The Committee interrogated the reports produced by AGSA on the use of consultants in eight departments between 2008 and 2011, focusing on the Department of Defence (DOD) and Department of Police (SAPS). This Committee was not trying to suggest that use of consultants could never be justified, as it was fully aware that in a changing world, certain skills would have to be outsourced. However, the Committee was concerned with the extent to which outsourcing was used as a substitute for internal capacity. Members stressed that not only should a needs and cost benefit analysis be done, and competitive tender processes followed, the terms must be specific, the contracts should be properly monitored, skills transfer should happen, and it was necessary to assess if the outcomes were in line with government objectives. AGSA’s report had caused huge concern when it was published, not least because of the large amounts involved.
Members firstly sought clarity and explanations on a number of contracts entered into, extended, or terminated, by the Department of Defence. Over R10 billion was spent on consultants from 2008 to 2011. Competitive tender processes were not followed in five of the twelve contracts, and contracts were not monitored. A contract with Aero Manpower Group (AMG) was open ended and had lasted for 18 years. It did not conform to changes in legislation, contained no transfer of skills component and was excessively expensive. The reasons behind the failure to recognise its true nature were extensively interrogated. Members asked why DOD had not previously taken steps to create internal capacity, particularly in aircraft maintenance, which was core to the functioning of the Department, and why it now believed it could create this capacity despite asserting previously that it could not. They asked whether cost-benefit analyses had been done for this and other contracts. Whilst they commended the DOD on now trying to develop internal capacity, they wanted to know what would happen to over 500 existing contracts. Members were not happy with the explanation on suspension of an official who was monitoring an R800 million contract, said that there was no proper monitoring, and questioned why no proper supporting documentation was produced, and why the contract was extended without proper processes. They also thought the clearance of unexposed ordinances in two provinces was insufficient, and questioned the court order, and failure to monitor output, as well as why DOD had failed to make the minutes available to AGSA during the audit. National Treasury would be informed of the misuse of extensions of contracts by DOD. In relation to the border fencing, DOD maintained that this should not be its responsibility and it lacked capacity for extensive maintenance. Again, the main concern was the cost benefit analysis. When DOD sought to defend its position, the Committee noted that if DOD disputed the correctness of AGSA’s report, this should have been raised when DOD’s responses were given to AGSA. Members stressed that the porous borders had to be addressed elsewhere. In relation to reported gross omissions in relation to personnel appointments at 3Military Hospital, the Committee questioned if costs could be recouped, and said the answers seemed evasive. Members also questioned the functioning of the internal audit unit. In general, Members were not happy with the content and the tenor of the responses, and urged that consequences follow against those responsible for the irregularities. Full written responses on several issues were requested within one week.
The Department of Police (SAPS) was represented by the Deputy Minister, National Commissioner and other senior officials. Many of those responsible for contracts had left SAPS, and the current officials had joined only after the events reported upon, so that although they could give a background, the precise reasons were not always known. The National Commissioner did concede that there were several problems, and said that SAPS was taking steps to ensure that in future contracts would be properly monitored and skills transfer would take place. The position in relation to the firearms control system was put in context, and it was noted that it was unacceptable that it had run over, and that SAPS had no proper way of evaluating the benefit derived. The refurbishment of Nyala vehicles was explained as necessary for the World Cup, since it was unaffordable for SAPS to purchase new vehicles. However the value was miscalculated at the start, and, with hindsight, should have been approached differently. Members commented that surely internal expertise should have been developed, said management seemed to have collapsed and urged that departments stop blaming those in the previous administrations. They questioned how the terms of an Adult Basic Education contract were not properly clarified at the start, and reiterated the need to keep proper records and minutes. It was stressed again that properly functioning internal audit units were vital, and SAPS must ensure that skills were transferred. Members thought it would be helpful to invite consultants also to address the Committee.
The Chairperson said the meeting was called following an audit done by the Auditor General South Africa (AGSA) on the use of consultants by selected government departments. He stressed that this Committee was not seeking to suggest that it was possible for departments to work only with internal capacity. The world had changed, and government recognised that certain skills had to be outsourced. However, the Committee’s concern was the extent to which outsourcing had been used as a substitute for internal capacity. This meeting sought to ascertain if contracts were properly monitored, and if outcomes were in line with the objectives of government, once consultants had been engaged. There had been a huge outcry when The AGSASA report was published, because of the vast amounts of money that departments paid.
The Chairperson indicated that the Minister of Defence, Ms Nosiviwe Mapisa-Nqakula, was scheduled to attend the meeting but had been admitted to hospital on the previous evening. It had been impossible to arrange for the Deputy Minister to be in Parliament at such short notice.
AGSA report on use of consultants in the Department of Defence
Termination of old contracts
Mr R Ainslie (ANC) commented that the Department of Defence (DOD or the Department) spent over R10 billion on consultants from 2009-2011. AGSA’s report indicated that reliance and expenditure on consultants had increased over this period. There was nothing wrong, in principle, with using consultants, but only if they were cost effective, if contracts were monitored, if skills transfer happened, and if the competitive tender process was followed. According to AGSA’s report, the Department had not followed these processes.
