Independent Complaints Directorate's Head Office leases

Meeting report

Independent Complaints Directorate Office Lease in Pretoria: briefing
The Chairperson noted her appreciation that the Independent Complaints Directorate (ICD) had submitted written responses to questions asked on 1 November 2011, saying that some of the questions posed at that meeting made the Members aware of the need for another meeting to discuss the sudden and large increase in ICD accommodation costs, from R4 million to R15 million. The Committee was not suggesting that there were irregularities, but wanted to know exactly how this arose.

Mr Francois Beukman, Executive Director, Independent Complaints Directorate, noted that four or five questions had been raised at the previous meeting, which would be addressed during the presentation.
He said that Mr Innocent Khuba, Provincial Head: Limpopo, ICD, had been asked to do an internal investigation into this matter.

Mr Beukman confirmed that Members had asked for a breakdown of expenditure on operating leases, and confirmed that the figure for the lease rose from R4.23 million in 2009/10 to R15,56 million in 2010/11. He tabled a breakdown of the expenditure, for the Head Office in Pretoria, showing the amounts allocated to rental, refurbishment costs and photocopier leases. He noted also that the R15 million for buildings included amounts paid for a backdated invoice received from Department of Public Works (DPW), relating to the financial years between 2006 and 2010, after DPW had done some reconciliations and discovered that incorrect amounts had been billed. However, this reconciliation process was still ongoing.

Mr Beukman then outlined the background to the leases. The Independent Complaints Directorate, in 1998, had taken occupation of the ICD House building, when its staff complement was only 46 people. When it started to grow, another lease was entered into, in 2005, for the Old Mercedez Benz (OMB) building as well, but ICD found that managing two buildings was both costly and had its administrative problems. For this reason, ICD put forward a needs analysis to DPW, on 24 October 2007, indicating how much space it needed, and indicating that the budget available for accommodation was R6,19 million, on 24 October 2007. DPW sent instructions to its regional office to commence a procurement process.

On 26 March 2008 ICD was invited to view three buildings, and the Structura building seemed the most suitable, and was recommended. However, ICD was informed in March 2008 that it was not available, owing to non-compliance with Black Economic Empowerment (BEE) prescripts. DPW then offered three other buildings for ICD to view. In July 2008, however, DPW advised ICD that the Structura building had changed ownership, and that it was now available because it did now comply with BEE requirements. ICD indicated that it would like to occupy that building, and procurement instructions were approved in August 2008. DPW signed a lease with the owner of the Structura Building in October 2008. ICD needed to refurbish this building before taking occupation, and this was started in February 2009. Initially, the plan was for ICD to take occupation in May 2009, but the contractors did not deliver on time, and the occupation date was postponed to June, and then to September, but by January 2010 ICD was still not able to move in, and it called a meeting with DPW to discuss the matter.

At this meeting, DPW proposed that ICD should move to the City Forum Building which had originally been set aside for the Department of Human Settlements (DHS) and that the DHS would then occupy Structura when it was ready.

ICD submitted a letter to DPW, indicating its interest in occupying City Forum, and requesting a copy of the lease, advice on availability of any alternative buildings, and confirmation that it wished to have the amount of almost R800 000, which it had already spent on installing cabling in Structura, reimbursed by DHS. DPW urged ICD to occupy the City Forum building, saying that if it did not do so, this would amount to fruitless and wasteful expenditure, since DPW would not be justified in seeking any other buildings. DPW advised ICD of the adjusted rental for the OMB, and the possibility of incurring fruitless expenditure if it did not move.

Mr Beukman reminded the Committee that ICD, during a previous presentation, had pointed out a contingent liability in respect of legal costs in respect of the Old Mutual lease.

ICD again formally requested a copy of the lease agreement in July 2010. It received only an incomplete lease from DPW. ICD took occupation on 15 September. It only received the lease in November 2010. The lease agreement for this building had been signed in April 2009, but was with effect from March 2009.

