Kimberley Mental Hospital construction delays: follow-up hearing after oversight visit

Public Accounts (SCOPA)

02 November 2012
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Chairperson said the Committee needed to engage more deeply on challenges that had caused the unacceptably long delays in the construction of the Kimberley Mental Hospital (KMH). The Committee would have loved to have had the follow up briefing in Kimberley but that was not possible, given the parliamentary programme. Members sought to establish if due diligence was done to ensure Vista Park Developers - awarded the contract in 2006 - would be able to complete the project in two years.

It had been discovered that due diligence was not done, and in fact the tender board had awarded the contract to Vista Park, against a recommendation of the Department of Roads and Public Works (DRPW). The Department had recommended Grinaker LTA, which was the highest scoring bidder.

Members sought to understand this decision and ask if any form of communication was done to outline the reasons for this decision. DRPW revealed there was no formal communication; instead the former Head of Department was instructed to write a letter informing Vista Park that it was the preferred bidder. The Vista Park Developers dismally, and after failing twice to provide a completion strategy, the contract was terminated in December 2009. It was revealed that more than the original amount of the contract had already been paid by this time.

Members said the issue of the contract required further investigation at a high level. The Committee was not sure how the investigation would be done but the matter surrounding the letter would be investigated. It was suggested minutes of the tender board meeting on that matter also be looked at.

Members voiced displeasure at the time it took the Department to terminate the contract, whilst warnings that Vista Park was unable to complete the project had been there for a while. It was revealed that the change of officials at the Department could have had a direct bearing on the decision to terminate.

When the company failed to provide a completion strategy, a departmental official was sent to investigate. Stringent conditions were set, but the contractor refused to concede to some of the conditions.

It also appeared that penalties levied against Vista Park amounting to R11 million were never collected. This decision followed a letter written by an official who had since passed on, that levies would only be deducted at the completion of the project.

The Committee heard R450 million had already been paid out on the project by 2008 - the project was supposed to have been complete in 2007. It was explained that the R290 million tender amount did not include escalations, professional fees, contingency fee, and variation orders. If Vista Park had finished the project in 24 months as initially scheduled, the cost of construction alone would have gone up to R556 million because of variation orders and escalations. With professional fees the cost would have increased further.

It appeared by the time the hospital would be completed in March 2014 – the revised completion date - the hospital would have cost over a billion rand. Members said the matter needed a thorough investigation. The Gobodo investigation findings would form the basis of the process to be followed. The first Gobodo report was not a forensic but a scoping report. The Department had instructed them to do an investigation into all the areas the report highlighted.

It appeared a new company (Inyatsi) was on site, although there was no budget in the current financial year for the project. Money would be shifted from the De Aar facility and permission had been sought from the National Department of Health. Members voiced dissatisfaction, and doubt about the completion of the hospital, especially since Inyatsi had been downgraded, and that it was already behind schedule.

The current DRPW MEC said “this mistake” should be a lesson for everyone. The Health MEC agreed this was a lesson for everyone. He was confident that the project would be delivered – especially now that everyone had started working together.

Meeting report

Opening remarks
The Chairperson said the Committee had received a briefing on the Kimberley Mental Hospital (KMH), but that was cut short because the Committee felt it needed to engage at a deeper level. The Committee sought to understand the challenges that had caused the unacceptably long delays in the construction of the hospital. The Committee would have loved to have had the follow up briefing in Kimberley but that was not possible, given the parliamentary programme. He handed over to Mr Roy Ainslie (ANC) to lead the interrogation.

Background to Kimberley Mental Hospital construction delays
Mr Ainslie said there was a need to understand the history behind the delays at the KMH. The background to these delays was important because Government was in the process of committing over a trillion rands on infrastructure development in the next 20 years. If government could not get it right in the Northern Cape, how could it expect to get it right elsewhere? There was a need to understand what was currently going wrong with the Kimberley facility.

