State forks out big on rent

May 27, 2014

Ambitious project to house the dti degenerates into a fiasco

Part of the department of trade and industry's building in Sunnyside, Pretoria.

Government institutions are leasing office space in a ­Pretoria complex at up to four times the normal rate – and costing taxpayers millions in the process.

An investigation over several months by City Press’ sister publication, Rapport, has revealed that an ambitious project to house the whole of the department of trade and industry (the dti) and all its agencies in one building complex in Sunnyside, Pretoria, has degenerated into a fiasco.

From our investigation it is clear that no one – except the consortium that built the office block and is now managing it in terms of a public-private partnership (PPP) – is deriving any benefit from the process.

The tenants are definitely not happy because they ­obtained hundreds of square metres less office space than agreed on in their contracts and must also pay for services like security themselves. These are supposed to be covered as part of the contract.

Other government departments that occupy office space under similar terms pay up to four times less than the dti.

Plans for the new office accommodation were formed in 2001, under then dti minister Alec Erwin.

Land owned by the city council in Sunnyside was identified, and it was decided to develop it as a partnership ­between the state and the private sector. In terms of such a contract, the building is constructed by the private sector and managed for a period of 25 years before it becomes the property of the state – in this case, the Tshwane ­Municipality.

But there were questions around the deal from the start.

After the Thusano consortium was initially identified in 2002 as the preferred bidder, it was suddenly forced out in favour of Rainprop – a group in which ANC leaders like Cyril Ramaphosa and Siyabonga and Cheryl Cwele were at that stage directors.

Some of the other consortium members are the construction giant WBHO, the Pretoria property developers Atterbury and Parkdev, as well as Propnet, Transnet’s property company.

A dti report found that Rainprop’s construction submission was “unacceptable” and suggested that Rainprop would have difficulties managing the building. But the contract was nevertheless awarded to Rainprop.

In terms of the contract, Rainprop has since 2004 been receiving a base fee of R108 million a year, which is adjusted every year for inflation.

This means that, by 2028, when the contract finally ends, taxpayers will have paid more than R5 billion for the ­building.

But that’s not nearly all the money flowing from the state to Rainprop’s coffers.

In addition to the base fee, the department pays the ­consortium several million annually for “consumables”, municipal accounts and unfinished construction work – despite the fact that the building was supposed to have been completed 10 years ago.

This unfinished construction work and other “variation orders” have cost the department R34 million over the past four years alone.

Last year, the dti paid R196 million for office space of 35 183m². In the same year, the department of international relations and cooperation (Dirco) paid R191 million for its enormous new headquarters of 138 590m².

So Dirco pays R5 million less for a building that is nearly four times bigger than the dti’s.

But the dti and the Treasury, which approved the entire Rainprop transaction, insist that these costs are not ­excessive because the contract includes all facets of the management, furnishing and maintenance of the building complex.

 But Rapport’s investigation shows the opposite:

 »The most recent annual report of the Companies and Intellectual Property Commission (CIPC), which is based in Block F, shows that it had to spend R18 million of taxpayer money to replace its furniture.

»The Competition Tribunal, which operates from Block C, indicated in 2012 that it would from then on be financially responsible for “matters relating to security and facility management” in its building. According to the contract, Rainprop is supposed to be in charge of these services.

» The National Gambling Board, which complained in earlier annual reports about “insufficient office space, problems with hygiene and inadequate parking” and the “poor state of its offices” decided in 2012 it had had enough and moved out of the complex to offices elsewhere.

According to its latest annual report, the board is now claiming R12 million from the dti to help pay for the move.

» Rapport’s investigation also shows that Rainprop ­appears to have promised thousands of square metres of undelivered space.

Initially, the dti indicated that it needed 38 000m² of office space.

The document in which Treasury’s final approval of Rainprop’s bid is requested shows that the consortium promised just under 42 000m² of usable space.

But in a parliamentary question in 2012, the current ­minister of trade and industry, Rob Davies, admitted that Rainprop provided only 35 183m² of floor space.

In effect, the dti could not explain to Rapport what had become of the “missing space”.

Mbali Swana, a director of the consortium member Prop 5 – which has a 20% stake in Rainprop – insisted two weeks ago that it had provided more than 41 000m² of floor space to the dti.

 Pieter-Louis Myburgh @City_Press 25 May 2014 15:00

DIRCO  Building is managed by Motseng Concessions