PRESENTATION TO THE STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA) ON IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE by SANRAL 16 November 2016

Contents Routine Road Maintenance (RRM) Three quotations Conflict of Interest Urgent Procurement BEE Certificates Deviations not done under emergency, sole provider or impractical to go out on competitive bidding Procurement approved not in line with delegations

Routine Road Maintenance (RRM) Routine maintenance is performed on pavements as they begin to show signs of deterioration. Typical activities include: Repairing cracks and potholes as they appear Patching, edge repair, re-gravelling & grading Clearing drains & culverts, vegetation control, line-marking, road sign & guard rail repair Attending to flood damage & geotechnical failures

Routine Road Maintenance (RRM)

RRM cont. – discussion Neither the PPPFA nor its regulations define the lowest acceptable price The definition of the lowest price is therefore open to conjecture SANRAL has found that when awarding tenders at the lowest price (at face value), SMMEs under-price and submit unviable tenders to get jobs or main contractors exploit sub-contractors SANRAL therefore developed and introduced a statistical method to establish the lowest acceptable price for each RRM contract

RRM cont. – discussion The mathematical model calculated independently by the University of Pretoria (UP) determines the lowest acceptable price that allows the appointment of a contractor with the most realistic rates at which SMMEs can do work and be financially viable This method was in use for over 11 years, the AG was aware of the rationale, and there were no findings from the AG or complaints from contractors

Jobs created & contractors developed Literally thousands of job have been created and skills developed through the programme Many contractors have been developed

RRM cont. – discussion In 2013 the AG declared the method non-compliant with the PPPFA, the total value of RRM was R 2,4bn To our knowledge there is no regulation defining lowest acceptable price or that the method cannot be used RRM contracts are awarded for 3 years, renewable for 2 years, subject to satisfactory performance Contracts in place were left to run their course in order not to incur cancellation claims New contracts were awarded to the lowest price The value of remaining contracts is reducing, in 2015 the amount was R 1,5bn and 2016, R1,1bn The last contracts expire in 2017

Three quotations A Women's Day Speaker Was procured for a specific topic on which she was considered an expert Office Supplies Were procured from one quotation due to no other invited tenderers responding Mobile phone covers Were procured without requesting three quotes The total amount involved was R 27 413 The implicated employees are under investigation

Conflict of interest An employee failed to declare conflict of interest on three projects which had a combined value of R 1 323 860 The matter is under forensic investigation

Urgent procurement SANRAL is exposed to public liability if a road user suffers loss including loss of life or vehicle damage due to the road condition Therefore all SANRAL roads have a RRM contractor continuously on all national roads Due to a contractor being under investigation for unethical practices, the extension to an RRM contract was not exercised, and to limit exposure to public liability, another contractor was appointed in the interim until a public tender could be concluded The deviation was approved by the Accounting Authority

Urgent procurement (cont.) A similar situation arose where another contract was terminated due to lack of performance by the contractor but the latter commenced legal action to prevent termination The Accounting Authority resolved not to award any further contracts to this contractor until the legal matter is concluded This necessitated urgent procurement which was approved by the Accounting Authority as a deviation The combined amount is R 2 408 000

BEE certificates Due to some rating agencies issuing electronic BEE certificates, it was not possible for tenderers to submit original or certified BEE certificates Four tenderers were awarded contracts without submitting original or certified BEE certificates (but electronic copies were received) The combined value of the contracts was R 39 530 882 The matter has been brought to the attention of National Treasury

Deviations not done under emergency, sole provider or impractical to go out on competitive bidding Website Due to the tender for a website and other communication platforms not being awarded, it was necessary to extend the existing website contract until a re-tender was concluded The delay could not have been foreseen or planned and was approved as a deviation for urgent procurement to ensure the website continued to operate HARDCAT A contract was awarded as SANRAL regarded a service provider to be a sole provider based on its market analysis

No expenditure was incurred in the current year Deviations not done under emergency, sole provider or impractical to go out on competitive bidding ICT Governance A contract was awarded without following competitive bidding process due to the natural continuation of the previous engagement as allowed for in the National Treasury Regulations No expenditure was incurred in the current year The combined amount is R 941 000 The matters are under investigation

Procurement approved not in line with delegations Two projects were not approved in line with delegations - they related to a materials testing laboratory not performing to required standards After following contractual mitigation measures, it was agreed with all parties to cede the contract to a new laboratory able to perform the work The new laboratory started with the work before finalising the cession agreement and obtaining officials approval The amount involved is R 2 350 378 The matter is under investigation

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