TSHWANE HOUSE
NEW MUNICIPAL HEADQUARTERS PPP
for the
CITY OF TSHWANE
GUIDE TO UNDERSTANDING THE PUBLIC COMMENT PROCESS
in the context of
THE OVERALL PPP APPROVAL PROCESS)
as basis to inform your
INVITATION TO COMMENT
on the
DRAFT TSHWANE HOUSE PPP AGREEMENT
in compliance with the
MUNICIPAL FINANCE MANAGEMENT ACT SECTION 33
1
Peter Aborn
Project Officer
24 February 2014
2
__CONTENTS OF THIS GUIDE__
Introduction
MFMA Section 120
Affordability
Value for Money
Risk Transfer
MFMA Section 33 Report
Year to Year Obligations of the City
Impact of those Obligations on the City’s Future Tariffs and Revenue
Creation of a Significant Asset
Generation of Significant Financial or Economic Benefit
TVR3 Report (Application for Treasury Views and Recommendations No. 3)
Project Background
Aims of the Project
Why the Project is being Procured as a PPP
History of the Procurement Process
PPP Description, Scope, and Responsibilities of the Parties to the PPP
Affordability
Sources and Conditions of Funding
Value for Money
Contingent Liabilities
Risk Transfer
Legal Due Diligence
City’s Capacity to Manage the PPP Agreement
Conclusion Reached and Justification
Annexures to the TVR3 Report
The Draft Tshwane House PPP Agreement for Public Comment
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___________________THE GUIDE____________________
Introduction
The PPP Approval process requires compliance with both Section 33 of the MFMA
(Municipal Finance Management Act) and Section (4) (3) of the Municipal PPP
Regulations (Municipal Service Delivery and PPP Guidelines), and, as well, compliance
with Section 120 of the MFMA relating to PPP’s as explained below.
In respect to the above, two reports must be prepared and submitted to National
Treasury as required by the PPP regulatory oversight process.
1. The first is the MFMA Section 33 Report
2. The second is the TVR3 Report (Treasury Views and Recommendations No. 3).
Neither of these reports, as such, is subject to public comment.
The TVR3 report, due for separate submission to National Treasury after completion of
the MFMA Section 33 comment process now underway, will contain information that
could assist readers of this Guide to better understand the overall PPP process, thus
better informing their formal comments on the Draft Tshwane House PPP Agreement
which accompanies this guide.
Notwithstanding that the MFMA Section 33 and TVR3 reports, though not subject to
public comment, and
not yet compiled, the City has elected to provide indicative
information within the report formats of these two reports, or to provide descriptions of
what the various sections of these two reports will contain, in the public interest.
Information in the final reports may vary or be more extensive.
All of the above is provided to enable you to articulate your comments on the Draft
Tshwane House PPP Agreement which you are hereby invited to comment upon in
compliance with the provisions of Section 33 of the Municipal Finance Management Act.
4
An table of contents of the Draft Tshwane House PPP Agreement appears at the end of
this Guide, as further basis for facilitating your comment as a member of the public.
The draft Tshwane House PPP Agreement and all applicable schedules, along with a
copy of this guide are available in all of the City’s 57 branch libraries, in the City’s 7
regional offices and on the City’s website www.tshwane.gov.za .
The locations of these libraries and regional office are provided at the end of this Guide.
Your written comments may be conveyed to the City as follows:
By post to:
Office of the City Manager, for the attention of:
Mr. Leonard Manamela, PO Box 6338, Pretoria, 0001; or
By email to:
leonardma@tshwane.gov.za
For more information, please call 012 358 4755.
The Tshwane House PPP Agreement and Schedules will remain in developing draft
form until full and final action by the Council of the City at a formal meeting open to the
public approving the final draft of the proposed PPP agreement between the City of
Tshwane and Tsela Tshweu Consortium.
Your comments will be recorded in a formal Register on the Public Comment and will be
considered in preparing the final draft agreement.
The public comment period, based on adverts appearing in the press on Tuesday
4 March 2014 will close on midnight of Friday 4 April 2014.
The matter is expected to be heard at the Council’s regularly scheduled meeting of May
2014.
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City of Tshwane residents and other interested parties who may have occasion to view
the site of the proposed new Tshwane House municipal headquarters, should not be
surprised to see preparatory bulk earth works under way at the site starting early in
March 2014.
The site, former Munitoria remnants now demolished, is bounded by Sisulu, Madiba,
Lilian Ngoyi and Johannes Ramokhoase Streets in the City CBD.
These early works were approved by Council as part of its in principle approval of the
project granted on 24 August 2006, along with authorization to the City Manager as
Accounting Officer to proceed with procurement of the proposed PPP at that time,
including early works as defined by the CM.
Council also approved the adoption of Module 5 of the PPP Guidelines (Treasury
Practice Note Number 6 of 2004) as an integral part of the City’s Supply Chain
Management Policy in respect of PPP’s
The section headings below in respect to the MFMA Section 33 report and the separate
TVR3 report are taken directly from the guidance documents issued by Treasury
(Municipal Service and PPP Guidelines).
