House Development Agency regulations; Community Ombuds Service Board progress; Nelson Mandela Bay Municipality contractors complaints

Human Settlements, Water and Sanitation

05 March 2014
Chairperson: Ms B Dambuza (ANC)
Share this page:

Meeting Summary

House Development Agency regulations finalised
The Committee had deleted Regulation 23 as the Principal Act did not empower the Minister to regulate on offences and penalties. The legal team had drafted and incorporated all the proposed insertions made by the Committee. Funding was still a concern for the Committee. It had to be made explicit where the funding would come from and how it would be allocated. What needed to be made more stringent were interventions by the Minister when participants refused or failed to cooperate with the Agency in the preparation of the development plan.

Community Ombuds Service Board
The chairperson of the Community Ombuds Service Board gave a progress report on what had been happening with the Board and entity since the previous meeting. The chairperson said that board members had not received payment since January 2013, but remained committed to their work. Going forward, the President was expected to proclaim the entity and from there it would be fully operational. It was hoped that a Chief Ombud would be appointed before that happened so that when the proclamation was issued the entity would be fully operational.

The Committee was concerned that the Board had struggled to fill the post. They asked what kind of a person was the Board looking for, what criteria were used, why was it so difficult to find this person - even out of 21 applicants.  The Committee noted that the Department had likewise reported that they could not fill vacancies because they could not find suitable candidates. The phenomenon was not unique but perhaps the Community Ombuds Service Board needed to relax their criteria in order to find a person to fill the post.

The Community Ombuds Service Board chairperson assured the Committee that by end of April, they would have a Chief Ombud. It was important to fill the vacancy to deliver on the important mandate of the entity.

Eastern Cape Department of Housing (ECDoHS) on Nelson Mandela Bay contractors complaints
The Eastern Cape provided a detailed response to the claims made by Metro Builders & Civil Contractors, stating that it was not responsible. Should MBCC however have a legitimate claim this should be directed to Verern Construction and not ECDoHS.

Mr Litho Suka, Member of Parliament for this constituency area, was again invited to the meeting as he had been approached directly by the contractors and that was how the Committee came to know about the matter. He asked several pointed questions, including were there any timeframes attached to make the acknowledged possible payment  of R447 000 or would it take another five years for that claim to be processed? Members asked if the Department was acknowledging that MBCC had built and delivered houses that the Department had accepted and was therefore obligated to pay for.

ECDoHS said the dilemma the accounting officer was faced with was that they could not pay for claims that were not verified by the primary contractor. The Members disputed that there were not any written agreements between MBCC and Thubelisha. ECDoHS clarified that there was no dispute in terms of the legal standing of MBCC, they were not questioned and hence there had been payments made to them.

Members could not understand how Nelson Mandela Bay could not know there were problems in the project whereas it was in their jurisdiction and they had no role during the construction nor with mediating the issues that rose after. The Eastern Cape government was advised to scrutinise their implementing agents from the selection stages already. There were too many problems with the project, from the number of units that were planned to the number actually delivered and now the payment dispute which had dragged on from 2009 to 2014.

The Chairperson expressed disbelief at how the role of Verern Construction changed from a primary contractor to an implementing agent. She did not understand how that happened and if that happened then what was the role of Thubelisha. Furthermore it seemed that no one was monitoring Verern Construction, the contractor did as it pleased. Even the report from government was based on what Verern Construction had to say regarding the project and the matter.

Members said the report was from the perspective of Verern Construction and the voice of MBCC was ignored. The Department and their appointed quantity surveyor were instructed to meet with MBCC and go through the claims individually. After that they could meet with the other contractors that had complained as well. It was not expected that the Department would pay the claims unless warranted. However, the Committee asked that there be some leniency as in some of the instances that MBCC had overstepped their scope of work or when their scope of work changed and it was not documented.

Meeting report

Finalisation of House Development Agency (HDA) Regulations
The Chairperson said the Committee, the Department and the parliamentary staff had done a remarkable job. It took 18 months to formulate the Regulations. In the current term of office the Committee had passed three pieces of legislation and two sets of regulations.

Ms Borman said the regulations had indeed come a long way. At the very beginning, the Committee had sent the Department and HDA away with their first draft of the regulations.

The Chairperson handed over to the legal team to go through the Regulations.

Ms Phindile Ntuli, Deputy Director of Legal Services in the National Department of Human Settlements (NDOH), read through the Regulations clause by clause, taking note of the clauses that the Committee had raised questions and concerns about.

Chapter 1
Ms G Borman (ANC) asked that the drafters be certain of the cross referencing in the Regulations as there were a number of Acts mentioned.

Chapter 1 was adopted, noting the amendments made as requested by Mr Mokgalapa.

