Building of New Correctional Centres: Department’s progress report

Meeting report

Building of correctional service centres: Department of Correctional Services (DCS) Progress Report
The Chairperson detailed the agenda for the meeting, which would hear the Department’s feedback on the building of the new correctional centres. These correctional centres had been planned since 2002. President Thabo Mbeki, in his State of the Nation address of 2006, had announced that four correctional centres would be built - in Kimberley, Nigel, Klerksdorp and Leeuwkop. The President, announced later that an additional four- in Kwa-Zulu Natal, Limpopo, Western Cape and the Eastern Cape – would also be built.

The reason for the meeting was to be informed of the progress of these correctional centres. There was only one correctional centre currently being built in Kimberley. The Chairperson was worried that he was still sitting with this issue in this last year of this Committee’s tenure. He wanted to be able to tell voters that the Committee had fulfilled their mandate and had done what they had set out to do. The implication was that there had been a Presidential announcement, yet the Committee and the Department, were not adhering to the building. He hoped that there were answers as he was determined to finalise this matter.

Commissioner Vernon Petersen, National Commissioner: DCS, thanked the Chairperson for the invitation to address the Committee and remarked that he had brought a large delegation because the DCS was facing serious challenges and he wanted to ensure that there were enough delegates to give appropriate answers to any questions. Because of the nature of the infrastructional programme, and because these were critical facilities, he had also asked members of the Department of Public Works (DPW) to attend. 

He presented the business case made by the Transactional Advisor. The Minister had accepted the recommendations emanating from these findings. The Department would report back on progress made since. He was confident that the DCS was on its way to becoming involved in the business of procurement. He would also report on some of the delays that had been experienced. Building had been moving and rising quite fast. He wanted to talk about facilities. This needed to be placed in context with the infrastructure of the facilities. The Department was keen to correct the mistakes of the past.

The issues around infrastructure were major challenges and not just backlogs. The fact that the Inspecting Judge had made a strong comment that the building was largely warehouses was an indication of how serious it was. There was also the challenge of transforming the existing infrastructure.

Mr Robert Van Anraad, Deputy Chief: Facilities, DCS, gave a general background on the building of the new facilities. The need for new facilities was identified in 2002, and the building was to be undertaken in two phases. During the first phase four sites had been identified; Leeuwkop, Nigel, Klerksdorp and Kimberley. The second phase identified Polokwane, Paarl, Port Shepstone and East London. He confirmed the information shared with the Committee that the Leeuwkop Correctional Centre was stopped due to the Environmental Impact Assessment (EIA) recommendations. The project was suspended until the outcome of the viability study undertaken by the Department of Public Works (DPW). The site identified in Polokwane could not be acquired at a reasonable market value, and that had delayed the project. This was now excluded provisionally from the rest of the projects. The feasibility study report provided to the Committee on 6 November 2007 indicated that the correctional centres in Nigel and Klerksdorp were also added to the feasibility studies, which resulted in feasibility studies being undertaken for five centres.

The Transactional Advisor recommended in the feasibility study that a Public-Private Partnership (PPP) procurement option was preferable. This was considered the best in terms of value for money, risk transfer and affordability.  The risk transfer meant that construction risks were transferred to the private party. The management of the facilities would be returned to the Department in good condition after twenty-five years of operation under the private party. The private party would conduct management of operations.  The Department would manage the risks and integrity by ensuring that every participant in the government signed a confidentiality contract. There was also a vetting process and evaluation of all members.

The current status and the project phases illustrated the scope of the project. Each centre provided approximately 3 000 beds, and catered for medium and maximum offenders. The contract term was for a two-year construction process, thereafter a twenty-five year operations period. The contract should be in compliance with Broad Based Black Economic Empowerment (BBBEE) principles. There was a good response for the request for qualifications and the bid evaluation was in progress and would be completed by the end of April 2008. The process was verified in terms of the PPP regulations and was to be continuously monitored by DCS internal audit.

A picture that depicted construction on the site illustrated the status of the Kimberley Correctional Centre. It was the first of the original eight centres that was to be built, with capacity for 3 000 offenders. Details were given on construction information, the labour force and the cost of the project.

