National Association of Welfare Organisations and Non-Governmental Organisations and Others v Member of the Executive Council for Social Development , Free State and Others (1719/2010) [2014] ZAFSHC 127 (28 August 2014)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Free State High Court, Bloemfontein
SAFLII
>>
Databases
>>
South Africa: Free State High Court, Bloemfontein
>>
2014
>>
[2014] ZAFSHC 127
|

|

National Association of Welfare Organisations and Non-Governmental Organisations and Others v Member of the Executive Council for Social Development , Free State and Others (1719/2010) [2014] ZAFSHC 127 (28 August 2014)

IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 1719/2010
In
the matter between:-
NATIONAL
ASSOCIATION OF
….................................................................................
First
Applicant
WELFARE
ORGANISATIONS AND
NON-GOVERNMENTAL
ORGANISATIONS
N
G SOCIAL SERVICES FREE STATE
…...............................................................
Second
Applicant
FREE
STATE
CARE IN ACTION
….............................................................................
Third
Applicant
and
THE
MEMBER OF THE EXECUTIVE COUNCIL
….............................................
First
Respondent
FOR
SOCIAL DEVELOPMENT, FREE STATE
HEAD
OF THE DEPARTMENT
OF
........................................................................
Second
Respondent
SOCIAL
DEVELOPMENT, FREE STATE
NATIONAL
MINISTER OF SOCIAL
…..................................................................
Third
Respondent
DEVELOPMENT
HEARD
ON:
26 JUNE 2014
JUDGMENT
BY:
VAN DER MERWE, J
DELIVERED
ON:
28 AUGUST 2014
Background:
[1]
This is the fourth judgment of this court that deals with the
constitutionality of the Free State Policy on Financial Awards
to the
Nonprofit Organisations in the Social Development Sector (the
policy).
[2]
The applicants are fully described in the previous judgments.
The first and second respondents (the department) are responsible
for
the conception and implementation of the policy.  The third
respondent did not participate in these proceedings.
The full
background and history of the matter appear from the three previous
judgments and are not repeated herein unless presently
relevant.
[3]
In a judgment delivered on 5 August 2010 (the first judgment)
declaratory orders and a structural interdict were issued in the

following terms:
“
1.
It is declared that:
1.1 the Free State
Policy on Financial Awards to the Nonprofit Organisations in the
Social Development Sector of August 2003 (“the
policy”)
is inconsistent with the constitutional and statutory obligations of
the first and second respondents in terms of
sections 26, 27 and 28
of the Constitution, section 4(2) of the Children’s Act, 38 of
2005,
section 3(2)
of the
Older Persons Act, 13 of 2006
and the
provisions in respect of statutory services referred to in this
judgment, in that it fails to recognise as a fundamental
principle of
funding that nonprofit organisations that care for children, older
persons or vulnerable persons in need or provide
statutory services,
fulfil the obligations of the first and second respondents.
1.2 the policy is
not a reasonable measure as envisaged by the aforesaid provisions to
the extent that it lacks a fair, equitable
and transparent method of
determination of the contributions that the aforesaid nonprofit
organisations should make from own resources
or sources of income in
respect of provision of the aforesaid care and services.
2.
The first and second respondents are ordered to adopt and to
implement a redrafted or revised policy in order to remedy the
abovementioned shortcomings.
3.
The first and second respondents shall within four months of date of
this order deliver a report under oath stating what steps
have been
taken to comply with this order.
4.
The applicants may within one month of delivery of the report,
deliver a commentary under oath on the report.
5.
The first and second respondents shall within one month of delivery
of the commentary, deliver a reply thereto under oath.
6.
The matter shall be enrolled on a date to be fixed by the registrar
in consultation with the presiding judge for consideration
and
determination of the aforesaid report, commentary and reply.”
[4]
In consequence hereto the department filed a revised policy (the
first revision).  The first revision was dealt with in
the
judgment of this court delivered on 9 June 2011 (the second
judgment).  The second judgment declared that the first revision

did not comply with the first judgment and directed the department
to, after consultation with the applicants, file a revised policy

that meets the requirements of the first judgment.
[5]
The department accordingly filed a second revised version of the
policy (the second revision).  The findings of this court
in
respect of the second revision are contained in a judgment delivered
on 28 March 2013 (the third judgment).  The order
made in the
third judgment
inter alia
provides as follows:
“
1.
It is declared that the revised policy filed by the respondents on 7
September 2012 does not comply with the judgments delivered
by this
court in this case on 5 August 2010 and 9 June 2011.
2.
The respondents (duly represented by appropriately authorised
representatives) are to enter into consultations with the applicants