Chapter 2
The Chairperson said under Clause 3, only the chairperson should be responsible for calling meetings, notices should given by the chairperson. The Chief Executive Officer (CEO)should not be given such powers. The notices should be under the name of the chairperson, even if issued by the Chief Executive Officer, administratively it should be issued under the name of the chairperson.

Mr S Mokgalapa (DA) said he presumed that the HDA did not have a Board.

The Chairperson said they did and there was a regulatory aspect that allowed them to operate. There was a governance chapter which they were operating under; the Portfolio Committee gave them the authority to operate because they could not wait for this process that the Committee was concluding now.

Mr Morris Mngomezulu, NDOH Chief Director, said in the HDA Act that the Board was the accounting authority of the entity. The CEO was the accounting officer. The Board was answerable to the Minister and Parliament. The entity could not operate without the Board. In the absence of the Board the Public Finance management Act (PFMA) said temporarily the CEO could be an accounting authority. But the Act empowered the Board to run the governance of the entity.

There were two sets of regulations; the first set was governance regulations which were approved by the Portfolio Committee to govern the meetings and anything related to the governance of the Board. But the Committee felt that there should regulations on Priority Development Areas. The Committee was busy with the combined Regulations from earlier and new Regulations for the Priority Development Areas.

Chapter 2 was adopted with amendments.

Chapter 3
Mr Mokgalapa asked for clarity on clause 8(h), the “indicative budget from the municipality and other relevant participants”, would the budget come from the municipality’s budget or from the ring-fenced budget?

Ms Ntuli said this was dealt with IN the provision that dealt with funding, which said that the source of funding came from the Urban Settlement Development Grant (USDG). But then when doing their plans, there should be budget for priority development in order to get the necessary finance.

The Chairperson said there might have been a misunderstanding; there was nothing wrong with the clause; however what the Committee had asked for was that there be a clause dealing with the source of funding. That should be clear. She proposed that instead of saying “municipalities” the clause rather said “all spheres of government” so that the business plans reflected that.

Mr C Mathale (ANC) said the mention of “other participants” complicated the sentence, who were the “other” applicants?

The Chairperson said “other participants” should not be left out because it encompassed other departments that were supposed to participate. Perhaps the clause should say “all spheres of government and all other relevant sector departments.”

Ms Vuyo Ngcobozi, Parliamentary Legal Advisor, said that if one went back to the definition of “participants” which referred “collectively, national and provincial departments, municipal authorities, housing institutions, applicable organs of state and private partners”. This covered the question of who the “participants” were. So clause 8(h) would only change “municipalities” to “all spheres of government”.

The Chairperson asked where the intervention would come from for clause 15(4), where a participant refused or failed to cooperate with the Agency. There should be clause that dealt with the intervention process.

Mr Mokgalapa proposed that clause 15(4) be moved to under clause 15(3), as an indication of where the Minister would be intervening.

The Chairperson said that it was actually captured by clause 15(3)(c).

Mr Mokgalapa said for emphasis it should be inserted as clause 15(3)(i), to highlight the matters that the Minister should intervene in.

The Committee agreed with Mr Mokgalapa’s suggestion. Chapter 3 was adopted with amendments.

Chapter 4
The chapter was adopted, noting the new insertions requested by the Committee.

Chapter 5
This was adopted, noting the amendments made the the Committee previously.

Chapter 6
Ms Borman said clause 25 should provide some indication referring to the allocation by Treasury, so that municipalities did not think that they could allocate funds as they saw fit.

The Chairperson said clause 25(2) dealt with the proposal from Ms Borman. There were also other role players to be considered; the funds should not be tied up to the Human Settlements Development Grant (HSDG), only it should be clear that there were other relevant grants.

Mr Mokgalapa proposed that the clauses should reflect all role players and maybe include “other participants” in clause 24.

Ms Borman proposed that there be inclusion of the Division of Revenue Act (DORA) provision in clause 25.

Chapter 6 and the regulations as a whole were adopted with amendments.

Community Ombuds Service Board challenges: progress report
Mr Wilfredo Meyane, Chairperson of the Community Ombuds Service Board, made a presentation on how the Board had dealt with the challenges brought to the attention of the Committee last year.

The Community Schemes Ombud Service Act (No 9 of 2011) [CSOS Act], was proclaimed on 11 June 2011 and provides for the establishment of the Community Schemes Ombud Service as a public entity. The entity had been listed as a schedule 3A public entity in terms of the Public Finance Management Act.

Resolution of Challenges
Following the presentation to the Portfolio Committee on 14 November 2013, challenges with regard to the following were highlighted by the Committee:
- The approval of the Strategic and the Annual Performance Plan for 2013/14;
- The appointment of the Chief Ombud and the Chief Financial Officer;
- The funding of the entity and office space.

