Treasury, builders disagree

2017-05-28 06:01
KwaZulu-Natal tycoon Philani Mavundla stands outside his homestead in Greytown. (Gallo Images)

KwaZulu-Natal tycoon Philani Mavundla stands outside his homestead in Greytown. (Gallo Images)

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Treasury and the construction industry are at odds over whether it is allowed to pay tender winners in advance, for work not yet done.

Three senior Treasury sources told City Press this week that with the exception of a very few cases, its regulations – which flowed from the Public Finance Management Act (PFMA) – expressly forbid any advance payments to service providers.

But that’s not so, say large construction industry players like Philani Mavundla, who insists that it’s an industry norm and that there is nothing at all wrong with it.

City Press reported last week that the Trans Caledon Tunnel Authority (TCTA) paid CMC PG Mavundla EB – a joint venture in which Mavundla has a 25% stake – an R81m advance payment to build an acid mine drainage plant in Springs.

Mavundla said this week the joint venture and the TCTA signed an International Federation of Consulting Engineers contract, which provides for upfront payments.

“This is not the only type of contract which allows for prepayments. The Joint Building Contracts Committee and the General Conditions of Contracts also allow for the payment of upfront fees,” he pointed out. The advance payment, Mavundla explained, was not a favour and would have been paid had the tender been won by any other company.

“But you have to raise a payment guarantee so the advance payment will be honoured, should you fail to perform as per the contract. How do you expect us to do the work if we don’t have this facility? In our case, we had to buy four pumps which were manufactured in Germany, specifically for the plant.”

But Treasury’s regulations still state: “Sound cash management includes avoiding prepayment for goods and services ... unless required by contractual arrangement with the supplier.”

A senior Treasury official said this week an exception is only made in cases “such as when government is renting a property or leasing equipment. When government officials travel overseas or rent a conference venue for instance, advance payments are not avoidable. But the general rule is that they are not allowed.”

Another senior Treasury executive agreed: “The default position is advance payments are not allowed. However, there are exceptions such as when the job requires massive upfront capital. I must stress that it should be an exception and not the norm. Even in such cases, tender documents should be clear that there will be an advance payment,” he said.

Mavundla said the contract he signed had such provision.

He added that the advance payment was not a donation as government deducts it from the construction company’s first five invoices.

A third senior Treasury manager said that special contracts signed routinely with the construction industry should not be allowed in terms of the PFMA and Treasury regulations.

“If we were to allow advance payments to everyone in the construction sector, why should we not allow it for other sectors? If we started giving out advance payments to everyone, it would defeat the whole process of competitive bidding,” he explained.

“The Construction Industry Development Board is there to grade construction companies in order to make sure that companies bid for jobs which they have the capacity and financial muscle to handle.”

The acid mine drainage plant which City Press visited this week is fully operational – treating about 110 million litres of water per day.

City Press also reported that the CMC PG Mavundla EB joint venture continued submitting construction invoices until February, despite having finished the construction and commissioning of the plant in June last year. Mavundla said this week however, that his contract made provision for the company to be on site for another year – to continue testing systems and to gather critical data that will be needed by the joint venture, which will also be maintaining the plant.

City Press reported the joint venture was paid R93m in variation orders, to which Mavundla responded: “Those are not even decided by us. The consulting firm, together with the client, decided what would have been fair variations. In this case it was Aecom – a big multinational consulting firm.”

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