Durban - Former city manager Michael Sutcliffe has warned eThekwini mayor James Nxumalo that he and his councillors could face personal court battles if they voted to refund R1.8 million to a company that failed to deliver on a city housing development project.
The municipality took a decision last month to refund DKS Holdings to the tune of R1.8 million which the company’s insurance had paid as a penalty for the shoddy work done on the housing development.
The insurer has now pointed out it should be paid the R1.8m, not DKS.
Sutcliffe, who was the municipal manager when the company defaulted and was penalised, said there would be legal consequences if the city refunded DKS.
“More importantly, it would not be a claim against the city, but it would be a claim against councillors who voted for that to happen.
“The councillors can be taken to court, which might mean the councillors must now refund the R1.8 million to the city.”
Sutcliffe said he had contacted Nxumalo to warn him that the councillors should think about the consequences before they voted on the matter.
In 2008 the company built sub-standard housing units at the Glebelands hostel in Umlazi. The defects included doors cut into irregular shapes and narrow passages. DKS did not submit a programme of how the work was going to be completed and corrected and the contract was terminated, with DKS having already been paid R15.3 million. DKS went to court challenging the cancellation but the court ruled in the city’s favour.
Constantia Insurance Company Limited, the company’s insurer, paid the default penalty on behalf of the company.
Sutcliffe said when DKS won the contract it did not have R1.8 million to give to the city as surety.
“They (DKS) went to the insurance company and paid an insurance rate. The insurance company looked at the project and said: ‘We will insure you,’” he said.
However, for reasons not known to Sutcliffe, DKS came back to the municipality this year demanding that it be refunded the R1.8 million.
Company director Mandla Khumalo approached the city for a settlement on the money which had been withheld to cover shoddy work.
The payment was sanctioned after an investigation by the city’s integrity and investigations unit, which said DKS had not been appropriately dealt with by city officials, had suffered prejudice and was now in financial difficulty.
After reading media reports about DKS’s demand, Constantia then wrote to DA councillor Zwakele Mncwango telling him the R1.8 million refund should be paid to Constantia instead of DKS.
“Any recoveries to be made in respect of this matter in relation to this guarantee… must be repaid to the CICL,” read the letter from Constantia.
Jeremy Dane Pillay, whose signature appeared on the letter, referred further questions to Constantia general manager Lucien Mundie.
Attempts to get comment from Mundie were unsuccessful as he was in a meeting, and did not return calls.
Mncwango said after being approached by the insurance company he alerted Nxumalo, who promised to revisit the matter.
Municipal spokeswoman Tozi Mthethwa said the council was reviewing its decision since there had been new evidence.
“The city’s legal unit and city integrity and investigations unit will verify that information and the current decision will be reviewed by council.
Due consideration will be taken before payment is made.”
The Mercury