Investigation Reports

PUBLIC PROTECTOR
REPUBLIC OF SOUTH AFRICA

REPORT IN TERMS OF SECTION 8 (1) and (2) (b) OF THE
PUBLIC PROTECTOR ACT 23 OF 1994

REPORT NO 8
(SPECIAL REPORT)

REPORT ON THE MPUMALANGA HOUSING PROJECT

Madam Speaker and Honourable Members of  the National Assembly, the Chairperson and Honourable Members of the National Council of Provinces and the Speaker and Honourable Members of the Mpumalanga Legislature

I have the honour to submit a special report in terms of Section 8 (1) and (2) (b) of the Public Protector Act 23 of 1994 regarding my investigation of the Mpumalanga Rural Housing Project.

Adv. S A M Baqwa, SC
Public Protector of the
Republic of South Africa

11 January 1999

TABLE OF CONTENTS

REPORT

  1. INTRODUCTION

  2. BACKGROUND

The initial complaint
The investigation and Special Report of the office of the Auditor-General
The appointment of a Commission of Enquiry
The Report of the Dryer Commission

  1. RESERVATIONS ABOUT THE FINDINGS OF THE DRYER COMMISSION

  2. THE ALLEGATIONS OF IMPROPER INFLUENCE

  3. THE RECOMMENDATIONS OF THE DREYER COMMISSION

  4. THE PRESENT STATUS OF THE PROJECT

  5. CONCLUSION

  6. LACK OF FINANCIAL CONTROL

  7. RECOMMENDATIONS

ANNEXURE A
CHAPTER 10 OF THE REPORT OF THE DREYER COMMISSION OF ENQUIRY

 

REPORT ON THE MPUMALANGA RURAL HOUSING PROJECT

 

1. INTRODUCTION

This Report is submitted to the National Assembly, the National Council of Provinces and the Provincial Legislature of the Province of Mpumalanga by virtue of the provisions of section 182(1)(b) of the Constitution, 1996 and section 8(1) and (2)(b) of the Public Protector Act, 1994. It deals with investigations by my office, the office of the Auditor-General and a Commission of Enquiry that was appointed by the Premier of Mpumalanga, of alleged irregularities concerning the approval of a subsidy linked project for the development of affordable housing in Mpumalanga Province.

2. BACKGROUND

The initial complaint

My office was initially approached by a member of Parliament, who claimed to have information that suggested an improper involvement of the Minister of Housing in the awarding of a contract by the Mpumalanga Housing Board (MHB) to Motheo Construction (Ply) Ltd (Motheo). The source of the information was not revealed to me and the details of the complaint were merely suggestions of nepotism. The complainant requested that I investigate:

  1. Whether the correct tender procedures were followed;
  2. Whether there was any nepotism involved;
  3. The criteria used in appointing Motheo Construction Company;
  4. What the involvement of Nedbank has been in the whole process".

The complainant also indicated that she could be contacted for further information.

The investigation by and Special Report of the office of the Auditor-General

My office made enquiries and it appeared that the office of the Auditor-General was in the process of investigating several issues pertaining to the awarding of the contract in question to Motheo. In order not to duplicate investigations, I decided to await the results of that investigation before considering any further steps to be taken.

The Special Report of the Auditor-General on the Investigation into the Mpumalanga Rural Housing Project( South African Housing Fund) was completed on 28 August 1997 and tabled in Parliament shortly afterwards. From this report it appeared that the investigation by the office of the Auditor-General was initiated as a result of information submitted to the Auditor-General by the former Director-General of the National Department of Housing in connection with certain alleged irregularities concerning the approval of a subsidy-linked project for the development of affordable housing in the Mpumalanga Province, granted to Motheo. The purpose of the investigation by the office of the Auditor-General was to establish whether there was:

  1. proper approval for the project at national and provincial levels;
  2. any misrepresentation;
  3. a proper agreement between the Provincial Housing Board and Motheo Construction (Ply) Ltd;
  4. compliance with the relevant Acts and regulations."

(See page 3 of the Special Report.)

