Phoenix housing programme: Three companies unlawfully benefited by R29.14 million - IOL

Three service providers involved in a low-cost housing programme in Phoenix, KwaZulu-Natal, unlawfully benefited by more than R29 million under procurement arrangements that have now been declared unlawful and unconstitutional by the Special Tribunal.

Three service providers involved in a low-cost housing programme in Phoenix, KwaZulu-Natal, unlawfully benefited by more than R29 million under procurement arrangements that have now been declared unlawful and unconstitutional by the Special Tribunal.

The Special Investigating Unit (SIU) welcomed the judgment involving Woodglaze Trading (Pty) Ltd, Madupha Business Enterprise CC and Ready Homes CC, which were appointed to develop housing under the eThekwini Municipality’s Human Settlements Infill Housing Programme.

SIU spokesperson Selby Makgotho said the unit’s investigation established that the three companies unlawfully benefited by approximately R29.14 million from the programme.

“The Special Tribunal found that the procurement irregularities in the matter were not minor administrative slips but went to the heart of Section 217 of the Constitution, the Municipal Finance Management Act (MFMA), and the municipality’s supply chain management regime,” Makgotho said.

The case dates back to a 2000 eThekwini council resolution to use vacant sites in Phoenix to provide affordable housing for first-time homebuyers in lower- and middle-income groups.

Under the programme, the municipality planned to sell vacant serviced land to service providers for R30,000 and bulk sites without municipal services for R100,000, excluding VAT. Developers would build homes and sell them to beneficiaries approved by the municipality’s housing department.

In September 2002, eThekwini advertised for service providers to take over and develop 130 sites within two years.

However, the SIU found that Madupha Business Enterprise and Ready Homes were subsequently brought into the programme without the required competitive procurement procedures.

“Madupha Business Enterprise and Ready Homes were appointed and continued participating in the programme without prior public advertisement, consideration and recommendation by a Bid Evaluation Committee (BEC), or Bid Adjudication Committee (BAC),” Makgotho said.

Woodglaze Trading’s continued participation was also not reviewed under the applicable statutory framework or subjected to a public procurement process.

According to the SIU, Madupha and Ready Homes had initially been subcontractors to Sahamba Construction, which had been appointed as a service provider.

The SIU investigation found that the terms under which the two companies participated in the programme and received sites were instead negotiated and arranged with parties within the municipality.

Investigators traced 18 properties forming part of the housing programme that were sold by eThekwini to the three companies and subsequently resold to third parties.

The SIU found that properties intended to advance affordable housing were sold to people who were not approved beneficiaries and who may not have qualified as first-time homebuyers or fallen within the programme’s applicable income bracket.

Some properties were also developed for purposes outside the housing programme, including shops and business parks, while the service providers retained the proceeds.

“In some instances, properties sold by the municipality for R34,200 were subsequently sold by the service providers for amounts ranging from R350,000 to R9 million,” Makgotho said.

One transaction highlighted by the SIU involved a stand at 155 Canehaven Drive.

“A stand situated at 155 Canehaven Drive was sold by the municipality to Woodglaze for R21,090 and subsequently sold to an unapproved beneficiary for R9.54 million,” Makgotho said.

The SIU calculated that Woodglaze unlawfully benefited by R25,321,099, while Madupha Business Enterprise benefited by R2,256,894 and Ready Homes by R1,563,428.

Together, the alleged unlawful benefits amounted to R29,141,421.

The Special Tribunal declared the arrangements under which all three service providers were appointed unlawful and constitutionally invalid.

However, the judgment does not immediately compel the companies to repay the money.

“No debatement of account or disgorgement order [will] be made at this stage, meaning there is no immediate repayment order,” Makgotho said.

The Tribunal ruled that the companies may complete dwellings on which construction had already started by the date of the judgment and may sell completed homes in accordance with applicable law.

They may not, however, begin construction of new dwellings under the arrangements that have now been declared invalid.

If eThekwini wants to continue developing additional homes under the programme, it will have to conduct a fresh procurement process compliant with the Constitution, the MFMA, applicable supply chain management requirements and its own procurement policies.

Where the companies have already paid for undeveloped sites and entered into contracts with third parties, they may continue completing buildings on those properties.

For undeveloped sites that have not been sold to third parties, the Tribunal has allowed the respondents to submit further evidence before it considers what would constitute just and equitable relief.

The investigation was conducted under Proclamation R.9 of 2021, which empowers the SIU to investigate allegations of maladministration, fraud and improper conduct within the eThekwini Metropolitan Municipality.

“The SIU remains committed to protecting public resources, advancing clean governance, and reinforcing constitutional values in the management of State contracts,” Makgotho said.