MFMA Section 120
Compliance with MFMA Section 120 is of the essence of a PPP procurement.
A PPP Agreement may not be legally signed by the Accounting Officer of a Municipality
(in our case the City Manager) unless all three of the following attributes of a successful
PPP are achieved.
These three requirements, directly quoted from the MFMA (Municipal Finance
Management Act No. 56 of 2003), are: that the proposed PPP must:
1. “Provide value for money to the municipality”
2. “Be affordable for the municipality; and”
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3. “Transfer appropriate technical, operational and financial risk to the private
party”, that is the City’s PPP partner.
It is on this basis that the Tshwane House PPP Agreement is being brought to Council
for its final approval.
Provincial Treasury and the Department of Cooperative Government and Traditional
Affairs will have separately received the draft Tshwane House PPP Agreement for
comment during the same period as the public comment period.
MFMA Section 33 Report (indicative form and content)
Year to Year Obligations of the City
A spread sheet produced by the project’s financial advisor indicating the direct financial
obligations of the City over the 25 year portion of the 27 year PPP will be provided with
the formal Section 33 report to National Treasury.
During the period of the PPP, monthly payments by the City to its PPP partner must be
made to fund the PPP.
The first two years of the 27 year PPP agreement constitute the construction period
during which time the City will have no payment obligations.
Over the construction period, the City will prepare itself for the month to month unitary
payment provisions which will begin one month after moving into the Tshwane House
complex, first buildings targeted for occupancy from 29 April 2016.
These unitary payments are made in monthly tranches in order to manage the PPP
performance, including provisions for payment of penalties in the event of any failure to
meet prescribed levels of service.
The mechanism for setting these penalties is set out in Schedule 13 to the draft PPP
Agreement.
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In layman terms these unitary payments represent a single all inclusive payment
covering all net costs of the PPP, including the cost of construction, the cost of all
furniture and fittings, and the full cost of period to period operating costs and the life
cycle replacement costs.
As part of the latter, the life cycle replacement costs of the project throughout the term
of the PPP are such that the building will be in as new condition, with in addition an
additional five years of life beyond expiry of the PPP agreement..
Moveable assets such as furniture including seating will also have been managed on a
live cycle refresh basis, including replacement as needed.
The Tshwane House building complex, on hand back to the City at the end of 27 years
will have no deferred maintenance burdens, and a renewed life cycle extending for five
years beyond expiry of the PPP, as a capital asset of the City.
The extra five years of life cycle beyond expiry of the PPP represent a value for money
benefit in respect of the future going forward to the 2055 horizon, which is the
overarching goal of the Tshwane House project.
Impact of those Obligations on the City’s Future Tariffs and Revenue
The intent of the Tshwane House project is to ensure that the burden of the PPP as a
mechanism for procuring fully serviced accommodation, not just a building, be less
onerous to the City’s citizens and rate payers than if the City continued under its current
operating practices in respect of serviced accommodation in the City’s current buildings,
leased or owned.
The cost of productivity ineffectiveness arising from the fragmentation of its office
facilities in very space inefficient buildings that hinder the application of state of the art
space planning parameters is taken into account in respect to generating cost savings
to correct such inefficiencies.
The City intends that the PPP should be not just budget neutral, but should rather be
budget impact positive.
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The Section 33 Report to National Treasury must establish that the PPP procurement
model is the best option for Tshwane House in both measurable cash flow terms, and in
year to year budget terms as compared to year to year budget terms on a business as
usual basis in mainly leased facilities in the CBD, and some owned facilities including
Sammy Marks, also taking account of productivity improvements.
The plausibility of such an outcome is supported by a cost benefit study produced by
the Independent Value for Money Assessor engaged by mandate of Council as a
condition of its in-principle approval of the project in 2006.
The Independent Value for Money Assessor Report, in addition to indicating the sources
and quanta of funding under the PPP, constitutes a cost benefit analysis confirming the
comparative wisdom of the PPP procurement option for Tshwane House, compared to
an own resources procurement at an onerous burden on the City’s capital budget and a
less favorable risk transfer profile.
The Independent Value for Money Assessor Report effectively constitutes the City’s
sources of funding model for the Tshwane House PPP.
This study will underpin further discussion in the Affordability Section of the separate
TVR3 Report to be submitted to Treasury after the close of the public comment period.
The Tshwane House PPP is and has been from the outset a means to achieve
consolidation and cost benefit optimization of serviced accommodation in originally13
named buildings housing approximately 2400 staff at project commencement end 2005.
These buildings included the Munitoria remnants now demolished.
The project RFP, by mandate of Council, requires recapture of as much value as
possible from office and meeting room capacity built at great expense in the early
1990’s as part of the Sammy Marks complex.
Sammy Marks includes the meeting and banquet areas where Council now meets in
Sammy Marks, the public library, upper level space in the library housing operational
units of the City, and the separate Clinic building.
9
Achieving the full cost benefit available in Sammy Marks under the requirements of the
Sammy Marks development partnership documents will require that the City consider
conversion of the upper levels of the Library currently occupied under space efficiency
ratios completely inconsistent with best practice.