within fifteen calendar days after the date of this order, with a
view to consider the applicants’ comments and recommendations

on the department’s proposed revised policy.  Such
consultative process is to be concluded within thirty calendar days

from the date of this order.
3.
The respondents are to serve and file a revised policy which complies
with the structural interdict and which meets the requirements
set
out in this court’s judgments in this matter within sixty
calendar days of the date of this order.”
The
third revision of the policy
[6]
In paragraph [22] of the second judgment the following was said:
“
[22]
The department should therefore be able to do proper planning and
prioritisation in respect of publication of service specifications

and/or appraisal of service plans.  The draft new national
policy states in this regard that service specifications will
determine priorities for service delivery at either national or
provincial level and will be informed by, amongst others, government

priorities, relevant research, statistics, relevant community needs
and priorities, the relevant demographics, including population,

poverty levels, migration patterns and other social development
indicators and integrated development plans and that service
specifications
will therefore determine where, to whom and for what
purpose funding will be allocated.  The department’s
constitutional
and statutory obligations require planning and
prioritisation.  In so doing, even though this may require some
tough decisions,
the department could justify in a manner consistent
with the Bill of Rights as a whole, the effective funding of the
prioritised
services required from the NPO’s, in accordance
with paragraphs 11.6.6.1 and 11.6.6.2 of the revision.”
[7]
In the second judgment it was therefore held that the policy could
constitute a reasonable measure to the maximum extent of
or within
available resources to achieve the realisation of the rights of
children, older persons and other vulnerable persons
in need if it
prioritises social welfare service programmes and effectively funds
the prioritised programmes.  The third judgment
was to a large
extent based on this finding.  The further revision of the
policy presently before me for adjudication (the
third revision),
purports to give effect to this finding.  The department engaged
the services of KPMG Consulting Services
(Pty) Ltd (KPMG) for
assistance in respect of drafting of the third revision.
[8]
What requires consideration is paragraph 11.6 of the third revision.
As a result of deliberations during argument, the
department filed an
amended sub-paragraph 11.6.7 thereof.  Paragraph 11.6 as thus
amended provides:
“
11.6
Applications for State funding of social welfare service programmes
(service plans) will only be considered if they pertain
to one of the
recognised social welfare service programs identified in the first
schedule.
11.6.2
The financial appraisal of service plans will be performed in
accordance with the principles and procedures set out in paragraphs

11.6.3 to 11.6.15 below based upon:
11.6.2.1
The service specifications published annually by the Department;
11.6.2.2
The level of prioritisation allocated to each social welfare service
programme as listed in the first schedule which shall
be made
publicly available;
11.6.2.3 The items
of expenditure which the department will fund to deliver the relevant
programme, as contained in the second schedule
which shall be made
publicly available;
11.6.2.4
The reasonable unit cost, being those costs that are reasonably
necessary to provide the service, (‘core costs’)
as
contained in the second schedule of each item of expenditure that the
Department will fund for the relevant social welfare service

programmes to be provided, as updated applying CPI to expenses other
than salaries and wages and DPSA salary scales to salaries
and wages.
11.6.2.5
The need for funding, which is determined by taking into account what
service providers are reasonably able to contribute;
11.6.2.6
The number of programmes that may be funded will be dependent on the
funding made available to the Department by the Provincial