Mr Taz Chaponde, Head: PPP Unit: National Treasury, indicated that the financial details and implications should not be given, as the tender processes were ongoing.

The Chairperson responded that had the National Treasury (NT) raised this issue earlier then a closed meeting would have been arranged.  NT could not expect the Committee to commit to a budget without sufficient information. The Committee wanted to be part of the decisions around the whole process of the building of correctional centres. However, he relented and agreed that the questions around the finances could stand over to be asked in a closed meeting.

Discussion
Ms S Seaton (IFP) wanted to know what were the timeframes for completion of all the correctional centres, particularly the one in Port Shepstone.

Mr W Ngwenya (ANC) wanted to know what timeframes were stipulated for each phase. 

Commissioner Petersen replied that by the end of April the DCS would want to have completed the evaluation process, which included assessing the responses to their request for qualifications. Afterwards they would proceed with the bid and the competitive process. That had a September timeline. The end period for five of the correctional centres would be 2010/2011. The DCS was on track with the timing of the evaluation processes. It was working closely with others in order to attain the best practices when dealing with procurement.

Mr Van Anraad replied that the target date was set as February 2009 for the completion of Kimberley’s correctional centre. The contract allowed that in the event of rain, then the contractor would get an extension on the completion date. The other five correctional centres were currently going through the short-listing of the tendering process. There had been a good response. The actual short listed submission was targeted for September 2008, and construction was to start in 2009. The completion would be in 2010/2011, depending on the pace of work. There were incentives that encouraged the contractors to work faster. The Polokwane process had to have approval for the site. DCS was still waiting for the final date for the viability study on Leeuwkop.

Mr J Selfe (DA) noted that there was an urgent investigation into the site chosen in Polokwane, and that there might be an alternative site for Leeuwkop. He wanted to know if all the other sites had been identified and all applicable processes had been completed in order to avoid further delay. He wanted to know what sort of delays there were, if any. In particular he wished to know about the status of the site works for Leeuwkop and Nigel, since further construction had been halted.

Commission Petersen replied that there had been some earthwork done in Leeuwkop. It had become very complicated as it had been subjected to an environmental impact study. He thought that the DCS should do a cost-benefit analysis to examine the cost of continuing on the site in Leeuwkop against the money already spent. There was earthwork preparation at Nigel as well.

The Chairperson suggested that research should be done on the two private correctional centres versus public correctional centres and the rehabilitation of the inmates. He asked if it would be better to place juveniles in those correctional centres as they were well equipped. He felt that the Department was using the two private correctional centres in the wrong manner and urged that they consider placing juvenile there.

Rev L Tolo (ANC) wondered if the DCS took the Committee seriously when the Committee raised proposals and suggestions. He had suggested that there was land available just outside Polokwane to the DCS on numerous occasions, yet there was no indication from the Department that there had been any investigation of that land. 

The Chairman proposed that Department of Public Works and DCS discuss Rev Tolo’s suggestions in a meeting. 

Mr Solly Malebye, Deputy Director-General: Operations: DPW, replied that from the operational view several analyses would have to take place in order to deem whether or not the area was appropriate. They would interact with Rev Tolo on the subject.

Rev Tolo wanted to know what was the problem in Limpopo.

Commissioner Petersen replied that he had heard that the contractor was going to be on site in Tzaneen early this year.

Mr Van Anraad added that they were on track. The Public Works project manager had been called in to report on the status. They had received three tenders, two of which were non-compliant, but the third tender’s cost was too high. It was accepted that a re-tendering had to take place. At present the DCS was in the process of re-tendering.  

The Chairperson responded that he and Rev Tolo were informed that the contractors were going to begin, yet now the Committee was receiving conflicting information. He agreed with the Rev Tolo that it seemed that the Department was not taking the Committee seriously.

Commissioner Petersen responded that these were some of the delays and risks that were taken during the procurement processes. He was not making excuses. However, he was focussed on Tzaneen and would follow-up with any of the delays.

Rev Tolo commented that the Department should be aware that the Committee was informed on what was happening at the grass roots.

Ms Ngwenya noted that there were first and second phases, however there was a feasibility study done in 2006/07 for Leeuwkop facilities. She was concerned and asked for the most recent information.

