Hearing: Auditor-General Report on Special Audit of N2 Gateway Project at National Department of Housing
The hearing on the Report of the Auditor-General on the Special Audit of the N2 Gateway Project at the National Department of Housing was held afresh in order that Members could obtain satisfactory responses to the questions that they had asked in vain at the adjourned 7 July 2007 hearing.
Members again asked the City of Cape Town 'how and why' its supply chain management had selected the Cyberia Company, sixthly-rated by an assessment committee. The City of Cape Town explained that the choice had resulted from its Goods and Services Board’s undertaking a complete re-scoring following apparent dissatisfaction with the original evaluation report’s quality and suspicion that the officials concerned had manipulated the terms and conditions of the request for proposals. Members were still not satisfied and the City attempted to explain further. The tender evaluation committee had requested an audit. According to the information at the disposal of the delegation, it was not understood why the scores were changed. However, the Goods and Services Procurement Advisory Board had done its re-scoring completely and differently from the criteria contained in the request for proposals and had recommended Cyberia to the then chief finance officer who as the chairperson of the supply chain management committee and the supply chain management functionary designated to give approval, confirmed the recommendation.
Members asked about payment to implementing consortia, alleging violation of the Municipal Finance Management Act. The City replied that the Act had not come into force at the time and denied that a soil suitability survey had been fruitless expenditure. Members said that officials at fault must be taken to court if necessary. Members asked why, after three years, the City had not acted against officials who had incurred irregular expenditure and who were still employed. The City responded that on the basis of a legal opinion on the whole forensic report, the City Council had decided not to take further action. Members told the City that it had not answered the question and, from the forensic report, named officials who had been cleared while two years later the City was pursuing two African officials. This was an instance of a double standard. Members felt that City officials were constrained by their political leadership in answering questions about the City’s relation to the Project. There was considerable debate about the most appropriate words to describe the City’s relation to the Project. ‘Removal’, the Department’s first choice, was deemed contentious. There was finally consensus on ‘No longer part of the process’. However, the Democratic Alliance reminded the meeting that Thubelisha Homes was appointed to replace the City in the Project in February 2006 while the political change in the City took place in March 2006. The City confirmed that it would serve on the steering committee (SteerCom), but that it was no longer the implementing agency as it had been prior to 2006. It had missed the most recent steering committee (SteerCom) meeting because of the short notice that it had received. A Member asked if the City officials had initiated this Project on anyone’s political orders. The Chairperson asked Members to leave the politics out of the process. Members were at times vexed by municipal replies perceived as circumlocutory and, at one stage, as arrogant. In response to Members’ concerns about shoddy construction in the Joe Slovo Phase 1 housing estate, a representative of the National Home Builders’ Registration Council (NHBRC) offered to supply a copy of the NHBRC’s forensic report on the subject, and Members of the Portfolio Committee on Human Settlements said that they would visit the estate.
The Committee determined that the N2 Gateway Project had not been poorly planned, with lack of adherence to policy and legal frameworks. Administrators had acted either out of incompetence or out of misguided political leadership, and officials from all three spheres of government had failed to lead or demonstrate the necessary knowledge. The steering committee (SteerCom) was still not as effective as it should be. The Committee demanded the forensic audit report that the City of Cape Town had commissioned, but was reluctant to publish, and action to be taken against the officials concerned. There should be no impunity for such was a smear on the public image of the Department of Human Settlements, the Provincial Government of the Western Cape, and the City of Cape Town. These three parties must extricate themselves by delivering, in a timely fashion, houses of quality with the least wastage of public funds. This was the lesson of this pilot project.
Opening and welcome
The Chairperson welcomed Members of the Standing Committee on Public Accounts and of the Portfolio Committee on Human Settlements; and Mr I W Kotsoane, Director-General, national Department of Human Settlements with a delegation from his Department; Mr Mbulelo Tshangana, Deputy Director-General for Local Government and Housing (Western Cape), with a delegation from the Provincial Government of the Western Cape (the Province); and Mr Achmat Ebrahim, with a delegation from the City of Cape Town (the City). The Office of the Auditor-General was represented; Ms M Moore represented the National Treasury.
The Chairperson informed the meeting that Ms T Chiloane (ANC) would replace Ms L Mashiane (COPE) as the Member leading the Committee’s interrogation on the first item of the agenda. Otherwise, he said, the agenda remained unchanged from that of the 07 July 2009 hearing.
Hearing on Report of Auditor-General on Special Audit of the N2 Gateway Project:
Appointment of previous and current project managers
Ms Chiloane, introducing her interrogation, said that it was imperative that when the three spheres of government, in this case the Department, the Province, and the City, when given a task of the magnitude of the N2 Gateway Project (the Project), take necessary steps to base it on firm foundations and principles in order to ensure its success for the benefit of the people whom it was intended to benefit in particular and in the public good.
Ms Chiloane asked firstly for verification of the process of placing advertisements inviting tenders for the N2 Gateway Project, when they were published, for how long, and in which newspapers, and who handled the placement of the advertisements.
Mr Kotsoane replied that he would ask colleagues from the City to respond.
Mr Mike Marsden, Executive Director, Service Delivery Integration, City of Cape Town, asked Ms Chiloane to clarify if she was asking about the advertisements for the procurement of the project managers, or for the procurement of the implementing consortia.
Ms Chiloane confirmed that she was asking about the advertisements for the procurement of the project manager.
Mr Marsden replied that at this stage one could simply indicate that it was advertised in the media; as to the specific newspapers, 'I do not want to hazard a guess here'. However, the information could be provided in the course of the meeting.
The Chairperson reminded the respondent that Ms Chiloane wanted to know when the advertisement was placed and for how long.
Mr Marsden replied that, according to the City's records, the request for proposal (RFP) advertisement was placed on 01 December 2004 and that the ‘cut-off’ for submissions was on 07 December 2004. The adjudication commenced on the 09 December 2004.
Ms Chiloane asked, in the context of the advertisement, who was involved in the implementation of the Project and who was involved in the selection of the concerned committee.
Mr Marsden replied that the tender process was handled, from the side of the City, by the direct procurement manager, while the assessment panel was comprised of representatives of the Province and the City. If the Committee required their names they could be supplied. The national Department had also been invited to participate. 'Unfortunately we are not able to give the final evaluation meeting … That was the assessment.’ There was also a subsequent engagement when the matter was referred to the 'Bids and Services Procurement Advisory Board'.
The Chairperson asked the City to define 'engagement'.
Mr Marsden replied that the ‘Bids and Services Property Advisory Board' was a board of independent people who scrutinised the evaluation committee's recommendation and then advised the chief financial officer; so their engagement in this process was to make a recommendation to the chief financial officer. A further process, 'if you want me to continue', was to refer to the chief financial officer's supply chain management committee, which met on the 17 December 2004. Mr Marsden named the people involved in the assessment by the goods and services and supply chain management committee.
Ms Chiloane recalled, with regard to the evaluation committee and the bidders committee, that the Auditor-General had referred to the City’s need to have acquired the specialist skills for assessing the bidders for the proposal, and asked how the City had been able to assist the committees in acquiring those specialist skills.
Mr Marsden replied that the acquisition of the project manager was seen as critical to the N2 Gateway process; it was the single most important point of management in planning, organising and controlling the development. So the request for proposals that was put together by the three spheres of government was in fact the guiding document; in that request for proposals there was a set of criteria that the City used to guide the assessment committee in evaluating the tenders received. It covered areas of expertise, competencies and skills; it covered the methodology that would be employed, the project management skills, the experience and expertise of key personnel, and the track record in similar projects; there followed a section on empowerment: these were the kind of functional aspects that the City required. And then there was a second set of criteria - the financial aspects. 'So this was the guide to the assessment committee when they reviewed the tenders that we received'.
Ms Chiloane asked the City to explain 'how and why' a company was selected that had been ranked sixth by ‘the bidders committee’, and why the supply chain management overlooked the other committees’ advice.