Legislature for the funding of social welfare service programmes;
11.6.2.7
The quality of the service that shall be provided must comply with
the applicable legislative and constitutional standards
that are
prescribed.
11.6.3
The allocation of available funding to approved programmes will be
done in accordance with the allocation model contained
in the third
schedule.
11.6.4
The financial appraisal of service plans will be conducted in stages;
11.6.5 During the
first stage service plans will be evaluated against the Department’s
service specifications, and subject
to compliance therewith, may be
approved;
11.6.6
In the second stage the Department will apply the costing model for
each programme, as contained in the second schedule,
in order to
determine the standardised costs and other costs of rendering the
services which are to be delivered in terms of the
approved service
plan (‘the required funding’).
11.6.7
In the third stage the Department will determine the amount that each
service provider is reasonably able to contribute towards
the costs
of the programme it has applied to perform, after consultation with
the service provider concerned, taking into account
inter
alia
the service provider’s
service plan (submitted in accordance with clause 10 of this Policy)
and any written representations
it may make regarding the amount the
service provider is reasonably able to contribute, its financial
statements for the preceding
fiscal year and the Department’s
service specifications, as well as any further information which the
Department may require
service providers to provide that is
reasonably required for this purpose.  In determining what the
service provider is reasonably
able to contribute the Department will
not take into account any funds that the service provider requires
for its reasonable operational
costs that are not funded by the
Department and/or capital expenditure.
11.6.8
In the fourth stage the Department will deduct the amount which each
service provider is reasonably able to contribute from
the required
funding for the service to be provided by that service provider to
calculate the amount of the financial award that
is required (‘the
required financial funding’).
11.6.9 In the fifth
phase the Department determines the distribution of the funds made
available to it by the Provincial Legislature
to cover the transfer
of funding to NPO programmes, in order of their ranking in the first
schedule to defray in full the required
financial funding, as is
described in the allocation model.  Once a point is reached
where the funds are insufficient to fully
fund the core cost items
for the next ranked programme applying this approach, then the funds
so remaining shall be applied
pro rata
to cover the funding of
such programme so that it is partially funded.
11.6.10
In the sixth stage the financial award so determined will then be
submitted for approval in terms of clause 12.2.2 and if
approved, it
shall be allocated and paid to the service provider in the manner as
prescribed in this Policy.
11.6.11
The financial appraisal performed in terms of paragraphs 11.6.2 to
11.6.10 will be predicated upon the principles set out
in paragraphs
11.6.12 to 11.6.15 below.
11.6.12 The
Department has a statutory and constitutional obligation to achieve,
within its available resources, the progressive
realisation of the
applicable socio-economic rights, which it must fulfil by striving to
progressively increase the resources available
for the provision of
social welfare services.
11.6.13
It is recognised that whilst the Department strives and will continue
to strive to fund all of the recognised social welfare
service
programmes to the maximum extent possible, its objective being to
ensure that its financial awards will eventually cover
the full costs
of all social welfare service programmes, the limited resources at
its disposal presently preclude it from doing
so.
11.6.14
Financial awards will, in order to facilitate forward planning and
budgeting, be approved for a minimum period of three
financial years,
with approval in respect of the second and third years being
provisional.
11.6.15
The core costs contained in the second schedule to this policy will
be reviewed every three (3) years by the Department
pursuant to its
having considered input received from relevant stakeholders.”
[9]
The constitutional foundation of funding in terms of the third
revision is found in paragraphs 11.6.12 and 11.6.13.  The

practical effect thereof is summarised in the following paragraphs.
[10]
The first schedule lists 34 social welfare service programmes that
may be delivered by nonprofit organisations (NPOs), in order
of
priority.  Schedule 2 contains separate expositions of the core
costs of each of the 34 programmes.  In respect of
each
programme schedule 2 sets out specific cost items and amounts for
each item.  Unless the number of beneficiaries involved
in a
programme is important, the total monthly core costs of the programme
is specified.  Where beneficiaries are involved,
the core costs
per month are calculated for a benchmark number of beneficiaries.
For instance, in respect of the programme
children: childline, ranked
15
th
in schedule 1, the monthly core costs amount to R57 885,64 and
in respect of the programme children in youth care centres:

children’s home, ranked 3
rd
in schedule 1, the benchmark number of beneficiaries is 60 and the
core costs per month per beneficiary amount to R6 436,41.
[11]
Core costs are intended to cover the reasonable expenses essential to
deliver the services on a sustainable basis.  Core
costs include
the salaries of the number of each staff type necessary to provide
the service, such as centre managers, child and
youth care workers,
social workers, nurses, kitchen cooks, administrative officers,
receptionists, drivers and general assistants.
Where social
workers are involved in a programme, the costs of supervision of the
social workers are included on the basis of a
supervisor for every
six social workers.  These costs include employer contributions
per employee in respect of unemployment
insurance fund, workers’
compensation, pension fund, thirteenth cheque, medical aid fund and
housing allowance.  Further
costs items include water and
electricity, food supplies, clothing, lease of premises, telephone
and other communication costs,
stationery, training and staff
development, equipment hire, office insurance, security guards and
transport.  Where possible,
cost items were standardised.
These amounts were updated by KPMG to the 2013/2014 financial year in
accordance with the Department
of Public Service and Administration
salary scales in respect salaries and employer contributions and the
consumer price index
in respect of other expenses.  The core
costs will be updated annually on these bases and reviewed in three
year cycles to
provide for possible changed circumstances, after
consultation with stakeholders.
[12]
The total core costs of all the programmes for which NPOs submit
service plans that accord with service specifications, will
thus be
calculated.  The next step is to determine, in terms of para
11.6.7, the amounts that NOPs could reasonably contribute
to the core
costs of the programmes.  The department will then be able to
determine which programmes can be funded with the
available budget.
Unless a NPO can reasonably contribute to the core costs of a
programme, the department will fund the full
core costs thereof.
The department will then fund the full core costs of the programmes,
less reasonable NPO contributions
thereto, in order of priority up to
the point where the funds allocated to the department for this
purpose are exhausted.
The
test
[13]
Against this background it is necessary to briefly reiterate what the
present enquiry essentially entails.  The power
to formulate and
implement policy on financing of public projects resides in the
government elected by the people of South Africa.
This court
can only pronounce on whether the policy complies with the
Constitution.  In deciding this question the court must

therefore be aware of the fundamental principle of separation of
powers and be wary of attempting to formulate policy itself.

The socio-economic rights in question have no minimum core or
threshold.  The test is whether the policy is a reasonable
measure to the maximum extent of available resources or within
available resources to achieve the progressive realisation of the

