5.1 TERMS OF REFERENCE

5.1.1 The terms of reference require the Commission to pay specific attention, inter alia, to the following issue:

"Whether any misrepresentation was made by any individual or organisation to the PHB or the Department or any other party to this project".

5.1.2 This instruction has its origin in the key finding set out in paragraph 4.1.2 in the AG Special Report that

"Conclusive evidence that any misrepresentations took place could not be found. There is, however, a reasonable possibility that misrepresentations concerning the assumed involvement of a financial institution did occur."

5.1.3 The basis for this finding is set out in the following paragraphs of the AG Report

5.1.3.1 Para 4.3.2 dealing with the proposal of Motheo:

"A significant feature of this proposal is that it refers to a joint venture between Motheo and a financial institution as regards the provision of rural housing. It is further evident from reading this proposal that the intention expressed is that Motheo was to enter into a development undertaking with the assistance of a financial institution."

5.1.3.2 Para 4.4.1 (a) which includes the following:

"No evidence could be found that any financial information relating to Motheo had been placed before the PHB. The fact that Motheo maintained in it’s proposal that it was in a joint venture with a financial institution created the possibility that if the PHB had applied its mind, it could have reached the conclusion that Motheo would be financed by the financial institution.

  It is quite possible that such an understanding could have existed within the department".

5.1.3.3 Para 4.4.1 (b)

"Motheo clearly insisted that it was involved in a joint venture operation with a financial institution. However, no copy of an agreement specifically entered into between Motheo and the financial institution to substantiate the representation that the proposal was a joint venture between a financial institution and Motheo could be found.

The PHB appears not to have been concerned about this specific requirement and as such it did not assess the legal competence and financial position of this joint venture. The decision-makers in the Province indicated that they were satisfied that it was not necessary to determine the legal competence and financial position of Motheo, since a financial institution was involved in the joint venture.

This understanding appears to have resulted from the knowledge of the PHB and the Department of the underlying Memorandum of Understanding between the Mpumalanga Province and the financial institution concerned. It is, however, clear that in this instance neither the PHB nor the Department had specifically assessed the legal competence of the ostensible joint venture between a financial institution and Motheo. Furthermore, it can be mentioned that the financial institution concerned denies being involved in the proposed project".

5.1.3.4 Para 4.5.1 (d)

"Notwithstanding the fact that the Agreement refers to a financial institution as well as a draft agreement to be signed with a financial institution, there was no such draft agreement and yet the parties signed the agreement."

5.1.3.5 Para 5.2. in which the following conclusion is reached :

"Furthermore, it is possible that the members of the PHB as well as officials of 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."

5.2 JOINT VENTURE OR JOINT INITIATIVE

5.2.1 It is significant that all of these references in the AG’s Special Report refer to a "joint venture" between Motheo and a financial institution. The institution involved is, of course, Nedcor. The origin of this assertion appears to be the appearance of the Nedcor logo and the words "Joint Initiative" on the cover and at the foot of each page of the proposal document. (See for example Exhibit G26).

There is, however, no single reference to a "joint venture" in any of the proposal documentation of Motheo to which the Commission has had access or in the Subsidy Agreement or any draft thereof, or in any correspondence or other document which preceded the granting of subsidies by the PHB and the signature of the Subsidy Agreement. The use of the term "joint venture" in the AG’s report is, accordingly, regrettable in the sense that the term, in common commercial parlance, carries the notion of a risk sharing partnership-type relationship and elevates the words actually used (i.e. "joint initiative") to a status which they do not ordinarily enjoy.

5.2.2 It appears that the mind-set of those members of the PHB or the Department who gave any consideration to the matter at all was influenced by the underlying historical relationship between Nedcor and the Province in relation to the provision of low cost housing. In particular by the negotiations which took place in early 1996 and gave rise to the Memorandum of Understanding between the Province, Nedcor and M&R and the precedent set by the Condev / Nedcor joint venture contract with the Province for the development of 6 000 housing units signed in February 1996 flowing from the Memorandum of Understanding.

