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Strategic Decision Strategic Decision MakingMaking

Joint Response Team - DWAF, SALGA, NT Joint Response Team - DWAF, SALGA, NT and dplgand dplg

Following due process to

facilitate good decision making

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Purpose of this presentationPurpose of this presentation

The purpose of this presentation is:

To provide an overview of the decisions required at various stages of a s78 process

To strengthen s78 process management and decision making

To highlight legal decisions and risks

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What does the presentation What does the presentation cover?cover?

This presentation provides an overview of the following decisions through the s78 process:

Statutory decisions - triggers, 78(2) and 78(4)

Scoping decisions

Internal assessments 78(1)

External assessments 78(3)

Mechanisms for consulting labour and the local community

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Types of decisions requiredTypes of decisions required

The S78 process is comprised of a series of statutory and strategic decisions

These decisions build on one another towards selecting the most appropriate mechanism/s for improved service delivery

In addition to the decisions set out in the legal process, s78 requires decisions about: the scope of the assessment whether and who to appoint to provide technical

assistance in undertaking the assessment selecting an internal project officer to lead the process the mechanisms to be used for consulting with labour and

the local community

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OR

Status Quo and Needs Analysis

Macro Scoping

Internal Assessment section 78(1)

Implement Internal Mechanism

S78 Process

External Assessment and Feasibility Study

section 78 (3)

Implement External

Mechanism

T R I G G E R S

S78 (4) decision

S78 (2) decision

Terms of ReferenceTerms of

ReferenceInception

ReportInception

Report

Status Quo

Report

Status Quo

Report

Internal Assessment

Report

Internal Assessment

ReportExternal

Assessment Report

External Assessment

Report

Stakeholder involvement

Stakeholder involvement

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Statutory decisions required

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What are the statutory What are the statutory decisions?decisions?

The Systems Act requires 3 major decisions when choosing mechanisms for service provision: Decision 1: Must a S78 assessment be conducted?

Decision 2: Should an internal mechanism be selected without considering external mechanisms?

Decision 3: Should an internal or external mechanisms be selected?

We call these ‘Statutory Decisions’ because they are required by the Municipal Systems Act

Other strategic decisions are also needed in order to make a good informed decision, but these decisions are not required by legislation

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Conduct section 78?

DECIDE EXPLORE EXTERNAL

MECHANISMSSELECT APPROPRIATE INTERNAL MECHANISM 2

Implement appropriate internal mechanisms

Assess external mechanisms

DECIDE

INTERNAL MECHANISM

EXTERNAL MECHANISM

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DECIDE

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Decision 1 - To conduct a S78? Decision 1 - To conduct a S78?

A municipality must review and decide on appropriate mechanism/s to provide a municipal service in the municipality or a part of the municipality when –

A review is required by an intervention in terms of the Constitution

A new municipal service is to be provided

Requested by the local community through mechanisms, process and procedures established in terms of the Municipal Systems Act

A review of its IDP requires a review of the delivery mechanism

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Decision 1 - the Section 77 Decision 1 - the Section 77 TriggerTrigger

If a municipal service is provided internally – do a section 78 when:

The existing service is to be significantly upgraded, extended or improved or

A review is required by the performance management system

The municipality is restructured or reorganised in terms of the Municipal Structures Act

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Decision 1 - the Section 77 Decision 1 - the Section 77 TriggerTrigger

If a municipal service is provided externally – do a section 78 when: A review of the SDA is required by the

performance management system, or

The SDA is likely to terminate within 12 months, or

The existing service is to be significantly upgraded, extended or improved – beyond the terms of the SDA

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Guidance on Decision 1Guidance on Decision 1

Decision 1 can be difficult – particularly when the current mechanism is internal

For example, when is a service significantly upgraded, extended or improved? Judgment must be exercised

Note that a s78 process is not for functions that are not “municipal services” , e.g. credit control functions, meter reading

Legal Risk: If a decision is taken not to conduct a s78 process, this can be challenged. Advice

should be obtained if there is uncertainty.

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Decision 2Decision 2

Decision 2 is required by section 78(2) of the Systems Act

After conducting an internal assessment, a municipality may: Decide on an internal mechanism or

Explore external mechanisms

The decision in section 78(2) is really a decision to postpone the final decision about what kind of mechanism should be selected. It is a decision to get more information before making the final decision

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Decision 3Decision 3

Decision 3 is required by section 78(4) of the Systems Act and is the final decision on an appropriate internal or external mechanism

The municipality must make a decision at this point – it cannot choose to leave the matter undecided

It could, however, request further information before making the decision

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Who Makes These Decisions?Who Makes These Decisions?