rights.  The test is not whether the policy is the best or most
desirable measure possible.  Availability of resources
is
therefore an important factor in determining what is reasonable, but
lack of funds cannot be used as a lame excuse.  Resources
must
be provided as far as reasonably possible.  Reasonableness must
also be understood in the context of the Bill of Rights
as a whole.
Whilst the very nature of progressive realisation of rights entails
that full realisation will only be achieved
in time, those whose
needs are the most urgent should not be ignored in the policy, nor
should a significant segment of society
be excluded.
Progressive realisation means that the rights in question must over
time be made accessible to a larger number
of people and a wider
range of people.  The department is obliged to take reasonable
measures progressively to eliminate or
reduce the deprivation of
rights.
[14]
In the affidavits that deal with the third revision and in argument
before me, the applicants canvassed matters and claimed
relief beyond
the legitimate boundaries of the present enquiry.  In particular
the affidavits contained repeated claims that
the department should
be ordered to fully fund all the social welfare service programmes
provided by NPOs.  During argument
this was toned down to a
request for a declarator that the department did not engage
sufficiently with the national Department
of Social Development and
Treasury, but this claim too cannot be considered.
[15]
The objections that were legitimately raised in respect of the
constitutionality of the third revision can be summarised as
follows:
(i)
that no meaningful consultation took place
between the parties;
(ii)
that in terms of the third revision
insufficient funds will be made available to the NPOs, with the
result that programmes presently
funded (albeit inadequately) will no
longer be funded and that needy persons will be deprived of funding;
(iii)
that the third revision does not provide
for progressive realisation of rights;
(iv)
that the prioritisation in schedule 1 of
the third revision is unconstitutional;
(v)
that the exclusion of certain expenses from
core costs is arbitrary and unreasonable;
(vi)
that the third revision allows the
department to determine the own contributions of NPOs to core costs
in arbitrary manner;
(vii)
that the third revision unfairly
discriminates between beneficiaries of social welfare service
institutions of NPOs and those of
the department.
No
meaningful consultation
[16]
It will be recalled that in terms of the third judgment the
department was directed to enter into a consultative process with
the
applicants in respect of the further revision of the policy.
[17]
On 9 April 2013 the department provided the applicants with a revised
draft policy with proposed schedules 1 and 2 prepared
by KPMG.
The parties met on 18 April 2013.  The draft revision of the
policy as well as the applicants’ written
comments and proposed
amendments thereto were discussed.  The department considered
these comments and proposals and discussed
same at a special meeting
with the national Department of Social Development.  As a result
the department provided the applicants
with a redrafted working
document reflecting the proposals of the applicants that the
department was prepared to accede to, as
well as a full written
response to the applicants’ aforesaid documents.  These
documents were provided to the applicants
prior to 25 April 2013.
[18]
On 25 April 2013 the parties met again.  The focus of the
meeting was the finalisation of schedule 2, the list of core
costs.
A special task team comprised of representatives of the department,
the applicants, KPMG and social welfare experts
was established to
determine core costs and to finalise schedule 2.
[19]
The task team conducted a three-day workshop on 8, 9 and 10 May
2013.  The applicants provide the services in respect
of 16 of
the programmes listed in schedule 1.  During the workshop
detailed discussions took place in respect of the programmes
provided
by the applicants.  The participants went through the costs of
each programme offered by the applicants line item
by line item.
Numerous issues were resolved in the process.
[20]
KPMG compiled a report of the outcomes of the task team workshop.
This was discussed at the next meeting between the
parties held on 24
June 2013.  It was agreed that the applicants will provide a
written response to the KPMG summary, which
they did on 27 June
2013.  The department responded hereto in writing on 2 July
2013.
[21]
The parties finally met on 5 July 2013.  At that meeting the
applicants raised four issues.  The applicants said
that the
parties could agree on these issues or they could be taken to court
for decision.  These issues were whether the
proposed new policy
could be implemented during 2014, whether the core costs would be
reduced or deducted from, whether the department
was constrained by
limited funding from Treasury and the differential funding of its own
institutions by the department.
The department said that the
proposed new policy could not be implemented during 2014 and that the
department will only be able
to get Treasury to allocate more money
in terms of the budget process once the proposed policy has been
finalised.  The department
indicated that the core costs will
not be reduced and that only the reasonable NPO own contributions, if
any, will be deducted
therefrom.  In respect of the third issue
the department said that it had already been addressed by it and in
respect of the
fourth issue the department indicated that it stands
by its  view previously given that the matter is not relevant.
The parties then agreed that the consultation process had been
conducted in a positive manner and had come to an end.
[22]
In the light hereof the assertion that no meaningful consultation
took place in respect of the third revision, is factually
unfounded.
In the final analysis the applicants rely for this assertion on the
alleged failure of the department to provide
the applicants with the
costs structures of the department’s own welfare service
institutions and of full details of budget
submissions and other
attempts by the department to secure funding in the past.  But
apart from whether some of the information
was in any event
accessible to the applicants, these are all matters extraneous to the
issue of compliance of the third revision,
to be implemented in
future, with the previous judgments of this court.
Inadequate
funding
[23]
As I have pointed out, it is not possible in this matter to make
orders sounding in money or obliging the department to fund
all or
specific NPO programmes.  As I have also said, however, a policy
that excludes the most needy persons could not be
said to be a
reasonable measure.
[24]
The applicants say that the third revision is unacceptable as its
implementation will have the result that programmes presently
funded
(albeit inadequately) will no longer receive funding and that many
persons that should benefit from funding by the department
will be
excluded therefrom.  For the reasons that follow I am unable to
agree.
[25]
First, the fact that as a result of prioritisation certain programmes
will in future no longer be funded, cannot in itself
render the third
revision unreasonable.  The real question is whether upon
consideration of all the relevant circumstances,
including the
available resources, it would be reasonable to leave the lower
prioritised programmes for later/progressive funding.
[26]
Second, the applicants’ argument is based on the assumption
that the same budget allocation for NPO transfers will be
available
for implementation of the third revision.  This is fallacious.
It is true that in terms of the 2013/2014 budget
allocation for NPO
transfers the core cost of only the first four prioritised programmes
could be funded.  However, the department
explains that Treasury
has maintained that it cannot provide increased funding without the
motivation of a proper business case.
The department states
convincingly that the third revision, if approved, would enable it to
satisfy Treasury criteria and to present
Treasury with a properly
costed and realistic business case for an increased allocation for
NPO funding.  The department’s
budget submissions could
clearly set out the needs and the core costs thereof.  In this
manner the extent of denial of rights
by inadequate allocation will
be clear and Treasury will have to make a decision in this regard
that complies with the Constitution.
[27]
I cannot imagine that Treasury will not give serious consideration to
such properly motivated and costed request for funding
and would
allocate funds that would not cover the core costs of a reasonable
number of NPO programmes.  KPMG calculated that
on the basis of
current NPO programmes and beneficiary numbers, a budget allocation
of approximately R572 million would cover the
current core costs of
all NPO programmes.  The budget allocation to the department for
NPO transfers for the 2013/2014 financial
year was approximately
R381million, of which approximately R176 million was allocated to the
early childhood development programme.
The early childhood
development programme no longer forms part of schedule 1 and will in
future be funded separately.  On
this basis, that is excluding
the funds allocated to the early childhood development programme, an
additional approximately R367
million will cover the core costs of
all NPO programmes for 2013/2014.  This accords with the
department’s own calculations
of an additional R408 million.
In terms of the Free State Appropriation Act of 2014, nearly R28
billion is expected to be
appropriated.  R400 million represents
approximately 1,4% thereof.  It hardly seems unattainable for
the department to
secure a budget allocation that would at least
cover the core costs of the majority of NPO programmes.  I
therefore do not
accept that implementation of the third revision
will result in an unreasonably inadequate budget allocation for NPO
programmes.
On the contrary, it seems to me that the third
revision provides a realistic prospect of substantially increased NPO
funding.
No
progressive realisation
[28]
In terms of the third revision core costs will be funded and not full
costs.  Upon acceptance that as a result of limited
resources
the core costs of the lower ranked NPO programmes will also not be
funded, the question is whether the third revision
will enable the
progressive increase of resources, that is that social welfare
services will over time be made available to a larger
number and a
wider range of beneficiaries.
[29]
In terms of paragraphs 11.6.12 and 11.6.13 of the third revision the
department is committed to this.  It aims at eventually
funding
the full costs of all NPO social welfare service programmes.
Progressive realisation is of course a long term process.
The
department says that if the third revision is approved now, the
benefits thereof will only begin to realise in the 2016/2017

