Good intentions the path to dysfunction and inefficiency

Many years ago I worked for a consultancy where people wore crisp white shirts and navy suits. I was in my 20s, excited and eager to learn. I was convinced I was changing the world.

The travel was alluring, and the directors splurged on bottles of Johnnie Walker Blue that made it all worthwhile. My work would add value and contribute positively to SA’s economic growth through localisation, industrialisation and job creation, or so I thought.

We put in hard targets and insisted that contractors incorporate supplier development and localisation in their bid documents to raise their scores and edge them towards meeting industrialisation goals. I was convinced I was doing the right thing — I still am — but we went about it incorrectly.

This reflection follows the vgbe Consortium report detailing things that went wrong at Eskom, and a conversation with an acquaintance I respect in the energy sector. As we sat ruminating, I reflected on my role in the energy sector and the missteps that perpetuated what is mentioned in the report.

It states that “the management system with its governance, structure and processes is dysfunctional and too complex”. These complexities didn’t emanate from thin air but were layered on organisations such as Eskom for two reasons, one being to meet the social objectives of ownership, transformation and job creation. All good objectives, but not the core competence of electricity utilities.

The lack of contracting and commercial experience in the consulting team meant the recommendations lacked foresight and rigour. Contractors would game the system by overstating jobs. Even if their price was higher than those of competitors, the rules stipulated that they would be the preferred supplier, because if you looked at jobs per km, MW or whatever denominator, the multiplier exceeded the threshold.

Efficiency disappeared, and so did cost optimisation.

Adverse selection set in and contractor quality deteriorated. Eskom executives decried this method of contractor selection, but the “rules” were there, and the change management required would be extensive.

Let’s consider the renewable energy independent power producers (IPPs) for instance. The “correct” commercial decision was taken to ask for performance guarantees and bid bonds. However, this inadvertently excluded local contractors and developers.

Local engineering procurement construction contractors, even listed entities, cannot afford to have R100m locked up in an account as security for five years. It would be disingenuous to ask why there was a significant capital outflow in the Renewable Energy IPP Programme when the contracting that was agreed upon had the “unintended” consequence of selecting international developers and construction firms. This left local firms to scramble for whatever crumbs were subcontracted to them.

The second reason for the complexities vgbe mentioned is corruption. In the wake of state capture, the accused and the guilty roam the streets freely, while good employees at stateowned enterprises (SOEs) have to bear the brunt of bureaucracy as a means to curb further corruption. This hinders the ability of many SOEs to procure in an efficient manner; the red tape is often layered with fear of execution and subsequent reprisal, so nothing ever gets done.

I’ve often heard the aphorism “the road to hell is paved with good intentions”, but did not understand it fully until my acquaintance and I sat and quite literally touched grass. It is the road to hell because the devil is often in the detail. What I thought were excellent ideas in my 20s lacked foresight and manoeuvrability; they resulted in organisational dysfunction and inefficiency.

May my experience serve as a cautionary tale of not simply looking at technological, political and economic sublimes at the expense of holistic longterm organisational effectiveness. I resigned from that firm without another job. The navy-suited, white shirt director I reported to would later be called to testify before the Zondo commission.

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