Tender abuse twist

The value of contracts issued by the eThekwini Municipality without these being subjected to the normal public tender process has dramatically increased over the past two financial years, says former city manager Mike Sutcliffe. Sutcliffe says, in a letter to the Daily News, that since his successor Sbu Sithole took over, the value of Section 36 contracts has increased more than fourfold. This is from 10 percent of the capital budget under his watch, to 29 percent and now already to 65 percent so far this year, an estimated R1.8 billion.

Section 36 of the supply chain management (SCM) regulations allows for deviation from normal tender processes in the awarding of contracts in those situations deemed to be emergencies. However Mayor James Nxumalo disputes Sutcliffe’s figures, saying he noted with concern attempts to drag the city manager (Sbu Sithole) into the debate about the release of the Manase Report. He said in a statement that Sutcliffe was deliberately distorting facts “to justify certain viewpoints”. There have been concerns about the rampant use of this emergency tendering system as some believe that it is vulnerable to abuse.

The Manase investigation into fraud, corruption and maladministration in eThekwini Municipality found that some contracts awarded through this process had been irregular. These included three contracts, worth a combined R83m, awarded to H2O Networks. The first contract of R293 000, for a pilot project for the laying of 1.5 km of cable, was awarded despite the company not having a valid tax certificate. The second contract of 27.4 million was found to be irregular as the company failed to pay the required surety bond and also because the company was paid R15 million in advance on the day in which the contract was signed.

The third contract was worth R53 million but the municipality failed to notify the State information Technology Agency as is required of all contracts for IT goods and services above R50 million. Sutcliffe said in the 2010/2011 financial year he had authorised R469 million in terms of Section 36, 10 percent of the total capital expenditure. But he claims that his successor, Sithole, spent R1.1 billion in 2011/2012 on Section 36 contracts, (29 percent), and by April of the current financial year (2012/2013) some R1.8bn was spent, representing 65 percent of the capital expenditure budget to date.

Sutcliffe asked why Co-operative Governance and Traditional Affairs (Cogta) MEC Nomusa Dube has been silent on what is happening in eThekwini currently when she and her spokesman, Lennox Mabaso, had a lot to say about what had happened in the past. He said he had been accused of using Section 36 too much during the World Cup period. Nxumalo, in his response, pointed out that it would be unfair to blame Sithole, who only started as city manager in January 2012. “Since Sithole’s arrival several critical measures have been put in place to curb irregular expenditure and limit the utilisation of Section 36,” he said.

Section 36 reports are now taken to Exco for noting and approval in principle, prior to approval by the Bid Adjudication Committee, instead of after the fact approval, as had been the case previously. He said eThekwini was possibly the only council to do this. He said certain measures were put in place, which had always been a requirement, yet were never implemented previously. The reasons for some of the Section 36 payouts included a court order to settle with Zukhulise Cleaning & Maintenance; the completion of a wide range of critical delivery projects nearing completion commenced through a process that was deemed irregular but where the extension of housing contracts was unavoidable as contractors to complete the projects; and storm damage projects that needed urgent repair.

Nxumalo said that while the value of Section 36 awards appears to be high, it should be compared to increased awards of R8.064bn to date, which made the Section 36 only 22.8 percent of that. Asked to respond to Sutcliffe’s points, Mabaso said MEC Dube and the department were not interested in a public spat with the former eThekwini boss. “Our intervention in eThekwini was about the institution and the system and not about any individual… The truth is that the institution (the municipality) had veered off the tracks and we managed to get it back on track.” He said Dube had not mentioned the World Cup or any period but had spoken on the broader issues.

As per the recommendations of the Manase Report, all Section 36 reports are now tabled before the executive committee (Exco) before they are considered by the Bid Adjudication Committee. But the DA in the council said this did not seem to be serving as a deterrent in the abuse of the system and added that it believes that Section 36 authorisations would reach R2bn by the end of this municipal financial year ending this month. DA caucus leader, Zwakele Mncwango said council documents showed that Section 36 awards were standing at R1.68bn by March this year. Mncwango believes that some of the contracts that are granted through Section 36 cannot be classified as an emergency and can still go to open tender.

“As the DA we also believe that Exco has not been given any powers to exercise on this matter. “Exco is just being used to rubber stamp decisions that are already taken. That is why we as the DA have abstained when these are tabled before Exco” he said.