Minister regarding Department of Home Affairs settlement with Gijima AST
06 Mar 2011
The Minister of Home Affairs briefed the media on the settlement reached between her Department and Gijima AST. Her briefing also included a historical overview of the situation and steps that had been taken by her Department and the South African Revenue Services.
Question: Minister, do we have an indication of why Gijima was not able to deliver? Do you know if Gijima is going to be carrying also losses? The former minister had ordered a forensic audit - do you have the results of that investigation?
Answer: (Minister Dlamini Zuma) Well, I cannot speak on behalf of Gijima as to why they did not deliver on time. I think that perhaps they can be approached for this. But in terms of our own projections, we have not put very strict timeframes in place but we are hoping we can deliver, and I'm sure Barry will not be pleased with me because I am putting in place timeframes that have not been agreed upon, but we are hoping that we can deliver in two years. It might be less but we think this would have been done.
On the question of the forensic report - we have an interim report.
The people who did the report wanted us to add certain questions that were not in the original terms of reference. So we have had to add these and extended the terms of reference. The forensic report will then be completed.
Answer: (Director-General Mkuseli Apleni) Regarding the issue of the forensic audit report, as we indicated, there were two processes underway the one of the Auditor-General and the other of the forensic audit. These processes will continue. This is a separate process. But as we have indicated, you can see that as a department, we were not here when this was concluded but now we know this contract in and out and we can assist the Auditor-General much better.
On the issue of losses to Gijima - you will recall we said that we had to balance the issues because the prices quoted in the initial contract were for 2006. So surely there has been an escalation in costs. Gijima has reported they will be taking R375 million for them on their side.
Question: Minister, as a follow up - given the fact that the project will cost R2 billion less according to my understanding, will Gijima then be carrying the cost of the remaining R2 billion since the project was to have cost R4.5 billion?
Answer: ((Director-General Mkuseli Apleni) This issue of R2 billion is a loss as such because we are not losing money as such. The Minister indicated that the initial contract was for R2.1 billion but it was signed at R4.5 billion. So we had to look at why the contract increased. We had to say we could deliver this project at that amount for the amount provided for by government so we could get the project as it was.
Question: Minister, my first question would be, are you certain that Gijima will able to deliver this time - have you begun to test this system? How much did it cost to implement the Movement Control System?
Answer: (DG Mkuseli Apleni) I think the Minister has indicated that we have learnt many lessons from this experience. If we learnt one important lesson from our preparations for the FIFA World Cup, it was the value of breaking the silos and how important it was to work together.
Working together with SARS we were able to implement a system within a few months. We had a further challenge of the FIFA freeze period which kicked in from 22 May 2010 - from this period there could be no further changes to the system. But working together with SARS we were able to achieve this. What is required for a project such as this is daily on-hand management of issues.
Answer: (SARS Commission Oupa Magashula) I just wanted to add why we are certain that Gijima will deliver this time - we must remember that this project was signed off in 2007 when Gijima won the tender. A lot has happened since 2007. We as government have learnt a lot in the last 10 months in terms of scoping and understanding a project such as this one and how to manage such huge information technology (IT) challenges. Another thing that gives us some comfort that we are able to deliver this contract in its current form is that in 2007, the SARS systems, the real-time systems were not there.
As I said earlier in the briefing, government has invested over R2.8 billion in one of its agencies to establish SARS systems. When this contract was awarded in 2007 we did not have these systems. This is one of the reasons we are confident we can deliver this contract in its current form with the budget from 2006. We are able to leverage across government.
This is why when the Director-General (DG) mentioned the World Cup, we were able to develop and implement the MCS which has to date seen 25 million movements. It is therefore a robust system which uses government technology as its core. So we are pretty clear that part c that State Information Technology Agency (SITA) was able to deliver is now here. Part of the escalation from R2.1 billion to R4.5 billion was that part c increased from R200 million to R1.6 billion. We now don't have to spend this R1.6 billion.
The other issue as explained by the Minister is that these leases were very onerous and expensive. The interest alone on these leases if they ran for the duration of their lives would have amounted to R800 million. As the DG said earlier, these leases were financial leases and before you can enter into any such lease agreement you must get the permission of National Treasury. It is only the Minister of Finance that can enter into financial leases.
I think this explains, in the main the escalation from the R2.1 billion to the R4.5 billion. On the issue of the MCS and the cost of its implementation - it cost us R56 million and this is disclosed in the books of Home Affairs because we are leveraging SARS systems. And this R56 million is only for the cost of hardware, computers, servers, etc. It was really a marginal amount than would have been required if we had started from scratch.
Question: Minister, what is Gijima getting out of this - they were paid R391 million before the contract came under scrutiny. Do they get to keep the money without working for it? What are they getting to ensure they do not take government to court? Is Gijima being paid R379 million?
Answer: (Director-General Mkuseli Apleni) I want to explain this clearly - we are not having a settlement where we pay Gijima and part ways. The Minister has said the project was to have been delivered at R2.1 billion. We will now still be delivering the project at R2.4 billion. And when we are delivering it, the R391 million was already paid and we are going to be settling leases at R815 million. Then after that we will complete the project at R1.2 billion.
Let me use the analogy of building a house - when you are building a house you secure a bond from the bank. Then you get a contractor. There may be problems at the foundation level with the contractor. Then you need to decide whether to forget the house and the land or whether to find another contractor.
This is what we have done in this instance. We are going to deliver WAIO for the citizens of this country and in order to complete this we require R2.1 billion. Gijima is not going to be getting an amount. The R375 million - remember I said that that price was a loss to be incurred by Gijima since we still require WAIO to be delivered. We are not paying Gijima this; it is a loss they are incurring.
Question: Minister, as a follow up to the last question - what will Gijima's role be in the new arrangement? I also heard the Minister say that IBM and Gijima will still be with you - what exactly does this mean?
Answer: (Director-General Mkuseli Apleni) HP and IBM would be responsible for providing computers, hardware and some software. We settled with them but they must ensure for instance, the provision of licences must be maintained. In addition, the computers we have bought from them must also be maintained.
Question: What is the role of SARS is this process going forward - will it serve as a project manager or take over the role of Gijima?
Question: I would like some clarity on how the SARS computer system will be used. I understand that the Home Affairs system is not just for movement control. Will you therefore be installing something different or will SARS still be backbone of your system?
Answer: (Barry Hore from SARS) We need to make a separation between movement control and civic processes. A civic process is not much similar to what we do at SARS, someone comes into our offices, fills in a form and it is not hard to imagine that we could allow those who are fortunate enough to have a PC at home to fill in an application for a passport or ID document on line, arrive at a Home Affairs office and then be subjected to the live capture process. Not everyone will be familiar with what we mean by live capture- it refers to the capturing of fingerprints, pictures and signatures on line and in real time that can be kept at the department for record purposes. All fingerprints are stored in HANIS. For those of you who have applied for visas, would know that how speedy the capturing of fingerprints in real time can be.
What we discovered at SARS is that not everyone is fortunate enough to have PC at home. We therefore put a mechanism in place where you can come to a SARS office, sit across from a consultant and receive assistance. We call this our customer management system. It is therefore not too difficult to imagine how we can simply change the forms and adapt this system to the department.
The idea would be to re-engineer the process as we have done with the ports of entry. We are also able to capture the movement of people in real time. We are also able to deal with queue management processes. Our call centre could have the capacity to do the work of the department. The Holy Grail of an effective call centre is to get to the point of an 80% first call resolution. To do this your consultants must be trained and have information at their disposal. This can be provided with relative simplicity to the department.
These are some of the ideas we are working on. Regarding our working relationship with Gijima-even in the movement control environment and even when we were not, supposedly, getting on too well during the World Cup, SARS uses Gijima to support, install and maintain our infrastructure. And they have done a fine job - even during the World Cup for the Department of Home Affairs. It is not our intention to say their role has been diminished - we spend far less time working out roles but in breaking down silos.
Answer: (Minister Dlamini Zuma) They will continue to service equipment and there may be other functions that emerge. I think what is also exciting about this is that for the first time there are two departments that are working together to deliver on a project that would be useful to the country. One of the things SITA was supposed to do was to help government integrate and work together so we are not working in silos. This is a good thing that has come out of this and I am quite happy about this.
Question: Before this contract is signed again, shouldn't the Auditor-General's report and the forensic report be completed first and possible criminal activities dealt with? What was the reason for the escalation in the price of the contract from R2.1 billion to R4.5 billion?
Answer: (Director-General Mkuseli Apleni) On the issue of action to be taken, I did indicate we cannot jump the gun. This is why we are saying the forensic auditor, with the revised terms of reference can continue its work and whatever the outcome, we will deal with it.
Answer: (Minister Dlamini Zuma) The Auditor-General gave a report and said we needed to go further because they could only go up to a point and this is why it was given to the forensic auditors to look further. The forensic auditors will then go further.
The reason we believe it was important to move on- we will still need the systems that this project is about. So, it does not mean that if something is found we will stop the project completely. We will deal with what is found by the forensic auditors. We do not believe the processes are mutually exclusive.
Question: Minister it would appear that SARS does have the capacity to deliver on your IT needs. Do you still really need the services of Gijima particularly in line with the fact that you have a strong legal opinion saying the contract was invalid on many fronts?
Answer: (Director-General Mkuseli Apleni) The Minister had indicated that there was a tender process in 2006 that was concluded in 2007 of R2.1 billion. This was a legal process. They followed it; it was awarded by SITA following the process. It was awarded in a transparent process. However, there were some issues that the Auditor-General believed needed some attention. This point is very important.
Secondly, we did indicate that what we have as a department is a strong legal opinion that will remain as such until it is considered by a judge. We therefore have to decide how long is long - six or seven years? We therefore needed to go forward so the people of
Question: I would just like to confirm the cost of the actual bill to government - is it R2.489 billion? Where does the R375 million come from? I am a bit concerned about the huge escalation of R2.1 billion to R4.5 billion - was government liable for this figure? I am picking up on something that was said and I may have been wrong - was the Treasury involved with this? Is government not concerned that Gijima may be stretching itself and may not be able to meet the targets?
Answer: (Director-General Mkuseli Apleni) The actual bill is R2.4 billion. We are not going to subtract the R375 million. You will remember we said we paid Gijima R391 million. However, there was a commitment of R1.4 billion already taking into account the leases and everything. R2.4 billion is therefore the amount we have to deliver this project including what we have already paid and the settlement of the leases.
Escalation, yes, I think we have looked at this - it was a big problem for anyone. But government was able to look at this and say this is not part of this contract anymore. Without looking at anything else we are saying we moved this contract from R4.5 billion to R2.4 billion. That is the benefit we are saying we have achieved. We have saved this amount. Then we are saying that if this escalation is not correct, those two processes will pronounce on this matter.
Yes, Treasury was not involved. The minister has said that one of the benefits of this is that now two departments are working together to achieve a common goal. There is no mistake now, the Ministers of Finance and Home Affairs are working together.
On the issue of Gijima stretching itself - I think what is important for us is that we will make sure this process is monitored on a daily basis and delivered. If not, there are processes built in to ensure we have recourse.
Answer: (Minister Dlamini Zuma) Just to add on to what the DG has said, I think we have said we will use other service providers because we cannot only rely on Gijima.
Answer: (SARS Commissioner Oupa Magashula) On the issue of the escalation - as the Minister has said this contract was awarded in terms of three parts. There was escalation on all three parts including the leases which carried onerous and hefty interest rates.
If we go into more detail-Part A -which was initially anticipated to cost R695 million, escalated to R1.5 billion. This was the development of software. Part B - the computers and the hardware including the servers to be deployed - increased from R1.2 billion to R1.4 billion. Part C - which refers to the middleware and the software on which the WAIO system was to be built escalated from R200 million to R1.6 billion.
You have to add the interest from the leases on top of this - this takes care of more than R2 billion at least. In the scheme of things, we have potentially saved more than R2 billion. There was also a maintenance lease - through this settlement Gijima is going to provide maintenance support free of charge. We have saved more than R2 billion but we have also now built in maintenance leases.
As the Minister has said this is really an excellent deal for government which could not have been achieved without collaboration.
Question: If the leases were not legal, how can the contracts be binding?
Answer: (Director-General Mkuseli Apleni) You will remember that we are saying that what you need to have is the express approval of the Minister of Finance. Yes, this was not done but in the end, the department has signed those agreements and they are legally binding. To challenge it we will need to go to court and this could take 2 or 3 or however many years. Again, the interest will be accumulating for all this time. We are now able to save government this money but we will deal with the outcomes of the forensic audit when it is concluded.
Question: I would just like some clarity - this is a new contract with Gijima, isn't it? Or is this a continuation of the original contract. Gijima did not meet an immovable target - the World Cup. Minister you have now described rather loosely your target of the next two years to deliver on your project. But surely experience has taught that strict time frames should be built into the contract?
Answer: (Barry Hore from SARS) key challenge in any developmental project is how to manage scope and progress because if you are trying to get the end answer clearly, you must specify everything because you will not be able to get a satisfactory quote otherwise.
We have been running these projects by having fixed price or turnkey prices for all components and to make sure the phases can be broken down into short enough so you can measure delivery on the ground every six months or a year. So we are able to say that is something is not delivered in a particular time frame we get our money back.
Question: DG you said mechanisms are being put in place to monitor this on a daily basis and systems are being built in to deal with Gijima if not. What are these measures? Do you believe that Gijima overcharged?
