CHAPTER 7

 
MOTIVATION AND REASONS FOR ENTERING THE SUBSIDY AGREEMENT.

 

7.1 THE PROVINCE

7.1.1 The members of the Provincial Housing Board and the Department who gave evidence before the Commission testified without exception of their enthusiastic support for and approval of the Rural Housing Project.

7.1.2 The common theme of their evidence was their recognition of the desperate need to provide housing to the Province’s vast rural communities, particularly those rural inhabitants whose financial circumstances were so poor as to entitle them to the highest possible subsidy allocation.

7.1.3 Evidence before the Commission indicated that the project received equally enthusiastic support from the Premier and the MEC. Gibb in particular testified that in his meetings with the highest level of authority in the Province, the attitude was that these projects should be dealt with as a matter of priority with the allocation of whatever resources were available to the Province.

    Record
    Gibb - 1151.08

7.1.4 As indicated in Chapter 2 of this report the attitude of Moodley as Executive Chairperson of the PHB was that the critical need for housing for the lower income group was such as to require creative and innovative action on the part of the provincial administration to cut through the bureaucratic process and ensure delivery. This attitude is best exemplified by his evidence at 253.12 as follows:

    "Everyone without exception in Mpumalanga , and in particular MEC Padayachee, is committed to housing the homeless and to do so in a manner that cuts through red tape and makes early delivery a reality. I can give you a number of examples where we did this. This is the reason the province has the ability to be innovative and expedite the delivery of houses."

7.1.5 The rural housing initiative which led to the subsidy agreement arose from reviews which addressed the successes and failures of previous initiatives in the Province.

    Record
    Moodley - 290.18
    Meyeridricks - - 537

7.1.6 Innovative methods and design techniques were sought in order to deliver reasonable sized units within the limit of subsidy amounts.

    Record
    Ndlovu - 950.21
    Meyeridricks - 547
    Gibb - 1150.16

7.1.7 The Commission has no reason whatsoever to doubt the genuine desire and commitment of every provincial representative who testified before it to expedite the delivery of housing to the poorest section of the rural community.

7.2 NEDCOR

7.2.1 Three representatives of Nedcor testified before the Commission. They stressed the bank’s commitment to the national and provincial drive to provide low cost housing to the low income population group.

    Record
    Leeming - 1067.12
    Gibb - 1147.05
    Seape - 889

7.2.2 Gibb was directly involved in establishing a working relationship with the Mpumalanga Provincial Administration designed to facilitate the delivery of housing at scale. This led to the Memorandum of Understanding between Nedcor and the province (Exhibit G13) and subsequently to the discussion with the Premier and other Provincial representatives in the last quarter of 1996 in regard to the provision of fully subsidised housing for the lowest income group in rural areas within the Province.

    Record
    Seape - 903.18
    Meyeridricks - 518.17

7.2.3 Nedcor in the person of Gibb also acted as facilitator in introducing Dr Ndlovu to representatives of M&R prior to the secondment of Mr Meyeridricks leading to the establishment of a project team which developed the proposals which were submitted to the Province and ultimately led to the agreement for the development of the Rural Housing Project by Motheo.

7.2.4 Gibb testified as to the reason for the introduction of Dr Ndlovu as developer as opposed to Murray & Roberts, the primary reason being the belief that Dr Ndlovu would achieve better interaction with the relevant rural communities and local authorities and avoid the problems which Condev had encountered in the implementation of its scheme.

7.2.5 The Commission has no reason to doubt the evidence of the Nedcor witnesses in regard to the role played by Nedcor in facilitating and supporting the Rural Housing Project.

7.3 MOTHEO

7.3.1 Dr Ndlovu testified at length as to her motivation for the development of the concept of rural housing projects and the interaction between herself, Gibbs, Meyeridricks and the project team in developing the proposal which ultimately gave rise to the subsidy agreement between Motheo and the Province.

7.3.2 Meyeridricks similarly testified in regard to his introduction to Dr Ndlovu and her "passion’ for the concept of rural low cost housing. His evidence at 543.18 was as follows:

Meyeridricks testified with complete frankness in relation to his perception at that stage of Dr Ndlovu’s ability to fulfill the role of a developer. He said at 546.7

7.3.3 The initiative addressed issues such as employment in rural areas.

7.3.4 The Commission has no reason to doubt the sentiments expressed by Ndlovu and Meyeridricks as to their motivation and reasons for entering into the agreement.

