Independent Field Technicians dispute with Telkom; Committee Bill

Small Business Development

07 September 2022
Chairperson: Mr F Jacobs (ANC) (Acting)
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Meeting Summary


IFT: SMME Companies Dispute

Telkom Open Serve: IFT Commidity Services feedback

A Telkom progress report was provided on the petition about contractual disputes that four independent field technicians had with Openserve (Telkom subsidiary). The contractual dispute was mainly about Openserve not paying the IFTs for "non-payable" work done while the IFTs contested that the work had been concluded and a pass reference acknowledging this had been issued. However Openserve refused to pay them for the services rendered. The Portfolio Committee adopted a resolution to get a legal opinion from Parliament's Legal Services and to draft an adverse report to be referred to the National Assembly for discussion.

The Committee passed a resolution to draft a Committee Bill to replace the Small Business Act

Meeting report

Mr F Jacobs (ANC) was nominated and elected as the Acting Chairperson as the Chairperson was not well. Mr Jacobs noted the purpose of the meeting was to get a progress update on the outstanding matter of the independent field technicians (IFT) and an outcome of the contractual dispute with Openserve, a Telkom subsidiary.

Telkom Openserve progress report
Mr Phindile Dyani¸ Telkom Executive: Government Relations, appreciated the opportunity to explain their interactions with the IFTs. He apologised for the absence of the Telkom and Openserve CEOs. An extensive scientific study had been conducted to understand the facts around the matter and what had went right or wrong with the IFTs. Today's report was undertaken by independent auditors to give Telkom and its shareholders adequate information about what transpired and what solutions can be undertaken as recommended by the auditors. He handed over to Ms Ramphenyane supported by Ms Kungoane to present on the recommendations from the auditor’s report.

Ms Morwesi Ramphenyane, Openserve· Chief Regional Officer, and Ms Mpho Kungoane, Openserve: Senior Manager, Commercial and Contract Management, spoke about Telkom’s company structure, the background to the aggrieved IFT non-payment dispute, reasons for dispute, the Supplier Compliance Management Council (SCMC) process as an escalation channel to process the complaints received by the Committee from the four IFTs and the auditors’ scope of work.

The 2017 contract introduced a new contract structure, modifications, and business rules when service providers were renewing contracts. Reasons for the amendment were due to Openserve experiencing cost leakage, required to improve technician behaviour to align operational behaviour, improve on workmanship and minimize repeats.
The amendments made included:
- First Failure rate (FFR) days to 30 days
- Non-payables on repeats
- Service Level Agreement (SLA) penalties including Net Promoter Score (NPS).

Openserve is not obligated to pay for non-payable orders which are three categories:
• Repeat faults (90%): Openserve is not contracted to pay based on a Repeat Report Rate of 30 days.
• Multiple work on the same line (5%): Only the last supplier or Telkom technician that worked on a subscriber line and resulted in the new service to be put in service (PIS) will receive payment for any installation or migration work.
• Non-payable bill of quantities (5%): Work completed by the technician that falls outside the scope of the work he was contracted.

The recommendations based on audit:

- Thobela:
Non-payable orders: 5 772 non-payable repeats audited and zero were found to be outside the 30 day SLA period thus no repeats should be considered for payment.
Unnecessary handover: Of 958 audited records the audit could not ascertain any faults that are brought forward as “scouting dispatch” individually and thus exempts Openserve for any payment.
FFR audited: 200 FFR fines were audited and only 13 were found outside the 30 day period and deemed payable thus should be considered for payment.

Openserve Response: Accept recommendation

Mzansi Broadband:
Non-payable orders: 828 records audited, no non-payable orders were found to be outside the thirty (30) days SLA period stipulated in the contractand no non-payable repeats should be considered for payment.
Unnecessary handover: 29 audited record and could not ascertain which faults could have fell under the bulk faults resulting from ‘’scouting dispatch’’ based on the payment files provided. The SLA clauses exempt Openserve for a possible reimbursement
FFR: 5 audited records, overall FFR fines is that zero FFR Fines were found to be outside the 30 days SLA period and therefore no FFR fines should be considered for payment.

Openserve Response: Accept recommendation

Non-payable orders: 879 non-payable repeats audited, zero non-payable repeats were found to be outside the 30 day SLA period and therefore none of the repeats should be considered for payment.
Unnecessary handover: Of 69 audited reports, audit could not ascertain which faults could have fell under the bulk faults resulting from ‘’scouting dispatch’’ based on the payment files provided. The SLA clauses exempt Openserve for a possible reimbursement
FFR: 14 audited records with zero FFR fines not found to be outside the 30 day SLA period and therefore no FFR Fines should be considered for payment

Openserve Response: Accept recommendation

IFT response
The Acting Chairperson requested that Members hold their questions until the side of the ITFs had been heard. He wanted to hear from the ITFs themselves.