Tshwane House will thus be but one component of the City’s CBD and regionalization
plans already anticipated in the original TVR1 Feasibility study of 19 December 2005.
Creation of a Significant Asset (per MFMA Section 33 sub section 1(C)(1))
The independent Value for Money Assessor cost benefit analysis to be submitted to
Treasury, subsequently to Council with Treasury’s views, will show that the PPP on
expiration after 27 years will provide the City with a nearly as new, state of the art
municipal HQ building complex with a projected capital asset value of R650 million or
more.
In addition, the replaced life cycle value of the moveable assets, including furniture will
have a terminal asset value to be calculated under the asset valuation rules of the City.
The City asserts that the PPP procurement model adopted by the City will in fact
produce a significant asset in the form of the Tshwane House complex on land made
available to Tsela Tshweu under a land availability agreement for the term of the PPP.
Generation of Significant Financial or Economic Benefit (per MFMA Section 33
subsection 1(C)(1))
The significant financial and economic benefits of the Tshwane House PPP, including
socio-economic benefits will be set out in the Value for Money section of the TVR3
report to Treasury.
Annexures to Section 33 Report:
These will include:
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Annexure 1- Certification of Compliance with Section 21A of the Municipal Systems Act
Annexure 2- Register of Public Comments and Representations
Annexure 3- Copy of the TVR3 Report
Annexure 4- Spread Sheets Showing Obligations as Year to Year Unitary Payments
Annexure 5- Report of the Independent Value for Money Assessor
TVR3
Report
(Application
for
Treasury
Views
and
Recommendations No. 3) (indicative form and content)
The TVR3 Report independently submitted to National Treasury as part of its basis for
articulating its views and recommendations to the City, will then inform Council’s final
approval of the Tshwane House PPP agreement.
The TVR3 Report as set out in Treasury’s Municipal Service Delivery and PPP
Guidelines follows the format below.
In the interest of enabling informed public comment, the City has provided information in
sections of the indicative TVR3 report below without prejudice to the TVR3 process as
such.
The information officially submitted to Treasury in its TVR3 Report, may vary from, or be
more extensive than the information below.
Project Background (factual)
The genesis of the Tshwane House project was the March 3rd 1997 fire that destroyed
the West Wing of the Munitoria complex (main wing), leaving only portions of the lower
two floors at the south, including the Mayoral suite then already moved into the Sammy
Marks bridge, and the Council Building, effectively a separate add on building for 82
councilors, and limited office space at the south end of the first and second floor.
The West Wing had accommodated most of the senior staff, effectively the then “strong
center” equivalent to what the City now seeks to establish in the new Tshwane House.
The West Wing also included a large rates hall at ground floor level.
11
Although the proximate driver of the Tshwane House PPP was the 3 March 1997 fire,
the real driver of the Tshwane House project was already the realization then that the
vaunted Munitoria built in 1946 had fallen short of its original intent to sustainably house
all of those operating units or the essential portions of those operating units constituting
the head office complement of the City’s staff in scattered sites in the CBD.
The Council Chamber designed to seat 82 councilors was already packed above its
intended capacity.
The Mayor could no longer be housed within the structure.
The reason for building the Munitoria in the first place, consolidation of scattered office
accommodation and staff, loomed once again, giving impetus to the Sammy Marks
project as part of a new CBD revitalization plan, some components of which have yet to
be achieved (like the 22 story hotel tower still in abeyance across the street from the
Reserve Bank).
The City is determined, in respect to Tshwane House, not to repeat planning horizon
mistakes that made the Munitoria effectively obsolete before the fire, before its time.
That the City’s investment in the new Tshwane House would become inadequate to the
executive side of government as a strong center of regionalized inter-governmental
service delivery facilities, or, that the Council Chamber and support space for the
legislative wing of local government would become inadequate would be irresponsible.
Starting with 250 council seats, with possible enablement of more, is expected to be
adequate, noting, that the municipality may one day be even further expanded.
In the wake of the 1997 fire, a number of initiatives ensued in the dual context of
consolidation of staff for efficiency reasons, and pursuit of a CBD revitalization plan from
the State Theater to Church Square.
12
The first post fire plan for a new municipal HQ was Project Phoenix (arising from the
ashes like the mythic bird), a very ambitious project put out to a design competition won
by a proposal retaining the remaining east wing of the Munitoria, with parallel expansion
wings to the north.
This project ultimately failed for a host of reasons, some of these disputed.
From a choice of a PPP as a procurement option point of view, the decision ultimately
taken to abandon the Project Phoenix option in favor of the then brand new in the
country PPP approach was based on the City’s then conclusion that it could not afford
Project Phoenix in capital budget capacity terms.
The City, still keen to rebuild, reconsolidate and move forward, then formally embarked
on a PPP process, nevertheless still based on a proposed head count of nearly 4000,
far in excess of the total number of CBD staff housed in about 13 scattered site
buildings, including the Munitoria East Wing.
A formal PPP feasibility study, equivalent to our own TVR1 study of late 2005,
concluded that a project based on the then stipulated head count of nearly 4000 was
unaffordable to the City.