It was important to remember that the facility was first promised to the voters in 2005, seven years later it was still incomplete. Now the Committee was told construction might be complete in 2014 at a cost that had quadrupled - from R290 million to R1.8 billion. This had serious implications for government infrastructure development in terms of time and cost.

South Africa deserved to know what officials in the Northern Cape had done wrong. He asked if due diligence was done to ensure Vista Park Developers - awarded the contract in 2006 - would be able to deliver the project within the stipulated two-year period.

DRPW recommendation ignored
Mr Kholekile Nogwili, Head of Department, Department of Roads and Public Works (DRPW), Northern Cape, replied when the same question was raised in Kimberley, it was indicated the question could not be answered, as DRPW functioned only as a tender committee that only recommended. The then tender board took the decision to award. The contractor that was recommended by the Department was the Grinaker LTA/HSH. But the tender board awarded it to Vista Park.

Mr Ainslie interjected and wanted to know why that happened.

Mr Nogwili replied the document contextualised the answer to the question and read from it. The hospital building contract was preceded by several smaller contracts, which included the entrance road, the sewer line and water supply as well as the bulk earthworks. Expression of interest documents for the construction of the new mental health facility were issued on 24 March 2005. Twelve tenderers were received. Prospective contractors were evaluated on their ability to take on a project of this magnitude. Only functionality was assessed and those that met a minimum set score were later invited to submit their prices.

During the adjudication stage, the Department discovered the consulting firm used an outdated Targeted Procurement (TP) document of 2000 to develop the pre-qualification document. The consultants were requested to come up with a revised document based on the Preferential Procurement Policy Framework Act. The revised document was issued to all twelve contractors on 23 June 2005 and returned on 27 June.

Mr Nogwili said only six contactors returned the required documents. The second pre-qualification was discussed at a joint departmental committee meeting on 6 July 2005. The departmental committees again found some discrepancies in the evaluation reports from the professional teams. The Department resolved to recommend to the provincial board to disregard this pre-qualification, and that all twelve tenderers be re-invited.

The Department recommended Grinaker LTA/HSH as the highest point scorer. The tender board, however resolved to award the project to Vista Park Developers and Joh-Arc Investments joint venture. He said the Department could not explain the issuing of the contract to Vista, as it was against its recommendation.

The Chairperson said this explanation was critical and laid the foundation for everything.

Mr Ainslie said this needed to be investigated. Why was the company recommended by the Department, not given the contract? This needed to be noted; it appeared no one could answer why the decision was changed. He asked if there were any reasons advanced for such a decision. He would recommend that questions be noted so as pass them on to the Special Investigating Unit (SIU) when it got involved.

The missing letter
The Chairperson asked if there was a formal communication and reasons given as to why Vista was chosen. What documentation was there that talked to the decision of the tender board?

Mr M Motingoe, Legal Advisor, DRPW, Northern Cape, replied he could not answer that question because his involvement was only based on records. People who were part of the process were present at the meeting.

Mr Dawid Rooi, MEC, DRPW, Northern Cape, said there was no formal communication or letter, hence the decision to bring those that were involved with the process. The people who might have knowledge of whether such a letter existed were Mr Elias Selemela (former HOD - DRPW) and Mr Sello Mokoko, HOD - Northern Cape Provincial Treasury.

Mr Selemela replied the bid adjudication committee made its decisions and recommendations to the tender board. After due process the tender board would write a letter via the Chief Finance Officer (CFO) to the HOD informing them about the company it had decided on. The HOD would in turn inform whoever was appointed.

The Chairperson asked what had happened in this particular instance?

Mr Selemela replied it happened exactly like that. If the HOD had written to the company recommended by the Department, he would have acted beyond his powers; one had to first wait for the tender board to pronounce on its decision. This was the process until a decision was taken that the Department could deal with tenderers directly.

