JOHANNESBURG - Over the past few weeks a perfect storm has hit the Companies and Intellectual Property Registration Office (CIPRO). The website of the organisation has been down repeatedly. Companies have had huge difficulties filing their returns - and penalties have had to be waived. The Chief Executive Officer Keith Sendwe has been on indefinite sick leave since January. And earlier this month Democratic Alliance MP Andricus van der Westhuizen revealed that CIPRO's feared Chief Information Officer, Michael Twum-Darko, had been placed on "special leave."

There are three investigations - by the police, auditor general and Specialised Security Group (SSG) - into fraud and tender-rigging at the organization. The outcomes of those inquires have yet to be revealed but Minister of Trade Industry, Rob Davies, says that he is considering an interim report from SSG.

Over the past few weeks Politicsweb has conducted its own inquiries into events at CIPRO, and particularly the 2009 award of a R152,7m tender to Valor IT - the cause of much of the present trouble. The following report will hopefully explain some of what has been going on in the organisation. It will also allow the public to make a more informed evaluation of the results of the various official investigations when they are announced.

CIPRO's ECM tender of 2008

To understand the current chaos in CIPRO it is necessary to go back two years to 2008. CIPRO's existing IT systems were arguably old, and certainly poorly designed, and this made it difficult to (inter alia) combat fraud. The August 2008 business case prepared for a new Enterprise Content Management system stated that the "existing ICT platform has reached the end of its life." The primary driver for the new platform was, it noted, "the uninterrupted continuation of CIPRO's services, improving customer satisfaction, cost effectiveness, and efficiency and promoting economic development."

CIPRO's IT experts went out and priced the various components of the new system. The business case set out what should have been the upper end of the possible cost: the services of an outside vendor were estimated at R79,3m (including VAT), software R29,6m, two years of maintenance fees on the software R7,8m and the ICT infrastructure R22,8m. CIPRO's estimated internal costs meanwhile would be R46,2m bringing the total budget for the entire project to R186,9m.

This was an awfully large pot of money.

It is alleged that at the very beginning of the process CIPRO's Ghanaian CIO, Michael Twum-Darko, took a benevolent interest in the well being of one aspirant bidder - Valor IT CC. Valor IT was a small IT company owned by Josias Molele and Moosa Seedat. According Valor IT's income statement submitted to CIPRO for the financial year ended February 28 2007 the company had a turnover of R2,2m, up from R530,000 the year before.

Abe Mbulawa, the head of Mantra Consulting, would later claim that he had been put in touch with Valor IT by his long time friend and associate Twum-Darko. In an August 2009 affidavit Mbulawa stated that he had been brought in by Valor IT, on the recommendation of Twum-Darko, to help prepare the company's tender for the ECM project. He noted that "while Molele has some limited skills in the IT field, Seedat is a dentist by training and has little, if any, knowledge of IT related issues."

He also claimed that he had put together much of the technical side of the bid and to help him do so Twum-Darko had handed over CIPRO's confidential business case. When this claim emerged into the public domain CIPRO CEO Keith Sendwe claimed that the business case was a "public document". However, Faritec, one of the rival bidders, denied ever having been provided with it.

Mbulawa also brought in Zensar Technologies, a reputable multi-national IT firm headquartered in India. The importance of Zensar was highlighted by the fact that every page of Valor IT's proposed solution had the company's logo imprinted on it. Mbulawa claimed that he expected to be in control of the project, when Valor IT won the tender, "as I was the person who had the competency to do so."

In an early September 2008 a request for quotation was issued to approved suppliers to "provide and implement an Enterprise Content Management based solution and services in support of the e-CIPRO strategy."

It is important to note that the procurement of the ICT infrastructure was a separate tender process. This meant that the relevant amount estimated, in the business case, for the ECM tender component of the whole project was actually R113,4m (the bid only asked for the cost of a single year's maintenance fees for the software.)

The bids had to be submitted by October 8 2008 with quotation for cost "submitted in a separate sealed envelope." Bidders were required to submit a fixed rand based quote, which had to be valid for sixty days from the date of submission. They were to be evaluated by a formula whereby BEE counted for 10 points, ECM organizational experience 15 points, the proposed solution 45 points and cost 30 points. "Functionality" thus made up 60 points out of a total of 100 points.