The formal PPP process then in place was thus cancelled with completion of Phase 1 of
that process in October 2004.
The present PPP initiative was then undertaken with appointment of a Project Officer in
November 2004, who, with the a new Transaction Advisor team appointed in June
2005, determined that a properly projected and sustainable headcount, to this day
proved sound, was in the range of 2400/2500 as the basis of a new feasibility study
completed by end 2005.
That study considered a number of alternative solutions including, inter alia, purchase of
the ABSA bank high rise building now being refurbished at the corner of Lilian Ngoyi
and Pretorius Streets.
13
The finally selected option was to rebuild on the existing Munitoria site, this involving
demolition of the extant Munitoria remnants, all to be replaced with a new facility,
Tshwane House.
Accordingly, with the intent of applying the fast track approach pioneered for the dti
consolidated campus in Sunnyside under working in partnership between the dti and
City, the present low rise, multi block approach was adopted for a new municipal HQ.
This approach envisaged pre-contract early works for both demolition and site
clearance to vacant possession, followed by bulk earth works to a generic foot print that
could be adapted to any choice of preferred bidder.
This fast tracking notion was then set out for public comment in the Report on the
Feasibility Study of 19 December 2005, approved by Treasury in February 2006,
ultimately approved by Council in August 2006, noting that the process was interrupted
by local government elections which saw a new City government taking office on 19
March 2006.
The new mayor and a new Council exercised their own duty of care in respect of an
inherited project, approving it in August 2006 with an affordability cap of R117m in
annual payments escalating at CPIX over the PPP term.
Over the course of the PPP procurement process the notion that the bidders should be
given the opportunity to propose a solution that retained the Munitoria remnants was
introduced, provided that such decision was supported by a confirming cost benefit
analysis in terms of the project output specifications.
All bidders rejected the retention option as qualified in the RFP, effectively reconfirming
the original intent of the project output specs for an all new solution
Four bids were received at the tender office on the RFQ closing date.
One was withdrawn, leaving three. All three were prequalified to submit RFP’s.
During the adjudication process one of the three withdrew, leaving two.
14
Following the PPP regulatory process from National Treasury, the Tsela Tshweu
Consortium was selected as Preferred Bidder with alternative bidder Mesong
Consortium, appointed as Reserve Bidder.
Aims of the Project
The primary aim was to procure sustainable rationalization of the City’s CBD
administrative office space, with optimization of the direct and indirect costs of
managing this complement of buildings, preferably consolidating everyone into one
facility at that time, should this prove cost effective.
Based on the results of the ASD (Alternate Service Delivery) organizational
development plan, the original notion of a single facility consolidation was rejected in
favor of the strong center approach under which client level service provision and
support would be devolved to the regions where people live, with Tshwane House to
house all top level silo and cross silo policy development, implementation and
monitoring officials with their immediate support staffs primarily.
Tshwane House is to serve as a secure command post capable of operation under all
conditions.
The strong center head count was set at 1501 with the then remaining CBD head count
of 900 to be housed in Sammy Marks as a preferred option under two scenarios both
becoming part of the TVR2b Value for Money Report approved by National Treasury.
One scenario considered short to mid-term retention of Isivuno House, notwithstanding
higher availability risks, as well as higher public safety risks of a high rise building.
The second scenario, was also a high rise solution on the vacant former hotel tower site
at the east of Sammy Marks, to be privately built on a mid-term build to suit lease that
would simultaneously provide a definitive and sustainable completion of the still
unfinished Sammy Marks master plan.
15
Directly associated aims were to obtain greatly improved decision support systems,
increased productivity and decreased security challenges among many workplace
efficiency management issues.
As the City broadened its vision to include a whole range of spatial development and
whole-city socio-economic revitalization concepts, a new Tshwane House became far
more than just a place where work is done, more even than a place which is a tool of
the work itself.
Tshwane House has become an essential foundation and catalytic project in support of
the City’s overarching Vision 2055 and beyond.
The delivery of Tshwane House is thus of enormous import to full realization of city wide
spatial development goals, a critical first out of the box project of now five catalytic
projects which can build momentum for the entire city wide vision.
The project, finally, will be a visible symbol and proof of the City’s two guiding compass
points:
Building an African Capital City of Excellence and, complementing this, demonstrating
its new motto, Igniting Excellence.
Tshwane House will be proof of the City’s commitment to CBD revitalization to the
highest standards in the context of the entire range of catalytic projects supporting its
IDP already at advanced stages of implementation.
Tshwane House will launch a new history, while memorializing the old.
It will sustainably support regionalized service delivery management, be the cornerstone
of a now advanced regionalization effort already foreseen in the TVR1 Feasibility Study
of December 2005, and will include a Council Chamber meeting international best
practice enabling the hosting of high level international bodies between monthly
meetings of Council, possibly producing cost off-setting revenues as well as
international prestige.
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In practical terms, Tshwane House will immediately and sustainably increase inner city
real estate values, lead to increased rates revenues to be better quantified in formal
socio-economic impact studies to be undertaken in support of full realization of the
project’s goals during the construction period.