The Minister, as of 31 January 2014, had approved the Strategic and Annual Performance Plan of the CSOS and the Board of the CSOS was preparing for the operationalisation of the entity.

The Department advertised the position of the Chief Ombud and the Chief Financial Officer on behalf of the CSOS in January 2014.  The Board had shortlisted candidates for the positions and was currently preparing for interviews.

The Department had secured R20 million in the 2013/14 financial year for the operationalisation of the CSOS through a roll-over request.  The Department was ready to transfer funds to the CSOS as soon as the Chief Financial Officer was appointed. The Department had secured grant funding appropriations for the CSOS over the medium term as follows: R40 million in 2014/15, R53 million in 2015/16 and R28 million in 2016/17.

A temporary office had been identified at the offices of the Estate Agency Affairs Board (EAAB). The matter was currently being discussed with the EAAB board chairperson and the management of the entity. The CSOS would have to define and procure permanent office space requirements through the applicable supply chain management processes during the 2014/15 financial year.

Ms Duncan said it was concerning that out of 21 applications none were suitable for the Chief Ombud position. Perhaps the Committee needed to see the advert, the qualifications and all stipulated requirements. She asked what the cost implications would be to appoint a company to headhunt a person for the position, was there a Memorandum of Understanding of what was to be expected from the company and how to go about headhunting?

Mr Meyane said they had not yet engaged with any company on costs, but it was a decision of the Board to look for a company with executive search experience. Once that company had been found then the two parties could negotiate from there. In principle it was important to look at whether the entity was on the wrong foot, because should it re-advertise the response would not be any different. It was normal practice to advertise the post to the public but if it was not successful then the alternative route would be to do an executive search and then negotiate costs.

Ms Borman said it was clear to the Committee that it was critical to find the right people for the position; it was good that the entity had had a thorough look at the applications. It was worrying that with 21 applications there was not one suitable candidate, however this was not an isolated case. It was difficult to find suitable people due to many factors such as payment.

The Presided had proclaimed the legislation in June 2011, so no further proclamations were needed. It was not clear what this “proclamation” was referring to in the report? In the presentation there was mention of a budget allocation over the medium term of R40 million in 2014/15, R53 million in 2015/16 and R28 million in 2016/17. After the meetings the entity had had, were they able to assess their needs thoroughly and would this budget be adequate. This was to ensure that there would be no coming back to Parliament reporting that certain things could not be done due to a lack of funds. There was a great need for this entity.

Mr Meyane said what had happened was the promulgation of the Act by the President, it was promulgated law. But with regards to operationalisation of it, the President should make a special proclamation to ‘open the doors’. If there would be a case that would end up in court the entity would be asked if they had a locus standi as an organisation to handle that case. It was provided in the law before the entity attended to any matter, the President should make a presidential proclamation and the Department was helping with that. It would not take more than two weeks for the President to make that proclamation. Once the proclamation was done, then the entity should be up and running. 

Mr Meyane said perhaps R40 million was not that great, however it would take time for the organisation to be self-funding. The first funding category came from the government; second category was a levy and registration charge to the scheme and the last category would be from those making applications to be assisted and donors.

Ms Sindisiwe Ngxongo, NDOH Chief Operations Officer, said the Department had allocated R121 million over the MTEF which was split as R40 million in 2014/15, R53 million in 2015/16 and R28 million in 2016/17. The question of whether these would be sufficient for the operationalisation of CSOS, over and above what had been approved by the National Treasury - should there be a need for any additional funding CSOS would have to provide a motivation to the Department. With CSOS being a new entity and carrying such an important mandate there would be sufficient ground for such motivation.

Mr Mokgalapa acknowledged the progress made thus far but wanted to emphasise the matter of the filling of vacancies. It was difficult to understand that the Board could not find anyone suitable whereas they had been looking to fill the post for more than a year.

Mr Meyane clarified that it had not been a year; it took them about three weeks to try to find a person for the post. The entity had found a Chief Financial Officer and now committed itself to finding a Chief Ombud by the end of April.

Mr R Bhoola (MF) said there must be a dedicated workforce to deliver on the ultimate plan and as indicated the Board had committed members, that effort was appreciated. But the Committee also understood the predicament the Board had found itself in to get the appropriate person for the vacant post. Filling vacancies was paramount in ensuring a smooth flow in any operational structure. With the work that the entity was doing, they needed a competent individual to deal with the challenges that may arise. However, to address the concerns of the Committee perhaps there could be timeframes for the conclusion of the process of finding a Chief Ombud. It was short-sighted to think that the entity could deliver optimally if the top positions were not filled.

