Tighter leasing plan to save state 20%

Posted On Tuesday, 13 December 2016 11:26 Published by
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Department of Public Works starts renegotiating its leases with PIC as part of the government's drive to effect R25bn in savings over the medium term.


The Department of Public Works has started renegotiating its leases with the Public Investment Corporation (PIC) as part of the government’s drive to effect R25bn in savings over the medium term.

Public works is the custodian of the government’s R112bn domestic property portfolio, which includes Parliament, the Union Buildings, official residences, parliamentary and ministerial villages and other properties across the country.

Paul Serote, head of the department’s Property Management Trading Entity, said on Sunday an internal investigation had shown the state was paying rentals that were 45% above market-related prices for more than 56% of its portfolio.

The department is working with the Treasury to implement the government’s new property management strategy, which involves the renegotiation of leases and property disposals and acquisitions.

The negotiations with the PIC, from which the department leases buildings across SA, and other landlords would result in a cost saving of at least 20% in the immediate term, Serote said.

“The programme just kicked off. The finance minister said in 2015 already that the government would renegotiate its leases,” he said.

A negotiating team, on which the Treasury also serves, has been set up to lead the process.

Negotiations over leases, which started last month using a price benchmark that takes into account the age and state of facilities, will wrap up next March. The team will also work on broader reforms.

This is part of the Treasury’s drive to clean up state procurement, which has been mired in inefficiencies, riddled with corruption and has resulted in the government losing hundreds of millions of rand.

A new state procurement framework for leases would come into effect next March or April, Serote said.

The government had been hit hardest by lease escalations that were determined before it had entered into agreements with landlords, he said.

Last month, the department devised a new pricing benchmark and began assessing facilities before entering into new lease agreements. In the course of its probe, the department discovered it had a surplus of residential properties in its portfolio. Some of this is in the former homelands and is vacant.

The department defined surplus stock by the number of vacant state-owned properties and those leased to individuals, Serote said. No properties had been identified for disposal yet.

Statistics SA’s new R1.4bn office block, at Salvokop near Pretoria, is being opened officially on Monday and consolidates all of the agency’s operations under one roof.

The Department of Public Works will be developing a further 350,000m² of office space as part of the next phase of Salvokop, as well as about 350,000m² in the northern gateway for user departments.

Treasury chief procurement officer Kenneth Brown said contract management had tobe improved because “it is poor and costing government a lot of money”.

He said the finance minister had said “we must save R25bn in three years”.

As part of that process, the state was renegotiating big property contracts, he said.

“We are finalising a property management strategy, which looks at leases, the acquisition of property and the disposal of property. We are working with the Department of Public Works, and are providing support and guidance in renegotiating the government’s leases,” he said.

Many landlords had bought into the strategy, with some offering 15% to 20% discounts on leases, provided the lease terms were extended.

The department and the Treasury were also examining the state’s property portfolio.

“The government spends R13bn to R14bn a year on maintaining the properties it owns,” Brown said. “If it were to dispose of some of these, it would save a lot of money.”

Several properties the government leases had been identified as suitable for ownership.

“Look at the Treasury building, for example. We have been there for years and paid [for it] over and over again. The question then arises, where do we purchase and own, and where do we lease?

“We are also factoring in some of the overseas property portfolio. The embassies, for example, would be owned by the government, that goes without saying. But then there are the residential properties in the portfolios — you will find the government would lease those.”

The Treasury has also produced a standard for infrastructure procurement across all spheres of the government.

There was a requirement for procurement demand planning, but in the past people did this as “malicious compliance”.

However, “now they are starting to see the benefits planning gives you, including knowing who the suppliers are, doing market research beforehand and knowing what your prices will be”, Brown said.

He said the department and the Treasury were “gradually starting to see improvements”.

source: Business Day

Last modified on Wednesday, 14 December 2016 11:41

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