Department of Public Works (DPW) deviations & expansions: hearing

Meeting report

Opening remarks

The Chairperson said the hearing was going to deal with issues around deviations and expansions. In February, the former Finance Minister had talked about the issue in his speech. It arose from the Committee’s engagement with National Treasury (NT) last year around the use of expansions and deviations, to the extent that the Committee now required a quarterly briefing from NT. When NT submitted the quarterly reports, the Committee picked on some departments to come and account.

The Committee’s interest was to see figures as low as possible around the practice of expansions and deviations. This practice was meant to be assist in very rare and difficult situations, but the worry was that it might become a new normal.  All that the Committee needed was clarity and satisfaction that this practice did not represent an abuse of resources.

Discussion

Mr E Kekana (ANC) referred to deviations related to Delta property and Aqua Sky properties, where NT had said that DPW’s reasons were not justifiable. NT had not supported the deviations. He asked for clarity on whether the DPW had proceeded with the project.

Adv Sam Vukela: Director General (DG): DPW, responded that the DPW had not proceeded with the project.

Mr Kekana said that DPW had asked for a deviation regarding Honey Cloud enterprises. However, NT did not support the deviation and indicated that the reasons given were not justifiable because DPW did not test the market. He asked if DPW had proceeded with the project.

Adv Vukela responded that DPW had not proceeded with the procurement of the services of Mr Mokgoro, the service provider, as requested by NT. Mr Mokgoro was already in the Department when the DPW had made the request to appoint him/his services to operationalise the Property Management Trading Entity (PMTE). The DPW had stayed in the dispensation that he had come up with. The DPW had then stopped proceeding with that, and had assigned the relevant officials to facilitate the process of ensuring that the Department advertised for the purpose of procuring the services of the operationalization of the PMTE . In the process, the chief financial officer (CFO) of the Department had left. The DPW had then requested Mr Mokgoro to act as caretaker acting CFO, based on the initial appointment that he had, which was as a secondment to the Department from the respective company.

Mr Kekana asked Mr Vukela if, by implication, he was saying that Mr Mokgoro had been seconded by a company to the DPW. Had Mr Mokgoro been appointed as an employee in the Department?

Adv Vukela responded that Mr Mokgoro had come through the Department of Public Service and Administration (DPSA) processes in the Department. The Department had seen a need for his skills, which it wanted to utilize in the PMTE. The Department had written a letter to NT requesting the deviation to get him on board while he was still in the Department through the DPSA processes. In the absence of the approval by NT, the Department could not proceed with the appointment of Mr Mokgoro within the supply chain management (SCM) processes.

The Department had continued with Mr Mokgoro’s appointment through the DPSA processes. DPSA processes meant that he was an employee of the Department. Having been brought on board the Department from his company, the DPW wanted him to be appointed with his company within the PMTE as a service provider. However, the Department did not proceed because NT had not supported it. The DPW had not stopped there. Even if the NT did not support its proposal, this meant that the SCM processes were still to unfold, because the DPW still needed those services in the PMTE, because it was in the process of operationalising the entity. It was two dispensations in one person. The one of supply chain had failed because it did not get support from NT. The DPSA one was already in the Department, based on the DPSA processes.

Mr Kekana asked if DPSA had seconded Mr Mokgoro to theDPW as a representative of Honey Cloud Enterprises, or as Mr Mokgoro.

Adv Vukela responded that the DPSA processes required that if one was brought on board, one goes through the recruitment processes. Mr Mokgoro had undergone those recruitment processes. The Department had appointed him in his capacity as Mr Mokgoro, as an employee of the DPW, although he had come from his company, Honey Cloud. He had gone through the recruitment processes and not the SCM processes. The Department thought it was wise to ensure that it retain his skills through the SCM processes which meant, had it succeeded there, that it could have had more resources in terms of appointing his company in the Department to do the operationalisation of the PMTE. Currently, the Department did not have the entire services of his company because he had come through the processes of recruitment, and he was an employee of the Department. Had the DPW succeeded with the SCM processes, he could have not been an employee of the Department, but his company could have been a service provider to the DPW.

Mr Kekane asked if having Mr Mokgoro in the Department and appointing his company to provide services for the Department would not lead to a conflict of interest.