The Auditor-General came to the conclusion that fundamental rules and regulations were not adhered to by the MHB as well as the Department of Local Government, Housing and Land Administration of the Mpumalanga Province. Furthermore, the Auditor-General found it possible that members of the MHB and the department had been influenced by the possibility of a financial institution being involved, because they were under the impression that financial institutions had been involved in similar projects in the past. The contents of the Special Report indicate "substantial disregard for the due process and proper procedure by individuals in positions of public trust". (See page 17 of the Special Report).

The Auditor-General recommended that a Commission of Enquiry should be appointed to establish:

"(a) Whether any misrepresentation was made by any individual or organization to the Provincial Housing Board or the Department of Local Government, Housing and Land Administration or any other party to this project.

(b) Whether there were, in view of the allegations that were made in the public media, any family or other close relationships involved in the awarding of the project to Motheo Construction (Ply) Ltd.

(c) What the reasons and full implications of the contrived nature of the agreement with Motheo Construction (Pty) Ltd were."

(See page 17 of the Special Report).

The appointment of a Commission of Enquiry

On 3 October 1997 the Premier of Mpumalanga announced the appointment of a Commission of Enquiry (the Dreyer Commission) in accordance with the recommendations of the Auditor-General. The Dreyer Commission was instructed to investigate the findings of the Auditor-General and to pay special attention to the following matters:

"(a) Whether any misrepresentation was made by any individual or organization to the Provincial Housing Board or the Provincial Department of Local Government, Housing and Land Administration or any other party to this project.

(b) What the motivation and reasons for entering into, as well as the full implications of the agreement with Motheo Construction (Pty)Ltd were, with particular reference to, inter alia, -

  1. the evaluation process that was followed to identify the appropriate developer for the project concerned;
  2. authorization for concluding the said agreement;
  3. funding of the said project;
  4. the accountability and responsibility of all parties concerned; and
  5. whether anybody or any body, directly or indirectly, benefited financially from the said agreement, and if so, the extent thereof."

The Dreyer Commission was also instructed to include in its report specific recommendations regarding the Commissions s findings concerning the officers of the Provincial Administration involved, MHB members, the existing procedures and the existing financial control mechanisms.

The Report of the Dreyer Commission

The Report of the Dreyer Commission on the enquiry into the Mpumalanga Rural Housing Project was finalised on 4 November 1997. According to the Report, the Dreyer Commission heard the evidence of 28 witnesses and volumes of documents pertaining to the project had been submitted as exhibits. The conclusions and recommendations of the Dreyer Commission are contained in Chapter 10 of its report, a copy of which is attached to this Report as "Annexure A"

3. RESERVATIONS ABOUT THE FINDINGS OF THE DREYER COMMISSION.

A number of reservations about the findings of the Dreyer Commission have been brought to my attention. Although the Public Protector does not have the authority of judicial review of the findings of a body such as a Commission of Enquiry, I considered the reservations submitted to me for the sake of clarity and to ensure that evidence that might not have been submitted to the Dreyer Commission not be ignored. I found that the reservations were based on differences of opinion and interpretation of facts and events. The Dreyer Commission had the advantage of listening to the testimony of many witnesses and I could not find any reason not to accept the findings of the Dreyer Commission as being a trustworthy account of the evidence that had been submitted.

4. THE ALLEGATIONS OF IMPROPER INFLUENCE

The allegations of family or other close relationships involved in the awarding of the contract to Motheo that were made in the media and that were referred to in the Special Report of the Auditor-General, implicated the Minister of Housing. In this regard it should be emphasized that section 182 of the Constitution, 1996, provides that the Public Protector has the power to investigate conduct in state affairs or in the public administration in any sphere of government that is alleged to be improper or to result in any impropriety or prejudice. A mere allegation of family ties or friendship between parties that might be involved in a contract, without any evidence of improper influence, cannot substantiate a finding of prejudice or impropriety.

The Public Protector is subject to the law and the Constitution. Any infringement of the right to privacy of any person by means of an official investigation of the relationships of persons with a view of establishing whether or not such relationships formed the basis of improper influence would require substantiated information which is not based on rumours or vague allegations in order to be justified.

In this regard my office approached the member of Parliament that lodged the initial complaint on several occasions with the request that more information should be provided. However, to date I have had no response from the member concerned. The tendency of some members of Parliament and political parties to lodge complaints at my office that consist of vague allegations and unsubstantiated rumours and then not to co-operate by providing the details or substance for such complaints, even when specifically requested to do so, is of serious concern to me. I regard such behaviour as, to say the least, unbecoming of a member of Parliament.

The Motheo-contract was also the subject of a dispute between the Minister of Housing and the former Director-General, Mr. W Cobbett. It is unfortunate that this dispute, which could have been avoided had the proper procedures been followed by the MHB, eventually led to the termination of the services of Mr. Cobbett. In an interview with the latter, he, however, assured me that the relationship between him and the Minister had been stressed prior to the Motheo affair and that the awarding of this contract was merely the last straw. Mr. Cobbett specifically indicated to me that he has no reason to believe that the Minister of Housing was personally involved in the awarding of the contract to Motheo. The Dreyer Commission, that also heard the evidence of Mr. Cobbett, also found no evidence of any participation by the National Ministry in the process of evaluation and the awarding of the housing subsidies.

In the mentioned letter of complaint it is, inter alia, alleged that a "Ms Mthombeni", who is a co-director of Motheo is related to the Minister of Housing. This allegation seems to refer to Mr. Job Mthombeni, a director of Motheo and a member of the MHB. The findings of the Dreyer Commission with regard to any possible improper conduct by Mr. Mthombeni are reported in paragraph 10.4.1 of the Report. (See page 125 of Annexure A.) I could find no reason not to agree with the Dreyer Commission in this regard.

In conclusion, I have found no reliable evidence that supports the rumours and allegations of improper influence by the Minister of Housing or any other person as far as the allocation of the project under consideration to Motheo is concerned.

5. THE RECOMMENDATIONS OF THE DREYER COMMISSION.

The Dreyer Commission did not make specific recommendations on its findings concerning officers of the Provincial Administration that were involved, members of the MHB, the existing procedures and the existing financial control mechanisms, due to time constraints and in the light of the then pending changes to the national legislation that is applicable. The Housing Act, 1997, that came into operation subsequent to the Dreyer Commission's findings, resolved a number of misunderstandings in respect of accountability and responsibility that existed previously and that had been identified by the Dreyer Commission.

As far as the future course of conduct regarding the contract in question is concerned, the Dreyer Commission made several recommendations. (See paragraph 10.5 on page 127 of Annexure A.) These recommendations were aimed at ensuring that the future implementation of the project will be sensible and that the partially completed part of the project is not abandoned.

6. THE PRESENT STATUS OF THE PROJECT.

I have been informed by the MEC for Local Government, Housing and Land Administration of the Mpumalanga Provincial Government that, following the findings by and recommendations of the Dreyer Commission, a formal agreement was reached between the Mpumalanga Provincial Housing Development Board, the Mpumalanga Department of Local Government, Housing and Land Administration and Motheo on 8 April 1998, to the effect that all previous agreements, including the contract in question, will have no force or effect. It was furthermore agreed that:

  1. the value of the work that has been proceeded with by Motheo, subsequent to the signing of the contract of 14 March 1998, amounts to R 18 549 433,60 of which Motheo has been paid R 9 240 000,00;
  2. payment of R 7 957 595,40 of the outstanding balance would be effected and that the remaining amount would be held as retention and for maintenance of services;
  3. negotiation of a new agreement in respect of further projects relating to the original contract would be expedited and that new agreements shall comply fully with the provisions of the National Department of Housing s Implementation Manual.

The effect of the above arrangement is that R18 549 433, 60 of the contracted R 190 890 000 has been paid by the State to Motheo. An investigation of the value that has been received for the amount that has been paid revealed that, by comparison to national standard unit costs, the houses that have been completed and delivered by Motheo constitute good value for money.