Ms J Sosibo (ANC) said receiving 21 applicants but none actually qualifyied for the position was serious. It was not clear what criteria were used, perhaps these were too stringent to actually find anyone. The entity also did not think of re-advertising, instead they looked for an agent to pay to look for a suitable person. Out of the R20 million the entity had for this year, was the money enough or would they be coming back requesting more funds?

Mr Meyane said that the Members passed the legislation forming the entity and as stated the mandate of the entity was serious. There were four areas that the entity had to deliver on: first was to find someone who was an experienced adjudicator and had vast experience in the adjudication of disputes - and there was a vast number of disputes. Secondly the person should be able to regulate all the documents of the community schemes and these documents could range from minutes to Memorandum of Incorporation and Memorandum of Associations. Thirdly, the person should have an understanding of managing the Sectional Titles Management Act, so the individual should be an experienced juror. Fourthly, the person should be able to come up with programmes that would train the public to understand their rights about sectional titles and everything related to the sector.

Mr Meyane said the overall profile of the person - they must be an experienced juror with a good understanding of law, general management experience at an executive level, a leader that would provide strategic leadership for the entity, and they must have some form of organisational development experience. It was very rare to get all these qualities in one person. There were not many with that kind of profile.

Most of the 21 applicants had qualifications such as BCom, Business Administration and Social Work. There were only two that had a LLB as a qualification. But when speaking of competence three things were referred to: acquire knowledge for the position, skill to use that knowledge and lastly and very importantly were the attributes which were relevant to the position. It was true that many people were looking for jobs it was up to the entity to find a suitable person to fit the profile of the job and match the two together, this would provide a fitting outcome. The person that would fit all the requirements was not looking for a job; he/she was currently in another position, so the entity had to go and look for that person. Appointing the wrong person would have far reaching implications and the Committee would be the first to point out that the person was not suitable for the position.

Mr Meyane assured the Committee that by the end of April, the entity would have a Chief Ombud.

Mr Mngomezulu said there was an expectation that the CSOS would grow incrementally. Starting with the head office and spreading to various provinces and establishing offices. Also, it was expected that in a year or two CSOS should have in place some fee structure which would enable it to recover operational costs. That was why the budget would be highest in the second year of the MTEF and gradually go down in the third year. By then it was expected that the CSOS would have a fully functional system from which they would be able to draw an income.

The Chairperson said the Committee was presented with a good report; last year they were devastated by the state of things but now there was clearly progress and hopefully it would keep going according to plan.

Follow-up meeting with NDOH on Nelson Mandela Bay Municipality contractor complaints
Mr Mbulelo Tshangana, Deputy Director General of the Project Management Unit in the National Department of Human Settlements, as previously requested by the Committee gave a presentation on the findings of the National Department on the complaints and claims raised by Metro Builders and Civil Contractors.
The Eastern Cape Department of Human Settlements (ECDoHS) had appointed Mr John Kayula, a professionally registered quantity surveyor, an associate member of the Association of Arbitrators and an accredited Mediator of the Royal Institute of Chartered Surveyors (RICS), to undertake an independent assessment of the claim arising from Metro Builders and Civil Contractors (MBCC) with a view to settling the long outstanding matter by the Department.

The intention of the report was to establish the validity of the claim by MBCC to the ECDoHS and assist in resolving the current dispute between the two parties.  In order to achieve this several meetings were held with different parties and stakeholders. Telephonic conversations were also utilised to get further clarity.

The original project contracts, of which copies were not available, were said to have involved the construction of 950 housing units by two contractors, Messrs Nomagwayi Developers and Verern Construction, both of whom were contracted by Thubelisha Homes to construct 475 units each in 2009.

It was recorded that for various reasons the scope of work was reduced from 950 to 860 units. It was also confirmed by the HDA, Thubelisha at the time, that one of the two contractors Messrs Nomagwayi Builders, terminated their contract with Thubelisha as they were being liquidated.

It was confirmed by Verern Construction that part of the agreement between the two parties was that MBCC would complete the work left from Nomagwayi Developers and Verern Construction would take overall contractual responsibilities to Thubelisha, including providing insurances and guarantees for the work for an administration fee to have been agreed by the two parties.

It was also confirmed by Verern Construction that the payment arrangement was for direct payments to be made to MBCC by Thubelisha, on recommendation by Verern Construction for work done. Verern Construction would then deduct their fee component from the same claims. HDA confirmed this arrangement and copies of claims for executed work reflect the same. 

Project status
The Joe Slovo project of 950 housing units, with a reduced scope of 860 units, had since been completed and Finished Unit Reports (FURs) were issued by National Home Builders Registration Council (NHBRC).