MrEbrahim explained in detail that there had been a complete re-scoring; there was dissatisfaction with the previous scoring; it was felt that only three of the nine bidders had scored. Thus Cyberia, the company ranked sixth, was chosen. There was a total of nine bidders who had submitted proposals. The evaluation committee - the technical evaluation committee - after following the process based on the criteria as contained in the request for proposals determined that a certain joint venture had achieved the highest score, and it was therefore recommended that the joint venture be appointed. However, when the report went to, ‘what do you call it?’, the Goods and Services Board, the latter actually did a complete rescoring. The reasons that we could ascertain for its doing so were simply that it was not satisfied with the quality of the evaluation report. Given the magnitude and complexity of the Project it felt that only three of the nine bidders scored and it suspected that the officials concerned had manipulated the terms and conditions of the request for proposals. So it took the unusual step of performing its own evaluation, and it was through that process that Cyberia, which had been only sixth on the list, became the preferred candidate.
Ms Chiloane asked why, even if the second committee was not convinced by the first committee’s rationale for its recommendations, it had still awarded the tender to Cyberia at number six. 'It doesn't take a genius to figure out that something went wrong’. As a Member of Parliament with responsibility to oversee Government she believed that she was entitled to a clear answer.
The Chairperson agreed with Ms Chiloane that the City's explanation was unclear.
Mr Ebrahim explained further: the City found that the tender evaluation committee had requested an audit. According to the information at the disposal of the delegation, it was not understood why the scores were changed. No officials were called to that meeting since it was a closed meeting. ‘It was a long caucus.’ ‘I have a copy of the minute.’
Mr Ebrahim continued: there was a technical evaluation which was based completely on the criteria as contained in the request for proposals. That was a technical evaluation according to which a certain joint venture was the preferred bidder. Thereafter, the Goods and Services Procurement Advisory Board (GASPAB) did its re-scoring completely and differently from the criteria contained in the request for proposals and recommended Cyberia to the chief finance officer who then confirmed the recommendation of GASPAB of course as the supply chain management committee of which the chief finance officer was the chairperson and the supply chain management functionary designated to approve these things.
When the City conducted its investigation through an independent forensic company, that company noted that the chief financial officer should have first established whether a budget and funding existed prior to that approval that he, the chief financial officer, granted. That company also said that he, the chief financial officer, failed to take issue with the fact that the GASPAB performed an evaluation and did not support an evaluation report to him, but simply the minutes of the outcome of ‘that meeting’. The chief financial officer had also failed to take issue with the fact that the typed scoring sheet reflected that GASPAB only scored the top four bidders and not all the bidders which was the very reason that they took issue with the report. ‘So the forensic company that did the exercise for us is of the view that, given the conflicting recommendations between the evaluation committee, the technical evaluation committee, and GASPAB, that the chief financial officer should not have made the final decision without referring or discussing the issues with the committee.’
Mr Ebrahim added ‘And I’ve got this in my submission, that I have also been informed that certain concerns around this process were in fact put in writing to the director, supply chain, at the time, as well as copy to the chief financial officer; also in our process which I [discussed] with the director-general and my colleagues there, we also found that the tender evaluation committee was concerned with a decision to appoint Cyberia at the time. … The appointment primarily involved the IT [information technology] field of Cyberia and that Cyberia had no real construction experience. In fact, Chair, the officials at the time did approach the then city manager … and request that an audit be done and that the decision be revisited. However, information at my disposal is that the then city manager responded that he would not want to interfere in the decision taken by the chief financial officer at the time. One of the panellists of the evaluation committee … also approached the mayor with her concern that she felt technically compromised having done the job as part of the evaluation committee, and raised her concern at the appointment of Cyberia. So the fact is that the RFP listed the set of criteria that the tender evaluation committee and the technical experts did the job in accordance with that and the documents presented to them were substantive and addressed those criteria. Cyberia did not submit a substantial document; but one that merely comprised a 20 page generic submission.’ This failed to inspire confidence that Cyberia was competent. ‘In fact, they [Cyberia] also tendered on an hourly basis which was not in line with the requirements of the RFP. And as such they [Cyberia] had been considered non-responsive by the technical evaluation committee, and therefore they were not scored by the technical evaluation committee.’ Therefore the officials concerned opined that it was inconceivable that the scoring by GASPAB could have differed fundamentally from that of ‘the in-house professional specialists’ of the two spheres of government that were present in that adjudication process. GASPAB rated Cyberia first, despite is having been non-responsive; therefore while the criteria used by GASPAB was never recorded in the minutes of its meetings, it can only be concluded that the criteria used to award the process was different from the criteria set out in the request for proposals. ‘Otherwise they would have come up with the same results as the tender evaluation committee. In fact, in the documentation available, the typed version of the GASPAB scores that were submitted to the chief financial officer were also different from the GASPAB’s handwritten scores. And I think we know, Chair, that Cyberia was experienced in IT and business skills which were not needed in this instance and therefore it is not understood why after this knowledge the GASPAB changed the scores.’ The forensic report also mentioned that the GASPAB meeting took place on 17 December , and ‘that it was an urgent meeting scheduled for GASPAB on the 17th, and just to note that there were no officials called to that meeting of the GASPAB, Chair. That meeting also happened; it was a closed meeting; I’ve just mentioned that there were no technical officials called to advise the GASPAB. There was a long caucus that took place. There was a 15-minute formal meeting. And all that I have is the minute saying that Cyberia be appointed. I’ve got a copy of the minute’. This minute could be made available to the Committee.
The Chairperson, interrupting, said that he had deliberately allowed Mr Ebrahim to elaborate, since it was ‘a grey area and it is right there that we got it wrong and everything went haywire’.
Ms Chiloane said that it was obvious that the Members agreed that they were not satisfied with the explanations given to them. Noting that there had been a violation of the Municipal Finance Management Act (the Act) when ‘this matter’ had been concluded’. There must have been ‘some motive behind the whole issue; she queried the timing of the 17 December 2004 meeting, the 15 minute duration of the meeting, and ‘the long caucus’. She suspected ‘foul play’. Her last question was who informed the contractor and how when finally the tender was awarded to Cyberia. In view of the contravention of the Act, she asked what the City or the three spheres of government had done in order to curb the situation that one was facing in terms of this tender award. She thanked the Chairperson.
The Chairperson pointed out that the Act had not been in force at that time; however, ‘that did not mean that there had been a vacuum and that it was a Wild West situation’.
Mr Ebrahim acknowledged the Chairperson’s remark that it was indeed ‘pre MFMA [Municipal Finance Management Act]’ the regulations of which came into force in 2005. Nevertheless, there was a process which involved the GASPAB ‘consisting of outside people’ to make recommendations to the supply chain management committee.
With regard to the City’s measures to prevent a recurrence of such a situation, Mr Ebrahim said that the City had implemented a number of steps: the City had a process that was in complete compliance with the Act, wherein he, as City Manager, had appointed the members of the various committees, stipulated by the Act, in terms of bids specification committee, the bid evaluation committee, and the bid adjudication committee consisting of officials completely outside the political arena and driven by the technical officials in all the various line departments that followed a process …
The Chairperson interrupted.
A Member said that she did not hear a response to the question asked; ‘the gentleman is giving us what they are doing presently to formulate a committee. The question was rather “What have they done about the problem ever since it happened in 2006?”’ The Committee should rather be receiving an answer that addressed what the City had done to remedy the ‘wasteful, irregular expenditure’ in the various categories, instead of hearing how the City had formed various committees.
Mr Ebrahim apologised. He said that, as he had mentioned earlier, there was an independent forensic investigation launched by the City at the time. When that independent forensic investigation was completed, it was also the time when colleagues from the Office of the Auditor-General approached him as City Manager and asked ‘to latch onto’ the investigation. ‘Of course, we could not do a complete investigation because we could do it only in terms of the City.’ The City was happy at the Auditor-General’s approach and gave all the documentation and the forensic report to his Office to take the process forward; this culminated in the Report that was the object of the Committee’s deliberations.