financial year, as a result of government budgetary processes.
However, I do not think that there is any sound reason to
doubt this
commitment or its realisation.  The applicants’ submission
that the third revision will actually be regressive
is to a large
extent again based on the incorrect assumption that the budget
allocation for NPO transfers will remain the same.
The very
object of prioritisation of constitutional obligations is to form the
foundation of progressive realisation thereof.
For the reasons
already mentioned, the third revision should enable the department to
continue to make a compelling case for increased
funding.
Progressive realisation will in the long term also be advanced by the
early childhood development programme and
similar programmes that are
intended to educate and/or uplift and to avoid persons becoming
reliant on social welfare services.
Priority
of programmes
[30]
The complaints of the applicants in this regard relate to the early
childhood development programme (ECD) and integrated social
work
services (ISWS).
[31]
ECD is a programme for children up to the age of five and is aimed at
early childhood development and alleviation of childhood
poverty.
It is regarded as crucial for the cognitive, emotional and physical
development of children, as well as their
capacity for social
interaction.  It is a major prevention and early intervention
programme and is a national priority of
the third respondent.
What is presently relevant is of course the funding of ECD services
provided by NPOs.
[32]
The applicants do not dispute the value and importance of ECD.
They take issue with what they regard as the effective
unreasonable
prioritisation of ECD funding.
[33]
As I have indicated, of the 2013/2014 budget allocation for NPO
transfers of approximately R381million, approximately R176
million
was allocated to ECD.  The applicants believe that this amount
represents the full costs of NPOs in respect of ECD,
but it appears
that it represents only a fraction thereof (R15 per child per day of
a calculated full costs of R53 per child per
day) and is also subject
to progressive realisation.
[34]
In any event, because it is a national priority, the government
intends to make separate budget allocations for ECD.
The
department will of course be obliged to utilise the funds so
allocated for that purpose.  For this reason ECD is not on
the
list of programmes prioritised in terms of schedule 1 and, as I have
indicated, this should not meaningfully affect the implementation
of
the third revision.
[35]
In a previously  proposed priority list of NPO programmes, the
department listed 40 programmes.  These included the
programmes
children: prevention, early intervention and statutory services
(ranked 1), substance abuse: prevention services (ranked
23),
disability: social services (ranked 24), families: counselling
services (ranked 30) and older persons: social services (ranked
36).
These services are provided by social workers and the costs of the
programmes essentially consist of the salaries and
other expenses in
respect of social workers.  The department decided that for
purposes of funding, these programmes as well
as supervision costs in
respect thereof (in the previously proposed list supervision of
social workers constituted a separate programme,
ranked 36) should be
combined  to form one programme entitled children: integrated
social work services and that it should
be ranked as first priority.
As a result also, the programmes listed in schedule 1 were reduced to
34.  Several of the
33 programmes other than ISWS also involve
costs of social workers.  The current core costs of ISWS amount
to approximately
R127 million, whereas those of the programme
previously ranked first, would have amounted to approximate R85,7
million.  Accordingly
some R41,3 million that would, according
to the previously proposed priority list, represent the costs of
programmes ranked 23
and lower, will be included in the core costs of
ISWS.
[36]
The applicants complain that ISWS is not a social welfare service
programme, but a service delivery model.  The department
in turn
made heavy weather of the operational benefits of such model.
The parties also debated whether so-called “must”

