Despite the noises around Housing Corporation of Zimbabwe (HCZ)’s Caledonia project, the company had up to four years to deliver the 8 000 residential units wanted by the National Social Security Authority (Nssa), court documents show.
This comes amid relentless attacks on Stephen Duggan’s company that it had no capacity to deliver the houses, and that it had “accessed $9 million” more in inflationary adjustments when the parties’ July 2017 agreement provided for no such cost escalations, and it was just an indication anyway.
“A total of 8 000 housing units were to be constructed and delivered to Nssa in phases… The 2 000 housing units of the first phase, were to be constructed and delivered in 250 housing units per batch. The delivery of the first batch had to occur within 180 days from the commencement date, being the future delivery date of October 1, 2018,” he said in his August 15 founding affidavit backed up by an April 24 letter emphasising that land preparation documents were signed off by the City of Harare (CoH) on March 26 this year and, therefore, the commencement date was April 04. And in an April 26 e-mail, chief property investment officer Kura Chihota confirms the same.
“The full complement… had to be delivered no later than 36 months from commencement date of the works (per clause 12,4 of the contract), which meant that such completion had to be achieved by the future date of April 31, 2021,” Duggan said, adding HCZ was still poised to discharge its mandate given that it had delivered 53 completed units, an additional 114 housing structures, nearly 130 completed foundations and 450 fully serviced stands on site. All sewer, roads and ancillary infrastructure is also in place.
While the parties have been haggling about the technicality of a commencement date of the contract – which gave rise to acting Nssa boss Emmerson Mungwariri’s July 25 letter and also covered in Justice Esther Muremba’s interdict against the state-run institution from enforcing the demand – the private developer strenuously argues that the respective date could only be recognised after the fulfilment of last pre-conditions and payment of $16 million deposit in August last year.
This was because the performance bond was delivered on July 28, 2017, which the authority’s point man Chihota confirmed in a July 31 e-mail.
This is what clause four of the off-take agreement says and a January 27 dispatch by Duggan to Chihota, then chief executive Elizabeth Chitiga and Mungwariri says the parties had agreed – two days earlier – that HCZ would deliver 50 units in February 2018, another batch by mid-March, a larger block of 150 housing units by April 10 and a fourth batch of 100 by mid-May.
A January 22 to-do list by Chihota not only attests to these realistic delivery timelines, quantum and path, but houses would be delivered in batches of 2 000 within the next four years.
However, Nssa – which was supposed to nominate and second a project engineer – reportedly failed to do so, even for the first batch of 53 completed units to have been handed over on March 15 this year. Duggan also emphasised this point to Nssa executives in an April 03 follow-up e-mail.
In fact, the HCZ co-founder further accuses Mungwariri’s institution of sabotaging – by withholding commitments or a support letter – its $3 million working capital facility with ZB Bank Limited, which had been approved in January. And as a follow-up to a Nssa executive team’s April 13 visit to HCZ’s project, project director Johan Swarts even offered a board tour of the site four days later.
While Duggan’s company also stands accused of “accessing $9 million” in excess funds – which was essentially a cost indication of the inflation adjustments – clause 6,5 of the principal contract actually provides for a price escalation “should the country’s inflation rate exceeds five percent… during the course of the project (and) renegotiate the purchase price per housing unit…”
Apart from providing Nssa with detailed bill of quantities from various local and international suppliers, HCZ proved its bonafides by requesting for extra funds after securing written consent – following discussions with Nssa bosses, including Chihota and Mungwariri – and in line with the provisions of the agreement.
This was confirmed by the former’s approval and communication that “parallel exchanges had caused the price to rise to $2 000-plus per unit”. At any rate, the $16 million down-payment which the real estate developer obtained for his $300 million project was far less – in percentage terms – than what the other private developers got at 20 percent-plus.
The developer also timeously communicated to the compulsory pension fund that it had failed to secure $4,2 million in foreign currency from the Reserve Bank of Zimbabwe, which had largely contributed to the cost increases. In addition to that, HCZ also gave a full account of how the initial deposit had been utilised. To further demonstrate its goodwill, the developer even provided for a five percent defect retention figure on the houses.
But despite all this evidence, nearly 60 pieces of formal communication and a dispute that had been referred to Harare’s commercial arbitration centre, Nssa proceeded to demand the performance bond from the Zimnat Lion Insurance Company (Zimnat).
Meanwhile, Muremba’s interim order has called for a return to the status quo and virtually affirmed that the matters at hand were essentially commercial.
“Pending determination of the matter… an interim order is hereby granted in the following terms: The second respondent (Nssa) be and is hereby interdicted, and restrained from seeking to execute on its letter of demand in relation to the performance bond or receiving any payment from the guarantor and first respondent (Zimnat)..,” she said, adding the bond issue and clause was added into the bipartite agreement for “the benefit of Nssa as the developer was guaranteeing the fulfilment of the contract”.
“The guarantor (Zimnat) be… interdicted and restrained from making any payment to the beneficiary (Nssa) under, and in terms of the performance bond..,” Muremba said, noting further that “…the final order or relief sought was to declare that the letter of demand… dated 25 July 2018 and received by Zimnat on 6 August 2018 was fraudulently issued..”
“It is the applicant’s contention that Nssa’s letter of demand calling on the performance bond is fraudulent and marred with falsehoods because it (Duggan’s company) has delivered some housing units… It averred that there was never… communication by Nssa saying that the applicant had failed to deliver in terms of the contract and that it was going to call on the bond,” Muremba said, adding if the guarantee was enforced HCZ would suffer irreparable financial damage.
While the Mauritian-backed developer was to build high-density structures on its 300-hectare Caledonia plot east of Harare, the project was part of the pensions authority’s efforts to help government deliver tens of thousands of low-cost units by 2021.
And in line with former chairman Robin Vela’s consistent statements that Nssa has sufficient security over the project – including a caveat on the $30 million-valued land and other requisite paperwork – the government-run entity has been holding Caledonia Enterprises’ deed known as 8541 of 96.
Had there been no disruptions, the foreign investor’s backers say, the developer would have erected no less than 1 500 by now – if one goes by the parties’ delivery schedule – and about 600 jobs are in jeopardy.
On the other hand, Vela – who faces alleged misconduct charges with the likes of HCZ chairman Adam Molai – insists that the decision to invest in affordable housing was actually in line with the authority’s delivery objectives, and earnings strategies.
Under the ambitious project, which was part of the command housing initiatives, the compulsory pension fund was to deliver – through its National Building Society and directly – 10 000 housing units by December 2017, and via five housing developments worth a cumulative $78 million.
According to a voluminous dossier sent to President Emmerson Mnangagwa’s office by Vela, Nssa had been under “extreme pressure and strict deadlines” from the government, hence it resorted to private sector partnerships to speed up the delivery of 600 houses in Dzivaresekwa, another cluster in Gweru, Marondera, 1 000 units in Mutare and a similar lot in Zvishavane.
The RobVel Equipment founder’s claims were backed by investments director David Makwara’s March 01 letter to the CoH pleading for a “parallel development permit”.
“Nssa has committed to deliver a set of houses through their various projects nationwide within the first 100 days of 2018 in line with the ministry of Labour and Social Welfare’s commitment to the president… As such, there is need to accelerate the delivery process by developing the houses while simultaneously servicing the land,” he said.
“To ensure that HCZ will complete the services, NSSA will only pay HCZ for their delivered houses once such services have been installed and signed off. We are pleading that the parallel development permit be issues as a matter of urgency to allow the project to secure all legal documents for completed units,” Makwara said.
While the court papers show that the parties had initiated – and entered – commercial arbitration by August 10 this year, HCZ also says it was justified in rushing to the courts for protection as this was in tandem with clause 27:11 of the contract.
Even, though, the issues around the Caledonia saga form much of the hazy allegations against Molai and company, Muremba’s provisional order – and potential outcome of the arbitration process – have the chance to sink the Zimbabwe Anti-Corruption Commission’s case against the Harare businessman. – Financial Gazette