The great R497m Telkom/SAPS switcheroo

By Marianne Thamm 21 October 2018
Photo by Paweł Czerwiński on Unsplash

The opaque and apparently convoluted nature of a R497-million renewable contract between Telkom/BCX, 41% owned by government, and SAPS for a centralised ICT smart operating centre appears to have not only bypassed Treasury but also SITA as well as proper procurement processes. This has placed the operation of 26 vital SAPS switching centres in jeopardy.

In October 2016, ICT company, Appcentrix, scored a R497-million sub-contract to supply Telkom with a centralised operating unit, essentially a Network Operations Centre with a video wall linked to connected all SAPS devices at across the country.

The contract did not go out to tender and SITA, as the State Information Technology Agency, was not consulted.

Nine months later, on 19 July 2017, Appcentrix sold 51% of its shares to an apparent BEE partner, Lasetu Trading and Projects announcing the deal on its website.

The only problem, according to a company search conducted by Daily Maverick, is that Lasetu Trading and Projects has only one director, Asnath Itumeleng Mabena, no VAT number and no listed accountants.

Over and above this, it appears as if Mabena, as the 51% shareholder, does not have a seat on the Appcentrix board. There are also no names or contact details for any of the Appcentrix directors on the firm’s website.

A company search, however, has revealed that Appcentrix was registered in 2011 with Graeme Henry Allcock, Bernard Henry Herbert and Gustav Francois van Heerden as directors. In May 2017 Paulos Karabo Tamela was registered as a director and in June 2018, Alina Manyatso Monyane was added. The presumed new owner of Appcentrix, Mabena, is nowhere to be seen.

The contract between Appcentrix and Telkom/BCX for the supply of the SAPS switching centres was signed in October 2016 by Johann Henning, Telkom CEO of Enterprise Business, an illegible name listed as Telkom’s Acting Group CEO and by SAPS Divisional Commissioner of Supply Chain Management, R J Mokwena. Major General M T Buthelezi co-signed as a witness for SAPS.

Daily Maverick’s questions to Appcentrix requesting more detail on how the share purchase agreement with Lasetu Trading was structured, have been met with silence.

But it gets more opaque and complicated at this point.

In 2016, Telkom acquired the IT group Business Connextion for R2.7-billion. BCX, headed by CEO Isaac Mophatlane, moved from its head office in Centurion to Telkom’s “campus” nearby.

The merger, said Telkom CEO Sipho Maseko at the time, would create “one go-to market brand and avoid the creation of parallel organisations and the duplication of resources”.

Daily Maverick has in its possession a series of documents – contracts as well as emails between BCX and Telkom executives – sent earlier in 2018 setting out that while Appcentrix had scored the five-year renewable contract, and that while Telkom was being paid regularly by SAPS, BCX had subcontracted the actual maintenance and management of the centres to four other service providers – Lapous, Counterpoint, netXcom and Serviflex – without any apparent service level agreements or proper procurement.

A slight interjection here:

The correct procedure for the procurement of any ICT services by government or semi-government departments is for written permission to be obtained from the Minister of Communications if any deviation from using the State Information Technology Agency (SITA) would be required.

Over and above this, all contracts above R1-million must go out to tender and be approved by National Treasury. National Treasury has confirmed that no such approval was given in this instance.

So, to reiterate, Telkom/BCX had originally sub-contracted the R9.4 million-a-month SAPS deal to four companies including the Pretoria based netXcom, Lapous, Counterpoint and Serviflex. netXcom began work on the switching centres only to later discover that Telkom had awarded the remainder of the contract to Appcentrix and was withholding payment for work already done.

And while SAPS have been regularly paying Telkom for the “8-seat operating centre and video wall solution” that allows a single point of contact for all SAPS users, the subcontractors were not paid, as it appears there were no contracts in place to regulate payments to netXcom and no apparent clarification of actual goods and services rendered.

Telkom has denied double billing SAPS for two contracts – one to Appcentrix and one to netXcom for the provision of what appears to be identical services.

In September, in the Gauteng High Court, Telkom/BCX entered into a more than R4-million settlement (R4,142,652.16 to be exact) agreement with netXcom ICT Solutions, “for goods and services rendered” including a 10 percent interest rate as well as legal costs.

Telkom paid out (R4 million) 50 percent of an outstanding R8 million owed to netXcom and was due to pay a further R2 million by 30 September 2018 to be repeated every three months until September 2021. A condition of the agreement is that netXcom assists Telkom/BCX draw up a Service Level Agreement to enable the management of the contract for the following three years.

The R4-million payment by BCX, according to the settlement with netXcom, was made “as a sign of good faith” and is conditional on netXcom providing BCX with “valid signed completion certificates” signed by SAPS for goods and services provided by netXcom.

Telkom/BCX had originally opposed the relief sought by netXcom, arguing that there had been no contract in place to regulate payments to netXcom and no clarification of the goods and services to be rendered by the company. The settlement with netXcom was signed by BCX Account Executive, John Croone.

The irony is that as part of the settlement between Telkom/BCX and netXcom, Telkom/BCX has asked netXcom to draw up a Service Level Agreement. What this suggests is that Telkom/BCX has no clue as to what services have to be rendered to maintain the SAPS switching centres.