Mr Vukela responded that it would not be a conflict of interest, because it was the DPW and not him. The Department had shown interest in the capacity of Mr Mokgoro. The capacity of Mr Mokgoro was owned by his company. If the Department was to get that service provider, it had to negotiate with that service provider. That was why the Department had had to ask for deviation for him to be appointed through the SC process.

The Chairperson asked when Mr Mokgoro had become an official of the Department.

Adv Vukela said he had come into the Department in 2013. Ever since he was brought on board, he had been an official of Public Works.

The Chairperson asked Adv Vukela if he had any idea where Mr Mokgoro was employed before joining the Department.

Adv Vukela responded that Mr Mokgoro worked fofr the Independent Development Trust (IDT) before joining the Department.

The Chairperson asked what position Mr Mokgoro had held in the Department.

Adv Vukela responded that he been the acting CFO from 2013 to 2017.

Mr Kenny Govender, Deputy Director General: DPSA, explained that Mr Mokgoro had been appointed after the advertising process in 2012 had not produced a candidate for CFO of the DPW. The Minister had had to seek concurrence from the Minister of Finance, as part of the turnaround at the DPW, to make an appointment of the CFO given the crisis in the Department in respect of fraud, corruption and non-delivery etc. Mr Mokgoro had then been appointed CFO of the Department. The post lasted up to the time the post was advertised in 2017.

The Chairperson asked what had happened to Mr Mokgoro when the CFO was appointed.

Mr Govender responded that the Minister had decided to use his services as an employee specialising in the operationalisation of the PMTE.

The Chairperson asked what the name of such a position was in the organogram.

Adv Vukela responded that he was appointed additional to the establishment, outside the normal organogram, as head of the operationalisation of the PMTE.

The chairperson asked when the appointed CFO had resigned.

Adv Vukela responded that the CFO had left towards the end of April, and Mr Mokgoro had been requested to act as CFO. The Department was currently in the process of recruiting a CFO.

The Chairperson said that the understanding was that Mr Mokgoro was essentially appointed by the Minister as a specialist to look at the PTME. Now he was an employee of the Department. The Department had then written to the NT asking for a deviation to appoint his company into his position, so as to change his condition of employment so that it was not he, as an individual, who was appointed but his company.

Adv Vukela agreed that that was the Department’s proposal when it wrote to the NT.

Mr C Ross (DA) said that there was a huge risk in terms of employees of the state doing business with the Department such appointing a company where the previous CFO had been central to the decision making. The risk was that there could be insider trading. He asked what contract had been concluded with Honey Cloud over this period. There was need for an investigation into the matter.

Adv Vukela responded that the Department did not have any contract with Honey Cloud.

Ms N Khunou (ANC) asked for an explanation of what had happened exactly.

Mr Solly Tshitangano, Chief Director: Supply Chain Governance, NT, said that according to the information in the documents, Mr Mokgoro had been appointed as an adviser around 2012. Later in 2013, he had been appointed as the CFO. The document also showed that he had resigned as the CFO in November 2017. That was why the post had been advertised. A new CFO had then been appointed. In January 2018, the DPW had applied to the NT to ask for a deviation to appoint his company, Honey Cloud Enterprise.

He said that if there was no contract between the DPW and Honey Cloud, it complicated the matter because his company was being paid the salary that he was supposed to receive. One could not pay money to a company if there was no contractual relationship the company and the Department. Money was being paid to the company even after they had requested a deviation which had been rejected.

According the documents, the Department was not providing an accurate picture of what happened.

The Chairperson asked the Department if Mr Mokgoro had resigned as an employee of the DPW, and if there were any payments to the Honey Cloud company.

Adv Vukela responded that Mr Mokgoro’s contract had come to an end. When it came to an end, he had been asked to come and do the operationalisation of the PMTE, so the relationship had continued even after the contract came to an end.

Ms T Chiloane (ANC) asked Adv Vukela to explain the difference between the ending of a contract and resignation. She asked how much was paid to Honey Cloud during the time the company was doing business with the Department.

Adv Vukela explained the contract came to an end on a determined date which was agreed between the parties. On the other hand, a resignation could happen anytime, even before the contract came to an end.

Ms Chiloane said Mr Tshitangano had said that Mr Mokgoro had resigned, but Adv Vukela was saying that the contract had ended. She asked for clarification what happened.