 

  CHAPTER 8

 
FULL IMPLICATIONS OF THE AGREEMENT WITH MOTHEO CONSTRUCTION (PTY) LTD

GENERAL NOTE

This chapter deals with the agreement in the context of the specific instructions set out in the Commission’s terms of reference. The issue of authority to sign the agreement and compliance with the Manual are dealt with in Chapter 6 of this report.

8.1 EVALUATION PROCESS TO IDENTIFY THE APPROPRIATE DEVELOPER FOR THE PROJECT.

8.1.1 The historical and chronological background leading up to the project is dealt with in Chapter 2 of this report and the motivation and reasons for entering into the agreement are expanded on in Chapter 7. It is important to note that the developer was not selected or identified by the Provincial administration. The developer was introduced to the Province by Nedcor at the time that the Rural Housing Projects were first proposed to the Province. Gibb acknowledged that what was being discussed with the Province in early November 1996 was the rural housing concept which had been developed in conjunction with Dr Ndlovu and Meyeridricks following the workshop held with them in August and that the proposal was built around the work done by Meyeridricks and the project team at about that time.

Record
Meyeridricks - 547
Seape - 934.22

8.1.2 Moodley suggested that

8.1.3 Whether Gibb first introduced Motheo or whether the requirement for an emerging developer was first referred to by the Province is probably irrelevant. The evidence from the Provincial witnesses, Nedcor and Meyeridricks (who had been seconded by M&R) was that it was recognised that an emerging developer stood a better chance of securing the collaboration and support of the local communities for the Rural Housing Project.

8.1.4 Once the Province and Nedcor were agreed on the requirement of an emerging developer and Dr Ndlovu was then identified to fulfill that role there was no further evaluation process required by the Province in regard to the identity of the developer. Moodley stated categorically that an investigation of the financial security and track record of the proposed developer was unnecessary and not part of the normal requirements of the PHB in considering the allocation of subsidies. The attitude of Moodley was that if one has the ability to co-ordinate and source expertise and is a good manager that is all that is necessary to be a developer.

Record
Moodley - 295.30

- 296.06

On the Manual requirement for investigation of financial track record and experience Moodley testifies that :

"I am saying we ignored it, but we did correct, because it was based on our experience. If we had to follow that rule to the letter and the spirit, all President Mandela’s nice enunciation’s in terms of economic empowerment , will never happen."
(Record 299.02.)

8.1.5 The remaining members of the PHB and the Secretariat and the Department also made no enquiries in regard to Motheo or the track record of Dr Ndlovu – see in this regard Chapter 5 of this report dealing with misrepresentation and the references to the evidence of these witnesses recorded therein.

8.1.6 After PHB approval of the subsidies, there was, indeed, significant interaction between the Department and Motheo in regard to the finalisation of the technical aspects of the project and a proposal document, together with supporting plans and technical specifications was presented to an inter-departmental meeting on 24th February and to the local authorities on the 26th February. This, in the view of Moodley, represented a far more stringent evaluation process than had been applied to any other project with which the Province had been involved.

8.1.7 Shrinivasan testified that he did not ask about the Motheo track record because:

8.1.8 CONCLUSION

The evaluation process followed to identify the developer for these projects was almost non-existent. In real terms it seems clear that both the concept and the developer were simultaneously proposed to the Province by Gibb in November 1996. The identity of Dr Ndlovu and the participation of Meyeridricks and his project team (to the extent that that was known to Moodley in November), appears to have satisfied any concerns that Moodley may have had in regard to the appropriateness of Ndlovu and Motheo as proposed developers for these projects. Moodley specifically disavowed any consideration of a track record or financial security on the basis that this process was not followed in any event within the Province, and that if this consideration was to be applied, it would constitute a bar to the concept of economic empowerment. The notion of a rural project involving women in the construction process was, according to Mthombeni, discussed at the Exco meeting on 16 January but no other details of Motheo (other than its name) were apparently discussed with him. Whilst the Commission acknowledges the force of the assertions made by Moodley and Ndlovu in regard to economic empowerment it does not accept the notion that the issue of track record and financial security may simply be ignored. On the other hand whilst the Commission does not subscribe to the Cobbett notion that "track record is everything" (Cobbett – 837.10) it is clear that a proper evaluation of Motheo within the context of paragraph 3.1.5.9 of the Manual, may well have produced details which could have been provided to the PHB to satisfy it that Motheo had

"Sufficient access to financial resources and technical and managerial competence in order to undertake the proposed project successfully."

