Extract from: Against the rules too: Report of the Public Protector in terms of Section 182(1) of the Constitution of the Republic of South Africa, 1996 and Section 8(1) of the Public Protector Act, 1994 on an investigation into complaints and allegations of maladministration and unlawful conduct by the Department of Public Works and the South African Police Service (SAPS) relating to the leasing of SAPS office accommodation in Durban, July 14 2011

EXECUTIVE SUMMARY

(i) AGAINST THE RULES TOO is the second and final report of the Public Protector in response to a complaint, lodged with her office on 2 August 2010, in connection with the alleged improper procurement of the lease of office accommodation for the SAPS in the Middestad building (previously known as the Sanlam Middestad building) in Pretoria and the Transnet Building in Durban. These complaints originated from a newspaper article published on 1 August 2010 alleging improper conduct and maladministration by the National Commissioner of the South African Police Service (SAPS) and the Department of Public Works (DPW).

(ii) Primarily the complaint related to the alleged non-compliance with the requirements of section 217 of the Constitution of the Republic of South Africa, 1996 (the Constitution) by the SAPS and the DPW, and the alleged improper involvement the National Commissioner of the SAPS in the procurement of the two buildings. Questions were also raised regarding the SAPS's relationship with the preferred service provider and the cost effectiveness of the transaction. The sum total value of the leases complained of is reflected in the diagram below.

(iii) The Public Protector investigated the complaints with the cooperation of the Special Investigating Unit.

(iv) On 3 August 2010, the Public Protector requested the National Commissioner of the SAPS and the Director-General (DG) of the DPW not to proceed with the implementation of the leases, pending the finalisation of the investigation.

(v) Both parties responded with an undertaking not to proceed with the implementation of the said leases until the investigation was completed.

(vi) On 11 and 19 October 2010, the DG of the DPW informed the National Commissioner of the SAPS, on the basis of the findings of an internal inquiry and independent legal advice obtained, that the lease agreement between the DPW and Roux Property Fund (RPF) in respect of the Middestad building, was invalid and that a new procurement process had to be initiated for the leasing of accommodation for the SAPS in Pretoria and Durban. The Public Protector was advised of this development on 11 October 2010.

(vii) On 25 October 2010, the Public Protector issued a preliminary report on the investigation and informed the SAPS and the DPW of her concurrence with the decision of the DPW to commence with entirely new procurement processes in respect of the accommodation requirements of the SAPS in Pretoria and Durban.

(viii) The former Minister of Public Works, Mr G Doidge, was replaced by Ms Gwen Mahlangu-Nkabinde as from 1 November 2010.

(ix) Shortly after Ms Mahlangu-Nkabinde's appointment, her office obtained informal advice from the Office of the State Attorney on the lease agreement in respect of the Middestad building. The State Attorney's letter to the Minister's Special Advisor, date 11 November 2010, indicated that the lease agreement was enforceable. This advice was, however, given subject to a further legal opinion, to be obtained from senior counsel, at the request of the Minister's office.

(x) On 15 November 2010 the Minister's special advisor, accompanied by the DPW Director: Legal Services and Litigation met with the Public Protector in connection with the advice obtained from the State Attorney. The Public Protector communicated the view that no weight should be attached to the hastily prepared opinion of the State Attorney and that she stood by contents of her preliminary report.

(xi) The opinion of senior counsel, which also considered the procurement process followed by the DPW, dated 22 November 2010, concluded that the contract between the DPW and RPF was unlawful and the lease agreement therefore invalid. It supported the legal advice previously obtained by the DPW, also from senior counsel, that the High Court should be approached with an application seeking judicial review and setting aside of its decision to enter into the lease agreement, and for an order declaring that the lease agreement was invalid on the basis of non-compliance with the relevant legislation and other prescripts.

(xii) The legal advice that was obtained by the DPW and the Office of the Minister of Public Works was also relevant to the investigation of the Public Protector into the procurement of the lease of the Transnet building in Durban as the same role players were involved and the same procurement process was followed. The two procurements were intertwined and the same legal principles therefore applied to both. No lease agreement existed in respect of the Transnet building at the time the investigation commenced.