Mr Mokoko replied despite his being new, the tender board had made him uncomfortable because in terms of the Public Finance Management Act (PFMA) it was not supposed to exist. As part of trying to regularise the situation, Provincial Treasury wrote to the provincial government requesting that the tender board be done away with so as to comply with the PFMA. The role of the Provincial Treasury was limited to being a secretariat of the tender board and could not make any decisions. He tried to ascertain the kind of documents that existed in his office regarding the KMH, but the answer was the bulk of the documents were given to DRPW at their request when there was an initial investigation. He had never seen the required letter at Provincial Treasury.

Ms D Chiloane (ANC) voiced displeasure at this answer and said Provincial Treasury should be able to say what were the reasons, as it administered the tender board. Why did the tender board ignore the recommendation by DRPW?

Mr Ainslie also voiced displeasure with the tardiness on the part of Mr Mokoko, and wanted to know if any one did ask why a DRPW recommendation was not adhered to. If this letter was not found, was it not possible that this letter was with the former Scorpions? He was aware that there was an investigation into the matter by the Scorpions and they had confiscated a large number of documents. There was a need to establish to what extent the Scorpions investigated the matter and if there was going to be a further investigation.

The Chairperson said this was the cardinal point; it explained everything that had happened. It was sad that the letter – explaining why a DRPW recommendation was disregarded – was missing. He asked if anything was known about the directors of the Vista Park Company, and who sat on the tender board at the time.

It was pointed out that the information was annexed to the documentation.

Investigation mooted
Mr Ainslie said the issue of the contract required further investigation at a high level.

The Chairperson said the lack of due diligence should be looked at; this was costing the country over R800 million. The Committee was not sure how the investigation would be done but as a matter of principle the matter surrounding the letter, would be investigated.

Mr Selemela suggested that the minutes of the tender board meeting on the matter be also looked at. The letter would have been a summary of the proceedings of the meeting on that day.

The Chairperson instructed that Provincial Treasury and DRPW find the minutes and the letter of the Tender Board. Such information would also reveal who the members of the tender board were. He requested Mr Selemela to note all the names he could remember who sat on the tender board and avail the information to the Committee.

The Selemela saga
Mr Ainslie said in 2007 it became apparent that the company was unable to deliver and the contract should be terminated. There was poor workmanship, work was slow, and remedial work was not being done. The contract should have been terminated at the first sign that the contractor was unable to deliver. Why was it not terminated; why did government continue to pay out funds until 2009?

Mr Elias Selemela (former HOD - DRPW) replied he was not at the Department. He was out for a period of about 14 months due to misunderstanding and related issues with the employer.

The Chairperson insisted on the details as to why he was suspended, and if his removal was related to the psychiatric hospital.

Mr Selemela replied it was quite a number of "related issues", pertaining to performance of his duties as HOD, and the implementation of the PMFA and policies at the Department. This turned out to be a big issue. But during the period under question, he said he was out and the people who ‘acted’ were Mr Michael Hendricks, and Ms Ruth Palm who was present at the meeting. He indicated that the MEC was Mr Kagisho Molusi - currently a Member of the Provincial Legislature.

Ms Palm enters the fray
Mr Ainslie wanted to know why the contract was not terminated. The normal course of procedure, when things went wrong with construction projects, was to terminate the contract. For some very strange reason this one was allowed to continue.

Mr Ruth Palm, former Acting DG (currently Chief Director), Northern Cape DRPW, replied the company indicated that it had cash flow problems. A meeting was held by the concerned MECs - Health, DRPW and Provincial Treasury - to see how the situation could be remedied. While alternatives were being considered the contractor gave an undertaking that it could complete the project and that its cash flow had improved.

The Chairperson sought clarity on the period that Ms Palm ‘acted’, and the amount of monies paid to the contractor.

Ms Palm replied she had ‘acted’ from October 2006 until January 2008. By the time the contract was handed over to the contractor, things such as the foundation were not correct on site. In that period the contractor had an extension. She requested that the professionals explained the payments.