5.2.3 The Memorandum of Understanding (Exhibit G13) is a document which had its origins in the discussions between Nedcor and the Premier in late 1995. It was signed by representatives of the Province and Nedcor on 7 February 1996 and, although M&R were not a signatory to the document, it was recorded that :

"A partnership between the Provincial Ministry, the Provincial Housing Board, Nedcor Bank, M&R, Provincial Local Authorities and the Beneficiary Communities will facilitate the delivery of houses at scale".

5.2.4 The parties committed themselves to:

"be innovative and creative in the implementation of the joint venture projects, in doing so, the parties accept the Housing Policy, Legislation and accepted / prudent principles in granting end user and bridging finance."

5.2.5 Nedcor undertook that it would:

1. "Subject to normal lending criteria make available bridging and mortgage bond finance to housing projects in Mpumalanga Province:
2. 2. Make available a range of mortgaging financing options:
3. 3. Secure whatever private sector partners it requires to ensure the speedy delivery of the joint projects:
4. 4. Offer and provide the necessary home ownership education and informed advice to clients on the most suitable financial options."

5.2.6 The first projects undertaken in terms of this Memorandum of Understanding were, indeed, projects in which the developer was a joint venture between Nedcor and Murray & Roberts. The terms of the Memorandum of Understanding and the nature of the relationship between Nedcor and Condev were known to the decision makers within the Provincial administration.

It is, therefore, not surprising that some of them might have assumed that the relationship between Nedcor and Motheo was the same as that between Nedcor and Condev. The Commission has not, however, found evidence to support the proposition that any such assumption was based upon a misrepresentation of the status of Nedcor by Motheo or the representatives of Nedcor itself.

5.2.7 If there is any single document which implied a greater involvement of Nedcor than that of facilitator and support provider it is the Memorandum from the Executive Chairperson of the PHB to the MEC dated 25 November 1996. This was, by common cause (see Chapter 4.2 of this report), the only document available to PHB Executive or Board members at the time of their consideration of the allocation of subsidies to the Motheo project. That document (Exhibit G14) represents a summarised status report from Moodley to the MEC of the position prevailing at the end of November 1996. It reflects that all of the relevant discussions in regard to the projects had been with Nedcor, which is of course, factually correct.

It indicates in paragraph 2 that local authorities will provide reports on land and site availability to Nedcor. In paragraph 3 it reports that meetings were held with Nedcor who have confirmed that :

Nedcor are also reported as having confirmed that three brick making plants had been located and purchased, that 5 more had been ordered and that:

In para 4 it records that:

5.2.8 The ordinary reader of this document would, in the absence of any other information, reasonably assume that Nedcor were the project leaders and that their project partners would be Motheo. Moodley himself did not allege that there was a joint venture between Nedcor and Motheo and testified that when he referred in this memorandum to Motheo as "project partners" he intended to refer to the relationship between the Province and Motheo in the development of these projects.

It is equally clear that the position of Nedcor was not misrepresented to Moodley in the sense that he relied upon or assumed that the involvement of Nedcor would lend financial stability to the project and would allay any fears in regard to the absence of any financial track record for Motheo. Moodley said that the question of financial stability or security of any company or individual requesting housing subsidies was never considered in any project in Mpumalanga with which he was involved.

5.3 FINANCIAL INVOLVEMENT OF NEDCOR

5.3.1 There is limited evidence that PHB members may have believed that Nedcor had some financial stake in the Rural Housing Project.

The overwhelming impression, however, is that PHB members either did not consider the issue at all, or simply relied upon the recommendation made by Exco and / or Moodley. (See Chapter 4.2 of this report.) If comfort was taken from Nedcor’s involvement this would appear to be based upon a combination of factors including :

5.3.2 Several members of the Department testified that they had taken comfort from Nedcor’s participation in the project. None of them, however, appears to have made any effort to pursue investigations into the extent of such involvement.

Appasamy raised the issue in a note to du Plessis following receipt of the Moodley memorandum of 25 November 1996. In this note (Exhibit G15) he raised the question:

"What is Nedcor’s role?"

