ON THE POINT OF TENDERS:

Report of the Public Protector on an investigation into allegations of impropriety and corrupt practices relating to the awarding of contracts for goods and services by the Limpopo Department of Roads and Transport

Executive summary

(i) On the Point of Tenders  is a report of the Public Protector on an investigation into  allegations of improper conduct, including corrupt practices, relating to the awarding of  contracts for goods and services by the Limpopo Department of Roads and Transport to  a company called On Point Engineers (Pty) Ltd and others.

(ii) The investigation followed three complaints lodged with the Public Protector in July 2011  in which it was alleged that Mr Julius Malema, who was the President of the African  National Congress Youth League at the time, used his political position to influence the  awarding of tenders by the Department of Roads and Transport, and other Departments  of the Limpopo Provincial Government, to certain companies where he is involved. It  was further alleged that Mr Malema improperly benefitted from corrupt kickbacks paid to  him by the companies involved, via the Ratanang Family Trust, set up by him. The one  complaint also made similar allegations against Mr S Bosch, said to be Mr Malema's  friend, in respect of the Limpopo Department of Human Settlements.

(iii) The report only deals with allegations that relate to the Department of Roads and  Transport (the Department). The allegations relating to other Departments of the  Limpopo Provincial Government are the subject of a separate investigation.

(iv) The allegations in respect of the Department specifically referred to the awarding of  tenders to On-Point Engineers (Pty) Ltd (On Point), Arandi Trading Enterprise and Sizani  Build It, respectively.

(v) Based on an analysis of the complaints and the contents of the newspaper articles on  which these were based, the following issues were investigated by the Public Protector:

• Was the awarding of the tender for a Project Management Unit (PMU) by the  Department to On-Point improper and in violation of the provisions of the  Prevention and Combatting of Corrupt Activities Act, 2004?
• Was On-Point involved in any corrupt practices in violation of the  Prevention and Combatting of Corrupt Activities Act in  its dealings with  other service providers appointed by the Department,  during its  management of the PMU of the Department?
• Did the Ratanang Family Trust and/or Mr J Malema benefit improperly from  the tender that was awarded to On-Point?
• Was the awarding of tenders for the provision of goods by the Department  to the other two companies referred to in the allegations, Sizani Build It and  Arandi Trading Enterprise, improper?
• Was the conduct of the Department, particularly its Head of Department,  Chief Financial Officer (CFO) and members of the Bid Evaluation  Committee (BEC) and Bid  Adjudication Committee (BAC), lawful and  proper?

(vi) The investigation involved mainly the perusal of the relevant documents relating to the  procurement of the contracts, interviews with officials of the Department and other role  players, perusal of relevant newspaper reports, consultation with the National Treasury  and analyses of relevant legislation and jurisprudence. The relevant records of the  Companies and Intellectual Property Commission (CIPC) were perused. Documentation  relevant to the allegations was also obtained from On-Point and an interview conducted  with its sole Director, Mr L Gwangwa. A legal opinion was obtained from independent  Senior Counsel and previous relevant decisions of the Public Protector applied, where  appropriate.

(vii) On 16 November 2011, the Public Protector met with the former Limpopo MEC  for Roads and transport and the Head of the Department where it was agreed that the  Department would not continue to appoint employees of On-Point to BEC's pending the  outcome of the investigation.

(viii) The total amount paid by the Department to On-Point in terms of the contract at the end  of June 2012 amounted to R 43 868 900.

(ix) The Public Protector issued a Provisional Report on the investigation on 30 July 2012.

The complainants and the affected parties were provided with an opportunity to respond  to the contents thereof. The responses received were considered and, where applicable,  incorporated into this report.