Adv Vukela asked if Mr Tshitangano could verify that the documents really said that Mr Mokgoro had resigned. The fact was that the contract had come to an end. A resignation would be supported by a resignation letter.

Mr Tshitangano verified that Mr Mokgoro had resigned, according to the documents.

Mr Kekane said that in terms of the documents that he had, Mr Mokgoro was not an employee. The DG was providing different information -- that he was an employee.

Mr Kekane said that no progress was going to be made on the issue because the DG was not prepared to provide correct answers. The Committee needed to investigate this matter. He proposed that Adv Vukela should conduct an investigation and come back to the Committee. The Committee needed Mr Mokgoro’s contract of employment, and his appointment letter from the DPSA. The Committee also needed Adv Vukela to check whether Mr Mokgoro had been paid in his own name, or if the money went to the company’s account.

The Chairperson asked the DG to go back and write a report on Mr Mokgoro. The report should include the following information:

Documents confirming his appointments -- when came into the Department and when he was appointed as the CFO;
When he left, did he resign or did the contract end?
The contract, to indicate when it was expiring.
When he came back, how did he come back?
The letter confirming the appointment that brought him back into the Department;
The payments that were made to Honey Cloud. When did they start and how much had so far been paid?
The contract that allowed for these payments to happen.

Mr Kekana said that the DPW had asked for a deviation regarding professional services for the upgrade of security and the Parliament precinct. According to NT, the reasons provided were not justifiable. There was no evidence that the market had been tested. He asked the Department if they had proceeded with the projects after receiving the letter from NT.

Mr Raymond Naidoo, CD: SCM, DPW, said that the Department had been requested to install additional security cameras. It had wanted to use the existing service provider who was contracted for maintenance and upkeep to install the cameras. Initially, NT had rejected the proposal and advised the Department to go out on an open tender. The Department had later found out that the installation of security cameras formed part and parcel of the scope of work of the existing contractor. DPW had gone back to NT and they had later approved the expansion of the scope of the contract, and the Department had then proceeded with the project.

Mr Kekana said that the latest information he had was different from the response just given. He asked for clarity from the NT official.

Mr Tshitangano said that if the DPW had gone back to NT, the information would appear only in the next quarter, which would be the first quarter of 2018.

The Chairperson said he struggled to understand the reasons for resubmission. He asked NT to repeat the explanation for the basis of the resubmission.
 
Mr Naidoo explained that when DPW initially approached NT for the installation of the security cameras, the requirement was to then utilize the existing service provider that was currently looking after Parliament in terms of facilities maintenance enhancement. That formed the basis of the Department’s submission to NT to request for the installation of additional cameras. When NT received the submission, they had indicated that the DPW should go out and test the market. They had not supported it. The Department had then relooked at the contract.

The Chairperson interrupted, saying he had a problem with the phrase, “relooked at the contract.” He asked if that was just a way of giving money to the company in crooked way. It did not seem proper to say that the Department had gone back to the contract and then realised that camera installation was part of the scope. The implication was that there was a sentence in the contract which indicated that the installation of the cameras was part of the scope. How did the Department miss a part of the scope?

Mr Naidoo responded that the request had come from the Cape Town regional office, which the DPW had submitted through to NT. What he was certain of was that NT had supported the second request from the Department.

Mr Kekana inquired about the deviation from competitive bidding in the nominated process. The response from NT had been that the reasons provided were not justifiable and that poor planning was not a valid reason for that deviation from the competitive bidding process. He asked if the Department had proceeded with the project.
 
Mr Cox Mokgoro, Acting CFO: DPW, said the project was the maintenance of Qunu museum. A request had been made to NT for a nominated process, and it had been rejected. The Department had not continued, based on the rejected nomination. The proposal was to go out to open market to get a contractor on site quickly. The work was now complete.

Mr C Ross (DA) asked for an explanation of the role of the Variation Order Committee (VOC)

Mr Wasnaar Hlabangwane, DDG: DPW, explained that the role of the VOC was to assess any application that intended to vary from the scope as initially approved. That variation could either be an increase or a reduction of the scope, which had a financial implication.

Mr Ross asked if the cost of refurbishing the sick bay building of the Bloemfontein air force base had been R14 million.

Mr Hlabangwane responded that it was not correct. The R14 million had been the contract amount. The variation was R510 000.

