Department of Labour Audit Report on Cape Town building lease; Universities/CCMA MOA on Labour Dispute Resolution Standards

This premium content has been made freely available

Labour

09 September 2015
Chairperson: Ms L Yengeni (ANC)
Share this page:

Meeting Summary

The Commission for Conciliation, Mediation and Arbitration (CCMA) reported back on the history and process of the lease arrangements for the Cape Town office, which had been previously queried by the Committee. It had awarded a tender bid to Potlako Properties on 7 January 2013. Potlako subsequently changed its name to Milestone Property Group, but the documents signed by the CCMA still had Potlako mentioned as the owner. Nedbank had been involved as financier of Potlako/Milestone. During the process, CCMA had engaged in a process known in legal terms as Beneficial Occupation because it had discovered that Milestone had been unable to complete the building on the terms which were originally agreed upon, and attempts were made to remedy this breach through Nedbank, the financier. The building was subsequently sold to another company, and Nedbank dropped out of the process since it was no longer involved in any financing. In August 2014 a forensic audit indicated that the tender was incorrectly awarded and CCMA was advised to file an application with the High Court to have the tender set aside until the matter was resolved. Milestone had opposed the High Court application to set the tender aside. Nedbank. CCMA's current lease was set to expire soon and although it had managed to acquire two extensions of time, in order to try not to disrupt operations it would need to  secure long term premises.

It was outlined that the procurement procedure consisted of three Bid Committees; The Bid Specification Committee, Bid Evaluation Committee and the Bid Adjudication Committee. The forensic audit found that there was an inadequate segregation of duties and the Supply Chain Manager had a great influence on the awarding of the tender. All the recommendations from the forensic audit were implemented as at 31 March 2015 and additional controls such as checklists against the SCM standards were developed and applied in all Bid Committees.

As reported in May 2015 the CCMA had so far spent R2.8 million, with R78 993 spent on legal fees. The legal opinion had indicated that if the CCMA did not approach the High Court to review the tender award the CCMA would be a party to implementing the consequences of a bid which was known to have been awarded wrongfully.

The Committee asked whether the price of the building was inflated, who authorised the forensic audit, whether the CCMA was able to take legal action against Mr Potlako what actions were to be taken against the person allegedly responsible for influencing the bid, and if there was any relationship between them. Members were also interested in what changes had been made to the supply chain process and what the content was of the forensic audit.

A consultant to the CCMA briefed the Committee on the partnership that had been developed between the Labour Relations Practice Industry, made up of the CCMA and the Bargaining Council, and a number of public universities, in terms of a Memorandum of Agreement (MOA), for the universities to develop and deliver a qualification in Labour Dispute Resolution Practice. The CCMA took the decision to externalise its commissioner training programme, which had, historically, only been available to those applying for commissioner positions. Now, the training would be far more transparent, equitable and accessible. The steps in the process, which had started with investigations in 2011, were described. By January 2014 three programmes were set to be delivered and at the moment there were MOAs in existence with six universities. In the implementation, the CCMA retained strong controls over the quality of the programme, and equity was a strong consideration being promoted.  The content and the practical aspects were stressed. CCMA hopes to introduce bridging courses for candidates who do not meet the minimum requirements and who do not qualify via the RPL route as the programme will benefit all three stakeholders involved; the CCMA, universities and labour market. The vision was to empower and build broad based capacity in the labour market for dispute resolution practitioners. Members asked about the duration of the programme, and whether it might be possible for those people not able to do block release to study in another way, whether the CCMA could be more visible, and how the quality of the programme was controlled.

Meeting report

Commission for Conciliation, Mediation and Arbitration (CCMA): Western Cape offices lease: Briefing
Ms Nerine Kahn, Director,of the CCMA, said the CCMA had applied the set policy and procedures during the procurement process for the Western Cape offices lease, and had managed to identify the problem as the process progressed. The CCMA had  commissioned a forensic audit which found that there was a failure in the system and it was decided to proceed with disciplinary action. Since the findings were revealed the CCMA had introduced new measures to ensure that it would not happen again.