Mr Ainslie said Aero Manpower Group, which was part of Denel, were appointed as consultants in 1986, to supplement the shortage of skills in the Air Force. Between 2007 and 2010, over R800 million was spent to provide this service. His information indicated that the contract would be terminated on 31 March. He asked then why it had taken the Department so long – 18 years - to revisit the contract. The contract was open ended, and did not conform to changes in legislation, it had no skills component, and was excessively expensive. The Department was unable to persuade AGSA of the value in continuing, and if it was for AGSA, DOD would be sitting with this contract for another 18 years.
Mr Sam Gulube, Director General, Department of Defence, replied that indeed there was a big outcry after the report about the use of consultants was released. However, it was unfortunate that some amounts AGSA had ascribed to being spent on consultants were not actually used for this. The public perception was that DOD had used R10 billion on consultants, when in fact only about R500 million was used.
The Chairperson interjected and said that the accuracy of the figure was not the point. The numbers were explained by AGSA. The feeling was that departments were casually using consultants, and the question was why it had taken DOD so long to terminate the contract, and what was happening with the contract?
Mr Gulube replied although the contract was established in 1986, it had, under the new dispensation, then been transferred to Denel, Government’s procurement parastatal on arms and defence related equipment. Under the new administration, therefore, the contract was viewed as an in-source service. DOD felt there was a need to revisit the AGSA report. The process of terminating was underway.
He said the skills offered were critical skills covering maintenance and management to ensure the safety of all Air Force contracts. DOD was in the process of terminating and getting into new arrangements on 01 April. It must be remembered that some of the skills would still be outsourced, and others would be developed in-house.
Aircraft maintenance, evergreen contracts and cost benefit analysis
Mr Ainslie said the termination appeared to be a knee-jerk reaction to AGSA’s report. He wanted to know why DOD was not taking steps to create internal capacity, particularly on the aircraft maintenance technicians skill, since surely this was a skill the Department required, and that was core to the function of the Department.
Mr Gulube replied that aircraft maintenance was such a specialised skill that was difficult and challenging to fill these posts internally, as conditions of service were not that favourable, and because these highly sought-after skills were poached, both locally and internationally. DOD would try to develop the skill internally.
The Chairperson wanted to know why DOD thought it would now be possible to develop the aircraft maintenance skills in 2013, when it was not possible in 2007.
Mr Gulube replied it would have been very difficult back, and it would also be difficult now.
Mr Ainslie wanted to know if the difficulty was the cost of keeping the professionals within the service.
Mr Gulube replied the difficulty also related to the cost and the time it took to train the technicians, but stressed again that the rate of turnover was high. Once they qualified, their skills were marketable, and the private sector paid better. Cost was also challenge back then, but DOD was now ready to address that challenge.
Mr Ainslie wanted to know how the Department worried about the cost, if it had not done a cost benefit analysis, as indicated by AGSA. No cost benefit analysis had been done in all the contracts that AGSA had identified.
Mr Gulube replied that a cost benefit analysis had since been done on this and other contracts.
The Chairperson interjected to ask if this contract was not one of those “evergreen contracts” that continued for ever, and how many other similar ones they were. He caustically added that he hoped he had got the colour wrong.
Mr Gulube replied during this time there was no internal audit unit at the Department, but that had since been established. This unit would audit all the contracts at the Department. It was true that during the 1980s and 1990s a lot of “evergreen contracts” were entered into, and he conceded that this was one of them. All those that had been discovered had been terminated.
Mr Gulube repeated that DOD had done a cost benefit analysis. The impression that the contract could have been cheaper, had this been done at the time, was not accurate. An analysis was done at the 1 Military Hospital, on how to maintain sterile services and clean environments, and this proved that the R3 million spent on consultants a year, would have tripled if internal capacity was engaged, which would have resulted in DOD being unable to pay the salaries.
The Chairperson interjected and said the cost benefit analysis was a specific requirement. A failure to do a cost benefit analysis, on any assumption, was incorrect.
Notice of termination
Mr Ainslie sought clarity on whether a new contract was being negotiated with Denel, or if DOD was going out for a new tender. He noted that this question was based on a response that DOD gave to AGSA about the notice of termination “so that the contract may be renewed”.
Mr Gulube replied that answer to the question was technical. AGSA had found that this was an evergreen contract that had to be regularised, and management’s response was related to regularising the contract. When a cost benefit analysis was done, DOD had to consider not only financial but also human capital requirements, especially when the aircrafts were abroad. Consultants could refuse to go out to areas like the DRC, where the Defence Force was engaged in ongoing deployments. It was then decided that the ability would be built in-house.
Mr Ainslie said that the initiative to build own in-house capacity for such a critical skill was commendable. He wanted to know what would happen to the 500 and more maintenance technicians deployed throughout the country, after 01 April, whether their contracts would persist and whether DOD would finally consider using them after establishing in-house capacity.