7. CONCLUSION

7.1 The findings of the Auditor-General and the Dreyer Commission are supported.

7.2 No reliable indication of any improper involvement of the Minister of Housing in the awarding of the contract by MHB to Motheo could be found;

7.3 The Provincial Government and the Mpumalanga Provincial Housing Development Board have implemented most of the recommendations of the Dreyer Commission in regard to the future of the Mpumalanga Rural Housing Project.

8. LACK OF FINANCIAL CONTROL

In my Special Report to Parliament on the Affairs of the Independent Broadcasting Authority (Report No 7), I referred to my concern about the failure of governments at all levels, and state organs, to take effective steps to address the lack of proper financial controls. The matter dealt with in this Report is another example of the effect of non adherence to the prescribed rules and regulations pertaining to the control of government expenditure. I want to reiterate my recommendations in this regard in Report No 7 which are, that:

"Parliament urgently develops and introduces appropriate measures to:

  1. ensure the proper training of officials of organs of state and of public administrations at all levels of government,
  2. to regulate and control the functions of these officials,
  3. to minimise the risk of abuse and mismanagement of financial systems, and
  4. to improve the efficiency of financial administration in general."

9. RECOMMENDATIONS

In terms of the provisions of section 182(1)(b) and (c) of the Constitution, 1996, and section 8(1) and (2) of the Public Protector Act, 1994, I recommend that:

9.1 Parliament and the Provincial Legislatures urgently develop and introduce appropriate measures to ensure:

  1. proper training of officials tasked to deal with tenders and contracts;
  2. adherence to the prescribed laws, rules and regulations relating to tender procedures, the evaluation of tenders and proposals and the conclusion of contracts.

9.2 The Premier and the MEC for Local Government, Housing and Land Administration of the Province of Mpumalanga personally supervise the completion of the present contract with Motheo and any future agreements that might be concluded following the original agreement with Motheo in connection with the Mpumalanga Rural Housing Project.

 

 ANNEXURE A

CHAPTER 10

CONCLUSION


Each instruction in the terms of reference has been individually dealt with in Chapters 4 to 8 of this report. In each chapter the Commission sets out its conclusions in relation to the issues raised in the relevant portion of the terms of reference. For purpose of convenience these conclusions are summarised in the following paragraphs.

10.1 PROVINCIAL HOUSING BOARD APPROVAL.

10.1 .1 Quorum.

There was no quorum at the PHB meeting so that the purported ratification of the Exco decision allocating 10 500 subsidies in respect of the Rural Housing Project was invalid.

10.1.2 Adequacy of Information

The information presented to Exco and PHB was hopelessly inadequate in terms of the requirements of the Manual.

None of the members of the PHB or the Secretariat made any attempt to obtain the required information.

It was therefore impossible for the members of Exco and PHB to adequately apply their minds to the matter.

10.1.3 Funding

It is common cause that the availability of funds for the project was never considered as part of the PHB approval process.

1 0.1.4 Misrepresentation

Various role players took comfort from the involvement of Nedcor in the project. However none of them made any effort to establish the extent of Nedcor's involvement. It is clear from the evidence gathered supported by the documentation that Nedcor did not misrepresent their involvement to any of the parties concerned.

10.1.Subsidy agreement

10.1.5.1 Absence of proper authority

Since there was no quorum at the PHB meeting of 30 January 1997 the decision taken at that meeting to allocate subsidies was invalid. Accordingly the subsidy agreement is invalid.

10.1.5.2 Non-compliance with the Manual

10. 1.5.2.1 Draft Agency Agreement

The proposed agency agreement would have had no material impact upon the validity of the agreement and it is therefore unnecessary for the Commission to find whether the consensus to omit the draft agency agreement was reached before or after signature of the agreement.

10.1.5.2.2 Incorporation of the additional allowances

The Commission recognised the arguments advanced by the AG in regard to the non-variation clause but concluded that the parties had de facto regarded the addendum as binding and that the developer had since regularised the position by signing the addendum to acknowledge that position. The addendum still requires signature by a representative of the PHB but will of course remain an addendum to an invalid contract.