She outlined the background and findings in the whole situation. In January 2013 the CCMA called for bids for a Western Cape office. Ms Khan wanted to stress that before the bid was called, a business  and a needs analysis were conducted, and this included setting a budget of R19 million. The bid was then awarded to Potlako Properties on 7 January 2013. Potlako subsequently changed its name to Milestone Property Group, and it was the owner of the building. Nedbank approved a mortgage bond in the name of Milestone, but the lease agreement concluded in June 2013 still named the parties as Potlako Properties and the CCMA.

CCMA then engaged in a process known in legal terms as Beneficial Occupation; this was mainly due to the inability to complete the building on the terms agreed upon. In March 2014 the CCMA discovered that the legal and Beneficial Occupation was not possible due to the bidder not being able to meet the commitments. When it was discovered that CCMA would not be able to move into the new building as planned, it had extended the lease from its current landlord so that operations of the CCMA would not be interrupted. It was decided that a forensic audit should be conducted. This was done, and in August 2014 a forensic audit indicated that the tender was incorrectly awarded. The CCMA was advised to apply to the High Court requesting that the tender should be set aside until the matter was resolved. During November 2014, the building was sold from Potlako/Milestone to Grand Parade Investments, and Nedbank, as mortgage holders, advised the CCMA that it had no further interest in the building because its finance process had been settled. This would be expanded on later.

When the building was sold to Grand Parade Investments for R45.6 million, that sale amounted to repudiation by the bidders, in terms of the lease agreement with the CCMA. The CCMA had sent a letter to Milestone’s attorneys informing them that the contract was being terminated based on the breach, as Milestone was now no longer in a position to offer beneficial and legal occupation to the CCMA. Milestone’s only possible response was to withdraw from the lease or to interdict CCMA from continuing with the new lease tender. To date Milestone had opposed the High Court application to set the tender aside, and so CCMA had no other option but to proceed with the legal action. Further options for the CCMA could be to secure long term premises, because its current lease expired on 30 November 2015, but currently it had agreed to a six month extension with the option of a further six month.

The Supply Chain Management process that should be followed for a procurement of R1 million upwards under a bid consisted of three important committees. The Bid Specification Committee (BSC) has a chairperson and technical expert. The Bid Evaluation Committee (BEC) is made up of technical experts, people from middle management and finance experts. This second committee conducts the functionality of the process, looking into whether the bidders are able to provide the services and whether the price ensures value for money. The BEC then makes a recommendation to the Bid Adjudication Committee (BAC) which consists of a chairperson and executive members, including finance, management and other experts. The final stage of the procurement process would be the negotiations and settling of the lease.

Ms Kahn explained the involvement of the various parties. As stated, the forensic audit was conducted after the bidder failed to deliver beneficial and legal occupation as originally agreed. An external expert opinion confirmed that Milestone could not deliver beneficial and legal occupation, such as parking lots, disabled parking and lifts. Attempts to try to remedy the breach were made via the financier (Nedbank) but that proved to be unsuccessful, and later, as stated, Nedbank indicated that since it was no longer financing the mortgage, it was no longer an interested party.

The forensic audit contract was managed to ensure that costs did not go beyond the agreed amount. The forensic audit set out 27 findings which included the following:
- functionality points were applied incorrectly and the functionality ratings were also applied inconsistently,
- there was an inadequate segregation of duties
- the Supply Chain Manager had a great influence on the awarding of the tender and the perceived BEC bias in favour of Potlako.

All the parties who were involved in the tender process were called to account; including the Corporate Services Manager, Head of the legal department and the Chief Financial Officer. Members of the BAC and BEC were called to also account, as well as the Supply Chain Manager, Facilities Manager and the Deputy Supply Chain Manager.

Ms Kahn noted that there had been changes to the procurement process with respect to leases. The CCMA had now reviewed the Supply Chain Policy and Procedure Manual, retrained the Supply Chain Management (SCM) staff, re-trained existing Bid Committee members and increased the size of Bid Committees' pool of members so that the committees will have a greater mix of skills. All the recommendations from the forensic audit were implemented, as at 31 March 2015, and additional controls such as checklists against the SCM standards had also been developed and applied in all Bid Committees. She added that additional segregation of duties had been put into place so that different SCM officials attended different Bid Committees.

