Alignment of the Infrastructure Delivery Cycle with the Budget Cycle (Abridged Version for Prepared...

Alignment of theInfrastructure Delivery

Cyclewith the

Budget Cycle(Abridged Version for

Prepared by the

Infrastructure Delivery Improvement Programme (IDIP)

2National Treasury

NATIONAL TREASURY REPUBLIC OF SOUTH AFRICA

The Infrastructure Delivery Improvement Programme

(IDIP)

• IDIP is a continuous improvement programme which guides & capacitates to improve infrastructure delivery

• IDIP is coordinated by National Treasury in partnership with DBSA, DPW & CIDB

• IDIP provides flexible tools that can be adapted to the province & sector

• IDIP is a key strategy of government to address inadequate capacity and skills in the infrastructure sector

3National Treasury

Problem Statement

• Continuing under expenditure of infrastructure budgets.

• Inappropriate expenditure patterns characterized by the 4th Quarter expenditure spike.

• Currently there appears to be very little alignment between the Infrastructure Delivery Cycle and either the Budget Cycle or the Strategic Planning Cycle.

• Currently the budget for large multi-year projects is committed to 1 financial year instead apportioning the budget across the MTEF.

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A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J JYear 4Year 0 Year 1 Year 2 Year 3

These are all the concurrent budget

activities that need to be undertaken in any 1

year

3 Year MTEF Period

Budget Day

MTEF Budget Cycle

Preparation of Annual Performance Plan (APP)

Budget Preparation Process

Closure Processes

Quarterly Reporting

Implement Budget



Closure Processes

Quarterly Reporting

Implement Budget



Closure Processes

Quarterly Reporting

Implement Budget



Quarterly Reporting

Implement Budget

Currently it would appear that annual budgets are prepared by updating last years budget with a factor for inflation

The annual budgets submitted to treasury do not appear to be informed by actual projects to be implemented in the following year.

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Infrastructure Planning

Project Design

Project Tender

Project Implementation

Implement Rolled Over

Unspent Budget

3 Year MTEF Period

Current Infrastructure Delivery Cycle

Infrastructure Delivery Cycle

President Thabo Mbeki in his 2006 State of the Nation Address said, “Better supervision of infrastructure projects undertaken by government will be introduced, to ensure that capital budgets are spent without roll-overs”

100% Rollover

Budget

Tim

eCumulative Cashflow

With the current Infrastructure Delivery Cycle, expenditure during the 1st half of the year is virtually impossible since most projects are still in the tender phase. The result is the 4th quarter expenditure spike and overall under-expenditure.

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Project Design

Project Tender


Rolled Over Unspent Budget

3 Year MTEF Period


Improved Infrastructure Delivery Cycle




Project Design

Project Tender




Project Design

Project Tender




Each Infrastructure Delivery Cycle is characterized by under-expenditure and rolled over unspent budgets

The Infrastructure Plan sets out the infrastructure priorities for the next 10 years. It is updated annually by the Client Department.

7National Treasury

Infrastructure Programme Management &

Implementation Plans (IPMP & IPIP)Client Department (CD)

Implementing AgentIA 1

IPMP Update

IPIPfor IA 2

Implementing AgentIA 2

SDA

with

IA 1 SD

A w

ith IA 2

IPIPfor IA 1

FUNCTIONS OF CD:1. Planning2. Procurement3. Programme

Management4. Monitoring &

Reporting

FUNCTIONS of IAs:

IPIPs respond to

IPMP

1. Programme Management2. Project Initiation3. Procurement

4. Project Implementation5. Project Completion6. Monitoring & Reporting

IPMP issued to

IAs

Infrastructure Plan Update

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Project Design

Project Tender


Project Design

Project Tender

Project Implementation Planned Multi-year Commitments


3 Year MTEF Period





IPMP IPIPInfrastructure Planning

Project Design

Project Tender




Project Design

Project Tender




IPMP = Infrastructure Programme Management PlanPrepared by Client Department and given to Implementing Agent.Contains list of projects for the next 3 years and where they are located.

IPIP = Infrastructure Programme Implementation PlanPrepared by Implementing Agent and submitted to Client Department for approval.Contains the details of how the list of projects issued by the Client Department will be implemented.

Monitoring & Reporting

The Infrastructure Plan sets out the infrastructure priorities for the next 10 years. It is updated annually by the Client Department.