(x) The Conclusions and General Findings of the Public Protector are that:

(a) On 11 September 2009, 10 days after Mr Letebele took office as the Head of the  Department (HOD), the Department advertised a tender for the procurement of a PMU  for the construction and maintenance of roads. The advert ran for 20 days from 11  September 2009, the closing date being 01 October 2011. This timeline did not comply  with the National Treasury requirement of a minimum of 21 days and the Provincial  Treasury requirement of 30 days. The Department's argument for urgency, as envisaged  under Regulation 16A6.3 of the Treasury Regulations, on account of thereof that a lot of  work still had to be done before the end of the financial year, is not convincing.

(c) The Tax Clearance Certificate submitted by On-Point with its bid document belonged to  Achir Shelf, a five month old shelf company it had bought one month earlier, whose  area of business was registered as "all aspects of general trading".

(d) In the same bid document, On-Point represented its credentials as a  9 year old  engineering company with a solid track record and a sound management structure  boasting, among others, an annual turnover of R2 million, an Executive Team,  comprising a Chief Executive Officer, Chief Operations Officer, Chief Financial Officer  and various departments, including a Corporate Services Department, and a sizeable workforce purportedly having many of the skills identified in the call for bids. The bid  document also claimed youth empowerment points on account of having subcontracted  to Dichabe Engineers to the value of R1.2 million while in fact Mr Dichabe was one of  the three equal share holders of the newly established On-Point.

(e) When the HOD requested a valid Tax Clearance Certificate for On-Point, with the threat  of cancelling the deal should such certificate be not submitted within three days, Mr  Gwangwa's response was that Achir Shelf was On-Point, having been purchased as a  shelf company and the name changed to On-Point.

(f) It is mind boggling why the stark discrepancies between the bid document and the Tax  Clearance Certificate did not disqualify On-Point or present red flags regarding the  possibility of tender fraud, to those who dealt with the bid, particularly the HOD.

(g) The reality is that at the time of the bid, On-Point only existed on paper, with Segwalo  Engineering's premises and staff being used. This did not seem to bother the Bid  Committees and the HOD when they considered On Point's bid submission. It is worth  noting that not even Segwalo Engineering or the combined workforce of the three  agencies that were purportedly meant to eventually constitute On-Point, accounted for  the structure and staff compliment represented in the bid submitted to the Department  and on the basis of which On-Point scored super high functionality points.

(h) Evidence suggests that Mr Gwangwa and company began preparations for the PMU  tender long before it was advertised in September 2009. Such evidence includes the fact  that the shelf company, Achir Shelf, which according to Mr Gwangwa was acquired  solely for the PMU tender, was purchased in August 2009.

(i) Members of the BEC that evaluated the bid for the PMU included an external person  from Denel who was not an appropriate expert and who participated fully, including in  the scoring process. This was against the requirements of National Treasury prescripts  and guidelines that only officials of the Department or experts specifically contracted for  that purpose may be appointed to the BEC.

(j) The powers and responsibilies of On-Point as the PMU, mainly focused on the  supervision/overseeing of the work of Professional Service Providers engaged by the  Department to plan, design, build, upgrade and maintain roads and bridges in the  Limpopo Province.

(k) Despite denials, there is incontrovertible evidence confirming that On-Point entered into  the alleged "back-to-back" agreements with some of the Professional Service Providers  doing work under its supervision, on the basis of which On-Point had to do some or most  of the work and was to be paid for such by them. In one case, the Professional Service  Provider was only entitled to 5% of the amount paid by the Department as its input was  confined to reviewing work done by On-Point.

(l) Though not part of the original bid, during the execution phase, On-Point was paid to do  similar work to that of the Professional Service Providers it was supervising. At least in  one case, it was paid for doing the same work.

(m) Despite denials, incontrovertible evidence uncovered also shows that On-Point was  paid by the Professional Service Providers under its supervision. Verified payments  include R1 million paid by Mpotseng Infrastructure on 29 April 2011 into On-Point's bank  account with the relevant bank statement curiously showing the same amount being  withdrawn for payment towards the "Ratanang Farm", 5 days later. Another verified  payment is an amount of R1,2 million by H L Matlala & Associates on 12 July 2011.

