Hospital Revitalisation Grant spending; Kimberley Psychiatric Hospital: with Treasury, North West & Northern Cape & Health Deputy Minister

NCOP Appropriations

08 August 2012
Chairperson: Mr T Chaane (ANC, Limpopo)
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Meeting Summary

The Committee, as a follow up to visits to Northern Cape and North West hospitals, had called for progress reports on the building of psychiatric hospitals in those two provinces. The Committee was reminded that when the North West province had presented outdated reports to the Committee in October 2011 and was asked to revise the figures. The Deputy Minister of Health was in attendance and commented that investigations would be taken up and further reports would be furnished to the Committee. The Members of the Executive Councils for Health, Public Works, and the heads of those provincial Departments were all asked to comment. At the outset, National Treasury (NT) gave a general report to the Committee on the spending of the Hospital Revitalisation Grants (HRGs) across the provinces in the last quarter of 2011 and first quarter of 2012. Whilst there was still underspending overall, there had been improvements on the massive underspending of the previous years. In the Northern Cape, the Upington Hospital was almost complete, but there were still challenges despite full spending. At De Aar there were delays, and late appointment of contractors and assessment of buildings affected the Kimberley new psychiatric hospital. NT cited the original budget as R290 million, but noted that by 2009 it had risen to R490 million, and further delays were caused by a court challenge. There was now a contractor on site, and R91 million was intended for spending under this project. In North West, there were challenges in that the psychiatric hospital did not comply with the required mental health standards. Members immediately challenged these reports, noting that they did not correlate with other information the Committee had received, and enquired if the NT attended the sites, or merely relied upon what was reported to it. In particular, they noted that the court case in Kimberley was not in fact concluded, but the contractor went into liquidation. They also challenged the current costs of this hospital, which were closer to R1.1 billion, and said the current contractor was no better than the previous ones. Members commented adversely on the tendency of departments to present incorrect information, and urged all departments to ensure that they vetted and verified all information presented. They stressed that the spending was not as important as proving value for money in the projects. However, rather than asking further questions of NT, they requested reports from the provincial departments.

The Northern Cape MEC and Department of Health (DOH) confirmed that a forensic report had been commissioned by the provincial Department of Public Works (DPW) into the new Kimberley Psychiatric Hospital. It transpired, from the reports and questions asked by Members, that this project commenced in 2005, being initially awarded to Vista Park Contractors, although there were inconsistencies in pre-qualifications evaluations criteria. There were, firstly, delays in bulk earthworks, and the project completion was shifted to 20 March 2008. By 2007 it was apparent that construction was too slow, with poor workmanship and incomplete remedial work, and a penalty figure of R20 000 per day was fixed. By early 2008 the accrued penalties topped R11 million, but nothing was done by DPW to collect this, and the project was now calculated as two years behind schedule. Meantime, water seepage into partially constructed buildings was causing deterioration of the structures already erected, resulting in the need for remedial work. The contractor failed to outline the completion strategy, but was nonetheless allowed to continue with the project for another 20 months before notice of termination was served. This notice was challenged, but before the matter was finalised, the contractor
was liquidated. R420 million had been spent by this stage. Inyatsi Construction was appointed to carry on with the project, at a cost of a further R400 million, and a completion date of January 2014. However, in the previous month, sample drilling was done which revealed that the structures did not comply with minimum standards, and the company had meanwhile been downgraded so that it was not able to complete the project. The Department, contrary to the advice from NT, said there was no budget available and there had been shifting of funds to pay the costs from the De Aar Revitalisation Budget.

Members were extremely unhappy with this situation, commenting, at the outset, that it was not permissible to shift money
in this way, that the credibility of the contractors should have been checked, and reminded the DOH that the Committee itself, when visiting the project in 2009, had given advice, and now it appeared that demolition was being advised, despite the huge costs incurred. They noted that the DOH was trying to get a resident engineer, asked why the DOH was persisting in using the DPW, asked for details of the Gobodo Forensic Report and were angered to hear the comment that there was much in that report that was not useful, yet a further report had been commissioned at an additional cost. They insisted upon an explanation of what was to happen to departmental officials named in that report, expressed concern that incorrect statements had been made by senior departmental officials, and were dissatisfied as to how the whole matter had been mishandled. In answer to the DOH plea that it was not correct to pin responsibility on the DOH officials, particularly since they may not have been involved at the initial stages, the Committee stressed that the DOH had continued to transfer money to the DPW and said both departments bore responsibility and would be called to account for actions taken against transgressors. It was possible to subpoena past officials to obtain information. They noted that it was shocking that no steps were taken to cancel the contract, noted concerns that many of the psychiatric patients who should be hospitalised were instead incarcerated in correctional centres. They agreed that the matter be reported to the Public Protector for a full investigation into the tenders, who had benefited, and the irregularities, as well as the non-compliance with the Division of Revenue Act. The Deputy Minister requested that she be allowed four weeks to provided a detailed report on the outcomes of the investigations that DOH had undertaken on this project, promising that any corruption would be highlighted.

