICT contract and EOH.

Discussion
Mr R Ainslie (ANC) commented that the comments made by the DG, and his responses, appeared to contradict the presentation and were mostly not in the presentation. It would have been very useful to have an updated presentation.

Mr Nhleko replied the comments he made were extracted from the presentation. This was not different information.

The Chairperson interjected and said the information had been lifted out of the presentation. It would have been more useful if the information had been condensed into one presentation. It was a limitation not to have those areas that had been lifted out of the presentation, as they were crucial to the meeting.

The DG apologised and requested that all of the information be made available to Members.

The Chairperson clarified to Members that in essence the Department was saying a contract amounting well over R2 billion had failed to see a skills transfer over a period of ten years. There were three months to go to the termination period.  Furthermore, the DoL was saying now that the contract was coming to an end, it had to absorb employees of Siemens – a private company bought by EOH. The wording of the contract obliged the Department to take on the staff from that contract.

Mr Ainslie reiterated his comment that there was no synergy between the presentation and the DG’s responses. He cited an example of the risk of a non-existent IT continuity plan after the EOH contract. This had not been stated anywhere by the DG, and yet it had been identified by the Auditor General (AG) as the major problem. The IT Director position that ought to have been filled had not been filled up to now. Why was the non-existence of an IT continuity plan for after the EOH contract no longer a risk?  Had the AG’s concerns been addressed?

Mr Ainslie asked if it was not part of the scope of the Siemens EOH contract to develop an IT strategy in the 11 years of the contract. What were these people being paid for?

Mr Ainslie sought clarity on the role of PWC. There seemed to be a discrepancy between what had been said and what was contained in the presentation, and what the DG had said. The presentation indicated a range of tasks that PWC was meant to undertake. Were PWC still developing specifications; and why was there no in-house capacity for this function?  The DG had indicated that tenders were no longer going out, and based on the fact that PWC no longer had work, what were they doing?

Ms M Mangena (ANC) sought clarity on what the acronym EOH stood for.  Would the government still be paying them after the contract had terminated?  What would happen to EOH if the DoL refused to take their employees on board?  Could the Department cope with paying four officials at the salary scale of premiers, and 12 on the salary scales of DGs?  What were the implications of such an eventuality?

Mr N Singh (IFP) agreed with the Chairperson’s conclusion that DoL was obliged to take over the EOH staff at the salary scales that had been quoted. This appeared to be robbery.  The government only realised after 11 years that it had created a monster, and that National Treasury (NT) was part of it. Now the departments appeared confused as to what the next course of action should be, especially that the contract had not provided the service. Departmental entities had failed in the IT sphere because of this contract’s inability to deliver.

Mr Singh commented it was unfair for DoL to subtly seek approval for going ahead with the implementation of the programme from the Committee. He requested that NT and SITA comment on the matter, especially as many departments had complained about SITA’s delivery record.

Mr Singh asked if the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF) were involved at all in the process, as these were entities that were blamed by Parliament when things went wrong.

Mr S Motau (DA: PC Labour) said the issue of the R2 billion contract had been a source of his quarrel with the Department. A substantial amount of money had been spent and yet there was nothing to show for it.  The DoL should explain why it would want to host EOH, on a non-tender basis, while there were suspicions about how EOH had got into the picture. Unless the situation was contained, it would continue to cost the Department. The DoL did not seem to have learnt a thing from the initial PPP contract with Siemens.

Dr P Rabie (DA) asked who the principal agents were that had initiated the PPP contract. It would seem that nothing had really changed, as the termination support period favoured EOH and Siemens and was likely to cost the tax payer billions of rands.

DG overall responses
Mr Nhleko replied that there was no contradiction in what he had said and what the presentation contained in so far as risk was concerned. The DoL had said before -- at the initiation stages of the PPP -- that the Department did not have an in-house capacity. Some of the positions required highly competent and skilled people. This was not a new challenge to the Department, but had occurred over the years. It was on this basis that PWC had been asked to come into the picture, and they had been asked to assist as the transaction advisors from the current PPP to the demands of the current strategy. When these matters were being reviewed, the DoL had begun to address all the constraints, and a change in approach had then been decided upon.