Among other studies, all fundamentally dependent on state of the art space planning will
be a human capital productivity and decision support systems study to determine those
enhancements needed to incrementally decrease the burden of remuneration costs as a
percentage of service delivery cost over a target period while improving the working
conditions and career opportunities of its employees from a batho pele perspective.
No retrenchments are intended nor needed to achieve the above.
Why the Project was Procured as a PPP
All of the City’s succeeding chief financial officers from the 1997 fire through Council
approval in 2006 each declared that the City did not have capital budget capacity to
fund such a massive project on an own resources basis.
Capex, operations and financing costs in process of finalization under the PPP
approach are expected to be consistent with the Independent Value for Money
Assessor Report to be part of the MFMA Section 33 report submitted to National
Treasury for its views before going to Council.
The total net present value cost of the project is expected be comfortably below the high
side cost of R2bn reported to the press by the City’s Executive Mayor.
Whether the City could contemplate a project of such magnitude now on an own
resources procurement is of only academic interest at this point of the PPP process.
History of the Procurement Process.
The Tshwane House PPP began with engagement of the Project Officer in late 2004,
noting that a decision of the City to pursue the project as a PPP had already been taken
prior to that point.
17
That first attempt at a PPP solution failed for a host of reasons otherwise irrelevant to
the present Tshwane House PPP except for hard knocks experience gained.
November 2004 - engagement of the Project Officer by the City Manager. November
2004, submission of a formal letter of application to Treasury to register a new PPP
attempt, this constituting the Inception Phase of a PPP project under guidelines in
effect.
December 10 2004 - receipt from Treasury of a formal letter officially recognizing the
new PPP initiative, with the next prescribed step of the process being compilation and
submission of a Feasibility Study (then TA1, now TVR1) in manner and content set out
in the PPP Guidelines,
Early 2005 - Recruitment of a Transaction Advisor (TA), with a supporting decision to
engage specialist legal counsel separately..
June 2005 - Appointment of a TA Team Joint Venture between PDNA (engineers) and
Kagiso Financial Services.
December 19 2005 - Submission of the TVR1 Feasibility Study to Treasury and Report
on the Feasibility Study to public comment.
6 March 2006 - close of public comment, report to City (Mayoral Committee)
19 March 2006 - new government and Mayor named iro just concluded local
government elections held in late 2005.
24 August 2006 - Council provides in principle approval of the PPP and authorizes the
City Manager to proceed with procurement of the PPP with additional authority to
procure the early works including demolition of the former Munitoria remnants, as well
as any further early works as he might define.
The RFQ and RFP processes began thereafter, with the RFP issued on 22 December
2008, closed on 4 May 2009.
18
The selection of Preferred Bidder process, with delays arising, was, at the end of the
City evaluation process, submitted to National Treasury review on 10 March 2011, with
Tsela Tshweu Consortium appointed preferred bidder, and Mesong Consortium
appointed as reserve.
The original bids of both bidders have been extended and remain valid.
PPP Description, Scope, Responsibilities of the Parties
Detailed response will be provided in the final report to Treasury.
Affordability
Will be indicated generally in the Independent Value for Money Assessor Report as part
of the MFMA Section 33 Report to National Treasury, to which the TVR3 Report will
itself become an Annexure.
As a stipulated cap by Council, the affordability threshold was established in 2006 terms
at R117m/ as an annual PPP Agreement payment escalating at CPIX, now CPI.
As the project was threatened by periods of potentially massive inflation on the way to
2010 and beyond, it became evident in 2009 that the affordability threshold should take
contingent account of offsetting savings generated by the project as well as any other
possibilities for offsetting third party revenues generated by the project.
This notion, approved in Council submissions, has been applied in the report of the
Independent Value for Money Assessor to be submitted to Treasury, for review and
recommendations, subsequently to Council with Treasury’s comment.
In addition, in mitigation of potentially disastrous inflation risk over any period of
extended delay, Council was approached to approve indexation of the unitary cap over
any delay period at CPIX now CPI, a number that has been remarkably stable for as
long as 30 years.
That R117m/year threshold number has now become R183m as of 1 January 2014.
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Since 2006, a number of factors have modified the scope, these including the adoption
of a proviso that Tshwane House be built to meet GBCSA Five Star green building
standards.
The City is now determined to achieve a Star 6 rating and is already articulating plans at
technical level to bring this about.
The City, now grown to the second largest municipal area in the world integrating two
new district municipalities and the reasonable requirement to future enable addition of
another, has planned Tshwane House accordingly.
A good portion of the otherwise expected cost of expansion of service delivery capacity
will be achieved by productivity enhancements enabled by the new Tshwane House on
the executive side of municipal government.
The needs of the Legislative Branch, in terms of numbers of councilors commensurate
with experienced and future growth in voter numbers, has long exceeded the 82 council
seats in the former Munitoria.
The new Chamber will be built for 250 initially.
The cost of building a sustainable chamber with more seats against a 2055 horizon
exceeds the expectations inherent in the project in 2005.