Valor IT submitted a bid as did Faritec, an established IT firm with some 500 employees. In a departure from normal practice CIPRO's internal IT experts were excluded from the panel evaluating "functionality" and replaced by outsiders. According to information later supplied by CIPRO to the Minister of Trade and Industry, Valor IT scored 40.71 on functionality compared to 31.53 for Faritec. Curiously for a One Man and His Dentist Company Valor IT scored higher on organisational ECM experience (12) than Faritec did (8).

It seems to have been somewhere around this point at which the sealed envelopes, containing the prices of the bids, were opened. Valor IT came in with a bid of R152,7m as opposed to Faritec's bid of R62,7m (see here for a detailed cost breakdown of Valor IT's bid). Faritec had a higher BEE score as well. It would have been quite clear to everyone, at this point, that Faritec was going to win by a mile. The final scores of the two companies would have been as follows: Faritec 69.11, Valor IT 60.01. Even if Faritec's bid had been R44m higher they still would have outscored Valor IT.

It was at precisely this moment that Faritec got the chop, and was disqualified. A CIPRO spokesman told Politicsweb that Faritec "did not win the bid because their tenders were incomplete in terms of vital financial information pertaining to ECM implementation."

In their RFQ CIPRO stated that while it reserved the right to disqualify any bidder "the bidder will be notified in writing of such disqualification." When asked by Politicsweb why this had not been done, CIPRO stated: "All bidders are informed of the outcome of the tender in writing. They then can request reasons for not being successful. Faritec did not take up the opportunity."

One of the three reasons presented for this decision, in May last year, was that Faritec used the figure of R7/1USD in their bid documentation instead of the R8/1USD that CIPRO had requested. However, it is difficult to see why Faritec's use of the term "R7" instead of "R8" constituted grounds for disqualification. The reason why Faritec had said "R7" was that IBM, the software supplier for the bid, provided a fixed rand/dollar exchange rate to their clients set every quarter. And this is what they had used in their bid.

As far as we can establish: very little turned on this in real terms. CIPRO had asked for a rand based bid which had to be valid for 60 days, and this was what Faritec had submitted.

In a statement issued to IT Web in May last year CIPRO stated that, in addition to the R7/R8 issue, "Software pricing for several solutions was also not provided [by Faritec], while the software licensing model was not indicated in Faritec's pricing table." Politicsweb did ask CIPRO to point us to where in the Faritec costing schedule (which was in our possession) the offending omissions were. We also asked why CIPRO regarded these omissions, presuming they did exist, as sufficient grounds to disqualify the bid. No reply was forthcoming by the time of publication.

If CIPRO were worried about the implications of any discrepancies in the costing schedule they were entitled, in terms of the RFQ, to request an extension of the period in which the quote would be valid. They could also, presumably, have requested clarification on these matters from Faritec. They did neither.

According to a later press statement the results - on which Valor IT scored highest (Faritec having been bumped off) - were approved, sometime in December 2008, by a Bid Adjudication Committee, consisting of CIPRO's Chief Executive Officer, Keith Sendwe, Chief Financial Officer, Renier du Toit, Chief Information Officer, Michael Twum-Darko, and the Chief Internal Auditor. The Director General of the Department of Trade & Industry Tshediso Matona, then signed off on Valor IT as the winning bidder.

The award of this tender to an almost unknown IT company - even though its quote was R90m higher than Faritec's - caused huge dissension within CIPRO. Noseweek would report in April 2009 that internal opposition to the award was led by the organisation's Chief Operating Officer, Melanie Bernard Fryer.

The mystery of the R56m cardboard box

The curious story of the CIPRO tender does stop there, however.

In early February 2009 Valor IT were formally informed that they had been awarded the contract. And on February 16 2009 Valor IT dropped off an A4 box full of CD's at Pretoria headquarters- supposedly containing TIBCO and Vignette software licenses - and an invoice for R56m. According to sources in CIPRO this box was delivered at a time when both Sendwe and Twum-Darko were out of the country. On advice, the acting CIO refused to sign for it.

On March 27 2009 Valor IT and CIPRO signed the R152,7m contract for the delivery of the ECM system. And on March 31 2009 Twum-Darko himself signed off on the payment of R56m to Valor IT. Thus, before Valor IT had delivered a thing - other than a cardboard box, with CD's in it - CIPRO had paid out a sum equal to 90% of Faritec's total bid.

According to documents Politicsweb has had sight of the R56m payment was broken down into the following components (VAT included.):

Vignette and TIBCO are two American-owned software suppliers. When Politicsweb first heard last year of the massive sum CIPRO had paid for their products we contacted both companies. We asked for confirmation of their relationship with Valor IT and that they had indeed received on-payments (minus commission) from Valor IT for the software licenses and maintenance.

TIBCO spokesman, Holly L. Burkhart, replied that: "TIBCO does not disclose or comment on the details of its commercial relationships with its customers or partners. Our agreements with customers and partners prevent us from doing so."

Vignette spokesman, Adam Lee, stated that "the Vignette organisation were successful in bidding for the contract to provide Enterprise Content Management for CIPRO under the contract successfully won by Valor IT. Further to your specific enquiry, we are unable to disclose any commercial details under the partnership arrangement with Valor IT and specifically relating to payment arrangements."

Despite repeated follow ups, and the provision of more detailed information of the sums they were supposed to have received, TIBCO and Vignette failed to respond to any further queries. However, this week Josias Molele of Valor IT - who said he had been forwarded on our requests for information last year - assured us that the two companies had indeed been paid.

This decision to pay out such a massive sum of money up front caused further unhappiness within CIPRO. CIPRO's in-house IT experts argued that the organisation should not have had to pay for software licenses for a system that was not yet installed, customised or verified. Valor IT's Molele told Politicsweb however that the licenses were needed in order to do development work, and paying upfront was absolutely common practice in the IT industry.

In the RFQ CIPRO specified that the software would be used by about 600 users, and this was the basis on which bidders had worked out their pricing for the software (maintenance fees are calculated as a percentage of the license cost.) Obviously, there would be far fewer users working on the development, integration and configuration work on the software. Vignette also provided a 6 month limited warranty on their programme. Given that the agreement was activated upfront the warranty would, presumably, have lapsed months before the software was actually installed on CIPRO's systems.

We have been advised by some parties that it is common for IT companies to use cheaper ‘development licenses' in the early stages of a project. The much more expensive enterprise-wide licenses are then only activated and paid for close to the point at which the software becomes operational. However, this is disputed. When we asked Molele why Valor IT did not do the development work using such temporary licenses we were told that no such things existed.

What has been achieved?

Once Valor IT had secured the contract both Mbulawa and Zensar Technologies were sidelined from the project. In late 2009 Mbulawa would take Valor IT to court to get the money he believed he was due. Despite CEO Keith Sendwe making repeated reference to the company as a partner of Valor IT in his press statements defending the tender, Zensar played no role in the implementation of the contract through last year. In January 2010 Valor IT did employ a few Zensar contractors. When asked why Valor IT had not made use of Zensar as a partner Molele said it would have been a waste of money given that they were not needed in the first nine months of the project.

From the time when the award of the tender was first questioned - in Noseweek -Sendwe and Twum-Darko insisted that the whole process had been entirely above board. Given this fact there was a remarkable twitchiness when it came to any possible whistle blowing on the project. Part of the tension within the organisation was due to the fact that while Twum-Darko firmly supported Valor IT, many IT employees and contractors believed that the company was not up to delivering on the contract. Several key individuals in the IT and anti-fraud departments in CIPRO were summarily dismissed, or had their contracts terminated, for suspected whistle-blowing (or perhaps just knowing too much).

Bernard-Fryer was put under such pressure that she had a physical breakdown and had to go on indefinite sick leave. Arguably, one of the reasons why the CIPRO systems are currently in meltdown is that through the course of 2009 Sendwe and Twum-Darko got rid of much of CIPRO's working intellectual capital.