Mr Sithembele Xolo, Project Director at Folo Arch Designs (Pty) Ltd, asked if the auditors referred to in the presentation are external or internal auditors. What was the process of appointing the auditors? Was it an open tender?

The Acting Chairperson asked Openserve to note the questions. He asked Mr Xolo to give his response to the presentation.

Mr Xolo said that when he attended the meetings with the Council, based on the questions that were posed to him, he got the sense that they were not in the meeting to find resolutions to the matter. Parliament had requested Telkom to resolve the matter internally. He believed that would be the case given the working relationship that had been established over the years between the service providers and Telkom. It became frustrating in the meeting when he was asked the same questions that had been asked for the past five years. The dispute arose in 2017 with the introduction of the service level agreement (SLA). The SLA had never been accepted by any of the contractors. Whether the work done is payable or not depends where one is sitting. The contention had always been that Telkom requested the contractors to procure resources such as vehicles, tools, train employees and make them available for Telkom which all came at a high cost.

Mr Xolo said that when he started working on projects in 2016 they figured out that the network infrastructure was in a bad state. This prompted him to start engagements with Telkom management in writing and in meetings. He highlighted to management that the infrastructure caused the services sold to customers not to be on par. For example when a customer has a streaming service, the internet connection kept on buffering and being faulty. The customer would then report the fault and the IFTs would have to go and assist the customer. Sometimes due to bad connectivity they would have to revisit a customer more than three times a month. Due to line failing, when the SLA was adopted, that line would be declared non-payable. This was the beginning of the dispute. Telkom’s infrastructure had many joints between the exchange and the customer and because the cables were underground they had corroded – this was the cause of the failure. As service providers they did not have access to the infrastructure as they were prohibited from working on it. When tests were conducted, it became clear that the problem was with the line which affected the quality. It should be noted that in the many instances where the IFTs tried to get the problems fixed, it usually took them a day or two to get the job done. Non-payables refer to when there is failure within a thirty-day period, which was unfair. Telkom in 2016/17 notified the IFTs that they were not going to reinvest any money into the existing infrastructure because it is old. However, they wanted to continue using the very same old infrastructure. It was simply unfair for Telkom not to pay for completed and tested jobs where Telkom issued a reference number for the job completion.

The Acting Chairperson asked Mr Xolo what he proposes as a way forward.

Mr Xolo said that they are concerned for small businesses as the bulk of work done on behalf of Telkom had not been paid for. This caused their businesses to lose a lot of money. They requested that all jobs that have been completed, tested and for which a reference has been issued must be paid. The reason he pulled out of a meeting with Telkom when they suggested the introduction of an auditor was because Telkom had employed people to assess and analyse completed jobs. Whether it came back as non-payable or payable the contract reps were doing that job every day. There were multiple reasons why jobs come back as non-payable, for example a customer might have not connected their router because they are Mweb customers. The expectation was for Telkom to deal with these issues because an external auditor might not understand all the issues such as Telkom equipment, completion sheets, completion process, testing processes and that the infrastructure was in a bad state.

Ms Evelyn Smith, Director at Sudane Projects and Services, commented that Telkom did not cover the merit of the fault. The unfairness of the non-payables must be noted. The jobs are completed, tested by Telkom systems, test references and pass references were issued by Telkom. The debate was not about the completion of the job but rather the fact that Telkom will not pay for things outside the control of IFTs such as acts of God, theft and vandalism. What was discussed with the auditors in the meetings was not in the presentation. The meeting with the Council was not to resolve the issues but rather they were asked if they had signed the service level agreement under duress. Ms Morwesi repeatedly asked her why she did not just walk away; to which she had replied that she could not walk away because she had invested money into the SMME and the project. Ms Morwesi also questioned her management skills.

Ms Smith was upset that Telkom had sent the report the previous night at 11:20 PM. She was notified that the Council would call her in the morning to schedule a meeting which never happened. Telkom involved the IFTs only on two occasions – the meeting with their Council and the auditors. Since the meeting they never heard from Telkom again. It had been nearly two months and there is no resolution to the matter.

