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[2013] ZAFSHC 49
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National Association of Welfare Organisations and Non-Governmental Organisations and Others v MEC for Social Development, Free State and Others (1719/2010) [2013] ZAFSHC 49 (28 March 2013)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No. : 1719/2010
In the matter between:-
NATIONAL
ASSOCIATION OF
WELFARE
ORGANISATIONS AND
NON-GOVERNMENTAL
ORGANISATIONS
..........................
1
st
Applicant
N G SOCIAL SERVICES
FREE STATE
................................
2
nd
Applicant
FREE STATE CARE IN
ACTION
............................................
3
rd
Applicant
and
THE MEMBER OF THE
EXECUTIVE COUNCIL
FOR SOCIAL
DEVELOPMENT, FREE STATE
.................
1
st
Respondent
HEAD OF THE
DEPARTMENT OF
SOCIAL DEVELOPMENT,
FREE STATE
.........................
2
nd
Respondent
MINISTER OF SOCIAL
DEVELOPMENT
..........................
3
rd
Respondent
______________________________________________________
JUDGMENT BY
:
KRUGER, J
______________________________________________________
HEARD ON:
22 MARCH 2013
______________________________________________________
DELIVERED ON
:
28 MARCH 2013
______________________________________________________
[1] This is the extended
report back day of a structural interdict granted on 24 June 2010 and
expanded upon on 9 June 2011. The
question before the court now is
whether the second revised policy filed on 7 September 2012 complies
with the respondents’
constitutional obligations as expounded
in the first and second judgments.
[2] The first applicant
can be described as the umbrella body of organisations that provide
welfare services without profit in the
Free State. The second and
third applicants are members of the first applicant. The first
respondent is the Member of the Executive
Council for Social
Development in the Free State and the second respondent is the head
of that department. No relief was claimed
against the third
respondent, the national Minister of Social Development and the third
respondent did not oppose the application.
[3] A structural
interdict is overseen by the court. The court puts its hand on the
matter and controls it. A central aspect of
the present litigation is
how the respondents (the department) allocates its budget. In this
respect paragraph [22] of this court’s
second judgment is
important:
“
[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. There is therefor no reason
for the senseless
procedures of approval of service plans that cannot be fully funded
(albeit with the assistance of reasonable
contributions by NPO’s)
and payment of palpably insufficient amounts to all approved NPO’s”.
In argument Mr Gauntlett
stressed the last sentence in paragraph [22] from which it is clear
that the department must fully fund
the services it prioritises. The
department should not get involved in senseless procedures of
prioritising services and then paying
palpably insufficient amounts
to approved non-profit organisations. The difficulty the applicants
have with the policy of the department
is that it keeps holding on to
the limitation of budgetary control, whereas the second judgment made
it clear that prioritised
services must be fully funded.
[4]
The department’s policy on the financial assessment of service
plans is set out in paragraph 11.6. The first revised paragraph
11.6
is quoted in full in the second judgment of this court.
In
their affidavit filed on 7 September 2012 the respondents state as
follows regarding the problems which the second judgment had
with the
policy of the department:
“
4. In the judgment handed down
on 9 June 2011 (‘the second judgment’) this Court, whilst
recognising that any revised
policy must contain a mechanism which
enables it to deal with an insufficient budget, was of the view that
the mechanism contained
in the proposed revised clause 11.6.9 of the
policy then presented for approval, to reduce the amount required by
service providers
in order to render the relevant service (having
taken into account their own contribution) by what was termed ‘
an
appropriate percentage
’.
Was not a reasonable measure [16];
Was an irrational way of dealing with
an inadequate budget [23];
Was not fair, equitable and
transparent, as it:
Was not possible to ascertain from
the policy how the downward adjustment would be done [24];
Intended to differentiate between
NPO’s in a manner that was altogether vague and uncertain
[24];
may culminate in NPO’s being
unable to provide the services that the Department requires them to
provide properly, or indeed
at all [25].
