‘State construction projects in pipeline’

Public-private partnership (PPP) projects are still on the drawing board and being negotiated and concluded by the various tiers of government. This is despite the future delivery of infrastructure and major projects through PPPs being thrown into disarray several years ago by the cancellation of planned PPPs for the construction of four new prisons and other projects. Roy Mnisi, the executive director of Master Builders South Africa (MBSA), said this week that the association was not aware of any major PPPs happening at the moment and believed the major reason for this was the slowdown of the economy and subsequent decline in construction work “across the board”. Group Five chief executive Eric Vemer said the most recent PPP awarded was for accommodation for the Tshwane Metro, which was awarded to a consortium led by Group Five, which achieved financial close in March last year.

But Vemer listed a number of PPPs that were pending, including the Dorp Street office accommodation PPP for the Western Cape provincial government of education. This PPP was in the procurement process, but Group Five understood that it had not yet been awarded, he said. Vemer said a grouping led by Group Five was also the preferred bidder for the Department of Rural Development and Land Reform accommodation PPP in Tshwane. “The PPP unit of the National Treasury has recently engaged us on this project,” he said. Vemer said other current PPPs that Group Five was aware of that were in a tender process included the Kopanong Government Precinct in Johannesburg PPP. The planned project involves bringing all head offices of provincial departments within walking distance of customers and also regenerating investment in the Johannesburg central business district (CBD).

In terms of the project, a total of 21 buildings and properties will undergo major refurbishment and rehabilitation in a working space consolidation project for public servants. Vemer said PPPs previously tendered in 2009 but cancelled and now rumoured to potentially be re-bid included the KwaZulu-Natal Legislature and multiple prisons PPPs. “These PPPs would all involve design, construction, financing and operation by the private sector over a 25 to 30-year period,” he said. Mnisi said traditional challenges related to PPPs included a lack of money from the government and the capacity of government to roll out and implement these types of projects. He said nationally there was recognition that PPPs were a challenge compared with the traditional way of government procurement because the negotiation of PPPs was a lengthy, complex and convoluted process.

Mnisi admitted there was also “a little bit of mistrust” from the government because of the anti-competitive practices uncovered in recent years in the construction sector. But he did not believe this was a major reason for PPPs not happening. A construction fast-track settlement process launched by the Competition Commission in 2011 resulted in 15 construction companies concluding consent agreements in 2013 in terms of which they agreed to pay penalties totalling R1.46 billion for collusion and bid-rigging. Several construction companies that did not participate in this process have subsequently entered into settlement agreements and agreed to pay substantial fines. Mnisi stressed PPP projects brought business and government together and used funds and resources from both government and business for the realisation of a project, thereby adding value to the economy.

Vemer believed the government’s apparent reticence to finalise PPPs was often because of ideological reasons, with some decision-makers holding the view that PPPs might be a form of privatisation. He said PPPs were also complicated and not easy mechanisms to use to procure infrastructure. They took time, which meant they did not always fit into short-term planning needs, he said. Vemer said to overcome government hesitancy about PPPs, construction firms participated in forums that promoted the use of PPPs and shared knowledge and experience on PPPs, such as the International Project Finance Association. He said construction companies should also focus on making every effort to ensure that the PPP projects already awarded were delivered effectively and were a success.

Vemer admitted that mistrust from the government towards the construction sector had contributed towards a general lack of new projects being tendered, of which PPPs were a subset. “The industry continues to work hard in resolving residual legacy matters to ensure that a positive engagement and working environment is fostered with the government. “This is critical to allow us as a country to effectively access the embedded skills and efficiencies of the sector and thus ensure robust delivery of the growing infrastructure backlog in South Africa going forward. “PPPs are an important part of the infrastructure delivery toolset available to the government,” he said.