Municipal Councils must make the statutory decisions

The decision to enter into a service delivery agreement (SDA) with an external mechanism cannot be delegated to any committee of Council, e.g. the Mayoral Committee or Exco or a s80 “portfolio” committee

However, Decision 1 and Decision 2 can be made by a Committee of the Council

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How are these decisions made?How are these decisions made? Section 78 sets out the process for making Decision

2 and Decision 3 - these decisions cannot be made using any other process

For example, it is not possible to make Decision 3 without first considering internal mechanisms. It is also not possible to make Decision 3 without (a) consulting organised labour, (b) consulting the local community and (c) conducting a feasibility study

These are called “mandatory procedures”

Legal Risk: If a municipality does not follow the mandatory procedures before making a decision

– the decision could be invalid.

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Decisions can be challengedDecisions can be challenged

Decisions may be challenged if they are made without following the requirements of the legislation - “mandatory procedures” must be followed

However, the grounds on which a decision can be challenged are complex and advice should be obtained if an entity seeks to challenge a s78 decision

At this stage the key challenge is from organised labour – who have taken the City of Cape Town, for example, to court twice already

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Enhancing Decision MakingEnhancing Decision Making

Because a municipality must exercise its judgment before making a decision, it must be fully informed of all the issues

The purpose of s78 reports is to provide a full briefing on these issues

Decision making can be enhanced by creating steering committees or stakeholder committees to consider issues along with the consultants writing the s78 reports

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Scoping decisions

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The importance of macro The importance of macro scopingscoping

Before undertaking a S78 process, the munciplaity needs to think holistically about service delivery and understand its needs and challenges, as well as the desired outcomes of the assessment

Macro scoping enables the municipality to decide:

The area where the services will be provided

The needs that the mechanism should be designed to address

The different service delivery mechanisms or options

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Section 78(1) process and decisions

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The ProcessThe Process

Section 78(1) requires an assessment of:

capacity – both current and potential future capacity -- to provide the service internally

the views of organised labour

direct and indirect costs and benefits – note that consideration should be given to both financial and non-financial benefits

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The S78 (1) decisionThe S78 (1) decision Before taking a final decision to go internal a

municipality can explore the possibility of providing the service through an external mechanism

A municipality can still implement an internal mechanism after exploring external mechanisms, although a lot of time and cost will have been spent exploring external options

A municipality will not know if there are benefits and efficiencies from restructuring to another entity (e.g. regional), unless it explores external options

s78(3) provides information to compare internal and external options before Council takes a final decision

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Section 78(3) process and decisions

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External AssessmentExternal Assessment Section 78(3) is the process a municipality must embark upon

if it wants to explore the possibility of providing a service through an external mechanism

Section 78(3) is far more rigorous than s78(1)

It requires an assessment of all 6 external options

It also requires:

An assessment of the views of local communities

A further assessment of the views of organised labour

A detailed feasibility study

Regulator involvement

Consideration of issues required in a Service Delivery Agreement if an external mechanism is chosen

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Steps of an external Steps of an external assessmentassessment

ASSESS the 6 legislated service delivery options against

legislated criteria and against

the service delivery needs and challenges of the area

Take into account the VIEWS of the local community and organised labour when assessing the options

Conduct or commission a FEASIBILITY STUDY of preferred mechanism/s

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External assessment criteriaExternal assessment criteria

Each option (municipality, municipal entity, NGO, CBO, organ of state, or private sector operator) must be assessed against: Direct and indirect costs and benefits

Capacity and potential future capacity of prospective service providers

The likely impact on development, job creation and employment patterns

The views of the local community and organised labour

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The Feasibility StudyThe Feasibility Study

A Feasibility Study should include: Developing a financial model Testing sensitivity of assumptions Addressing legislated criteria Articulating non-financial costs and benefits

Key issues: Value-for-money: will there be a benefit (in

financial and non-financial terms) if there is change as a result of restructuring

Affordability: an external service provider does not divest the municipality from understanding and supporting how the provision of services is to be funded (funders will not lend money unless they can be sure it will be repaid over time)

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Feasibility Study issues to be Feasibility Study issues to be assessedassessed

