Joint Report to Select Committee on Appropriations

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Joint Report toSelect Committee on Appropriations

• byNorthern Cape Department of HealthNorthern
  Cape Department of Roads Public
  Works supported byNational Department of
  Health (Infrastructure)
• 08 August 2012

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1. PURPOSE

• This report provides progress made on the
  construction of the Northern Cape Provincial
  Mental Health Hospital
• It follows the visit to the project site by the
  Select Committee on Appropriations on the 24th
  January 2012

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2. INITIAL CONTRACTOR

• Aug 2005 Provincial Tender Board awarded contract
  to Vista Park/JOH Arch Investments, to commence
  Sept 2005
• Delays in bulk earthworks meant that contractor
  only commenced Feb 2006
• Revised completion date set at 20 March 2008 due
  to late start and bad weather
• By 2007 slow construction was noted, including
  poor workmanship incomplete remedial work
• By August 2009 contractor 565 days behind
  schedule
• Penalties totalling R11.3 million levied but not
  deducted
• Contractor failed to submit revised construction
  program but instead submitted claim for extension
  of time and costs
• Slow delivery compounded by water penetration
  caused structures to deteriorate
• Non-payment to sub-contractors caused delays -
  cash flow
• Poor supervision of workforce by contractor

Report commissioned in 2011 by NC DRPW into the
initial tendering and contracting process (Gobodo
Forensic Investigative Accounting)
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3. TERMINATION OF INITIAL CONTRACTOR

• Poor performance
• Feb 2008 contractor requested to provide
  definitive plan to complete project by 20 Mar
  2008
• April 2008 contractor failed to complete project
  or submit required completion plan. Contractor
  informed they were in breach of contract
• Feb 2009 contractor submitted claim for extension
  of time with costs
• Revised program requested from contractor, who
  gave new completion date of May 2010
• Mar-Dec 2009 senior management tried to find
  solution to incessant delays
• Dec 2009 NC DRPW terminated contract, subject to
  legal processes
• The court process and liquidation of the
  contractor
• Jan 2010 to Oct 2011 contractor repeatedly
  challenged NC DRPW through courts
• Lengthy delay, with the construction site legally
  under the control of contractor, resulted in
  significant deterioration due to weathering,
  vandalism and theft
• Oct 2011 contractor was liquidated before court
  could make final ruling
• Surety or guarantee?
• 2 (R5 million) of contract value was provided
  through Investec for a period of 24 months
• 4 (R10.2 million) retention from contract was
  kept by the client after termination
• Increase of the original contract amount
• Significant variations in cost caused by
  averaging methodology used to estimate costs at
  outset
• Design work continued while construction was
  underway
• R420 million was spent on the initial part of
  this project

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4. NEW CONTRACTOR

• Appointment
• Late 2011 Inyatsi Construction appointed using
  JBCC contract. Site hand-over 21 Dec 2011
• Contract value R400.57 million for the hospital,
  internal roads and guardhouse, excluding
  professional fees
• 24-month project - completion Jan 2014
• Scope of work and latent deficiencies
• Late 2011 structural reports commissioned to
  estimate remedial work and inform the bill of
  quantities - R6.78 million
• Jun 2012 sample drilled courses to determine
  concrete strength conducted - two of three passed
  the tests
• Aug 2012 further strength tests conducted on some
  surface beds and concrete slabs - preliminary
  findings indicate significant variation in
  strength. Load tests conducted - awaiting
  laboratory reports
• Performance of the new contractor
• CIDB down-graded contractor from 9GB to 7GB
  during final stages of awarding contract.
• Advice sought from CIDB on how to proceed 3
  options under consideration, including cancelling
  the contract
• Contractor already falling behind time schedule,
  monthly expenditure is 50 less than cash flow
  projections

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5. CLIENT BUDGETARY CONCERNS

• No capital budget currently available for this
  project - expenditure being paid from budget for
  another Hospital Revitalisation Project
• Significant and unexpected increase in the
  capital cost of electric sub-station is being
  reviewed
• Additional costs for prolongation fees not yet
  quantified

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6. RECOMMENDATIONS

• Strengthened quality assurance processes
• Further independent evaluation of integrity of
  structure
• Establish Joint Management/Consultative Committee
• Professional service providers to provide reports
  on legacy issues, including architectural
  engineering design, on-site monitoring and
  payments for work done
• Resident engineer
• Take necessary actions and agree on contractual
  way forward, including
• Possible contractual actions
• Possible legal actions
• Formulation of improved contract administration
  processes
• Demolition of inappropriate construction
• Revision of inappropriate design

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Thank you

• Northern Cape Department of Health
• Northern Cape Department of Roads Public Works
• supported by
• National Department of Health (Infrastructure)