The CCMA had been committed in working with Milestone so that the CCMA could move into the building. Numerous meetings with Milestone/Potlako, financiers, lawyers, stakeholders and quantity surveyors were held to find constructive solutions. The CCMA had tried its best to ensure that its interests wee protected and that would be continuity in terms of their Cape Town operations. No monies had been paid to Milestone so far, and the Governing Body had played an oversight role and seemed to be comfortable with the processes which had been followed.

As reported in May 2015, the CCMA had spent R2.8 million and R78   993 was spent on legal fees. The legal process which was followed indicated that the forensic audit had established that the tender had been wrongly awarded, and after seeking legal advice the CCMA decided to make an application to the High Court to set aside the award. The legal opinion further indicated that if the CCMA did not approach the High Court to review the tender award it would have been a party to implementing a bid which it knew was awarded wrongfully.

She concluded by saying that the CCMA had been pro-active once the problems had become apparent. It had instituted legal action to set the tender aside and it planned on pursuing other alternatives for the lease, in the best interest of the CCMA and the public. Ms Kahn again stressed that the CCMA had also strengthened the procurement process to prevent a recurrence of similar events.

Discussion
Mr I Ollis (DA) asked if the CCMA could give the Committee the name of the individual who was involved in the fraudulent activity of the tender bid. He also asked whether the individual was in any way related to Potlako because it is not the first time that Potlako was found to have been involved in a fraudulent tender bid with an employee of government. He wondered also whether the CCMA was in a position to take legal action against Potlako? He also enquired about the price of the lease for the building and he asked if the CCMA believed that the price was inflated.

Mr M Bagraim (DA) asked for a copy of the lease, and suggested that the CCMA might still have the option of terminating the lease contract and suing the owners for damages because CCMA was still incurring financial damages, as the building was not in a suitable condition to operate. He noted that the lease agreement was entered into in January 2013 and then later terminated in April 2014. He asked when exactly the CCMA decided to conduct a forensic audit and what triggered the decision to conduct the audit. He said it was important that the individuals who influenced the decision of the bid must be investigated. Finally, he asked if whether the CCMA has reported the matter to the police.

Ms F Loliwe (ANC) asked who had authorised the forensic audit. If the procurement processes were followed correctly then she questioned why the audit findings indicated that there was bias when it came to awarding the lease.

Ms S van Schalkwyk (ANC) said the cost of the legal advice seemed to be increasing and asked when the CCMA thought the case would be concluded.

Mr D America (DA) asked for a copy of the forensic audit report, so that the Committee Members could see the facts for themselves, and also asked what transpired up until the audit had started.

Ms Kahn replied that the individual who had influenced the bid was Mr Sizwe Morgan Mayaba.

Ms Ntombi Boikhutso, Chief Financial Officer, CCMA, replied that the lease cost of the building was market related and the price was not inflated. She added that other bidders' prices were more or less the same as that one.

Ms Kahn said the CCMA had investigated Mr Sizwe Mayaba and had discovered no links between him and Mr Potlako. She added that the CCMA was in a position to blacklist the parties but the matter was still being investigated by the police so at the moment no further action could be taken. 

Ms Boikhutso noted that although she did not have the exact date of the decision on the audit, it had started around May 2014.

Mr Cameron Morajane, Head of Legal Department, CCMA, said the CCMA had not claimed for any damages yet as the contract was not at any stage cancelled.

Ms Kahn said a follow-up investigation was done and the CCMA had not found any type of criminal conduct.

Mr Morajane said the company Milestone had sent the CCMA a notice of opposition.

Ms Boikhutso noted that slide 15 of the presentation showed the reason why the CCMA decided to conduct a forensic audit. During the process of the audit; the CCMA was in continuous communication with the audit committee to ensure that the correct steps were followed.

Mr Morajane repeated that Nedbank was initially funding Milestone but when the forensic audit began the bank chose not to get involved.