Answer: (Director-General Mkuseli Apleni) Colleagues as we are explaining we want to say these two processes will continue and take their natural course. As a Department of Home Affairs we are now able to articulate what is in the contracts. We are able to unpack the contracts. We agree it is bizarre but I do not want to speculate on the outcomes of the forensic audit report.
Question: DG, you've said that the Treasury and the Minister of Finance was not involved which is a breach of the Public Finance Management Act (PFMA) - what will be put in place to ensure this does not happen again?
Answer: (Director-General Mkuseli Apleni) let me begin with the issue of how we will be moving forward - Minister took this issue to the Cabinet. Minister has also indicated that the Ministers of Finance and Home Affairs were mandated by Cabinet to deal with this matter. We have therefore come up with a joint approach to this issue and this is what you see before you today - a joint Home Affairs, SARS team - the Minister of Finance is now involved in this issue. Going forward there is no chance of us contravening the PFMA.The media briefing was adjourned.
Department of Home Affairs finalises settlement on Who Am I Online (WAIO) project
The WAIO project seeks to re-engineer and digitise most of the key processes of the Department together with a significantly enhanced national population register, including birth and death certificates, processing of ID and passport applications, visa and other permit applications as well as enhanced movement control for South Africans and foreigners at the country’s borders.
Tender bids for the WAIO project were invited in 2006 comprising three parts:
· Part A: The development of an integrated core business system which would automate the various processes of the department
· Part B: The implementation of this business system across various Home Affairs sites both in
· Part C: This involved the shared government “middleware” to be provided by SITA
The bid by Gijima of R2.1 billion, comprising R1.9 billion for Part A and Part B and an estimate of R200 million for Part C, was approved and a contract signed with Gijima to deliver the project in 2008.
However, concerns over escalating project costs (which by 2010 had grown to R4.5 billion from the original R2.1 billion) and a lack of progress led the Department to investigate the project early in 2010.
In April 2010 the Department notified Gijima as prime contractor - as well as IBM and HP which had provided lease financing for the project – that it regarded the purported contract as invalid. However, this repudiation was disputed and therefore, to avoid indefinite delays to the project by costly and lengthy litigation, the Department entered into negotiations to amicably resolve the dispute and allow for the urgent completion of the project in line with the Department’s original requirements and in line with the original cost estimates.
In terms of the settlement agreements between the parties, the total final capital cost (excluding interest) of the items in the scope of this project, including expenditure to date of approximately R1.4 billion, is estimated to be approximately R2.27 billion. This is in line with the Treasury budget of R2.23 billion for the project, which was conditionally approved in 2009.
Government has paid R391 million to date, including interest on leases of R945 million between Gijima and the Department. The revenue streams of these leases were purchased by IBM and HP.
The Government will undertake to settle early these leases in an amount of R815 million, saving Government approximately R234 million in capital and interest. IBM and HP have agreed to such early settlement, thereby foregoing a portion of the amounts due to them.
For its part and in terms of the settlement agreement, Gijima has agreed to contribute R375 million, comprising the writing down of invoices and the future rendering of support and maintenance services.
The settlement opens the way for the urgent resumption of the project and represents a potential R2 billion in saving to Government against the R4.5 billion estimated cost to complete the project under the current disputed contracts.
Once the outstanding lease settlement costs have been paid, the Department anticipates spending approximately R1.3 billion in completing the project. The vast bulk of this funding will be paid to sub-contractors working with Gijima to deliver on the outstanding components of the project.
A key factor which allowed for completion of the project at close to the original tender amount is the use of existing state IT infrastructure and systems developed in recent years. Among these is the highly successful enhanced Movement Control System developed and implemented ahead of the 2010 FIFA World Cup. To date more than 25 million movements have been processed by the system.
The project will also build on a number of systems currently in use by the South African Revenue Service including its service management system used in branches and the SARS call centre.
Building on the experience gained and lessons learned over the past year, negotiations to finalise the contract will ensure it is more robust, specific and detailed to avoid scope-creep, delays and cost escalations frequently associated with large IT implementations. Additional internal controls and management will also be introduced to ensure the successful delivery of the project on time and in budget.
The Department believes the settlement is in the best interest of the State and most importantly for the people of
A summary of the direct costs to be incurred in completing the WAIO project including approximately R219 million in interest are as follows:
Paid to date
Early settlement of leases
Completion of the project (including 10% contingency)
Finally, the Department expresses its conviction that this settlement paves the way for the forensic audit and the Auditor-General’s report to be duly finalised and the matter brought to its logical conclusion.
Issued by Ronnie Mamoepa on 082 990 4853
℅ Department of Home Affairs
7 March 2011
No related documents