(xiii) The investigation of the Public Protector that forms the basis of this report was conducted over a period of three months and included interviews with officials and former officials of the SAPS, including the National Commissioner, officials of the DPW (including the Director-General) and visits to relevant police stations in Durban and the KwaZulu-Natal Provincial Head Office. Voluminous documentation relating to the procurement and correspondence was perused and the relevant provisions of the Constitution, the Public Finance Management Act, 1999 (PFMA), Treasury Regulations and other procurement prescripts considered and applied.

(xiv) The Public Protector also interviewed the Minister of Public Works.

(xv) The schematic illustration below represents a summary of the SCM process as pertains to the procurement of leased accommodation, as well the respective responsibilities of the DPW and the SAPS:

(xvi) The similarities identified in the procurement of the Middestad building lease and the Transnet building lease

The complaint lodged with the Public Protector related to both the Middestad and Transnet building leases. During the course of the investigation into the procurement of these leases a number of similarities were identified in the procurement processes and the role-players involved. Such similarities included:

(a) According to the documentation provided both buildings were identified by the SAPS (National Commissioner);

(b) The SAPS engaged the owners of the buildings prior to the DPW becoming involved in the procurement process, as was required;

(c) The total lettable area of the respective buildings had a direct influence on the demand management process of the SAPS as both buildings had been identified prior to the formal demand management process being initiated;

(d) In both instances there was no legitimate urgency that justified a deviation from the prescribed open tender process;

(e) RPF signed purchase agreements for both buildings shortly before the SAPS identified the buildings as alternative accommodation;

(f) In both instances the procurement strategy adopted by the DPW resulted in negotiations with RPF exclusively;

(g) The procurement of both leases was not reflected in the User Asset Management Plan;

(h) In both instances, funds had to be reprioritised due to insufficient funds being available in the SAPS leasing budget;

(i) In both instances, the deviation from the prescribed tender process was not recorded or reported to the National Treasury and the Auditor-General of South Africa, as required by Treasury prescripts;

(j) In both in instances, the service provider (RPF) made contact with officials at the SAPS and the DPW and is alleged to have put pressure on them in regard to the finalisation of the procurement process; and

(k) In both cases the buildings leased were of a Grade C standard and required major refurbishment at a significant cost to the State and were leased at a rental much higher than the market rate for such building. As a result of the above similarities a number of the findings made in respect of the procurement of the lease of the Middestad building are also applicable to the leasing of the Transnet building.

Furthermore, the process followed by the SAPS in respect of the Transnet building was extra ordinary in three ways:

• The original plan of the SAPS was to construct a building as opposed to the option leasing an existing building;
• A building was, however, subsequently identified to be leased, prior to the full extent of the need being determined by the SAPS; and
• The needs analysis of the SAPS closely corresponded with the available lettable floor space of the Transnet building.

(xvi) The general findings of the Public Protector are the following:

(a) The need was not dealt with in the SAPS Immovable Asset Management Plan and not budgeted for.

(b) The fact that the procurement of the lease of the Transnet building was not budgeted for and included in the Immovable Asset Management Plan of the SAPS, constituted maladministration.

(c) The involvement of the SAPS proceeded beyond the demand management phase of the SCM process.

(d) The warnings and advice from the DPW pertaining to the identification by the SAPS of a particular building and negotiating with a single service provider, was regarded by the SAPS as interference in its affairs.

(e) The Transnet building was identified prior to the determination of the specific nature and extent of the need for alternative accommodation.

(f) If the demand management process in respect of the FCS units was properly applied, prior to the identification of the Transnet building, the likelihood of the DPW securing alternative accommodation closer to the respective clusters, in accordance with the vision of the National Commissioner, cannot be excluded.

(g) The market rental rate for a building such as the Transnet building was determined by the DPW at R40.00 per m2. The lease agreement signed between RPF and the DPW in respect of the Transnet building reflect a rental rate of R125.30 per m2. The procurement of the lease was not in accordance with a system that is cost effective.

(h) The full extent of the need for alternative accommodation was only determined by the SAPS, as reflected in the needs analyses, subsequent to the Transnet building being identified and the total lettable floor space being made known to the SAPS.

(i) The failure on the part of the KZN Regional Office to comply with the conditions of the SNBAC, which required that the reference to market related rental in the option analysis report be reconciled with the rental rate offered by RPF, further contributed a to lack of cost effectiveness, which amounted to maladministration.

(j) There was no legitimate justification for a deviation from the prescribed tender process.

(k) In violation of Treasury Regulations, the DPW did not record and report the reasons for deviating from a competitive process as required by SCM prescripts.

(l) The purpose of the reporting requirement is clearly to provide the National Treasury, as the custodian of public funds, with an opportunity to note, evaluate and, if necessary, intervene in the procurement process. The failure to report the deviation therefore accordingly deprived the National Treasury of the intended opportunity.

(m) The procurement process did not comply with the requirement of fairness, equitability and transparency.

(n) It appears from the very nature of the process followed, namely, by entering into a negotiated contract instead of a competitive bidding process, without justification, the constitutional requirements of fairness, equitability and transparency were also not complied with. The situation was exacerbated by the fact that the contractor had already been involved in the process right from the beginning, even before the total extent of the need was established.

(o) The floor space leased from RPF exceeded the total guideline area determined by the DPW.

(p) The difference between the approved offer and the final DPW norm document equates to 4058.87m2. The financial impact of the additional floor space amounted to R77 683 352.29, excluding operational costs, over the entire lease period (9 years11months) as reflected in the table below.

This additional expenditure, resultant from maladministration on the part of the DPW, could further have led to fruitless and wasteful expenditure as contemplated by section 1 of the PFMA.

(q) The lease agreement entered into by the DPW and the RPF was invalid as the procurement of the lease was done in a manner that did not comply with the requirements of the Constitution, the PFMA and the Treasury Regulations and instructions for procurement by organs of state.

(r) The conduct of SAPS and DPW officials involved in the procurement of the lease was improper and unlawful.

(s) The failure of the National Commissioner to ensure that the procurement process complied with the said legal requirements and prescripts, as indicated in the findings above, resulted in the invalid conclusion of a lease agreement, to the detriment of the State, and therefore constituted maladministration.

(t) The original procurement instruction was issued on 1 July 2010, the same day on which the Director-General of the DPW took office. When the Director-General became aware of allegations with regard to the procurement process, he gave instructions in August 2010 to suspend the procurement process subject to an internal investigation that was being conducted.

(u) The SNBAC approved the lease of the Transnet building in terms of DPW Circular 10 of 2010. When the approval was brought to the attention of the Director-General, he added certain conditions in respect of the lease agreement. These conditions were, however, not complied with by the KZN Regional Office prior to or subsequent to the signing of the lease agreement with RPF the following day.

(v) Although the ultimate accountability in terms of the PFMA for the procurement of the lease remains that of the Director-General, as the accounting officer, the evidence shows that the process in respect of the procurement of the Transnet building had already progressed to an advanced stage at the time when he took office, on 1 July 2010.

(w) The evidence further indicates that the Director-General took additional steps to ensure that the procurement of the lease was cost effective by commissioning an option analysis report and conditionally agreeing to the procurement of the lease.

(x) The conduct of the KZN Regional Office of the DPW, by merely accepting that only the Transnet building could be procured and by advising the SNBAC, accordingly amounted to maladministration.

(y) The failure of the SNBAC to properly interrogate the recommended procurement strategy also amounted to maladministration.

(z) The failure of the KZN Regional Office to comply with the conditions imposed by the SNBAC and the Director-General was improper and amounted to maladministration.

(xvii) The Public Protector's specific findings in relation to the conduct of the SAPS are that:

(a) The lease agreement in respect of the Transnet building was signed between RPF and the DPW and not by the National Commissioner of the SAPS, as was alleged. However, the National Commissioner signed both the initial and re-submitted needs analyses and a memorandum, dated 28 June 2010, authorising funding for the Transnet building lease.

(b) Although the SAPS did not sign the lease agreement, its involvement in the procurement process was improper, as it proceeded beyond the demand management phase and it further failed to implement proper controls, as required by the PFMA and relevant procurement prescripts.

(c) The SAPS failed to comply with section 217 of the Constitution, the relevant provisions of the PFMA, Treasury Regulations and supply chain management rules and policies. This failure amounted to unlawful, improper conduct and maladministration.

(d) The conduct of the accounting officer of the SAPS was in breach of those duties and obligations incumbent upon him in terms of section 217 of the Constitution, section 38 of the PFMA and the relevant Treasury Regulations. These provisions require an accounting officer to ensure that goods and services are procured in accordance with a system that is fair, equitable, transparent, competitive and cost effective. This conduct was improper, unlawful and amounted to maladministration.

(e) On the evidence available it could not be found that an improper relationship between the preferred service provider (RPF) and the SAPS motivated the deviation from required tender procedures.

(f) The inclusion of the operational staff of the FCS units in the needs analyses does not fully reconcile with the vision of the Minister of Police and the National Commissioner of bringing the police closer to the communities that they serve.

The National Commissioner's contention that the operational staff of the FCS units would remain at their cluster stations, is not supported by the evidence in respect of the accommodation requirements of the SAPS, as contained in the needs analyses.

(xviii) The Public Protector's specific findings in relation to the conduct of the DPW are that:

(a) The procurement by the DPW of the lease was not in accordance with a system that is cost effective and competitive, as is required by section 217 of the Constitution, the relevant provisions of the PFMA, Treasury Regulations and supply chain management rules and policies. This failure amounted to improper conduct and maladministration.

(b) The reckless manner in which the DPW dealt with public funds in this case, particularly by not following the prescribed tender process without justification, not ensuring that the state received value for money, as well as ignoring containment process that was already in place, fell short of the requirements of good governance and administration.

(c) The conduct of the DPW KZN Regional Office and that of the SNBAC was in breach of those duties and obligations incumbent upon them in terms of section 217 of the Constitution, the PFMA and the relevant Treasury Regulations. These provisions require that goods and services are procured in accordance with a system that is fair, equitable, transparent, competitive and cost effective. This conduct was improper, unlawful and amounted to maladministration.

(d) The process that led to the conclusion by the DPW of a lease agreement with RPF was fatally flawed in various respects, including non-compliance with prescribed procurement procedures and conditions imposed by the SNBAC and the accounting officer. This rendered the process unlawful and further constituted improper conduct and maladministration.

(e) The lease agreement should not have been entered into as it did not comply with the validity requirements of the Constitution, applicable legislation, prescripts and the instructions of the accounting officer. The lease agreement entered into by the DPW and RPF was therefore invalid.

(f) The initiation of a new procurement process in April 2011, contrary to the undertaking given to the Public Protector by the DPW for the process to be held in abeyance pending the finalisation of this investigation and a pronouncement on the propriety of the procurement process followed, was improper and undermines public confidence in organs of state.

(g) The conduct of the Minister of Public Works in relation to the procurement by the DPW for the SAPS referred to in this report and in respect of the investigation by the Public Protector failed to meet the requisite stewardship expected from her, including the use of public resources as envisaged by sections 195 and 217 of the Constitution and the Batho Pele Principles, and her obligation to cooperate with the investigation in terms of the Public Protector Act, and accordingly constituted improper conduct as envisaged by sections 181(3) and 182(1) of the Constitution. The schematic illustration below reflects a comparison of the above findings against the relevant phases of the procurement process as it pertains to leased accommodation:

Schematic: Findings is respect of the procurement process of the Transnet building

(xvix) The non-compliance by the SAPS and DPW with the prescribed SCM process in the procurement of the Transnet building lease had the following impact:

(a) Due to the fact that the procurement was not cost effective it resulted in a significant potential monetary loss to the state and prejudice to the South African tax payers;

(b) Loss of public confidence in the SAPS, DPW and organs of state in general in open and transparent procurement of goods and services;

(c) The perception of potential service providers that they cannot expect fair and equal treatment from organs of state;

(d) A delay in improving the accommodation and working conditions of SAPS officials, which has a direct bearing on their level of service delivery;

(e) The perception created by the SAPS needs analyses that vulnerable members of the community, i.e. women and children will have limited access to units of the SAPS established specifically to deal with family violence, child protection and sexual offences related matters.

