R10bn tender ‘illegal and invalid’

The R10bn tender awarded to a subsidiary of Net1 UEPS Technologies for the payment of social grants has been ruled illegal and invalid by the high court in Pretoria. By Craig Wilson.

The process of awarding a R10bn contract by the SA Social Security Agency (Sassa) to JSE- and Nasdaq-listed Net1 UEPS Technologies earlier this year was “illegal and invalid”, a high court judge has ruled.

Judge Elias Matojane found that that the tender was illegal and invalid. However, he did not set it aside as this would disrupt social grant payments.

The contract is for the management of the payment of R500bn in social grants to 14,8m people over a five-year period.

The tender was awarded to Cash Paymaster Services (CPS), a division of Net1, in January 2012. But a month later, Absa subsidiary AllPay filed legal papers seeking to have the tender reviewed and set aside, claiming Sassa’s tender process was riddled with irregularities.

AllPay argued that the terms of the tender were changed shortly before the tender process closed and that its score was lowered to ensure CPS would win.

Since 2007, the payment of social grants has been managed by three entities: AllPay, CPS and Empilweni. Each has been responsible for a selection of provinces, but Sassa said this approach allowed for fraudulent conduct, including the duplication of payments. As such it opted to consolidate the social grants payments system nationally using a single supplier, and in April 2011 it put out a request for tenders.

In its submission to the high court, AllPay argued that bidders were misled about the criteria for bidding, that the process “lacked transparency and was inherently unfair”, and that the tender specifications were “materially altered at the last minute”.

Furthermore, AllPay contended that last-minute alterations were followed by a hearing with only 48 hours notice; that the purpose of the hearing and its contents were not made known beforehand; and that after the hearing applicants’ score were altered to eliminate them from the bid “without inviting applicants to address Sassa on all of the topics in respect of which its scores were reduced”.

Applicants were given only eight days to make “substantial changes” to their tenders. These changes included demonstrating that biometric verification would be performed when a beneficiary received a grant, despite this have previously been “preferable” rather than compulsory.

According to AllPay, not only did CPS fail to meet the requirements of the tender procedure itself – including the need to submit an application for each province and the necessary information on the third parties that would assist it to perform its tasks were its bid successful – but that a member of the bid evaluation committee had an “undisclosed conflict of interest” and was one of the parties that reduced AllPay’s score after the last-minute hearing.

The judge found that the process followed by Sassa in reducing AllPay’s score was “irrational” and “unfair”. The judgment added: “For all above irregularities taken cumulatively, the tender process does not comply… in all respects with the specifications and conditions of tender as set out in the tender documents. It is accordingly not an acceptable tender as defined.”

Net1 issued a statement in the wake of Tuesday’s judgment that conflicted with the high court ruling. It claimed in the statement that court had ruled that the contract between CPS and Sassa remained valid. The judgment, meanwhile, stated that the tender process was “illegal and invalid”, even though it would not be set aside because of the impact doing so would have on those receiving social grants.

Net1’s share price jumped by more than 10% in New York when trading opened. At lunchtime it was trading up by about 13%.

Absa’s AllPay, meanwhile, has said it is “pleased” with the high court ruling that the tender process followed by Sassa was illegal and invalid.

“However, in relation to the court’s decision not to set the award aside, AllPay is considering the judgment in conjunction with its legal team and will decide on further steps in due course,” an AllPay spokesman said.  — (c) 2012 NewsCentral Media