10.1 .5.2.3 The interest free loan

As the contract provides for the discharge of the developer upon transfer of the completed top structure to the local authority (regardless of whether a beneficiary is identified or not) there appears to the Commission to be no basis for the suggestion of an interest free loan facility as the developer is only being paid for work already completed and handed over.

10.2 MOTIVATION AND REASONS FOR ENTERING INTO THE AGREEMENT.

Arising from the testimony received and documentation gathered the Commission is of the opinion that the motivation and reasons of the parties participating in the project for entering into the agreement were as follows:

10.2.1 The Province

A genuine desire and commitment by every Provincial representative who gave evidence to expedite the delivery of housing to the poorest section of the rural community.

1 0.2.2 Nedcor

A desire to facilitate and support the delivery of rural housing both nationally and provincially.

1 0.2.3 Motheo

To establish a commercial enterprise for delivery of housing to communities in rural areas with no employment and very poor living conditions utilising the concept of women themselves being involved in building homes for their families.

10.3 FULL IMPLICATIONS OF THE AGREEMENT

10.3.1 Evaluation process to identify the appropriate developer

Evidence was adduced by Moodley to the effect that project management and economic empowerment were the overriding considerations. On the other hand Cobbett asserted that track record is everything.

In practice the developer was identified by Gibb, proposed by him to the Province and accepted by Exco and PHB without any acceptable evaluation process.

1 0.3.2 Authorisation

The chairperson had at least tacit authority to sign contracts on behalf of the PHB. However the approval of the subsidies for the Motheo Contract was taken at a meeting without the requisite quorum thus rendering the approval invalid and, with it, inescapably, the agreement.

1 0.3.3 Funding

The formalistic view is that the PHB was so over committed at the time of signature of the agreement that there was a serious risk of it being unable to meet its commitments as and when they became due without assistance from the Provincial budget.

There was a misunderstanding by Provincial officials of the attitude of the NDH in regard to the approval of the project.

Provincial officials believed that the project could be accommodated by applying the management mechanisms dealt with in the body of this report. The Commission is unable to make a finding on that assessment but accepts that it is at least possible that the project may have been accommodated.

However, with the benefit of hindsight and in the absence of any further Provincial allocation, the formalistic view referred to above is probably correct. The issue may, of course, become academic in view of the invalidity of the contract.

In any event the current state of the national over commitment raises serious reservations as to the justification for the isolation of Mpumalanga and the Motheo Project as the recipient of a demand for refund when other provinces find themselves in a far worse position.

It appears to the Commission that the issue requires resolution by means of a process of negotiation, possibly at MinMec level.

10.3.4  Accountability and responsibility

In relation to "approval" of the subsidy allocation, the Commission finds that primary responsibility for the failed approval by virtue of the absence of a quorum lies with the Chairperson and, to a lesser degree, the Head of the Secretariat.

The Commission further finds that a degree of responsibility can be attributed to the members of PHB present at the meeting for failing to ascertain whether a quorum was present.

Inadequate Information

Once again primary responsibility for inadequate information being provided to the PHB must rest with the Chairperson, as he was well aware of the requirements as set out in the Manual. The Head of Secretariat failed to raise the issue of inadequacy of information before the Exco and Board meetings of January 1997 and is consequently, to a lesser extent, responsible therefor. Co-responsibility in this regard must also rest with members of the PHB for permitting the resolution to be taken with inadequate information.

The parties who must bear responsibility for the deficiencies in the agreement are as follows:

  • Absence of agency agreement

Moodley and Ngwenya for either failing to delete the reference thereto or attach the draft agreement in accordance with their respective understanding of the consensus reached.

  • Absence of annexures

Moodley in the first instance and Ngwenya in the second for failing to ensure that all of the annexures to the document were attached.

  • Incomplete signature of addendum document

Ngwenya for failing to refer the document to the other parties for signature by them. The document has subsequently been signed by the developer and has yet to be signed by a representative of the PHB

10.3.5 Undue financial benefit

The Commission's overall conclusion is that there is no evidence that anybody or any body unduly benefited from the subsidy agreement.