Mr Ebrahim said that the important points with regard to that forensic investigation at that time were that it was inconclusive because it lacked certain components. However, ‘I think that the picture is now completed in terms of the Auditor-General’s Report.’
Mr Ebrahim said that the City had regularly sought advice on what should be done from the City’s perspective. He had just obtained a legal opinion, a senior council’s opinion, on the appointment of Cyberia and the roles played by the City officials in the N2 Gateway Project. He would take this opinion to his Council’ at 15h00 on 06 August 2009.
The Chairperson, interrupting, asked Mr Ebrahim to summarise the legal opinion.
Mr Ebrahim said that the legal opinion was that the enquiry into the N2 Gateway Project had been undertaken ‘in a statutory and contractual vacuum’. The City had already implemented adequate systems to check, control and avoid a repetition of the problem experienced during the initial stages of the Project. The main point was that normally the City would pursue the officials who were present, for example, the chief financial officer or the city manager. It must be understood that these two officials were no longer in the City’s employ. ‘So whilst the legal opinion draws a conclusion of financial negligence on the part of the ex-chief financial officer, the chief financial officer is not with us any longer and therefore we cannot institute disciplinary action against him. The opinion concludes also that -’
A Member interrupted on a point of order. The Chairperson allowed the interruption.
The Member said that Mr Ebrahim was telling the Committee a story. Instead, he wanted Mr Ebrahim to tell the Committee not about the process, but about what had been done, emphasising the word ‘done’.
Mr Ebrahim replied that if the question referred to disciplinary action, ‘the short answer is “no”, because of all the reasons that I have cited’. If the question referred to the City’s proposed course of action, ‘this legal opinion that I have just received will be taken to my Council to see what further action can be taken, bearing in mind that officials are not with us any more’.
A Member asked ‘Why not?’
Mr Ebrahim asked the Committee to remember that he had said that the forensic investigation that the City had commissioned was inconclusive. The City had awaited the Auditor-General’s Report, which was the bigger report, and to which the City had contributed. That report had not said anything about pursuing disciplinary action. What he had now was information, upon which that legal opinion was based, that had been discovered in the past few days following the 07 July 2009 meeting of the Committee. ‘In fact, the only thing that the City did, other than what you want to hear – disciplinary action – was to amend the processes to ensure the non-recurrence of such incidents.’ He asked his colleagues to respond.
Ms Chiloane said she had completed her questions.
A Member asked if the former chief financial officer, to whom Mr Ebrahim had alluded, was not a South African citizen. It would surely be possible for the City to trace him so that he could account for taxpayers’ money. The N2 Gateway Project was intended to provide secure and inexpensive accommodation for the South African people, ‘our voters, the previously-disadvantaged communities’. She said that Mr Ebrahim had referred to the forensic audit investigation report that the City had commissioned – ‘the one with us’. If that investigation report was not yet final because there were two other stakeholders involved, the national Department of Human Settlements and the Province, it had to be asked how long one would have to wait. Was the Project to stop because one was still awaiting the final outcome of the forensic audit investigation?
Mr A Roy Ainslie (ANC) said that it was not perfectly correct to say that disciplinary measures had not been taken on the grounds that municipal officials had left the employ of the municipality; that was not completely true. He had ascertained that at least two, if not three, members of the former steering committee (SteerCom) of this Project were still in the City’s employ at the present time ‘and they have contravened various regulations, including the municipal code of conduct … why, after three years, have you not taken action against those officials implicated who are still in the employ of the municipality?’
Mr Ebrahim responded that the City’s forensic investigation final report was dated 11 December 2006, and then handed to the Auditor-General to inform the legal process. He said that is was a legal opinion that he ha obtained and that this matter was still to go ‘to his council’. The City had not taken disciplinary action against the then chief financial officer or the former city manager. With regard to members of the SteerCom who were still in the City’s employ, he had not obtained even from the latest legal opinion any identification of a specific official whom the City should pursue in order to take disciplinary measures.
The Chairperson told Mr Ebrahim that ‘the information that I have’ stated that the forensic audit was done for the City by a private firm was very clear on the specific officials who had contravened the Act; he named two who were alleged to have, through their actions or inaction, incurred the municipality in irregular expenditure; and that these two together with the then city manager had through their actions allowed irregular payments of about R7.4 million; and that the former mayor as well as the former city manager, the former chief financial officer had incurred ‘fruitless and wasteful expenditure of approximately R9.3 million’, and that they had contravened certain sections. So, the Chairperson said, there was conclusiveness in the forensic audit investigation report, ‘a report that you as a municipality instituted’. Therefore there was no basis for the City to say that the report was inconclusive or not to act against any person.
Mr Ebrahim thanked the Chairperson for his observation and said that he had just been reminded by his staff that at that stage the City had subjected that forensic audit investigation report for legal opinion in terms of what action to pursue.
A Member complained that Mr Ebrahim was hardly audible. ‘We don't have ear pieces’, he said. For the sake of correct recording of the proceedings he appealed to everybody to speak clearly. He was sure many other persons present were not able to hear the proceedings sufficiently.
The Chairperson appealed to all speakers to please speak clearly into their microphones. He asked Mr Ebrahim to summarise that legal opinion.
Mr Ebrahim replied that disciplinary action against the officials concerned was not justified on the grounds of the information presented in the forensic audit investigation report. This legal opinion went to ‘my Council’ and it was thereafter decided not to take any further action in this regard.
Mr Ainslie asked for the City’s rationale for not taking action.
Mr Ebrahim replied that it was the latest legal opinion (to be given to Council) that had recommended taking legal action.
The Chairperson asked if it was not ‘funny’ that Mr Ebrahim had a forensic audit investigation report about the former city manager, the former chief financial officer and other officials and ‘somehow you go and look for legal opinion on two of your officials and leave the other two; and three years down the line you look for legal opinion on the other two. How did that happen?’
Mr Ebrahim explained the City's procedures; it would firstly institute a forensic investigation to present the facts and the findings. Normally, in fact always, the City would seek a legal opinion on the actions to be taken based on the information contained in the forensic investigation, and the City would pursue ‘that to its logical conclusion’. Forensic investigators were not lawyers. The advice of labour lawyers was also desirable. So the outcome of the forensic investigation was always tested legally in terms of the next steps to be taken.
The Chairperson told Mr Ebrahim that he was not answering the question, and named names from the forensic report, in which, he said, white former officials had been cleared. Now, two years later, the City was pursuing African former officials. He asked why the City had not taken action on all implicated officials at the time.
Mr Ebrahim replied that the City had sought a legal opinion on the entire forensic investigation report. He did not know the exact dates when the implicated officials had left the City’s service.
The Chairperson again told Mr Ebrahim that he was not answering the question. ‘Let’s stop it there.’ There were two legal opinions, one in 2007 and one in 2009. The first dealt with two officials; the second dealt with another set of officials. ‘It looks like I am not going to get an answer.’
Mr N Singh (IFP) said that it was important that ‘we must not miss the big fish’. The GASPAB [he was unsure of its name] as Mr Ebrahim had said, had sat on 17 December 2005. That was very strange. Normally for public servants, though not necessarily those present in the meeting, the whole of December was a holiday. It was remarkable that GASPAB had met the day after a holiday to reverse a decision of a previous committee that had been charged with the responsibility of nominating of project manager. When one examined the score sheet there was one gentleman who gave a thirty point difference between the first and the second. Other members’ scoring had differed only by one or two points.
The Chairperson asked for the gentleman’s name.