5. It is respectfully submitted to be
clear from the second judgement that the Court:
(a) accepted that the Department would
of necessity have to allocate an insufficient budget [15, 16, 22 and
23];
(b) accepted that it was reasonable to
expect NPO’s to contribute what they were reasonably able
towards the benchmark amount
needed to render the particular service
[13 and 14];
(c) held that a prioritisation model
rather than a model allocating a deficit to bring the awards within
the budget amount, would
be more in line with its constitutional and
statutory obligations and the national policy [22];
(d) held the view that, even though it
would require some tough decisions, the Department could justify the
effective funding of
prioritized services in a manner consistent with
the Bill of Rights [22];
(e) was of the view that no reason
existed for what it termed the senseless approval of service plans
that could not be fully funded
[22];
(f) accepted that the Department,
which must approve all service plans that comply with the objective
requirements stated in the
policy, would invariably be confronted by
a budget which was insufficient to defray the cost attendant upon the
proper execution
of approved service plans [15].”
[5] The respondents
state:
“
10. Having duly considered the
information presented to it by KPMG, the Department decided, in
principle, to adopt the costing model
developed by them and to apply
allocation model 4 with a variation that would involve taking into
account what service providers
can reasonably contribute from their
own funds and any sources of income other than State funding.”
[6] The department has
now drawn up a second revised policy which it filed in these
proceedings on 7 September 2012 in a 150 page
document which has the
following parts:
1. Revised Policy (the
new paragraph 11.6).
2. Schedule 1: level of
prioritisation allocation to each service programme.
3. Schedule 2: necessity
levels of programmes.
4. Schedule 3: benchmark
costs.
5. Schedule 4: flow chart
according to method 4: programme and necessity levels.
The second revised policy
reads as follows:
“
11.6
Financial
assessment of service plans
11.6.1 Applications for state funding
of social welfare service programmes (service plans) will only be
considered if they pertain
to one of the recognized social welfare
service programmes 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 prioritization
allocated to each social welfare service programme which the
Department is Constitutionally
and statutorily obligated to render,
as contained in the first schedule;
11.6.2.3 The necessity level allocated
to each item of expenditure which could be incurred in order to
deliver the relevant programme,
as contained in the second schedule;
11.6.2.4 The reasonable unit cost
(‘benchmark cost’), as contained in the third schedule,
of each item of expenditure
that could be incurred in providing the
recognized social welfare service programmes;
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 extent of 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 the budget will allow, which may be set at the minimum level,
average level or maximum
level, depending upon the amount of funds
available in the budget.
11.6.3 The allocation of available
funding to approved programmes will be done in accordance with the
allocation model contained
in the fourth schedule, the Department’s
objective being to allocate available funds in a manner which ensures
that as many
programmes as is possible are funded at a quality level
which the budget will allow.
11.6.4 The financial appraisal of
service plans will be conducted in phases.
11.6.5 During the first phase, service
plans will be evaluated against the Department’s service
specifications, based upon
which they will either be approved
provisionally, subject to the availability of funds, or rejected.
11.6.6 In the second stage the
Department will apply the benchmark cost of each item of expenditure
that could be incurred in providing
the applicable social welfare
service programme, as contained in the third schedule, in order to
determine the standardized cost,
at a quality level which the budget
will allow, of rendering the services which are to be delivered in
terms of the provisionally
approved service plans (‘the
required funding’).
11.6.7 In the third phase the
Department will determine the amount that each service provider is
reasonably able to contribute towards
the cost 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), 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.
Service providers may, as part of their
service plan, make written
representations regarding the amount they are reasonably able to
contribute.
11.6.8 During the fourth phase the
department will deduct the amount which the service provider is
reasonably able to contribute
from the funding required to fund the
provisionally approved programme at a minimum level.