The Chairperson interjected and said the central theme to all the questions that had been raised sought to establish three things: firstly, DoL’s assessment of what the deficiencies of the PPP were; secondly, the gaps and lapses that were there at the Department that hindered the PPP; and thirdly, the challenges that were currently being faced. This would allow Members to put into context all the things that the Department was currently doing with regard to this contract.

Mr Nhleko replied the question was difficult, because it required a thorough and detailed analysis. A report that took stock of the whole range of issues had been produced towards the end of the PPP contract. The DoL had been honest about its challenges, including the fact that it had no capacity to manage the PPP contract. In terms of physical resources, the Department was too thin. A number of the issues had been there over a period of time. It would have been very useful to do an overall analysis of the PPP.

The Chairperson interjected and said if a review of the overall intention of the PPP were to be taken, it meant the history of the contract had to be understood. All the questions that had been asked were about establishing why the Department got into this situation. The historical understanding was crucial, and would clarify matters for everyone.

Mr Sirkisson replied an analysis had been done on the PPP and the lessons learnt. Some of the issues that had come out of that process included relationships breakdown between the two parties. The second high level finding was the lack of functioning ICT governance to manage the PPP.  Thirdly, there had been little involvement by management in the PPP and a lack of capacity to manage the contract at DoL. Only three people had managed the R2 billion contract over a ten year period.

The Chairperson asked what the deficiencies in the contract itself were.

Mr Sirkisson replied that the contract was favourable to Siemens, and that Siemens was not the right service provider. This was a global company that specialised in providing machines and boxes, and not systems development. Also, the contract was for a long period -- ten years was too long in the IT sphere. This was such a dynamic and changing environment. Although the contract made provision for some reviewing, it was generally skewed.

Mr Nhleko said regarding the question on Section 197, the DoL hoped that it would not have to go the legal route with EOH. This was the reason the Department was in discussions about absorbing their staff. The legal route was undesirable.

The Chairperson interjected and said the official had failed to address the question of how the Department had become locked into conditions by EOH and Siemens. Was this because DoL had failed to develop internal capacity or was it because of DoL’s lack of understanding of the law?

Mr Nhleko replied he was simply giving a qualification to a question on legal footing. This had nothing to do with legislation, but the whole question of building internal capacity. In the main, it dealt with how the PPP contract expected parties to deal with the question of the hand-over of services.

The Chairperson asked what the contract said in respect of the hand-over.

Mr Ainslie commented that EOH’s staff was their staff, and when the entity left, their staff left as well. Could the official explain what the contract said in this respect.

The Chairperson sarcastically said this was a most expensive question.  The Department should have known how it was bound to absorbing staff that would cost millions.

Mr Sirkisson replied that Section 197 of the LRA stipulated that if an organisation provided a service to the Department, then it ought to take over the resources that had been providing that service. This was a prescriptive section in Section 197.

Mr Bheki Maduna, Chief Finance Officer (CFO): DoL, clarified that when the PPP contract was concluded, all departmental staff in the IT Section had been transferred to Siemens. This gave rise to Section 197 being invoked.  If the Department wanted that service under its control, it had to take into consideration the fact that it had to take back the employees it had placed in the contract. These employees were now EOH’s, but were initially DoL employees who had been transferred only when the PPP contract had been finalised.

Mr Singh interjected and wanted to know if the agreement addressed the issue of taking the employees back with high salaries.

Mr Maduna confirmed that they would be taken back with high salaries. The DoL could not put the employees in a disadvantaged situation.

The Chairperson said this explanation cleared up the matter, but the Committee did not agree.

Mr M Nchabeleng (ANC: Chairperson PC Labour) said the last time the Labour portfolio committee had been briefed on the matter it had been indicated that DoL’s staff had resigned from Siemens, citing reasons of being frustrated by the environment. How confident was the Department that all of the senior managers at EOH contract were those that were formerly employed by the Department. It was possible that there were people who were never employed by the Department. He found it strange that the DG would act surprised by the figures quoted as salaries of these employees. When the Department signed the contract, it should have known better and adjusted its budget accordingly.

Mr S Thobejane (ANC) asked if the Department had asked to brief the Committee out of its own volition. If the request had come from the Department, where was the Minister?  Was the Minister even aware of the briefing?   Why was the Committee not being given the contract documents?  This was important, as they contained the crucial details that would help explain some of the things that the officials seemed to struggle with. Who had advised the Department to enter into this contract? How was the decision to award the tender arrived at?  Were such officials still in the Department’s employ? Could light be shed on these officials and their whereabouts.  It was possible that the officials who had signed were part of EOH’s management, and now wanted to come back.  Was absorbing staff from EOH something that was stipulated in the contract, or it had just come up now?