Technical fit out of the chamber to support translation booths for 8 or more official
languages, properly designed locations for the required two person team for signing for
the deaf, and upgrading to international standards were not foreseen in 2006.
The United Nations, with hundreds of languages spoken worldwide, translates in 8
languages.
The new Tshwane House will equal or better that.
The net Star 5 green building cost impact has been calculated to be approximately
R24m, an amount now expected to be absorbed as value for money.
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The above and any other changes in scope arising since 2006 will be formally
accounted for as Variations to TVR1, such changes to be considered by Council along
with any associated costs at its meeting of May 2014. At this point no additional costs
are expected, with the City obtaining the extra scope as value for money.
Unitary Payment
The Independent Value for Money Assessor Report is conservatively based on the
R117m Council mandated cap, this number now R183m.
No negative impact from Variations to TVR1 is expected.
Pass Through Costs
These costs including electric and water bills are paid as such outside of unitary on the
basis
that
the
PPP
partner
does
not
have
control
of
these
costs.
Offsets Against Unitary
The notion of allowing savings directly achieved as a result of the project, such as
parking cost savings, as a contribution to unitary, was proposed to Council and
accepted.
The annual savings from parking is in projected in current rand value terms in the range
of R7m per year.
Also considered were possible third party revenues from street level store front
commercial retail or service to the public tenancies (like a tourist bureau), primarily at
the “back of the house” along Johannes Ramokhoase Street .
While the project has now enabled
such store front occupancies, the current
affordability model conservatively excludes any potential net revenue from retail either
as direct commercial income or as savings from relocating City agency tenancies from
other locations.
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Budget Sources
These are identified in the Value for Money Assessor Report to be part of the MFMA
Section 33 Report to Treasury, to which this TVR3 Report will become an Annexure.
Affordability
Based on the findings of the Independent Value for Money Assessor, the project is
expected to be affordable.
Sources and Conditions of Funding
These will be as set out in the Independent Value for Money Assessor report.
Impact of the PPP Obligations on Future Municipal Tariffs and Revenue
These will be set out in the MFMA Section 33 Report.
Value for Money
This will be calculated on a number of benchmarking studies to be completed with the
final TVR3 report to Treasury. Substantial value for money is expected.
Project Infrastructure, Operations and BBEEE
Infrastructure
is
not
part
of
the
Tshwane
House
project.
Very ambitious BBBEE targets have been agreed between the PPP Partners as set out
below as value for money achieved by the project to an extent unachievable under a
conventional
procurement
approach.
Value for Money (Project compared to Public Sector Comparator, PSC)
Supporting analysis, favorable, is being prepared for the TVR3 report to Treasury post
Section 33 public comment.
22
Value for Money in Terms of Risk Adjusted Market Related Costs, Achieved Best
Practice and Benchmarking Against Comparable PPP Projects
Unlike conventionally procured projects under routine public sector procurements, PPP
procurements involve a complete reversal of responsibility for design risk, specifically
for the design and construction of a building, Tshwane House in our case.
In routine public sector procurements under common supply chain management
procedures, the specifications for a new building project would be meticulously
established in advance by a Bid Specifications Committee in support of bidder selection
on price, that is to say, price per spec.
Design risk lies primarily with the producer of the specifications.
In a PPP, the detailed specifications are provided by the bidders, ultimately recorded in
a Schedule to the PPP Agreement, in a reversal of roles that directly engages or
compels a selection of bidder on the basis of comparative creativity within a common
ball park defined in part by a cap on costs (unitary payment).
In the PPP, the City sets the performance specifications as “output” specifications,
placing design risk entirely in the lap of the bidders, while at the same time obtaining a
selection based on comparative creativity, expecting, of course, a level of creativity and
problem solving exceeding what the public sector entity would be capable of in-house.
To the point, risk transfer comes at a cost that generally tends to become a trade-off in
comparing unit costing, say cost per GLA meter (Gross Lettable Area) that may be
higher than prices achieved without transfer of risk or advantage of competitive
creativity.
Accordingly, the City has applied the notion of benchmarking against comparable PPP’s
by government in South Africa as a better basis for judging comparative value for
money.
The relevant studies will be submitted to Treasury with the final TVR3 Report.
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The original and still challenge of the Tshwane House PPP was to build a strong center
for service delivery on a cost effective basis for the operational or executive branch of
municipal government as overseen by the City Manager.
Notwithstanding this, the City is pleased to confirm that the cost of a state of the art
Council Chamber has been effectively absorbed within unitary as value for money and
the office complex as such provides accommodation for the Speaker of Council, and all
supporting structures of Council.
Beyond the above, indeed supporting the above, the building space planning output
specification requirements from the TA space planner, jointly with the TA architectural
advisor, have resulted in a building that competes well against achieved best practice,
and, in particular, betters the conservative space efficiency numbers conservatively
used by the Independent Value for Money Assessor.
Supporting data will be provided in the final TVR3 report to Treasury.