11.6.9 In the final phase the
Department will allocate the funds made available to it by the
provincial legislature for the funding
of social welfare service
programmes in order to defray that portion of the funding still
required after the deduction of the service
providers’
contribution, in accordance with the allocation model contained in
the fourth schedule, having regard principally
to the level of
prioritization allocated to each social welfare service programme, as
contained in the first schedule, which it
utilizes in conjunction
with the necessity level allocated to each item of expenditure which
could be incurred in order to deliver
the relevant programme, as
detailed in the second schedule.
11.6.10 The financial award so
determined will then be submitted for approval.
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
realization of the applicable
socio-economic rights, which it must fulfill by striving to
progressively increase the resources
available for the provision of
social welfare services.
11.6.13 It is recognized that whilst
the Department strives and will continue to strive to fund the
provision of social welfare
services to the maximum extent possible,
its objective being to ensure that its financial awards will
eventually cover the full
cost of all the social welfare service
programmes required within the province, the limited resources at its
disposal presently
preclude it from covering the full cost thereof.
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 benchmark costs contained
in the second schedule to this policy will be reviewed, and if
necessary revised, from time
to time by the Department, pursuant to
it having considered inputs received from relevant stakeholders.”
[7] There are basically
three reasons why the applicants contend that the second revised
policy does not comply, namely: (i) there
was no meaningful
consultation; (ii) paragraph 11.6 retains undefined discretion to the
department; (iii) the costing model does
not finally and fully
determine what expenses the department will pay. The applicants’
contention is that once the department
has a constitutional
obligation to provide a service, it cannot pay what is described in
the second judgment as palpably insufficient
amounts. Spreading the
budget over too many services, as the department is trying to do,
leads to the vicious circle of less and
less money for more and more
qualifying non-profit organisations providing the services, as set
out in paragraph [15] of the second
judgment. The mechanism used to
allocate an insufficient budget must be reasonable, as required in
paragraph [16] of the second
judgment.
[8] Mr Singh, for the
respondents, contends that the respondents have complied with the two
judgments. He says the second revised
policy improved on the first.
(The question is of course not whether there is an improvement, but
whether the second revised policy
complies with the department’s
constitutional obligations as set out in this court’s two
judgments.) Mr Singh pointed
out that the second judgment was
concerned about the allocation model used by the department. In the
light of the second judgment
the department provided a bench mark
costs model. The second revised policy does away with the deficit
sharing model. The focus
is on the concept of prioritization.
[9] KPMG provided the
department with a report where the allocation of funds is dealt with
in chapter 4. These allocation methods
are defined as follows in
paragraph 4.1 of the report:
“
1. Prioritisation by Programme
Only, i.e. Adoptions, Protective Workshops, Drop-in centres, etc.
2. Prioritisation by Programme and
Responsibilities, i.e. including a second dimension of Nutrition,
Accommodation, Medical Care,
etc.
3. Prioritisation by Programme and
Expense Type, i.e. including a second dimension of Beneficiary
related costs (direct), Personnel
costs as well as Overheads.
4. Prioritisation by Programme and
Necessity Level, i.e. including a second dimension of costs that are
Necessities, Partial Necessities
and those that are Non-Necessities.
5
X-factor
Only.”
The department opted for
method 4, programme and necessity level. This means that firstly the
priority of a programme is determined,
and then the funds in the
budget are allocated to the expenses in that programme according to
the necessity levels, of which there
are three: necessity, partial
necessity and non-necessity.