The Chairperson sought clarity on the dates of Mr Selemela's suspension.

Mr Selemela replied it was mid 2005 when he experienced problems in the Department. Tensions simmered, but the actual removal was preceded by two months forced leave in October 2006. He was reinstated after a protracted court battle in February 2008.

Mr Ainslie wanted to know why, after his return, the company was allowed to continue for another 20 months, only to fail again. The company failed to provide a completion strategy.

Ms Palm replied that when the company failed to provide a completion strategy, a departmental official was sent to investigate. Stringent conditions were set, but the contractor refused to concede to some of the conditions. By December 2009, the contract had been terminated and all of this was communicated to Mr Selemela when he returned.

Mr Selemela replied that during his absence at the Department, there were a number of meetings that were held with Vista Park. The only element that was not being spoken about in the meeting was that Mr Andre Scholtz was a unique character in the Northern Cape. Mr Scholtz used the open door policy with the MEC to his advantage in that instructions came through him. As an HOD one could not just terminate a contract of that magnitude in the Northern Cape; that would be at one's demise.

Mr Ainslie said whoever the MEC was, he needed to answer the question why was the contractor allowed to continue with the work despite failing to deliver on the completion strategy of a failed project. There seemed to be a close relationship between the MEC and the contractor at the time.

The dead man and uncollected penalties
Ms Chiloane asked if it was difficult to levy the penalties. The penalties accumulated up to R11 million, but were never levied. This should have been an easy thing to do as an office; just to comply with the regulations and the agreements of the contracts.

Ms Palm replied during the time she acted, penalties were not an issue in question. The extension of the contract due to issues of the platform was about 114 days and due to the rainy weather about 17 days; the contract completion date would have been 20 March 2008. Payments were only made on the work done, and penalties would have been effected from March (and the suspended DG had been back since February).

Mr Ainslie said he failed to understand the explanation because penalties of R20 000 a day were levied and were not collected, and by March 2008 penalties amounted to R11 million. Both officials (Ms Palm and Mr Selemela) needed to answer the question why was the money not collected.

Ms Palm replied that when investigating the matter, the Department came across a letter written by the Project Manager (who was a Chief Director of Infrastructure projects) giving an instruction to the professionals not to levy the penalties. She said neither Mr Selemela nor her were aware of the letter. Unfortunately a dead man told no tales and the individual had passed on and could not therefore answer as to why he gave such an instruction without her knowledge.

Mr Ainslie wanted to know if monitoring was done by his seniors as they would have known that R20 000 was levied daily on Vista Park and was not being collected. Had the officials asked why? They would have uncovered the letter while the gentleman was alive. He in turn would have explained. This was a case of not caring because the officials were not paying from their own pockets; it was government money.

Ms Palm replied the certificate did not come to her as the HOD, and she did not know that R20 000 was being levied daily. It was possible to recoup the money from the retention money when the contract ended.

Mr Selemela said when Mr Scholtz came to the Department he only spoke about money owed to him; he never mention the issue of progress on the project. There was a meeting when the penalties were in the region of R7 million and he denied them. At that time the Department only advised the Department of Health, when it needed to make payments.

He met with the Health HOD and discussed all these issues. It was resolved that the provincial government be informed. A memorandum was prepared that was supposed to indicate the Department's frustration. The MEC was aware; this matter was discussed with him but he adopted an approach that said “discussions were happening and there was a possibility that the matter would be resolved”. The matter was reported even to the provincial Portfolio Committee, of which Mr Rooi – the current MEC - was a member.

Mr P Rabie (DA) sought to establish whether the quantity surveyors reported to Ms Palm at the time.

Ms Palm replied the Project Manager representing the Department (Mr Modise) reported to her. The biggest issue was the slow progress and also that the company did not have cash flow. The quantity surveyor was Mr de la Rey. Terminating was a big decision for an acting person to make, given the cost implications when one had to appoint a new contractor.