The City concludes in respect of all of the above that the project has fully achieved the
requirement of MFMA Section 120 that the proposed PPP “Provide value for money to
the municipality”
Contingent Liabilities
The single most significant contingent liability of the Tshwane House PPP, in common
with PPP’s generally, is “compensation on termination” of the PPP at any time prior to
expiry.
The impact in such event, however unlikely, could be onerous.
Such an event is roughly equivalent to the impact on a normal facility in the event of
acceleration of a debt, such as a bond, with the entire remaining unpaid debt due and
payable immediately on default.
A normal citizen might lose her home in such circumstance.
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A PPP, however, as a limited recourse financing instrument, prevents any lender from
attaching assets produced under the PPP, Tshwane House in our case.
This is a complex matter dealt with in detail in the relevant schedules to the PPP
Agreement.
PPP agreements, including ours are thus crafted to manage this risk to the fullest
possible extent.
The quantum depends on when during the PPP such an event might occur under a
formula set out in the PPP agreement.
Precise information on this matter is provided in the draft PPP agreement submitted to
public comment.
Risk
Transfer
The costed analysis of effective transfer of risk to the PPP partner will be part of the
City’s final formal TVR3 report to National Treasury.
The City concludes that the Tshwane House will meet the risk transfer requirements of
MFMA Section 120
Legal Due Diligence
This work will be done as part of the final TVR3 submission to National Treasury.
City’s Capacity to Manage the PPP Agreement
The City has effectively no current capacity to manage the PPP Agreement, though it
does have on board an empowerment candidate to be mentored and trained as a
member of an overall PPP Project Management Unit already contemplated by the City
in anticipation of other PPP projects.
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The unit will be fully supported by an administrative support team to manage the coal
face challenges of the project, notably management of the fundamental payment and
penalty regime as set out in Schedule 13 of the PPP Agreement.
A Contract Management Plan will be attached to the final TVR3 report to Treasury
Roles and Responsibilities of the Municipality During Each Phase of the Project
These will be set out in the final TVR3 report to Treasury
Contract Management Processes of City to Assess its Performance of in Respect of the
PPP Agreement and Related Legislation (MFMA)
These will be set out in the final TVR3 report to Treasury
Means for Addressing Issues such as Attitude and Behavior
These will be set out in the final TVR3 report to Treasury
Conclusion Reached and Justification (indicative language)
The City concludes that the proposed PPP Agreement comfortably meets the
requirements of Section 120 of the MFMA, i.e. that the Tshwane House PPP
demonstrates all of: affordability, transfer of appropriate risk to the private party and
value for money as a basis for the City Manager to legally sign the PPP Agreement
upon prior final approval of the PPP by Council in May 2014.
The project, has, moreover, (to be confirmed post public comment) achieved each of
the above in measure exceeding expectations of TVR1, and levels equal or higher than
those presented in the TVR2b Report of 10 March 2011 in respect of the selected
Preferred Bidder proposal from Tsela Tshweu as negotiated on the basis of its RFP
proposal.
Accordingly the City will apply to Treasury for its favorable recommendation to complete
the project through financial close and full delivery in 2016, such recommendation in
support of the City’s own recommendation to Council that it duly approve the proposed
PPP Agreement, as submitted, without further change as required by law.
The formal vehicle for application to Treasury is the TVR3 Report described above.
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Annexures to the TVR3 Report
These will include:
Annexure 1: Final Draft Agreement
Annexure 2: PPP Agreement Management Plan
Annexure 3: Written Statement of Affordability by the Accounting Officer
The Draft Tshwane House PPP Agreement
The table of contents for this draft agreement appears below to assist your navigation
through the PPP Main Agreement and its Schedules.
Note that the draft remains a working document in active progress, with discussion
points and positions present in the documents subject to further elaboration.
All of the principles of the agreement, as well as the requirements and principles at
issue, these reflecting the requirements of the RFP project bidding process are present
within the draft document.
Much of the content of the draft is highly technical and may be difficult to understand by
lay readers. Still we hope that every reader will find points of interest that will elicit
comments that will contribute to a better project.
Among the schedules that may be of particular interest to the public iro design,
operations management or broad based black economic empowerment are Schedules
5, 6 and 13, respectively covering BBBEE, design and space planning principles and
requirements, and operations management principles and requirements over the term of
the PPP.
Tshwane House is expected to be ready for occupancy from 29 April 2016 on a block
by block basis as set in the one page summary programme to delivery at Schedule ??
Thank you for your interest and for any comments or representations you may submit in
respect to the accompanying draft Tshwane House PPP Agreement.