The North West Department of Health presented its report on spending and said that both replacement clinics and new community health centres were planned, as well as the nursing colleges being extended. This Department had backlogs of over R2 billion on renovations, upgrades and maintenance of facilities. Once again, the Committee questioned the report, noting that the report seemed to suggest that there had not been much progress since the Committee visited the North West in January 2012, and questioned what value for money had actually been achieved, and whether the construction was worth what had been paid for it. Once again, there was reference to the Gobodo Forensic Report. In this province, the Ilima-Tsoga Joint Venture was tasked by the DPW to build the Brits Hospital in 2008 but the Ilima partner, the one complying with the contractor grading, was then put into liquidation. Since Tsoga was not longer qualified to continue, the DPW cancelled its contract, but this was disputed by Tsoga and the matter was currently before the court. The hospital should, nonetheless, be completed by October. Members found the report unclear, asked for clarity on what was meant by backlogs, criticised the lack of timeframes, and called for a breakdown of figures. They called for a report on whether the money spent on renovating other nearby hospitals had been necessary, in view of this new construction, and said that investigations would be requested by the Committee if the forensic report did not address that point. They felt that more information was needed from the national DOH, and the Committee was equally concerned to find out if public money had been properly spent.

Meeting report

Chairperson’s Opening remarks
The Chairperson welcomed the Deputy Minister of Health, Ms Gwen Ramakgopa, to the meeting.

The Chairperson said the Committee would receive progress briefings from provincial health departments of the North West and the Northern Cape, on expenditure of the Hospital Revitalisation Grant (HRG) and Kimberley Psychiatric Hospital respectively. The meeting was a follow-up engagement on progress since the Committee had visited the two provinces.

He reminded Members that the North West (NW) provincial Department of Health had presented an old report to the Committee in October 2011, which was of concern. In addition, although the report indicated expenditure for Bophelong Psychiatric Hospital and General De La Rey Hospital, there appeared to be no work happening at those institutions. Officials from that Department were therefore sent back to consolidate that report. The matter was reported to the Minister of Health, but sadly the Committee never received a response.


The Committee had also visited the Kimberley Psychiatric Hospital in January 2012. This project had been going on for almost ten years without completion. Members were worried about the escalating cost and wanted to get some update. The Departments of Public Works (DPW) from the two provinces were also invited, through their work, to counter the fact that most other departments complained about DPW’s performance. This Committee intended to get responses from DPW whenever complaints were laid against it.

National Treasury presentation on expenditure of Hospital Revitalisation Grants: 4th quarter 2011 and 1st quarter 2012
Ms Ogalaletseng Gaarekwe, Director, National Treasury, noted that the spending on the Hospital Revitalisation Grants (HRGs) had improved in comparison to the previous financial years. In 2010 and 2011 HRGs showed underspending by R1 billion and in 2009 the underspending was just over R900 million. The R424 million underspending for the current financial year was thus a major improvement. Northern Cape (NC) was one of the provinces who had improved its expenditure. Three provinces - Western Cape, Gauteng and Mpumalanga - spent less than they had in 2010 on the HRG grant.

In Northern Cape, the Upington Hospital was almost complete, and although the provincial Department of Health had registered a 100% spend, there had been challenges. Phase 1 of the De Aar Hospital was almost complete as well, but there had been delays relating to the late appointment of contractors by the Department of Public Works. Late appointment of contractors and assessment of the buildings also impacted on the progress of the new psychiatric hospital in Kimberley. Although the project started in 2005, the completion date had been revised to November 2014. The original budget for the project was R290 million, but when NT visited the site in 2009, the cost had escalated to R490 million. There were delays in the project, due to a court case that had now been concluded. As things stood, there was a contractor on site and work was continuing. For the current financial year, the province was scheduled to spend R91 million under the infrastructural project.


In the NW, most projects had been completed but there were challenges with the psychiatric hospital that did not comply with the required mental health standards. There was a decline in spending compared to the same period last year. However, for the North West, there was no information on the HRG spending for the first quarter of 2012 as yet. According to the Division of Revenue Act (DORA), departments were only required to submit reports on 15 August.

Ms Gaarekwe then reported that Gauteng, Mpumalanga and the Eastern Cape were lagging behind on the first quarter spending. Other provinces had generally spent well.

Discussion
Mr A Lees (DA KZN) voiced concern on how NT got its information, because the report presented did not agree with other reports the Committee had received. NT reported a lot of projects as being “completed” in the NW, and asked who had verified that. He wanted to know if this was merely computerised information that NT simply had to put together, or whether an official from any department actually went to check if the work had indeed been carried out.

Mr Lees challenged the statement that the court case related to the Kimberley Psychiatric Hospital was concluded. Instead, he reported that in fact this court case was never “concluded” in the sense that a final settlement was achieved. The contractor was liquidated and the case was halted. He said the cost of the hospital was heading towards R1billion now.

Mr Lees also challenged the statement that the new contractor was on site, and said the new contractor was performing as badly as its predecessor. It was of great concern that National Treasury (NT) apparently was presenting what appeared to be facts, whereas they were  not in fact true. Either it did not get the full facts itself, or it had been misled. He asked again that NT clarified how it got information, and why it was not in agreement with other reports.