Ms Boikhutso said the correct Supply Chain procedures were followed but it was found that there were flaws in the process. All statutory requirements were followed, but it was found that there was an element of human interference in the procurement process.

Ms Kahn said the forensic audit was recommended by herself and the Chief Financial Officer.

Mr Morajane made the point that unfortunately the CCMA was not in control of the legal process. If Milestone decided to refrain from claiming for damages, then the legal fees costs would not increase; however there would be a claim for the costs incurred during the legal case at the end of the process.

Mr America asked who conducted the forensic audit; was it an internal or external body, and what costs were involved in conducting the forensic audit.

Mr P Moteka (EFF) said that the public had the right to know why the CCMA was spending so much money on legal fees. He asked what the CCMA hoped to achieve once the matter has been resolved.

The CCMA’s Head of Governance said that if the CCMA had not challenged the bid, it would have been left responsible to pay for a building which was not suitable for the daily operations.

Mr Bagraim said that one positive was that the legal costs were limited to less than R100   000. The end goal of the CCMA should be to send out a message to businesses that the government cannot be taken for granted, and that there are implications for anyone trying to commit fraud against the government.

Ms Kahn said that a copy of the forensic audit report was sent to the Committee already.

Ms Boikutsho reminded Members that the forensic audit was done by an external body at a cost of R930   000.

The Chairperson asked the CCMA what lessons it had learned from the process, what flaws had  been discovered within the organisation and asked if the CCMA had made any change since the matter has occurred.

Ms Kahn replied that the CCMA planned to to review the strategic plans every quarter, the staff would be more accountable for their actions, the secretarial duties had been tightened up and the legal department would become more involved in all the process of their operations. All senior management employees would be communicated with about the legal processes.

Ms Boikutsho added that the CCMA had also ensured that there was a strong sense of separation of duties.

Briefing by the CCMA on the Memorandum of Agreement (MOA) on Labour Dispute Resolution Practice
Ms Vanessa Pather, Consultant on training to the CCMA, said the Labour Relations Practice Industry, made up of the CCMA and the Bargaining Councils had partnered with public institutions to develop and deliver a qualification in Labour Dispute Resolution Practice. Every effort to develop the qualification through the Services Sector Education and Training Authority (SSETA) was made, but this had been a very slow progress and the SSETA was subsequently put under administration, and the decision was that the initiative should move into the public university realm. The CCMA then took the decision to externalise its commissioner training programme, which historically had only been accessible to applicants for commissioner positions.

The key aspects of the initiative were to enhance transparency through an open process followed in establishing partnerships with universities. A strong emphasis on equity prevailed in all facets of the initiative. Accessibility to the programme by all interested people had been significantly improved, as compared to the CCMA’s own commissioner course. The preparatory process began between September 2011 and January 2012, and that had involved with informal engagements with public universities, consultations with industry experts and CCMA decision-making structures, obtaining a legal opinion on copyright and contractual requirements, and briefing and consulting with internal and external stakeholders.

The timeline of the process towards working with universities started off with an invitation that was sent out to all 16 public universities, and the interested universities were called to attend a workshop. The CCMA then requested that all universities should submit proposals. From the 16 invited universities only five were invited to participate in the initiative. The Memorandum of Agreement (MOA) negotiations and settlement process started in July 2013. By January 2014 three programmes were set to be delivered. In November 2014 the review of the first three programmes was conducted. Over the past eighteen months the MOAs had been signed with six universities: Nelson Mandela Metropolitan University (NMMU), Stellenbosch University (SU), University of Witwatersrand (Wits), University of the Free State (UFS), University of the Western Cape (UWC) and University of KwaZulu-Natal (UKZN). The key aspects of the MOAs were that they set out the standards with which partner universities must comply, ensured that the courses were practical and stipulated that suitably trained industry facilitators train the practical component. The MOAs also provided for the establishment of an industry /university task team.

