Fight over Mpilo project

‘Mantšali Phakoana

A bruising fight has erupted after the government terminated a lucrative M380 million contract to construct Mpilo Boulevard intersection roads in Maseru, citing the contractors’ “inefficacies and fraudulent advance payment guarantee”.

To ensure that it does not suffer any financial losses as a result to the cancelling of the contract, government further recovered M38 million from the performance bond of three construction companies awarded the tender.

The botched project commenced in 2022 and was carried out by a local construction company, Tim Plant Hire (TIM), in a joint venture with two Chinese-owned companies namely; Shanxi Construction Investment Group Co. Ltd (SCIG) and Shanxi Mechanization Construction Group Co. Ltd (SMCG), also known as SCIG-SMCG-TIM Joint Venture.

The Mpilo Boulevard project included the construction of new road links, vehicle flyover bridges, underpasses, exclusive pedestrian bridges and signalisation.

TIM Plant Hire brought its machinery and about 70 workers to the project while SCIG and SMCG contributed with engineering and other technical expertise.

The minister of local government, chieftainship affairs and police, Lebona Lephema confirmed in the National Assembly during his ministry’s budget presentation on March 21, 2024 that the government had terminated the agreement signed between the Maseru City Council (MCC) and the joint venture.

“We have terminated a contract for Mpilo Boulevard intersections due to the contractors’ inefficacies and fraudulent advance payment guarantee,” Lephema said.

Following the cancellation, the ministry recovered M38 million from the companies’ performance bond, which represents 10 percent of the total amount of the project.

But SCIG and SMCG are not satisfied. They are not taking it lying down and have vowed to fight back.

The two companies lodged an application in the High Court (Commercial Division) on February 26 this year, disputing that the joint venture breached its contractual obligations as claimed by the MCC.

According to court papers, the MCC terminated the agreement on January, 30 2024 on the grounds that the venture had breached some of the contract’s clauses.

The municipality also claimed that the companies failed to produce an enforceable on-demand guarantee. This is an agreement issued by a bank to pay a specified amount to one party of a contract on-demand as protection against the risk of the other party’s non-performance.

The MCC also noted that despite receiving an advance payment of M14 million, the venture had failed to provide adequate plant onsite hence negatively affecting the quality and progress of work.

The local authority therefore, wants the companies to refund it the M14 million advance payment, cease all works and vacate the site with immediate effect.

But SCIG and SMCG contend that the advance payment guarantee the venture had provided in the first instance was compliant but that it had requested the bank to amend it simply to satisfy MCC.

According to the duo’s court papers, the amended advance payment guarantee had already been provided by the time MCC purported to terminate the contract.

They further argue it is MCC that was at all material times in breach of the contract by not disbursing the required advanced payment of M75 million and also not settling its invoices.

TIM Plant Hire is not part of the court application.

SCIG and SMCG further claim that TIM director, Toloane Matekane, (brother to prime minister Sam Matekane) eventually used his political connections to ensure that the contract was terminated.

“We contend that the termination is fraudulent and based on fictitious grounds. And that it is contrary to the contract. It asserts that MCC is acting in bad faith and collusion with TIM Plant Hire and others interested in taking over the project for improper motives.

“As a result, we reject the termination and declare a dispute by a way of this application to be dealt with in accordance with dispute resolution mechanism agreed between the parties,” they say.

The companies further state that MCC was supposed to make an advance payment of an amount equivalent to 20 percent of the contract to the joint venture to mobilise and start executing the project.

However, MCC only advanced M14 million, leaving the outstanding balance of M61,807,363.60 which it did not pay despite repeated requests, they cite.

The two companies also submit that the venture had to secure its performance in terms of the contract.

“As a result, Standard Bank as a local correspondent bank for China Construction Bank, provided on-demand guarantees to MCC. These were a performance guarantee for a maximum of liability of M38, 078, 251. 80 due to expire on May 21, 2025 and advanced payment guarantee for an amount of M75, 807, 363.60. The latter was in consideration for the advance payment to be made by MCC.

A performance guarantee is defined as an agreement between the employer and a guarantor (usually a bank) and it is autonomous from the underlying construction contract between the employer and the contractor.

In his affidavit, Kenneth Leong Kong Meng, a Malaysian male adult employed as a project manager by SCIG-SMCG-TIM joint venture says immediately after filling the application, they notified Standard Lesotho Bank, Standard Bank of South Africa, China Construction Bank and Bank of China that there is an application pending before court.

“We requested them not to honour any payment of guarantee to the Maseru City Council. We received a response from Bank of China on February 27, 2024 informing us that they have already received a Swift Code from Standard Lesotho Bank through Standard Bank of South Africa.

“They had also indicated that they were ready to release the money. They informed us that the payment could be made on or before the 1^st March 2024.

“On the 27^th February, we had a meeting with head legal of Standard Lesotho Bank, Mr Phela Setjojoane. The purpose of the meeting was to find out the status of the payment of performance guarantee and whether they will make a payment notwithstanding the pending application,” Meng notes.

He indicated that in his response, Setjojoane said the only thing that could prevent the bank from paying the guarantee was when there is a court order.

“He further indicated that a payment could be made on or before March 31, 2024,” Meng said in his additional affidavit.

The court has ordered the applicants – SCIG-SMCG-TIM Joint Venture – to pay security for the costs.

In an interview with theReporter this week, Tim Plant Hire accountant, Sikubutele Nqosa, confirmed receiving a termination letter dated March 30, 2024 from MCC.

Nqosa admitted they (contractors) did not perform well in delivering their job as expected by the government.

He noted the main driver to non-performance was that TIM Plant Hire was no longer in good relations with its partners.

Nqosa indicated that the beef started when SCIG and SMCG refused to honour their agreement to pay TIM Plant Hire M8 million for its initial work despite having received an advance payment guarantee of M14 million from MCC.

“There was no progress in our operations because we were no longer in good terms with our partners. Only 10 percent of the work was done and we believe the client (MCC) got worried.

“The minister of local government (Lephema) and MCC were aware of our squabbles but there was no solution.

“Now that the contract has been terminated, TIM is owed plus/minus M24 million as part of a promised refund when a contract is terminated, which is paid by the client (MCC),” he noted.

Nqosa said TIM Plant Hire had learnt of the court case but was not well informed about it.

He further indicated that an internal agreement reached by the joint venture was that Tim Plant Hire’s 30 percent share would be bought out of contract for M7.5 million.

It was further agreed that the company would construct Zone 4 exclusively and derive the monetary benefit therein, he noted.

Nqosa added that the agreement was however not honoured as Tim Plant Hire was only paid M4 million from the agreed M7.5 million while work done on the designated zone was also not paid.

MCC public relations officer ‘Makatleho Mosala confirmed this week that the local authority had cancelled its contract with the joint venture.

Mosala said she could not give out more information on the terms of the termination as the matter was now in court.

She, however, acknowledged that in as much as the government had cancelled the project, it had not suffered any financial losses as a result.

“The M38 million is like an insurance paid by the contractors. This says even though the project could not succeed, government has not lost any money. We managed to strike a balance by recovering and saving that money,” Mosala explained.