Mr Gulube replied that all this was problematic. DOD was in negotiations with Denel, as it had assessed that not all 500 contract workers had scarce skills. Most of these technicians would be older than 60, and were mostly white, and this raised questions around transformation and employment equity. It was impossible for all of them to become DOD employees on 01 April. The final number assessed as having scarce skills would probably be less than 200, and the intention was to absorb them. There would be engagement with Denel who would be informed that the DOD would not be employing all of the technicians. He requested that such questions be not raised now, as the process still involved the unions, and that the negotiations were at a critical stage.
Contract not monitored and missing invoices
Mr Ainslie sought clarity on the finding around an official who was monitoring the R800 million contract, and who, according to AGSA, had been suspended. He firstly asked why. He secondly noted that the finding was that nobody else was appointed to monitor this critical contract’s functioning and cost, and he asked for an explanation
Mr Gulube requested that personnel from the Air Force reply.
Maj-Gen Cedric Masters replied that the official was suspended for matters unrelated to managing the contract, in 2009, and was replaced in 2010. His suspension related to sexual harassment, and had not yet been resolved in court. He was not immediately replaced, because of the rules governing replacements, but, because of the way the Air Force was structured, a number of people dealt with the specific contract. The official reported to Major General Bembe at the time, who in turn had been replaced by Major General Pelser. Two people could not have been appointed to the same post, so initially there was an acting appointment and then a permanent replacement in 2010.
Mr Ainslie sought clarity, noting that AGSA’s report had stated that “monitoring of consultants with the outsourcing of labour was performed; it was not adequately formal and not recorded.” He asked what kind of monitoring was this. The official might have been replaced, but the whole system seemed to be undermining the efforts made to monitor. This did not seem to him to be monitoring, and requested that Mr Gulube concede this point, and promise that it would not recur.
Mr Gulube conceded, and said DOD would not do this again.
The Chairperson requested an explanation of the reply to AGSA.
Mr Gulube replied at the beginning of every year DOD gave orders to AMG, to indicate the kind of services that would be needed for the coming financial year. Once that was done, DOD paid the contracts on a monthly basis. He agreed that kind of monitoring was not effective and efficient, and this would not be repeated.
Mr Ainslie also sought clarity on how payments could be made without detailed supporting documentation, and in the absence of invoices.
Mr Gulube replied the Department placed orders once in a year and paid on monthly basis. AGSA had picked this up. The contract was managed more like a retainer contract than a fee-for-service contract.
Mr Ainslie commented that even a business could not be run like that, and questioned again how a department could be run this way, stressing that no amount should be signed for without supporting evidence. AGSA had done a sample, and R133 million had been paid without supporting documentation. Whilst this was small in relation to the total budget, it was still a large amount. He asked if any effort was made after the finding to investigate the matter, especially for the remainder of the contract.
Mr Gulube reiterated that the service provider just sent the billing on a monthly basis. After the finding, this process was stopped all together. DOD was currently paying a fee for services. This was still a very expensive contract, running to about R250 million every year, but it would end this financial year.
Clearance of unexposed ordinance
Mr Ainslie commented, and sought clarity on, the unsatisfactory position in relation to clearance of unexposed ordinance. It involved two projects in KwaZulu Natal (KZN) and Limpopo. He asked why no cost benefit analysis was done on the contract, as required by the Department of Public Service and Administration, on instructions from Cabinet, and also in line with departmental policy on supply chain management and alternative policies.
Mr Gulube replied that DOD had been dealing with a court order that had been issued, and was under time pressure, with insufficient internal capacity to clear the matter.
The Chairperson sought clarity on whether the court order set out a timeframe within which clearance processes would have to be done.
Mr Gulube replied that it did, but he did not have the exact timeframes.
The Chairperson retorted that this answer really did not assist.
Mr Gulube commented there had seemed to be a traditional way of doing things at the DOD which only changed when the new administration came in.
Mr Ainslie interjected and said that the “new administration” now had had 18 years of controlling matters and questioned why none of this was put in order.
Mr Gulube replied that last year the DOD got an unqualified audit because of the work that had been done over the years.
Mr Ainslie replied that the audit report was not clean.
Mr Ainslie requested a comment on the finding that there was lack of monitoring of this contract.
Mr Justice Nkonyane, Chief of Logistics, DOD, said there were about 25 areas used by the former South African Defence Force (SADF) for training purposes. The Department was instructed by the Land Claims Court to ensure that the risk of the unexposed ordinances was reduced at the two particular sites.
Mr Ainslie interjected and said the issue was not about reducing the risk, but totally clearing the sites, so that people could be moved back to that land.
Mr Nkonyane replied it was not possible to completely clear unexploded ammunition. These sites had been benchmarked against other areas in the world where this sort of exercise had occurred. The main aim was for contractors to submit quality assurance certificates.
Mr Ainslie said DOD had to concede again that it made a mistake, because at the end of the contract no work had been done, and that there was no monitoring.
Mr Nkonyane disputed the statement and said that there was monitoring
Mr Ainslie pointed out that AGSA had said there was not.
Mr Nkonyane replied that this was because there were no signed minutes produced during the audit. Since then, that had been rectified. He said he personally monitored the contract expenditure. Although the actual output was not monitored, discussions happened at every level of the contract.
The Chairperson wanted to know where the minutes were when AGSA was doing the audit, since these could have proved the work was done, and asked who had failed to give them to AGSA.
Mr Ainslie commented that this was a trend at the Department. He would abide by AGSA’s finding that no evidence was shown to prove that the project was monitored and timeframes met. DOD should accept this finding and change its ways in future.
Mr Ainslie sought clarity whether it was true that part of the work was going to tender to be redone.
Mr Nkonyane replied that although minutes were not signed, the Department had produced reports of the work done. The issue was whether there was monitoring, and whether the concerned officials signed. To maintain otherwise was incorrect.
Mr Ainslie asked if the site had been cleared, and if people could move back.
Mr Nkonyane replied that when entering into a contract DOD had to clear the geographical area, but the Chief had identified a potential for mining in the land identified.
Mr Gulube said the Department would provide written responses to Members with regard to the contract. He said the sites had been cleared all the way to six metres, but other areas still needed to be done. DOD took a decision that there would be no more tenders on this kind of work, and it would be done internally.
Mr Ainslie sought clarity on the contract that was extended to well over R138 million, without a competitive tender process, from its original price of R100 million. He asked why the extra work was not put out to tender.
Mr Gulube replied it was normal for National Treasury (NT) to allow for an extension of the contract up to 15%.
The Chairperson commented that even then, a good reason was needed for the extension of the contract.
Mr Gulube replied that the reason was to comply with the court decision.
Mr Nkonyane added that when clearing the unexploded ordinance, the first step included doing an estimation on the magnitude. The estimation done in Limpopo around the number and the concentration of the explosives was not accurate. The clearance was impacted upon by the weather.
Mr Ainslie commented that DOD was abusing the provision for extension of contracts, without going to competitive tendering process. Of the eight Departments audited, DOD was the only one where no competitive tender processes had taken place. Out of 12 contracts for DOD, five contracts did not go out to tender. This must be brought to the attention of National Treasury (NT).
Mr Ainslie referred to comments by Ministers Trevor Manuel and Lindiwe Sisulu that public servants should not contract independently with the departments by whom they were employed. He asked for an assurance that no such links existed in the case of any member of the DOD’s procurement or tender board. He also asked if this Department was putting processes in place to ensure that public servants employed by DOD were not doing work with government.
Mr Gulube replied that there was an allegation that one person was involved but this had since been proved to be false. A thorough investigation was done.
Mr Ainslie said this was another matter that the Committee was unhappy with and needed to pursue.
Mr N Singh (IFP) sought clarity on the border fencing. AGSA had only audited twelve contracts, to the value of R1.1 billion, although the total use of consultants’ contracts by the Department amounted to R10.4 billion. He asked for confirmation how many border fences were being maintained by consultants.
Mr Gulube replied this was one of the painful issues, and DOD wanted to put it on the table. The DOD had engaged with the Department of Public Works (DPW) and the Department of Agriculture, Forestry and Fisheries (DAFF) on this matter. DOD did not have the budget capacity to put up and maintain fences around the country. This should not be DOD’s responsibility, and fencing should also not be a core function of defence.
The fencing that DOD was given responsibility for had included cold wires and hot wires (electric fences) which were still used in some areas although generally South Africa had tried to do away with them. A debate should be held on whether these were needed. Troops patrolled the fences and maintained them, but only up to a certain level. When major work was to be done on the fence, consultants would have to be engaged, because DOD did not have the capability to undertake major maintenance work.
Mr Singh requested a comment on how porous the border fencing was, and whether this point had been discussed with other departments. If fencing was poor, South Africa would forever have the challenge of people illegally migrating and bringing drugs into the country.
Mr Gulube replied that indeed the borders were porous, to the extent of being dysfunctional. DAFF policies stated that if there was a high risk of animal diseases, DAFF had to put up fencing, to prevent the cross-border migration of livestock. There was continuous engagement also with DPW on fencing. DOD was overstretched and could not cover all the borders. Nothing was done to the illegal immigrants when they were caught, as a result of lack of cooperation from the police. The frustration was that soldiers could not deal with that in any other way, as they were trained only in the use of force.
Mr Singh disputed the claim that DOD did not have the expertise, as AGSA had claimed in its report that it in fact did have expertise. He asked if it would not have been prudent to do a cost benefit analysis on outsourcing the function. There was nothing wrong in principle with outsourcing as this was done all over the world. However, this must be done where cost effective, and so he wanted comment on this point.
Mr Gulube replied that DOD had expertise only to do minor maintenance. He claimed that he found it problematic that AGSA too used consultants to do the audit on the use of consultants. These people were clueless about the operations at DOD.
The Chairperson interjected to request that the question be answered directly.
Mr Gulube replied there were points in the AGSA report, around the capability that existed within DOD, that were not accurate. He asked whether he was allowed to list the issues.