[10] The reason why the
department prefers this allocation method is because if money is
spent according to programme only, it could
happen that, if children
are for instance priority level 1 and older persons level 33, it
could mean that the costs for recreation
of children are paid out of
the budget whereas not even electricity is paid for the older persons
programme. If you use solely
the programme as criterion, then
everything is paid, food, shelter and recreation. For that reason the
department decided to rather
look at each programme and see what
necessities there are, and fund them and not the full programme. On
this basis the department
will look at Schedule 1 attached to its
policy and determine the priority of the programme according to that
list. The next step
is then to determine what parts of that programme
are necessities, partial necessities or non-necessities. In Schedule
2 every
expense is listed and accorded a ranking: 3 = necessity, 2 =
partial necessity and 1 is a non-necessity. There are fixed and
variable
expenses (e.g. number of beneficiaries at each item). The
overheads are fixed costs. Two inputs are required, firstly the
number
of beneficiaries and the amount which the service provider can
pay. That is a multi-stage process. Mr Singh says this process is
vastly different to the first revised policy, which was a
deficit-sharing model. This new prioritisation model ensures that the
service provided will have the full cost of certain items according
to the necessity level ranking given in Schedule 2, which comprises
a
prioritisation of expenses. Mr Singh stresses that although in the
programme there may be errors in the detail, the model is
not bad.
During his address Mr Singh handed up a five page draft order which
lists proposed changes to the respondents’ second
revised
policy.
[11] Regarding the
criticisms raised against the content of the policy in paragraph
11.6, Mr Singh says that the legislative and
statutory standards for
the provision of services are repeatedly engraved in the policy. It
was never the intent of the department
to drop the quality of
services provided. The policy is not directed at under-funding.
[12] Mr Gauntlett had no
problems with paragraphs 11.6.2.1, 11.6.2.4, 11.6.2.5 of the second
revised policy. He did however raise
objections to paragraph
11.6.2.7:
“
The quality of service that the
budget will allow…”
and 11.6.3, in terms
whereof programmes will be:
“
funded at a quality level the
budget will allow”.
and the proviso in
paragraph 11.6.5:
“
approved provisionally subject
to the availability of funds…”
The applicants object to
the allocation of funds in accordance with the necessity level
(paragraph 11.6.9) and to the use of the
budget as an open
discretion.
[13] Mr Gauntlett points
out that in the draft order handed in by the respondents, 13
deficiencies in the second revised budget
are pointed out and
attempts are made to correct them. State bodies, like the
respondents, must fulfill their constitutional obligation
and comply
with court orders:
“
[80] Certain
values in the Constitution have been designated as foundational to
our democracy. This in turn means that as
pillar-stones of this
democracy, they must be observed scrupulously. If these values
are not observed and their precepts not
carried out
conscientiously, we have a recipe for a constitutional crisis of
great magnitude. In a State predicated on a desire
to maintain the
rule of law, it is imperative that one and all should be driven by a
moral obligation to ensure the continued survival
of our democracy.
That in my view means at the very least that there should be strict
compliance with court orders.
[81] The State's function is to
execute its duties in terms of the relevant legislation. The
failure of the State to edify
its functionaries about the very
legislation which governs their duties is unacceptable. It may be
true that the problem lies with
the officials who do not know what
their responsibilities are, and regrettably with legal
representatives who do not know who the
responsible functionaries
are. However, this ignorance is no justification for their failings.
It may explain the cause of the
problem, but it constitutes neither a
good excuse nor a justification thereof and cannot serve to protect
the State from being
held responsible.”
See
Nyathi v MEC
for Department of Healty, Gauteng and Another
2008 (5) SA 94
(CC) at paras [80] and [81].
[14] The second judgment
ordered the first and second respondents to consult with the
applicants. It is not in dispute that to date
no meaningful
engagement between the parties has taken place. Public participation
provides vitality to the functioning of representative
democracy.
Public participation promotes a spirit of democratic accommodation
calculated to produce laws that are likely to be
widely accepted and
effective in practice. Public participation strengthens the
legitimacy of legislation in the eyes of the people.
(
Doctors
for Life International v Speaker of the National Assembly and Others
[2006] ZACC 11
;
2006 (6) SA 416
(CC) par [115]). The applicants represent the public
in this case. Their participation and engagement with the
representatives
of the executive provides a voice to the public. The
fact that the applicants have been heard may cause the public to have
greater
faith in the State institutions they deal with.
