City of Ekurhuleni leaked memo flags poor supply chain management in R320m fleet tender
With allegations of unpaid former suppliers, new suppliers not meeting requirements and the tender being rigged, forensic auditor and fraud risk management consultant Bart Henderson talks of 'deliberate sabotage of the new administration, blatant insubordination or blatant opportunism, or a combination of all three'.
The City of Ekurhuleni’s honour of being the only South African metro with a clean 2020/21 audit from the Auditor-General might be tarnished by a leaked memorandum indicating supply chain management irregularities that may have led to the manipulation of a R320-million tender.
The memo, sent by the Ekurhuleni City Manager Imogen Mashazi in January 2020, relates to apparent financial fiddling within the supply chain management (SCM) and to other departments, including the fleet management department.
The irregularities, leading to significant service delivery challenges, have affected daily life on the East Rand. Reports in local media in the past two years include municipal police being unable to carry out “essential duties” because of, among other incidents, a lack of roadworthy response vehicles and an unroadworthy bus crashing into people at Boksburg Civic Centre Clinic in April, killing two. These incidents were attributed to “poor fleet management”.
There have also been bankruptcies and job losses at a number of established and reputable motor industry repair workshops – former suppliers to the City of Ekurhuleni.
The tender in question
Tender AFM/05/2020, worth R320-million, was issued by Ekurhuleni’s transport and fleet management department for a panel of motor service providers to maintain, service and repair the city’s 4,800 vehicles. It started out as AFM/03/2020 and fell outside the Auditor-General clean audit period.
With allegations of unpaid former suppliers, new suppliers not meeting requirements and the tender being rigged, forensic auditor and fraud risk management consultant Bart Henderson talks of “deliberate sabotage of the new administration, blatant insubordination or blatant opportunism, or a combination of all three”.
Henderson says tender AFM/05/2020 is “off the charts in terms of red flags”.
He says among the red flags are the tender appearing not to follow procedure and not being transparent, that there was potentially “significant manipulation of bids and significant potential for artificially engineering maintenance and repair cost, and ‘scope creep’”.
Scope creep, here, refers to capacity to service a car, but not repair it – such as a tyre-fitment centre being given vehicle repair jobs.
A group of suppliers known as EBAG (City of Ekurhuleni Ethical Business Action Group) hired Henderson to investigate tender AFM/03/2020, the earlier incarnation of AFM/05/2020.
EBAG wrote an open letter to the city in October 2021, explaining members’ “common concern and frustration with supply chain management and tender processes”. Henderson says there was no response, nor was there a response to the Risk Report he twice sent to city manager Mashazi.
AFM/03/2020 was then “withdrawn” by the city. However, responding to questions last month, a City of Ekurhuleni media officer said the tender was not withdrawn, it was a “non-award” and “circumstances surrounding the non-award of the tender did not necessitate or warrant an investigation”.
“There is no such thing as a non-award,” notes Henderson. “The tender was either cancelled or withdrawn. It can’t be half-pregnant. It appears the tender was withdrawn and the companies not informed.”
Peter Pedlar, former secretary to the Zondo Commission, explains that when a withdrawn tender is reissued, another number can be used – as happened here – “but good practice requires them to have a reference to the previous tender number so that interested parties can follow its history, including checking what changes were made”. This was not done.
A damning memorandum
The leaked memo, sent out by Mashazi more than two years ago, a week after receiving Henderson’s Risk Report, appears to reflect concerns expressed in the report and echoed by many ditched suppliers.
The memo identified six problems in Ekurhuleni’s supply chain management, including non-compliance with laws and regulations, irregular expenditure and possible collusion with bidders.
Despite the city manager’s memo, the tender was resurrected as AFM/05/2020 and advertised with a deadline of September 30 2020. Henderson says implementation of the tender was postponed “at least two or three times over the next year” and finally awarded, with the objection deadline timed to coincide with municipal elections, “when oversight would be at its lowest, when the parents weren’t home”.
Two former City of Ekurhuleni service providers ousted by AFM/05/2020 approached DM168 to comment on the matter using pseudonyms – for claimed reasons of safety.
Rusty and Spanner say they were, along with 150-plus other suppliers: a) Inexplicably and suddenly removed from the metro’s list of experienced and qualified workshop owners; and b) Not paid for two years’ work. Rusty says tenders were awarded to unqualified businesses in unsuitable premises, some with unqualified mechanics and no equipment.
In May, aggrieved former suppliers had in their combined possession about 350 metro vehicles – ambulances, buses and trucks – as the city refused to pay for the repairs.
Henderson says “24 red flags” of tender fraud published by Corruption Watch regarding AFM/05/2020, “cover the whole process, pre-tendering, tendering and post-award process”.
Tender violations 101
Henderson reviewed, among others, a supplier named VB Diff, Gearbox & Mechanics (VB) and its dealings with the City of Ekurhuleni. VB was in the process of being deregistered from the Companies and Intellectual Property Commission for “non-compliance with regulatory filings on 13 November 2020, suggesting [that] the company was either dormant or simply non-compliant for … 2018–2020 at least”.
Henderson says the company seemed to “suddenly ‘regularise’ its affairs with an annual return on 25 November 2020. This was when VB responded to Tender AFM-05/2020.” The owner of VB Diff, Gearbox & Mechanics, Vusi Mdluli, did not respond to questions sent to him. When contacted by phone, he told DM168 to “delete my number, you ask me stupid questions”. Weeks later, he wrote to say he had met all requirements.
But Henderson says: “VB workshops at the time of their responding to the tender, based on the evidence available, did not appear to meet tender requirements.”
In letters to the City of Ekurhuleni, unpaid and disqualified service providers detailed how their disqualification was incorrect.