Mr Beukman noted that by this stage the staff of ICD had grown from 45 to 99 people. Another needs assessment was done in February 2010, which anticipated further growth. The transformation of the ICD into Independent Police Investigative Directorate (IPID) would mean that another 34 staff would need to be accommodated. The ICD had struggled to do the necessary alterations in the Structura building to make it compliant with the prescripts of the National Intelligence Agency (NIA), which was necessary since ICD was regarded as a security department. In the OMB building, ICD had been on a month-to-month lease, from August 2008 to September 2010. The ICD House lease was also on a month-to-month basis, from August 2007. New tenants had now been allocated to those buildings. In July 2010, one of the new tenants had in fact started their renovation, whilst ICD was still in occupation. ICD had requested DPW for alternative accommodation, but was told that this was the only option on the table.

Mr Beukman then addressed Members’ requests from the previous meeting, for more information. He noted that the Structura building lessor was Sechaba Property Investments, and the lease was to run for 8 years and 11 months, at a rental of R323 642 per month, with escalation of 9%. The date of signature was October 2008. The City Forum Building was owned by Majestic SilverTrading. The lease period was 9 years, 11 months, at a rental of R729 280 per month, with 10% escalation. This lease was signed 14 April 2009 although date of commencement was 1 March 2009. Together, the OMB and ICD House leases had cost R203 291.

Mr Beukman noted that the Committee had been provided with a list of all current lease commitments for all other offices, apart from Head Office. The ICD had requested funding for operating leases (including the lease of photocopy machines), in the amount of R10.5 million in 2012/13,rising to R11.7 million in 2014/15. The total project costs, in respect of all leases, was anticipated to be R21.1 million in 2012/13, rising to R25.5 million in 2014.15.

Mr Beukman explained that the reason why ICD had under-budgeted was that its calculations had been based on the original commitment and rental for the Structura building. The system of devolved funding resulted in backdated billing. ICD was already in discussions with National Treasury and would submit a formal application for additional funding in respect of the shortfall.

Mr Beukman summarised that the ICD still needed to make progress on other buildings, including the George Satellite Offices. ICD had experienced problems in finding buildings that were suitable for the security requirements, and offered the necessary infrastructure. Although the duty for due diligence lay with the DPW, the ICD also had to ensure that it could investigate and evaluate the suitability itself. He reiterated that Mr Innocent Khuba was heading a review of the internal processes at ICD. Mr Beukman also pointed out that because of its security status, the ICD was unable to sub-let to another department. It was a stand-alone entity. It was too small to make it viable to build its own building, meaning that it must lease on its own, without any sub-tenants.

Mr Beukman said that the matter had been referred for a legal opinion, so that ICD could be informed of other options if it did not wish to stay in the City Forum building. It had also written to the Director General of DPW. Members had asked questions about the impact of this lease on service delivery by ICD. He had indicated, in the written responses, that there would be no impact in the previous and current financial years. However, there would be an impact in the outer years. The current baseline did not take into account the submissions in respect of IPID, and these were not reflected. ICD believed that urgent attention needed to be given to improving its risk management. In 2010, ICD had indicated that it needed to establish a corporate governance unit, to monitor inter-departmental relationships, and to ensure that ICD met prescripts in future.

Discussion
The Chairperson said that she was very concerned about the principles behind this matter. She could not understand how the DPW could prescribe to ICD what building it should occupy. She asked the cost of each square metre (m²), noting that originally ICD had indicated that it needed 300 m², but now seemed to be occupying over 700 m². She asked if ICD was merely required to occupy as it was told to, or whether it had the right to say that it was unwilling to occupy because it did not have the budget to pay for that space. She asked for further clarity on slide 4 of the attached presentation.

The Chairperson also enquired as to the role of ICD in respect of the lease signature, particularly given that the lease was signed long before it occupied the building. Again, she asked if ICD was legally required to occupy. She pointed out that ICD was a small entity, for whom R15 million represented a substantial chunk of the budget, and this was the amount payable for the Head Office premises alone, which still needed to be added to the leases for other premises.