The Chairperson replied that the Committee was dealing with a report that had been submitted to Parliament. Contentious areas should have been dealt with when AGSA wanted answers. The Committee’s question sought to establish a cost benefit analysis in relation to the claim that DOD lacked capacity to maintain border fences.
Mr Singh commented while the Committee accepted that there might be capacity and inter-departmental communication challenges, the fact of the matter was that DOD awarded a contract without knowing whether it was the most cost effective way of getting the job done, and whether it got value for money from that contract. He thought it would waste time to try to pursue the issue further, but stressed that the porous border fences had to be addressed.
Mr Singh sought clarity on the maintenance at 3Military Hospital. There had been a finding of gross omission in relation to human resources at the hospital. The Surgeon-General did not intend to extend the contract after its initial three year period, and submitted a plan to the Human Resources (HR) division, to develop internal capacity to deal with maintenance at the hospital. However, somebody delayed the process and the plans failed. He asked for more information on this point.
Deputy Major-General Pelser responded that when the new administration came in, in 1994, all the cleaner posts were moved from being DOD posts, to the “general support environment”. DOD wanted to get some of those back to establish own capacity at 3Military. It took about two years to get the posts transferred back into DOD, and when this was done, they had to be funded, and an appointment process followed for civilian employees, to create capability.
Mr Singh commented that the contract had since been terminated, and there was overpayment on it. The AGSA report showed that proper accounting process were not followed. He asked who and why had faxed invoices. There were permanent staff, and he queried whether a cost benefit analysis had been done, and whether the cost of using internal people was cheaper than consultants. He asked if the money that was overpaid to the contractor would be recouped, and, if not, called for an explanation.
Mr Pelser replied that DOD was in the process of doing the cost benefit, but nothing was done prior to reinstating the cleaner posts. He believed internal capacity was cheaper. DOD was busy interpreting the contract, in order to work out the repayment methods. This had been a 24 hour service, and the contractor indicated that 72 people would be engaged on a shift basis. There were not 72 employees at all times present at the hospital
Mr Singh requested that AGSA to comment on the statement around the finding on overpayments.
Mr Shoneel Maharaj, Manager: Performance Audit on Defence, AGSA, said that his office had been provided with all time sheets for all cleaners. There were only 34 cleaners that could be accounted for at the hospital. The management could not explain where the rest of the cleaners were.
Mr Singh commented that it appeared that nobody wanted to take blame around maintenance and the cleaning service at 3Military Hospital. Officials were just passing the buck from one to another, and he quipped that he was pleased they were not passing grenades. He asked, in light of AGSA’s findings, who took responsibility for what.
The Chairperson commented that the key challenge was the lack of proper monitoring and effective management for contracts. He said the DOD was very evasive.
Mr Singh agreed. He commented that there was a paucity of doctors in the military, and because the system was so poor, anyone could claim for any number of hours. Government money was being wasted.
General input from other Committee Members
Mr S Thobejane (ANC) was not impressed with the replies and said Mr Gulube had displayed arrogance that needed to be discouraged in Parliament. The comment about use of consultants by AGSA itself was in poor taste, and should not be allowed. AGSA was a Constitutional entity that had to be protected by Parliament. He felt that the responses on the termination of the Denel contract were unsatisfactory and contradictory and more clarity was needed as to whether the reason for termination was the error of judgement in believing that Denel equalled internal capacity, or whether this resulted from the pressure applied by AGSA. He felt, in general, that many answers were so vague that nothing could be made of them.
He asked for the names of the officials who failed to sign the minutes of contracts, paid without proper invoicing, and failed to keep records. These people behaved in a manner that misrepresented the Department and they must be identified. Mr Thobejane commented DOD needed to ensure consequences. The Committee was interested in addressing those who oversaw a period of neglect, and not in DOD getting an unqualified audit opinion. The Committee “would not praise fish for swimming” as officials must do the work for which they were employed.
Mr Gulube apologised, and said he had no intention to sound rude. The AMG lasted for 18 years because the Department genuinely believed it was part of internal capacity. When AGSA pointed out that this was not the case, the contract was cancelled.
Mr Thobejane wanted to know who misled the Department into this misapprehension.
Mr Gulube replied that the person had not been traced, but that there had been consequences when officials contravened departmental policies. Members in uniform were subjected to military courts. Action was taken each time that SANDF members were found to have acted improperly.
Mr Thobejane asked if there were any examples. He said the report highlighted a number of such cases where members had acted improperly. He asked what, for example, had happened to those who failed to sign the minutes.
Mr Gulube replied that his understanding was that the minutes were available, and were signed, but they could not produced when AGSA asked for them.
The Chairperson submitted that it seemed that no action had been taken against any officials who were fingered, in relation to any contravention of the legislation and policies around public finance.
Ms F Muthambi (ANC) found it of concern that DOD would suspend an official, and yet not know where the person was. The Committee would have preferred a clear answer on that point. She also asked if all the work had been carried out on the contract of the clearance of unexploded ordinances. She asked what had been done to recoup overpayments from service providers. In general, she felt that more detail was needed from DOD on issues raised by the Committee. She suggested that the DOD must submit a written report to indicate, among others, steps taken against officials, give a clear action plan to address the issues addressed by AGSA, and set out timeframes.
