A R1.8bn ship-building tender for the navy – touted as a landmark job-creation project – has run into heavy weather over money issues, with two key suppliers going bust.
The partially built ship, commissioned by Armscor, is still sitting in the Sandock Austral Shipyards (SAS) construction yard on Rotterdam Road in Durban several months after it was supposed to have been launched.
Now some contractors are refusing to supply already completed components for the new 95m SAS Nelson Mandela, a hydrography survey vessel, until they get paid.
Work on the vessel began in November 2018 and SAS, the main contractor, has blamed the construction delays on several "acts of God".
Dubbed Project Hotel, construction of the ship is a key pillar of the government’s "fast results delivery programme", Operation Phakisa (Sotho for "hurry up") which was launched in 2014 to help implement the government’s national development plan.
But sources involved in the project say it is floundering and that the jobs created so far are in jeopardy because contractors are out of pocket and in financial distress.
Prasheen Maharaj, the CEO of SAS, said two suppliers had gone out of business but this was due to "depressed economic conditions" and the Covid pandemic.
Some sources say the cash crunch relates at least partly to the pipeline of government funding channelled to SAS through Armscor.
As a result of the delays, the project milestones have moved out to the right. This also meant that payments have moved out to the right
— Sandock Austral CEO Prasheen Maharaj
Maharaj said the ship may now only be completed next year, with delays caused by force majeure events such as the KwaZulu-Natal floods in April last year.
"As a result of the delays … the project milestones have moved out to the right. This also meant that payments have moved out to the right," he said. "This has resulted in three or four suppliers becoming disgruntled and complaining bitterly."
Maharaj said invoking force majeure legally entitled SAS to extend the project deadline.
"You must remember that there are more than 150 suppliers to this project. The vast majority have agreed to push out payments to the right. It’s only a few that don’t want to agree," he said. The project involved about 63,000 different activities and is now the biggest ship in its class under construction worldwide, Maharaj said.
"We continue to engage positively with these suppliers and this is underlined by the fact that the work of the suppliers is continuing. As a result of Covid-19 and distressed economic conditions, two South African suppliers went out of business and this has caused a bit of a delay in the project as well."
Maharaj is also president of the private sector-led maritime industry transport network and current chair of the Durban Chamber of Commerce & Industry.
Armscor last week acknowledged the project had been delayed, blaming “commercial matters between SAS and its subcontractors”.
“We are engaging all of the parties in an attempt to resolve these delays,” said Armscor spokesperson Liziwe Nkonyana.
Armscor says work on the ship is continuing despite delays in the delivery of subsystems. A Sunday Times reporter who visited the site in recent days saw people working on the vessel.
Armscor has publicly raised concern about the flow of funds from the National Treasury. Its chair, Phillip Dexter, said last year the defence force was on the "edge of an abyss" due to spending cuts.
Delays in critical maintenance and repair work have severely reduced South Africa’s military capabilities in recent years.
Shipping industry insiders, some of whom worked directly on the project, said certain suppliers had been owed money for nearly two years.
A former employee of one of the two firms that went out of business said a large part of the reason was the delayed payments from Project Hotel.
The source, who did not want to be named, said neither Armscor nor SAS bore all the blame, but: "The subcontracted work to Hotel has probably been a major contributor to [the liquidated company’s] demise."
While much of the hull of the ship has been completed, core components are being held back by suppliers until they are paid, according to sources involved in the project who spoke to the Sunday Times over the past three weeks.
The sources include suppliers of components such as vital electronic equipment.
Some of these subsystems are being held in safe storage where Armscor inspectors have access to them, said one of the sources.
SAS is not the only local yard to face delays. Damen Shipyards had to revise delivery dates for the navy's new inshore patrol vessels, and Eastern Cape yard Tide Marine was unable to complete a new plough tug for Transnet National Ports Authority. Veecraft Marine, in liquidation, has two incomplete tugs in its shed.
Nkonyana said Armscor could not disclose how much money had been paid to SAS so far but the contract was structured for milestone payments. “Once milestones are completed, invoices are presented to Armscor for payment."
She said Armscor was negotiating a revised delivery date with SAS. There would be “no costs borne by Armscor as a result of the delays encountered by the main contractor”. - additional reporting by Sakhiseni Nxumalo