The query was never answered, nor was it raised by him at the Exco meeting for fear of being ignored by Moodley.

Record
Appasamy - 79.20

- 80.02
- 81.05

5.3.3 No proposal document was submitted to the Exco or PHB meetings in January 1997. The only document which these bodies had before them was Moodley’s 25^th November 1996 memorandum. From a factual point of view, therefore, it is clear that the use of the Nedbank logos and the words "a joint initiative" could not have influenced any of the Exco or PHB members in their deliberations at the meetings in January.

5.3.4 The Motheo Proposal document was, however, presented to departmental officials and representatives of the Local Authorities at the meetings of the 24^th and 26^th February. The version of that proposal dated 20^th February is Exhibit A8. Apart from the logo already described the document contains no reference to any formal agreement between Motheo and Nedcor. It contains two or three general statements such as :

"With the help of Nedcor, Motheo strives to build sustainable communities while it delivers housing."

"It is Motheo’s aim to work with the Provincial Government, Nedcor and others to ensure simultaneous development of schools, clinics, crèches, sports facilities, churches etc."

5.3.5 The Provincial representatives who signed the development agreement (Moodley and Ngwenya) did not regard Nedcor as a joint venture partner in the sense that it was a risk participant in the enterprise with Motheo.

Ngwenya was specifically questioned on this issue and the following passage of evidence appears at page 417.29.

  "I need to get my thinking quite clear on this because it is an important issue in relation to our terms of reference. When you talk about Nedcor getting into a joint venture with the developer, was your understanding not that this was simply a sort of banker/customer relationship where Nedbank might supply financial assistance if required, but that this was a joint venture in which Nedcor and Motheo were participating with Nedcor being a risk assumer? ….No, that was not my understanding. My understanding was that it was a joint initiative in the sense that Nedcor will back them financially, not that Nedcor would actually be a partner in the development as such.

  Was this something you deduced from the documentation or from what was said to you by the Nedcor or Motheo officials?……This is something I deduced from my experience with working with Mr Kevin Gibb from Nedcor and also the documentation which was given to us and our discussions we had with Mr Gibb."

5.3.6 The senior Nedcor executive involved with the Rural Housing Project was Mr Gibb. His evidence was that Nedcor was indeed an enthusiastic participant in the project for the establishment of rural housing at the sites in question and that it would and did provide financial support to Motheo in the form of overdraft and financing facilities to the limited extent that these were necessary at the commencement of the project. Nedcor was, however, not a risk participating partner with the developer nor, in the end result, was it required by the developer to provide the facility of an agency agreement in terms of which it would act as a conduit for the passage of funds from the Province to the developer.

Record
Gibb - 1183.12

- 1188.08
- 1189.18

5.4 CONCLUSION

In the circumstances the Commission concludes that there has been no misrepresentation by Motheo or representatives of Nedcor to the PHB or the relevant members of the Department to the effect that Nedcor was a risk participating partner in a joint venture with Motheo in regard to the Rural Housing Project. To the extent that a document exists which may have influenced the thought process of PHB members this was the 25^th November 1996 memorandum by Moodley to the MEC (Exhibit G14). It is clear, however, that Moodley did not set out to misrepresent the position of Nedcor in preparing that memorandum, which was a factual report on discussions taking place with Nedcor at the date of it’s drafting. Without any additional information a party reading that document might conclude that Nedcor was a partner in the development. Moodley maintains that all information in his possession (which would have corrected this misapprehension) was made available to Exco and PHB board members. The extent to which that observation is supported by Exco and Board members is dealt with in Chapter 4.2 of this report.

The overall conclusion of the Commission is that allegations of misrepresentation are not supported by the evidence gathered by the Commission.

6.1.1 ABSENCE OF PROPER AUTHORITY

6.1.1 Para 4.5.1 (A) of the AG Report records the observation that

"The Mpumalanga Provincial Housing Board did not authorise the Chairman to enter into the agreement. It is , however, possible that there might have been a general mandate to that effect."

6.1.2 The Commission had been unable to locate either a specific authority authorising the Chairperson to sign the subsidy agreement on behalf of the PHB or a general resolution authorising him to sign subsidy agreements in relation to projects approved by the PHB.

