DEPARTMENT OF CORRECTIONAL SERVICES Transforming prisons into correctional centres - places of new beginnings

SELECT COMMITTEE BRIEFING CHIEF DEPUTY COMMISSIONER: FINANCE Department of Correctional Services SELECT COMMITTEE BRIEFING 26 OCTOBER 2004 PO’C GILLINGHAM CHIEF DEPUTY COMMISSIONER: FINANCE

Department of Correctional Services INTRODUCTION South Africa’s only two Public Private Partnership (PPP) are located at Bloemfontein in the Free State and at Makado in the Limpopo Province. Both prisons have generally similar contractual arrangements and are now fully operational.

INTRODUCTION (Continue) Department of Correctional Services INTRODUCTION (Continue) Mangaung Contractor: Global Solutions Date opened: 1 July 2001 Certified Normal Accommodation: 2928 Population: 2928 Type of Correctional Centre: Maximum Contractual Period: 25 years

INTRODUCTION (Continue) Department of Correctional Services INTRODUCTION (Continue) Kutama-Sinthumule Contractor: SACM Date opened: 1 March 2002 Certified Normal Accommodation: 3024 Population: 3024 Type of Correctional Centre: Maximum Contractual Period: 25 years

RATIONALE BEHIND PPP PRISONS Department of Correctional Services RATIONALE BEHIND PPP PRISONS There are basically two reasons behind PPP Prisons and these are: To acquire additional accommodation In pursuit of knowledge, expertise and best practices provided by the business sector

MANAGEMENT OF PPP PRISONS Department of Correctional Services MANAGEMENT OF PPP PRISONS The management of the two contracts from the Contractor’s side lies with the above Contractors. The Contractors have also in turn sub-contracted some of these services to other sub-contractors e.g. the provision of meals, health, programmes etc.

MANAGEMENT OF PPP PRISONS (Continue) Department of Correctional Services MANAGEMENT OF PPP PRISONS (Continue) The contracts within the DCS is managed through the Directorate Contract Management at Head Office. The monitoring function is delegated to the Regional Commissioners in the two regions.

MANAGEMENT OF PPP PRISONS (Continue) Department of Correctional Services MANAGEMENT OF PPP PRISONS (Continue) In each prison there is a Project Officer (Controller) with his management team whose sole responsibility is to oversee the contract on behalf of the Department.

PERFORMANCE OF PPP PRISON AGAINST THE CONTRACT Department of Correctional Services PERFORMANCE OF PPP PRISON AGAINST THE CONTRACT Irrespective of whether a prison is publicly or privately managed the opening period will be difficult for staff and management. Most of the problems which were experienced in the beginning were in the areas of assaults prisoner on prisoner, prisoner on staff and staff on prisoner.

PERFORMANCE OF PPP PRISON AGAINST THE CONTRACT (Continue) Department of Correctional Services PERFORMANCE OF PPP PRISON AGAINST THE CONTRACT (Continue) Fortunately most of these problems have settled now and the prisons are performing reasonably well. The monitoring of these prisons is also doing very well. There was only one instant where one of the contractors incurred a financial penalty and this was in respect of an escape. The penalty in this case was an amount of R335 000.00

FINANCIAL REVIEW OF APOPS PRISONS Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS The two PPP projects were planned and procured prior to the establishment of the Treasury Regulations for PPP’s which were first published in may 2000. The strict legal criteria currently in place for ensuring affordability, value for money and appropriate risk allocation in PPP deals were therefore not in force at the time when the PPP prisons were procured.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) In other words no proper feasibility study was conducted prior to the procurement of these prisons, to ensure affordability, appropriate risk transfer and value for money for DCS.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) The absence of proper feasibility study led to DCS experiencing some profound budgetary constraints. This problem was further compounded by the fact that DCS was at the same time faced with severe overcrowding in all its conventional prisons.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) A study of the two contracts proved that the output specifications set higher construction and operational standards than is the norm for South Africa’s prisons resulting in the Contractors charging higher costs for these prisons. This also led to a lack of parity in South Africa’s Correctional Services System.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) Towards the end of 2002 a task team was established comprising of representatives from DCS, Treasury and Public Works. The objectives of this task team were: To reach a joint understanding of the output specifications, the costing assumptions, the structure of these projects, finance and the risk allocation in each project.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) To clearly identify the capital and operational costs of each project. To identify any features of the contracts which could be re-negotiated with the private partners in order to address the DCS’s affordability constraints.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) The task team identified four (4) areas on which DCS could re-negotiate with the Contractor to address DCS’ affordability constraints. These areas were identified in terms of: Capital expenditure Operational expenditure Financial expenditure Risk transfer

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) As a result of lack of knowledge, and expertise to undertake this work DCS decided to invite proposals from lead Advisors representing teams of suitably qualified and experienced Financial, Technical and Legal Advisors (Transactional Advisor) to assist the DCS to formulate and negotiate improved value for money changes to the contracts that will result in a net benefit to the DCS

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) in respect of fee payment over the life of the contracts and cash flow benefits and a lower cost per prisoner per day. The Transaction Advisor is also expected to conduct a comprehensive feasibility study for the construction and operation of four new prisons.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) DCS put out a tender in this regard and this was awarded to Perekisano-Mmogo in December 2003. A contract has already been signed with Perekisano-Mmogo in this regard and they have already started with their work. The Transaction Advisor (Perekisano-Mmogo) must complete its work within six (6) months from the date of signing the contract.

FINANCIAL REVIEW OF APOPS PRISONS (Continue) Department of Correctional Services FINANCIAL REVIEW OF APOPS PRISONS (Continue) The Transaction Advisor has already started with its work in earnest and are expected to wind up this task during March 2005.

Department of Correctional Services POLICY CHALLENGES The White Paper on Corrections in SA has ushered in a new strategic direction of the Department within which rehabilitation forms the centre of all its activities. As the Department is experiencing all these major policy shifts it is imperative that the PPP prisons should not be left behind in this process.

POLICY CHALLENGES (Continue) Department of Correctional Services POLICY CHALLENGES (Continue) Tangible efforts were made in this regard to ensure that the PPP prisons were also brought on board. These included amongst others presentations to the Contractors on the new White Paper on Corrections, new Strategic Plan of the Department, access to new Policies and the promulgation of the Correctional Services Act and Regulations as well as the delegations.

POLICY CHALLENGES (Continue) Department of Correctional Services POLICY CHALLENGES (Continue) Clause 9.1 of the Bloemfontein and Louis Trichardt Concession Contracts provides that the Department may delete, amend, or alter the extent of any obligation to be met by the Contractor under the contract or add to the obligations of the Contractor under the contract by giving notice (Notice of Change). Such a change might lead to a variation of the fee (s).

Competitive construction costs. Department of Correctional Services CONCLUSION Despite the fact the DCS is experiencing certain budgetary constraints with the two PPP projects, the review of the two project found that the PPP projects have successfully delivered on: Competitive construction costs. Construction was completed on time and on budget.

CONCLUSION (Continue) Department of Correctional Services CONCLUSION (Continue) Significant black equity and sub-contracting. Delivery was fast tracked (less than two years from contract signature to full operating capacity).

Correctional Services values your role in breaking the cycle of crime: in making rehabilitation work. Thank you Together we can strengthen the social compact against crime, for a better life.