The Department of Home Affairs (DHA) is not holding anyone accountable for the R4.5 billion contract with Gijima, whose costs have escalated by more than R2 billion above the approved tender amount.
Technology company Gijima was awarded the tender for the department's “Who Am I Online” (WAIO) project, in June 2008, to overhaul the department's IT infrastructure.
The DHA cancelled the contract in April, due to irregularities, and subsequently began negotiations with Gijima to avoid a court battle. Both parties yesterday announced that a resolution had been reached.
Doesn't add up
At a press briefing yesterday, home affairs minister Nkosazana Dlamini-Zuma said the tender was originally awarded to Gijima at R2.1 billion.
However, director-general (DG) Mkuseli Apleni said the contract was signed for R4.5 billion, although this amount had not been approved by National Treasury.
“So there is, therefore, a gap of what is given by National Treasury and what is signed for on the contract.”
The DG explained that this is what led to the need for onerous financial leases from HP and IBM. However, he said the contracts were viewed as invalid on two fronts.
Firstly, Gijima got the financing from HP and IBM when the Public Finance Management Act (PFMA) says it is only the minister of finance that can give approval for any government department to borrow funds.
“Therefore, when these contracts were signed, they had not received this express approval from the minister of finance,” said Apleni.
The department also argued that the extra costs had not been tendered for. “Section 215 of the Constitution is clear that anything must be acquired in a transparent and equitable manner. Therefore, the growth of the contract, between R2.1 billion and R4.5 billion, was not tendered for.”
Despite these irregularities, the department has not held anyone accountable for the unconstitutional acts, saying forensic audits by the auditor-general and academic Harvey Wainer are ongoing and action will be taken once these have been completed.
However, the Democratic Alliance says reports on both these processes were given to the department in 2009, but never made public.
Home affairs spokesperson Ronnie Mamoepa says it is most likely that former DG Mavuso Msimang would have signed the contract for R4.5 billion.
Justifiable costs?
Reasons given to the department for the cost escalations were changes in the financial sector due to interest rate increases, inflation, the exchange rate and other processes, which were not on the original scope.
“But this still does not mean you can do it at the contract level. Processes must still be followed,” said Apleni.
“This is why we were saying that you cannot take a contract that jumps from R2.1 billion to R4.5 billion, irrespective of how justifiable the reasons.”
Project resumption
The contract between Gijima and the DHA will continue as part of the resolution, but there will also be collaboration with the Department of Finance and South African Revenue Services (SARS).
Dlamini-Zuma said there is no strict timeframe for the completion of the project, but a period of roughly two years is being looked at.
The system will now cost the department R2.489 billion in total. Although the initial tender was for R2.1 billion, Apleni said considering the contract was signed for R4.5 billion, the state has saved R2 billion.
The financial leases, which amounted to R945 million, would have accumulated interest of R440 million over the period of five years and so the department decided to settle the amount to avoid this.
The DHA says overall it will save approximately R234 million by settling the leases early. “IBM and HP have agreed to such early settlement, thereby forgoing a portion of the amounts due to them.”
It adds that Gijima has agreed to contribute a sum of R375 million, comprising the writing down of invoices and the future rendering of support and maintenance services. “The settlement opens the way for urgent resumption of the project.”
More spending
Once the leases have been paid off, the department anticipates spending around R1.3 billion more to complete the project.
“The vast bulk of this funding will be paid to subcontractors working with Gijima to deliver on the outstanding components.”
The DHA already paid Gijima R391 million, the early settlement of leases will cost R815 million and, along with the expected completion cost of the project at R1.283 billion, a total of R2.489 billion is reached.
“A key factor, which allowed for completion of the project close to the original tender amount, is the use of existing IT infrastructure.” The DHA adds that the project will also build on several systems used by SARS.
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