6.1.3 However the Secretariat was able to trace such authority which is to be found in the minutes of the third Board meeting of the PHB held on 4 April 1995 which includes the following resolution:

"The Board resolved that all contracts negotiated on behalf of the Provincial Housing Board of the Eastern Transvaal be signed by the Executive Chairperson and the Vice Chair or in the absence of the Vice Chair, a member of the Exco." (Our underlining).

6.1.4 At a time before this requirement of dual signature was identified, Mr Meyer, a member of the Board since inception and an executive member up to the end of January 1997, testified that it was generally known to the Board and accepted by the Board that the Chairperson signed agreements on behalf of the Board.

Record
Meyer - 1261.21

6.1.5 The attention of the Commission was also drawn to the minutes of the 11^th Special Board meeting of the PHB held on 29 March 1996 which included the following resolution.

"3.3 The Board noted the contracts of the Provincial Housing Initiatives were the (sic) concluded and resolved the following :

a) that the current and future contracts being signed by the Executive Chairperson and the Chief Director to ensure compliance with the recent Housing Amendment Act passed by National Parliament."

6.1.6 The wording of this provision is ambiguous but it is possible that it was intended to provide a general authority to the Chairperson to sign on behalf of the Board. The Chief Director would, obviously, not sign on behalf of the Board as he is not a member of the Board.

6.1.7 Moodley’s testimony in this regard is to be found at 259.24 and is to the effect that the authorisation to conclude agreements is derived from the delegated authority of the Board and it’s Executive Committee. He alleges that

"The relevant documentation is held by the Secretariat and to trace these documents you need to go back to the inception of the Board where the Board laid down ground rules on how the Executive Committee should operate. Secondly, the Executive Committee acted in terms of the relevant legislation and the power delegated by the Board. So we have to look at the resolution of the Board and the relevant legislation."

Record
Moodley - 259.27.

The issue of the authority of the Executive Committee is dealt with in Chapter 4.1 dealing with the issue of a quorum. The specific issue of authority to sign the agreement on behalf of the PHB is a different issue. It appears to have been accepted by the Board and the Secretariat that the Chairperson was authorised to sign development agreements on behalf of the PHB and this practice was uniformly followed. If, as appears possible, there was no specific general resolution authorising the Chairperson to sign on behalf of the Board then certainly he had tacit authority so that, if the approval of the subsidy allocation by the PHB was valid, that body would be hard pressed to dispute that it had authorised the Chairperson to sign contract documentation on it’s behalf. This was confirmed by Meyer who was a member of the Executive Committee of the PHB.

Record
Meyer - 1261.27

6.1.8 Of far more fundamental importance, however, is the issue of the validity of the purported approval of the subsidy allocation by the PHB or it’s Executive Committee. This issue is dealt with in Chapter 4.1 of this report dealing the issue of a quorum and the conclusion is reached that the purported ratification by PHB of the resolution / recommendation of the Executive Committee in regard to the allocation of the subsidies to the projects in question was invalid. Since the approval was invalid then the Commission is driven to the conclusion that the Chairperson had no authority to sign the subsidy agreement so that that agreement in turn is invalid.

6.2 NON-COMPLIANCE WITH THE MANUAL

The AG’s complaints in this regard are set out in paragraph 4.5 of the Special Report and can be summarised as follows:

We shall deal with each of these issues in turn.

6.2.1 Absence of funds at the date of signature of the agreement.

The issue of funding is dealt with in Chapter 4.3 of this report and the conclusion reached is set out in that section.

6.2.2.Absence of the draft agency agreement referred to in the contract.

6.2.2.1 Gibb, Moodley and Ndlovu all testified that the reference to the agency agreement was left in the agreement by mistake and that, by the time the document was signed, it was the common intention of the parties that there would be no such agreement.

Record
Gibb - 1183.12
Moodley - 342.19
Ndlovu - 987.30

6.2.2.2 Ngwenya, on the other hand, stated that his understanding was that an agency agreement would be entered into but that was subsequently changed when, as he understood it, Nedcor didn’t honour one of Motheo’s cheques.

