What happens to social grant payments when the current service provider contract expires on 31 March 2017?

Introduction

In the financial year 2015/2016, the South African Social Security Agency (“SASSA”) paid out a total of R128 billion to almost 17 million beneficiaries. The main categories of beneficiaries in this substantial scheme are the following: 3 million old age recipients (R53 billion), 12 million child support recipients (R47 billion) and 1 million disability grant recipients (R19 billion). SASSA is a statutory body, established in terms of the South African Social Security Agency Act of 2004. The Act defines SASSA’s objective as ensuring the efficient management, administration and payment of social assistance. It also determines that SASSA is subject to the Public Finance Management Act and supervision by the Minister of Social Development.

The payment contract and the Constitutional Court’s invalidation of it

Following a public tender process, SASSA concluded a contract on 3 February 2012 with Cash Paymaster Services (Pty) Ltd (“Cash Paymaster”) to provide services for the payment of social grants on a national basis. Cash Paymaster commenced its services on 1 April 2012, with a termination date of 31 March 2017. 

Cash Paymaster is a subsidiary of Net1, whose primary listing is on NASDAQ in the United States. It has a secondary listing on the Johannesburg Stock Exchange. Net1 focuses on the provision of payment solutions and transaction processes and works mainly in Korea and South Africa. Grindrod Bank is involved in providing banking services to SASSA grant beneficiaries and works in association with Cash Paymaster.

The awarding of this tender led to a lengthy legal dispute, which ended in the Constitutional Court. In its judgement of 29 November 2013, the Constitutional Court declared the tender process for the contract invalid, based on two essential grounds: the first was that SASSA failed to ensure that the empowerment credentials claimed by Cash Paymaster were objectively confirmed. The second was that a supplementary notification sent out to bidders did not specify with sufficient clarity what was required of bidders in relation to biometric verification, with the result that only one bidder was considered in the second stage of the process. This rendered the process uncompetitive and made any comparative consideration of cost-effectiveness impossible.

The Constitutional Court then held a further hearing to determine a just and equitable remedy and in its subsequent judgement of 17 April 2014, it stated that: 

“SASSA is an organ of state. It is bound to the basic values and principles governing public administration set out in section 195 of the Constitution. As is evident from this judgment, and the merits judgment, SASSA‘s irregular conduct has been the sole cause for the declaration of invalidity and for the setting aside of the contract between it and Cash Paymaster.” 

In order not to compromise SASSA’s payment system in the short-term, the Constitutional Court suspended the invalidity of the contract, pending a new tender to be undertaken by SASSA for a new five-year contract. It further specified that if no tender was awarded, the invalidity of the contract would be further suspended until completion of the five-year period for which the invalid contract was initially awarded.  

Developments in 2017

On 1 February 2017, SASSA made a presentation to Parliament’s Portfolio Committee on Social Development, in order to brief it on the situation. It reported that the tender had been re-advertised, as instructed by the Constitutional Court. There were bids from three potential service providers who did not meet the technical specification. There were also bids from Cash Paymaster and another bidder, but both these bids were later withdrawn.  

SASSA provided the Committee with a number of options on how to deal with the situation, but it stated that an extension of the suspension of invalidity of the Cash Paymaster contract was the only option to ensure that grants will continue to be paid after the beginning of April 2017. In order to pursue the recommended short-term option, SASSA stated that it would approach the Constitutional Court as a matter of urgency. Nothing was said on whether the existing service provider would be prepared to continue with making payments as before, and on what terms it might be prepared to do so. The SASSA representatives emphasised to the Committee that “there is no political pressure” for the extension of the Cash Paymaster contract.  

The other short-term options that were mentioned mainly related to including banks to effect payment. The banks’ recent acceptance of biometric standards was described as a big plus in this regard, but SASSA stated that there was insufficient time to conclude any arrangement in the less than two months which remain available. In addition, any banking involvement is complicated by the fact that 4 million beneficiaries do not have bank accounts and require cash payments to be made. Another theoretical option which SASSA mentioned, entails the inclusion of the Post Office, but the difficulty of using that channel is that the distribution of its outlets is mainly in urban areas.  

SASSA also regards these other options (especially for beneficiaries to use their bank accounts) to offer a way forward over the medium-term. SASSA envisages finalising the medium-term structure by October 2017 and to phase out the services of Cash Paymaster between November 2017 and March 2018.  In the longer term, SASSA is aiming at operating as a participant in the national payment system (in line with the banking laws), ensuring that all payments take place within the regulated payment environment, issuing its own payment card and with biometric criteria being applied to all beneficiaries and recipients. SASSA envisages that this process will commence in November 2017, with implementation to start in 2019. 

There have been widespread concerns about the extent of unauthorised deductions (especially regarding cellular airtime, electricity and loan repayments). An amendment to Regulation 26(A) of the Social Assistance Act prohibiting these deductions was published on 6 May 2016 and a letter was sent immediately by SASSA to Cash Paymaster instructing them to prohibit grant deductions. Cash Paymaster replied that it would not comply and SASSA was advised to contact Grindrod, which similarly refused to comply. Accordingly, on 15 June 2016, SASSA opened a criminal case against the directors of Cash Paymaster and Grindrod[1].  Cash Paymaster and Grindrod then approached the High Court to obtain clarity on the obligations contained in the amended regulations. SASSA told the Parliamentary Committee that the case was heard three months ago, but the High Court’s decision is still being awaited. Until the judgement is handed down, the criminal proceedings are suspended. SASSA told the Parliamentary Committee that, in other respects, Cash Paymaster had been doing a good job.

Conclusion

It is not a simple matter to conclude a tender in this field.  The scale of the enterprise is simply too vast to permit quick and easy solutions.  However, SASSA was given its instructions by the Constitutional Court in April 2014, and it is certainly not clear why a period of three years was not sufficient for this purpose.  If more time was needed, it is also unclear as to why the Constitutional Court was not approached for an extension in good time, and why acceptable arrangements were not made timeously with the current service provider for its services to be extended.  

As things stand, SASSA is proposing an extension of an invalid contract with Cash Paymaster, at a time when SASSA has started criminal proceedings against Cash Paymaster.  

The Portfolio Committee on Social Development and the public have therefore been confronted with a fait accompli.  From the presentation to the Parliamentary Committee, one certainly has the impression that the energy and thought injected into the process seems to have commenced at much too late a stage for a venture of this scale and complexity.  

Anton van Dalsen, Legal Counsellor, HSF, 9 February 2017

NOTES

[1] SASSA Press Statement, 15 June 2016