ATC121004: Report Of The Select Committee On Appropriations On The Progress Report On The Northern Cape Mental Health Hospital Project And North West Hospital Revitalisation Grant Projects In The 2012/13 Financial Year, Dated 19 September 2012

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE PROGRESS REPORT ON THE NORTHERN CAPE MENTAL HEALTH HOSPITAL PROJECT AND NORTH WEST HOSPITAL REVITALISATION GRANT PROJECTS IN THE 2012/13 FINANCIAL YEAR, DATED 19 SEPTEMBER 2012

1. Introduction

The Select Committee on Appropriations (the Committee) convened hearings on the progress that had been made on the North West Hospital Revitalisation Grant and Northern Cape Mental Health Hospital project projects since the Committee’s oversight visits on 11 October 2011 and 24 January 2012, respectively.

The Committee invited the Health and Public Works departments of the two provinces, Northern Cape and North West to brief the Committee during a meeting that took place on 8 August 2012 at Parliament in Cape Town .

2. Terms of reference

The hearings emanated from the Committee’s oversight visits to the two provinces in the 2011/12 financial year. After the visits the Committee had compiled reports with recommendations. As part of the new adopted Committee Strategic Plan, the Committee had resolved to track the implementation and progress of its recommendations.

The hearings formed part of the Committee’s ongoing interaction with provinces to monitor their spending patterns on conditional grants allocated to them. A framework for each grant sets out the purpose of the grant, measurable objectives, conditions, allocation criteria, and past performance, among other things.

3. Progress reports by Northern Cape and North West Provinces

3.1 Northern Cape Departments of Health and Public Works on the Northern Cape Mental Health Hospital Project

During Committee meetings held on 19 and 20 October 2010, the Committee was told that the initial projected cost of the Northern Cape Mental Health Hospital project had been R290 million, but it had escalated to R740 million. This project had been started in 2006 and should have been completed in 2008. According to the Northern Cape Department of Health (NCDH), the project had been delayed due to slow delivery by the contractor. The contractor had been replaced, but the project had additional costs to the amount of R380 million, and it was making good progress.

In the meeting held on 8 August 2012, t he NCDH explained that the first contractor, Vista Park/JOH Arch Investments, had been awarded the contract by the Provincial Tender Board in August 2005. The NCDH added that the late installation of bulk earthworks had delayed the commencement of the project and it eventually commenced in February 2006. This, coupled with bad weather, had led to the revision of the completion date to 20 March 2008. The NCDH further explained that by 2007 slow construction, poor workmanship and incomplete remedial work had been noted. This had led to the contractor being 565 days behind schedule which resulted in penalties totaling R11.3 million levied but not deducted. The NCDH reported that Vista Park/JOH Arch Investments had failed to submit a revised construction programme , and had instead submitted claims for extension of time and costs. Furthermore, the NCDH reported that water penetration, had caused the structures to deteriorate. Vista Park/JOH Arch Investments had also experienced cash flow problems and the subcontractors had not been paid on time. Overall there had been poor supervision of the workforce by Vista Park/JOH Arch Investments.

The NCDH reported that in February 2008, the department had requested Vista Park/JOH Arch Investments to provide a definitive plan to complete the project by 20 March 2008. In April 2008 Vista Park/JOH Arch Investments had failed to complete the project or submit the required completion plan. The provincial Department of Public Works reported that the contractor had been informed he was in breach of contract. In February 2009 Vista Park/JOH Arch Investments had submitted a claim for extension of time with costs, together with a new completion date - May 2010. The NCDH reported that from March to December 2009 senior management had tried to find a solution to the never-ending delays and when this had failed, the Northern Cape Department of Public Works had terminated the contract at the end of 2009.

The NCDH reported that from January 2010 to October 2011 Vista Park/JOH Arch Investments had challenged this decision through the courts. The NCDH added that the lengthy delay, with the construction site still legally under Vista Park/JOH Arch Investments, had resulted in significant deterioration of the structure due to bad weather, vandalism and theft. In October 2011 Vista Park/JOH Arch Investments had been liquidated before the court could make a final ruling. The NCDH reported that 2 per cent (R5 million) of the contract value had been provided through Investec Bank for a period of 24 months and a 4 per cent (R10.2 million) retention from the contract had been kept by the client after the termination. The NCDH also reported that the increase of the original contract amount had been due to significant variations in costs caused by averaging methodology used to estimate costs at the outset. Design work had continued while construction was underway and R420 million had been spent on the initial part of this project.