Dr D George (DA) sought clarity on the internal audit function, and especially if skills transfer happened during the time KPMG consultants were engaged.
Mr Gulube replied that DOD had taken note of the outstanding questions. He said that, during the period audited, DOD did not have an internal audit function. Most of the audit work was done by the Inspector General, but an internal Audit Executive had since been appointed, at Deputy Director General level. There was skills transfer, leading to an improvement in audit opinion.
The Chairperson asked if one week was sufficient for the DOD to provide the outstanding replies to questions, including an action plan with timeframes on dealing with challenges that had been identified.
Mr Gulube replied that DOD had a programme – Operation Clean Audit – that sought to address all the challenges that had been raised in AGSA’s report. DOD would provide the overall Operation Clean Audit plan that was being implemented within one week.
The Chairperson commented that there was too little time to ask further questions around accountability, and punitive measures taken. However, in general, he commented that strict compliance with the rules was expected from departments in the Security Cluster.
AGSA report on use of consultants in Department of Police (SAPS),
State Information Technology Agency (SITA) and Waymark contracts and addendums.
Ms T Chiloane (ANC) said her questions would focus on the firearms control system and the use of SAPS Nyalas. The increase in the use of consultants was considerable, at a cost of R4.039 billion. She said the AGSA report indicated that the State Information Technology Agency (SITA) had recommended that a contract on firearms control be signed for R103 million. A contract was signed in 2004, for an amount of R93 million. However, when checks were done on the system, it was found that this had not been completed after 17 months, long past the completion date. AGSA reported that this then gave rise to four addendums being signed, totalling over R402 million. She asked for the reasons behind the addendums.
Ms Maggie Sotyu, Deputy Minister of Police, commented that the AGSA report covered two financial years, and asked that the National Commissioner indicate what had been done since.
General Ria Phiyega, National Commissioner, SAPS, replied that the growth in the use of consultants happened where SAPS lacked capacity. If police were to deliver efficiently, it was important to use consultants. However, she fully agreed that it was important to have proper planning, efficient management of contracts, and containment of the cost. In a number of these areas, including planning and contract management, there had been challenges. Pricing was an issue on the Nyalas contract.
She said the SITA-recommended contract had been terminated after 17 months had passed, which was after the scheduled deadline for completion of the work. An indication was given that an 80% benefit had been derived but SAPS would want to test and evaluated that.
Mr Bonginkosi Ngubane, Divisional Commissioner: Technology Management Services, SAPS, said it was important for the Committee to understand the background to the project. When SITA was formed, this had left the SAPS with no internal capacity, as the whole of the SAPS IT division was transferred to SITA. When the Firearms Control Act (FCA) was developed, therefore, there was no internal capacity at SAPS. In hindsight, this was a mistake. There were other problematic projects that SITA was involved with, like the e-docket and the firearms project. Because of lack of capacity, the use of consultants became the norm.
He cited an example of the Integrated Justice System (IJS) programme, which was being completely run and operated by contractors. This was a concern. The programme for rebuilding capacity was slow, and there was reluctance to embrace transformation. The information systems discipline had methodologies and techniques such as the systems development life-cycle. These were all lacking. There were no methodologies for governance, because when staff were moved to SITA there was no strategy to rebuild.
Mr Ngubane said the time lapse in an IT project was also a problem. Technology was not static and if a project passed a certain time there would be cost escalations. With this particular project, new software came in that was user-friendly to what the Department tried to achieve.
He said that when project management was non-existent, deadlines were missed and there were no penalties imposed. The use of addendums was not a good practice in general. It was an indication of poor planning initially, and it was discouraged by the SAPS.
Mr Ngubane said the firearm permit system was self-contained and was part of addendum 3. In the Department’s assessment, the addendums should have been a separate tender altogether. The lapses seemed systemic and there was an ongoing investigation into corruption or breach of regulations by any person. An official report by the Hawks would be made available in May 2013. The Department had terminated the contract of Waymark, but the contractor was disputing the termination. The first legal opinion sought indicated that the contract lapsed in 2008, but SAPS was now awaiting a second opinion. When a new addendum was signed, the new delivery date became the delivery date for the contract.
Ms Chiloane commented that this background was necessary because this Standing Committee (Scopa) dealt with matters retrospectively. The money had been spent, and yet only 80% of the work had been done. The questions now being investigated were the value to SAPS of the 80% completed work, who was responsible for the 20% that was left, who was the delegated official that caused the addendums to be signed, what action would be taken and why SITA’s recommendation was ignored.
Gen Phiyega clarified that the first date on the contract went back to 2000. Many of the current officials present were not in SAPS at the time and those who dealt with the matter were no longer with the Department. The Special Investigating Unit (SIU) was looking into contraventions on processes. SAPS would receive a report at the end of May, and issues would be dealt with accordingly.