Mr Madimabe Mohlaloga, Managing Director: Thobela Communications, said that during a meeting with Telkom to try and resolve this, Telkom confirmed that his company had spent R620 to reconnect a customer's line when the line was down. When Telkom’s lines go down, IFTs are sent to go and fix the problem. This meant that IFTs spent their money with the expectation that Telkom would pay them back for restoring the line. [Mr Mohlaloga’s network became inaudible and the Acting Chairperson suggested that he write his comments in the chatbox].

Ms Smith said that one of the IFTs, Mr Jerome Williams, had been excluded from the meeting and he had sent numerous emails – all of which were ignored.

The Acting Chairperson asked Committee members to engage with the presentation.

Mr H Kruger (DA) said that he was very passionate about big businesses bullying small businesses. This was a clear case of big business bullying small ones. Telkom and Openserve spent a lot of money acquiring auditors to do auditing according to their liking. The small businesses cannot afford a lawyer to go over the audit. Looking at the repeat faults and the definition of it, the problem was when Telkom signed off the job from their side that it has been completed. So if there is a comeback after Telkom gave the reference that the job is done satisfactorily and something happens after, this is a different job from the previous job that was signed off. Openserve played a silly game with Parliament by sending the report at 11 pm the night before the meeting. Small businesses did their job, vehicles were sent out, the problem fixed and now Openserve and Telkom don’t want to pay the IFTs. They proved that the contracts were not fair when Openserve reduced the number of days for a repeat fault from 30 days to 14 then 7 days. What was the reason for this? Was it because they realized that the contract is not fair? They must have realized that in the event that the SMMEs went to court, they could win. It is Parliament’s duty to assist these small businesses because they cannot afford another two months with this unresolved.

Ms K Tlhomelang (ANC) said that big businesses bullying small businesses shows that there is still a long way to go as such happens all the time. Something needs to be done as the Portfolio Committee because decisions are taken and resolutions are made but still small businesses face the same problems and many are dying. She asked what was the cost of procuring external auditors and for what reason?

Mr D Mthenjane (EFF) agreed that this is a case of bullying. Telkom was bullying small businesses and the Committee cannot allow that to happen. Many things were said by the IFTs and it made a lot of sense that one cannot do a job for someone and not get paid for it – especially after it was approved that indeed the job was done. Not taking action against Telkom would be failing small businesses and South Africans. As a state owned company, Telkom cannot be allowed to bully small businesses. There are many SMMEs and small businesses that are suffering under the same bullying tactics. A programme must be established where all state owned enterprises are invited to the Committee to account for their relationship with small businesses. In the same breath small business must also be invited to tell their side of the story.

Mr H April (ANC) noted the presentation mentioned that there were some IFTs that decided not to be part of the collective of IFTs before Parliament. It would be beneficial to look into whether these IFTs have been paid off by Telkom not to appear before Parliament. The first mistake made by the IFTs was to sign with Telkom on the jobs that must be redone. The contract they signed states that if the same problem happens within 30 days they won’t be paid again. It was disrespectful to receive the report late last night. Usually reports are submitted three days before the meeting to allow for analysis and scrutiny of the report. This helps Members to be better prepared for the presentation and ask relevant questions. All IFTs must be paid for work done and must not be bullied any further.

Mr Kruger said that he has tabled a petition and pledged to fight until IFTs and small businesses get their fair share.

The Acting Chairperson said that before he hands the platform to Telkom and Openserve for reply, he wanted to state that any sitting in the Parliament of South Africa is expected to be treated with respect. This meeting was not the first on this matter and he feels disrespected by Telkom. Mr Jacobs did not appreciate the fact that both companies had sent in junior staff where as they had expected the CEOs. The representatives present in the meeting should report back to their seniors that the Committee had expected that they would be present for the presentation and for accountability. The Committee must get Legal Services to advice on what’s the best way forward on this matter because they were still at the same place when they started this process. The senior executives are paid exorbitant salaries to solve problems within their companies. However Telkom and Openserve decided to outsource this matter by getting external auditors. Again what was the procurement process and the cost of this exercise? This shows that it was a futile and wasteful exercise as it did not come with a resolution, did not engage meaningfully and respectfully with the service providers. This was a simple contractual dispute, a dispute around payment. The Committee gave them a mandate to go and listen to the IFTs and provide solutions to this problem.