Mr Singh replied that it was ‘a Mr Fredericks’. It was clearly his scoring which influenced the decision in favour of Cyberia. According to the information issued by CIPRO, in which regard he had read that Cyberia had been considered because of black economic empowerment, Cyberia had only one director at the time that this contract was awarded, a gentleman appointed on 12 July 2001; everyone else was appointed on 17 October 2005. One then noted that the contract escalated from a value of R5 million to R12 million actually paid. The ‘rot’ started on 17 December 2005. That was where the Committee should investigate more deeply. ‘That contract should not have been awarded to Cyberia on the 17th of December; we need to bring those people to books if they can be brought to books; because somebody needs to go to gaol; somebody needs to go to gaol; somebody did wrong, and this started what we find today with fruitless expenditure, wasteful expenditure, etc.’
Mr N du Toit (DA) asked about the separate operating account which was supposed to be separate but was actually part of the City’s bank account. It appeared that this operating account was used to provide bridging finance for the Project until there could be a decision made a national level. He understood the situation of the (SteerCom), but he did not understand the situation of the Executive Committee (M3); he asked if the members of the SteerCom act of their own accord, and ‘were they responsible for this mess totally and wholly and only then?’ He asked about the involvement of M3. It was known that the then minister, the then mayor, and one of the provincial ministers served on M3. One also knew that funding was not secured. ‘How could it happen?’
The Chairperson interrupted, on the grounds that the question of funding was another focus area. He would give Mr Du Toit an opportunity to ask his question when the proceedings reached that area.
Mr M Mbili (ANC) reiterated that he found it ironic that the two staff members now being pursued had left the City’s employ – the former chief financial officer and the former city manager. The other people mentioned were still in the City’s employ. For him that amounted to a double-standard. He asked why the City was pursuing people who had left its employ, but not the people who were mentioned who were still employed. The then chief financial officer was ‘the first one to jump ship’. Then there was another chief financial officer. According to Mr Mbili’s own enquiries, that chief financial officer had requested that Cyberia’s contract be extended ‘after they had exhausted the funds before the contract term which was 12 months was finished’. Yet that chief financial officer was ‘off the hook’. He did not know whether that officer was still in the employ of the City. He asked if the person who replaced then chief financial officer was also ‘off the hook’.
Mr Ebrahim asked to be allowed to clarify. Mr Mbili had said ‘pursuing’. Mr Ebrahim had said, however, that it was a legal opinion that he had still to refer to his Council. The City was not ‘pursuing’ anyone at the present time.
The Chairperson told Mr Ibrahim that one did not seek a legal opinion without a basis for doing so.
Mr Ebrahim said that the question had been, from the City’s perspective, would the City ‘pursue’. The second chief financial officer to whom Mr Mbili referred was the chief operating officer of the time who left ‘sometime in 2006’.
Ms M Matladi (UCDP) asked to verify something about the forensic audit investigation report. It was necessary to determine if it had ever been published since 2006. In other words, the Committee should know if it had been taken to Council, if it had been debated. ‘Are we free to use that document as we are speaking now?’ If the forensic audit investigation report had not yet been made public, the Committee required to know when it would be published.
Mr Ebrahim replied that the forensic audit investigation report had not yet been made public. When the City had commissioned the forensic audit investigation report and had received it, it was inconclusive simply because the consultant forensic firm that had been appointed had acted for the City on a mandate to examine the entire process. However, the firm had been unable to access the other spheres of government to include a complete, comprehensive picture of what actually took place during the N2 Gateway Project. Hence the City had made the forensic audit investigation report available to the Auditor-General in order to obtain a broader picture.
The Chairperson concluded therefore that the forensic audit investigation report was not public. The Chairperson asked for timeframes for the report’s publication.
Mr Ebrahim replied that normally forensic audit investigation reports were not published. The City instead reviewed the contents thereof and took the necessary action once legal advice had been obtained.
The Chairperson observed that thus at this stage the forensic audit investigation report had not been made public.
Mr Ebrahim replied that he was saying that at this stage it had not been made public. Whether it would be made public was not a decision that he could take; it was probably a decision for a full meeting of the City Council.
Ms M Matladi said that, notwithstanding Mr Ebrahim’s explanation, three years was too long; and she noted that Mr Ebrahim had implied that the forensic audit investigation report might not be made public. She asked about the two committees that had been involved in the evaluation of the companies: an evaluation committee and the supply chain management committee, which had not taken the final decision. She asked if these two committees were running in parallel in the execution of their duties. ‘If not, which one is the side-kick?’ If the evaluation committee was authentic, as she thought it should be, why did the City heed the doubt of the other committee? She urgently needed clarity. She asked if it had happened before, or if it had only happened with Cyberia. She suspected that there might be some people in Cyberia about whom the City had not told the Committee, that might be ‘heavyweights’ that might have influenced the decision to award the tender to Cyberia. Whether those implicated had died, or gone to America, investigations should be followed up ‘right to the grave’. The Committee would not listen to excuses that implicated officials were no longer working for the City.
Mr Mike Richardson, Chief Finance Officer, City of Cape Town, replied that the structure for dealing with procurement applied at the time, ‘five years ago’. There was a technical evaluation committee and that committee would normally have made a recommendation to the supply chain committee which took the final decision or reviewed that decision. There was an intermediary consideration which was the goods and services procurement advisory board (GASPAB) which as Mr Ebrahim had said was an external body that was there to provide an oversight of the process and to advise the final decision maker. ‘Now that is how it was then.’ That was no longer the process, for the process was now compliant with the supply chain regulations.
The Chairperson interrupted. He said that Ms Matladi had asked whether, as an advisory body the GASPAB had the right to overturn or if it was merely meant to advise the supply chain management committee.
Mr Richardson said that GASPAB did not have the right to overturn. It had exceeded its mandate. That is where, as Mr Ebrahim had indicated, the chief financial officer at the time had not fulfilled his correct role. He had not challenged that decision; he had just accepted ‘the chain’s’ decision and approved it. Therefore he had failed in his responsibilities as had been indicated by the advice that the City had received.
Mr M Steele (DA) was still concerned that the Committee had heard about two evaluation processes; the fist was the technical evaluation which the forensic audit investigation had noted was not in compliance with aspects of the Act in so far as price was concerned; the second was ‘this GASPAB process’ which completely reversed the original order and for which no reason was given other than a caucus ‘that was held before this meeting was actually documented’. In other words there were two evaluation processes for the award of a bid that was quite clearly problematic. He wanted to know if there was any basis for declaring the award of that contract null and void once this investigation had been launched in 2006. The Committee was still faced with the question of R12 million of wasted expenditure, and sought recovery or prosecution. He asked on what basis this contract was about to continue when there were clearly problems in its evaluation from the outset.
Mr Richardson replied that first evaluation, the technical team, was fully competent; it complied with the RFP; it was ‘a two envelope process’; the technical team opened the first set of envelopes and ranked them; then it opened the financial envelopes and it ranked the three tenders. Thereafter it completed a report that it forwarded to the supply chain committee, with a recommendation. That recommendation was then ‘interjected’ by the goods and services procurement committee. That evaluation had been competent.
Mr Steele said that he was reading from the forensic audit investigation report which noted that the price did not form part of the criteria.
Mr Richardson said that that was the first envelope. It was a two stage process. The proposal was evaluated, and, for everyone who was then responsive, the financial envelope was opened and ranked.
The Chairperson acknowledged Mr Ainslie, noting that, after obtaining an answer to Mr Ainslie’s question, he wanted the Committee to proceed to the second focus area.
Mr Ainslie asked what was to be done. He referred to an article written by the Premier of the Western Cape in the 03 Monday 2009 edition of the Cape Times. It was an unfortunate article in that the Premier sought to politise the N2 Gateway Project by making all kinds of assertions against the Government’s housing policy. In the article she called for various corrective measures. Such a general call from someone who had the power to make those corrections was ‘quite useless’. He asked Mr Ebrahim about corrective action taken during the period when the current Premier was the Mayor of Cape Town. The Premier called for corrective action in terms of additional training. He asked if any other corrective measures had been taken during that period.