She noted that there was a dispute between the Department and the contractor, as to whether value had been derived. The Department had sought legal opinion on whether the contract was in force or not, although it believed that it was not, and this was the reason it was terminated. She emphasised that delivery should have taken place on time and the delay was unacceptable. Another point was that although the contractor claimed that the system delivered 80%, the SAPS did not have the skills to test that claim. A team of experts, including some from the Centre for Scientific and Industrial Research (CSIR) had been approached to assist with quantifying the value of the work done. SAPS would take the necessary steps identified by the SIU report.
Mr Ngubane elaborated on the 80% claim and said there were three components of the project. The firearm controls system and firearm permits had both been completed, and they comprised the bulk of the budget. There was an e-submission website that allowed dealers and service providers to log onto the system.
He said the firearms control aspect was not a big issue, and value had been derived. To date, the project had been rolled to 949 police stations and the rollout was continuing.
Gen Phiyega commented that Members needed to know that SAPS believed the use of schedules needed to be used as an exception rather than the rule. She said that in future schedule use would be very limited and only used when there were exceptional circumstances.
The Chairperson commented there was no point pursuing the matter further in light of the pending report that would be received in May.
Ms Chiloane sought clarity on two consultants appointed to oversee the Nyala project, at a cost of R79.5 million, in preparation for the 2010 Fifa World Cup. The Committee wanted to know more about the contractors. AGSA indicated the contractors were given a 60 / 40 split, at figures of R61 million and R18 million respectively, but that the payments were actually 122% higher than the original value. She asked for the reasons.
Gen Phiyega replied that the Nyalas were imported through Armscor and were not well understood. There was difficulty around the repair and purposes, and one had to be shipped out of the country. A list of 49 things to repair was included, and there were limitations on the capacity to estimate the cost. The underestimation of the cost was as a result of this.
The Chairperson wondered why there was such a huge difference.
Gen Phiyega said the vehicles were different, and had to be stripped individually so that the actual cost of refurbishing could be given. This contributed to the sharp rise in cost. These were very cumbersome vehicles and could not be driven to the people who refurbished as units. The delivery of the vehicles also contributed to the delays. The quantum was huge. With hindsight, the matter could have been approached differently. However, she did comment that value had been derived from the Nyalas. They lasted for 16 years and maintaining them had been cost effective. The under estimation of cost would be overcome in the future.
Mr Gary Krause, Head: Supply Chain Management, SAPS, added that the vehicles were acquired for during the World Cup, and were now mainly used for protest and intelligence work. The SAPS was at a crossroads and had to decide whether to buy new ones or refurbish what was already there, but buying was too costly. The Nyalas were all over 15 years old at that stage, and the process used for refurbishment was to inspect the vehicle from bumper to bumper. This was exhaustive and involved having a mechanic validating the extent of damage on each vehicle. Quotations had to be obtained as well as full details of the final quote.
Mr Krause said there was a basket of 48 items to be covered. SAPS had entered into a competitive bidding process. The items in the basket were the most likely things that had to be attended to in the vehicles, according to the SAPS estimation. All NT processes were satisfied through the competitive bidding. BAE Land Systems and Black Capital (Pty) Limited, a BEE company, won the tenders.
The Chairperson asked if it was not possible to have used the Departmental mechanics.
Mr Krause replied that SAPS’s own mechanics did not have Nyala expertise, but only dealt with the normal policing vehicles.
The Chairperson commented that the expectation was that internal capacity could have been developed in 15 years since the purchase of the Nyalas.
Mr Krause replied that these vehicles were purchased prior to 1994. Under the new administration the vehicles were never put in use. The decision had been taken to re-deploy them when it was realised, in the run-up to the World Cup, that the purchase of new Nyalas would be too costly, and that these vehicles were then not functional. SAPS conceded to the findings of AGSA on the Nyalas contract, but measures were put in place to address them.
Ms Chiloane commented that keeping the Nyalas in good condition cost the state a lot of money. SAPS would have to re-think how best to get and maintain good Nyalas.
Dr George commented that management seemed to have collapsed in relation to the Nyala contract,. The tendency to blame those before “us” was a common failing in all the departments and this attitude needed to change
Delivery of computers at 9 sites.
Dr George sought clarity cancellation of a contract on the Adult Basic Education and another new consultant being pursued.
Gen Phiyega replied money was saved on the contract, as less was used than allocated. The key issue was around the timing (contract year and financial year) and the written contract.
Ms Nobubele Mbekela, Divisional Commissioner, SAPS, explained that DeLoitte Touche was the main consultant in this programme, but Project Literacy was a sub-contractor. DeLoitte Touche, when awarded the contract, agreed that there would be delivery of computers in all nine sites, but only as the contract progressed did it realise that this meant in all nine provinces.
The Chairperson wanted to know how the company discovered this suddenly.
Comm Mbekela replied the matter was discussed with the contractor, and there had been a request for more money to deliver computer-aided training. The SAPS had refused. Deloitte Touche pulled out, leaving the contract with the sub-contractor (Project Literacy), who delivered. In the following year Project Literacy applied again for the contract, but it was not awarded to this firm.