1 0.4 GENERAL

10.4.1 Job Mthombeni

Questions have been raised as to whether Mthombeni had a conflict of interests at the time he participated in the PHB approval of the project. The Commission found no shred of evidence to suggest that Mthombeni had any business or social relationship with Dr Ndlovu or Motheo before he received an invitation to join the board of that company in March, well after PHB approval. Mthombeni impressed the Commission as a patently honest and creditworthy witness whose primary reason for accepting the offer of a directorship in Motheo was the opportunity it afforded him as representative of his constituency - the emerging builders. The Act specifically provides for members of the Boards to recuse themselves in matters in which they have a conflict of interests. There are a number of instances in which PHB members recused themselves when particular matters came up for decision - indeed Mthombeni was among the PHB members who had done so on prior occasions. The Act specifically dictates that the Board should have a spread of members who, by their qualifications, should add value to the Board. It is a matter of regret to the Commission that there should have been any suggestion that Mthombeni had acted improperly.

10.4.2 Misappropriation of taxpayers funds.

The Commission has expressed its conclusion that there is no evidence to support the assertion that anybody unduly benefited from the subsidy agreement. Whatever the technical irregularities in the process of application for and approval of the housing subsidies, the fact of the matter is that Motheo has, in all material respects, used the funds it received in the performance of its contractual undertakings. Whilst the Commission has not purported to undertake a detailed analysis or verification of the project works, the forensic investigation and the Commissioner's own observations during the course of a private and unannounced site inspection of the development at Tonga East and Tonga West appeared to support the assertion that the money had been spent in the provision of services as contended. Indeed Motheo appears to have gone to some length to continue with the project for as long as the funds lasted notwithstanding the refusal by the Province to make any payments.

10.4.3 Ministerial Involvement in the selection process.

Although not part of the Commissions terms of reference there was no evidence before the Commission of any participation by the National Ministry in the process of evaluation and the awarding of the housing subsidies. It must be stressed that this was not a focussed issue of the investigation.

10.5 Recommendation

10.5.1 Finally it is with some hesitancy that the Commission ventures outside its terms of reference to offer a recommendation as to a future course of conduct. It does so in the belief that the present set of circumstances cannot be allowed to continue.

10.5.2 In spite of the conclusion that the subsidy agreement under which the development is being undertaken is invalid, a significant amount of work has been done by or on behalf of Motheo and a payment of R9 million has been made. Some three or four thousand sites have water services available for connection when construction of houses begins and service roads cover significant areas of the proposed project sites. There is a significant danger, that if left in their present condition, the value of the water reticulation system and the roads themselves will deteriorate dramatically.

10.5.3 More significant is the fact that expectations have been raised in the communities concerned where people are waiting for houses and hoping for the employment opportunities that the developments will bring with them.

10.5.4 The parties, being Motheo and the PHB and the Department, still have a working relationship notwithstanding the effective suspension of payments under the contract for the last six months.

10.5.5 In the circumstances, and without seeking to be prescriptive, the Commission suggests that the parties consider the following actions:

  1. The process of PHB approval (subject to the qualifications set out below) be undertaken as a matter of urgency subject to clarification of funding availability from the National Department. In this latter regard the partially completed nature of the contract, the obvious misinterpretation of the discussion in March 1997 and the raised expectations of the communities in these areas should be raised to secure such assistance as is necessary outside of funds freed by cancelled or inoperative prior projects.
  2. In order to ensure proper PHB approval Motheo needs to provide a proper application which will require evidence of the support it professes to have both in the form of the existing expert project team and from other established companies in the building industry.
  3. The subsidy agreement and the addendum need to be revised and properly updated including the process of obtaining formal Land:Availability Agreements.
  4. The negotiation should have regard to the following qualifications:
  • The possible reduction in number of houses at each site.
  • The building programme in appropriate manageable phases.
  • Indemnities from sub-contractors or any other creditors of Motheo.
  • Badplaas and Hazyview be scrapped or delayed.
  • Amsterdam be significantly reduced because of possible risk of oversupply.
  • If Badplaas and Hazyview are scrapped a negotiated compromise in regard to a refund of the design fee will be required.
  • Most advanced sites be proceeded with first.

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