Ms D Kohler-Barnard (ACDP) said that this was yet another building involving Mr Roux Shabangu. She asked if the ICD had, at any stage, raised the point that this rental exceeded the budget allocations, as well as being more than twice the space required. If so, then she wanted to know what explanation was given by DPW for putting ICD in a building that was neither suitable nor affordable.

Ms Kohler-Barnard asked whether the explanation given by ICD for not achieving its targets was connected to this lease, and if it could not achieve its targets because this lease deal was foisted upon it.

Ms Kohler Barnard questioned if the rentals for this building were so high that ICD would not have been better off buying a building. In late 2010, DPW had signed a contract for a new Head Office for SAPS in Durban, at a cost of R6 million a month. That building was worth about R42 million, so in half a year the money that SAPS paid in rental was equivalent to the market value of the building. She was not sure of the property values in Pretoria, but suspected that this might be a similar situation. She also enquired if any of the other ICD premises were rented from Mr Shabangu. She asked if it was possible to resile from the leases, and if the rental that was payable for this office would have an impact on the ICD’s ability to provide satellite offices. She commented that State money was merely going to line Mr Shabangu’s pocket.

Mr G Schneemann (ANC) noted that some of his questions had been answered in the presentation. He had taken note of the comment that the Structura building was not in fact suitable, because it did not comply with NIA requirements. He asked if the new offices were compliant with NIA requirements.

Mr Schneemann wondered why so much money had already been spent in refurbishing the Structura building, if it was not compliant in the first place.

Mr Schneemann asked questions similar to those of the Chairperson, about the roles of DPW and ICD, and asked if DPW had the right to tell ICD it must move into the building, and if ICD had the right to say that the building did not meet its requirements. He was concerned that the space was too large, and that ICD should not have agreed to move.  ICD now had to ask for extra budget to cover something that was not necessary. He thought that the DPW should be seeking funding, not ICD.

Mr Schneemann added that he was concerned, during the last meeting with ICD, that very few answers were given to the questions asked.

Mr M George (COPE) expressed his dissatisfaction that DPW was not present, despite the fact that the whole briefing had revolved around their role. There were a number of matters that were not clear. The revised increased invoices had to be questioned, as no reasons for the revision were given, He also wanted to know what “non-compliance with BEE prescripts” meant. He had the impression that ICD was merely a spectator to the process.

The Chairperson noted that DPW was invited to the meeting, but because it was arranged at very short notice DPW had said that it was unable to attend. The Committee could consider inviting that department to another meeting.

Mr George asked if National Treasury was likely to grant the extra funding.

Ms M Molebatsi (ANC) noted that money had already been used to refurbish the Structura building and asked for a report on whether any of the amounts spent had been recovered.

Ms Molebatsi asked for further clarity on the City Forum agreement, which was apparently signed in April 2009, but the occupation date was March 2009.

Ms Molebatsi and the Chairperson wanted to know exactly what the NIA prescripts for buildings were.

Mr G Lekgetho (ANC) asked for further details on the parties referred to.

Mr Lekgetho wanted to know where the satellite offices were. He also sought clarity on the current staff component, as figures of 99 people and an additional 34 people had been mentioned.

Mr E Mlambo (ANC) asked if it was the responsibility of ICD to renovate the Structura building, and whether these renovations had been necessary.

Mr Mlambo questioned how the space at the City Forum building compared with the OMB and ICD House space, noting that the rental for the two latter buildings combined still amounted to less than the current rental. He also wanted more details on whether it would be possible to sub-let.

Mr P Groenewald (FF+) said that the core of the debate was the needs analysis, as DPW was likely to say that it had only acted in accordance with what it had been given. He asked for a copy of the needs analysis, to see what ICD said it required. He noted that the needs analysis was drawn in 2007, but he still questioned how the difference in space and cost could be so large, unless there had been changes since then, in which case he would also like details of those.

Mr V Ndlovu (IFP) said that there was a reference to an “incomplete” lease agreement, but no indication of any other response from DPW, yet ICD had occupied the City Forum building in September 2010. He asked for further clarity on that point.