According to HDA staff, who were responsible for the project under Thubelisha, all payments to contractors on the project were made except for one claim which was outstanding at the time Thubelisha was wound up. Thubelisha’s regional office had processed the claim and sent it to head office for payment.

The tax invoice for this claim was JS 0042, issued by Verern Builders dated 4th January 2010 for the amount of R447 200. This was also confirmed by Verern Construction. There was no evidence if the claim was ever paid after the winding down of Thubelisha by the liquidators.

According to HDA and also confirmed by Verern Construction, the project was closed with the following record in place: Completion of units - 454 units by Verern Construction; 184 units by Nomagwai Developers;                        219 units by Metro Builders and Civil Contractors = 857 units (three units short of the reduced scope of 860 units). It was not yet known yet where the outstanding 3 units would belong. ECDoHS Metro was investigating this and would submit a complete list of FURs and advise on this anomaly.

Financial reconciliation
In the absence of a signed final account statement by all parties on the project, reliance was placed on information available from HDA and confirmed by Verern Construction. They both indicated that the sub-contractors MBCC was paid for all work executed, as Verern Construction(being the main contractor) submitted claims to Thubelisha on its behalf and according to them only the last claim on invoice JS0042 was outstanding for payment.

Metro Builders & Civil Contractors’ Claim
MBCC’s claim was as per their statement dated 1st Match 2013:

Invoice 1529: Agreed Amount R 447 200.00
This invoice was not disputed by all the parties. If it was established that the above invoice was never paid after Thubelisha’s winding up, the amount could be paid to the contractor.

Invoice 1538: Completion. Amount R 801 375.93
According to Verern Construction, who was the main contractor, it had claimed the value for all work executed including the completion stage. Should MBCC however have a legitimate claim this should be directed to Verern Construction and not ECDoHS.

Invoice 1539: Rectification work to contract. Amount R 473 976.00
There was no scope of work where this was covered. Verern Construction as the main contractor had no knowledge of this and did not submit a claim to Thubelisha for this. Should MBCC however have a legitimate claim this should be claimed through Verern Construction and not ECDoHS.

Invoice 1541: Payment for outstanding wages. Amount R 314 930.00
There was no record of such payments being authorised by Thubelisha. Verern Construction as the main contractor had no knowledge of this and did not submit a claim to Thubelisha. Should MBCC however have a legitimate claim this should be claimed through Verern Construction and not ECDoHS.

Invoice 1542: Site Safety and Clean up. Amount R 86 660.00
There was no scope of work where this was covered. This would normally fall under the contractual scope of work. Verern Construction as the main contractor had no knowledge of this and did not submit a claim to Thubelisha for the same. Should MBCC however have a legitimate claim this should be claimed through Verern Construction and not ECDoHS.

Invoice 1561: Wet Works schedule. Amount R 358 411.00
There was no scope of work where this was covered. Verern Construction as the main contractor had no knowledge of this and did not submit a claim to Thubelisha for this. Should MBCC however have a legitimate claim this should be claimed through Verern Construction and not ECDoHS.

Invoice 1564: Contract Fee. Amount R 115 000.00
There was no scope of work where this was covered. Verern Construction confirmed having been paid this amount for the administrative work undertaken by them and risks provided for under the contract. This provided insurance and guarantees. This was said to have formed part of the sub-contract agreement between Verern Construction and MBCC. Should MBCC however have a legitimate claim, this should be claimed from Verern Construction and not ECDoHS.

Invoice 1572: Retention Due. Amount R 871 455.00
According to Verern Construction who were the main contractor, it claimed for retention as it provided the sureties required for the contract and FURs were issued in its name. Should MBCC however have a legitimate claim this should be directed at Verern Construction and not ECDoHS.

Invoice 1621: Contract Management. Amount R 770 000.00
There was no scope of work where this was covered. This would normally fall under the contractual scope of work, as Preliminary and General Costs (P & Gs). Verern Construction who were the main contractor did not submit a separate claim to Thubelisha for this. Should MBCC however have a legitimate claim this should be claimed from Verern Construction and not ECDoHS.

Invoice 1649: Consultants Fees and Expenses. Amount R 472 543.14
Not sure of the basis of this claim, only MBCC could elaborate. No claim had been submitted to ECDoHS by the main contractor Verern Construction. Should MBCC however have a legitimate claim this could be claimed through Verern Construction and not ECDoHS.

Invoice 1620: Consultants Fees (SARS) + Overdraft. Amount R 472 543.14.
Not sure of the basis of this claim, only MBCC could elaborate. No claim had been submitted to ECDoHS by the main contractor Verern Construction. Should MBCC however have a legitimate claim this could be claimed through Verern Construction and not ECDoHS.

