1. Joint Report to Select Committee on Appropriations by Northern Cape Department of Health Northern Cape Department of Roads & Public Works supported by National Department of Health (Infrastructure) 08 August 2012 1

2. 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 24 th January 2012 2

3. 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) 3

4. 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 4

5. 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 5

6. 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 6

7. 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 7

8. Thank you Northern Cape Department of Health Northern Cape Department of Roads & Public Works supported by National Department of Health (Infrastructure) 8