Mr Ndlovu, like other Members, was concerned about the impact of R15 million on the budget and questioned whether that amount was affordable for ICD. He also asked if National Treasury had given any indication as to whether it would allow the additional allocation. He agreed with the Chairperson that money spent on this lease was taking money away from other areas. He asked where the money would be found, if National Treasury could not provide it.

Mr Schneemann noted that ICD was engaging with National Treasury for additional funding for the shortfall. He pointed out that the Public Finance Management Act (PFMA) set out that no accounting officer should commit a department to any liability for which money had not been appropriated. He asked if funds were appropriated for this lease. If not, then he questioned why the accounting officer had agreed to move into the building, as it seemed to be in contravention of the PFMA.

Mr Ndlovu also asked for an explanation on this point.

The Chairperson stressed that, as the PFMA name implied, this was public money and Parliament must ensure that public funds were used effectively and efficiently, and for suitable purposes.

Ms P Mocumi (ANC) asked for further details of the equipment that was allegedly needed to support Disability Day, as mentioned on slide 4. She was a representative of the National Disability Movement and did not recall that movement having received any invitations from ICD.

Ms Mocumi asked whether the lease agreements for the OMB and ICD House buildings had already expired when the lease agreement for City Forum building was entered into. She also asked about the current staff complement of ICD.

The Chairperson said that ICD had conceded that this lease agreement could have an impact on the service delivery from 2012 and asked for a further explanation on this point.

The Chairperson asked for a report on whether there had been any progress in recovering the amount of approximately R800 000 from DHS, for cabling installed in the Structura building.

The Chairperson noted that the Government Immovable Asset Management Act governed the acquisition or disposal of immovable assets and asked if the agreements complied with this Act.

The Chairperson still thought that there were still some aspects which had not been explained fully. She was still unable to conceive of how the budget was exceeded, and stressed that even a private individual was unlikely to have followed the course that ICD followed, and be forced into a situation of paying for something that it could not afford. The Committee would need to approve the next budget of ICD and was not likely to be happy to do so if it believed that the lease was not necessary. She asked what would happen if National Treasury did not approve the extra funding, and expressed her personal opinion that it should not. The question remained why ICD had moved into the building if it could not afford to pay. The new IPID would be expected to expand and hire more staff to be more effective, and the money now being put to payment of a lease was likely to impact upon this.

Mr Groenewald asked for more clarity on the figures given for rental, asking if they were monthly figures.

Mr Beukman confirmed that they were.

Mr Groenewald calculated that the total figure was about R10.5 million a year, which was an increase of about 65% from what had been cited in the needs analysis.

Mr Matthews Sesoko, Programme Manager, ICD, started to answer the questions posed by Members. He said, in regard to the questions about the space and costs, that the cost was about R104 per square metre. ICD had done a needs assessment and sent it through to DPW, and this originally said that ICD needed 3 100 m², based on the norms for space that DPW set for departments, according to the rank and numbers of staff. DPW would then normally do its own analysis on the space requirements, as well as a costs analysis, and would approve an assessment of a certain floor space, at a certain cost. DPW had, in this case, given approval for 3 333 m²
for the Structura building.

DPW had revised the assessment in respect of the parking spaces. There was documentation to support the needs analysis. After viewing the first batch of buildings, ICD decided that Structura was the most appropriate to its requirements. After it had informed DPW of this, DPW would then engage with the landlord in terms of the DPW processes. It was at this stage that DPW said that it was not possible to proceed with the lease, because bidders were supposed to meet the government preferential procurement framework, and Structura did not then meet that criteria. ICD then viewed the second batch of buildings. ICD had indicated that one of those, the Meintjies building, would be acceptable, although there were certain conditions attached. A few days after notifying DPW of this, ICD was told that Structura was now available, and so it decided rather to revert to trying to occupy the Structura building. Before it could move in, it had to arrange for network cabling, and, because ICD was a security department, NIA would also have to view and confirm that the building complied with the security requirements.

The Chairperson interjected at this point, to ask who the landlord was, and what the cost was at the time of the first decision. She also wanted to know what conditions were attached to the Meintjies Building, and what the budget was at that time.

Ms Kohler-Barnard asked how the Structura building suddenly became BEE compliant.

Mr Schneemann said the Committee was given the impression that the change in acceptable status seemed to take place within only a few days. He questioned why the NIA had not been asked to inspect the building for compliance before any cabling was put in.

Mr Sesoko explained that once approval was given, DPW would issue procurement instructions. It would then ask for availability of funds. ICD had said that it had R6.1 million available, for a lease of 3 333 m² at the Structura building. The lease payments were around R300 000 per month. Normally, at this stage, DPW would engage with the landlord with a view to signing a contract, and that had been done in 2008.

He said that the Meintjies building had come into the picture after ICD became aware that its first choice, the Structura building, was not then compliant with BEE prescripts. The conditions for the Meintjies building related to the condition of the building and the security requirements. After ICD told DPW of its requirements for the Meintjies building, DPW had written back to say that now Structura had been sold to a BEE compliant company, and that if ICD still wanted that building, it might be possible to use it.

The Chairperson interjected to ask what the cost was of Structura at the time that the first option to rent it was given.

Mr Sesoko again said that DPW would do a cost analysis because ICD itself was not expert on buildings and prices. DPW would, after doing a costing, ask ICD to confirm whether it had the budget to pay this amount. The Chief Financial Officer at the time had confirmed availability of funds, in the amount of R6.1 million, based on the DPW cost analysis.

The Chairperson asked if this was what the Structura Building would cost.

Mr Sesoko confirmed that this was correct, but said that ICD was not aware what the buildings would cost, initially, but had indicated what it could make available. DPW was expected to negotiate a contract with the landlord based on what ICD could afford.
 
Mr Groenewald pointed out that ICD had said that R6.1 million would be available, and DPW had confirmed that Structura fell within this cost. However, he still wanted to know what the cost would have been for the Meintjies building.

Mr Sesoko said that when ICD viewed the other buildings, it did not know what the cost would be, but any engagement that it had with DPW was still on the premise that the costs must be within the R6.1 million figure given earlier to DPW. Although the Meintjies building was not in as good a condition as Structura, the ICD had opted for that, as the best of the second batch that it viewed, but still preferred to revert to Structura when that latter building became available.

Mr Sesoko then turned to questions asked about the roles of ICD and DPW in the process. He commented that the landlord had problems in getting Structura ready for occupation, despite the fact that ICD had followed up several times and had viewed the progress of the renovations needed for security and infrastructure. The date for occupation kept being moved. When ICD met with DPW in January 2010, DPW raised the possibility of ICD moving into the City Forum building, suggested that ICD should view it, and that it should rather occupy that building. ICD at this stage did not know anything about the landlord or the possible costs. DPW had told ICD that the building was bigger, and that it made sense for the ICD and DHS to swop, because DHS had a smaller staff complement than ICD. ICD confirmed that the City Forum building was big enough, had invited SAPS and NIA to view the building, and both had confirmed that it would meet security standards. ICD then indicated that it would be willing to move in, on condition that all its requirements were met and on condition that the cost of the cabling already installed in the Structura building would be recovered from the DHS. ICD was not at this stage aware that DPW had already entered into a lease in respect of the City Forum building, a year earlier.

Mr Groenewald interjected to ask who were the parties to this lease.

Mr George asked how much had been paid for the cabling.

Mr Sesoko responded that the cost of the cabling was R770 000.

Mr George questioned why this amount was paid for something being installed in rented premises.

Mr Groenewald asked if a lease agreement had been entered into, for the Structura building, at this time. He also asked how much space was available in the City Forum building was.

The Chairperson asked if there was any mention of the cost at the time that ICD had proffered its conditions for the City Forum building.