The qualification is subject to an annual review by the LRP Committee, on behalf of the industry and the MOAs includes a comprehensive intellectual property protection. The implementation process involves significant controls over the quality of the programme and equity considerations are also promoted in the MOA. The criteria used to review partner universities include the capacity and expertise used to develop and deliver the programme, co-operation with other industries to develop and deliver the programme, equity and representation of students in the programme, accessibility and how they were to comply with standards set out in the Framework and Content document. The programme content and framework cover broad principles such as being able to produce ready-to-practice graduates, knowledge, skills and workplace components, improving the CCMA’s training, a stipulation that modules must be practical and they must emphasise soft skills, social justice, ethics and diversity components. A suitable facilitator must have recently practised as a commissioner, must have relevant practical experience in the area of facilitation, a good performance record and reputation in the industry, should be conversant with case law and should possess a relevant qualification.

The programme is now accessible to all applicants who meet the admission requirements of the university. The programme is designed to reach a broad constituency, including trade unionists, human resource managers, legal practitioners and aspirant CCMA commissioners. The aim is to have bridging courses for candidates that do not meet the minimum requirements and who do not qualify via the Recognition of Prior Learning (RPL) route. The programme aims to be a benefit to all stakeholders, the market, the CCMA and the universities.

She described the major benefits of the qualification that had been developed. The qualification will have a major impact on the labour market’s conflict management, dispute resolution and labour relations skills. It will contribute to job creation and skills development and by using the universities’ resources the programme will be more comprehensive and holistic. It was felt that universities are in a stronger position to offer bridging courses and through this the accessibility of the programme is also improved. It will benefit the CCMA by providing a number of potential commissioners, and the CCMA will no longer have to provide lengthy training to commissioners before they are ready to practise. There is also a possibility that the programme could be introduced into the Southern African Development Community (SADC) region. The universities will benefit as the programme transforms traditional theoretical and academic university qualifications into practical work-based ones; there will be an on-going need for graduates from the CCMA and Bargaining Councils, hence the universities will benefit from the number of registered students. The practical and immediate applicability of the programme is highly attractive to potential applicants and there is a continuous demand from the labour market.

She concluded by saying that the vision of the initiative is to empower and build capacity in the labour market for broad based knowledge dispute resolution practitioners with the requisite technical skills who were also sensitised to the needs, challenges and nuances of the South African labour market.

Discussion
Mr Bagraim said he is pleased to hear that the programme was being offered to everyone and not just current practitioners.

Ms Loliwe asked if the CCMA had considered amending the structure of the programme for those that could not attend the lecturers during block weeks. She asked what the duration of the programme is, and whether consideration had been given to clustering different students from different industry sectors, so that they could learn from each other. She also asked how the CCMA would at all times ensure that it would be visible throughout the duration of the programme.

Mr America asked how the CCMA would ensure that the quality of the programme was controlled and that students would continue to receive useful information during the lectures.

Mr Moteka said one of the key aspects of the programme was equity, but in the case of the University of Stellenbosch, as seen by recent news in the media, he was worried that it did not appear to be integrating that particular key aspect in the programme.

Ms Pather replied that the CCMA had been in discussion with universities to enquire about making accommodation for part-time students and there had been attempts to cluster students from different sectors into one class, but CCMA would investigate whether the universities were still applying that idea. The duration of the programme was one year and the CCMA had made it clear to universities that when they advertised the programme they must make it clear that it is offered in partnership with the CCMA. The presence of the CCMA is also felt during the graduation ceremonies, as a representative from the organisation is often asked to make a speech. All the universities are requested to provide the CCMA with their equity plans, which indicate the number of students in the programme, and the number of Black, White Coloured, Indian and female students are enrolled in the programme.

The Chairperson asked how the students are expected to gain work experience after they have graduated, if they were not guaranteed a job after completing the course.

Ms Kahn replied that the graduates could enter into any job field with the qualification. For instance, they might work in law firms, become part of the bargaining council or work for trade unions. The students that are registered in the course are offered an opportunity of attending one of the CCMA offices to gain work experience and this initiative is part of the programme.

Adoption of Minutes
The Committee adopted minutes of 2 September.

The meeting was adjourned. 

Share this page: