1 Strategic Decision Making Joint Response Team - DWAF, SALGA, NT and dplg Following due process to facilitate good decision making

2 Purpose 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

3 What does the presentation 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

4 Types 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

5 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 TRIGGERSTRIGGERS S78 (4) decision S78 (2) decision Terms of Reference Inception Report Status Quo Report Internal Assessment Report External Assessment Report Stakeholder involvement

6 Statutory decisions required

7 What are the statutory 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

8 Conduct section 78? DECIDE EXPLORE EXTERNAL MECHANISMS SELECT APPROPRIATE INTERNAL MECHANISM 2 Implement appropriate internal mechanisms Assess external mechanisms DECIDE INTERNAL MECHANISM EXTERNAL MECHANISM 3 DECIDE 1

9 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

10 Decision 1 - the Section 77 Trigger 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

11 Decision 1 - the Section 77 Trigger 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

12 Guidance 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.

13 Decision 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

14 Decision 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

15 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

16 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.

17 Decisions 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

18 Enhancing 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

19 Scoping decisions

20 The importance of macro scoping 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

21 Section 78(1) process and decisions

22 The 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

23 The 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

24 Section 78(3) process and decisions

25 External 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

26 Steps of an external assessment 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

27 External 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

28 The 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)

29 Feasibility Study issues to be assessed 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)

30 The Service Delivery Agreement “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”

31 Which Service Delivery Mechanism is 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

32 What to think about when considering external mechanisms 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

33 Consultation processes required Assessing the views of organised labour and the local community

34 Involving labour Lessons 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

35 Recommendations for involving 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

36 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 involving labour (cont.)

37 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

38 Why is community participation 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

39 How should communities 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

40 Implementation Considerations

41 What decisions follow the 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

42 Implementation… 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

43 Thank You