Ms T Chiloane (ANC) sought clarity from the Chairperson on whether, by giving the briefing to the Committee, the Department was looking for an approval.

The Chairperson replied the Department had asked to give the Committee information, and it was getting that information.

Ms Chiloane wanted to know who would do the ICT work once the agreements had been finalised. She said the question was informed, in part, by the statement that there were discussions to have SITA fulfil other IT requirements.  She asked if stopping all current appointments related to the ICT staff that had been transferred to Siemens, or to the Department generally.

Dr D George (DA) sought clarity on why senior management had never monitored the contract more closely, especially as the contract was highly strategic and expensive. Some executive should have realised that this account needed scrutiny, given the controversy around it.  Why was no one being held to account?

Mr D Kganare (Cope: PC Labour) sought clarity on the standing of the EOH employees in terms of seniority.  The DG had been talking about the Department’s concerns, but had provided very little information on the steps the Department was taking to normalise the situation.

Mr Nhleko replied that appearing before the Committee was merely to update Members on developments around the contract, particularly as Parliament had been briefed on the matter before. When the Department appeared before Parliament and indicated what its objectives were, it was also incumbent upon the Department to come and account once it had hit a snag or if there were any changes to the eventual output. The DoL believed it was proper to come and brief Parliament on the factors that were impacting on the PPP. The Department did not need any approval.

Mr Nhleko said in regard to the way forward, there were ongoing engagements, and SITA was also assisting. There was only one outstanding claim. There had to be a strategic engagement at senior management level of the Department and EOH.    The ten year period and the R2 billion was a bit much, but IT services were extremely expensive.

The Chairperson interjected and said the outcry was not so much about the price tag, but rather about what had been achieved out of that amount.

Mr Nhleko said the salary bill for these employees was understandably high, because IT companies paid very well. The termination support agreement actually flowed from the PPP. The Minister had been briefed, and was aware of the briefing in Parliament. The contract documents were quite voluminous, but the Department would make those available to the Committee. At an executive level, emphasis had been on the ICT strategy, rather than closely monitoring the contract.

Mr Singh said it was concerning how the EOH came into the contract, especially as the presentation indicated EOH had become involved towards the end of the contract. How close to the end of the contract was this?

Mr Sirkisson replied that the UIF and the CF had been part of the PPP contract from its inception. The contract had been split over the three entities -- the CF, UIF and the DoL.  EOH’s involvement in the contract followed their purchase of Siemens as a “global solutions” IT company.   The PPP had been signed in November 2002 by the then DG, Mr Rams Ramashiya, and he had been advised by Dr Haasbroek (CIO).

SITA input
Mr Freeman Nomvalo, Chief Executive Officer (CEO): SITA, said the entity had not engaged the DG on the issues, which made it a bit more difficult to make an informed comment. The issue around the PPP should be considered, but also whether SITA should have played a role or not. The SITA Act had been amended in 2002 and that brought about the dispensation existing now. The PPP contract had been concluded around the same time. The Department had used legislation to conclude the PPP on its own, even though the SITA had been around.

SITA had tried several times to meet with the Department on the matter. The first interaction with the Department was in regard to the renewal of the contract in 2011. SITA as an institution had its own challenges, and whether it would have been able to do the work or not was hypothetical. The reason SITA had reached out in 2011 was because it took time to come up with implementation plans for a project of this nature. This was a massive task that required resources. One needed to plan properly and resource the organisation adequately.

A letter had been received from the DG at the beginning of the year in this regard, but there had not been time to meet. Communication from the Department had been received only in August, to clarify what the DoL required from SITA. It was apparent that SITA might be the fall back option, in an event that Section 197 -- an option that the Department looked to take -- failed. He cautioned that the fallback position would have ramifications, because SITA needed to have time to put in place proper processes and a proper plan. This would be a massive undertaking.  SITA had its own challenges that had not yet been resolved.

A meeting was required with the DG to look at what role SITA was expected to play in this matter; as this posed serious challenges. Everyone ought to understand the existence of the PPP in the context of the fact that the SITA Act had changed. At some stage, SITA would have to engage the Department on challenges associated with undertaking such a massive project. The comment that SITA costs were expensive ought to be dealt with as a fact, rather than a supposition.  It helped when one spoke from an informed position.