Mr Rabie commented that the MEC could have been approached; this was a lot of money being wasted. Were there no warning signs, and officials had just said there was an open door policy to the incumbent MEC. Somebody should take full responsibility of such wasteful expenditure.

Ms Palm replied she did not recall overpaying the company but the project manager could reply.

Mr Rabie pointed out that when the contract was terminated, R350 million (way over the original total amount of R295 million) of the contract had been paid. He sought clarity on these figures.

The Chairperson said the documents indicated that by the completion date the money had escalated from the original amount. But the question that needed to be asked was how did Vista Park got paid R350 million for shoddy work. Who approved those payments? He asked if the money was simply paid because Mr Scholtz wanted it that way.

Mr Nogwili replied that the letter written by the dead official did not say "do not pay, rather that the levies would be deducted at the end of the contract". This was very strategically crafted. He disputed that the calculations of the monies paid went to R1.7 billion. In the books of the Department, the money did not come to that. He requested that one of the consultants break the finances down.

Mr Ainslie said the official also needed to explain the R70 million paid to the professionals. What were they paid for; what value for money did government get from these professionals? He said the money as at the point of termination in 2008 was R420 million, not R350 million.

Variations, escalations and the Chairperson
Mr Bonakele Mothei, Director, KDM Quantity Surveyors, explained that the R290 million contract amount did not include escalations, professional fees, the contingency fee, and variation orders.

The Chairperson sought to establish if the official hinted that the amount of R290 million was misleading in that it created a false sense that it was going to be cheaper.

Mr Mothei replied the figure was not misleading, but it was not all-inclusive.

The Chairperson quipped that they were talking the same English, that the R290 million was not the sum total of the contract.

Mr Mothei agreed, and said had Vista Park finished the project in 24 months as initially scheduled the cost of construction alone would have gone up to R556 million because of variation orders and escalations. With professional fees, the cost would have gone further up to R950 million.

The Chairperson wanted to know if it was correct to say the hospital would cost R290 million.

Mr Mothei replied “R290 million plus variation orders, yes”.

The Chairperson asked if this was the correct pricing.

Mr Mothei replied, yes, when the construction started, but in construction as variations and escalations happened, it would not end at R290 million.

The Chairperson asked if this was normal in the construction environment to knowingly give lower prices that would escalate.

Mr Mothei replied he did not know, but in that R290 million, escalations and variation orders had to be included.

Mr Ainslie asked what escalation orders meant.

Mr Mothei replied these were increases to the original price of the contract due to materials cost as the project unfolded.

Mr Ainslie commented that the R290 million was a thumb-suck budget, and it ought to be what Vista Park worked on.

Ms Chiloane said she failed to understand the explanation. When people gave these figures, they underestimate the value; it seemed like they were nothing. Whether one was acting or full time, the PFMA stipulated the general responsibilities of an Accounting Officer. She asked why was it difficult for officials to follow the rules. People needed not base judgements on how popular individuals were with officials but stick to what the PFMA required. Escalation was not a norm; it was as a result of poor planning and lack of oversight by departmental officials. The work of the officials was to monitor projects awarded by department according to the need of the people.

Mr Rabie agreed and said the Committee needed to accept that government money was misappropriated. The situation was untenable and an explanation from whoever was responsible was needed. Someone should take responsibility, whether it was the MEC or Mr Scholtz. This was not acceptable.

Authorisation of payments
The Chairperson repeated his question on who was responsible for giving permission on payments for the work that was done by Vista Park.

Ms Palm replied it was the professionals.

Mr Ainslie asked who were the professionals, and wanted to know if those professionals were reported to their professional bodies. These people were paid R70 million, list them by name; he asked if any action was taken against them.

Ms Palm replied there was a team of professionals.

Mr Ainslie asked that they be named and their list be provided to the Committee.