According to our sources, Twum-Darko was placed on special leave in early March 2010 after firing one ‘whistle blower' too many. A contractor who had provided access to information to SSG had his contract summarily terminated by Twum-Darko. It was at this point that Minister Rob Davies stepped in and Twum-Darko was placed on special leave.

An internal memorandum was then circulated by CIPRO's acting CEO requesting staff "to assist with the provision of relevant information regarding possible fraud and corruption. In this regard investigators are currently conducting interviews and staff should feel free to disclose such information to the investigators. It must be noted that such disclosed information will be treated with the strictest levels of confidentiality. The Executive Authority undertakes to protect employees against possible victimisation."

But what of the ECM contract that Valor IT was supposed to deliver?

In August 2009 CIPRO paid out a further R21m to Valor IT including R6,7m for autonomy e-forms software.

On November 19 2009 Keith Sendwe announced that the implementation of e-CIPRO Phase 1 - the workflow and document management system of the organization - had been delayed to March 2010. However Sendwe promised that, once implemented, "the high-tech, new workflow and document management system will speed up CIPRO's service delivery to its customers significantly." He also stated that "The new CIPRO Intranet and CIPRO portal (http://www.cipro.gov.za/) have also been revamped and both look slicker and will be much faster than the current site. The public can look forward to the release of the new CIPRO portal towards the beginning of December 2009."

No such website materialized in December. And Sendwe went off on extended sick leave not long after. When asked whether phase 1 of e-CIPRO would be delivered as promised Josias Molele said that the solution had been developed but was sitting on Valor-IT's computers as CIPRO had failed to provide the necessary hardware on which to install it. It would be ready to view by the end of the month. When CIPRO's ICT infrastructure was in place the solution would still have to be installed and tested.

When we contacted CIPRO and asked whether there had been any delays on the implementation of the tender a spokesperson replied: "The ECM is being developed in phases with a final completion date as per the contract of 31 January 2011. Any challenges during the project are being catered for in the Project Management Office."

It is almost exactly a year on from when CIPRO paid out R7,8m for one year's worth of maintenance fees for the TIBCO and Vignette software it had purchased for R40m last year. These maintenance fees would be up for renewal about now. We asked CIPRO whether this was in fact the case, and whether it was not wasteful expenditure to have paid this money for the maintenance of software that CIPRO has yet to derive any benefit from (or even seen). We received the following response, through their spokesperson:

"The tender document specified that the software package offered by the supplier included a one year maintenance plan. Continuous maintenance support will be done through the normal supply chain management process...The maintenance referred to was part of the software cost and is not regarded as wasteful expenditure. The maintenance was also necessary for supporting the software during the development phase."

Conclusion

It is important to note that none of the events described above would have been allowed to proceed unchecked had Twum-Darko and Valor-IT not enjoyed high level political support within the DTI (Minister Rob Davies was appointed to his post well after the tender had been awarded.)

From our inquiries it would seem that the key questions that remain to be answered are the following:

1.) Was the decision to disqualify Faritec from the bid process a legitimate one? What exactly was the vital information left out of their bid? And why did this justify their removal from the process (at the cost of R90m to the SA taxpayer)?

2.) Why did TIBCO and Vignette charge CIPRO such huge sums of money for enterprise-wide software licenses (with one year maintenance fees plonked on top) at the outset of the project, when all that Valor IT needed initially were licenses to do the development work?

3.) When will Valor IT deliver on the website or first phase of the project? Given that nothing has been implemented at CIPRO itself, what has actually been achieved over the past year? Will the ECM ever be delivered? And will it meet the requirements set out in the original Request For Quotation?

4.) Of the close to R100m already paid out on the contract, has any of this money found its way to back to any of the key decision makers on the bid evaluation process?

Footnote:

*This estimate of the scoring for Table 1 is based on the following information: The formula given in the RFQ, the BEE scores submitted by Faritec and Valor IT, the pricing of their bids, information provided by the Minister of Trade and Industry in parliament and the formula generally used by CIPRO in working out cost scores.

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