Mr Moses Dlamini, National Spokesperson, ICD, said it was important to remember that the ICD did not enter into any leases with any landlord. There was a Service Level Agreement between ICD and DPW, and DPW was the signatory to the leases. He noted that the amount given for the Structura lease, of R300 000 per month, was considerably less than the figure of R6.1 million that ICD said it had available. ICD did not know all the details in regard to the lease of the City Forum building. Slide 11 had highlighted that ICD did not have a copy of the lease, and was not privy to any details about the cost of the City Forum building. The ICD had understood that this would be a straight swop, whereby DHS would move into the Structura building and ICD would occupy the premises intended for DHS in the City Forum building. There was no indication given to ICD that City Forum would cost more, so ICD had assumed that the cost would be around R300 000 or around R3.8 million.

The Chairperson enquired what ICD had done when it found out that the costs of the City Forum building were so much higher. She could not understand how ICD agreed to a swop without apparently discussing the legal or cost implications.

Mr Dlamini said that a letter was written by ICD’s Executive Director, before ICD moved, raising the issues. DPW indicated that the cost increases or decreases would be communicated “in due course”. Part of the difficulty in dealing with this was tied to the earlier billing issues. He referred again to the fact that ICD had initially received a very large invoice from DPW, for R25 million. When ICD queried the amount, DPW reduced it to R12 million. There was a major problem in the way that DPW ran its accounting for the buildings, as well as the billing systems. ICD received invoices dating back to 2006, and he asked that this must be borne in mind. In hindsight, perhaps ICD should not have moved in. However, he said again that ICD had understood that the costs would not be much different to what they would have been in the Structura building. Since it had discovered what the costs were, ICD had taken further steps, including seeking legal advice on its options. The reconciliations in the DPW billing to ICD were also still ongoing, so ICD did not know exactly what its leases were costing it.

The Chairperson commented that this whole situation was “a real mess”. She was not sure that anything would be gained by continuing with the meeting. There were several issues that needed to be put to DPW. The information given was shocking; although she would not comment, in its absence, on the actions of DPW, she was also not impressed with the ICD. She asked how any entity could simply take things for granted and assume a certain set of circumstances. Although ICD was dealing with DPW, it was aware of the fact that there was a landlord involved as well. She really could not understand why ICD went so far as moving in to the building, before it found out what the true situation was. The mere fact that it had received notification of R25 million, which was later reduced to R12 million, should have indicated that there were problems. She believed that DPW and National Treasury needed to be invited, with the ICD, to another meeting where the issues could be thoroughly discussed. In the meantime, she felt that ICD should get legal advice on the matter. She reiterated that in the following year, ICD would be asking the Committee to approve its budget, and whether or not National Treasury approved the additional allocation, she was sure that the Committee would view such high rental as wasteful expenditure.

Mr Groenewald asked again how much space was in the City Forum building.

Mr Beukman confirmed that it was 7 614 m².

Mr Groenewald asked if ICD had moved into Structura without entering into a service level agreement with DPW.

Ms Kohler-Barnard asked if the new Chief Financial Officer for ICD (not present at this meeting as she was on maternity leave) had overseen the financial matters, as she would not like to think that those present in the meeting were being blamed if she had done anything wrong.

The Chairperson noted that the Accounting Officer for ICD was the Executive Director, and he should be in a position to account for all matters, and that nothing concerning the Chief Financial Officer could be discussed when she was not at the meeting.

Mr Ndlovu said that he had made mention of the PFMA earlier, and added that if the Accounting Officer was found to have committed one of the offences, s/he was liable to a period of imprisonment. He agreed that it was of no use to proceed with this meeting.

Mr George said it was clear that ICD was not able to answer some of the questions – for instance, the question about the cabling had to be referred to another person - and he asked that ICD must prepare itself thoroughly for the next meeting. He agreed that nothing would be gained by continuing with this meeting, since officials from National Treasury and DPW should be present.

The Chairperson said that all questions asked at this meeting would need to be responded to fully at the next meeting, as Members may wish to interrogate some of the answers further. Some very basic issues had arisen, and nothing should have been taken for granted. She reiterated that she had difficulty in comprehending why, having said that it could afford to pay R6.1 million, ICD ended up paying R15 million. This was a serious waste of money. She noted that the next meeting would be arranged for 22 November, and would involve ICD, DPW and National Treasury.

The meeting was adjourned.