(n) On-Point has one share holder, Guilder Investments, which in turn has two equal  shareholders, the Gwangwa Family Trust and the Ratanang Family Trust. The sole  beneficiary of the Ratanang Family Trust is Mr Malema's son. Originally, Mr Julius  Malema was the sole Trustee. His grandmother, who is 83 years old, was later added as  a Trustee.

(o) Bank statements of On-Point show, in addition to the Ratanang Farm payment, the  payment of regular amounts of R100 000 to the Ratanang Family Trust totaling  R2,17  million over a period of 17 months. Only one payment of R60 000 appears for the Gwangwa Family Trust. Undefined loans of R200 000 each are also reflected on the  bank statements.

(p) Regarding contracts, awarded by the Department to Arandi Trading Enterprise and  Sizani Build It, the evidence shows that such contracts were awarded following a tender  process.

(q) Regarding the propriety of the conduct of the Department, particularly the HOD, the  Chief Financial Officer and Bid Committees, the Public Finance Management Act, 1999  (PFMA), Treasury Regulations, directives and guidelines stipulate the standard to be  complied with and the specific findings below address the question whether or not the  conduct investigated complied accordingly.

(xi) SPECIFIC FINDINGS

The specific findings of the Public Protector are that:

Finding 1: Was the awarding of the tender for a Project Management Unit (PMU) by  the Department to On-point Engineering improper and in violation of the  provisions of the Prevention and Combatting of Corrupt Activities Act?

(a) The failure by the Department, specifically the Bid Committees and the HOD,  to  notice obvious discrepancies in the bid,  particularly the Tax Clearance Certificate and company registration documents, showing the company to be not older than 5  months while the bid document claimed 9 years of experience, leaves a lot of  questions to be answered regarding the relationship between the HOD and some or  all of the departmental players that took part in the bid process and On-Point. That  On-Point was given preferential treatment is without doubt.  The unanswered  questions are further compounded by the fact that evidence suggests that On-Point  knew about and started preparing for the bid some time prior to September 2009.

The Public Protector does not make a finding on the possibility that such  relationship(s) may be in violation of the Prevention and Combating of Corrupt Activities Act and leaves this to be concluded under the investigation currently being undertaken by the Directorate: Priority Crime Investigation of the South African  Police Service (Hawks). The Public Protector accordingly reserves her findings on whether or not the awarding of the tender constitutes a corrupt practice as  envisaged under the Prevention and Combatting of Corrupt Activities Act.

(b) On-Point should never have been awarded the tender for the PMU as it did not  qualify by a long stretch. The bid it presented to the Department on 29 September  2009 for the PMU tender consisted of a deliberate and fraudulent misrepresentation  in respect of the profile, composition, experience, personnel, assets, annual  turnover and contribution to youth business development, and therefore the  functionality and track record of the company. It was represented to the Department  that On-Point was an established and experienced company with management  teams and professional staff that complied with the requirements of the Request for  Proposal.

(c) The reality was that at the time of the submission of the bid document, On-Point had  existed for approximately one month, had no employees, no assets or annual  turnover and several of the purported key management personnel and staff  members were not involved with it at all. It also had made no contribution to youth  business development.

(d) As a company, On-Point had no profile, track record and experience and therefore  no functionality that could have made it eligible to be considered as a competent  bidder.

(e) The submission of the bid therefore violated the provisions of clause 23.1(a) of the  General Conditions of Contract and amounted to an abuse of the supply chain  management system, which is prohibited by Treasury Regulation 16A9.  The  conduct was unlawful and constituted fraud.

(f) The Public Protector is accordingly of  the view that  the crime of fraud  has  been committed.

(g) The failure by the BEC, BAC and the HOD to properly interrogate the bid presented  by On-Point and to perform a due diligence test on and verification of its  functionality and compliance with the requirements of the bid, was improper and  constituted maladministration. The fact that On-Point had no employees and that it  misrepresented its experience, involvement in youth business development and  annual turnover is obvious and evident from the bid document itself. None of these  obvious discrepancies were noted and considered during the procurement process.