One need only to refer to the eloquent description by Gibbs of the track record of Meyeridricks in the provision of low cost housing (record 1176.20) to confirm that a proper description of the project team put together by Gibb and Ndlovu may very well have satisfied even a skeptical Board member in regard to technical and managerial competence. If such enquiry then elicited confirmation of the underlying support of Nedcor (even if not as a risk-sharing partner) the requirements of the Manual may well have been regarded as satisfied.

8.2 AUTHORISATION FOR CONCLUDING THE AGREEMENT

See Chapter 6 above.

8.3 FUNDING OF THE PROJECT

See Chapter 4.3 above.

8.4 ACCOUNTABILITY AND RESPONSIBILTY OF ALL PARTIES CONCERNED.

The Commission has concluded that :

  •  the Chairperson of the PHB was not duly authorised to enter into the agreement as the resolution purporting to allocate the subsidies which were the basis of the agreement was not passed by a duly constituted meeting of the PHB:
  • Inadequate information was provided to the PHB to enable it to undertake an independent assessment of the allocation of subsidies to the Rural Housing Project.
  • Inadequate funds were available for the project.
  • There were serious flaws in the preparation and the signature of the subsidy agreement.
    •

    The issues of accountability and responsibility are dealt with in the succeeding paragraphs.

    8.4.1 Lack of authority.

    8.4.1.1 In the opinion of the Commission the primary responsibility for the invalidity of the resolution approving the allocation of subsidies rests with Moodley as Chairperson of the PHB.

    8.4.1.2 Whilst the Commission recognises and does not doubt Moodley’s commitment to both the ideals and the practical concept of the Rural Housing Projects, it does not accept either the suggestion that a decision binding the PHB was taken by the Executive Committee on 16 January 1997 under the delegated authority dealing with special or emergency circumstances or the suggestion that there was, indeed, a quorum at the PHB meeting on the 30 January 1997. Even if it were to be accepted that the failure to recognise the absence of a quorum was unintentional (a proposition difficult to accept given the history of difficulties in achieving a quorum and the very specific experience in the immediately preceding November PHB meeting) the ultimate responsibility for control of the meeting and the determination of whether it constituted a duly convened meeting must rest with the Chairperson. Moodley himself acknowledged that he was in no doubt that the statutory requirement of a quorum of two thirds of the members was applicable.

    8.4.1.3 The administrative section of the Secretariat of the PHB must bear some responsibility for failing to raise the issue of the absence of a quorum at the 30 January 1997 PHB meeting. It is clear to the Commission that there was a strained relationship between the Chairperson and the Secretariat with Appasamy in particular testifying that he felt "belittled" by the attitude adopted by the Chairperson that the Secretariat were there to provide support function and not to raise issues independently of the Board members.

    This perception, even if justified, does not avoid the conclusion that the administrative Secretariat had a duty to raise the issue of the absence of a quorum.

    8.4.1.4 Finally responsibility for the absence of a quorum must, in part, rest with the PHB members themselves as each one of them should have been aware of the requirements in regard to a quorum (particularly in the light of previous experience) and should have raised the lack of quorum at the meeting.

    8.4.2 Inadequate information provided to the PHB to enable it to undertake an independent assessment of the allocation of subsidies to the Rural Housing Project.

    8.4.2.1 Once again primary responsibility for the passage of the resolution through both the Executive Committee meeting and the full PHB meeting without adequate information as dealt with in Section 2 of Chapter 4 of this report must rest with the Executive Chairperson of the PHB.

    8.4.2.2 Moodley acknowledges participation from inception in the consideration by the Provincial authorities of the proposals in regard to the Rural Housing Project following the initial discussion between Gibb and the Premier in October / November 1996. Gibb testified that drafts of the "generic" proposal document were discussed with Moodley at two meetings in mid November.