Mr S Mahote (ANC) wanted to know what informed the DCS to change to Public-Private Partnership (PPP) model type correctional centres. No one was pleased with the escalating costs of the current two correctional centres that were built using PPP. In previous meetings, when the options were discussed, the Committee had noted that it expected the DCS to inform the Committee of further developments. However, the Minister had already made the announcement.

Ms L Chikunga (ANC) remembered that the Department told the Committee that it had sought legal advice regarding the two PPP correctional centres, both in terms of shortening the timeframe and in respect of the cost. She asked what had changed. She added that the two correctional centres were not able to relieve the problems that they were experiencing such as overcrowding. 

The Chairperson interjected that he wanted to bring the minutes of the meeting of 2 May 2006 to the attention of the DCS. During that meeting, the Minister had said that the Department had shifted away from the PPP model,  based on the cost of the two existing PPP centres, and based on the international debate concerning the constitutionality of private companies being responsible for the incarceration of citizens, and the assessment that the PPP situation was not enabling management of the correctional system. Private companies did not understand the Department’s White Paper and did not address critical issues such as overcrowding and rehabilitation. The Chairperson wanted to understand why there had now been a shift. The Committee had to be convinced that the PPP model provided value for money. The cost for each centre would be R300million. He was further concerned about the twenty-five year contract and wanted to know what was the benefit to be gained by the government.

Commission Petersen replied that the issue of procuring correctional facilities resulted in analysing different methods of procurement. The DCS was, at first, favourable toward the Public Finance Model (PFM). The feasibility process looked at all the procurement methods. It looked at issues of risk transfers, value for money and affordability. Unfortunately their preferred model, PFM, was not a viable one, and it was decided that the government should follow the PPP model. The delays occurred because of the feasibility study findings and DCS having to decide whether or not adhere to the findings. National Treasury had, years ago, budgeted for the building of four new correctional centres, at a cost of R350 million each, and that remained on the DCS budget for a few years. By the time the DCS was ready to make a decision on a procurement method, the cost had escalated to R800 million. This was the cost of government processes and inefficiencies, coupled with the fact that it was impossible to follow through with what the DCS had thought was the best procurement method. The feasibility study had told DCS that if the PPP model was not followed, then the cost to government would be higher. He thought that as they continued they would have to adopt best practices. DCS wanted to work closely with experts. The DCS preferred to build and run the correctional centres according to the traditional procurement methods. However they did not make these decisions alone and needed to follow the processes.

Mr Chaponde replied that if the correctional centres were procured through a PPP process, it would be a DCS process. The PPP unit at National Treasury would play a supportive and advisory role. They would attempt to ensure that all parties would understand the benefits of the process. The Department concerned should make their own decisions. He clarified the benefits of PPP procurement. The timeframe in the PPP process meant that there would be no slippage in the timing. The private consortium would commit to a date as part of the contract. In PPP procurement there would be no cost escalation. Once the contract had gone through a difficult negotiation because the private partnership enumerated what could cause an escalation in cost and those costs would then be locked into the final totals. This ensured that government was secure on what the budget costs would be. In conventional procurement there was time overruns and budget overruns. The reason why there was a perception of a premium of PPP procurement was because there was a control of the overruns. In the PPP contract maintenance was built in and would be carried out on a consistent and regular basis. Since it was in the contract the private party was legally bound and could be penalised if they did not adhere to their contractual obligations. At the end of the twenty-five year contract what would revert to government would be a pristine well-maintained building. The PPP procurement allowed for financing overtime, which would be easier on the budget as opposed to providing the complete funds with conventional procurement. The two PPP correctional centres were closely aligned with the DCS White Paper, and they could ensure that the next PPP correctional centres build was aligned with the White Paper. The private party would be penalised if they did not deliver according to the stipulated output specification. It was a choice that government had to make. The feasibility study concluded that if the PPP route was followed there would be a net financial benefit of 22 – 23%. It was on this basis that the DCS opted for the PPP option.

The Chairperson wanted to know how much each correctional centre would cost over a period of twenty-five years.