Mr Louis Grammer, Project Manager, Ntaba Resource and Project Management, replied the list included KDM Quantity Surveyors, Babereki Engineers, SDG, Wally Parsons, Sekeletse, Ntaba Resources, and Urban Landscaping. He explained that the process of payment would involve the contractor launching a claim with the quantity surveyors. The quantity surveyors would distribute the claim to all the consultants. Each consultant would go out and inspect its area of work and certify that it was satisfied. All that input would be filtered back to the quantity surveyor’s project certificate. That got signed off to the project manager who in turn would go through the figures, and who would indicate if happy; that would be taken to DRPW for payment.

Deterioration and patch ups
The Chairperson sought clarity on how Vista Park was then paid, yet when the new construction company (Inyatsi) came on site, it had to fix a lot of things that Vista Park had done.

Mr Grammer replied a number of years were allowed to pass before Inyatsi could come in. There were several instances of rainwater and wind damage to the project. Weather conditions in the Northern Cape were harsh and affected the building. This argument was further supported by the audit reports done by professional bodies at the time of termination and the time of commencement for the new contract. There was a vast difference in those reports. There had been a lot of looting and theft on site; damage to equipment, aluminium windows and the roof sheets had occurred.

The Chairperson asked if the work that Inyatsi had to redo was as a result of the time lapses.

Mr Grammer replied no, but that contributed as well to the deterioration of the building.

The Chairperson asked that the official speak to shoddy workmanship.

Mr Grammer replied that poor workmanship was not an issue. When the project started a methodology of having approved samples was used. Samples of all materials used would be approved; if any workmanship did not meet that sample then the quantity surveyor would refuse payment. There were many instances where there was disapproval of work and remedial action had to be carried out. Due to the lack of skills in the Northern Cape, the remedial work would be done three or four times at the behest of the consulting team. Lack of skills was part of the problem of the project because aspects of the job had to be redone.

Site abandoned
Mr Ainslie said this was another area that needed in depth investigation; whether the professionals signed off knowing that work had not been done? It was concerning that vandalism and looting would be attributed to the deterioration of the building. Did the Department of Health and DRPW not do anything to secure the premises? He asked if the site was abandoned, and also wanted to know the extent of the damage.

Mr Motingoe replied the department hired its own security once the contract was terminated. Termination had resulted in court battles with the contractor, as it claimed the Department interfered with the site without any judicial process.

Mr Ainslie asked if the Department deployed security personnel on site, and if so, why vandalism happened.

Mr Motingoe replied theft was reported to the police and there was no report up to this stage, but the Department had indeed deployed its security personnel.

Mr Nogwili clarified that Vista Park obtained a court interdict to deny the Department’s security access to the site for a period of two years.

The Chairperson said it was ideal if the discussion on the court interdict was left alone, as it had too many issues that were not clear.

Possible recoup and the Gobodo investigation
Ms Chiloane sought clarity on whether the R790 million anticipated total cost involved both companies. It appeared that R340 million had already been spent when termination was entered into. Since the work was not done and the money had been paid, was the Department intending to recoup the money?

Mr Nogwili replied that the Department had initiated an investigation in order to identify the wrongdoers. This was important because DRPW needed to be able to account for the taxpayers’ money. The intention was to identify the wrongdoers, prosecute and recover the money. The argument that the company was liquidated did not have substance.

The Gobodo investigation findings would form the basis of the process to be followed. Gobodo had again been asked to provide clear outlines on the new terms of reference. The terms of reference had been provided, and all monies that were spent irregularly should be recovered.

Mr Rabie replied it was deplorable that Members only got the Gobodo report at the meeting. The Committee noted what was said, and Gobodo could have been invited to the meeting.

Mr Ainslie commented that he was pleased that the Department wanted to recover the money. In Kimberley, officials seemed not to care about getting the directors to account for the money that had been wasted. Could the officials confirm the investigations that were taking place and those that would happen in the future. He was aware that the officials were unhappy with the first Gobodo report. Why was the Department going back to the same investigation company.