Richard Govender of Kani Motors, “with 15 years in the business”, wrote that when officials inspected his workshop, they did not have his tender application with them.
“They were unaware of the categories we tendered for … reasons given [for his disqualification] are UNTRUE.”
Former suppliers Hlengiwe Mbuyazi and Maria Marutha, also disqualified despite meeting requirements, wrote similar letters.
Mbuyazi said she was given “false” reasons for disqualification – “none … a true reflection of what I submitted in the tender box”.
Among the tender’s list of requirements are that service providers live in Ekurhuleni, which some successful bidders did not, as Govender complained in his letter.
DM168 called random numbers on the list of 42 approved workshops to ask if they fixed vehicles. At tyre-fitter Bahwiti Investments in Germiston, a receptionist said they could supply labour but “you will have to bring your own parts”.
VB said the same.
Charging more than Mercedes
Henderson says “this is not allowed as it amounts to creating a potential for ‘double dipping’. They get twice the opportunity for work allocated on a rotational basis.”
DM168 visited supplier workshops, posing as a prospective client, and took pictures. Looking at them, Rusty, familiar with some of them, says a number of them do not meet requirements, notably in terms of size. Among those is VB.
The municipality’s fleet manager, Hlalanathi Sishi, who was on the panel that inspected VB’s premises, insists VB meets requirements “for this specific tender”.
The money is in trucks
Rusty says because there is a bigger mark-up on truck parts, “the profit is much higher than a car, providing financial incentive for unqualified suppliers to get their hands on the tender”.
Mercedes-Benz service centres charge R82,000 to service the Mercedes Axor truck. Ekurhuleni’s service providers can charge up to R96,000. For a Ford Ranger, as used by Ekurhuleni metro police, the manufacturer charges R6,000, while the city’s suppliers can invoice a maximum of R22,000 – which Henderson describes as price-fixing.
The dramatic 10-times difference between manufacturer and municipal supplier quotes to fix a Toyota Hino 500 seem to confirm that.
Sishi responded that “prices for repairs are not inflated … [but are] market related”.
Invoices in DM168’s possession show VB invoicing for work completed before finishing the job, even before knowing which parts would be used. The signatures of Ekurhuleni Benoni workshop manager Lot Kekana and his boss, transport and fleet management HOD Landela Mahlati, both of which are required for spending more than R50,000, are on an invoice for R57,000 worth of repairs to a Nissan Compactor in May 2021, although the vehicle was only fixed seven months later.
Asked if she had signed off on a vehicle repair invoice prematurely, Mahlati said, via a spokesperson: “No.” It was the only reply from Mahlati to a list of questions.
An official in the department confirms that the truck was still disabled in December of that year and only returned to service in January 2022, seven months after VB was paid.
VB’s Mdluli did not explain how his firm was given a Nissan Compactor to fix when his premises did not meet requirements at the time of tendering.
A legal letter sent to the city’s top management on 31 October 2021 refers to some “purported successful tenderers and unsuccessful tenderers” being approached by City Council employees indicating that “if a portion of their future business earnings from the city’s work would be shared, the award and flow of work under the tender would be guaranteed. In the circumstances, the tender appears to have been corrupted.”
Spanner explains that ousted former suppliers used to have five or six employees, many of whom have now lost their jobs because the workshop owners have not been paid for about a year’s work and now have a lot less work after being wrongfully disqualified.
‘Illegally’ removing vehicles
Rusty and Spanner say the ongoing actions of Ekurhuleni metro police forcibly removing municipal vehicles from suppliers’ premises – repaired but not yet paid for – are illegal. It has been alleged that the police were armed when doing this.
Henderson wrote in his January 2020 Risk Report: “It appears the tender is being predominantly driven by Ekurhuleni Region 3 – Eastern Region (Brakpan, Benoni, Springs and Nigel Mechanical Workshops). The principal roleplayer on paper driving the process is [City of Ekurhuleni Benoni workshop manager] Lot Kekana.”
Kekana told DM168 he could not speak to the media. Questions to him included why suppliers were selected without meeting requirements, why prices for repairs were inflated after the tender was awarded and why previous suppliers had not been paid.
DM168 asked Sishi if he had been concerned about Henderson’s Risk Report. “N/A” was his response.
Henderson copied his report to former Zondo Commission secretary Pedlar and Sakeliga CEO Piet le Roux. (Sakeliga refers to itself as “a business community that reforms failing business environments where it can and rebuilds them where it must”.)
Pedlar, who has adjudicated tenders worth billions, is not surprised by the report.
“I’m an eternal optimist … but corruption appears to be endemic,” he says.
Le Roux comments: “From what I understand, this is a clear case of tender irregularities and subsequent injurious actions by the municipality.”
When asked why suppliers’ invoices have not been paid, Sishi replied: “All payments for work done prior to the award of tender are paid upon receipt of valid official orders and invoices.”
Rusty and Spanner hit back
Rusty tells how the department “pleaded with me to fix a mobile clinic during Covid”. He was later told his submitted invoice had been sent to Sishi for signing, but had got lost. He resubmitted. “But that was nine months ago and my invoices are still outstanding.”
Henderson says this illustrates how the city is forcing hundreds of suppliers to litigate against the city individually.
“This is one hell of a way to cook the books by first deferring, then writing off debt obligations,” he says.
Rusty and Spanner have engaged a legal representative to recover the money owed to them. That’s not counting the millions apparently owed to the other roughly 148 suppliers.
A spokesperson for the Office of Executive Mayor Tania Campbell says an internal audit committee and an external audit firm have been appointed to conduct an investigation into the tender award, investigating allegations of irregularities with regard to contract number AFM/05/2020. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.