Record
Ngwenya - 434.10

It is common cause that no draft agency agreement was annexed to the contract at the time it was signed by either party. Gibb testified that the attorney had phoned asking him to provide a draft of the agency agreement and it was at that stage that he informed the attorney that there was to be no agency agreement.

Record
Gibb - 1183.12

6.2.2.3 Shrinivasan also understood that there would be an agency agreement although, as he put it

"I don’t deal with that level of negotiating"

6.2.2.4 There is no explanation from Ngwenya as to why he signed the agreement without the draft agency agreement annexed to it if he assumed that an agency agreement was to apply. The agreement itself refers to the fact that an agency agreement will be entered into in the future substantially in the form of the draft purported to be annexed to the contract. The Commission is not of the view that the lack of consensus in the regard to the existence of an agency agreement is fatal to the contract itself.

The provisions of the agreement relating to payment of progress draws operate independently of the agency agreement and were so implemented by both Ngwenya and Shrinivasan long before the date on which the Motheo cheque was returned unpaid. It is apparent from this conduct that, in practice, the Department dealt with the question of payment in terms of the development contract as if no agency agreement existed.

6.2.2.5 The fact that the agreement was signed without the deletion of a reference to the agency agreement is, however, either an indictment of the thoroughness of the signatories to the contract who alleged that it was of no application or an indication of the fact that the decision to abandon the agency agreement occurred after the contract was signed.

6.2.3 The incorporation in the contract of the additional allowance of 15% and the figure of R930 per erf by way of a BCIG grant.

6.2.3.1 This item requires to be dealt with in conjunction with the question of the "addendum" being the letter dated 14 March 1997 signed by Ngwenya and addressed to Motheo. It was under cover of this letter that the signed contract was returned by the Department to Motheo. The letter is Exhibit G32.

6.2.3.2 The subsidy agreement was negotiated in its final stage by exchange of documents and covering letters. The first draft of the agreement and Shrinivasan’s letter to Motheo’s attorney with required alterations is Exhibit G29. As the "addendum" letter indicates in its opening paragraphs not all of the requirements of Shrinivasan were acceptable to Motheo. In the result a revised form of the agreement, being Exhibit G30, was submitted to the Province on 10 March.

The agreement was signed by the Provincial representatives and returned under cover of the "Addendum" letter. That document clearly indicated that the agreement in its existing form was unacceptable (at least to the department) and the addendum constituted a counter proposal intended to qualify and render conditional the Department’s signature of the agreement.

6.2.3.3 The AG has correctly referred to clause 8 of the subsidy agreement which stipulates that no variation of the agreement shall be of force or effect unless reduced to writing and signed by the parties. Motheo, represented by Meyeridricks and Ndlovu in fact signed the addendum confirming their acceptance of its terms when the provisions of this clause and their failure to sign the addendum were drawn to their attention as a consequence of the AG’s Report. They had, by their conduct, accepted the requirement that they justify the 15% incremental allowance and had abandoned the notion of a BCIG grant at the time that the Enviro-loo was rejected because of the absence of the requisite SABS approval.

6.2.3.4 The developer had, accordingly, regarded itself as bound at the time by the stipulations of the addendum and has since regularised the position by signing the addendum to acknowledge that position (see Exhibit A144). Of course such addendum would still require signature by a representative of the PHB to conform with the requirements of paragraph 8 of the agreement.

6.3 THE INTEREST FREE LOAN

6.3.1 The remaining query of the AG relates to the manner in which the contract deviates from the system of progress draws set out in the Manual. The issue is dealt with in paragraph 4.5.4 of the AG’s Report which reads as follows:

"(a) The Department of Local Government, Housing and Land Administration agreed to pay an effective subsidy of R17 250 per site. The total amount payable in terms of this, excluding the bulk and connector infrastructure grant amounts to R181 125 000. Given the structure of the 5^th draw, this would translate into an amount of R24 412 500 being advanced by the Department as an interest-free loan facility of R24 412 500 to Motheo Construction (Pty) Ltd. This is contrary to well established principles of government funding, which provide that no payment be effected until value has been received and furthermore no loans be granted by the government to private individuals without proper and specific authorisation thereto, and pursuant to an agreement being reached upon any interest payable.