Ms Seaton was concerned about rash negative statements made by the Department about the PPP. The Department should be careful about making such statement before having proper research done. A proper financial investigation into the actual cost of running one of the correctional centres should be carried out. She did not think the Department had ever had one of those investigations. She thought it was wrong to have the statements made by the Department in past about PPP. In future when looking at feasibility studies proper figures should be brought to the Committee in order for the Committee to have the proper information.

Commissioner Petersen replied that he would accept the Honourable Member’s feedback. They had hoped that Kimberly would become a benchmark with their PPPs. When they come back to the Committee they would bring all the vital information regarding Kimberley in order to properly compare and assess value for money and cost-benefit. They should engage on the issue of the type of inmates placed in those facilities. 

Mr Chaponde replied that there were two elements in terms of cost. There would be the capital cost for actual building. The other would be the operational cost for the management and maintenance of the correctional centre. PPP procurement delivered lower capital cost. The Transaction Advisor, that was independent of government, produced information and data that suggested that operational cost would not be higher. He believed that they should continue to engage and question the issue, but the evidence suggested that both the operational and capital costs would not be high with PPP procurement.

Commissioner Petersen interjected that the debate should continue until government was as efficient as the private sector.

The Chairperson disagreed. He added that 241 correctional centres were costing R600 million. That amount should ensure proper service. He was sure that in the new financial year that amount would be higher.

Ms Seaton commented that the difference between the PPP and the government correctional centre was that PPP would deliver in twenty-five years a correctional centre that was in perfect condition, whereas a government correctional centre, within five years, was already in shocking condition.

The Chairperson responded that the Honourable Member and he would disagree on the subject.

Ms Chikunga asked if these processes were followed before they built the first two PPP correctional centres. She felt that if the PPP was the best model then the Department misled the Committee. She did not want to be associated with anything that she was not certain of.

Mr Tolo suggested that the Committee should meet to further discuss the PPP, as he also was not certain of the issue.

The Chairperson agreed that the Committee should meet to discuss this. He also did not want to be associated with an issue that he was not sure of. There were several occasions when  the Department had said that it did not agree with the PPP, but at present they had shifted position. The Committee could not simply accept a shift in position, but first had to be convinced that the PPP was the best course of action.

Commission Petersen respected the Committee’s view and added that the Department would return to the Committee if there were further questions. Kimberley would be a good example and could be used for comparisons. It would also be the first correctional centre where official accommodation for staff would not be provided. This contributed to the high cost.

Mr Malebye added that there were both advantages and disadvantages in a number of models. They would have to go back and evaluate the situation on the basis of the process under the circumstances. There was not one perfect model. It was his view that to a great extent the DCS made its decision based on certain considerations, of which the Committee should be informed.

Mr E Xolo (ANC) mentioned that in previous years the Committee had become aware of lack of proper ablution facilities in correctional centres, and asked whether the new generation correctional centres were properly planned to relieve congestion especially around facilities.

Mr Tolo wanted to know about the correctional centre in Port Shepstone and whether there was any maintenance being done on the centre.

The Chairperson said that there had been a response on those developments. He added that there was renovation taking place.

Ms Chikunga wanted to know if the DCS had a Strategic Maintenance plan that was applicable countrywide because she thought that maintenance was done on an ad hoc basis. 

Ms Chikunga had never heard that the DCS admit that there was poor planning with serious cost implications. She wanted to know whether the Department could accept that there was poor planning.

Mr Van Anraad replied that Public Works was responsible for maintenance of government property. A substantial amount was allocated to planned maintenance. The process was that Public Works would be paid upfront and would then run their various programmes and projects. The backlog meant that not all the maintenance could be addressed. The important issue was that funds were being transferred to Public Works. There was engagement between the two departments. There were not sufficient funds to address the entire backlog.

Mr Malebye added that government did have a national infrastructure maintenance strategy that dealt with both planned and unplanned maintenance. They had started a financial assessment of the funds required to cover the backlog only. In most government buildings there was a programme called the Repair and Maintenance Programme (RAMP), which needed continuous development.  

Ms Chikunga was not sure that there should be any excitement around the start of construction of the correctional centre in Kimberley, since the date of completion had been changed to 2009 as opposed to 2008. She added that the Committee had been understanding and tolerant.