Mr Ross inquired about the repairs and renovations of lift installations, and the variation of R563 000. He asked if that was the cost of a new lift shaft. The total had been R18 million.

Mr Hlabangwane responded that that had been the cost of repair and renovations to lift installations.

Mr Ross asked if the variation referred to one new lift shaft. What constituted the R18 million?

Mr Hlabangwane said what the VOC had looked at was the additional scope. The R18 million would be reflected within bid adjudication committee report only when they considered the appointment of the service provider. The Bid Adjudication Committee and the VOC were independent committees all together.

Mr Ross inquired about the Department of Arts and Culture’s courtyard project at the Iziko Museum in Cape Town -- was that the project that had cost R200 million?

Mr Hlabangwane responded that it was the construction of the courtyard. The scope was quite huge. This was the scope that needed to be added to that original identified scope.

Mr Ross asked about the upgrading of the C-Max high security detention facility. He asked what the walkway bridge was, and whether it had been approved internally. The upgrade was very important. The project was years overdue and it was R151 million over the original budget. He asked what the status of the project was.

Mr Hlabangwane said that the project had started some time ago, but had encountered a lot of delays. Amongst those delays were changes of the scope to the extent that the contract had to be suspended until the redesign of that scope had been accommodated. The appointed service provider had not performed diligently to execute that scope’s completion. Subsequently, that same contractor had been liquidated. This had led to the appointment of another service provider. Currently the project was proceeding very well. From a financial perspective, the original scope that was remaining at the time of the liquidation was less than this contract in terms of value.

Mr Ross was worried about the R151 million overspent. What did the DPW do when there was overspending of R151 million within the Department?

Mr Hlabangwane replied that this subject had been discussed between the Department and the Auditor General. They had made specific findings. The Department had two bilateral agreements with regard to this project. There was one which was outstanding, where the Department had to agree to exchange information so that it could come to a conclusion in regard to the figures of the overspending on the project. Once the Department concluded that process of the overspent figures, it would be glad to share the details with this Committee.

Mr Ross inquired about the ministerial houses. The cost of R48 million was for the procurement of six ministerial houses. When was this done? The braai facilities at these ministerial homes had been a R250 000 expense. He asked if this had been an extension. He wanted the DPW to provide details on the
ministerial houses.

He asked about the conditional support in terms of construction of a new police station. What was the status of this project? Had the Department complied with the conditions?

Ms Louise van den Heever, Deputy Director; DPW, said that the police station concerned was the Roedtan police station, and that the Department had complied to the conditions laid down by NT.

Mr Ross asked if the Department engaged with the NT to inform them that they had complied.

Mr Hlabangwane responded that usually the Department did not go back to National Treasury. The Department just ensured that it complied with all the conditions.

Mr V Smith (ANC) inquired about the upgrading of C-Max. In 2017, the reports required carrying out an investigation to find out who was responsible for the additional scope. He asked the Department to explain the status of the investigation.

Adv Vukela responded that the matter had been referred to the Special Investigating Unit (SIU). The Department had received a report which was not conclusive. He did not know the status of the current outcome of the matter.

Mr Smith said the DPW had asked for R1 million in January 2018. It had been concerned about a service provider in 2017 to the extent that it had investigated them. He could not understand why the Department had gone ahead and given the service provider a variation in 2018. The same supplier had asked for R5 million in March 2018.

Mr Smith asked who Raubex was, and if the government was going to recoup some money from it. The Department had investigated Raubex, but had gone ahead and given the company additional money. This contractor had failed to perform diligently and had then gone bust. Raubex had probably spent a R1 billion of government money. He asked the Department to explain what was happening.

The Chairperson said that the C-Max story had been around for a long time. On 6 November last year, there had been a request for a variation, which had been received by the relevant committee on 14 November. The executing unit had been informed on 17 November. The decision of the VOC had been that this matter should be referred to legal services. The DG’s reference to the SIU might not be relevant and correct.

After 14 November, when there had been a recommendation that this matter be referred to legal services, what had happened? Was it referred to legal services as recommended by the VOC?

