ATC130520: Second Report of the Standing Committee on Public Accounts on its Oversight visits to the Provincial Departments of Education and Health in the Provinces of the Eastern Cape, Northern Cape and Gauteng from 15-18 October 2012, dated 24 April 2013
Public Accounts (SCOPA)
SECOND REPORT OF THE STANDING COMMITTEE ON
PUBLIC ACCOUNTS ON ITS OVERSIGHT VISITS TO THE PROVINCIAL DEPARTMENTS OF
EDUCATION AND HEALTH IN THE PROVINCES OF THE EASTERN CAPE, NORTHERN CAPE AND GAUTENG
FROM 15-18 OCTOBER 2012, DATED 24 APRIL 2013
INTRODUCTION
On the 15-18 October 2012 a delegation of the Standing
Committee on Public Accounts (the Committee) undertook oversight visits to the provinces
of the
The Committee hereby reports its findings and
recommendations to the House as required by Rule 137 of the Rules of the
National Assembly.
1.
DELEGATION
Below is the delegation that represented the Committee
on this visit:
Members
of the Committee
:
Mr
NT
Godi
, MP (APC);
Mr A R Ainslie, MP (ANC); Mr SG
Thobejane
,
MP (ANC);
Ms G
Saal
, MP
(ANC);
Ms S
Mangena
, MP (ANC); Ms T
Chiloane
,
MP (ANC);
Dr P
Rabie, MP (DA); Dr D George, MP (DA); and Mr IS
Mfundisi
,
MP (UCDP)
.
Support Staff
:
Mr P
Mbele
, Ms NT
Nkabinde
and Mr S
Nqwala
(Committee
Secretaries).
2.
BACKGROUND
The Auditor-General South Africa (AGSA) conducted
performance audits at the Departments of Health and Basic Education as part of
a transversal performance audit on infrastructure delivery.
The transversal report was tabled in Parliament on the 6
September 2011. The province-specific reports were tabled in their respective
provincial legislatures.
On 21-22 November 2011, the Committee held hearings in
Parliament with the members of executive councils responsible for the two
portfolios in all nine provinces. The accounting officers and implementing
agents were also in attendance. The hearings dealt (in the main) with the
following issues:
·
The appointment of contractors;
·
The reported delays in the completion of
projects;
·
Commissioning and utilisation; and
·
Future financial projections, where
applicable.
The Committee adopted the resolutions of the
Auditor-Generals report on 23 May 2012. It was after this stage that a number
of projects were identified for oversight visits. The Committee hereby reports
on the first phase of these visits, which took place in the provinces of the
3.
OVERSIGHT VISITS:
3.1
The Special Youth Care Centre (
Bhisho
)
The
tender estimate for the construction of the Special Youth Care Centre in the
The
centre, situated in
Bhisho
, was built to accommodate
314 learners with special needs, especially correctional supervision. There
were 3 staff members presenting educational programmes. The newly constructed
reform school had been completed in June 2009 but has only been used as from January
2011. The estimated cost of the project stands at R231 million.
4.2 Findings
a)
The tender for
the construction of the centre, with a budget of R118 million, was advertised
in two local newspapers, and not in the Tender Bulletin;
b)
Only two
prospective suppliers submitted bids of which one complied with the criteria
and minimum requirements to be considered during the bid evaluation process;
c)
The facility is
not fully operational as no action plans were in place for both the staffing
needs and the procurement of furniture and equipment;
d)
Funds were not
budgeted for the daily running of the facility;
e)
There is water leakage, some of the door handles
and windows were broken and there were visible cracks on the walls. Security
cameras were broken;
f)
The Departments of Public Works and Education did
not inform Independent Development Trust to fix all the defects; and
g)
There was no business plan to manage the facility.
4.3
Recommendations
The executive authority should ensure that:
a)
There is coordination between different role
players to ensure that projects are commissioned and utilised after the handover
processes; and
b)
Processes of communication, especially the
reporting of any defects to the implementing agent are formalised.
5.
The facility serves the area as a special hospital for patients with mentally-related
clinical needs. It was designed to cater for 440 patients, but at the time of
the visit, it had 380 patients. It is serviced by a multi-disciplinary team of
health professionals.