Dr George commented that the Deloitte Touche scenario was a perfect example of how the private sector companies exploited the gaps in government for gain. This was something that warranted a careful examination. He asked why R1.3 million was paid to Deloitte Touche if it had opted out.
Ms Mbekela replied that it had conducted some work, but it opted out when the request for more money was refused.
The Chairperson wanted to know if there was any other work Deloitte Touche did for SAPS, commenting that it seemed to be prominently used all over government.
Gen Phiyega replied that it had, and it was on the Department’s database. It would be carefully considered when next the SAPS looked for service providers.
Dr George sought clarity on the discrepancy pointed out by AGSA in relation to the bidders.
Ms Mbekela replied the discrepancy was another process, and that she could not answer this.
The Chairperson said that Dr George wanted more clarity on AGSA’s finding in relation to management’s willingness to identify the discrepancy. After the AGSA report was produced, the Department should surely have looked at the areas of challenge and deficiencies, and done follow-up work.
Gen Phiyega replied that the main challenge was in determining whether the “year” meant the contract or financial year. This resulted in time discrepancies. In future, SAPS must be more clear in specifying these issues.
The Chairperson commented that there was a need for minutes and proper documentation. This was part of building an organisational culture that survived individuals.
Internal audit services
Dr George commented that there were several worrying issues between the departments and consultants and the process was not working. Government departments needed to have systems in place that would interface. He asked for clarity on the internal audit services. He emphasised that a good internal audit function could only happen if there were good financial procedures, a functioning internal audit department, and an audit committee. This was not apparent in many departments, including SAPS. This Department had appointed a consultant to perform the internal audit function, at a cost of R33 million, that increased later to R77 million. The whole contract was not properly managed.
Gen Phiyega replied that Dr George was correct. SAPS outsourced the internal audit function, with a view to helping it to establish the function and transfer the skills internally. However, it was correct to say there were lapses in managing the process.
The Chairperson wanted to know to which company the work was outsourced.
Ms T Nkosi, Head: Internal Audit, SAPS, replied that it was a consortium led by KPMG, but including others such as DeLoitte and Sizwe Ntsaluba. This consortium was appointed because of lack of internal capacity. When the contract came up for extension, it was realised that the SAPS internal audit still lacked capacity.
The Chairperson said the consortium would be interesting to investigate.
Ms S Mangena (ANC) commented that refurbishing the Nyalas was a waste of money, as there could have been another way to overcome the shortage, such as borrowing Nyalas from DOD.
The Deputy Minister replied that the DOD were equally old and in as poor condition as those belonging to SAPS, if not worse
Ms Muthambi commented that she was not sure that AGSA would have taken issue with the refurbishing if the explanation presented today to the Committee had been given. She asked if proper asset disposal policies were followed.
Mr Ainslie commented that the National Development Plan (NDP) required competent public servants. He had compiled a long list of competencies that the Department of Police lacked, which included contract management, maintenance of vehicles, and financial management. This was very serious. Without these competencies, the goals of having a competent state would not be realised. He appealed to the Deputy Minister that the challenges must be addressed, in order to achieve the objectives.
Mr Ainslie sought clarity on the contract for firearm control systems, which had grown from R93 million to R412 million over twelve years. The matter had been referred to the SIU, but that did not prevent SAPS also from undertaking internal investigations to establish whether anybody, over the eight-year period, had failed to monitor the contract, as surely somebody must have been mandated to manage. He wanted to know if anyone falling in this category was still in the employ of SAPS, and if they were being investigated with regard to this contract.
Ms Chiloane asked if it was not possible, in future meetings, for SCOPA to invite consultants who were involved in shoddy dealings with departments. The implications were that government departments were corrupt, yet the blame could not be levelled on departments alone if, despite being paid, consultants did not perform the work satisfactorily. If the Committee wanted to combat corruption in spending of Government funds, it should involve all concerned.
The Chairperson commented that the Committee needed to make note of the particularly contentious contracts so that it could invite the contractors involved.
Gen Phiyega commented that SAPS appreciated the scrutiny by Parliament, and getting feedback on areas where improvement was needed. Compliance was very important. The challenges raised had to be addressed, and SAPS would now go back and improve. SAPS was focussed on modernising its operations.
She noted that the SAPS must take a 20-year view on issues, so that it could look back and see change and improvement in ensuring safety to the citizen. SAPS was aiming to professionalise delivery, and would strive to be transparent at all times. She fully admitted that this Department was not perfect and that it made mistakes.
The Deputy Minister commented that the Ministry would monitor all the commitments made by officials to the Committee.
The Chairperson said that this Committee was retrospective, and tried to assess “what killed the patient”. It would, in its report, be requesting quarterly reporting by all departments, to enable Members to assess continuously how the issues were being addressed.
The Chairperson urged that the internal audit be given space and powers. This would assist all departments in ensuring compliance, and clearing issues with AGSA. The functioning of the internal audit units and audit committee were the main areas of concern to the Committee and, generally, Members believed these functions did not get the necessary support from management.
The meeting was adjourned.
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