Ms Gaarekwe replied that the National Department of Health (DOH) was the source of information as it provided the quarterly reports. These were also required in terms of the DORA specifications. The information regarding court cases, completion of projects, and that there was a contractor on site at the Kimberley Psychiatric Hospital were all sourced from such reports. NT conducted value-for-money-visits to projects around the end of every year, but the Committee should note that the visits were not done to the same projects each time. The figures quoted, however old, were figures indicated in those reports.

Ms Gaarekwe clarified that her colleagues from DOH had indicated that the current cost of the Kimberley Psychiatric Hospital, including equipment, was at R1.1 billion. The R490 million was quoted from an old report. When NT visited the project at that stage, the court case was still pending.

Mr C De Beer (ANC, Northern Cape) said it was becoming common that departments would present incorrect information to the Committee. He requested that information was verified prior to departments appearing before the Committee. The 2009 figures presented were old information, and therefore he too requested that NT familiarise itself with the information that would be presented by other speakers. He asked that the departments needed to communicate properly in regard to all information before coming to Parliament. This was not the first time this was happening, and it cost a lot to come to Cape Town.

Mr B Mashile (ANC, Mpumalanga) queried those aspects of the report that sought to portray the NW as performing well. He asked if there was value for money in the projects. The Committee was interested on information around the new psychiatric hospital in the NC, but, unfortunately, this report contained none. The project had been going on for a long time, and when the Committee had last visited the project it was already costing close to R1 billion. He wanted to know what impact the delays were having on the project and how NT and the Department of Health hoped to address those. He asked if NT agreed with the figures for additional funds that were required to complete the project.

Mr Mashile pointed out the report indicated there was a contractor on site, and some other contractor evaluating the project, and yet that was not captured on the NT report. This would impact on the scope of work to be done. This was what NT needed to talk to, and NT had to give an indication as to how long would it take and the costs.

Ms M Segale-Diswai (ANC) agreed the report lacked information and was difficult to understand. She sought specific clarity on the projects that were finished, including the start and completion date of the projects.

The Chairperson proposed that Members not dwell on the details provided by the NT, as provinces would still have to present the figures. The NT just had to reflect on the state of spending in general. Some of the issues that Members had raised would be responded to when the two provinces were allowed an opportunity to respond.

Northern Cape MEC and Department of Health presentation
Mr M Sokatsha, Member of the Executive Council (MEC), Department of Health, NC, said Gobodo Forensic Investigations were commissioned by the Department of Roads, Transport and Public Works in the province, to prepare a report on contractual matters and the implementation processes at the initiation of the psychiatric hospital project. The report was submitted early in the year. Construction of the new mental health facility was awarded to Vista Park Contractors in 2005, by the Provincial Tender Board (PTB).

The PTB's Bid Adjudication Committee did not use the pre-qualifications evaluations criteria, because of inconsistencies identified in the original tender documents. The work was scheduled to start in September 2005, but there were delays in the bulk earthworks. The project only commenced in February 2006. The revised completion date was 20 March 2008.

In 2007 it was noted that construction on site had slowed, due to poor workmanship and incomplete remedial work. Meetings were held to resolve the challenge, and penalties of R20 000 a day were agreed upon. Early in 2008, penalties amounting to over R11 million had been levied on the contractor, but had not been deducted. By this time, the project was almost two years behind schedule. The contractor failed to submit a revised construction programme, and instead submitted a claim for a due date extension. The delays had knock-on effects on the subcontractors who still had to complete their portion of work.
Non-payment to sub-contractors resulted in longer delays.

Meantime, the s
low progress compounded the construction problems, as penetration of water into the walls and roof leaks accelerated deterioration of structures. Extensive remedial work had to be undertaken on structures completed. There was poor supervision and that led to deviations from the approved construction programme. The contractor had no attendance register, and it was possible that people could have been paid without coming to work.

Mr Sokatsha said that one month before the agreed completion date of March 2008, the contractor was requested to give a definite completion strategy, outlining the contractor’s plan to complete the project. By 04 April 2008, the contractor had again failed to submit the required strategy. However, the contractor was then allowed to continue with the project. From this time the contractor could not claim for compensation, as there existed no basis for contractual commitments. The departments were legally entitled to levy penalties effective from the default date. The concerned departments in the province decided to terminate the contract in December 2009, subject to legal processes.

The contractor repeatedly challenged the decision and that resulted in a prolonged battle before the tender was advertised again. This further lengthy delay resulted in even more significant deterioration of the building due to water ingress and weathering, as well as vandalism and theft of infrastructure items.

In October 2011 the contractor was liquidated before the court could make a final ruling on the contractual claims, with the result that no further financial claims could be instigated against that contractor.