The NCDH reported that in 2011 a new contractor, Inyatsi Construction, had been appointed using Joint Building Contract Committee (JBCC) contract. The site had been handed over on 21 December 2011. The contract had been for 24 months with the completion date set as January 2014. The contract had been valued at R400.57 million for the hospital, internal roads and guardhouse, excluding professional fees. Moreover, the NCDH reported that due to suspicions of latent defects, structural tests had been done in 2011 and reports commissioned had estimated remedial work to be amounting to R6.78 million. In June 2012 sample drill courses had been conducted to determine the concrete strength and two of three passed the tests. The NCDH further reported that in August 2012 further strength tests had been conducted on some surface beds and concrete slabs, and preliminary findings had indicated significant variations in strength. At the time of the meeting, the department was awaiting laboratory reports on load tests conducted.

The NCDH reported that the Northern Cape Mental Health Hospital project was also experiencing challenges due to the fact that Inyatsi Construction had been downgraded by the Construction Industry Development Board (CIDB) from 9GB to 7GB during the final stages of awarding the contract. The NCDH was considering terminating the contract. The NCDH further reported that Inyatsi Construction was already falling behind schedule, and its monthly expenditure had been 50 per cent less than cash flow projections.

The NCDH reported that there was no capital budget available for this project. The expenditure was being paid from the budget of the De Aar Hospital Revitalisation Grant project. Moreover, there was a significant and unexpected increase in the capital cost of the electric sub-station from the Sol Plaatje Municipality which was being reviewed. The additional costs for prolongation fees were not yet quantified. The construction cost of the Northern Cape Mental Health Hospital had escalated to more that R1 billion.

3.2 North West Department of Health and Public Works

On 11 October 2011, the Committee had visited the North West Province to assess progress on Hospital Revitalisation Grant projects. After reports had been presented by the provincial Department of Health, the Committee had wanted to conduct an inspection- in-loco at the Bophelong Psychiatric Hospital and the General de la Rey Hospital projects. At that stage, the Department had indicated that there in fact had been no projects initiated with the reported expenditure. In short, the department had nothing to show for the money spent.

The progress report submitted to the Committee on 8 August 2012 by the North West Department of Health (NWDH) indicated that the allocated budget for the Hospital Revitalisation Grant in the 2012/13 financial year was R423 million. At the time of reporting only R123 million (29 per cent) had been spent. The NWDH reported that its submission to the Committee during the October 2011 visit that there was nothing to show on the Bophelong Psychiatric Hospital , had been because only bulk earthworks and boundary walls had been installed. The construction of the second phase of the Bophelong Psychiatric Hospital was reported to be at the tender awarding stage. The NWDH highlighted that construction had not started. With respect to the General de la Rey/Lichtenburg Hospital, the NWDH reported that the approval for this project had not been finalised by the National Department of Health and therefore it was still at the design stage.

The North West Department of Public Works reported on a case that was before the court with regard to the Brits Hospital project. Due to the sensitive nature of the report the Committee asked the Department to withdraw the report. The NWDH reported that its employees had signed invoices without being authorised to do so because the contractor had been downgraded. The North West Department of Public Works was still investigating this matter.

4. Key Observations

During interaction with the Northern Cape and North West provincial Departments of Health and of Public Works, the Committee observed the following:

4.1 The cost of the Northern Cape Mental Health Hospital project kept escalating and was at more than R1 billion at the time of reporting. Moreover, even though there had been no capital funds budgeted for this project, the Northern Cape Department of Health was continuing with construction on this project using conditional grant funds meant for the De Aar Hospital project.

4.2 The Northern Cape Mental Health Hospital project was not progressing at all as the completion date was being shifted backwards yearly. The physical structure of this project had dilapidated due to vandalism and theft of material.

4.3 There has been little progress with the North West Hospital Revitalisation programme as far as the Brits Hospital , the General de la Rey/Lichtenburg Hospital and the Bophelong Psychiatric Hospital were concerned.

4.4 The officials of the North West Provincial Department of Health had committed and signed on behalf of the Department that the Brits Hospital project was going ahead whereas the Department had resolved not to go ahead with it.

5. Recommendations

Having considered the joint presentations by the provincial departments of health and public works on progress on Hospital Revitalisation Grant projects, the Select Committee on Appropriations recommends as follows:

5.1 The National Department of Health should conduct thorough investigations on the Northern Cape Mental Health Hospital Project.

5.2 The Northern Cape Department of Health should refrain from contravening the Division of Revenue Act by spending conditional grant funds meant for the De Aar Hospital Project on the Northern Cape Mental Health Hospital Project.

5.3 The National Department of Health should conduct an assessment of progress on the three North West Hospital Revitalisation projects - Brits Hospital , General de la Rey/Lichtenburg Hospital and Bophelong Psychiatric Hospital .

5.4 The North West Department of Health should submit a progress report on its investigations into the Brits Hospital project on a quarterly basis after this report has been adopted by the House.

Report to be considered.