Assess how the preferred mechanism will: Provide value for money

Address the needs of the poor

Be affordable

Transfer risk

Consider the projected impact on the WSA's: staff, assets and liabilities

IDP

Budget (impact on revenue, expenditure, borrowing, debt and tariffs)

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The Service Delivery Agreement The Service Delivery Agreement “SDA”“SDA”

The key difference between an internal and external mechanism is the SDA

The SDA regulates the relationship between the WSA and the WSP

It sets out who has to what and when

There are “generic” types of SDAs

Each WSA must ensure that its SDA is appropriate to its specific needs, risk allocation, and also allows the WSA to “ensure service delivery”

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Which Service Delivery Mechanism is Which Service Delivery Mechanism is for you?for you?

The type of output specification (i.e. what the WSA wants to achieve through the service delivery mechanism) and the risk transfer will influence which external mechanism is appropriate for your needs

The communities’ needs should drive the assessment of external mechanisms, rather than the other way around!

Review s81 of the Municipal Systems Act and s19 of the Water Services Act

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What to think about when What to think about when considering external considering external

mechanismsmechanisms Affordability – matching needs (service levels)

against revenue (tariffs collected and grant funding)

Securing and allocating grant funding – MIG for capital expenditure for the poor

Formula for allocating equitable share to WSP to provide free basic services

Responsibility of WSP to collect water revenue

Consolidated invoice or separate invoices

By-laws in place to allow revenue collection and credit control

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Consultation processes required

Assessing the views of organised labour and the local community

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Involving labourInvolving labourLessons learnt:

If the views of labour are not adequately assessed, s78 decisions can be challenged

Employees need to be kept informed

Good governance is needed to create a positive environment for s78 assessments

Labour consultation should be seen in the context of change management and not merely as legal compliance

Local labour forums should be used to deal with employer-labour issues

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Recommendations for Recommendations for involving labourinvolving labour

A labour engagement strategy is needed upfront

Involve labour from the start although this is not legally required

S78 requires that the views of labour are assessed through effective information exchange with reasonable timeframes – it does not require a bargaining process

Labour relations officer or appointed official should engage directly with labour, not consultants

Engagement with labour should happen through existing channels such as the Local Labour Forum

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In most circumstances, unions should not be consulted separately - this can lead to mistrust

Engagement with labour to be based on accessible documents and the process to be properly documented

Engagement with labour to happen ‘informally’ through steering committee representation AND formally through labour forums

S78 requires that the views of labour are formally assessed when (i) an internal mechanism decision is taken and (ii) if external mechanisms are assessed

Recommendations for Recommendations for involving labour (cont.)involving labour (cont.)

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Community participation Community participation Section 78 (3) requires that the local community is

given notice if external mechanisms for service delivery are to be explored

Chapter 4 of the Systems Act obliges municipalities to:

encourage and create conditions for the local community to participate in the affairs of the municipality, including in strategic decisions relating to the provision of municipal services,

contribute to building the capacity of the local community, councillors and staff to enable participation, and

use its resources and budget to implement community participation

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Why is community participation Why is community participation important?important?

Community participation:

increases community responsibility as consumers

strengthens participatory governance

strengthens problem solving and participatory skills and abilities

increases the likelihood of community satisfaction with water services

helps identify and mange potential areas of conflict

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How should communities How should communities participate?participate?

Participation must take place through political structures in terms of the Structures Act such as Ward Committees

In addition, municipalities must establish appropriate mechanisms, processes and procedures to enable communities to participate, such as:

public notification and comment

public meetings and hearings

consultative sessions with locally recognised community organisations and traditional authorities where appropriate

report back

The special needs of people who cannot read or write, people with disabilities, women and other disadvantaged groups must be taken into account

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Implementation Considerations

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What decisions follow the What decisions follow the assessment?assessment?

Important decisions must be made after the s78 assessment has been concluded.

If an internal mechanism is selected:

Resources must be allocated to the provision of the service – this involves budgetary, planning and human resources decisions

If an external mechanism is selected:

A procurement process must be conducted – this may involve the appointment of consultants and a decision about which bid to accept following a procurement process

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Implementation… Life after s78Implementation… Life after s78

The WSA remains the authority responsible for ensuring service delivery

Some considerations regarding implementation:

Monitoring capacity

Contract Management Plan

Performance capacity: budgets, tariff setting, passing and enforcing by-laws

Customer Care

Political Support

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Thank You