[15] Meaningful
engagement is a minimum required for formulating social welfare
policy – see
Occupiers of 51 Olivia Road, Berea Township,
and 197 Main Street, Johannesburg v City of Johannesburg and Others
[2008] ZACC 1
;
2008 (3) SA 208
(CC) par [13]. Meaningful engagement requires the
State to pay particular attention to its constitutional
responsibilities. The
right to participation is implicit in the
Constitution. See “‘Meaningful engagement’ in the
realisation of socio-economic
rights: The South African Experience”
by Lilian Chenwi (2011) 26
SAPL
128 – 156 at 129.
Engagement is a process of constant interchange between citizens and
the State in the design and implementation
of socio-economic
programmes (Chenwi at 130).
[16] The respondents do
not deny that there has not been consultation: the prayer at the end
of the replying affidavit is that the
court “grant an order
directing the parties to engage in consultations on the second
revised policy and the costing and model…”.
In the draft
order handed in by Mr Singh during argument there is an attempt to
rectify a number of errors in the second revised
policy. The
respondents cannot seriously contend that the second revised policy
complies with the department’s constitutional
obligations as
expanded in this court’s judgments.
CONCLUSIONS:
[17] The allocation model
using Schedules 1 and 2 remains a deficit-sharing model. Because the
department determines the content
of each programme, in that
determination it can leave out whatever it regards as non-essential.
The non-profit organisations must
know what they are funded for,
their funds cannot be determined by a discretion in relation to
budget. The content of the item
covered must be clearly and
unambiguously spelled out.
[18] Looking at the
programme ranking used in Schedule 1 to the department’s
policy, as set out in paragraph 11.6, one gets
the impression that
all the programmes listed therein are funded. That is not the case.
There may be no funding left after the
first few projects have been
funded. Not one of the programmes is fully funded if one has regard
to the expenses listed in Schedule
2. What is worse is that the
non-profit organisations do not know what funding, if any, they will
receive from the department for
any specific programme. The level of
funding, according to the policy, depends on how the department
chooses to spread the budget.
If the department does not want to or
cannot list all the expenses it will cover for a particular
programme, it must at the very
least record the items it will not pay
for.
[19] The department must
approve a service plan and then fully fund it. Of the 40 items listed
in Schedule 1, the department must
determine which programmes it will
fully fund. The department wants to provide services provisionally
depending on the allocation
of its budget. The department must decide
which programmes it can fund. Then it must determine which costs of
that programme it
will fund. If, for instance, it is not willing to
fund the electricity costs of the Substance Abuse Training Services,
the item
listed as No 34 on the priority list, Schedule 1, then it
must spell that out in its description of the programme. In the
application
of Schedule 2 the department does a second form of
prioritisation. The department again assesses the programme in the
application
of Schedule 2. The people who work with these social
welfare programmes are mainly social workers who need reasonable
clarity.
The policy cannot use an undefined discretion.
[20] As to costs, Mr
Gauntlett requested a punitive order against the respondents because
of their procedural delays and failure
to comply with the court
order. He also sought an order that the second and third respondents,
being the member of the executive
council and the head of the
department be directed to be present at court at the next hearing so
as to be examined under oath on
the department’s failure to
participate in an meaningful consultation process with the
applicants. In my view the respondents
have made efforts to improve
upon the first revised policy the first revised policy and progress
has been made. At this stage there
is no basis for these orders.
ORDER:
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.
4. Any party hereto may
enroll the matter after a revised policy has been filed.
5. The first and second
respondents jointly and severally are ordered to pay the costs of
this application incurred after 24 May
2012, including the costs of
two counsel.
____________
KRUGER, J
On behalf of the
applicants: Adv. J. Gauntlett SC
With him:
Adv. F. Pelser Instructed
by:
Phatsoane Henney Inc.
BLOEMFONTEIN
On behalf of the first
and second respondents:
Adv. N. Singh SC
With him:
Adv. H. Murray
Instructed by:
The State Attorney
BLOEMFONTEIN
/sp/wm