The Chairperson said that Mr Ebrahim was at some point was talking about such measures. He asked Mr Ebrahim to please be specific.
Mr Ebrahim recalled that in the 07 July 2009 meeting he had told the Committee that the City had been ‘removed from the Project’ in February 2005. The City now fully complied with the Act. All the committees about which he had told the Committee had been fully trained. plied that the City had achieved recognition by the International Standards Organization by way of that organisations 9001 Award; the City now led the country in terms of procurement processes. The City also now had its own standing committee on public accounts.
Compliance with roles and responsibilities
Mr Ainslie said that the N2 Gateway Project was a most important intergovernmental project. If each of the three spheres of government were to co-operate fully and effectively, it was essential that their respective roles and responsibilities be clearly defined. He did not want a mere repetition of the previous hearing. The Auditor-General’s Report did point out certain deficiencies in the memorandum of understanding between the three spheres of government, for normally in such a memorandum these roles and responsibilities should have been defined. He asked Mr Kotsoane to confirm that the memorandum of understanding (memorandum) on the Project would be ‘revisited’, if it had not already. He wanted to know specifically if the memorandum had been revised and redefined, as recommended by the Auditor-General; if not, he asked if there was a protocol defining the national sphere, the provincial sphere and the local sphere.
Mr Kotsoane said that after the City had left the Project in 2006, the national Department and the Province had continued to co-operate on the Project.
The Chairperson asked that the words ‘leave’ or ‘driven out’ did not help the Committee in its deliberations.
Mr Kotsoane said that the national Department and the Province had continued to co-operate on implementation of the Project. The memorandum had thereafter been amended. An implementation protocol was now being developed.
The Chairperson noted therefore that there was as yet nothing tangible. It was still being developed.
Mr Ainslie asked how much progress had been achieved with this document. There could be implementation without a clear definition of the respective roles of the three spheres of government involved in the Project.
Mr Kotsoane said that the memorandum had previously identified the role of the national Department as that of policy formation.
The Chairperson pointed out that the question referred to the discrepancies in the memorandum, and noted that Mr Kotsoane had said that after the non-availability of the City Council the memorandum had been slightly amended’, and that the Department was now working on a protocol. He asked how the Department had been able to implement a Project, for such a long period of time, without a proper document that clearly defined roles and responsibilities, unless the Department believed that the memorandum was perfect.
Mr Kotsoane replied that draft protocol was available. On 05 August 2009 he had met the provincial director-general, and from these discussions it was apparent that the City keenly wanted to be involved again in the Project. There would be a meeting between the Premier and the Minister on 07 August 2009, which would hopefully indicate whether that protocol would be approved. So therefore there was thus progress.
The Chairperson clarified Mr Kotsoane’s reply: the City wanted to be involved again in the Project but was ‘not yet back’.
Mr Ainslie asked if the SteerCom was functioning and if the City had returned to it.
The Chairperson reiterated Mr Ainslee’s question.
Mr Singh referred to a comment of the accounting officer at the bottom of page 7 [paragraph 6.2.3 (b)] of the Auditor-General’s Report that the SteerCom had been resuscitated, He asked when, and if the City had indeed returned to SteerCom.
The Chairperson said, according the Committee’s understanding, the City had not yet returned to the SteerCom. The Report was wrong on that point. He asked Mr Kotsoane to respond.
Mr Kotsoane replied that SteerCom had met four times in 2009. The City had been invited but had not attended, but not because the City had not wanted to attend; the most recent meeting had been held at short notice. The City had assured the Department that it would attend the next meeting.
Mr Ainslie asked the City for an explanation as to why it had failed to attend meetings of this highly important committee that ran the N2 Gateway Project.
Mr Marsden replied that initially when the City had been ‘removed’ from the N2 Gateway Project, it had been told not to attend.
Mr Ainslie said that the word ‘removed’ was highly contentious.
Mr Marsden began to tell what happened when the City ‘left’ the Project.
The Chairperson told Mr Richardson to use the words ‘no longer part of’ instead of ‘left’.
Mr Marsden said that when the City ‘was no longer part of the process’, it was instructed not to participate in SteerCom, but to retain its presence on the technical committee, that handled technical issues on the Project. Obviously at that stage the City was no longer the implementing agent. Recently the City had agreed that it would attend SteerCom meetings but largely in an oversight role, specifically with regard to the conclusion of the N2 Gateway Phase 1.
The Chairperson asked the City to confirm whether its participation was merely visiting the SteerCom meetings to observe, and reminded the City that his question was about the role of the City in SteerCom meetings at the present time.
Mr Marsden said that its attendance was now in an oversight role, keeping in mind the City’s likely involvement in phase 2.
Mr Ainslie asked who was telling the city to boycott SteerCom. He had the impression that they City would very much like to attend.
The Chairperson asked who had given the City such instructions.
Mr Marsden replied that is was in 2006 when the City was no longer involved in the Project at that stage. It must be kept in mind that the City’s involvement initially was as the implementing agent. ‘That was a directive that I was given, as I recall, by the mayor at the time.’
Mr Ainslie thus observed that the former mayor, now the Premier, had ‘instructed the City to boycott the steering committee’.
The Chairperson observed that the City officials could not answer that question, since they took instructions from their political masters.
Mr Steele said that it was important that Members also must not also mislead the Committee. Thubelisha Homes was appointed in February 2006 to replace the City of Cape Town in the Project. What happened after 2006 was a consequence of Thubelisha Homes’ appointment. Then there had been a change of government in the City in March 2006. It was therefore necessary for the Committee to avoid making errors of judgment, when quite clearly what happened in February preceded what happened in March, and the City was responding to the consequences of that decision.
The Chairperson observed that the City officials were saying that they had been told by the Mayor not to attend the SteerCom. It was, moreover, politically legitimate for them to accept such instructions. They were merely reporting the facts.
Ms Matladi said that the Department was informing the Committee that the City had been unable to attend because ‘it was short notice’. The City was saying that it was the Mayor who gave instructions not to attend. She asked ‘who is telling us the truth’.
The Chairperson observed that the City’s non-attendance ‘all along’ was the result of a political decision; now the City could attend meetings of SteerCom, its inability to attend the most recent meeting was because notice was short.
The City confirmed that the working environment had changed. The relations between the different spheres of government had improved specifically in terms of the City and the Province, whose relationship had improved ‘dramatically’. Obviously there was common willingness to ensure the success of housing in the Cape Town metropolitan area. The City had agreed to serve on SteerCom to ensure the Project’s success, but that the City was no longer the implementing agency as it had been prior to 2006.
Mr Ainslee said that he had completed his questions.
Mr du Toit said that at the beginning of the Project, the three spheres of government had been controlled by the same party.
The Chairperson asked Members to leave the politics out of the process, tempting as it always was. ‘Let’s not go there.’
Mr Steele said that the Cabinet approval was in August 2004. The memorandum of understanding was signed only in February 2005. The Auditor-General’s Report made it clear that the major problems relating to this project were that decisions were taken before policies, principles, roles and responsibilities, and even land geotechnical surveys were not in place. He asked who was responsible.
The Chairperson asked for Mr Steele’s question to be postponed after the focus on planning, timeframe and funding.
Planning, timeframe and funding
Mr S Thobejane (ANC) asked how the Department had come to support the Project without knowing how and for what purposes the money would be used.
Mr Kotsoane replied that in terms of the memorandum of understanding, the planning was to be carried out by the City.
The Chairperson said that the import of the question was that implementation had started before planning had been completed. He asked how that had happened.
Mr Kotsoane said that a business plan existed, but there was a challenge regarding precise portions of land. That was the reason that the plan was not concluded at the beginning of the Project.
Mr Thobejane said that, having agreed that the Department did not comply with the Act, it had to be asked why the Department proceeded in violation of the legislation.