Invoice 1650: Interest on outstanding payments. Amount R 1 296 177.47
Not sure of the basis of this claim, only MBCC could elaborate. No claim had been submitted to ECDoHS by the main contractor, Verern Construction. Should MBCC have a legitimate claim this should be claimed through Verern Construction and not ECDoHS.

There was no contractual relationship between the contractor MBCC and the ECDoHS (the developer) with the main contractor (Verern Construction) still in operation.

Lack of clearly defined scope of work between the main contractor and the sub-contractor was a challenge in determining whether what the sub-contractor was claiming was valid or not. Despite the fact that their claims were directed at the wrong party, whom they have no contractual relationship with, the main contractor (whom they had a contract with) was still in operation and contactable.

From the information available and without in-depth information on claims from MBCC, it could currently only be concluded that one claim amounting to R447 200.00 would be due to MBCC, if it could be established that such payment had still not been paid.

The Chairperson said the Committee wanted to understand the role of Nelson Mandela Bay as the project was in their jurisdiction. The contractors were from the municipality and the municipality had the responsibility to make sure that their emerging contractors’ welfare was looked after so that they were not taken advantage of by unscrupulous well established contractors.

Mr L Suka (ANC), in whose constituency this was, asked about the number of units reduced from 950 to 860, if the 90 units were still part of the costs allocated to that project or was their value also removed from the costs? Furthermore, there were three outstanding units that it was unclear what happened to them and if they were paid for or not. There were also monies to be paid back to provinces (the Western Cape and the Eastern Cape). Had that money been paid back and were they going to disburse that to service providers? Regarding the agreed amount of R447 000, were there any timeframes attached to make the payment for that or would it take another five years for that claim to be processed?

Mr Suka said that he understood that the Department was dealing with the primary contractor but it was not clear if the complainants were contacted and had a hearing with them to explain and listen to them attentively. In the Nelson Mandela Metropolitan, there were contractors that constantly complained of non payment and some had taken court action. It was hoped now that the National Department had intervened, things would move with speed so that the matter did not become a political ball game.

Mr Mathale asked if the Department was agreeing that MBCC built houses that the Department was obliged to pay for.

Ms Borman asked what the timeframe for the outstanding payment, which was not disputed, was. It was now 2014 and the matter had been outstanding since 2009. What role did Nelson Mandela Bay play, were they never aware that there was a problem with the construction and payment of the houses? It was the President who had proclaimed that payments were made within 30 days and the government was committed to that.

Mr Mbulelo Tshangana Deputy Director General: Project Management Unit, said the amount of R447 000 was not disputed and it would be settled.

Ms Duncan said it was now clear who was supposed to do what. However the Eastern Cape should be careful and alert in appointing the right implementing agent. It would be important that the focus was firstly on that. During the oversight visits in the Western Cape, the Committee had found that there was an implementing agent that had a monopoly in developments. There were a number of developers. When selecting them, they needed to be scrutinised to ensure that they could actually deliver and the MOU signed between the implementing agent and the province or municipality should stipulate each party’s duties. Monitoring and putting certain measures in place to ultimately provide housing for people was key.

Mr J Matshoba (ANC) said if the report was inclusive of MBCC it would have sounded better. Currently the report was from the Department and the province. Perhaps the Department’s understanding and that of the Committee were not the same. There was an agreement between Thubelisha and MBCC. There were documents indicating that there was an agreement with MBCC. At some point, at provincial level, there was an instruction to pay MBCC but that was no where now. The report relied solely on information from Verern Construction. The Committee had met with MBCC and they had documents which would have been useful to the presentation if it was inclusive.

Mr Tshangana said Verern Construction was the only contractor that had a direct contract with Thubelisha; MBCC was not contracted to Thubelisha directly. Even though Nomagwayi wrote that they were handing over everything to MBCC, Thubelisha could not take a nominated contractor and contract with it directly.

Mr Bhoola said what was important was to first evaluate and analyse which structure was responsible for what. In doing so what would come to mind was that the emerging contractors - in terms of governance policy and programmes - if it was mandatory, who carried the burden of ensuring they performed in terms of the programme. Secondly, what was the relationship between NHBRC and all the other parties that had a role in resolving the disputes currently on the table? As stated, it would be unethical for the accounting officer to make payments but equally, the NHBRC had signed off on completed houses that were products of MBCC. The issue of sub-contractors, perhaps the Department was coming with principles of convenience, but it needed to articulate to the Committee that, if the company was liquidated, who arbitrated the process and the intervention of the Metro in terms of awarding the contract. These problems were in all provinces; they needed to be rectified so that they were not repetitive issues.