(f) As was the case in the Middestad investigation referred to above, it was evident throughout this investigation that a number of the officials interviewed had the perception that the SAPS could irregularly influence the procurement process. These perceptions were reinforced by the fact that when these officials raised serious concerns with the process followed by the SAPS and the DPW to procure the lease in writing in, they were sidelined and/or deliberately removed from the procurement process.

(g) By entering into long term lease agreements of substantial amounts (R1.1 billion in this instance), which includes operational costs aimed at upgrading buildings significantly, the DPW is essentially footing the bill for the improvement of properties owned by private entities. The expenditure incurred for such a lease could be better utilised for the construction of client specific accommodation and/or the purchasing of suitable property to accommodate client departments. It was noted from the response of the Minister of Public Works to the Provisional Report of the Public Protector that she intends formulating a policy in terms of which the DPW will in future consider favouring the construction of buildings over leased accommodation.

(h) The total space requirement as reflected in the needs analysis in terms of which the PI of 17 March 2011 was issued by the DPW is exactly the same as was offered by and leased from RPF in terms of the lease agreement that lapsed. It was therefore clearly tailored to suit the previous offer made by RPF. The validity of this needs analysis is therefore highly questionable and should not have been accepted by the DPW at face value.

(xx) The remedial action that is to be taken, as envisaged in section 182(1)(c) of the Constitution is the following:

(a) The President to consider taking action against the Minister of Public Works for her actions referred to in this report and the Report of the Public Protector on the procurement of the lease of the Middestad building (Report no 33 of 2010/11), issued on 22 February 2011.

(b) The Minister of Public Works to:

(i) Report to the Cabinet on her actions in relation to the procurement of the leases of the Middestad and the Transnet buildings by the DPW and her failure to fully cooperate with the Public Protector in connection with the investigation thereof, within 60 days of the date of the issuing of this report.

(ii) With the assistance of the National Treasury and the Department of Public Service and Administration, take urgent steps to ensure that the appropriate action is instituted against the relevant DPW officials that acted in contravention of the law, policy and other prescripts in respect of the procurement processes referred to in this report.

(c) The SAPS should engage the DPW with a view to identifying alternative accommodation for the operational staff of the FCS units referred to in this report in closer proximity to the communities which they serve.

(d) The needs analysis of the SAPS should be reviewed and possibly amended and in accordance with the outcome of the process referred to above.

(e) The DPW should assist the SAPS to find suitable accommodation for the said operational staff of the FCS units and the Provincial Head Office, in accordance with a system that complies with section 217 of the Constitution.

(f) The National Treasury should closely monitor the process referred to above, including the revisiting of the needs analysis.

(g) The DPW must ensure that appropriate measures are implemented to prevent a recurrence of contraventions of the relevant procurement legislation and prescripts and the encroachment by its client departments on its mandate. In addition, the DPW must implement measures to ensure the verification of the floor space offered by service providers, prior to any lease agreement being concluded.

(h) The Acting Director-General of the DPW must ensure that any steps taken against Ms Irene Nel from the KZN Regional Office, as a result of her raising concerns in connection with the procurement of the Transnet building, are reversed and that she is reinstated in the position she occupied on 1 July 2010, should she so wish.

(i) The Minister of Police should, with the assistance of the National Treasury, take urgent steps to ensure that the appropriate action is instituted against all the relevant officials of the SAPS that acted in contravention of the law, policy and other prescripts in respect of the procurement processes referred to in this report.

(j) The SAPS must ensure that appropriate measures are implemented to prevent a recurrence of contraventions of the relevant procurement legislation and prescripts.

(k) The National Treasury should develop and introduce measures that will prevent a recurrence of a situation where client departments infringe on the functional areas of the DPW in respect of the procurement of leased accommodation.

(l) The DPW should expedite the formulation of a policy to implement its recent announcement regarding moving towards the building of accommodation for client departments above the procurement of long term leases of lower grade buildings

The full report can be accessed here - PDF.

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