Mr Kotsoane said that the Department had since corrected the situation. There was now a business plan.
The Chairperson said that the issue was why it happened.
The Department responded that one was not necessarily in a butcher’s shop: one was conducting a post mortem examination of what had happened, not what was going to be done. The funding would flow through the division of revenue mechanism to the Province.
Mr Thobejane asked the Department to stop there, since it was not answering the question. He asked again why the Department had approved the N2 Gateway Project without a written plan. ‘How did you arrive at that?’ he asked excitedly.
Mr Kotsoane responded that the Department had agreed that there was no broad plan, but as his colleague had said, there were particular procedures.
The Chairperson now realised that he could expect ‘bureaucratic speak’ from Mr Kotsoane. The fact is, it was wrongly done.’
Ms Matladi asked if those concerned did not know the law.
The Chairperson advised that Mr Kotsoane had admitted that his Department had done something wrong. There was no explanation. He just said it ‘softly’.
Mr Thobejane, addressing the City, said that these misrepresentations of fact were illegal. He asked how the City had conveyed these misrepresentations to the Department so that it had acceded to the Department’s request while the City lacked a plan.
Mr Marsden responded that the business plan could not in fact be completed in the absence of funding and appropriate time lines. So the City had determined the way forward to be to proceed in phases. be completed in time so it had proceeded in phases independently of each other.
Mr Thobejane said that the City had not understood his question. His view was that the City had initiated this Project.
Mr Marsden responded that Mr Thobejane’s perception was incorrect; the Project had been started by the three spheres of government, the M3. The City was the implementing agent.
The Chairperson asked Mr Kotsoane for the Department’s view on who started the Project.
Mr Kotsoane replied that proposal had originated from the City; the Province had at the MinMEC contacted the Minister.
Mr Thobejane asked the City if it was now aware that it had started the project.
Mr Marsden responded that it had not been thus aware. In his view it was a project initiated by the three spheres of government.
The Chairperson said that one sphere of government ‘must have started it’.
Mr Marsden said that he did not have that information.
Mr Thobejane asked about the timeframe and misrepresentations of facts thereto.
The City replied that the timelines were set at the political level. It was the view of the SteerCom and the administration was that the timeline was unachievable and unrealistic. Land had not been available. It was indicated that the delivery of those houses, 22 000 in six months, was non-negotiable. That came from the political level.
The Chairperson said that these had been political decisions; the Committee now sought answers, but the officials concerned could not answer because they did not take the decisions. ‘I’m just teasing that one out, but please continue.’
Mr Thobejane was adamant that the officials concerned had failed to do what they should have done. If a political decision had been taken, it became the duty of the technocrats to execute that decision accordingly. In that regard the City most definitely had failed miserably. He asked if the City had any contrary view.
Mr Marsden stated that he had such a view and that he wished to express it. The situation that had been put to the City as a political imperative was that 22 000 dwelling units be delivered in six months was explained to the politicians as not being realistic. If one had a normal housing development, five thousand dwelling units –
Mr Thobejane interrupted.
Mr Marsden asserted that he wished to continue.
Mr Thobejane demanded a copy of a written document directed to the political office.
Mr Marsden said that the political level, the M3, was advised on a number of occasions that the time frame was not achievable. The administration tried to do what it could. The Project was broken into phases, and as land and funds became available, so the administration would proceed as rapidly as possible. The contention that the administration failed was based on an unrealistic benchmark. The City attempted to do what was possible and what was lawful, within practical constraints, and those constraints were funding, land availability, policy and process.
The Chairperson said that this took Members back to the first question. The City wanted to build 22 000 houses in six months. There was no funding; there was no land, and no plan.
Mr Thobejane asked if that was not a failure.
A Member asked the delegates if there was surely not an initiator. If not the City, the Committee needed to ascertain who it was. A City official had replied, arrogantly so, that the business plan could not be formulated before the funding had been acquired. Which came first? The business plan should have addressed the funding. One could not expect to be able to raise funds without a business plan. He apologised to Mr Thobejane and said that the City official’s attitude should not be tolerated. The official should give an honest answer and remember that he was speaking to Members of Parliament. Somebody must have initiated the Project.
Mr Singh asked for clarity on the Project, which, according to the Report, page 4, was part of Breaking New Ground (Comprehensive Housing Plan) announced in the State of the Nation Address. The cabinet approved the Project as a pilot. If it was the Cabinet of South Africa, Members needed to see the Cabinet decision, and the terms of the decision; and surely, if Cabinet took such a decision, they would have examined all the aspects, not least funding. ‘This Committee deserves to see the Cabinet documents.’
Mr Singh asked all three spheres of government if there had been or if there still was ‘fruitless and wasteful expenditure’ on the roll out of the Project.
The Chairperson said that Mr Singh’s question about the role of the Cabinet did not remove the need to ask about initiation.
Mr Kotsoane said that when Cabinet approved the Project, it approved it as a pilot for the Comprehensive Housing Plan.
The Chairperson said that one should not justify the past; he thought that Mr Kotsoane had started correctly. He said that it was important to admit that the processes had been flawed and then move forward.
Mr Thobejane said that he was sure that the City was going to have a choice between fruitless expenditure and unauthorised expenditure. He asked who would repay the R6 million allegedly wasted on the geotechnical survey and how. City, Province and national Department were involved in this R6 million.
The Chairperson asked for a response.
Mr Thobejane said that the Chairperson must ask again for a response.
The Chairperson said that he had formerly been a teacher. ‘Yes, City of Cape Town, can you answer!’ he said.
Mr Marsden replied that the issue of geotechnical rehabilitation of the soil had been undertaken by the implementing consortia for Joe Slovo Phase 1. ‘It was not wasteful expenditure. It was in fact an inherent part of the task to design and construct.’ The rehabilitation required that unsuitable soil be removed and be replaced with suitable soil to allow the construction of houses to proceed. So that R6 million was an integral part of the design and construction process, which had resulted in those houses being constructed, which was an asset; so the expenditure was not wasted.
Mr Thobejane said that Mr Marsden was inviting problems for himself, because if proper work had been done, the R6 million expenditure would have been avoided.
Mr Marsden begged to differ with Mr Thobejane: the soil rehabilitation would have had to be undertaken in any event to allow houses to be built in that area at any time. It was not done after the houses were built. It was done before they were built, but by the design and constructing consortia.
Mr Thobejane said that Mr Marsden had earlier said to the Committee that the City had not had a plan because it had not had land. If the City had been in possession of land, it had to be asked if the City would have undertaken soil rehabilitation of that land.
M Marsden said that what he had told the Committee was that the City had not been in possession of all the land needed to proceed with building all 22 000 houses within six months. This was Joe Slovo Phase 1 which was for 705 houses. It was a comparatively small piece of land, but it was unoccupied, and it was suitably located in terms of the Comprehensive Housing Plan requirements. It had good transport links. It was eminently suitable if the soil could be rehabilitated for the construction of the houses. So the R6 million expenditure was not wasteful, it was rather an investment.
Mr Thobejane said that he wanted to invite the Auditor-General to talk about that.
The Auditor-General’s Office responded that its findings were from the perspective of a planning issue. Had there been proper planning, it is possible that the City might have considered an alternative piece of land that might have had to be rehabilitated in this respect. A decision had to be taken. If the decision had been taken that the use of that particular piece of land was non-negotiable because other possibilities had been eliminated on the basis of proper planning and assessment of possible alternatives, then the R6 million expenditure would not have been fruitless and wasteful. If an alternative had been available, then that R6 million would have constituted fruitless and wasteful expenditure.
Mr Thobejane insisted that there was no way whereby the City could avoid the charge of fruitless and wasteful expenditure, irrespective of the choice of words.