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Peter Aborn
Project Officer
Tshwane House PPP Project
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Contents of the Tshwane House PPP Draft Agreement
(Main Agreement and Schedules)
CONTENTS
PART A: PRELIMINARY
7
1
INTERPRETATION
7
2
EXECUTION AND DELIVERY OF DOCUMENTS
7
3
COMMENCEMENT, FINANCIAL CLOSE AND DURATION
8
4
PROJECT DOCUMENTS
9
5
THE PROJECT DELIVERABLES
9
6
ASSISTANCE AND CO-OPERATION\l 1
10
PART B: GENERAL PROVISIONS
11
7
GENERAL OBLIGATIONS AND RESPONSIBILITIES OF THE PRIVATE PARTY
11
8
HEALTH AND SAFETY
12
9
BROAD BASED BLACK ECONOMIC EMPOWERMENT
13
10
WARRANTIES
13
11
INDEMNITIES AND LIABILITY
15
12
LIMITS ON LIABILITY
19
13
BACKGROUND INFORMATION
20
14
REPRESENTATIVES
20
15
EMERGENCY REACTION PLAN
22
PART C: LAND ISSUES
22
16
NATURE OF LAND INTEREST
22
17
CONDITIONS OF THE SITE
26
18
CONSENTS AND PLANNING
29
19
HERITAGE RESOURCES
29
29
20
UTILITIES
30
PART D: DESIGN AND CONSTRUCTION
31
21
THE DESIGN, CONSTRUCTION AND COMMISSIONING PROCESS
31
22
RIGHT OF ACCESS OF CoT'S REPRESENTATIVE
33
23
PROGRAMME AND DATES FOR COMPLETION
34
24
INDEPENDENT CERTIFIER
36
25
PRE-COMPLETION COMMISSIONING AND COMPLETION
37
26
FINAL COMPLETION COMMISSIONING
41
PART E: QUALITY ASSURANCE
43
27
43
QUALITY ASSURANCE
PART F: ICT PROJECT
46
28
46
INFORMATION AND COMMUNICATION TECHNOLOGY PROJECT
PART G: SERVICES
47
PART G: SERVICES
47
29
THE SERVICES
47
30
MAINTENANCE
47
31
MONITORING OF PERFORMANCE
51
32
COMMERCIAL DEVELOPMENT ACTIVITIES
33
SITE SECURITY AND PERSONNEL ISSUES
55
34
STOCKS, CONSUMABLES, MATERIALS AND EQUIPMENT
56
PART H: PAYMENT AND FINANCIAL MATTERS
58
35
PAYMENT
58
36
INSURANCE
59
37
INFORMATION AND AUDIT ACCESS
69
PART I: CHANGES IN LAW AND VARIATIONS
73
38
UNFORESEEABLE CONDUCT
73
39
VARIATION PROCEDURE
76
PART J: COMPENSATION EVENTS, RELIEF EVENTS AND FORCE MAJEURE
77
30
40
COMPENSATION EVENTS
77
41
RELIEF EVENTS
79
42
FORCE MAJEURE
82
PART K: TERMINATION
84
43
PRIVATE PARTY EVENTS OF DEFAULT
84
44
CoT EVENTS OF DEFAULT
87
45
NON-DEFAULT TERMINATION
89
46
EFFECT OF TERMINATION
89
47
COMPENSATION ON TERMINATION
92
48
FINAL MAINTENANCE SURVEY
93
PART L: MISCELLANEOUS
94
49
ASSIGNMENT, SUB-CONTRACTING AND CHANGES IN CONTROL
94
50
INTELLECTUAL PROPERTY
95
51
CONFIDENTIALITY
98
52
TAXATION
99
53
CORRUPT GIFTS AND PAYMENTS
100
54
NOT USED
103
55
DISPUTE RESOLUTION PROCEDURE
103
56
NOTICES
103
57
AMENDMENTS
105
58
WAIVER
105
59
NO AGENCY
105
60
ENTIRE AGREEMENT
105
61
CONFLICTS OF AGREEMENTS
105
62
SEVERABILITY
106
63
COUNTERPARTS
106
64
COSTS AND EXPENSES
106
65
NO PRIVITY
106
31
66
MITIGATION
107
67
GOVERNING LAW AND JURISDICTION
107
68
FURTHER ASSURANCE
107
69
WAIVER OF SOVEREIGN IMMUNITY
107
70
NO BETTER, NO WORSE POSITION
107
32
SCHEDULES
1
DEFINITIONS AND INTERPRETATION
2
COMPLETION DOCUMENTS
3
BENEFICIAL OWNERSHIP OF THE PRIVATE PARTY
4
EMERGENCY REACTION PLAN
5
BROAD BASED BLACK ECONOMIC EMPOWERMENT
6
SPECIFICATIONS
7
THE PROGRAMME
8
REVIEW PROCEDURE
9
COLLATERAL AGREEMENTS
10
OUTLINE COMMISSIONING PROGRAMME
11
NOT USED
12
INDEPENDENT CERTIFIER AGREEMENT
13
PERFORMANCE STANDARDS AND PAYMENT MECHANISM
14
INSURANCES
15
VARIATION PROCEDURE
16
COMPENSATION ON TERMINATION
17
FINAL MAINTENANCE SURVEY
18
NOT USED
33
19
REFINANCING
20
DIRECT AGREEMENT
21
DISPUTE RESOLUTION PROCEDURE
22
CERTIFICATES
23
THE SITE
24
COMMERCIAL DEVELOPMENT ACTIVITIES
25
ICT INTERFACE AGREEMENT
26
SECTION 37(2) PRINCIPLES
27
RELOCATION PRINCIPLES
34