(h) The awarding of the tender by the Department to On-Point was unlawful,  improper and constitutes maladministration.

Finding 2: Did On-Point engage in any corrupt practices in violation of the  Prevention and Combatting of Corrupt Activities Act, in its dealings with the  Departmental Professional Service Providers under its supervision as the Project  Management Unit?

(a) On-Point entered into "back-to-back" agreements in terms of which it received or was  supposed to have received payment from Professional Service Providers for designs  which it had drawn in respect of projects that it was contracted to manage and  supervise. This constituted a direct conflict between On-Point's obligations to  objectively manage and supervise projects on behalf of the Department, its own  financial interests and that of Mr Gwangwa, its sole Director. These agreements  clearly constituted kickbacks, a form of gratification under section 12(1) of the  Prevention and Combatting of Corrupt Activities Act.

(b) The manner in which these agreements were couched further suggests that the  existence thereof was to remain a secret.

(c) The Department made double payments in respect of the designs of certain projects  as a result of these agreements. On-Point was paid as well as a Professional Service  Provider contracted for the same designs.

(d) Mr Gwangwa's involvement in these agreements, in his capacity as the Director of  On-Point and a  "Registered Person"  in terms of the Engineering Profession Act, 2000 may also have constituted a violation of the Rules of Conduct for Registered  Persons: Engineering Profession Act, 2000.

(e) As the receiving or requesting of double payments for the designs concerned  constituted a fraudulent practice in the executing of the contract between On-Point  and the Department, it violated the provisions of Treasury Regulation 16A9 and the  General Conditions of Contract that applied.

(f) In terms of section 12(1) of the Prevention and Combatting of Corrupt Activities Act any person who accepts or agrees to accept any gratification from any other  person or gives or agrees to give to any other person any gratification in order  to improperly influence in any way the execution of a contract with a public  body, is guilty of an offence. The evidence and information obtained during the  investigation leads to the unavoidable inference that On-Point/Mr Gwangwa acted in  contravention of these provisions when it/he entered into the  "back-to-back  agreements which impacted on the execution of the contract between On-Point and  the Department, and accepted payments from the Professional Service Providers  and the Department relating thereto.

(g) The Public Protector is of the view that the conduct of On-Point as the PMU of  the Department  in entering into agreements with Mpotseng Infrastructure,  Baitseanape Consulting Engineers and H L Matlala & Associates respectively,  constitutes corrupt practices, as envisaged under section 12 of the Prevention  and Combatting of Corrupt Activities Act. It also amounted to an inappropriate  conflict between the obligations and responsibilities of On-Point as the PMU of  the Department and its own interests.

(h) The Public Protector is accordingly of the view that a crime under the Prevention and  Combatting of Corrupt Activities Act has been committed.

Finding 3: Did the Ratanang Family Trust and/or Mr J Malema benefit improperly  from the tender that was awarded to On-Point?

(a) On-Point paid more than R2 million  directly  to the Ratanang Family Trust from  November 2010 to May 2012 in the form of "dividends" and loans. The amount of  R1 million withdrawn 5 days after one of the kickbacks was paid under the back-toback agreements, is further accounted for in the bank statements as having been  paid towards the Ratanang Farm. Further amounts of R160 000 and R100 000 are  reflected as having been paid in respect of the "Sandton Property" and "Sandowns  Property", respectively. Payments were also made to Tshiamo Dichabe, the  Makatele Family Trust, Guilder Investments and the Gwangwa Family Trust (former  and current shareholders of Guilder Investments, which is the sole shareholder of  On-Point).

(b) The evidence of Mr Gwangwa in respect of how and by whom it was decided that  On-Point should pay (monthly) dividends to the Ratanang Family Trust and make  payments to the Gwangwa Family Trust (via Guilder Investments) furthermore  supported the allegation that the Trusts were probably used as vehicles for the  transfer of funds obtained through an unlawful process.