The City replied that the land on which the first units of the Joe Slovo Phase 1 housing were built was land that was originally part of the Integrated Service Land Project (ISLP). That project had been determined years before on land that had been identified for housing; secondly, while the ‘catered land’ was extremely expensive in Cape Town - in terms of housing it was one of Cape Town’s biggest challenges - one did not attempt to put together a housing project without performing a proper geotechnical and soil suitability survey such that it was suitable on which to build houses. Not to do so would be unprofessional. Agreement was expressed with Mr Marsden that it was not fruitless expenditure.
Mr Steele said that the role of the M3 in those months between August 2004 and March 2005 when construction started was decisive. Clearly the officials of all three spheres of government were dealing with their political leaderships. He quoted from a local Cape Town newspaper of June 2006 to the effect that the Project was a politically driven development in which millions of rands were squandered because basic contractual procedures had been abandoned in the haste to get housing on the ground. He asked Mr Kotsoane if he agreed that the political pressure to advance the Project in six months resulted in the abandonment of basic contractual procedures. If there had been political pressure, then it would be necessary to summon the M3 members of that time to appear before the Committee, rather than the officials present who were now doing such a good job on behalf of those M3 members.
Mr Kotsoane said that development by its very nature was political. It was the duty of officials to subject political directives to applicable laws and regulations.
The Chairperson said that the appointment of a project manager and implementing consortia were processes that needed to be adjudicated from a technical viewpoint. It was apparent that such had not happened. It was in that regard that the officials could be held accountable.
Ms Chiloane felt that if the City was not the initiator of the Project, then it still remained the implementing agent, and was responsible for tendering. She asked who was responsible for the various aspects of implementation.
The Chairperson pointed out that the Committee had already satisfied itself on those matters. The City had initiated the Project; the housing Minister obtained Cabinet approval and ‘the rest was history, so to speak’.
Mr Du Toit said that he had been awaiting that answer. The officials had met with M3 on various occasions. He asked the City what M3 members had said when informed by the City that the Project was unrealistic. He asked if the officials had then informed the then mayor, and if the city officials had initiated this Project on anyone’s political orders. If so, by whom? He did not expect them to answer voluntarily.
Mr Marsden responded that the City officials had met with M3 on a regular basis and were advised by M3 of the completion date of the 22 000 houses – six months. In response to the second question on whether the city officials had advised the executive mayor of the time, the answer was ‘Yes, we did’, and received the same response. Not only Mr Marsden had advised her, but also other officials from time to time, since they were all convinced that this was a timeline that could not be achieved. The third part of the question was whether the N2 Gateway Project was initiated by City officials. This was not the case. The officials had been busy with housing according to policy on a project by project basis. The N2 Gateway concept was to ‘throw a blanket over a quite a number of these existing informal settlements along the N2 and that concept came from the political level. I am not in a position to advise you from which politician it came, simply because I only received that information from the executive mayor; I understand that she had been in discussion with other political spheres, but I was not party to that and I have no information on that.’
Mr Thobejane said that the project management company Cyberia was appointed ‘based on five million’. However, eventually Cyberia had been paid almost R12.6 million. He asked how that was possible.
Mr Richardson replied that these additional payments were approved by the then city manager on the recommendation of the chief operating officer. The additional payments were made because the Project had not been completed. The additional payments were needed to supplement the resources of Cyberia, which was not able to cope with the Project.
Mr Thobejane asked if Mr Richardson would agree with him that one was talking again about unathorised, irregular, fruitless expenditure – ‘Which one do you want to take?’ He asked who was going to pay, and how?
Mr Richardson said that it was not irregular; the process was correct. However, ‘it was fruitless, if you look at the results. Value for money was not obtained. I don’t think anybody’s disputing that; and we dealt with that earlier, and nobody’s disputing that there was something irregular in this whole appointment process; and it’s going to have to be pursued.’
Mr Thobejane asked how and when the money would be recovered.
Mr Richardson replied that he could not tell the Committee when or how. Somebody, or some persons were accountable, and must be held accountable. The City Manager had indicated that earlier, and the matter was to be referred to the Council; also the City had its own standing committee on public accounts, and the City ‘would have to establish this’.
Mr Thobejane said that the Committee would ‘arrive at that determination, when we should recommend something; because we cannot sit here and see money laundering … if it needs to go to court, let it be. That would be arrived at by the Committee on its own terms. Thank you, Chairperson.’
Quality of units at Joe Slovo Phase 1
Mr Du Toit said that the Auditor-General’s Report had not found much wrong. Page 18 mentioned repairs needed. However, there had been a large overspending on the Joe Slovo phase. The Report said that the implementing consortia had been authorised to spend an additional R40 000 per housing unit. He asked if this had anything to do with reconstruction or matters of quality.
The Chairperson said that the Auditor-General had addressed firstly the various physical shortcomings. He asked, with reference to paragraph 6.9, page 18 of the Report, what had been done to correct the various physical shortcomings.
Mr Kotsoane replied that the implanting consortia had been asked to attend to those matters.
The Chairperson asked if they had done so.
Mr Kotsoane confirmed that they had attended to matters raised. With regard to drainage, paragraph 6.9.1 (a) (v) that the large public storm water canal which according to the Report had posed a foul health hazard was being enlarged by a company appointed by the City.
The Chairperson asked if work had started.
Mr Marsden replied that the contract had been awarded.
The Chairperson repeated his question.
Mr Marsden replied that he thought that the work was in the preparatory stages of the commencement of the construction; the components included the capital upgrading of the canal itself, and the operational cleaning of the canal that was referred to in the Report as a health hazard and had to be carried out on a regular basis. Also a silt trap where the canal joined the Black River was regularly serviced.
The Chairperson said that a site inspection had revealed numerous cracks in the walls, peeling paint, doors that had not been properly fitted, loose fittings, exposed drainpipes, and blocked drains
Mr Kotsoane said that the matters mentioned by the Chairperson had been attended to.
Ms Matladi asked about extra costs incurred on Joe Slovo Phase 1.
Mr Kotsoane replied the implementing consortia were asked to correct the defects at their own expense.
There were no extra costs for those repairs.
The Chairperson addressed Mr M Mdakane (ANC), the Whip of the Portfolio Committee on Human Settlements and asked if the Portfolio Committee could take a walk to the Joe Slovo estate to ascertain if these corrections had been done properly. It was notable that housing built in the apartheid era, such as the pre 1994 estate originally built for the elderly in which he, the Chairperson stayed, remained in good condition, while housing such as the Joe Slovo Phase 1 estate, built after 1994, had collapsed because of poor quality control.
Ms Matladi said that the canal added to the R12.6 million ‘that is the bone of contention today’. The total extra costs about which she had asked should be ascertained notwithstanding the fact that some of these costs might be defrayed by the implementing consortia, ‘so that this report must be up to date’.
The City responded that the costs of the capital upgrading of the canal were part of the City’s storm water capital improvement programme. The operational cleaning of the canal was part of an ongoing programme throughout the City. By formalising the Joe Slovo settlement, the situation at the canal had been considerably improved and facilitated the operational cleaning of the canal considerably less expensive.
The Chairperson asked about the findings of the National Home Builders’ Registration Council (NHBRC)’s forensic audit investigation.
The NHBRC informed the Committee that its main concern was with the structural quality, not workmanship, and the investigation’s findings were that structural quality was ‘up to scratch’.
The Chairperson asked why.
The NHBRC replied that the Project was not involved with the NHBRC.
The Chairperson asked why.
The NHBRC replied that the Joe Slovo Phase 1 was a social housing project, and in terms of relevant legislation, social housing was not the concern of the NHBRC.
Mr Ainslie said that the Committee needed to compare the Auditor-General’s findings and those of the National Home Builders’ Registration Council (NHBRC). He therefore asked for a copy of the NHBRC’s forensic audit report.
The Chairperson asked how the NHBRC had not noticed the structural problems observed by the Auditor-General yet the NHBRC was supposed to be a quality control organisation.
The NHBRC replied that in its checking it had examined only structure.
The Chairperson asked the meaning of this.
The NHBRC said that it had not looked at issues such as plumbing and drainage, but only the integrity of the top structure.
The Chairperson asked what that meant.
The NHBRC replied that integrity of top structure denoted the absence of risk that a building would fall down.
The Chairperson questioned the value of such an examination. Even he himself could look at a wall and determine if it was about to collapse.
The NHBRC replied, that as it had indicated earlier on, it had not been involved earlier in that phase of the Project.
The Chairperson said that he was talking about the nature of the NHBRC’s investigation. He asked what unseen things the NHBRC uncovered that an ordinary person could not see.
The NHBRC responded that its examination did serve a purpose if those houses were to be enrolled with the NHBRC. However, the NHBRC’s mandate was confined to examining the integrity of the houses and was concerned with the construction phase.
The Chairperson said that this was just a waste of time. He advised Mr Ainslie not to waste too much time and effort on the NHBRC’s report, since he, the Chairperson, did not have much confidence in it. He said that he, the Chairperson, could be a forensic expert too. He invited Members to ask their final questions.
Mr du Toit asked about the overrun and the total amount spent on repairs.
The Department responded concerning the nature of the social housing programme.
The Chairperson acknowledged the Department’s response.
Mr du Toit asked how much, according to the NHBRC’s forensic report that the Committee was not supposed to see because it was, allegedly, useless, was spent on repairing those faults.
The Chairperson asked if there was not a cost to the City or to the other two spheres of government.
Mr du Toit referred to the report that the Committee was not supposed to see and asked for the reasons for the cost overrun. They could not be pinpointed to invoices as proof. He wanted an assurance that the builders of those houses had not included the costs of the faults in the overspending.
The Department advised that it would be very difficult to answer the question as it had not seen the NHBRC’s forensic report.
Mr Ainslie said that, on second thoughts, it really would be useful to see that forensic report. There were complaints generally across the country about the quality of houses that were being built. The Portfolio Committee would also do well to study it.
The Chairperson conceded a request to the NHBRC for a copy of its forensic report.
The NHBRC delegate agreed.
The Chairperson described the pictures in front of him.
Mr Steele said that the Committee had not touched on the quality of the Joe Slovo Phase 1 housing (page 10 of the Auditor-General’s Report), and said that it had not been addressed to the target market. He wanted assurance from those currently responsible.
Mr Richardson said that Cyberia had been paid on an hourly rate; then, because Cyberia lacked the capacity to do its work, it had bought in expertise, paying contractors and charging 10% management fee on top of that. ‘I don’t think it’s necessarily outside of an industry norm.’
The Chairperson wondered why the City had not sought clarity from the Auditor-General when the city officials had read the Report.
The Auditor-General’s Office responded that this was a deviation from industry norm where one paid on an hourly rate and not on a contract amount.
A Member said that wasteful expenditure had been incurred but that the City did not care. The City said that it was not wasteful. He had not caught the names of the City’s delegation. He said that a responding official was ‘arrogant, and had replied ‘It was not [wasteful]. Period.’
Ms Matladi asked what the Committee could expect from the City in future.
Mr du Toit asked how much Departmental money had been wasted, or if it was City of Cape Town money alone. and who was responsible for recovering those losses if they were recoverable. Were the ratepayers of Cape Town expected to recover those losses?
Ms N Moore explained the budget flows and the magnitude of the investment in the Project. The Treasury had oversight functions. The current implementing agent, Thubelisha Homes had not submitted audited statements for 2008-2009. At the same time the company was closing down.
The Chairperson appreciated the Treasury’s providing some context.
Mr Kotsoane said that obviously ‘there had been a great lesson from this N2 Project’. The Department was waiting for the political principal to examine the implementation protocol that it had developed. He believed that the City would be implementing the Project ‘together going forward’.
Mr Richardson advised that the R12 million paid to Cyberia had not been paid from the City’s funds. It was part of Housing funds. The City, however, would still pursue recovery where it can and where it was appropriate. Ratepayers’ funds had not been involved. There was still a process that the City would pursue with regard to the payment to Cyberia and the implications of whether there had been fruitless expenditure.
The Chairperson said that there were so many pitfalls illustrated in this Report.
Mr Du Toit said that his question had not been answered. There was an overrun adding up to R93.9 million.
Mr Kotsoane said that the Department ‘was awaiting the transfer of the stock’ of social housing units. The Department would expect a commitment from the institution to which stock was transferred to make a contribution to the national revenue fund, so that it could take the stock on a viable basis.
Mr Thobejane did not want to leave the meeting before being satisfied about the R6 million ‘fruitless and wasteful expenditure’ referred to by the Auditor-General.
Mr Marsden explained that the cost of the soil rehabilitation amounting to R6 million was justified in order to p prepare the site for building.
Mr Thobejane accepted that, but said that the Auditor-General had found that because there was no proper planning, a situation had arisen where it was necessary to incur that expenditure of R6 million, yet the City was disputing that. The City was justifying the expenditure, which was well and proper, but the issue was the lack of proper planning.
Mr Marsden pointed out that the Joe Slovo parcel of land had always been identified for housing. It was the only available site for the N2 Gateway Project at that time.
Mr Thobejane thought that Mr Marsden was bringing the Auditor-General into contempt.
The Auditor-General’s Office confirmed that it had said that the planning was not adequate. These geotechnical surveys which should have been done before the commencement of the Project were done when the Project had already started, thus delaying construction. ‘We’re not necessarily saying that this is fruitless and wasteful expenditure.’ However, the Auditor-General did challenge the fact that the cost of R6 million was not justified.
Mr Singh asked about the geotechnical surveys. He asked which department or sphere of government would pay. It was disturbing that Thubelisha had not submitted audited statements. He noted that The Portfolio Committee on Human Settlements needed to be informed how much it would cost to complete all the Project’s housing units, and if the National Treasury would oversee the Project.
Mr Richardson explained the limited role of the two middle-management officials implicated. A process had been followed, but the City would review the process.
Mr Ebrahim said that the contract with Cyberia had been signed on 01 February 2006.
Mr Thobejane stated that the City had therefore paid Cyberia first before there was any contract.
Ms Moore explained the adjustment budget allocation. It was additional money out of savings. There had been approval at Treasury committee level to make the adjustment. All housing money was paid through the integrated home housing and human settlements grant. According to the Housing Act, the City of Cape Town was not an accredited housing provider. So all the money was paid through the Western Cape province. The Department was trying to avoid the additional Value Added Tax (VAT) costs that had been incurred with Thubelisha. The Auditor-General had said that he did not have any proof with regard to Thubelisha. The Treasury was concerned at the expected costs of each housing unit. The Treasury had oversight functions with regard to the Project. Pilot projects should be reported separately, the Treasury recommended.
Mr Mdakane said that the Portfolio Committee would visit the Joe Slovo Phase 1 estate on 12 August 2009.
The Chairperson observed that ‘these cracks [in the houses in the Joe Slovo Phase 1 estate] are so visible’. This hearing had been much more fruitful than the previous, but the Committee did not want to encourage ‘replays’. In the light of the Committee’s strategic planning session on guidelines for accounting officers to be held the following week, he advised Mr Kotsoane that the Project had not been properly planned and the policy and legal frameworks had not been properly followed: the administrators had acted either out of incompetence or out of misguided political leadership. Officials from all three spheres of government had not provided the requisite leadership or demonstrated the necessary knowledge. The SteerCom was still not as effective as it should be. The Committee required the report of the forensic audit that had been commissioned by the City. The Committee expected action to be taken against the officials concerned. The Committee’s view was that ‘every cent [of public money] counts’. Moreover, ‘this element of impunity’ needed to be examined; it was bad for the public image of the Department, the provincial Department, and the City, which three parties must extricate themselves by delivering in a timely fashion quality houses with the least wastage of public funds. This, at least, we could learn from this pilot project’. He thanked the Department, Province, and City.
The meeting was adjourned.