Commission Petersen replied that the Department was pleased that construction had begun on a correctional centre but was  not satisfied since there were seven more to complete. The Department further welcomed the responses to their request for qualifications.

Bishop Tolo was aware that the Commissioner was working hard

The Chairperson reiterated his earlier question and wanted to know how much would each correctional centre cost over a time period of twenty-five years.

Mr Chaponde replied that a third party did the feasibility study. It was important to use the figures of the rate per offender per day. The feasibility study presented a cost using Manguaug Correctional Centre as an example.  The operational cost for Manguang was R148 per offender per day. This figure was compared to the DCS budget per offender per day, which was a total of R191. The figures had to be adjusted because of overcrowding and the number then changed to R152. The study had suggested that Manguaug, compared to DCS budget, had essentially the same operational cost per offender per day.

Mr Chaponde then clarified that the reason why, at face value, the two private correctional centres cost more than the government correctional centres was that presently government was including capital cost in the figures. In the DCS correctional centres government paid the capital cost up front. There had recently been produced a short booklet on PPP, because of its complex nature. He suggested that a set of those booklets be delivered to the Chairperson’s office.  The feasibility study ultimately informed the DCS that for the same output the PPP procurement was more cost-effective. Furthermore it would depend on what level of output the government was willing to settle for. According to the transactional advisors the PPP correctional centres were cost-effective.

Mr Velile Mbethe, Chief Director: National Treasury, suggested that they would work with the Committee’s researcher and provide him with all the relevant documents. They had to empower the Department to be able to answer all the questions that were raised.

Mr Chaponde added that there was close liaison between DCS and the technical unit in Treasury to have the right level of output. This was to ensure that what was spent was in proportion to what was received. He gave as an example that the government specified, for the Louis Trichardt correctional centre, that a vehicle must patrol the perimeter of the entire facility for twenty-four hours a day. They would make sure; if there were any more PPP correctional centres, that there would not be unreasonable expenses. He believed that if they adopted best practices and appropriate output specifications they would end up with the same costs that government would incur in their normal correctional centres. He appealed to the Committee to allow the processes to proceed and to monitor that both the processes and the output specifications were appropriate.

The Chairperson did not agree with Mr Chaponde’s statement. He added that the Committee would discuss the issue. The Members were public representatives and wanted to support the correct decisions.

The Chairperson asked what other Departments were using the PPP model.

Mr Chaponde replied that the PPP framework was regulated under the Public Finance Management Act (PFMA) since 1999. It was captured under Treasury Regulation 16. There were now eighteen PPPs that were operational on the ground. These covered office accommodation for Departments of Trade and Industry and Education. The Department of Transport utilised the PPP for the Gautrain and for Eco-Tourism, and PPP was also used in the area of health. There were a few more in the pipeline. Before a PPP project commenced a feasibility study had to be carried out.
 
The Chairperson asked if there was a school built using PPP.

Mr Chaponde relied that the Department of Education went through the feasibility study and the main issue raised was one of affordability. The feasibility study for schools was done in the Free State and the Department of Education was not convinced that PPP was the best option for schools.

The Chairperson queried why, if the PPP was claimed to be so successful and cost-effective, and if there was a problem of schools in the country, why Department of Education did not use it to build schools.

Mr Chaponde replied that the feasibility study did not allow for generalising. The characteristics of the particular project were vital in deciding whether or not it was the best option. He was confident that in the case of the five correctional centres, the PPP model had been subject to a rigorous feasibility study and clear recommendations were made.

Commissioner Petersen commented that it was an ongoing discussion. He tried to place it into context with the backlogs. The challenges were huge. The DCS needed various kinds of process to address these challenges. The DCS needed to make sure that it could confidently commit to the PPP. He was willing to engage in a closed meeting. It was quite clear that these were difficult decisions. He hoped that the Committee would help him to achieve the imperative to build the correctional centres within the shortest possible time.

The Chairperson commented that he did not believe the correctional centres were being built to address the problem of overcrowding, and there was a need to build correctional centres to address the problem of rehabilitation in society. If DCS was able to take the awaiting trial detainees out of the system there would be no problem of overcrowding.

The Chairperson adjourned the meeting.