      Record
      Gibb - 1148

    Moodley himself suggested that the only document which was available for consideration by the Executive and the PHB was his Memorandum to the MEC dated 25th November 1996 (Exhibit G14) and that, for the rest, the information made available to Exco and the Board members was by way of oral report by the technical department and from himself.

    He testified that all information in his possession (other than what he termed "privileged information" which was never identified) was conveyed in his oral report to the Executive Committee and the Board and that those bodies had the necessary information with which to exercise their independent consideration of the proposal within the requirements of the Act and the Manual.

    The Commission has already indicated its conclusions in regard to this assertion which is not supported by the evidence of the Executive Committee members or the Board members who testified before the Commission (see Chapter 4 above.) It is clear that Moodley’s personality dominated the activities of both the Executive Committee and the Board and the relationship between those bodies and the Secretariat.

    Whilst Moodley’s belief in and commitment to the Rural Housing Project and the urgency of its approval may be admirable, the Commission does not consider that this justifies a course of conduct which, in effect, led to a situation in which both the Exco and the Board purported to approve this project without any adequate information to apply an independent and appropriate assessment of its merit.

    8.4.2.3 The Manual stipulates that the Provincial Housing Secretariat should undertake a process of evaluation of the project in accordance with defined criteria and submit a proper report to the PHB to permit it to consider and assess the application. The Secretariat made no effort to comply with this obligation nor did it record its inability to do so. The attitude of Appasamy was that the Secretariat could not consider the matter as it was given no proposal to permit it to do so. This was not raised before the Exco or the Board because of the attitude adopted by the Chairperson.

    8.4.2.4 Co-responsibility must also rest with members of the Board for permitting a situation in which approval of a project of this magnitude was processed without adequate information being provided to them.

    The dominant personality of the Executive Chairperson does not excuse their acquiescence in the apparent adoption of the resolutions without submission of the required information as detailed in Chapter 4.2 of this report.

    8.4.3 Inadequate funds available.

    8.4.3.1 Mr Ngwenya is the Head of Department and Accounting Officer for the Mpumalanga Province in terms of Section 13(2) of the Act. As such he is responsible of the administration of subsidy funds as determined by the Director General. (Exhibit A109)

    8.4.3.2 It is also common cause that one of the reasons for making the Department a party to the subsidy agreement was the department’s responsibility in regard to accounting issues.

    8.4.3.3 It is also common cause that Ngwenya recognised the requirement for ensuring that adequate funds existed for purposes of this contract. He testified that if he had not been satisfied that funds were available he would not have signed the contract.

    In the circumstances and to the extent that sufficient funding was not available for the contract, as dealt with in Section 3 of Chapter 4 above, primary responsibility for the availability of funds must rest with Ngwenya.

    8.4.3.4 du Plessis is the Director of Housing Administration and performs the support function to Ngwenya in regard to the financial aspects of housing administration.

    8.4.3.5 du Plessis said that he had no reason to advise Ngwenya not to sign the document as he was of the view that funds were available.

    8.4.3.6 du Plessis testified that in any event he did not need to advise Ngwenya whether or not to sign the subsidy agreement as it was unnecessary for him to do so in view of the fact that Ngwenya had attended both the 5th March meeting with the NHB in Pretoria and the meeting with the National Department members on the 10 March when they visited Mpumalanga.

    Record
    du Plessis - 221.21

    8.4.4 Deficiencies in the agreement

    8.4.4.1 The parties who must bear primary responsibility for the deficiencies in the agreement are the persons who signed the agreement in its supposedly final form – namely Moodley on behalf of the PHB and Ngwenya on behalf of the Department.

    8.4.4.2 In so far as the question of an agency agreement is concerned Moodley must bear primary responsibility within the Province for the confusion arising out of the omission to delete any reference to the agency agreement from the subsidy agreement in its final form. He testified that the agency agreement shouldn’t have been there in the first place and that it "slipped in"

    Record
    Moodley - 342.14

    Moodley testified that he was under the impression that the document had been referred to the "legal people in the Department" before he signed it but that he played no part in the actual negotiation of the document

    Whilst Moodley may, therefore, been under the impression that the document presented to him for signature was approved by the Department it was for him, as prime signatory on behalf of the Board, to ensure that all of the annexures were annexed to the document signed by him.

    8.4.4.3 Ngwenya as signatory on behalf of the Department understood that there was to be an agency agreement but did not question the absence of a copy of the draft of such an agreement as an annexure of the document as set out in paragraph 2.2.1 of the agreement.

    As with Moodley he, as signatory, should have ensured that all of the annexures to the document were in place and initialed by him on the date of signature.

    8.4.4.4 In addition Ngwenya signed the addendum document purporting to vary the terms of the main agreement and to constitute an addendum to it without referring that document back to Moodley for signature. He did testify that he had discussed the addendum with Dr Ndlovu and that its terms had been agreed :

    Record
    Ngwenya - 402.29.

    However the addendum made no provision for signature by other parties nor was any effort made to obtain a signed copy from the other two signatories to the agreement.

    8.4.4.5 Shrinivasan was the draughtsman of the addendum letter. Whilst his desire to ensure that the interests of the Province were protected in the terms set out in the addendum letter is praiseworthy, as an experienced consulting engineer he too should have been cognisant of the fact that any alteration to the main agreement would require counter signature by all other parties to it.

    8.5 UNDUE FINANCIAL BENEFIT

    8.5.1 The terms of reference instruct the Commission to pay attention to the issue of

    The original terms of reference used the phrase "unduly benefited". The Commission is advised that the word "unduly" was left out inadvertently and will deal with this instruction accordingly.

    8.5.2 At the request of the Commission Deloitte & Touche Forensic Services conducted a detailed investigation of the books and records of Motheo canvassing inter alia :

    8.5.3 A detailed report was prepared following such investigation which was conducted with the co-operation of Motheo. The summarised findings of Deloitte & Touche Forensic Services are set out in their report to the Chairman dated 21 October 1997 which is Annnexure 6. to this report.

    8.5.4 The forensic investigation revealed that the majority of the income received by Motheo appeared to have been utilised in furthering the business objectives of the company. Of the R9 240 000 paid to Motheo by the Province only R213 194,50 was paid to the directors of the company by way of fees and remuneration.

    As at 30 September 1997 a total of R5 222 235,89 had been paid by Motheo to sub-contractors and consultants. R2 052 111,48 had been paid to suppliers in respect of building materials and fixed assets and investments acquired by the company amounted to R1 002 398,99.

    Motheo’s operations were funded from the aforesaid payment R9,24 million as well as interest received on call amounting to R225 561,86. No shareholder funding was received by the company, nor did the company make use of external loans or overdraft facilities.

    8.5.6 The investigation revealed no payments to any party connected with the Province or any other questionable payment.

    8.5.7 The Commission concludes that the single payment made by the Province to Motheo has, apparently, been used by that company to fund the ongoing performance by it of the contractual obligations assumed in relation to the development of the rural housing projects.

    8.5.8 The subsidy agreement (Annexure G30) provided for a progress payment of R880 per erf upon completion of all engineering design work. (Para 3.7.1 as read with 3.8.1 of the Agreement). Para 3.10.1. required a certificate of completion of engineering design work to be provided by the consulting professional engineer employed by the developer.

    8.5.9 Nortier and Associates certified that the engineering design work in respect of the project had been completed and Motheo submitted a formal claim in respect of progress payment number 1.

    It is common cause that, by the time this claim was introduced, both the Department and Nortier were aware that there problems in relation to the location of the sites at Hazyview and Badplaas.

    Record
    Nortier - 750.10
    Shrinivasan - 483.20

    8.5.10 It is equally common cause that Nortier and Associates had performed the engineering design for both of these projects at the sites which had been identified by Provincial representatives.

    Record
    Nortier - 722.24
    Shrinivasan - 482.27

    8.5.11 Shrinivasan had no certification responsibility in terms of the subsidy agreement but testified that he disregarded that fact and assumed the responsibility for certification before his technical department would confirm the certificate in respect of payment. Before issuing any such certificate Shrinivasan discussed the matter with Nortier and indicated that he would certify the payments provided he had the written confirmation of Nortier and Associates that, when the sites were properly located, the revision of the designs would be undertaken by Nortier and Associates at no additional cost to the Province. Such a letter was written by Nortier (see Exhibit A7).