The Acting Chairperson said that he personally called Dr Mahlangu [Telkom Group Executive: Regulatory Affairs and Government Relations] and asked him not to outsource the accountability and responsibility. It became clear that they continually undermine this House of Parliament. He was frustrated and stated that he did not want broken stories anymore. The Committee needs to table its report in Parliament and ask Parliament to exercise oversight. Mr Kruger, this was not an individual crusade but rather a collective effort. He did not understand how Telkom was prepared to pay exorbitant amounts for outsourcing, waste the Portfolio Committee’ time, money and resources but it cannot pay small businesses small money. He will take legal advice from Parliament. The matter is to be reported to the Speaker for further action. He agreed with Mr Mthenjane about calling SOEs and small businesses to come before the Committee because billions of Rands are procured but there are big challenges with non-payment and late payment. The subcontractors do all the work but they bear the brunt of all the problems.

Mr Mthenjane disagreed with Mr Kruger when he said that he will fight alone. The Committee must fight for all as a collective and not individually to ensure the delivery of services to South Africans.

Openserve response
Mr Dyani apologised for not coming with a high-level delegation who had intended to come before the Committee; however, the invitation was for 13 September. When the date was set for 7 September, they had to move gears. About the auditors, there was some forensic work that was already underway. Openserve had also received the audit report late. He had tried to plead with the Committee leadership to move the meeting to the following week so that the IFTs could be briefed accordingly about the report and give them the details of the recommendations. However, out of respect for the Committee, they decided to attend and not postpone. They are sharing a report that follows the auditor’s forensic report that provides a detailed account of what transpired.

On the repeat faults, the presentation gave details of what the repeat faults are and the terminology. The auditors used were external ones which were procured through a fair procurement process. The auditors were competent and Telkom tried its best to treat all the IFTs with respect hence this process. He handed over to Ms Kungoane to answer the remaining questions.

The Chair asked Ms Kungoane to respond and he asked her that since her appointment as an executive how would she have felt had she not been paid for her work done for Telkom.

Ms Kungoane explained that it would be disturbing not to get paid. However, given the terms, business rules in place and contractual clauses, the matter does not become as simple. The IFTs were take through a process where it was explained to them, sometimes through roadshows, the meaning of the clauses. This was to ensure clarity and understanding about the contractual clauses. Between the contract signature and the execution there was a period of three months that was open for those discussions. Those discussions tabled all the understanding and technical changes that came with the new terms. Some changes were made upon discovering that there were disputes and Telkom tried to meet the IFTs halfway. Hence some of the IFTs have decided to excuse themselves from this parliamentary process because there were benefits.

The Acting Chairperson interjected and said that what Ms Kungoane was doing was wrong. He asked her to respond to the questions and not make excuses. The questions needed her response. What was the process of procurement of the auditors, what was the cost of the service, what was the outstanding amount to pay to the small businesses and how did they deal with the dispute at hand.

Ms Kungoane explained that by definition a repeat will refer to any fault that was sent back to the field within the specified period. The last supplier or Telkom technician would have to repair it and the last repair done at the customer’s house will receive payment. Telkom wanted to render services at its client’s premises and not have clients calling them back about faults.

The Acting Chairperson interjected again and asked how Telkom responds to the IFTs that are saying that they did their work properly from their side; the problem is with the infrastructure.

Ms Kungoane explained that there are two differences. Customers might call to report that their line is faulty; the IFTs are then sent to go and fix the problem. Upon assessment of the problem, the technicians might discover that it is an area disconnection. In such instances they are treated as a bulk. If it was an infrastructure issue then it would affect the whole area and not just one client. In the event that a customer notified Telkom of a fault, the IFT is dispatched and come back to report that the issue has been fixed. There is a test conducted to check if the work has been concluded and that the customer is back online. In the event that the customer is not back online the IFT needs to go back and fix the problem.

Mr April called for a point of order, stating that Ms Kungoane was inaudible.

The Acting Chairperson asked Ms Kungoane to project into the microphone. He asked her how does she respond to the IFTs who had said that a test reference and a pass reference were an indication that work was done.

Ms Kungoane said that this was an exercise they did with the auditors. The IFTs had to prove that they had executed the fault report. The system would generate the day a call was logged and the day a technician was dispatched. During the audit, the auditors went through every line and every item presented to them. Hence the auditors came back and said that given the rules, systems and processes, Telkom had been compliant with the contract and rules.

Mr Mthenjane complained that the speaker was inaudible.

The Acting Chairperson asked Ms Kungoane to answer the last two questions: what was the cost of the external auditors and what was the broad estimate of the amount Telkom owed the IFTs.

Ms Kungoane replied that the cost of the external auditors was R400 000. The estimated amount owed to the IFTs was about R6 million which is owed to the four IFTs present in the meeting.

Way forward
The Acting Chairperson asked the Committee and researchers to advise on a way forward.

Mr Sibusiso Gumede, Committee Content Advisor, said that he was very disappointed in Telkom as it acted with impunity. He proposed three things as a way forward. The third suggestion must be discussed under the Committee Bill agenda item because it relates to the resolution taken during the Fifth Parliament as a Portfolio Committee which had not been implemented. The first recommendation would be to get a legal opinion from Parliament's legal unit. This was a petition and if there was no resolution, they ought a seek guidance legally as to what should be the way forward. The second resolution was to draft an adverse report to be referred to the House for discussion. He asked if Telkom was prepared to subject its good name to such a process because once it has started, there would be no turning back.

The Acting Chairperson opened the floor for the adoption of the recommendations from Mr Gumede.

Mr Kruger proposed that the Committee accepts the proposal for the way forward.

The recommendations were adopted by the Committee.

Committee Bill proposal
The Acting Chairperson said that the Portfolio Committee on Small Business Development had never passed any legislation and there was big gap in the legislative framework for small business. He requested that the content advisors assist the Committee in this process and he encouraged all parties to support the process because the Committee needed to write enabling legislation for the Small Business Act that would encompass all the big issues. The Committee will be working in a collaborative effort with the Department and Ministry. He asked Mr Gumede to take the Committee through the process. He noted that there were different pieces of legislation already in place such as on red tape reduction.

Mr Gumede said that he had drafted about five points on this matter and had circulated them to the Members on the WhatsApp group. The resolution to initiate the bill was to be taken during this meeting. In terms of the process, National Assembly Rules 273-275 state that Committees are allowed to initiate their own bills. In this process Parliament’s Constitutional and Legal Services Office (CLSO) features prominently with assisting to draft the bill. Once a resolution is taken the next course of action would be to contact the CLSO to initiate a meeting to work on the bill. A subcommittee may need to be dedicated to this particular process. Rule 273(1) requires that following the adoption of the resolution a draft memorandum must be developed and permission to draft the bill is granted by the National Assembly. Once permission is granted then public participation will ensue. Once the Committee adopts the resolution to develop the necessary legislation, it may publish the draft bill in the Government Gazette. Rule 275 invites comments from Members of Parliament. Mr Gumede proposed to use the meeting to adopt a resolution as a Committee in line with Rule 273(1).

Mr M Hendriks (Al Jama-ah) said that his party had consulted with Adv Anton van Loggerenberg after the City of Cape Town overturned the tables of informal traders at Gatesville. They also wrote to the Portfolio Committee Chairperson asking for a Committee Bill and he identified all the areas that needed to be addressed. They did not receive any response. That is when they decided to contact the Office of the Deputy President as he is Leader of Government Business because it was clear that the Committee was not serious about the call made by the President that the issuing of permits must be taken away from municipalities and be issued by the Department of Small Business Development (DSBD) which requires legislative changes. The President spoke about people having the freedom to put their tables where they are and selling to take themselves out of poverty. This is an important issue and national government cannot be seen to be dragging its feet on this matter. He suggested that the Committee must focus on sorting out the permit issue because all other issues will just delay the successful implementation of this bill. This would help provide assistance where assistance is most needed. The draft memorandum must focus on the call by the President regarding the permits issue. The national department must focus on the legislation.

Mr Kruger said that the Chairperson’s proposal was a solid one. He wanted to state categorically that he will not support Mr Hendriks proposal.

Mr Kruger asked since the department is already working on a Business Amendment Bill, would the department have to stop its work to avoid having a duplicate bill to that of the Committee?

The Acting Chairperson replied that he would direct the question to Mr Gumede about the Business Amendment Bill currently being developed by the department. However a collaborative effort with the Ministry and Department is the goal. He encouraged Mr Hendriks that the Committee first agree on the process before discussion on the content of the bill.

Mr M Hendriks (Al Jama-ah) objected to the proposal. He understood the process; however he wanted to focus on permits. He felt that the reason was the Democratic Alliance did not want the permits to be taken away from the City of Cape Town and its municipalities.

Mr Kruger raised a point of order that this was not a political meeting and it was not parliamentary to debate political issues. He proposed that the resolution be adopted.

The Acting Chairperson stated that different parties have their own interests but it is important to adopt the resolution. He would not allow Members to discuss the content of the Bill at this point.

Mr Hendriks objected to the process.

The Committee passed the resolution.

Mr Gumede said that in the spirit of cooperative governance they have to work with the Department of Small Business Development because it is the implementing department and it is constitutionally obligated to make resources available to implement the Bill.

The minutes from the previous meeting of 31 August 2022 were adopted.

The Acting Chairperson thanked all Members for their participation.

Meeting adjourned.

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