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Tuesday Sep 17, 2013

Cape Town determined to recoup stadium costs

The City of Cape Town is determined to recoup some of the billions it spent on building Cape Town Stadium. It is claiming on insurance for design changes that were made to the structure while it was being built.

It is lodging a civil claim against the construction companies found by the Competition Commission to have been involved in tender rigging and price fixing for the project.

It is in talks with the professional team to settle a disputed R200 million for construction fees.

Although the initial construction budget was estimated at R2.9 billion, costs ballooned to R4.5bn as the city raced to get the 2010 World Cup venue completed on time.

Deputy mayor Ian Neilson said in April that although the city had been suspicious about the rising costs, it had no option but to continue to meet Fifa's deadline. PricewaterhouseCooper forecast then that the stadium would run at an annual loss of R7.1m for the first three years. But the city revealed earlier this year that its operating costs amounted to more than R436m since the 2009/10 financial year. Its income for the period was just R92m.

The city has subsequently spent R4m on advice from experts and lawyers to recover damages from the construction companies that admitted to rigging the bids and fixing prices.

Two years ago, the Competition Commission found that 15 construction companies had been involved in tender collusion and price fixing for World Cup stadium tenders, including Wilson Bayly Holmes- Ovcon (WBHO), Stefanutti Stocks, Murray & Roberts and Group Five.

Cape Town Stadium, built in 32 months by Group Five and WBHO, was one of the affected stadiums. Although the 15 firms reached a settlement agreement and paid a combined R1.5bn in fines, the City of Cape Town is lodging a civil claim to recoup some of the money it was overcharged.

An advocate specialising in construction has advised the city that it can also claim professional indemnity insurance if there was evidence of negligence or misjudgement in the design of the stadium, said deputy city manager Mike Marsden.

He told the city's financial oversight committee that design changes to the raking columns made the stadium less rigid, so an additional bracing had to be inserted.

Pressed for more detail, Marsden said the changes to the stadium design 'made the stadium construction more complex and costly'.

The city is also hoping to settle a disputed amount of R200m that was charged in professional fees. Marsden said that while the arbitrators found in favour of the professional team, which included architects, engineers and environmentalists, the city's contractual agreement allowed it to appeal against this ruling.

Marsden said the city's legal team were meeting the professional team to resolve the matter, and was confident of 'a reasonable and a fair settlement'.

The city has been saddled with the running costs of the stadium since December 2010 when the original operation company SAIL and Stade de France terminated a 30-year contract.

Although various events have been held at the stadium, the city needs to look at a long-term operating model if it hopes to break even.

A premium anchor tenant would ensure returns on the investment, and there has been speculation that the Western Province Football Rugby Union might move from Newlands to Green Point. Other tenants mooted are Big Concerts, Ajax and Chippa United.

It is also hoped to change the zoning that restricts commercial activities on non- event days. Options here include a casino, a nightclub and possibly a hotel.

Cape Argus


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