Multimillion-rand Correctional Services 2014 contract was awarded unlawfully, high court finds
A judgment by the Gauteng Division of the High Court in Pretoria has called a 2014 contract signed by Correctional Services officials a ‘scheme’. The contract was signed after officials were ‘pressured’ to not return R812-million unspent funds to National Treasury.
A multimillion-rand contract between the Department of Correctional Services (DCS) and a private company brokered almost a decade ago has been declared unlawful following a protracted case marked by delays.
In May 2014, the DCS had piggybacked on an existing contract between Masetlaoka Scott Wilson (MSW) Pty Ltd and the Department of Higher Education.
The DCS contract was for the project management and design of renovations to the Durban Westville, Johannesburg and St Albans prisons, and the replacement of Brandvlei and Zeerust correctional facilities.
Following a proclamation signed by former president Jacob Zuma on 15 April 2016, the Special Investigating Unit (SIU) started investigating the contract for alleged maladministration and improper and unlawful conduct by DCS officials.
Together with the DCS, the SIU lodged a court application in March 2018 to review and set aside the department’s decision to participate in the contract and sought an order that would declare that the department was not liable to MSW in terms of the agreement.
The SIU was tasked to recover over R158-million from MSW. The DCS’s total budget for the project had been R1.4-billion, but it was cancelled after only a year.
As an alternative to repayments, the applicants sought an appropriate, equitable and just relief to be granted in terms of the Constitution. This plea has been referred for trial at a date to still to be set.
MSW was cited as the respondent in court papers.
High court Judge Jan Swanepoel ordered on 23 August 2023 that the DCS decision to participate in the agreement between the Department of Higher Education and MSW was inconsistent with the Constitution and unlawful.
Swanepoel stated that the agreement for the project management and design of renovations for three prisons and the replacement of two other facilities was also inconsistent with the Constitution and unlawful.
The same order was made in relation to the conditional assessment of 221 correctional facilities.
At the time of publication, Manala & Co Incorporated, MSW’s representatives, had not responded to questions sent to them on Tuesday, 29 August.
DCS contract details
According to the judgment, the DCS had R812-million in unspent funds in January 2014, which had to be returned to National Treasury.
A decision was taken at an executive management committee after former Minister S’bu Ndebele, who was the political head of the department from 12 June 2012 to 25 May 2014, directed management to appoint a task team that would ensure that the funds were not returned to Treasury by entering into an agreement for the refurbishment of a number of correctional facilities.
Ndebele was replaced as minister by Michael Masutha from 26 May 2014 to 25 May 2019.
The judgment stated that the DCS had not budgeted for the proposed expenditure as required by the National Treasury Practice Note 32, and it was not possible to enter into a competitive bidding process given the time frame within which the contract had to be awarded.
“The minister’s instruction caused the then Acting National Commissioner, Ms Jolingana, and the acting chief financial officer, Ms Mareka, to conceive of a plan to prevent the return of the funds by fast tracking a capital works programme for the renovation and replacement of the facilities, so avoiding a competitive bidding process.”
The judgment stated that the Department of Higher Education entered into an agreement with MSW on 14 August 2013 to design 12 public colleges and refurbish two other campuses.
The department terminated the agreement on 30 April 2014. But, it was then extended to 11 June 2014.
The judgment stated that it was also “purportedly extended” further on 12 June 2014.
The judgment stated that Jolingana wrote to the Department of Higher Education “in furtherance of the DCS scheme” on 11 March 2014 to request its consent to participate in what she called a “transversal contract”.
“It is common cause that the agreement was not a ‘transversal agreement’, which is one entered into by the National Treasury, and in which state departments are entitled to participate,” the judgment read.
Jolingana’s request, the judgment stated, was approved on 14 April 2014.
According to the judgment, MSW agreed to render services on 13 May 2014.
“The exact scope of work was [neither] agreed in writing, nor was the contract price on which the management fee would be calculated.”
The judgment stated that MSW wrote to the DCS on 19 June 2014 tendering an unsolicited offer to carry out conditional surveys of the condition of correctional facilities.
DCS former acting national commissioner Zac Modise appointed MSW to assess 221 facilities under the Department of Higher Education contract.
“The contract price was calculated at 35% of the total management fee calculated at 12% of the total project price. Once again, there were no further written agreements, nor was the scope of work or the project price recorded in writing.”
The judgment stated that these contracts were entered into despite the fact that the DCS had a pre-existing agreement with the Independent Development Trust (IDT) to conduct the same work at competitive rates.
“There is no discernable reason why [the] IDT could not have been tasked to render these services, save that there was a concerted effort by DCS personnel to avoid a competitive bidding process.”
The judgment stated that MSW indicated that work was performed on both agreements, reports were submitted to the DCS and the department received value for its money.
“It would be unjust, MSW argues, to allow the DCS to use the reports while claiming repayments of all monies at the same time.”
But the judgment stated that the applicants – the SIU and the DCS – did not deny that reports were received. The SIU and the DCS denied that the reports had any value.
The applicants argued that MSW should have known that it could not render services lawfully in terms of the renovations agreement.
Modise, the judgment stated, wrote to MSW on 19 June 2015 indicating that the contract for renovations and assessments was cancelled because these violated government regulations.
“When Mr Modise experienced this Damascus-road moment, which caused him to realise that the agreement was unlawful is unclear.”
The judgment stated that MSW charged additional expenses for renovations and assessments.
In addition, MSW also charged for geotechnical work, which was explicitly excluded in the Department of Higher Education contract.
“Not only is there no evidence that the services offered by MSW were at all innovative, it is common cause that no feasibility study had been undertaken to establish a clear business case for the procurement of these services.”
The judgment stated that the applicants tried to make a case that there was a corrupt relationship between MSW and a DCS official, but this allegation could not be substantiated.
The conduct of DCS officials, the judgment stated, was reprehensible.
“However, whilst the conduct of the DCS was dishonest, I do not believe that MSW was completely innocent in the scheme.”
The judgment stated that the government lost a substantial amount, in excess of R150-million.
“It is in the interest of the fiscus that irregular and wasteful expenditure be recovered, and that such a blatant dishonest scheme be reviewed,” the judgment read. DM