services and “may” services should be combined.
[37]
To my mind these matters are of no moment.  The question is
whether it is reasonable to fund the combined costs of some
of the
NPO social workers as first priority.  Upon analysis the real
objection of the applicants is that prioritisation of
ISWS for
purposes of funding will result therein that approximately R41,3
million will be spent on programmes that were previously
proposed to
be lower ranked programmes.
[38]
This involves the kind of detailed scrutiny of government funding
that a court is not institutionally equipped for.  More
than two
thirds of the core costs of ISWS are intended for what is
indisputably a top priority programme.  The department
says that
it is cost-effective to combine the costs of the social workers
involved and I am unable to say that it is not so.
But in any
event, the applicants’ complaint is again based on the
fallacious assumption that the implementation of the third
revision
will not result in increased funding, in this context of only R41,3
million.
Cost
items excluded from core costs
[39]
As I have said, core costs represent the reasonable essential
expenses required to deliver the particular service programme.

What the applicants complain about is the exclusion of the costs of
the infrastructure of the NPOs from core costs.  The costs
of
infrastructure are capital expenses and costs of the organisational
structure of an NPO, that is, the manner in which an NPO
chooses to
organise itself.  The former, for instance, includes replacement
costs of vehicles or equipment and the latter
management costs and
accounting and audit fees.
[40]
The first thing that must be said, is that it is clear that funding
of core costs in terms of schedule 2 will enable the applicants
to
render the services that they do.  During the consultations
between the parties KPMG prepared a list of so-called full
costs per
programme.  This formed a predecessor of schedule 2.
Although they say that they did to reluctantly, the applicants
in
fact agreed that these costs represent the full costs of the
rendering of the services.  Why they were reluctant to do
so, is
not easy to fathom.  During the consultation process in May 2013
the applicants also revealed the actual costs of their
services as at
November 2012.  In most cases the applicants’ actual costs
were significantly lower than the KPMG full
costs.  Some items
of KPMG full costs were not included in core costs.  As a result
of representations made during the
consultations, core costs include
items not included in KPMG full costs, notably employer contributions
in respect of pension funds,
thirteenth cheques, medical aid funds
and housing allowances.  On balance this resulted in core costs
being higher than the
KPMG full costs that the applicants were
prepared to accept.  All of this is illustrated by the
following. The actual costs
of caring for a child in a children’s’
home, as indicated by the applicants during the consultations,
amounted to R3372,20
per month.  It is admitted that in a
newspaper article published on 26 July 2013 the principal
spokesperson of the applicants
said that the minimum costs of caring
for a child in a welfare centre is R4800,00 per month. KPMG full
costs amounted to R6044,59
per month  The core costs in
terms of schedule 2 for a child in a children’s home are
R6436,41 per month.
[41]
More importantly, NPOs are established to assist the State to
alleviate the needs of society.  For this purpose they raise

funds from donors and others.  The
Nonprofit Organisations Act
71 of 1997
is intended to enhance the ability of NPOs to do so.
Section 2
thereof sets out the objects of the Act.  These
include to encourage and support NPOs in their contribution to
meeting the
diverse needs of the population of the Republic of South
Africa and to promote a spirit of co-operation and shared
responsibility
with the government.  NPOs therefore need to and
admittedly do have infrastructure to enable them to so assist and to
qualify
to submit service plans.  To require the department to
provide all or most of the costs of the infrastructure of NPOs would

make nonsense of this notion of partnership in the interest of
society.  Some NPOs have existed for many years and have a

considerable infrastructure.  To provide other services only a
small infrastructure is required.  I do not consider it