The Chairperson said the presentation listed parties that were involved in the contracts. The Eastern Cape was the developer; there was no mention of Nelson Mandela Bay. Nelson Mandela Bay had been asked previously by the Committee to define its role, and its role was to manage and monitor but in the parties mentioned in the presentation there was no mention of it. Then there was Thubelisha who was an implementing agent, what was the role of the implementing agent? Then there was a contractual agreement between Thubelisha and the contractors. Then there was a primary contractor and a secondary contractor. The primary contractor exited the agreement then a secondary contractor was made an implementing agent. What did that mean? Suddenly, Verern Construction became the implementing agent and facilitated payments. What was Thubelisha’s role. If it could not do its job of being an implementing agent then what was its role? It was not clear where Verern Construction’s mandate changed, legally how did that happen?

Then the findings also indicate that there were no original contracts, what was the Committee expected to do and say? The Department was holding on to that and saying there would be no payments as a result. How were documents lost? Perhaps the Committee needed to find out who Verern Construction was because it seemed to be given an elevated status in this whole process. It did as it pleased and was not monitored. There was no monitoring of Verern Construction. From government who was monitoring this project? There were project managers; what were they doing in this project?

In the appointment of MBCC, which the Department was denying, there was a letter written by MBCC responding to Thubelisha acknowledging its appointment by Thubelisha. There were a lot of unanswered stories around this, and the fact that the government was holding on to a one sided story did not resolve any of them. The story from MBCC was missing, moving forward what would happen? Parliament needed to listen to both side. Parliament was not for government but for the people.

Mr Matshoba said in the last meeting it was agreed that the Department would bring the contractors and the province. During this meeting all the parties were supposed to be there to battle the matter out. The affected parties were once again not present. The report was confined to the side of the Department only. There was a written agreement between Nomagwayi, MBCC and Thubelisha. A Standing Committee at provincial level had authorised and asked that the claims by MBCC be paid, but there was no mention of that and no response of the Premier’s report on the matter.

The Chairperson read a letter from MBCC dated 5 August 2009, addressed to Mr B Hemp and another, asking for the acknowledgement of the appointment of MBCC as a direct nominated contractor and for payments to be directed to its bank account. Also, the Committee had asked that the Department bring the outcome reports from the Petitions Committee, from the Standing Committee and from the Premier. Those were still outstanding.

Mr Tshangana said they fortunately had all the letters the Committee was referring to. The letter appointing MBCC was written by Nomagwayi not by Thubelisha. The second letter read by the Chairperson was written by MBCC to Thubelisha asking that they acknowledge MBCC’s appointment by Nomagwayi. Nomagwayi was a primary contractor and Thubelisha, in terms of the law , could not appoint a sub-contractor as a nominated contractor.

Payment was not an issue. The Department did want to pay, for instance the R447 000 was clearly due to MBCC.  What MBCC wanted the Department to do was acknowledge them as a contractor directly contracted to Thubelisha, so that all the payments would be directed to them. However, in the completion report of the 219 units MBCC had acknowledged the role played by Verern Construction in certifying them. If they did not acknowledge that, they would not have accepted the R2.6 million that was paid to MBCC. That amount was certified by Verern Construction, as the completion milestone. By their accepting the money, they were acknowledging that Verern Construction had to certify every payment of claim made by MBCC.

That seemed to be the agreement in place between MBCC, Verern Construction and Thubelisha. The only contractor that was left was Verern Construction, hence Thubelisha wanted to make it easy and allow the sub-contractors under Nomagwayi to continue and complete the 219, but then the certification and verification of that work would be done by the contractor that was contracted to Thubelisha, Verern Construction.

On the role of Thubelisha and the Metro, the project was started as a Metro project, their adjudication was done as Metro projects, and then a decision was taken that all the agreements should be ceded to Thubelisha as Thubelisha was formed to work as an implementing agent. To clarify, Thubelisha did not go under, there was an evolution in mandate from Housing to Human Settlements and the focus changed and Thubelisha was replaced by the HDA. The intention behind Thubelisha as an implementing agent was to use it to fast track service delivery. It was easy for them to manage procurement processes, amongst other things. Government departments did not move as fast as parastatal entities could.

The role of Thubelisha was to ensure that project managers did their job, but one could accept the criticism that in Thubelisha some of the project managers were not at the level hoped for. In some cases this had been evident with some project managers that were not qualified. There were capacity challenges and also they did not come cheap.

The Chairperson said the letter was not directed to Nomagwayi, it was directed to Thubelisha. Also in terms of project management capacity, when the Department went to the site what did they think MBCC was doing and who were they.