(c) As the main source of income of On-Point during this period was the payments  made to it by the Department in terms of the agreement and On-Point owed its  existence as a profit making establishment that could declare regular  dividends thereto, the Ratanang Family Trust as one of two shareholders of Guilder Investments (as the holding company), accordingly benefitted  improperly from the unlawful, fraudulent and corrupt conduct of On-Point and  maladministration of the Department.

Finding 4: Was the awarding of tenders for the provision of goods by the Department to the other two companies referred to in the allegations, Sizani Build It and Arandi Trading Enterprise, improper?

(a) Apart from the appointment by the HOD of employees of On-Point to the BEC that  evaluated the tenders, which was improper, the awarding of the contracts to Arandi  Trading Enterprise and Sizani Build It was in accordance with the prescribed tender  process.

(b) In view of the irregular participation of the employees of On-Point in the BEC's of the  Department, in violation of National Treasury Guidelines and prescripts, the awarding  of these contracts was improper. However, it was not necessarily unlawful.

Finding 5:  Was the conduct of the Department, particularly its Head of  Department, Chief Financial Officer and members of the BEC and BAC, lawful and  proper?

(a) In terms of the provisions of section 38 of the PFMA, it was expected of the HOD to  act in the best interests of the Department and to ensure that the procurement  process complied with the provisions of section 217 of the Constitution, the Public  Finance Management Act, 1999 (PFMA), Treasury Regulations and directives, and  other relevant legislation and policies.

(b) The HOD conceded during the investigation that as the accounting officer of the  Department, he was ultimately responsible for the procurement of the services of OnPoint. He also agreed that it was expected of him to consider the minutes of the  tender committee meetings and the disqualification and recommendations of bidders.

(c) No indication could be found during the investigation that the HOD applied his mind  to the disqualification of bidders. He made no effort to ensure that the awarding of  the bid to On-Point was in accordance with the principles of a system that promotes  competition and cost effectiveness in the interest of the Department and the public.

The HOD also could not provide any satisfactory explanation for his failure to act in  accordance with the resolution of the BAC that the price on certain items had to be negotiated with On-Point, which was recorded in the Minutes of the relevant BAC  meeting.

(d) The HOD also failed to pick up obvious anomalies in On-Point's bid document,  including the discrepancy between the claim that it had 9 years' experience while its  registration documents showed that On-Point was converted from a shelf company  that had been in existence for about five (5) months.

(e) The conduct of the Department, specifically that of Mr Letebele the HOD and  the BEC and BAC failed to meet the standard stipulated under the PFMA,  particularly section 38, thereof and relevant Treasury Regulations, inclusive of  Regulation 16A6, read with National Treasury's  Supply Chain Management  Guide for Accounting Officers. The conduct was accordingly unlawful,  improper and constitutes maladministration.

(xii) Remedial action to be taken as envisaged by section 182 (1)(c)of the Constitution, is  the following:

(a) The Head of the Department to take urgent steps to:

(aa) Immediately cancel the agreement between the Department and On-Point  in terms of  clause 23.1(a) of the General Conditions of Contract and  Treasury Regulation 16A9;

(bb) Instruct the State Attorney to institute legal proceedings against On-Point  and its shareholders that benefitted from the awarding of the tender, in  order to recover any amount to which the Department is entitled to, due to  On-Point's fraudulent misrepresentation in respect of its bid and the  improper financial benefit that it and its shareholders gained as a result  thereof;

(cc) Commence the process of imposing a restriction penalty on On-Point and  Mr Gwangwa in terms of the provisions or clause 23 of the General  Conditions of Contract;

(dd) Ensure that the officials of the Supply Chain Management Division and  the members of bid committees are trained on the prescripts of the  National and Provincial Treasuries in respect of demand and acquisition  management;

(ee) Ensure that officials appointed as members of BEC's are properly trained  in respect of the proper application of the procurement system as  contemplated by the provisions of section 217 of the Constitution, the  PFMA, Treasury Regulations and prescripts and the relevant  procurement policies;

(ff) With the assistance of National Treasury, conduct a reconciliation of all  the payments made to On-Point in terms of the agreement and to service  providers appointed by the Department in respect of the period that OnPoint was appointed as the PMU of the Department, in order to determine  the total value of double payments made to On-Point and any other  payments that should not have been made, taking into account the BAC  directive on price negotiation.