The hospital has an overall vacancy rate of 52
percent.
It operates on a budget of R88
million; of which 86 percent (R76 million) is spent on the compensation of
staff.
The facility shares the
premises
with
offices
of other departments and units; namely education, housing, environment,
traffic, emergency medical services and forensic services.
T
his has led to administrative challenges when it
comes to billing of electricity and water.
5.1 Findings
a)
Although the
planned completion date for the laundry section at the hospital was 17 April
2008, the section was still not completed at the time of the visit.
b)
This resulted in
laundry equipment, valued at R4, 9 million being stored in an unsecured
uncovered area within the hospital complex (at the time of the visit, the
equipment had been moved to health facilities in
c)
Furthermore, the
hospital management decided to outsource a portion of the laundry service (at
an estimated cost of R76 000 a month).
d)
The contract for
the construction of this phase (phase 2) of the project had been awarded to
Ilima Projects, who abandoned the project and were later liquidated. They had
already been paid R20 million of the R110 million total cost of the project.
5.2 Recommendations
The executive authority should ensure that:
The
purchasing
of equipment for infrastructure is coordinated
with project completion in order to ensure effective use.
6.
6.1
6.1.1 Background
a)
In August 2005, the
Provincial Tender Board awarded the contract to Vista Park/JOH Arch
Investments, with the project set to commence in September that same year.
b)
Delays in bulk earthworks meant that the construction
only commenced in February 2006.
c)
Further delays saw the revision of the completion date,
then
set at 20 March 2008. By the end of 2007, slow
construction had been noted, including poor workmanship and incomplete remedial
work. By the end of August 2009, the contractor was 565 days behind schedule.
d)
Penalties in this regard, totalling R11.3 million were
levied but never deducted from the service provider.
e)
The contractor failed to submit a revised construction
programme but instead submitted claims for extension of time and costs.
f)
The slow delivery
compounded by water penetration caused structures to deteriorate.
g)
Non-payment
to sub-contractors caused delays. Cash flow problems were reported as the
reason at the time.
h)
There
was poor supervision of the workforce by the contractor.
6.1.1.2 Termination of initial contract
Poor performance
·
In February 2008, the contractor made a
request for an opportunity to provide definitive plans that would see the
project completed by 20 March 2008.
·
By April 2008, the contractor had failed to
complete the project or submit the required completion plan. They were then
informed that they were in breach of contract.
·
In February 2009, the
contractor submitted claims for extension of delivery timeframe with costs.
·
A revised programme
was requested from the contractor. They set a new completion date of May 2010.
·
In December 2009,
the Northern Cape Department of Roads and Public Works (DRPW) terminated the
contract, subject to legal processes.
The court process and liquidation of the contractor
·
Between January and
October 2010, the contractor repeatedly challenged the DRPW through the courts.
·
The lengthy delays,
with the construction site legally under the control of the contractor,
resulted in significant deterioration due to weathering, vandalism and theft.
·
In October 2011 the
contractor was liquidated before the courts could make the final pronouncement
on the matter.
Surety or guarantee
·
Two percent (R5
million) of the contract value was provided through
Investec
for a period of 24 months.
·
Four percent (R10.2
million) retention from contract was kept by the client after termination.
Increase of the original contract amount
·
There were significant
variations in cost caused by averaging methodology used to estimate costs at
the outset.
·
The design work
continued while construction was underway.
·
R420 million was
spent on the initial part of this project.
6.1.1.3 New Contractor
Appointment
·
Towards the end of
2011,
Inyatsi
Construction was appointed using the JBCC
contract. The site hand-over took place on 21 December 2011.
·
The contract value
then, stood at R400.57 million for the
hospital, internal
roads and guardhouse, excluding professional fees.
·
This was to be a 24-month
project - with
completion expected in January 2014.
Scope of work
and latent defects
·
At the end of 2011,
structural reports were commissioned to
estimate remedial
work and
inform the bill of quantities, which
was
R6.78 million.
·
In June 2012, sample drilled courses were
conducted to determine concrete strength - only two of the three passed the
tests.
In August 2012, further strength tests were
conducted on some surface beds and concrete slabs - preliminary findings
indicated significant variation in strength.