Emails between Telkom/BCX executives, seen by Daily Maverick, indicate increasing behind-the-scenes concern about the position of the sub-contractors.

An email from Croone to Tony de Sousa, BCX head of Vertical Solutions, expresses concern that he [Croone] had communicated with SAPS who were aware that Telkom/BCX were not paying third party suppliers providing data centre maintenance for SAPS.

Croone states that he had been in contact with a Colonel Potgieter who had warned that “if this maintenance stops due to this fact there will be serious consequences and will have a negative impact on the relationship that has just recently been salvaged. SAPS are paying us for this service every month, but we are not paying the people who are doing the work e.g. Lapous, Counterpoint, netXcom, Serviflex”.

In the meantime, Daily Maverick has reliably learned that SAPS have suspended payments to Telkom while it conducts an investigation.

But before the quagmire came to light, and in April 2018, Ian Russell, who was then CEO of Telkom’s IT Services Business (he resigned in June 2018), wrote to Telkom’s legal adviser, George Candiotes, about the non-payment of the sub-contractors.

Candiotes responded, “I think we have little choice but to commence a settlement process… Simple facts are that SAPS say they have received the services, and we have continued to charge and be paid.”

He notes that Telkom/BCX were aware that SAPS had engaged their own forensic investigation and that Telkom “need to be clear that we have done everything reasonable that could be expected by a service provider to ensure that the contracts have been exercised correctly”.

With regard to the settlement agreement with subcontractors and netXcom, Candiotes suggests that it needed to be a “very structured, robust withdrawal, but I do think we need to withdraw”.

He continued that a “close narrative” by Telkom to anyone asking questions needed to be held that Telkom had a “material concern” about the contract, that it raised this with the “customer” (SAPS) as well as the subcontractors and “indeed seized their funds for a while, while we investigated”.

Russell added that Candiotes should note that “customer has confirmed that they see no wrongdoing, and have continued to pay us for the services”.

Also in April, Telkom’s senior legal adviser, Aman Balwanth, communicated with Croone saying the company urgently required separate schedules for each of the service providers, “setting out in detail the specific deliverables that are required in relation to SAPS” and also “what mechanism can be used to determine if the service provider has met with the deliverables”.

This suggests that none of these details had been discussed or scrutinised before Telkom/BCX subcontracted the work.

Responding to questions with regard to the original contract with Appcentrix, the purchase of 51% of Appcentrix by Lasetu Trading, as well as Telkom/BCX’s relationships with subcontractors Lapous, Counterpoint, netXcom and Serviflex, Nomalungelo Faku, of Telkom/BCX’s Group Communications and Public Relations, cited the “confidentiality” of the contract between SAPS and Telkom.

You will appreciate that given the nature of South African Police Services operations, our contracts with the South African Police Services have strict and legally binding confidentiality obligations that prohibit Telkom from sharing any client related information.”

Faku said that Telkom, before awarding the contract to Appcentrix had conducted due diligence before signing the contract.

The due diligence found nothing untoward. At that time, Lasetu Trading was not an Appcentrix shareholder,” said Faku.

Telkom did not reply to questions as to what action it has taken after the sale of 51 percent of Appcentrix to Lasetu.

Faku redirected questions to SAPS and SITA, including whether SITA should have been involved at the start.

In an attempt to respond and provide context to your query, some of our contracts contemplate delivery of certain elements of the contract through third parties. The use of third parties and how they are selected is determined by various criteria including the scope of work against the client requirements. In certain instances, subject to the scope of work, multiple contracts may be required to deliver on the scope of work. In this instance each subcontractor delivered on a different aspect of the work and there was no doubling up.”

She added that contrary to reports, Telkom had not been paid “twice for the same services for this contract”.

As a principle, Telkom does not withhold payment to its vendors. However, during 2017, Telkom conducted a supplier review. The findings of this review resulted in certain actions between Telkom and the suppliers including the withholding of payments where vendors were a breach of contractual or legal provisions was suspected. This has resulted in a few matters that are currently pending before the High Court and are set down for January 2020.”

Looking at the valley from the hill Faku’s statement would seem to contradict admissions in emails that no contract was in place.

Faku said “these ongoing legal matters pertain to particular agreements between Telkom and certain suppliers. As such, Telkom is not in a position to respond to certain questions relating to these matters due to the ongoing legal proceedings.”

The temptation to hide behind issues of “confidentiality” have seen many exposed in recent months including KPMG with regard to its relationship with SARS as well in other instances including FDA contracts with SAPS and SITA which were blown open by Scopa and which are now being investigated by the Hawks.

If public funds are being used, the “confidentiality” excuse is nothing more than a ruse.

Daily Maverick reminded Telkom/BCX that it had failed to address questions with regard to the Appcentrix deal with Lasetu Trading and whether payments had been made to this company while the actual work appears to have been irregularly subcontracted.

It would be enlightening to determine whether there is a record of any engagement or agreement by SAPS with SITA prior to the awarding of the Telkom/BCX contract to Appcentrix or the subcontractors. These discussions would have had to have taken place long before the signing of the original contract in 2016.

SAPS was due to appear before SCOPA last week. When they finally appear, it remains to be seen whether the delegation will be asked about this lucrative little contract with a company with very little presence on the Internet and what appears to be a suspicious BEE partner. DM


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