Mr Nathi Mjenxana, Parliamentary Legal Advisor, sought clarity for the following insertion in the presentation: “It is confirmed by VC that part of the agreement between the two parties was that MBCC would complete the work left from NB and VC would just take overall contractual responsibilities to Thubelisha…”

Mr Mnjenxana said this was a major contractual issue as it referred to ceding rights and ascending responsibility. From the presentation it seem that only Verern Construction had confirmed this and it did not seem as if the Department had done its own analysis of these agreements. It was worrying that only Verern Construction was confirming this and the claims were not independently verified by the Department. It was also worrying that the source documents were not available. The letter that Mr Tshangana was disputing was a letter addressed to Thubelisha and not Nomagwayi and the first sentence in the letter did not say anything about Nomagwayi. In fact, it indicated that it was responding to a letter that MBCC had received from Thubelisha.

Mr Tshangana said there were two letters; the first letter was written my Nomagwayi to MBCC confirming that they were appointing MBCC to complete the balance of the project in Joe Slovo. The second letter was written by MBCC to Thubelisha and was based on the letter received from Nomagwayi. To protect public investment, Thubelisha, MBCC and Verern Construction must have had an arrangement to complete the project; hence there were payments to MBCC. What were disputed were subsequent claims, not their legal standing.

The Chairperson said that the councillor and the official from the Department of Human Settlements that were part of the handover of the site numbers to MBCC,  why were those not handed over to Verern Construction? Also, additional assignments were to MBCC and not Verern Construction. When the scope of the work changed, there was nothing that indicated that these were done through Verern Construction. There was an area where the MEC requested that he be given an opportunity to investigate, where was that report?

Mr Bhoola asked what the rights legally in terms of ceding were? There were disputes even regarding the 950 versus the 860 then the 857. It was fair that the Department wanted to look at the legal aspect of this, but what the Committee wanted was to resolve the matter and for the Department to provide resolutions that would result in a win-win outcome for all parties.

The Chairperson said what the Department should have stuck to was that these were the claims and they were disputed ones. When MBCC was building the houses, its work was not disputed, then MBCC should clarify the claims before the Portfolio Committee. Verern Construction should also come to the Portfolio Committee on why it had not submitted the claims if it was legitimate, if it was not legitimate that should also be said to the Portfolio Committee. At the end of the day, people were going to blame government and not Verern Construction. Government was held responsible by the people.

Mr Mathale proposed that the Department “condone” the whole issue and pay all the amounts, in law there was that flexibility. The houses did exist and the government was benefiting from them but refusing to pay. People were using the facilities that government was supposed to pay for. Indirectly government had accepted the product that was delivered. Sticking to what was signed and not signed, there would be no resolution. The situation was complex and unusual. No one would really prove the government to be in the wrong where one party went above and beyond the call of duty. He proposed that MBCC be paid in order to move on, but there should be a stern warning to the contractor.

The Chairperson said the problem was that there were disputed claims; the complainant had to prove these claims. Then Verern Construction had to explain why they had not submitted claims or issued payments. The Department had not done its job, Nelson Mandela Bay may be excused as it was clear that they were side-lined - but they also needed to explain why there would be a project in their constituency and they were not involved.

Mr Tshangana said what Mr Mathale was proposing could be operationalised. The report was verified by professionals, the report could not be concluded without a one on one with MBCC. Mr John Kayula had not had an opportunity to sit with MBCC and review each claim. The completion report was not disputed by anyone, even MBCC.

Councillor Chippa Ngcolomba, Deputy Executive Mayor of Nelson Mandela Bay, accepted that their oversight role had not been effective. One of the challenges had been the “Big Brother” attitude at some stage, between the municipal officials and the officials of the Department. The provincial Department had been complaining that the officials of the municipality were not coming to the party - that instability had contributed immensely in this. Moving forward there had been willingness for the local authority and the province to work as a team, and they would work to ensure that took place.

Mr Tshangana said the way forward would be for the quantity surveyor, appointed to mediate on the project, to have a one on one meeting with MBCC to go through the claims one by one. Some of the claims needed to be looked at individually as they were not linked to the “house milestones” - they were about related activities. If there were valid claims to be paid, the Department together with MBCC must agree to abide by the outcome of the quantity surveyor.

Mr Mathale proposed that MBCC also have their own expert to work on these matters. There needed to be flexibility in dealing with the issue, there would be instances where some claims or amounts could not be paid and some that could be paid, all within the parameters of the law.

The Chairperson said as Mr Mathale proposed, MBCC should have their own professional as well that should meet with the appointed quantity surveyor and there should also be a Department official present at that meeting. In the next meeting MBCC should be present so that everything could be aired out with all the parties present and the National Department should pay for their transportation to Parliament.

There was still Chatty 600, there the same process needed to be followed. The quantity surveyor should meet with all five contractors.

Meeting was adjourned.


  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: