SABC on contract deviations & expansions: follow-up; with Deputy Minister

Public Accounts (SCOPA)

01 September 2020
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

Video: Standing Committee on Public Accounts, 1 September 2020

The Committee held a follow-up virtual meeting with the SABC on expansions and deviations at the public broadcaster. The Deputy Minister of Communications was in attendance.

The SABC indicated that the information submitted on deviations and expansions predates the current board and management team. The SABC was able to institute safeguards to prevent such things from recurring. In 2019/2020, there were about 87 projects. The overall value of the annual procurement plan for 2019/2020 was R1.3 billion. There were 6 deviations that were greater than the R2 million threshold for open tenders. There were 17 expansions during that same period. For the current fiscal year 2020/2021 there were 137 projects. The overall value of the annual procurement plan for this financial year was R2.5 billion. There were 2 deviations that were greater than the R2 million threshold. As of 31 August there was only 1 approved deviation. The SABC had a total of 228 active contracts under management. The value of those were R1.8 billion. Out of the 228 active contracts there were about 30 deviations and expansions that have been submitted to National Treasury. An analysis of those reveal that there were 19 deviations and 11 expansions. 15 of those 30 deviations were for 12 months and the other 15 were multi-year contracts. 14 of the 30 deviations relate to general opex and the other 16 relate to industry specific. It was the balance that the SABC wanted to achieve so that nothing it does has an impact on business continuity. Of the 30 deviations 25 were supported by National Treasury.

The Standing Committee noted with concern the use the SABC made of deviations and expansions. Deviations and expansions were only supposed to be used under extreme circumstances. The Committee wanted to know who was responsible for not renewing the contracts on time. The SABC was accused of creating conditions which favoured the need for deviations and expansions. The Committee asked who were those responsible for putting the SABC at risk? Were those individuals being held to account and facing consequences? The issue of support and maintenance contracts expiring without being renewed was also brought up. The Committee asked the SABC what it had done to increase internal capacity. What was the SABC doing to skill its staff so that it did not need to outsource work? The issue of the failure and replacement of storage discs was also discussed. The Committee was not impressed or satisfied by the responses of the SABC. The Committee believed that the SABC officials were not performing their duties diligently and relying on the use of deviations and expansions to cover their mistakes. The Chairperson said that the Committee would be visiting the SABC to perform oversight and to assist where possible.

Meeting report

The Chairperson said he would allow the Deputy Minister to make opening remarks and then hand over to the SABC Board Chairperson. Mr Hadebe and Ms Mente-Nqweniso would then be allowed to ask questions.

Ms Pinky Kekana, Deputy Minister of Communications, said that this meeting was a continuation of engagements that happened in the past few weeks when the SABC appeared before the Committee. She wanted to allow the Committee to engage with the SABC and ask any outstanding questions.

Briefing by the South African Broadcasting Corporation (SABC) on deviations and expansions Mr Bongumusa Makhathini, Chairperson, SABC Board, said that the delegation present wanted to make sure that it provided all the details that the Committee required. He requested that the Committee allow the executives, specifically the CEO and CFO, to provide context because the SABC had made a number of submissions. He wanted that context to be given because many of the issues that will be dealt with were technical and complex. He wanted to assist the Committee members so that they were able to follow the discussions. Some of the issues facing the SABC predate the executive team and current board. It was therefore important that the board provided clarity on how it was going to deal with these issues.

Mr Madoda Mxakwe, Group Chief Executive Officer, SABC, provided a summary of the submission made to the Committee. The remedial plans that the SABC would be implementing were very important going forward. The information submitted on deviations and expansions predates the current board and management team. The SABC was able to institute safeguards to prevent such things from recurring. The SABC had given the Committee a sense of the annual procurement plan for tenders that are greater than R2 million. Just for the financial year 2019/2020, there were about 87 projects. The overall value of the annual procurement plan for 2019/2020 was R1.3 billion. There were 6 deviations that were greater than the R2 million threshold for open tenders. There were 17 expansions during that same period. For the current fiscal year 2020/2021 there were 137 projects. The overall value of the annual procurement plan for this financial year was R2.5 billion. There were 2 deviations that were greater than the R2 million threshold. As of 31 August there was only 1 approved deviation. The SABC had a total of 228 active contracts under management. The value of those were R1.8 billion. Out of the 228 active contracts there were about 30 deviations and expansions that have been submitted to National Treasury. An analysis of those reveal that there were 19 deviations and 11 expansions. 15 of those 30 deviations were for 12 months and the other 15 were multi-year contracts. 14 of the 30 deviations relate to general opex and the other 16 relate to industry specific. It was the balance that the SABC wanted to achieve so that nothing it does has an impact on business continuity. Of the 30 deviations 25 were supported by National Treasury. The SABC had also provided the Committee with information on TV licenses as it related to the insourcing and outsourcing of duties. The SABC had looked at the cost implication as well as the performance of the debt collection agencies. The model of the SABC was quite clear when it comes to collecting TV licenses. 55% are internal collections and 38% from debt collection agencies and 12% from retail. The head of TV licenses was present in the meeting and would answer any questions on the matter.

Ms Yolande van Biljon, Chief Financial Officer, SABC, said that the SABC had submitted a response on 19 August that dealt specifically with the relationship and history with Inala detailing the various products sourced from the company and why. The SABC also clarified some questions that were asked on the news agencies and an audit finding. The SABC also provided more detail on the performance on the TV license unit and the debt collecting agencies. Today the SABC would provide further information to the Committee on the seven items identified and where relevant it would comment on any potential irregularities and how those irregularities would be dealt with. The SABC tried to deal specifically with a few themes as it presented these matters for the Committee’s consideration. She provided some background. With regards to the past procurement processes the SABC tried to clarify what was meant by ‘date anomalies’. The submission also speaks briefly about the current contract and its status. It comments on the potential irregularities and what is being done to address the issue. The status of the current procurement contract was also discussed. It was her opinion that an organisation can procure either perpetual licenses, whether maintenance and support needs to happen every year, or the organisation can buy subscription licenses. In a number of instances with Inala the SABC was the owner of perpetual licenses. The product was deemed to still suit the organisation’s strategic roadmap and technical integration. Inala has positioned itself as one of the key suppliers, as well as key re-seller, of international broadcasting equipment in South Africa. It was a small industry with a small number of main players. The company was one of the key re-sellers of a number of products that the SABC used and that was also being used by their competitors in the industry. The matter relating to support storage within the organisation was also discussed in the submission. The submission also detailed the information on the tender awarded to Telkom and the commission period that was required. The commission period took 14 months and this impacted on the challenges facing the SABC.

She then spoke about JASCO and how it provided software within the broadcasting environment. The SABC had a perpetual license with JASCO and therefore the SABC was the owner of the product. The product was suitable for technical integration. The SABC did need to maintain maintenance and support of the product. There were some interruptions of maintenance and support in that specific case.

The SABC had also submitted an extensive presentation on debt collectors. SAP decided in 2004 to procure an ERP system and followed an open tender process. The tender was awarded to a consortium. The SABC then procured perpetual licenses with the installation that started in 2007. The SABC worked with the consortium to bring the implementation into fruition. Since then the SABC has been procuring licenses for maintenance and support directly from the OEM. When the SABC started its relationship SAP preferred to work directly with government. These days the process was different and the SABC was in the process of procuring, through an open tender process, maintenance and support. In the first few pages of the submission, dated 28 August, it deals with the current open tender processes that were ongoing. 21st century contract started in 2014. It was stopped and started for a number of reasons. There were extensive management changes and a struggle to get organised labour around the table to engage with the need for a new Sales Commissioning System. This resulted in extensive delays. The contract was scripted such that it is open ended but only until the work has been completed. The work re--started in 2016 and then stopped again. It was restarted again in 2019. The SABC was in the process of finalising the last few elements. A further one will be consultation with the unions.


Mr B Hadebe (ANC) said that the concern of the Committee was the apparent abuse of deviation and expansion. Although this practice was allowed by law it was only allowed when it came to issues of exceptional circumstances and unavoidable situations. It was only allowed as it relates to the sole supplier. What was happening at the SABC, and many other state owned entities, was that deviations were now being used as a normal practice. Or there appears to be a deliberate creation of conditions that will justify the use of deviation and expansion. Failure of which could be regarded as the sabotage to the national broadcasting corporation if one were to refuse to approve such deviations. He demonstrated why his view that the conditions for deviation were deliberately created was accurate. He provided the example of the support and maintenance contract. He noted that a number of these activities predate the current board. From 1 April 2014 to 9 June 2014 the SABC did not have a support and maintenance contract. The SABC did not have a support and maintenance contract for 70 days. Secondly, from 10 June 2016 to 30 June 2016 the SABC did not have a support and maintenance contract. He then moved on to the recent support and maintenance contract. From 1 April 2019 to 30 March 2020, more than 365 days, the SABC did not have a support and maintenance contract. What was the risk associated with this ‘shenanigans’? It was correctly indicated in the report that should there be any failure or malfunctioning it would lead to a revenue loss, public trust and viewership would be seriously affected. He argued that these conditions were being deliberately created given that the SABC went many days without a maintenance contract. This contract that was now being referred to expired on 31 March 2019. The SABC wrote National Treasury a letter, dated 18 October, which was 7 months after the contract had expired. The letter requested deviation. National Treasury only received this letter 3 months later from the date the letter was written which was January 2020. It only took National Treasury 7 days to approve the deviation. After National Treasury approved this deviation it took one and a half months for a bid adjudication committee to sit and approve this contract. Only on 24 March was a letter of award signed. Because of all of these conditions the SABC suffered serious failures. It resulted in the SABC using some money to buy storage discs to compensate for the time it did not have the support and maintenance contract. He wanted clarity on the matter. Who were the responsible persons that exposed the SABC to these severe risks? What course of action did the SABC take against those officials who were involved in exposing the SABC to such risks? What other failures occurred during the 365 days where the SABC did not have the maintenance contract? He wanted the SABC to quantify, in terms of rand value, what risks there were and how much money was spent during the time it did not have the maintenance contract. When these contracts were brought forward for deviation there was no choice left but to approve this deviation because of the exceptional circumstances. He wanted clear answers on these three questions. Who were the responsible individuals? This was a clear indication of a serious challenge of came to contract management. It indicates a lack of understanding of the basic contract lifecycle and the renewal phase of contracts. Where was the CFO? Where were the managers responsible for supply chain when all this happened? Where was the board? How can it be possible that on three occasions contracts expired without being renewed? He was justified in his assertion that there conditions were deliberately created for the Committee to be pushed to a corner to accept as normal practice the issue of deviation and expansion.

Mr Ian Plaatjies, Chief Operations Officer, SABC, noted Mr Hadebe’s point that there was an abuse of deviations. It was important to understand the context that the SABC operated in. While the SABC wanted to be fully compliant it was a commercial business. 97% of its revenue was generated through commercial activities. The SABC was operating in a highly regularised and regulated environment. There were two different types of license agreements. There was a perpetual license which was indefinite. It could be used as long as it was wanted. Through the PFMA and National Treasury notes and regulations the SABC had to go out periodically and renew something that was strategic for themselves. It was very difficult to operate because their competitors used the same software. Those competitors were able to engage in five to ten year agreements with substantially less cost. The SABC was not able to do that and had to renew on a periodic basis. This results in the SABC not being able to compete adequately and the notion arises that it was abusing the use of deviations. In its environment those were strategic software or hardware elements and there was no other supplier for that. The SABC had to constantly renew contracts and go through a whole host of hoops. He then responded to the periods mention where the SABC did not have maintenance and support. There were two risks as a result of that. Firstly, it would not be able to support that hardware or software as had been seen and if it did have system failures the time to restore takes much longer. The SABC still had access to the supplier of that system but because there was no support and maintenance agreement in place the time the supplier will take to restore and the cost will be substantially more. This was because it would have to be done on a one-on-one basis as opposed to making use of a support and maintenance agreement. The SABC did want to be compliant but it was extremely restricted and had to compete with competitors using similar software. The competitors were able to have long-term agreements with suppliers which the SABC was not able to do. This caused the SABC to be in a cycle of deviation. He agreed that due to certain positions in supply chain and the board being vacant there was a substantial amount of people acting in those positions. In the past there was no high quality of planning that was done. Those vacancies in key positions had been filled.

Ms van Biljon said that her responses would be more supply chain focused. The SABC did have an automated contract management system. Business unit owners get notifications up to 12 months before a contract expires. She highlighted how the technology division had about 40 acting positions and many of them in senior roles. It also occurred that relatively junior people had to act in senior management roles because there were just not enough people. There were not enough experienced people to deal with decision making. This presented the organisation with a number of challenges. The organisation was also required to rotate acting positions and this created a fertile environment for instability in a respective department. Added to that the whole of the supply chain department was acting until as recently as December when the first permanent position was appointed. There was a tremendous amount of skills gaps and vacancies within that department. That together with the business unit, where there were constant changes ofthose that made decisions. The automated contract management system would send messages to the wrong person. Therefore, these things would take time. Since then the SABC was trying to address these issues by establishing permanent leadership. The business was very immature in its engagement with supply chain and the requirements thereof. It was the business that this management inherited about two years ago. She believed the board had made tremendous efforts. It was not enough and there was still so much to be done but they had already refreshed the SOP and policy. The SABC had numerous training engagements to empower business with the knowledge of how they needed to engage with supply chain. Up until 2017/2018 that had not really received any attention that was required back then. Those were some of the themes that would result in delays. Once the SABC got approval from Treasury it took another two months to go through the process. There were extensive internal processes that needed to be followed once they received approval for those reports to be prepared. Meetings needed to be scheduled for discussions, to assess the submission and make the final recommendation. The SABC had begun reviewing the supply chain processes for inefficiencies and there were plenty. They were in the process of updating their SOP and removing some steps which used to slow the organisation and business down. She hoped that gave the members a sense of why there were periods when the SABC did not have support and maintenance contracts. It was, however, not acceptable. She then responded to the comment about the SABC suffered a failure of storage systems which impacted on the transmission. They had to procure new drives to replace drives that were damaged. This piece of information was included in the report to illustrate how the organisation was able to deal with an emergency and fix it.

Mr Cosmas Tshabalala, Acting GE: Media Technology Infrastructure, SABC, said that it was not a very complicated licensing model that was entered into with Inala. It was a perpetual licensing model. That meant that the SABC owns the entire system. When the maintenance and support agreement comes to an end the system continues to work but it works according to the last version that was bought. It creates a danger that whenever there are issues the organisation would not have access to the technical team from the local supplier that the OEM has chosen in the country to help out. This forces the SABC’s technical team to provide the technical support that the supplier would have provided. This creates a risk and might impact on transmission going forward. When the storage disks failed and were out of contract the technical team had to procure new discs. This brought the system back to life and it managed to continue to work. It was, however, always advisable that the organisation had support and maintenance agreements with the local supplier because the original equipment manufacturer (OEM), that deals with these playout systems, chooses who in the country would be supportive of the product and all the work has to be done via those companies chosen. The SABC going forward was trying to maintain a strong relationship directly with some of those OEMs. The SABC had to work with the suppliers of these licenses as the suppliers would provide support whenever there was a technical issue. The subscription licenses were different. When the subscription license ends the organisation could not use the system at all. In the case of the SABC it was still using the system but did not have access to support or a technical team for assistance.

Mr Hadebe did not think the SABC was responding to his questions. The SABC was simply telling him what he had already told them. The responses were simply repeating what he had already said. The current issue was the deliberate creation of conditions for deviations. This led the Committee to believe that the SABC was abusing the deviations. It knew that the contract would end at some point. It knew that Inala was the sole supplier. It took the SABC more than 365 days to renew this contract. The Committee was not questioning that this company was the sole supplier. As a result of these delays the SABC suffered storage and disc system failure. It had to procure storage disks because it did not have the maintenance contract in place. He wanted to know who within the entity was responsible for creating this situation. It cannot have a contract situation that takes more than a year to conclude. It was obvious that Inala was a sole supplier. Why did it take a bid adjudication committee more than three months, after National Treasury had signed off on the contract, to conclude the paperwork? Why did it take one and a half months to write an award letter? It did not make sense. It was not the case that the bid adjudication committee had to discuss and evaluate several bid documents. It was only one bid and it was deviation. There had to be someone who was responsible for exposing the SABC to these risks. The delegation was also not able to quantify these risks. The failure occurred and there was no system in place in the form of a management contract. It had to use vital resources to go out and buy storage discs. If there was a maintenance contract in place it would not have incurred these costs. He wanted the delegation to quantify how much it cost the SABC. Were there any other costs that the Committee was not aware of? Who were the persons involved and what positions did they hold within the department? Were those persons still working there? He failed to understand the response the delegation gave. He could not accept as normal that it took more than 365 days to approve one deviation when it only took National Treasury seven days to approve the deviation. Yet after this there was another unexplained period of three months for the documents to move from National Treasury to the SABC. He wanted an explanation of the culprits involved. He wanted the delegation to explain in layman’s terms the technical issues all the delays that took place in approving the deviation.

The Chairperson said that Mr Hadebe’s questions were pointed and pertinent. He wanted the SABC to respond.

Mr Plaatjies responded to the technical aspect of the issues. The SABC was concerned about downtime. The SABC did not necessarily have downtime because it could move to a live environment and use some other content. A support and maintenance agreement was like an insurance. It was a grudge purchase but it was an important purchase. It was only used as and when the organisation needed it. From a cost perspective there was one incident in that period of time which worked in the SABC’s favour. Technically speaking the SABC saved money because it saved on the support and maintenance costs for that year. That was not how to run a business as that increased the risk. The SABC was very lucky as it did not experience those risks. From a financial perspective the organisation would have done better off during that period but he stressed that it did not want to take those risks. He agreed with the Committee that having no maintenance agreements increased the risks.

Mr Mxakwe said that he fully understood the questions that were raised by Mr Hadebe but it needed to be kept in mind that the board was stabilising and rebuilding an organisation that was literally hollowed out. It was rendered dysfunctional. He stressed the point that the CFO made earlier on the series of acting positions in senior management. People of junior rank were acting in senior positions. That affected decision-making, turnaround times and the stability of the organisation. He did not think that the board created conditions for deviations and expansions. The SABC has 228 current contracts and only 30 of those are deviations and expansions. The board was doing whatever it could to instil sound corporate governance in the organisation. He then responded to the question of who was responsible for the delay in deviations. The Committee needed to bear in mind that in relation to the deviations and expansions these were older transgressions. It becomes difficult to secure information and identify people that were originally responsible for these situations. It was also further complicated by the fact that most of the implicated individuals have since left the SABC. Between 2012 and 2018 there was a total of 186 cases that the forensic unit had to investigate. Most of these cases date back a number of years and were left incomplete or abandoned by the previous management teams. The current management team has had to look into all of these cases. Currently, the SABC has registered over 255 disciplinary cases emanating from all of these previous lapses in governance. He wanted the members to appreciate that this management team was dealing with an organisation that was rendered dysfunctional. The organisation was in a process of rebuilding and the management team wanted to stabilise it. This was why in all of the key supply chain management positions skilled people were being brought in to help management in the rebuilding process.

Mr Hadebe said that he was referring to recent sequence of events from 31 March 2019 to 1 April 2020. He highlighted the other years to indicate the trend that this was not new. He wanted answers about the events that occurred recently. He wanted the management to respond to the events that happened between 31 March 2019 and 1 April 2020. He wanted them to provide quantifiable answers. The organisation bought storage discs. How much did it cost to replace the damage that has been suffered during transmission? He wanted the management to quantify that cost. He wanted direct responses. The risk assessment indicates that the SABC has suffered in terms of transmission and as a result had to buy discs to replace the damaged discs. How much did it cost?

Ms van Biljon responded to the issue of the dates. The letter was submitted to Treasury on 8 November 2019. She was not sure what transpired in Treasury between 8 November and when the SABC received a response on 27 January. She was aware of a change in the Treasury team that dealt with the SABC in the course of the past year and that might have resulted in a possible delay but she was not sure. When the SABC received Treasury’s letter on 27 January it was required that a reasonability test be done on the pricing. The report was then finalised within the four or five weeks from 27 January to 16 March. Thereafter the SABC signed off on 24 March and the supplier signed on 27 March. The contract was signed two months after the response from Treasury the award took place. The checking of the pricing also took a bit of time. She was unable to say what transpired between SABC’s submission of the letter to Treasury and the time it took Treasury to respond.

Mr Tshabalala responded to the question about the storage discs that were replaced. There were seven discs that failed. The replacement cost for each disc was around R45000. In total it was just over R315000 that was spent when those discs failed. He noted that there was no break in transmission during that period. There was a very good business continuity management system and disaster recovery system that was put in place. There was absolutely no break in transmission but the replacements had to be bought because it did pose a risk to the organisation.

Mr Plaatjies pointed out that although the SABC paid R315000 for the discs, if it paid for maintenance and support for that year it would have cost R1.2 million.

Mr Hadebe said that he did not get a sense of what happened between 31 March 2019 and October 2019. He understood the unjustifiable reasoning. He failed to understand why the SABC did not bother to inquire with National Treasury. Why wait for three months and not make a follow up? In the letter from National Treasury it said that National Treasury acknowledged a receipt of the application dated 24 October 2019 and received on 20 January 2020. As a reasonable and accountable person one would have inquired what would have happened between October and January. The management of the SABC is now saying that it cannot explain to the Committee what happened. Such transgressions should not happen in the future. The management wanted the Committee to accept as a reasonable response that it could not explain what happened. Yet during that period seven discs were affected. The management did not explain to the Committee when the contract expired on 31 March 2019 why it took so long, up until October, to apply to National Treasury for approval of deviation. The SABC knew when it entered into this contract that it was going to expire and there was only one supplier. What happened during that seven months? He wanted the responsible officials to respond. There had to be someone assigned to manage this contract. It was explained to the Committee that electronic systems were in place to detect when a contract was going to expire. What went wrong?

Ms van Biljon wanted to allay Mr Hadebe’s concerns. The organisation followed up on a very regular basis. National Treasury usually has a turnaround time of between two weeks and a month. When the delays escalate she would receive lists detailing the outstanding submissions. She would follow up with a member from National Treasury. These follow ups do take place on a very regular basis because the organisation was aware of the consequences of the delays. The SABC usually allowed Treasury between two weeks and a month to consider its request. She noted the concerns about the period when the contract expired at the end of March up until October. She did try to address some of the thematic issues that the organisation was confronted with.

Mr Plaatjies responded to Mr Hadebe’s point that the SABC was aware that there was only one sole supplier. The organisation did know it had a sole supplier but the hoops it had to go through to prove that to National Treasury was quite onerous. The SABC was aware that there was a sole supplier and wanted to enter into a five year agreement. The supplier gave the SABC the cost for a five year agreement which was extremely lucrative but the SABC was not allowed to enter into that agreement. The SABC tried to get a two year agreement in place which was a substantial reduction in cost but it only received approval for one year. A one year agreement was exceptionally expensive because additional costs are added. The SABC should be allowed to enter into a five year agreement because there was a sole supplier and it was a strategic system. That would immediately eliminate any need for deviations and the SABC would not be accused of abusing the deviation process.

Mr Hadebe said that he was still not getting the answer that he wanted. He would understand if the contract manager had resigned and was no longer part of the system. The Committee had a report that said the SABC has suffered failure of the storage discs which impacted on transmission. Then the management gave a response saying that there was no impact on transmission. Was the report accurate? Was the response accurate? He did not know which one was accurate. The report said there was an impact on transmission due to a failure of the system. Who was managing this contract? He wanted to know who was responsible.

The Chairperson said that the contract was from 1993. How has there been no innovation in this sector for 27 years? That was a point of concern that the contracts become evergreen. The SABC needed to provide clarity on the matter.

Mr Plaatjies said that the license SABC had with the supplier was a perpetual license. This means that the SABC bought and owns the software and so it was not an evergreen contract. The SABC was allowed to use the software as long as it wanted to without having to pay any additional costs. However, to upgrade the software and to receive the necessary support the organisation had a software maintenance and support agreement which is outside of the perpetual license. It was like buying a car and owning a car while also having a service agreement on the car. When the maintenance and support agreement expires it can either be extended or not extended but that is a risk. This was not an evergreen situation. The SABC owns the software and it was still a strategic part of the organisation’s infrastructure. It was still one of the best in the world and was certainly what the competitors were using.

The Chairperson asked how that was not evergreen. If the maintenance was also performed by the supplier, then it was evergreen because there was no flexibility about who could service the product. He had an issue with Mr Plaatjies saying the supplier was one of the best. Where were the others? If there was only a sole supplier, then why did the SABC need to engage in processes of deviations and extensions? National Treasury should understand that from 1993 to the present that this was the course of action. It was a situation of evergreen.

Mr Plaatjies provided a similar example to the Committee. Parliament has implemented Oracle and that was implemented more than 10 years. It was a strategic system that Parliament used and the support and maintenance of that system is renewed. The same applies to the SABC. The product was a strategic tool for the SABC. Unfortunately, when it came to the broadcasting environment there were not many suppliers around the world that were key players. There were only a limited number of suppliers. If the product was not a commoditised product with many end users, then the suppliers will not have more than one partner within the country to do that maintenance and support. This was the situation that the SABC found itself in.

The Chairperson said that was not in dispute. Why were the respondents playing with semantics? This was an evergreen contract. There was a sole supplier so why run away from it? That was suspicious. Allay the anxieties of the Committee and state what the situation was and then the Committee could move on.

Mr Hadebe said that he struggled to understand the issue of Inala being the sole supplier when in the document submitted to the Committee it says that the SABC was given support during the period of June to July 2016 by the local support of Harmonic product on the basis of the delay in the internal processes to conclude this contract. This meant that a local company supported the SABC yet the respondents were saying that Inala had the exclusive right to implement the service and the support. Who gave the internal support if Inala was the only company that could do it?

Ms V Mente-Nqweniso (EFF) said that in between the renewing of contracts and deviations there was local support. The Committee would not support a notion that there were no local skills. The issue of sole service providers in many cases were designed by companies. The Committee cannot be undermined in the manner in which it was undermined today as if the members did not understand the environment of broadcasting. There was no such thing of saying that one particular company was the only company that can provide the service that it provides to the SABC. The SABC owned the software and needed maintenance and upgrades now and then. Was the company transferring the skills? Was the SABC ever going to capacitate itself in order for it to do its own maintenance on such products? The answer was no. The Committee had to sit there and believe that the SABC did not have such a skill and could not learn such a skill. She did not want to understand the justifications that were being made in the meeting. There were other companies that helped the SABC. The Committee should not be treated like children as if they did not understand the broadcasting environment. The members did understand the environment and had read the documents that were submitted. Mr Hadebe was asking questions based on the information that the SABC sent to the Committee. Under normal circumstances someone knows that the contract was ending. There was then a process that took place. The person would test the market and find out if the company was a sole provider. It was not done. Who was the person who did not complete this process? That was the question.

The Chairperson said that the SABC kept on speaking about their competitors who were using this software. Who were the competitors? When the SABC bought the software why was the maintenance costs and upgrades not included in the initial price? Has there been no new technology, similar to what the SABC was using, in the course of the past 26 years? Has the SABC not tested the market for a new system?

Mr Mxakwe responded to a couple of the questions. He first responded to the question on contracts management and whether there was any built in maintenance and support. It was standard practice in the industry that when an organisation procures a system to have at least a one or two-year maintenance agreement. It was part of the operational expenditure component of the procurement cost. What happens is that after that a process has to be started of maintaining it. The organisation can either go to the market and buy another product after five years or the organisation can continue sweating the asset. In the case of the SABC it continued to sweat the asset over the past 23 years. He then responded to the question of whether there had been any innovation for the last 27 years. Yes, there had been an upgrade on the system itself. A number of channel ports had been put on the system. The system was also upgraded to high definition in 2015. There had been some innovations taking place in this environment over the last few years. He responded to Mr Hadebe’s question on contract management and who was responsible for the contracts. The general manager for technology and resources left the SABC at the beginning of this year. He was ultimately responsible for all the playouts of all the systems on the TV facilities. He left at the beginning of the year so it was difficult for the SABC to go back and ask for records but maybe they could use a legal mechanism to obtain those records. He responded to the issue of the break in transmission that was mentioned by Mr Hadebe. There was no break in transmission in the sense that viewers watching on television did not see a break in transmission due to the storage disc failures. The final control centre, where the SABC does a lot of planning before its goes live, was where the inconvenience took place. He then responded to Ms Mente’s question on whether the SABC was capacitating itself internally to be able to look after these systems. When an organisation buys a system there is the first level, second level and third level support. The first level support is normally internal. That means that the organisation does get some level of training and therefore is able to look after the system itself. Once the support is beyond the means of the organisation it is taken to the local supplier who in this case was Inala. If it is beyond the means of the local supplier it goes to the third level supplier and then it goes to the OEM who are the people who actually manufacture the equipment. The OEM is usually in Europe or the United States. Going forward the SABC was going to try and do both first level and second level support internally. The organisation would only go to the OEMs whenever there was a significant need. The SABC would start training and internal capacitation once most of the relevant systems were procured.

Mr Hadebe said he wanted some understanding because it appeared that there was internal capacity as was displayed in June and July 2016. Was that correct?

Mr Mxakwe said that the SABC did have some level of understanding of the system but the organisation could not fully perform support internally. The organisation could perform level one support internally and maybe a bit of level two. That was why the SABC ended up using the local supplier. The level three support was the OEM together with all the upgrades that was provided to the organisation. Going forward the SABC would ensure that that capacity was fully boosted so that it did not have to do support level two with the local supplier but rather remains within the SABC.

Mr Hadebe said that for 26 years the SABC was unable to build internal capacity and there was no return on investment. Hence Inala would continue to be the sole supplier. All these many years later the SABC still does not have that capacity. How was the Committee supposed to accept that as normal? The same supplier was maintaining the system for 26 years. Over 100 staff members had resigned. Was the organisation dealing with new people? How old were the current staff in terms of their employment contract? What type of skills and experience have they acquired from the sole supplier? The SABC cannot continue using a sole supplier and not get a return on investment. The staff need to be skilled and equipped. The SABC cannot outsource work that it could do internally.

Mr Plaatjies said that it did not matter which software the SABC had within the organisation from a strategic point of view it always would want to do a level one support. Level two support depends on the complexity of the software and the strategic nature of it. The organisation would never be able to do level three support and it would always be with the OEM or their partners. For example, the SABC’s recommendation and request was to extend this agreement by five years. The organisation was almost forced to go to market to look for a possible replacement. It was exactly the same as Parliament saying that there are many ERP systems out there. The software was not being treated as a strategic software and therefore the SABC was forced to go to the market. As soon as that is done it was difficult to determine whether it was possible to build a level two support. An organisation will build a level two support if it knew it had strategic software that it would have for at least ten years or maybe more. It was very difficult to do that in the current environment. The SABC continued to be challenged on whether the contract was evergreen or whether the organisation was not testing the market sufficiently. The SABC has built internal capacity and the organisation did have a level one support capability. It did not have level two support capability and an external party was used. The SABC would only consider building level two support internally if it knew that the software was going to be used for at least the next five to ten years. It was very difficult to build that level of support. The SABC was one of three broadcasters that could use the software in South Africa so the market was very small. If the SABC built its own internal capacity it was possible that those resources get snatched by the supplier and its competitors.

The Chairperson remarked that it would be beneficial for the Committee to visit the SABC to engage with the technical staff to view the structure of the systems. In the meantime, the Committee’s support and research team would investigate and research comparatively what other systems were out there. The Committee also needed to engage with National Treasury to see its outlook on the matter. The bottom line was that so long as this system was in place the maintenance and upgrades becomes an evergreen contract. The nature of the evergreen contract needed to be determined and satisfied by National Treasury. Things needed to be done property to satisfy the prescripts that the market is continuously being tested and checking whether the necessary knowledge, skills and expertise were present elsewhere for the purposes of maintenance. The Committee was speaking to the executives and the board and their responses were high level. He stressed that this was a contract that was in place for 27 years. The contract was six years younger than the Chairperson. By the looks of things, it will be with the SABC well into the future. Those issues needed to be dealt with because otherwise it sets into motion a perception that there was an unwillingness to be innovative within the parameters of the fourth industrial revolution. It cannot be there was one company that has the sole rights to the contract in a technological world unless there were compelling circumstances. This issue was something that needed to remain on the Committee’s radar. It was necessary for the Committee to pay an oversight visit to the SABC and to engage at a different level at the organisation.

Deputy Minister Kekana agreed with the Chairperson’s suggestion to undertake a visit to the SABC on the Inala system. She said that all the relevant role-players should be a part of that visit to ensure that they were all able to assist the SABC going forward.

Ms Mente-Nqweniso agreed with the Chairperson’s suggestion to visit the SABC. The Committee could not close the books in terms of the deviations without thoroughly investigating and engaging with the SABC. She wanted to have an exercise with the Chairperson of the SABC board. She addressed him directly. Letters that were requesting deviations in the annexures sent by the Chairperson’s office to the Committee were bearing signatures of officials and executives of the SABC. She wanted to dispel the myth and the notion that these were done by people who cannot be traced or who have left the SABC. She wanted to know from the accounting officer if Irene Marutla was present in the meeting.

Mr Mxakwe confirmed that she was a part of the meeting.

Ms Mente-Nqweniso asked Ms Marutla when she started working in the sphere of SCM.

Ms van Biljon responded that she was not exactly sure when Ms Marutla started working at the SABC. Ms Marutla was a category manager for a very long time. She then became the acting head of supply chain management.

The Chairperson intervened and said that since she was present in the meeting it was best if Ms Marutla responded to the questions herself.

Ms Mente-Nqweniso asked Ms Marutla when she started working within the SCM environment especially around procurement.

Ms Marutla said that she began working at the SABC in 2008 as a category manager in the SCM environment.

Ms Mente-Nqweniso asked id she dealt specifically with procurement or if she work in another area.

Ms Marutla said that she had always worked within the area of supply chain procurement.

Ms Mente-Nqweniso asked Ms van Biljon how long she has been working within the procurement environment.

Ms van Biljon replied that she was not in procurement. She was a chartered accountant and the Chief Financial Officer but she was responsible for procurement.

Ms Mente-Nqweniso asked Mr Mxakwe how long he had been working in the SABC.

Mr Mxakwe responded that he had been with the SABC since July 2018.

Ms Mente-Nqweniso said that the Committee had a letter that was sent to the chief procurement officer of National Treasury signed by the three signatories Ms Marutla, Ms van Biljon and Mr Mxakwe. What was this letter about? This letter was requesting a deviation on the SAP system and software maintenance agreement. The deviation asked for in the letter was on the agreement that started on 1 January 2017 and expired on 31 December 2019. All three signatories have been with the SABC and none have left. Within the period of the three-year agreement under ordinary circumstances someone ought to know that the contract was going to end. The management did not do anything and simply asked for a deviation because within the law a deviation is allowed. A deviation was a circumstantial law method. With regards to the SAP contract the management signed a letter in September asking for a deviation for two years. National Treasury responded on 25 October 2019 saying no it was giving the SABC six months to do what it was supposed to have done to renew the contract or receive a new bid. No one did that. The same signatories came back again and write another letter and tell Treasury that they could not do that because the contract cannot be broken down on a month by month basis. It was an annual costed contract. Treasury responded saying it would not give the SABC the requested two years but only one year. The first problematic area was that there cannot be a contract that cannot be broken down month to month. A contract cannot be terminated simply because it was annual. The most problematic thing was that when this contract was about to expire all three signatories were present. She was coming back to the same question Mr Hadebe asked earlier on. Who was responsible for this particular contract to ensure that the renewal or the new bid process was undertaken? She was asking this question directly to the three signatories. There was no need to go to deviation. All of the contracts were in front of management and they knew when the contracts were ending. Four months before the contract ends the signatories asked for a deviation. Why did the management not start a process in January 2019? Who was responsible for starting a process for a new contract in January 2019?

Ms van Biljon said she understood the Ms Mente’s frustration. The business case for the matter was signed in July or August. The letter that went out in September was sent out well in time. The SABC was not expecting that response. Having been in a three-year relationship with SAP the SABC was not expecting that change with regards to how SAP dealt with its direct clients. The SABC was also not expecting Treasury’s view of the matter. The SABC started in time as per the notifications and gave Treasury enough time to respond. The SABC did not anticipate the rejection of its request. In the case of this kind of maintenance and support the SABC did inquire with the OEM if it was possible to break the contract down into a period and that request was also declined. For maintenance and support the SABC was now doing an RFP for next year. SAP may submit a bid as well if it wants to. In the SABC’s understanding of the environment it was in time.

Ms Mente-Nqweniso said that the management was in time to ask for a deviation. Her point was that this situation did not warrant a deviation. It was a contract that was supposed to end. Someone knew that the contract was ending. When she started her questions she said that the Committee needed to bear in mind that the SABC was engaged in this contract since 2005. She did not want to drill down on the findings of the AG where this contract was concerned. The SABC was in time for a deviation. Why was the organisation not in time to put in the RFP then? Why did it have to take Treasury to tell the SABC to look for a contract? Why was the SABC not in time to do what it was doing now? Under ordinary circumstances, who was supposed to have ensured that the contract was renewed? Under ordinary circumstances by when was the contract supposed to have been taken care of?

Ms van Biljon responded that that process would have started at the same time. There was the option of using the deviation mechanism, as prescribed by law, or a new process could be started. It would have started at the same time.

Mr Plaatjies said that in the past government had strategic partnerships with ERP suppliers, for example, with SAP and with Oracle. In this case the SABC was working directly with the OEM. The renewal with SAP would be on a three-year basis as it was the original supplier. Up until recently that has change where the SABC no longer just renews those contracts with SAP. National Treasury said that the SABC must go out on an RFP to allow other SAP partners to also respond. Previously the SABC did not need to do that and that was why it did not previously have to do a deviation. The only reason the SABC needed a deviation was because now it had to go out on an open RFP with SAP partners. This was called annual maintenance and support. No organisation breaks that down into less than one year. The longer the term, the cheaper it is for the organisation. One year of annual support and maintenance was going to cost the organisation more than a three or five-year support and maintenance agreement. No major supplier would provide a contract that was for less than a year.

Ms Mente-Nqweniso said she was going to try for the last time to explain herself. In the second letter to National Treasury the management justified reasons as to why it wanted to receive a two-year extension. Her problem was that when the three years expire someone is supposed to monitor all contracts. A deviation can be used under extreme circumstances. What were the circumstances that resulted in this particular contract not being renewed and warranted the organisation to ask Treasury for a deviation? The SABC could not just write to Treasury ‘willy-nilly’. The law cannot be used as and when the officials wanted. This was not the case. A deviation is only allowed because there was something hindering the organisation. What were those impediments? Who was the person that was supposed to oversee that particular person?

Ms Marutla clarified that the SABC’s request to National Treasury was not to replace the ERP system. The request to National Treasury was for a continuation of the current ERP system. Four months before the contract expired the request was made to National Treasury for deviation. The SABC was in time for the request for deviation. It was not the case that the SABC was trying to replace the system or trying to find a new system. When National Treasury responded that the organisation needed to go out on tender the SABC engaged with them to understand what that meant. During those engagements both parties came to an agreement that the SABC would go out on tender for the maintenance support to allow other partners to maintain the system. In terms of the deviation the SABC was right on time and acted within the prescripts that were provided within supply chain management.

Mr Hadebe asked if the SABC only realised once it submitted to Treasury that SAP allowed other partners to do maintenance. It took National Treasury to tell the SABC what was happening in the market. Someone was sleeping on the job. Was the SABC telling the Committee that it did not know that SAP allowed other partners to perform maintenance? National Treasury had to do the work for the SABC since it did not know that SAP allowed other partners to perform maintenance. If that was the case then he did not know why those officials were still in the SABC.

Ms van Biljon said that the most financial and business sustainable relationship that an organisation can have was with the OEM. The organisation would get significant price benefits and there was no middle man between the access to support and other services. It was so much more efficient to work directly with the OEM. Having had that relationship with the OEM for all these years it was reasonable for the SABC to assume that it was safe to carry on with them because of the various benefits.

Mr Hadebe asked if the SABC was not aware that SAP allows other partners to maintain the system. What was reasonable for the SABC was not reasonable for other competitive partners out there. Was the SABC not aware of the other partners that could perform maintenance until National Treasury told them?

Mr Plaatjies responded that the SABC was aware of that. When an organisation buys software directly from an OEM and does not go through a partner, the discount the OEM would normally offer to the partner it offers to the organisation. The organisation would then be able to get the software for cheaper. When an organisation gets maintenance and support via a partner the partner would receive the discount. The SABC was working directly with the OEM and therefore was receiving the discount for the past number of years. National Treasury was said that the SABC should stop that and go to market. That would mean that the SABC would pay more for it but they would be compliant. That was the cost of compliance.

Mr Mxakwe gave a response from a technological perspective. The SABC already had its tender documents out on the SAP suppliers that were operating in the country. He emphasised the point Mr Plaatjies made about the SABC not being able to enjoy the cost benefits that it had when it worked directly with the OEM. The SABC had to now work through a middleman. National Treasury said that the SABC had to go to the market and work with other suppliers. National Treasury did not say that the organisation had to replace the entire ERP system. The SABC was asked to work with a supplier instead of working directly with the OEM which used to yield a lot of benefits for the SABC.

Mr A Lees (DA) said that he was astonished at the SABC’s position that by going to the market it was going to cost more. The market surely includes the OEM and the OEM can also put in a tender. If the OEM can provide the service cheaper than others, as the SABC officials seem to think, then that was the tender to take. At least the process would have been followed and it was a fair and open process. Unless National Treasury was telling the SABC that it may not use the OEM. He wanted clarity if that was the case.

Mr Plaatjies responded that there were no limitations and anyone could respond to the tender. Generally OEMs would respond through their partners and not directly.

Ms Mente-Nqweniso said that the Committee was not getting to the point it wanted to get to. The SABC officials were putting up defence mechanisms. They have resorted to condescending attitudes. National Treasury has a CPO office and this office showed the SABC new methods and processes. After that the SABC wrote back to National Treasury and it still was not clear what the SABC wanted. The Committee would not motivate and encourage the SABC to keep evergreen contracts. Those contracts might look cheap but certain processes were there to be followed. The law was there to be complied with. If there was a price to pay for compliance, why did the SABC not raise the issue with National Treasury? The Committee would investigate the matter because it seems like the process was not properly followed. If SAP was going to be the sole supplier forever it was not going to be acceptable and that is the law. That was not going to drive the capacity of SABC to a level that it the Committee wanted it to be. The SABC needed to follow the law even if it was not cheap. The SABC could not do whatever it wanted and not follow the law. The SABC cannot also exploit the law. The deviations mechanism needed to be used and supported with reasons.

The Chairperson said that the points had been substantively made. The SABC needed to understand that two wrongs do not make a right. Due process was the baseline of all accountability. There were serious issues that needed clarification. The SABC needed to explain to the Committee its challenges so that the Committee can be in a position to support it. The SABC running away from the reality confronting them was causing the problem. The SABC was saddled with evergreen contracts. That was a reality that was there. It was the circumstances in those evergreen contracts that the SABC needed to explain as times change. The inability to do that in a manner that inspires confidence sits an indictment on the shoulders of the SABC. The Department of Communications was charged with spearheading and championing the fourth industrial revolution agenda in the country. The Committee would expect that the Department and its entities were at the forefront of innovation for newer technology. The more things change the more they stay the same and that was the issue. The Committee should visit the SABC, see what was happening there and engage with the technical staff. The Committee also needed to engage with National Treasury about the nature of the deviations and expansions programme at the SABC. If the Committee read between the lines it seemed that the PFMA was being blamed. The Committee was far from over with dealing with the deviations and expansions of the SABC. The Committee has not heard about the consequences and investigations to remedy some of the inherited problems. A turnaround strategy that does not have consequence management and investigations entrenches future misdemeanours and corruption. The SABC will be well served to pursue the people that collapsed the SABC. There were people who were known within the SABC and those individuals must be pursed. It was not as if there was a wholesale resignation. Some of those people were still in the institution and must be purposed internally. The Committee was going to hold the SABC to the processes in place. The Committee did not arrive at a point where it was convinced about those challenges

Mr Makhathini emphasised that as the board and executive team it was open to getting input from SCOPA to assist in turning around the SABC. The board had inherited an organisation that had totally collapsed. To rebuild the organisation would take a bit of time. The SABC would need a lot of support and it was receiving support from National Treasury. For the SABC to get R3.2 billion National Treasury had stipulated a number of conditions and one of them was consequence management. There was a lot of progress that had been done in that area. The SABC had tried to give the best responses and if it came across that the officials were condescending that was not the intention. He apologised if the responses came across as condescending. The officials were trying their best to provide enough information as was requested. The team was assembled to ensure that all the details that were required could be provided. He agreed with the suggestion of the Chairperson for the Committee to visit the SABC. The SABC could take the Committee through the system to explain and show the Committee what the organisation was dealing with. That may result in the Committee finding ways in which it could assist the SABC because everyone’s support was needed to turnaround the SABC. It will take a bit of time to rebuild and get the SABC to a stage where everyone would be proud of it. The SABC was grateful for the support it had received from the Ministry and National Treasury. The team that the SABC had were all committed to do the right thing and were all up to the task. If the Committee looked at some of the results and outcomes it would see that the SABC had been able to reduce costs and deal with some of the fundamental issues facing the organisation. He thought a visit would allow for more time for engagement between the SABC and the Committee.

Deputy Minister Kekana appreciated the guidance and input that SCOPA had provided to the entity. She assured the Committee that the Department would be working closely with the SABC to give it support and make sure that some of the things that are intended to improve performance within the SABC are realised. At some stage the Department would have to engage with Sentech because it was an engineering and broadcasting unit of the SABC. Sentech needed to be included to see how it could assist the SABC. SITA and National Treasury were also very relevant in assisting the SABC. All these parties needed to be included to see how best to assist the SABC to save funds. The Department would be joining the Committee on its visit to the SABC.

The Chairperson said that the SABC needed to understand that just because the Committee acknowledged the issues that faced the entity did not mean the Committee was happy with the responses that were received during the meeting. The Committee was not satisfied and that was what triggered the oversight visit. Things have to change at a pace which will show that there was a commitment to turning things around. The evergreen contracts remained a sore point for the Committee.

The Chairperson then clarified that the meeting with Eskom that was scheduled for the following day would be put on hold.

The meeting was adjourned. 

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