unreasonable that only NPOs with the necessary infrastructure are
funded in respect of core costs to provide the services that
they
wish to assist with.
Determination
of NPO contributions to core costs
[42]
The first judgment held that it was not unreasonable to require NPOs
to contribute to the costs of provision of social welfare
services.
This finding has not been challenged.  What the first judgment
required was a fair, equitable and transparent
method of
determination of the NPO contributions.  The applicants’
case is that in terms of the third revision, the
department could
arbitrarily determine these contributions by NPOs.
[43]
In terms of paragraph 11.6.7 the department is required to determine
the amount that an NPO is reasonably able to contribute
to the core
costs of the particular programme.  The objective criterion of
reasonableness is therefore the starting point
of the enquiry.
In order to give effect thereto the department is obliged to consult
with the NPO and to take various specific
considerations into
account.  These are the service plan of the NPO, the written
representations of the NPO regarding the
amount it is reasonably able
to contribute, its financial statements for the preceding fiscal
year, the relevant service specifications
as well as any other
information reasonably required for this purpose.  As was said
in paragraph [13] of the second judgment,
an NPO will during the
consultation process be able, for instance, to show that certain
funds available to it are earmarked for
other purposes or for one or
other reason not reasonably available to contribute towards the costs
of the provision of the particular
service.  Importantly, in
determining what the NPO is reasonably able to contribute towards the
core costs of the programme,
the department must leave out of account
funds required for the reasonable operational costs of the NPO that
are not funded by
the department and capital expenditure.  This
element was added by the amendment of the third revision, but was
foreshadowed
in the department’s affidavits.  In my
judgment the department is therefore not clothed with an unfettered
discretion
and the determination of NPO contributions towards core
costs in terms of the third revision, will not be arbitrary, but
fair,
equitable and transparent.
Discrimination
[44]
The undisputed evidence in the initial founding affidavit of the
applicants was that the department spent between R5000,00
and
R6750,00 per month per child in respect of children in its own
children’s homes, whereas the subsidy for children in
NPO
institutions then amounted to approximately R2000,00 per month per
child.  There was also evidence of unequal funding
of the
department’s institutions for residential care for older
persons and those of NPOs.  In paragraph [51] of the
first
judgment I did not find it necessary to deal with the question of
equality and unfair discrimination.  The statement
later in the
same paragraph of the first judgment that the applicants did not show
that the department is in breach of
section 6
of the
Promotion of
Equality and Prevention of Unfair  Discrimination Act 4 of 2000
,
was therefore made
per incuriam
.
[45]
The applicants urged that a firm finding should now be made that the
department’s funding unfairly discriminates between
the
beneficiaries of its own institutions and those of NPO institutions.
In this regard the question is of course not directed
at what
happened in the past, but what the future position will be in terms
of the third revision.
[46]
The department appears to accept that the costs of running its own
institutions will be higher than those of NPOs.  It
says that
because of the laws and policies that government is subject to, the
costs of provision of its own services cannot realistically
be
compared with those of NPOs.  The department, however, refused
to comply with the requests of the applicants to divulge
the costs
structures of its institutions, on the basis that they are irrelevant
to the present enquiry.  The reality is that
there is
insufficient evidence before me of the current costs of the
department’s residential institutions for children or
older
persons and that it is impossible to judge whether there is
justification for differentiation in this regard.  The answer
of
the applicants is that the department should be ordered to make its
costs structures available.
[47]
I think that the department is correct.  The issue before me is
whether the third revision is compliant with the constitutional

requirements set in the previous judgments.  I have found that
it is.  What the department spends on its own institutions,

whether differential funding is justifiable and if not, what remedy
is available, is not relevant to whether the third revision
passes
constitutional muster in terms of the previous judgments.  These
matters give rise to wide new questions to which there
are no easy
answers.  In the interest of the beneficiaries thereof, the
implementation of the third revision cannot be further
delayed until
they are answered.
[48]
I conclude that the department is entitled to the order that it
seeks, namely a declarator that the third revision is compliant
with
the first, second and third judgments.  There should be no order
as to costs.
[49]
Having dealt with this matter over a period of more than four years,
I feel the need to express the sincere wish that the parties
will be
able to take hands and to work together for the real benefit of the
needy members of society.
[50]
The following order is issued:
1.
It is declared that the first and second
respondents’ third revised Policy on Financial Awards to the
Nonprofit Organisations
in the Social Development Sector is compliant
with the judgments of this court delivered on 5 August 2010, 9 June
2011 and 23 March
2013.
2.
There is no order as to costs.
________________________
C.H.G.
VAN DER MERWE, J
On behalf of
applicants: Adv L. Halgryn SC
Instructed
by:
Phatshoane
Attorneys
BLOEMFONTEIN
On
behalf of first and second respondents: Adv N. Singh SC
with
him:
H.
Murray
Instructed
by:
State
Attorney
BLOEMFONTEIN