    Record
    Shrinivasan - 483.15
    Nortier - 759.10

    8.5.12 The Commission questioned Shrinivasan as to the basis upon which he was prepared to accept this undertaking and certify payment notwithstanding the fact that the designs which were actually prepared were valueless given the change of the location. His attitude was that this was an ongoing project in which significant further payments would have to be made to the developer. The work had actually been done by the developer’s consultant and the fact that it was valueless was attributable to the fault of the Provincial representatives and not the contractor.

    In the circumstances, and in the exercise of his professional function as engineer, he felt that it was proper that the developer should be paid for the work which had been done (even though such work was valueless through no fault of the contractor) provided written confirmation of the consulting engineer’s undertaking to perform the re-design at no cost was received. He was confident that, if there was any attempt to renege on that undertaking the matter could be dealt with by deducting the amounts in question from further certificates.

    8.5.13 Shrinivasan did testify that there was significant pressure on him from Moodley to expedite the certification of the payment.

    8.5.14 It is apparent that when the Province froze further payments on the project as a result of the reference of the matter to the Auditor General, Shrinivasan became apprehensive in regard to the arrangement because of the danger that the project would now no longer proceed. He communicated in this regard with Nortier during May. Nortier in turn wrote to Motheo on 21May 1997 (Exhibit A93) informing that company that Shrinivasan had raised the question of the payment in respect of the designs for Hazyview and Badplaas and acknowledging that Nortier would be responsible to refund the amount paid in respect of the two sites in an amount of some R3 million (see Exhibit A93).

    8.5.15 In evidence Nortier distanced himself from the terms of the letter in so far as it suggested an acknowledgment of liability on his part – indicating that this was in the nature of a report to his principal Motheo.

    8.5.16 Dr Ndlovu was categoric in asserting that Motheo had no obligation to refund these monies regardless of the attitude adopted by Shrinivasan and Nortier.

    8.5.17 The Commission has some difficulty in suggesting that the payment in question constitutes an undue benefit in view of the attitude adopted by the two consulting engineers in the course of this certification process. It is clear that the amount claimed was in respect of work actually done but valueless to the Province because of the incorrect identification of the site which was a function falling within the responsibility of the Province. The pragmatic approach adopted by Shrinivasan as consulting engineer representing the Province was understandable in the context of the ongoing project.

    The issue of whether the amount was payable in law is beyond the terms of reference of this Commission and would involve the invocation of the dispute resolution process set out in the subsidy agreement. Whatever the position in regard to the validity of the payment it is clear that from a factual point of view the amount involved has been utilised by Motheo in continuing with its contractual undertakings in respect of this project and, in that sense, is now represented by the infrastructure which already exists at the various sites.

    8.5.18 The Commission pertinently questioned Provincial representatives as also Gibb and Seape in regard to allegations that they or any of them had some financial interest in Motheo. This allegation was denied by each of them and their denial was supported by Dr Ndlovu and by such evidence in regard to the shareholding within Motheo as was available to the Commission.

    8.5.19 It is necessary, in this regard, to refer in passing to a side issue which developed in the course of the Commission hearings in regard to the alleged negotiation of a financial stake for Ndlovu and Seape in a development company to be established in conjunction with shareholders in Dri-Block. The allegations arose out of evidence by Mr Jewkes and detailed handwritten notes alleged by him to represent contemporaneous notes made at the time of negotiations with, primarily, Gibb and Seape in regard to such a joint venture. Seape, Ndlovu and Gibb categorically rejected the notion that there had been any such detailed negotiations as alleged by Jewkes.

    All three witnesses acknowledged an initial discussion with Jewkes who suggested that he was looking for a black shareholder to join Dri-Block. That is, however, as far as the discussion went and any suggestion of the formation of a new development company with complicated shareholding arrangements involving Ndlovu, Seape and a trust representing unidentified black shareholders was categorically rejected.

    8.5.20 The Commission considers it inappropriate to make any finding in regard to this issue, particularly without affording the parties the opportunity of cross examining opposing witnesses. The Commission is, however, satisfied that there is no basis for it to draw any conclusion in regard to a possible parallel arrangement in regard to the shareholding in Motheo as there is simply no evidence to support that proposition.

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


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