Mr Nhleko said the Department would not opt for SITA taking the IT services over from EOH, as it was going through its own transformation, and was challenged for human resources.

Mr A van der Westhuizen (DA: PC Labour) alerted the Committee that he had a hard copy of the contract and all the relevant annexures. This was not a huge document, as earlier suggested by the officials. The annexures dealt with the staff being taken over by Siemens. When the agreement was signed there had been three options, and at least one had not been mentioned. The Department could have terminated the contract after four years, by giving an appropriate notice to Siemens. Secondly, it was envisaged that the contract could be renewed after ten years. Again an appropriate notice period had to be given. Thirdly, the Department could go out to re-tender, if it so wished. The agreement dealt only with staff transfers from the Department to Siemens, and not what the DoL had said.

LRA’s Section 197
The Chairperson sought clarity on Section 197 especially as the Department looked to go that route. It appeared this was the only way the Department could move forward.

Mr Sirkisson said Section 197 dealt with the transfer of a business or a service and the rights and the obligations of the employer and employees involved in that transfer. In the case of this contract this meant that the resources providing the service to the DoL had to be taken over by the Department.

The Chairperson asked why the Department should take over the employees.

Mr Sirkisson commented he was no legal expert, but would try to clarify.

The Chairperson asked if there was no expert in the Department, and if so, why was this the case, given the size of the delegation.

Mr Sirkisson referred Members to Section 197 (3) and read it out:

If a transfer of a business takes place, unless otherwise agreed, the contract of employment in existence immediately before the transfer automatically transfers to the new employer.

Mr Sirkisson said the service that had been offered by EOH had been automatically transferred to the Department.

The Chairperson interjected, and said the problem that Members grappled with was that officials had not been honest in highlighting their own failure to develop capacity in the ten years of the PPP.  Now that the contract was coming to an end, the DoL realised it still needed the continuity of the services, but it did not have capacity. The resulting situation was that the Department had been left with an option to go out to tender or invoke Section 197.  The DoL could simply have outlined the reasons for not going out to tender, and why it had opted for the Section 197 route. This would have cleared issues.  Section 197 was there and would not be changed. Why did the Department choose that route, and not go out to tender?

Mr Maduna replied that Section 197 was not an option for the Department.  The section stipulated that at the end of a contract the Department was obliged to reconsider those employees.

All Members disapprovingly shook their heads and indicated this was not what the section said. One Member said out aloud that this was a lie -- the Act was right in front of Members and that reference in the Act applied only to businesses. Government was not a business.

The Chairperson asked where the obligation came from.

Mr Maduna replied from the contract.

The Chairperson said that if the annexures had been presented, it would have been very beneficial to the meeting. The Section 197 had been imposed on the Department because of a contract signed in 2002, and the Department could not consider the option of going out to tender because it might well be taken to court for breach of contract.

Mr Singh said the statement that there was an obligation on the Department ought to be researched, especially as the section had a provision that said “unless Section 7 applied”.

The Chairperson said it was important that the annexures and the copy of the contract be made available to the Committee. It was important to verify the statement that Section 197 had been imposed on the Department. The Portfolio Committee should look into this matter. It was not clear whether the Department had deliberately come late to Parliament, with only three months of the contract left. He hoped the Portfolio Committee would interact continuously with the Department on the matter, and specifically determine if this had been imposed, or whether DoL had entered into it wilfully.

Mr Kganare asked if the EOH had been established for this particular contract, or if it had other clients in the industry.

Mr Sirkisson replied EOH existed in the industry before they bought Siemens, and that they were in the top three ICT companies that existed in the country.

Mr Kganare asked why EOH, if it existed and was an independent company prior to the contract, would want to do away with its staff complement.

Closing remarks
The Chairperson sought clarity on whether the five outstanding systems, with only three months left of the contract, constituted a breach of contract. He lamented the challenge that the Committee on Public Accounts encountered, of not meeting regularly with departments. By the time the Committee became involved, a lot had gone wrong.    

Mr Nchabeleng thanked the Committee, and said this was also an eye opener to his Labour Portfolio Committee, which would be following up on issues that had been raised.

The meeting was adjourned.