Surprise Concourt ruling on contract for social grants
Says tender process flouted rules and constitutes uncompetitive and unconstitutional practices
THE shady R10-billion contract awarded to Net1 UEPS to distribute more than R500-billion in social grants to 15 million South Africans is “constitutionally invalid”, the Constitutional Court ruled on Friday.
The surprise ruling was a big blow to Net1, which won the contract in January 2012. The company is now being probed by the FBI in the US over claims that it paid bribes to steal the contract from AllPay, which is owned by banking group Absa.
Net1’s shares are owned partly by Americans, because it is listed on the New York Stock Exchange.
The FBI is investigating whether the US’s Foreign Corrupt Practices Act was contravened.
Numerous suspicious elements of the lucrative contract have raised eyebrows.
They include the fact that President Jacob Zuma’s lawyer, Michael Hulley, popped up as a “strategic adviser” and yet played no obvious role.
There were also claims that bribes were paid to swing the deal in Net1’s favour.
Friday’s ruling, however, could prove even more devastating for the millions of grant beneficiaries if it disrupts the monthly payment of benefits. The Constitutional Court said it would “suspend” its ruling of invalidity until February 11, when it will hold a hearing on the implications of scrapping the contract and starting from scratch, or finding another “just and equitable remedy”.
Net1 has been running the grant payment system for 20 months, so to scrap the contract immediately could harm the beneficiaries.
The finding vindicates AllPay, which blew the whistle on the shady contract months ago. It claimed in court papers that one South African Social Security Agency employee, John Tsalamandris, knew that people “took mon- ey” to swing the tender in Net1’s favour.
Claims that the tender process was rigged stemmed from the fact that the scores awarded to AllPay by the agency’s tender committee were mysteriously lowered at the last minute after the tender requirements were changed.
The Constitutional Court said the sudden change in requirements “rendered the process entirely uncompetitive” and left Net1 as the only bidder. All these problems, the court found, meant that the welfare contract was not fair, transparent, equitable, cost-effective or competitive.
This is the final legal twist in a case that has swung from one side to another over many months.
In August 2012, the high court
Friday’s ruling could prove even more devastating for the millions of beneficiaries
found that the contract was illegal. It said the lowering of AllPay’s scores was “unfair and irrational” and done seemingly for an “ulterior purpose”.
The Supreme Court of Appeal disagreed. It ruled that any irregularities were not material because “a fair process does not demand perfection”.
But the Constitutional Court has rejected this approach. It said tender rules were not merely “internal prescripts that the social security agency may disregard at whim. “[The public] has an interest in [procurement] being conducted in a fair, equitable, transparent, competitive and costeffective manner,” it said.
The court also said the fact that the agency had not assessed Net1’s empowerment credentials was “fatally defective”.
On Friday, Net1 CEO Serge Belamant said he did not think the ruling was “necessarily a bad thing”. It would provide an opportunity to clarify the issue once and for all, he added.
“We can’t keep going with these little people biting at our heels all the time,” he said, in a sideswipe at AllPay.
Belamant said that although the Constitutional Court described the contract as “invalid”, it rejected the claims of bribery and corruption. “We won the [contract] fair and square . . . We went to the Hawks and asked them to investigate us. Nothing has been picked up,” he said.
AllPay’s lawyer, Anthony Norton, said his client was obviously pleased with the ruling and “we will make substantial submissions to the court in February”.
The lucrative deal has been dogged by claims of corruption from the start.
The initial tender, in 2007, was cancelled after the bid committee chairman, Norman Arendse, reported that he was approached by prominent sports administrator Gideon Sam, representing Net1’s Cash Paymaster Services, who said the company had an “open chequebook” to reward adjudicators if it got the contract.
Social Development Minister Bathabile Dlamini did not report this bribe to police.
When the “new” tender was launched, further questions arose, including why Hulley had sat on the bid committees that decided on the awarding of the contract. He was billed as an “overall strategic adviser” and was given a R21 000a-day contract with the speculation being that he was there to look after Zuma’s interests.
Belamant said at the time: “I’m not surprised he’s involved. Isn’t he Zuma’s legal adviser?”