(gg) Recover the total amount of double and other undue payments made to  On-Point from it;

(hh) Institute disciplinary steps against the officials who served as members of  the BEC and the BAC in respect of their failure to perform their functions  diligently, which resulted in the findings made in connection with the  impropriety, unlawfulness and maladministration in paragraph (ix) above  pertaining to the awarding of the tender to On-Point;

(ii) Bring the Supply Chain Management Policy of the Department in line with  the provisions of section 217 of the Constitution, the PFMA and Treasury  Regulations and directives; and

(jj) Improve the demand management process of the Department in respect  of the drafting of specifications for the supply and delivery of goods and  services.

(b) The Director-General of the National Treasury to:

(aa) Ensure that the restriction of On-Point and Mr L Gwangwa referred to in  paragraph (a) above is captured in the database of the National Treasury,  as contemplated by clause 23 of the General Conditions of Contract,  should it be imposed; and

(bb) Issue instructions in terms of section 76 of the PFMA to compel and guide  the accounting officers of organs of state to perform a proper due  diligence investigations into the profile, composition, status and financial  viability of bidders during the procurement process.

(c) The Member responsible for the Provincial Treasury of the Executive Council of the  Limpopo Provincial Government to:

(aa) Ensure, in terms of Treasury Regulation 4.1.3, that the Executive  Authority of the Department initiates an investigation into the conduct of  the Head of the Department referred to in paragraph (ix) above, with a  view of taking disciplinary action against him; and

(bb) Take  urgent steps to bring the Limpopo Provincial Policy on Bid  Committees in line with the procurement system contemplated by the  provisions of section 217 of the Constitution, the PFMA and Treasury  Regulations and directives.

(d) The Chairperson of the Engineering Council of South Africa to take appropriate steps  to determine whether the conduct of Mr L Gwangwa referred to in this report  complied with the Rules of Conduct for Registered Persons: Engineering Profession  Act, 2000 and if not, to ensure that appropriate action is taken.

(e) The Master of the North Gauteng High Court to take urgent steps to initiate an  investigation into the administration and disposal of the trust property of the  Ratanang Family Trust and the Gwangwa Family Trust, with specific reference to the  payments made to it by On-Point and any assets it acquired, referred to in this  report, as provided for by section 16 of the Trust Property Control Act, and to take  appropriate legal action, if required.

(f) The Acting National Director of Public Prosecutions and the Head of the Asset  Forfeiture Unit of the National Prosecuting Authority to:

(aa) Take note, in terms of section 6(4)(c)(i) of the Public Protector Act, that  the evidence and information obtained during the investigation, as  referred to in  Findings  1 and 2 of paragraph (ix) above, disclosed the  commission of the criminal offences fraud and a contravention of section  12 of the Prevention and Combatting of Corrupt Activities Act, 2004;

(bb) Take urgent steps to deal with the evidence of the commission of the  criminal offences in the appropriate manner, as envisaged under section  6(4) (c) (i) of the Public Protector Act; and

(cc) Ensure that the investigation of the criminal offences referred to in  paragraph (aa) above by the Directorate: Priority Crime Investigation of  the South African Police Service includes a thorough scrutiny of the  relationships between the representatives of the shareholders of OnPoint, the top management of the Department, members of the relevant  BEC's and the BAC of the Department and all the recipients of contracts  awarded with On-Point's participation.

The full report can be accessed here.

Issued by the Public Protector, October 10 2012

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