Performance of
the new contractor
·
The Construction Industry Development Board
(CIDB) down-graded the contractor from a Grade-9 to 7GB (General Building
Works) during final stages of awarding the contract.
·
Advice was sought by the DRPW from the CIDB
on how to proceed the three options given are under consideration, including
cancellation of the contract.
·
At the time of the visit, the contractor was
already falling behind the set time schedule, and the monthly expenditure was
at 50% less than cash flow projections.
Budgetary concerns
·
There was no capital budget currently
available for this project the expenditure is being paid from a budget for
another Hospital Revitalisation Project.
·
The significant and unexpected increase in
the capital cost of the electric sub-station is being reviewed.
·
Additional costs for prolongation fees were
yet to be quantified.
Performance of contractors
·
Contractors were
unable to meet the monthly agreed deliverables due to insufficient capacity in
their companies.
·
Their respective under-performance
subsequently led to under-spending on the project.
·
Poor coordination between the contractors/consultants
and implementing agent led to further delays of the project.
Capacity to implement the project
·
The Department of
Public Works is responsible for the implementation of the programme.
·
The Department of
Health is only responsible for planning (development of the business case,
project brief and supervision of designs), reporting and
monitoring
of projects.
·
Due to limited
capacity at the Department of Public Works, there was no proper monitoring on
projects.
6.2 Follow-up hearing with the project stakeholders: 02 November 2012
Background
:
The Committee had visited the site of the mental
health facility in
The hearing took place on 02 November 2012. It
was attended by the executive authorities, former and present accounting
officers, and officials representing the implementing agent.
The meeting discussed at length the issues that
are reported herein, and sought to find answers as to what had gone wrong with
the project. The following is a summary of the issues that were covered on the
day, and they confirmed the findings of this report:
·
Due process were not
followed when dealing with the contractors;
·
The roles that were played by
different individuals (in their official capacities) and departments (including
the then Tender Board)
over the years;
·
The escalation in costs the
project is expected to cost about R1.8 billion by the time of estimated
completion (March 2014);
·
Unauthorised payments over the
years, with no satisfactory explanations offered;
·
The multiple investigation into the
project by different parties at different times, which have not yielded results;
·
The subsequent appointment of
another contractor and the processes therein; and
·
The capital budget for the hospital.
6.3 Recommendations
The Committee wishes to place on record its disappointment
at the state of affairs surrounding this important project in the
In light
of the seriousness of the issues as reported herein, the Committee recommends
that a full-scale investigation be undertaken by the appropriate investigative
authority, to look into the roles of various individuals and/or entities in the
management of the project.
7. GAUTENG
7.1
The project comprises of a multi storey 300 bed
7.2 Findings
Ilima
Joint Venture was appointed in May 2006 as the contractor for the project. The
original contract sum was for an amount of R335 million and the project was to
be completed at the end of May 2008.
Three of the joint venture partners withdrew and
only one contractor remained. This contractor misrepresented the validity of their
tax clearance certificate and had outstanding tax returns since 2004. The contract
was terminated in September 2008.
They cited changes, escalating costs
and constant late payments to the contractor among the many problems. The
Department terminated the contract with the Ilima Joint Venture and proceeded
to enter into another contract with Ilima Projects, the terms of which were
inter alia that the Department would avail the services of
Tau
Pride and PMRG to provide capacity support to Ilima Projects to ensure delivery
of the project by 2010.
The Committee
observed that there had been poor planning by the departments involved,
especially after the termination of the initial contract and the appointment of
the second contractor.
During the Committee visit the project was incomplete and
the Department anticipated the completion date as April 2013.
Zola Hospital has seen an
escalation of 144 per cent in initial costs, up
to R480
million.
The estimated cost after completion is R888 million.
7.3 Recommendations
The executive authority should ensure that:
-
The
resident engineer monitors progress on all projects more frequently; and
-
The
department completes projects by the completion date.
8. CONCLUSION
The Committee will continue to monitor the
progress of these projects until completion of each, to ensure the effective
use of public funds.
The Committee further recommends that the Executive
Authority submits a progress report on the implementation of the above
recommendations to the National Assembly within 60 days after the adoption of
this report by the House.
Report to be considered.
Documents
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