Mr Ainslie asked whether the report, promised by the Deputy Minister of Health (Ms Gwen Ramakgoba) at the National Council of Provinces (NCOP) on the matter, was available.

Mr Nogwili replied the first Gobodo report was not a forensic, but a scooping report. But now the Department had instructed them to do an investigation into all the areas they highlighted. He was not sure about the issues around the investigations carried out by the Scorpions.

He confirmed the promise by the Deputy Minister to the NCOP, but said he was not aware of whether the report had been finalised.

Mr Ainslie commented there were too many investigations going on and that the Committee needed to make a recommendation of its own as to who should investigate the matter. He had reservations about Gobodo, and said more money would be used on that company.

The Chairperson commented that he struggled to understand why government departments opted for private investigators, at higher cost, whilst the SIU was there. The SIU charged less and prepared comprehensive reports.

Due diligence and downgrading of Inyatsi
Mr Ainslie asked if due diligence had been done on Inyatsi - the current company on site.

Ms Frieda Tsimane replied that a two envelope system was used with the procurement of the contract where functionality and price evaluation were checked. She said following the cancellation, the department advertised a new open tender for the completion of the new mental hospital, and 15 bidders expressed interest. All bidders were found to be unresponsive.

The Chairperson interjected and wanted to know what that meant.

Ms Tsimane replied there was second criteria inserted in the specifications that the bidders did not meet. She said a revised procurement strategy was approved, and in addition the HOD approved the limitation of the tender to target only CIDB-Grade-9 contractors by virtue of the value of the contract. It was resolved for the purposes of the tender that a two envelope system – functionality and price - would be used. To minimise the risk, no joint ventures were allowed to bid.

After the second tender was issued, of the 24 Construction Industry Development Board (CIDB) Grade-9 bidders invited, only 13 returned the tenders. A technical committee sat on 10 November and out of envelope one (functionality), it recommended ten of the tenderers. Following due process, Inyatsi was recommended as the highest point scorer and an appointment letter was sent to them in November 2011.

The Chairperson reiterated the question. Was due diligence done?

Mr Ainslie wanted to know if Grinaker – the erstwhile recommended bidder – had made a bid. If the Department was serious about Grinaker, why did it not appoint them straight away without tendering? He also wanted to know why a joint venture was allowed into the final three, whilst it was stated that they would not be allowed in order to minimise risk.

Ms Tsimane replied Grinaker was in the running but was found to be non-responsive because it did not complete the tender conditions.

Mr Ainslie wanted to know if due diligence was done on Inyatsi, especially that soon after their appointment the company was downgraded from CIDB Grade-9 to a CIDB Grade-7. He asked for the reasons that led to the company’s downgrading. Was this not an indication that the company would not deliver? Already the company had fallen behind schedule and the current monthly expenditure was 50% less, and Mr S Sokatsha (MEC for Health in the Northern Cape) had confirmed this to the National Council of Provinces. He said it looked as if government was headed in the direction – failure.

Ms Tsimane replied that due diligence was done, and that only those companies that had passed the first envelope of functionality progressed to the next stage.

The Chairperson asked the relevance of the downgrading of Inyatsi; what did that mean as far as the project was concerned?

Mr Nogwili replied that it meant their bank balance had changed. When the contract was entered into the grading was in order. And as a result when the company was downgraded, the Department realised cancelling the contract would have been costly.

Mr Ainslie retorted that had due diligence been done, the issue about Inyatsi bank balances would have been picked up. The company was transferring funds from one project to the other. All of this, together with the company’s ability to deliver on time would have been ascertained. It appeared that government was headed the same route.