A sum of R5 million was provided through Investec for a period of 24 months. This was inadequate protection for the client, as it was a guarantee by the Northern Cape Department of Roads and Public Works to the contractor, rather than surety by the contractor to the Department. The provincial DPW had withheld R10.2 million retention from the contract amount, and this was kept after termination of the contract. In the final tally, an amount of R420 million was spent on the initial part of the project (R350 million on the actual construction; and R70 million on professional fees).

Inyatsi Construction was then appointed, at a cost of R400.57 million, to build the h
ospital building, internal road and guardhouse, excluding professional fees. The project was scheduled for completion by January 2014. In June 2012, sample drilled courses were conducted to determine the concrete strength, and two of the three passed the tests. The NC DoH conducted its own tests on 2 August 2012. The surface beds on the concrete screeds and fillers on the columns had had to be removed. The NC DoH had also requested that tests be conducted on on-site material. Preliminary findings indicated a variation in strength and some surface beds did not comply with minimum strength.

Unfortunately, the Construction Industry Development Board (CIDB) grading for Inyatsi was down-graded from 9GB to 7GB. Letters were addressed to Inyatsi, and further advice was sought from CIDB on how to proceed. There were three options open to the province: namely, to cancel the contract and re-advertise, to remove the nominated subcontractors from the main contractor and for the provincial Department to appoint them directly, or to unbundled the Bill of Quantities.

Mr Sokatsha said the contractor was falling behind schedule, and current monthly expenditure was 50% less than the cash flow projections. No budget in the 2012/13 financial year was currently available to the provincial department for the project. Expenditure was paid from the De Aar Hospital Revitalisation Grant budget. Correspondence was entered into with both provincial Treasury and the National Department of Health to indicate insufficient budget.


Discussion
Mr De Beer said that departments had repeatedly been warned that they should check the credibility of contractors before entering into agreements. Clearly, in the instance of the psychiatric hospital, this was not done. Recklessness could  not be tolerated as it cost a substantial amount to the State. He asked what corrective measures the provincial department had, to address the situation of the new hospital. He stressed that this Committee had to ensure that good governance and sound financial management were in place, and to ensure that public funds were spent wisely.

Ms Gugulethu Matlaopane, Head of Provincial Department of Health, Northern Cape, replied that the provincial DOH had commissioned tests on the structure. A decision would be taken on whether it would be a better option to correct the defects, or demolish the structure, according to the test results.

Mr De Beer asked if there were timeframes to the designs of the whole project, as it had been going on for a number of years.

Mr Sokatsha replied it was agreed, at national level, that the NC Department of Health would be assisted in finding a resident engineer. Without that capacity the Department would not get value for money. The post had been advertised and interviews were conducted but the Department could not find the right person. Instead, a project manager was hired, but had since resigned. The National Department had promised to headhunt a resident engineer.

Mr Sokatsha added that there had been agreement on setting up a joint committee between the provincial Departments of Health, Public Works and Treasury, to monitor projects and provide reports to Cabinet. The situation with the Kimberley Hospital was “a tragedy”. The provincial Department of Health had, however, seen some improvement in the spending of the grants since it had removed them from the DPW.

Mr Lees wanted to know where the Gobodo Report was, and why the Committee was not told about what it contained.

Ms Matlaopane replied although the Department was not yet in possession of the Gobodo Report, the Committee had indicated that it fingered some officials who were responsible for building. That report would be made available to Parliament once it was received.

Mr Lees sought clarity on who was awarded the initial tender in 2004, asking for confirmation whether it was Babereki Contractors. He wanted to know what criteria were used to award the tender if the pre-qualifications evaluations were fraught with inconsistencies, as this presentation seemed to suggest.

Mr Kholekile Nogwili, Head of Department, Provincial Department of Roads and Public Works, Northern Cape, replied that everyone who was involved in the project had left the public service - one had even died - and it was impossible to answer some of the questions. He said most of the information on the projects was confiscated by the Scorpions when investigating the matter, and that made it difficult to assemble coherent information.

Mr Nogwili added that the Gobodo report was not helpful, but it would be made available to the Members. That report listed a number of issues without saying what needed to be done in respect of the liquidated company. Gobodo Forensic Services was requested to do a re-evaluation, with concrete recommendations as to what should happen to the companies and the people who were involved.

The Chairperson interjected and wanted to know what had happened to the departmental officials named by the report. It was not clear what the DPW wanted to do, especially given that it had requested another investigation, which would presumably cost more, whilst it disagreed with the initial report. The Chairperson also said that it was still not clear how the companies were verified prior to being awarded contracts, and commented that the process of appointments in the NC appeared to be faulty.

Mr Mashile said the statements made were incorrect, and it was even more of concern since they were made by senior managerial officials. He voiced dissatisfaction with the downgrading of the contractor, and how the adjudication was handled. He wanted to know what that contractor who was appointed in December was doing on site, if the Department had already commissioned testing to ascertain whether corrective measures or demolishing was the right course of action to follow. He asked what kind of advice was provided by the provincial DPW in such a situation. He asked what was being done in respect of the engineers who were appointed to provide professional services, and what was the return on the R70 million. All of these were critical questions that determined whether a tender existed, or whether contractors were appointed who were not working although they were being paid. There was a need to go back and review the tender and how it was awarded; and a decision needed to be made on the kind of work that had to be done.