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A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J JYear 2Year -2 Year -1 Year 0 Year 1


Closure ProcessesImplement Budget

MTEF Budget Cycle

The improved Infrastructure Delivery Cycle now facilitates the alignment of the Infrastructure Delivery Cycle with the Budget Cycle.

The budget preparation process can now be strengthened by actual projects identified during Infrastructure Planning.

IPIP Project Design

Project Tender

Planned Multi-year Commitments


Project ImplementationIPMPInfrastructure Planning

Alignment of the Infrastructure Delivery Cycle& the Budget Cycle

Project Design

Project Tender





Currently Infrastructure Planning is undertaken too late to facilitate effective alignment of the Infrastructure Delivery Cycle with the Budget Cycle.

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Project Design

Project Tender



LEGEND: IPMP – Infrastructure Programme Management PlanIPIP – Infrastructure Programme Implementation Plan

Required Capacity for Departmental Infrastructure Units


These are all the concurrent infrastructure delivery activities that need to be undertaken in any 1 year.

Departments therefore need to have the capacity to undertake all these concurrent activities.


Project Design

Project Tender




Project Design

Project Tender




Project Design

Monitoring


National Treasury 11

Example of a Programme Budget to commit the entire

Annual BudgetR 50,000 R 60,000 R 70,000

PROJECTTOTAL PROJECT

BUDGETBUDGET FOR

YEAR 1BUDGET FOR

YEAR 2BUDGET FOR

YEAR 3

Project 1 R 30,000 R 10,000 R 10,000 R 10,000

Project 2 R 20,000 R 5,000 R 10,000 R 5,000

Project 3 R 25,000 R 7,000 R 8,000 R 10,000

Project 4 R 15,000 R 12,000 R 3,000 R 0

Project 5 R 10,000 R 5,000 R 5,000 R 0

Project 6 R 20,000 R 11,000 R 4,000 R 5,000

Amount Committed R 120,000 R 50,000 R 40,000 R 30,000

R 0 R 20,000 R 40,000

Department's Annual Budget =( ,000)

Amount remaining for new projects( = Annual Budget less Amount Committed)


Year 0D J F M A M J J A S O N D J F M A M J J A S O N D J F M

Year 1 Year 2

Infr. Plan update IPMP IPIP

IPIPIPMP


Project ImplementationProject Design & Tender



Project Design & Tender

Managing Cashflows Across Years


But here we have clusters of projects that have been designed

and are ready to go to tender

In reality the neat chunks of work shown on the earlier slides are actually individual

projects or clusters of projects with different start & end dates

Some projects or clusters of projects in the current year can be

delayed causing potential under expenditure

NB: The total value of the work in this year equals the Annual Budget for this year


Year 0D J F M A M J J A S O N D J F M A M J J A S O N D J F M

Year 1 Year 2

Infr. Plan update IPMP IPIP

IPIPIPMP


Project ImplementationProject Design & Tender



Project Design & Tender

Managing Cashflows Across Years


We need to tender these projects earlier and start implementation in Year 1 to offset the potential under expenditure

caused by the delayed projects

14National Treasury

Identified Benefits

• Better linkage with Strategic Planning is achieved• Better alignment of the budget with the targets set out in

the Strategic Plan• Project planning & design is properly done resulting in

achievable & realistic cashflows• Multi-Year commitments are planned and budgeted for

thereby reducing rollovers• Improved clarity of roles & responsibilities between client

departments and implementing agents

15National Treasury

STATEMENT ON THE CABINET MEETING OF 21st February 2007.

Cabinet approved a framework to align infrastructure delivery cycles with the MTEF budget cycle in order to improve planning, implementation and better cash-flow management that would, among other things, deal with the fourth quarter expenditure spike. This framework accommodates the long lead time before infrastructure projects reach the construction stage. The infrastructure delivery cycle will be amended to include an Infrastructure Programme Management Plan (IPMP) and an Infrastructure Programme Implementation Plan (IPIP) which will be mandatory for all departments. Best practice approaches will be adopted to include budget cycles that commit funds for the duration of the project without leading to the so-called roll-overs. This framework will require the appointment of appropriately skilled built-environment professionals across all relevant departments, provinces and local government.

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THANK YOU

Alignment of the Infrastructure Delivery Cycle with the Budget Cycle (Abridged Version for Prepared...

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