Mr Nogwili replied due diligence was done. The Department invited only Grade-9s and such companies needed to have a certain figure in their bank balance. It was discovered after discussion that Inyatsi had shifted R40 million from another project to pay for another. But that it had since been reinstated as a Grade-9 and their finances were in order. The project was now well managed; there was a team consisting of National Department of Health (NDoH), provincial department of health, and DRPW. A lot of the issues had been addressed and the project would be delivered on.

The Chairperson commented that the situation of a company winning a tender in November, on the understanding that it was of a certain grade; only for it to be lowered in January, was risky. He would have preferred if it had been said the project was better managed; as opposed to well managed.

Capital budget for the hospital
The Chairperson wanted to know if there was money to complete the project, as the presentation indicated there was none.

Ms Gugulethu Matlaopane replied when it was realised the Department would run short of funding, it requested money from NDoH.

The Chairperson asked if there was no budget when the tender was re-advertised.

Ms Matlaopane replied yes, there was no budget but the Department was faced with a situation where the project had started and it had to be completed. When the projected was started there was a need for it; and the Department took a decision that the need was still there so the project had to be finalised.

The Chairperson wanted to know where the Department hoped to find the money.

Mr L Mabowa explained that when notified that the tender had to go out, the Department wrote to NDoH to indicate that it would run short of money. At that stage no response was received. It was indicated to NDoH that funding would be shifted from De Aar to the KMH in this financial year until the money was allocated.

Mr Ainslie sought clarity on the approval processes, especially that funds were shifted from other hospitals without approvals.

Mr Mabowa replied project implementation plans were issued out prior to the approvals by NDoH. The provincial department of health issued out the project implementation plans in January 2012, and the money had not been used.

The Chairperson interjected and said the Department had already appointed a contractor. This was a fait accompli. The Department was headed for an “unauthorised expenditure”, and asked how DRPW could issue tenders without checking if departments had money or not.

The response was that the Department had been written to and former Acting HOD (Mr Theys) replied that DRPW could go ahead with the project.

Mr Ainslie pointed out that funds had been transferred illegally from one project to other projects. This was unauthorised and was illegal.

Ms Chiloane agreed and said the mandate of the Department was to ensure people had the services. She asked if people in those areas - Kuruman and De Aar - where funds were shifted, had to wait for as long as the mental hospital was not complete prior to getting services. This was tantamount to fiscal dumping.

Mr Sokatsha replied no budget for Kuruman was used; it was only the De Aar Hospital that was affected. Despite this situation, work at the hospital was continuing.

The Chairperson sought clarity on whether permission was received from NDoH to shift funds.

Mr Sokatsha replied yes.

The Chairperson asked for timelines for completion of the project.

Mr Grammer replied the completion date was March 2014

Ms Chiloane sought confirmation on whether the total anticipated figure of R1.8 billion would increase or not. She asked how much was lost as a result of the project not being finished on time.

Mr Mothei said this was the case but variations were done on a monthly basis. This figure could go up or down.

Mr Rabie commented that March 2014 was not possible. Hopefully this was done for the community of the Northern Cape, but it could not happen.

Mr Ainslie said he was concerned with the diversion of funds and the fact that the Department disregarded the advice of National Treasury. He said there was a need for a thorough investigation into the project.

Mr Rooi said the Committee assisted everybody else by engaging with the issue. There was a need for the departments in the Northern Cape to be able to sit and engage on issues. This mistake should be a lesson for everyone.

Mr Sokatsha agreed this was a lesson for everyone. He was confident that the project would be delivered especially now that everyone had started working together.

Closing remarks
The Chairperson said he was not sure what the Committee would decide. He thanked Mr Selemela, and asked that he avail himself if he were to be called back again. It was true that lessons needed be drawn out of this. If government looked to spend a trillion rands on capital projects and yet the ability to manage projects was this poor – that meant a lot of that money would be lost in poor planning and poor management. Infrastructure development was central to development of any country. Projects needed to be managed with efficiency.

The meeting was adjourned.


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