Mr Mashile disagreed with Mr Sokatsha's view on shifting funds. When a budget was approved in Parliament, it was known for what purpose this was intended. Once approved, in terms of the DORA, the budget formed part of an Act of Parliament and could not be violated. If there was the need to shift funds, there were processes that needed to be followed and approved. These were exactly the kind of unauthorised expenditures that were reported on, each year, by the Auditor General (AG). Parliament needed to provide a clear directive to the administration that it should spend money as approved.

Mr S Mazosiwe (ANC, Eastern Cape) said he thought there was no point in taking the discussion further, as it was apparent that there were systemic and capacity problems in the NC. There was further wrongdoing in implementing the projects, as the province was spending money that was simply not there. The country would not be in this situation if the State employed capable individuals to positions. Action ought to have been taken a while back. This was a messy situation and the National Department should intervene decisively as it had power to do so.

Mr Lees expressed frustration at the failure of the departments to simply cancel the contract when the contractors were almost two years behind schedule. He asked why the penalties amounting to over R11 million were not deducted. He failed to understand how the provincial DPW could give surety to the contractor, as in the normal situation a contractor would provide surety for the completion of the work.

Mr Lees was very concerned at the reports that R70 million was paid towards professional fees, in situations where the professionals got it all wrong. He asked who “these professionals” were, and asked if they had been reported to their professional bodies. He wanted to know the budget for the professionals who would be employed by the new contractor, and if they were the same people as were employed in the initial project.

Mr Nogwili said all senior staff were new to the Department, as well as the MEC and had some difficulty in taking responsibility for this project. He noted that the provincial DPW had a resident engineer who would outline the amounts, and correct the calculations.

Mr Lees said it was shocking that a department would hire people to conduct concrete tests just a month before appearing in Parliament, whilst the Committee's recommendation, since 2009, was that the structure be demolished. He asked what exactly what had been done since the Committee’s recommendation. He asked also how it was possible to appoint a new contractor in November 2011, who, a few months later, was downgraded. This was a clear indication that the contractor was not checked out as credible.

Mr Lees wanted to know from NT whether it was permissible to shift funds meant for other projects to fund the hospital construction. If not, then he wanted to know what NT would do about this shifting of funds. He pointed out the contradiction apparent in this presentation, that there was no budget for the project in “the current financial year”, whilst it was also stated that there was insufficient funding.

Mr M Goqwana (ANC, also Member of Portfolio Committee on Health) wanted to know how service delivery was impacted by non-completion of the project. He asked what had happened to the vision for the new hospital, as originally conceptualised. He also wanted to know who was responsible when payment was not being honoured. He requested that the escalation of the cost be explained especially against the background of vandalism.

Mr Sokatsha replied, in respect of the impacts, that the issue of psychiatric patients in the NC was a major challenge, as some patients were in fact imprisoned, and a judge in the province had indicated that the issue of patients being incarcerated instead of hospitalised would no doubt result in court action. The delay in completing the mental hospital was creating havoc.

Ms B Ngcobo (ANC) asked if there was a recovery plan should the contractor not be able to carry out the job. She also wanted to know if the provincial department had reported the challenge it had with the new hospital to the National Department.

Ms T Memela (ANC KZN) commented that she was disappointed, especially as she had been on the team who visited the project. She reiterated that at that stage, this Committee had recommended demolition of the building, since the pillars were not even correctly aligned. There was no way that building could be patched, and asked why the Committee's recommendations were ignored. The Committee had even noted that some rooms were inadequate, being more like camps and isolation rooms.

Ms Memela asked how the department hoped to recover the money. She agreed with the comments of Ms Memela, commenting that the building, when seen, was not fit even to house animals.  It was clear that there was poor monitoring of the project, the whole tendering system had been wrong, and the department should tell the Committee who should be charged with failing to exercise the necessary responsibility.

Mr A Kganare (COPE) said that he believed the provincial DPW was at fault, as it was supposed to take responsibility for infrastructure. He wondered why the provincial Department of Health in the NC should accept responsibility for incompetence on the part of DPW, and commented that this latter department appeared to be “attracted to mediocrity”. This department had initially appointed the wrong company, and when it was supposed to fix that, appointed another incorrect and inappropriate company, all of which made him suspicious. He thought it was clear that this facility would never be finalised, as there was now no money to finish the project. He questioned what would then happen. He failed to understand the reason for having a provincial DPW if it could not even attend to infrastructural provision. He reiterated that in his view, DPW should take the responsibility.

Mr Kganare said the NC departments needed to collectively decide what they would do to try to rectify the situation. The concerned departments should not attempt to make recommendations to the Committee but rather tell Members honestly what needed to be done.

Ms D Robinson (DA) supported the view that something had to be done for the future. She felt strongly that accountability should be enforced. This whole situation was a tragedy of errors, especially for the patients. Everybody knew of the overriding poverty and lack of amenities, including housing, yet so much government funding was simply going to waste. The Committee could not allow such a situation. People’s lives were being  compromised. She said she shared Mr Kganare’s suspicions, and wanted to know who could have benefitted from the mess.

Mr Sokatsha said the Department of Health in the NC had taken a decision that it would no longer pay money into the Kimberley Psychiatric Hospital, even if the contractor took the Department to court.

Mr Mashile agreed that it was the DPW who had let down the government, as it had qualified personnel and sufficient expertise to be able to give a technical opinion on what should happen on project sites. He too asked why the penalties were not collected. The provision of a penalty clause in any contract document was precisely to allow the State to recover money in cases of  failure.

Mr Mashile was also concerned by the fact that, apparently despite the lack of budget, the tender was advertised, a new contractor was appointed, and a report was commissioned on structural defects that were being remedied – all of this sounded like a contradiction. He asked what the contractor was doing on site if there was no money for the project in the current financial year.

Mr Sokatsha explained that the correspondence to NT and DOH was basically to warn them that NC would not have money in the long run. At the De Aar Hospital, the spending was very slow, and NC Department of Health believed that not all that budget could be spent by year end, yet had wanted to avoid the situation where the money for this might be recalled although there was another structure for which that money could be used.

Mr Mashile asked about the details of downgrading of the contractor, and the impact it would have in the context of the project. He also sought clarity on the specific details of the tendering process, especially the fact that the second and third tenderers were not considered, in line with the norm.

Mr M Makhubela (COPE, Limpopo) also asked the provincial department to furnish the Committee with specific reasons why the new contractor was downgraded.

Mr Nogwili replied that the downgrading meant the original company could no longer do the work. The CIDB informed the Department in February that the contractor was downgraded for being a poor financial risk. The contractor had apparently taken R40 million from one contract to fund another contract in which it was involved. Because of the doubt as to its financial viability, as a result of this shifting of funds, the company had been downgraded. This indication was not related to the capacity of the contractor to deliver. The Department was in contact with the CIDB in trying to resolve the matter. The latest information was that the company had reversed the money, that audits were conducted and the company stood a chance of being upgraded again.

Mr Mashile asked again if shifting of funds was considered legal, given that when a budget was approved it assumed the status of legislation. Any violation of a law should have consequences. He wondered how it was possible that DORA, approved by Parliament, could simply be ignored, and said that this was akin to the highest order of misappropriation.

Mr Sokatsha replied that there was no corruption and nothing illegal in shifting grant funds around projects. He said his view was that the province had to spend the HRG.

Ms Matlaopane said the Department was aware that it was improper to use the HGR grant in trying to salvage the mental hospital.

The Chairperson said that whilst Members were correct in assigning some blame to public works, it must be remembered that money was transferred to the Department of Health, who eventually paid out without considering the amount of work done. The report gave a clear indication that no work was being done in Kimberley. It would have saved the Committee considerable time if the MEC had simply stated, at the outset, that nothing was happening. It was even more disturbing to him that the deviation and shifting of funds was allowed to happen on a project that had stalled, and must be seen against the specific advice of the Committee that the project be halted. This Committee could not come to any conclusion other than that the project was going nowhere. If there was no capacity in the DPW, then there was no reason for the department of health to insist on working with it.

Mr Sokatsha commented that he still doubted if he was the right person to be called to account before Parliament. Some of the issues that were dealt with had been adequately addressed in the report. He said if he tried responding to the questions further that would create confusion, especially around the contractor.

The Chairperson said the MEC was indeed the right person, as transfers were made to the DOH. He disagreed with the notion that because grant money was paid, it ought to be spent, even if this meant paying it out against no returns. The NC DOH had essentially given money to the DPW for no returns. This project was also beginning to unlawfully result in the shifting of funds from other grants, and was even threatening to compromise poor people in the NC. Whether or not the MEC liked it, he must accept responsibility for the psychiatric project, and had to ensure it proceeded properly. The Committee had been hearing these excuses since October 2010. He reiterated that the grant money was transferred to DOH. The fact that it was then paid over to DPW for no results amounted to an abuse as it was paying for resources that were non-existent. If the DOH was serious about the issue, it should have acted a while back.

Committee’s call for investigations

Mr Montshitsi said the Committee was told on two separate occasions that the provincial departments were on top of the issue. Now the story appeared to have changed completely, even to the extent that the Committee was being misled. He did not believe that the matter would progress with the current delegates. He suggested that the best route to follow would be to ask the Public Protector to investigate, and, after she had submitted the report, to refer any wrong-doing that might be apparent to the Special Investigating Unit (SIU).

Mr Lees said it was disappointing that the MEC and the officials could not answer questions emanating from their own report. Even if officials had left the public service, they could still be subpoenaed in order to get the answers. He agreed that the matter should be referred to the Public Protector.

Mr Goqwana said that the fact that new officials were appointed indicated that something had been done. The National Assembly Portfolio Committee on Health would invite the group again, to get the details of corrective measures taken. He said he was worried about the state of readiness for the province in implementing the  pending National Health Insurance.