(b) In the event of the contract being construed as providing only for a subsidy of R15 000 per unit, the specific structure regarding the 5^th draw still provides for a loan advance of up to R24 412 500."

6.3.3 It is clear to the Commission that the Auditor-General’s conclusion is based on a misconception of the nature of the intended contract between the Province and Motheo. Whereas the Manual contemplates the transfer of individual erven to identified beneficiaries and, accordingly, provides for a partial payment by way of a fourth stage draw against registration of transfer and a final payment as a fifth stage draw on completion of the top structure to the satisfaction of the existing and identified beneficiary, the Motheo contract proceeds on a fundamentally different premise.

6.3.4 In the Motheo contract the responsibility for identification of beneficiaries and allocation of houses is accepted by local authorities. In the circumstances the system of progress draws is deliberately different to that set out in the Manual in order to accommodate the fact that the developer hands over the completed structure to the local authority (as opposed to the ultimate beneficiary) and is discharged from its contractual obligations at that time.

6.3.5 Paragraph 3.8.5 of the agreement (Exhibit G30) stipulates that each month the contractor will receive 50% of the final charge of R2 325 in respect of each duly completed top structure handed over to the local authority and the remaining 50% after completion of transfer to the beneficiary subject to the proviso that the second 50% will be paid to the developer within 30 days of the top structure being handed over to the local authority should the property not have been transferred by that date due to no fault on the part of the developer.

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

6.4 SUPPLEMENTARY DEFECTS IN THE SIGNED AGREEMENT.

In addition to the complaints raised by the AG in his report the Commission notes below the additional defects in the signed agreement.

6.4.1 Absence of annexure defining the projects.

6.4.1.1 Paragraph 1.1 of the agreement defines the projects as follows:

  "The projects are the Development by the Developer of 10 500 serviced erven with approved top structure at six sites which are more fully described in the six sets of annexures hereto."
(see Exhibit G30).

The extent of that documentation is not defined although para 1.2 contains an extraordinarily wide warranty by the developer that such documentation is true and correct in all material respects and, more importantly,

"that it reflects comprehensively all facts which are relevant and material to be known by the Board in assessing the Developers participation in the Housing Subsidy Scheme as described in the Department of Housing’s Implementation Manual."

6.4.1.2 Some clue as to the content of the annexures is given in paragraph 7 of the agreement which describes the appendices to the agreement and includes the following description :

"D1-D6 Six Project proposals, one in respect of each proposed Project, containing:

Plans and Specification of Top Structures

Township Layout Plan and Township and Townplanning documentation generally.

Proposal for development of subsidized homes at scale including motivation in respect of geotechnical/geophysical allowance of 15% increase and the B.C.I.G of R930.

Cashflow for each Project."

6.4.1.3 Each witness questioned by the Commission on this issue admitted that these annexures were not annexed to the agreement when it was signed. It seems clear to the Commission that no attempt was made to assemble the set of annexures.

6.4.1.4 It is, by the same token, apparent to the Commission that the component parts of the intended annexures did exist at the time that the contract was signed and that each of those documents were known to the representatives of the Board and the Department involved in negotiating and signing the document on behalf of those two entities.

Should this issue be disputed, however, the absence of such annexures could, theoretically, render the entire agreement invalid on the basis that there was no consensus between the parties to it. That is, however, not the understanding of the Commission at this time.

6.4.2 Land Availability Agreements

6.4.2.1 Paragraph 1.3 of the agreement (Exhibit G30) stipulates that the agreement is subject to the condition that the Department secures signature by the local authorities of:

"The relevant Land Availability and Services Agreements in the form of the draft Land Availability and Service Agreements annexed hereto within 30 days after the signature of this agreement by the Board, the Department and the Developer".

6.4.2.2 It is common cause that no draft Land Availability Agreements were annexed to the signed copy of the agreement. It is also common cause that no single Land Availability agreement has yet been signed by any of the local authorities as at this stage.

Record
Ngwenya - 433.04
Shrinivasan - 503.15
Appasamy - 114.15

6.4.2.3 In terms of paragraph 1.4 of the contract if the Land Availability Agreement is not signed within 30 days the developer is entitled to revise the details of the project which details shall than hold good for a further period of 14 days from the day upon which the revised annexure is submitted to the Board and the Department and made available to the local authority concerned.

If the Land Availability agreement is not signed within the further period of 14 days the project falls away unless the parties re-negotiate a further extension of time.

6.4.2.4 It is common cause that the provisions of this clause have not been invoked by the contractor.

6.4.2.5 Paragraph 1.5 of the agreement reads

"The Department undertakes to facilitate the procuring of confirmatory letters from the local authorities authorising the Developer to proceed prior to the 30 day period referred to herein above." (Exhibit G30).

6.4.2.6 Shrinivasan testified that he was aware of the suspensive condition relating to this project at the time he certified the initial payment but that he regarded the suspensive condition as a contractual provision there to protect the developer and the contractors against delay caused by the Department in failing to secure the approval of the local authorities. As this was a fast track project in which 10 500 houses were to be delivered within a short time, the obtaining of the Land Availability Agreements and other formalities would be addressed "as we go along"

Record
Shrinivasan - 503.21

- 504.22

6.4.2.7 Unless confirmatory letters in terms of paragraph 1.5 do in fact exist the contract is, from a theoretical point of view, still suspended. It is clear, however, that the Province, the developers and the local authorities at the three sites where the projects have proceeded are acting on the assumption that consent to proceed exists.

6.4.3 Certification by the developer’s consulting engineer.

6.4.3.1 The contract, in contrast with the model form in the Manual, stipulates that progress payments will be certified by the developer’s consulting engineer. The rationale for this was said to be the desire to shorten the certification process.

6.4.3.2 Assurance in regard to due certification was said be based upon the professional obligations of the consultant.

Record
Nortier - 789.26

6.4.3.3 In practice this stipulation has been ignored by the technical department and Shrinivasan is adamant that payments will only be processed after his department has excercised the right to adjudicate on the certificate regardless what the contract says.

Record
Shrinivasan - 482.27

6.4.3.4 Although no further progress payments have been made to the developer as a consequence of the decision by the Province to freeze such payments pending the Auditor General’s investigation, the undesirability of this certification process has already been demonstrated by the format of the second, third and fourth payment claims made by the developer and certified for payment by the consultant. It is common cause that such certificates do not follow the progress draws recorded in the contract.

However the suggestion is that, in view of the peculiar circumstances prevailing (namely ongoing work being done by the contractor with no payments emanating from the Province) the MEC agreed to payment certificates being presented for work actually done even if the formal contract stage had not been reached.

Record
Ndlovu - 1011.20

This allegation has not been tested by the Commission as it falls outside the current terms of reference. What is clear, however, is that the notion of a consultant acting on behalf of the developer / contractor and yet constituting the certifying authority is undesirable in the sense that it places an unusual and heavy professional responsibility upon the consultant concerned.

6.5 CONCLUSION

The conclusions of the Commission in regard to the Subsidy Agreement are summarised below:

The Commission noted the following supplementary defects:

Absence of identifying annexures
It is apparent to the Commission that the component parts of the intended annexures did exist at the time.

Absence of Land Availability agreements
Unless confirmatory letters in terms of paragraph 1.5 do in fact exist the contract is, from a theoretical point of view, still suspended. It is clear, however, that the Province, the developers and the local authorities at the three sites where the project has proceeded are acting on the assumption that consent to proceed exists.

Certification by developers consulting engineer
The contract, in contrast with the model form in the Manual, stipulates that progress payments will be certified by the developers consulting engineer.

The undesirability of this method of certification has already been demonstrated by the format of the second third and fourth payment claims made by the developer and certified for payment by the consultants at variance with progress draws recorded in the contract.


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