Mr Hlabangwane said that regarding the investigation, it was not Raubex that was being investigated. Raubex had been appointed to do the completion work. The company that had gone bust was Keren Kula. The Department was investigating through the professional team that was recommending this variation. If they were recommending such a variation, which at this stage was scoped, there was a need to find out who had to take responsibility for the necessary work that must be carried out on this project. If they did not include it in the scope, there was need to find out if it had been their professional error. The Department therefore needed that investigation to be concluded so that it could apportion the responsibility.

The Chairperson asked why they had already approved it.

Mr Hlabangwane responded that the work being recommended was very necessary for the functioning of the facility. If not approved, the facility would not be functional. However, it was not there in the current scope. The Department wanted to determine why it was not there. Who had made it possible not for it to be included in the scope? That was the investigation that needed to be carried out.

Mr Smith asked who the guilty party was, in respect of the supplier.

Adv Vukela said that the DPW had a professional team comprised of architects, engineers, etc, who did the scoping. They were given that mandate. If they came later and said that there was particular scope that was not there which was very critical, the Department needed to understand how it had happened. The value of the work, which was almost R15 million, was very alarming. Something had gone wrong, so the Department needed to find out who had made it possible that that scope was not in the current contract.

Mr T Brauteseth (DA) inquired about the C-Max facility. According to his research, the initial contractor was paid R134 million in 2011/12. The total amount paid to the contractor was R115 million on termination, and they had completed 86% of the work. The new contractor had been appointed in 2016/17 for an amount of R117 million. He asked if the figures were correct.

Mr Batho Mokhothu, DDG: DPW, responded that the figures appeared to be in the correct ball park.

Mr Brauteseth asked if the Department had got R115 million worth of value from the contractor who had been paid off.

Mr Govender said the question of value needed to be assessed. Perhaps there had been no alignment between the amount paid and the value of the service. The Department would ensure that the matter was pursued.

Mr Brauteseth asked the Department to explain why the VanRhynsdorp Correctional Centre project was seven years overdue and R91 million over budget.

Mr Hlabangwane responded that there were figures that the AG had identified to the Department, which showed that there were areas of over-expenditure which were regarded as fruitless. Currently, the Department was in engagements with National Treasury with a view of reaching a particular level of process. Once that process was concluded, the Department would be coming back to the Committee to give an update.

Mr Brauteseth said R91 million had been overspent and the project was seven years overdue.  What action had the DPW taken towards staff responsible for this? Had it considered if it was authorised, or fruitless and wasteful expenditure? Had the Department initiated any legal steps against those responsible?

Adv Vukela responded that no action had been taken against anyone. The engagement that the Department was having with the AG, after its conclusion, was when the Department would be taking a very informed and final decision. In the last engagement with the AG, the DPW had wanted to understand how they had come up with the definition for over-expenditure. That area informed the figures that were there. The Department had presented the specific documentation containing the required information.

Mr Brauteseth inquired about the braai facilities at ministerial homes. R252 000 had been spent on braai facilities at ministerial homes. A lot of money was being spent on braai facilities. He asked who authorised spending of this kind of money on braai facilities.

Adv Vukela responded that the authorisation was done by the Department.

The Chairperson asked who took final responsibility for all the payments.

Adv Vukela responded that he did.

Mr Brauteseth asked whose idea it was to spend the money of people who were living in shacks and squalid conditions, on braai facilities at ministerial homes.

Adv Vukela responded that the DPW served clients to the extent that it worked together with the clients with respect to determining what needed to be acquired.

The Chairperson asked who the client was in this case.

Dv Vukela said that in this instance, the client was the executive authorities -- the Ministers.

Mr Brauteseth asked if the Ministers had specified the amount of money needed for the braai facilities.

Adv Vukela said the Ministers had not specified the actual amount needed. That task was done by the professional services in the Department.


Mr Brauteseth inquired about the 39 ministerial homes that the Department had bought for R236 million. He asked if they had had to buy the homes or refurbish the homes that Ministers had lived in before.

Adv Vukela responded that this was one area which DPW had been confronted with because of the aging houses. Some of the repairs and maintenance cost more than buying a house. The decision to build and to buy was informed by the current state of the houses, which were in a very bad shape.

Mr Ross said that the Department needed to provide reports of the money spent on ministerial homes in the last financial years. A clear indication was needed of what the construction cost of a new home was, and what the cost of maintenance was, adding on the cost of providing braai facilities.

The meeting was adjourned.