Ms Memela said she rejected the excuse that officials were new to their portfolios. There was an overall responsibility on the whole of the provincial DOH to take care of the sick. She called for an immediate and intensive investigation, and said that, whilst the Committee was prepared to offer support to the officials, it nonetheless believed that the two departments had failed the nation.

The Chairperson said there was a need for investigations into what had happened with the Kimberley Psychiatric Hospital. He said the Committee would oversee the process of getting those who had been responsible for the contravention against established financial principles brought to book. It was not possible to simply allow wastage of half a billion rand, without any action being taken. The Portfolio Committee was correct in asking questions about the impact of the delays, and also in questioning the shifting of money from other projects.

Deputy Minister's input
Ms Ramakgopa agreed that DOH needed to take responsibility, as it received the money for the HRG. The Department of Health had allocated a project manager to the NC but he had since resigned. Overall, with the exception of a few cases, there was significant progress on infrastructural projects.  With the support of the Development Bank of Southern Africa, and the Infrastructure Unit at DOH, matters could improve. She requested that she be allowed four weeks to provided a detailed report on the outcomes of the investigations that DOH had undertaken on this project. She noted that it did not help to insist that DPW be used as an implementing agent did not help, as it had too many projects to oversee. It was not unusual that in some projects, things could go wrong, but agreed that there needed to be a focus on risk management and plans. It was vital to check the credentials of a company that was being contracted, as well as to implement a rigorous monitoring. Where there was corruption the State should take action. If this had happened, it would be highlighted in the report, and a course of action suggested.

North West Department of Health presentation
Mr Kabelo Motene, Infrastructure Manager, Provincial DOH, North West, said that for the 2011/12 financial year,  99% of the grant was spent for hospital revitalisation. In the first quarter of the 2012 financial year, there had been 29% expenditure on the grant. His department would be constructing six Replacement Clinics this year, and would also build three new community health centres to meet the growing demands on public facilities.

Mr Motene said the provincial DOH would extend Mmabatho and Excelsius Nursing Colleges to double the numbers of students they were able to accommodate.  Four nursing schools - Stegman, Witrand, Thusong, and Taung - would be replaced over the Medium Term Expenditure Framework (MTEF) period. The Department had backlogs of over R2 billion on renovations, upgrades and maintenance of facilities. New settlements had resulted in health facility gaps, which meant in turn that there was about R1.8 billion backlog. The implementation of National Health Insurance (NHI) would require about R800 million to meet the standards.

Details on the Brits Hospital would be provided by DPW, but work had not started at Bophelong, although the bulk earthworks phase of the project was finalised. The Lichtenberg Hospital approvals had not been finalised by the National Department, so it was still on the design stage.

Discussion
The Chairperson pointed out Mr Masome Masike, MEC for Health, North West Province, that when the Committee visited the province in January 2012, it was told that at the De Larey Hospital, only the earthworks had been done. He questioned how the same situation could be presented today, and said that the Committee was promised an update report, reviewing the actions taken, since there was nothing apparent to be seen for the millions of rands that had been spent.

Mr Masike replied that engineering projects had phases, including design, earthworks and the actual construction. He said that when the Committee visited, the company was busy putting the pipes underneath the structure. On this, an amount of R79 million was spent. He said his reference to “no work to show for the money” referred only to the designs and earthworks and was not intended to mean that nothing was happening. He agreed that nothing was visible in terms of bricks and mortar, but said that up to date, the site had been fenced, and the bricks and mortar construction was about to start. The Lichtenberg hospital was delayed due to lack of approvals from the National Department.

Mr Masike also referred to the forensic investigation undertaken by the Gobodo Group, and said the Department had a draft report. Action would be taken on that.

Mr Lees wanted to know if the money spent on the project so far matched the amount of underground work done.

Mr Thapelo Makhetha, Head of Department, Department of Public Works, North West, said that Ilima-Tsoga Joint Venture was tasked by the DPW to build the Brits Hospital in 2008. The Department received information, late in 2009, that Ilima was under liquidation. A legal opinion was sought on the status of the contract and the implications of such a situation. The contract was later revoked by the remaining partner, Tsoga, who was not qualified, in terms of its contractor grading, to carry a project of that magnitude. The condition was if Ilima survived liquidation, it would continue with the joint venture, but if not, Tsoga would not be allowed to continue with the project, as that would expose the Department to unnecessary damages should anything go wrong. The advice from its attorneys was that the DPW had a right to terminate the contract, and ensure proper compliance with the tender and procurement processes. The indication was that it was not necessary to allow Tsoga to find a suitably qualified partner to continue with the work. The Department was advised to follow fair and transparent tender processes. The DPW opted for the termination, because DOH was eager to have the project finalised. The intention to terminate was communicated to the joint venture in 2010. However, Tsoga disagreed and accused the Department of reneging on its earlier agreement, despite the fact that it was clearly not capacitated to deal with the complicated work of constructing a hospital. Tsoga submitted all its outstanding invoices, that amounted to R30 million, but the figure it claimed in settlement was disputed by the DOH.

Mr Raymond Elisha, MEC for Public Works, North West, said that if the DOH had made transfers to the DPW, the minority share holder would have been paid the settlement amount. Tsoga's expectation and claim for the amount it wanted in settlement was presently before the courts. He said that he needed some time to work out the issues. From a legal point of view, Tsoga had valid claims for part of the settlement, despite the fact that it was a minority shareholder in the project.

The Chairperson wanted to know if the hospital was complete.

Mr Makhetha replied the hospital would be completed in October and that the Department was on course to complete by the due date.

Mr Makhubela complained that the use of the word “challenge” without specifying the causes of a challenge was unfair.

Ms Segale-Diswai asked for the date on which the project was awarded. She questioned what was meant by “backlogs”, and asked if this had anything to do with the money needed to complete the project, and, if this was so, then what the implications were for service delivery. She complained that she had found the presentations by officials from DPW confusing, and unhelpful.

Ms P Kopane (DA) voiced concerns on that there were no timeframes for the new projects that were intended to improve capacity at public facilities in the province. She too asked that reasons for the backlogs be spelt out in detail. She also called for an explanation as to how the figure of R800 million needed for the implementation of the NHI was calculated.

Mr Mazosiwe said the MEC for Public Works needed to be granted time to deal with the Tsoga contract. He also suggested that the questions around the extra money should be captured in the MTEF. He said he failed to understand the rationale behind the shortfall of R800 million on NHI implementation.

Mr Masike replied that the R800 million was costed on the basis of what constituted quality health care at the institutions. The province had undertaken a quantifying exercise into the amounts that would be required if the NHI was to be implemented properly. He confirmed that the Brits Hospital would be completed by the end of the year, but the challenge lay in equipping the hospital.

The Chairperson said it would be better if the Report on the Ilima-Tsoga project, in its present form, was not made public as it carried various inconsistencies and the matter was subject to legal proceedings.

The Chairperson asked about the millions of rands already spent in  renovating Bophelong Hospital, if a new psychiatric hospital was now being constructed. Hopefully, investigations would cover the aspect of money being spent on a project that would simply be abandoned, but if not, then this Committee would push for investigations into that project. National Treasury had records of money spent in the old hospital.

Mr Elisha commented that he accepted the advice of the Committee around making the report public. He said he suspected foul play on the whole issue, especially in relation to the fact that those who were supposed to advise the Department had apparently reneged. He agreed that it would be necessary to deal with these people. He reiterated hat the reason why Tsoga qualified for the project in the first place was via its partner, Ilima, who had met the grading requirements. When Ilima was liquidated, then Tsoga alone could not be allowed to carry on with the job.

Mr Masike replied that he always knew there was a new 600-bed psychiatric hospital that was reduced to a 300-bed. At the time of the Committee's visit, he reiterated that although there was no concrete brick and mortar construction, the site was being prepared. He said that, according to the information he had, there was no intention to renovate the old Bophelong Hospital, but renovations had happened at a nearby Mafikeng Provincial Hospital. Bophelong did not comply with modern day standards of treating mental patients, where qualitative care could be provided. He added that the pending investigations would look at whether the money spent matched the earthworks done.


Mr Goqwana interjected and sought clarity on the proximity of the two hospitals, and whether renovations were planned for both institutions.

Mr Masike replied that this was indeed the case. He replied that timeframes were a difficult issue, as there were 14 projects that had to be awarded. Until projects were awarded, there was no contractor, and it usually took up to two months for contractors to come on site and produce project plans. The projects were late, but the tender would be awarded in seven days.

Ms Memela wanted to know the plans for the old hospital buildings that would be left unattended and unused.

Mr Masike replied the Department would have to look at that, but if any of the buildings were not suited to human habitation, they would be pulled down.

Mr Goqwana sought clarity if the contractor Ilima was the same as the contractor producing shoddy work at Jabulani Hospital in Soweto.

Ms Segale-Diswai asked why the same company would be used again by government if the Jabulani Hospital was a disaster. She asked if officials conducted background checks on the work of companies before contracting them.

Mr Makhetha replied that although he had no specific information on Ilima, background checks were conducted when contracting companies. This was also emphasised at the Ministers’ Meetings, and it was emphasised that contractors blacklisted by National Treasury should not be used. He said one solution would be to establish a database of companies' performance of projects throughout the country.

Ms Robinson commented that there was a general reluctance among officials to answer questions on Ilima. There should be transparency when dealing with companies that did not perform. She said it was important that information on management of companies, and their performance, be verified prior to their being awarded projects, especially since this concerned public money. She suggested that a definite process be implemented in future and asked that the NW furnish the Committee with details on who owned Ilima.

Closing remarks
The Chairperson said the NW story was incomplete and the Committee would await the final report from the National Department. He commented that it was right that there should be investigations into these projects, which had involved the spending of considerable money, which could not always be directly compared to the actual work on the ground. These cases would be followed up, to ensure that public funds were spent correctly. Where there had been contraventions, there had to be consequences. Parliament would push for action to be taken, and if the provinces failed to do so, then National government had powers to intervene.

The meeting was adjourned.

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