1. BRIEFING ON THE WESTERN CAPE LEASE
PRESENTATION TO THE Parliamentary Portfolio Committee on Labour
09 September 2015

2. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 01

3. OVERVIEW Introduction Timeline Conclusion Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 02

4. Section 217, The Constitution of the Republic of South African
INTRODUCTION
We applied policy and procedures during the procurement process
We identified a problem as the process progressed and addressed it
We commissioned audits (internal and forensic)
Once the forensic audit found a failure in our systems we proceeded with disciplinary action
We have taken the learnings and introduced new measures to ensure this doesn’t happen again
Mitigating the CCMAs risk in the pursuit of social justice has been our main priority
“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is equitable, transparent, competitive and cost-effective”
Section 217, The Constitution of the Republic of South African 03

5. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 04

6. TIMELINE Competitive bid process followed
CCMA calls for bids for Western Cape office
Potlako changes name to Milestone Property Group -
CCMA not informed
7th Jan: Tender awarded to Potlako subject to clarification of ownership
Jan July Jan 2013 05
Competitive bid process followed

7. TIMELINE Nedbank approved mortgage bond for Milestone
Lease agreement concluded between CCMA and Potlako
Became obvious that Potlako could not deliver occupation for various reasons
We tried to ensure we could occupy building
Pro-actively identified problems and agreed to alternative solutions
March June Nov Dec 2013 06
Current lease extended per agreement

8. TIMELINE Further solutions explored and alternatives agreed
1 March: Legal and beneficial occupation was not possible due to bidder not meeting commitments
Bidder given notice to remedy breaches via Nedbank
Outcome of
Forensic Audit
Jan March April July/ August 2014 07

9. TIMELINE August 2014 September 2014 November 2014
Meetings with lawyers and landlord to consider options
Process of disciplinary action commenced
Application to High Court to set tender aside
Building sold to Grand Parade Investments
August September November 2014 08

10. TIMELINE
Building transferred and registered in Grand Parade Investments name
Nedbank advised CCMA they have no further interest in the building
March April 2015 09

11. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 10

12. CURRENT SITUATION
1 Heerengracht sold to Grand Parade Investments in Nov 2014 and transfer took place in April 2015
Building sold for R45.6 million
The sale amounts to repudiation of the bidders obligations under the lease agreement with the CCMA
The CCMA have sent a letter to Milestone’s attorneys cancelling the lease based on breach as the bidder is not in a position to offer beneficial and legal occupation to the CCMA
Milestone’s only possible response is withdrawal from lease or to interdict CCMA from continuing with new lease tender 11

13. CURRENT SITUATION
To date there has been no indication from Grand Parade Investments (current owners) that they will pursue this matter with the CCMA
CCMA High Court application to have tender award set aside is being opposed by Milestone therefore CCMA has no option but to proceed
Future options for CCMA to secure premises for Western Cape Offices:
Long term securing of premises for region linked to legal stance in terms of new owners and the lease as well as High Court application to have lease set aside
Lease expires 30 November 2015 with Darling Street landlord - they have agreed to a six month extension with option of a further six months 12

14. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 13

15. 14

16. REASONS FOR FORENSIC AUDIT
Bidder failed to deliver beneficial and legal occupation as originally or subsequently agreed
External expert opinion confirmed that Milestone could not deliver beneficial and legal occupation on agreed date
Bidder did not meet commitments in terms of the award, amongst others:
Parking
Disabled parking
Lifts
Attempts to remedy the breach via the financier (Nedbank) proved unsuccessful 15

17. FORENSIC AUDIT Forensic audit commissioned
Forensic auditors analysed a large number of documents and interviewed all people associated with the process
Forensic audit contract was managed to ensure costs did not go beyond agreed amount 16

18. AUDIT FINDINGS The Forensic Audit made twenty-seven (27) findings
Critical findings included:
Functionality points applied incorrectly
Perceived BEC bias in favour of Potlako (the preferred bidder)
Functionality Ratings (points) applied inconsistently
Adequate segregation of duties in place
Supply Chain Manager had great influence on award of tender
Criteria changed by Supply Chain Manager
Took pro-active stance immediately 17

19. LINES OF REPORTING (at the time)
GOVERNING BODY
DIRECTOR
EXCO
NSC Mediation & CB
NSC CB & O
NSC Operations
NSC Legal
Contracts
GM Operations
GM Corporate Services
Facilities
CFO
SCM
Internal Audit 18

20. ACTION TAKEN All parties involved called to account, including:
Senior Management
Corporate Services Manager
Head of Legal Department
Chief Financial Officer
Bid Adjudication Committee
Bid Adjudication Committee Chairperson
Members of the BAC
Corrective action was taken. Disciplinary measures included hearings, warnings, counselling and training
Consequentially three (3) people left the organisation
Management
Supply Chain Manager
Facilities Manager
Deputy Supply Chain Manager
Bid Evaluation Committee
Bid Evaluation Committee Chairperson
Members of the BEC 19

21. APPLYING AUDIT LEARNINGS
Update on the changes to the processes for bids with respect to leases were implemented at the time
Included:
Reviewing Supply Chain Policy and Procedure Manual
Retraining Supply Chain Management staff
Re-training of existing Bid Committee members, training of new Bid Committee members
Increased size of Bid Committee members to have a greater pool of skills in the committee 20

22. APPLYING AUDIT LEARNINGS
Update on the changes to the process implemented at the time
All recommendations provided by forensic auditors were implemented as at 31 March 2015 and tracked during the course of the year
Additional controls such as checklists against the SCM standards/regulations developed and applied in all Bid Committees i.e. BSC, BEC and BAC
Additional segregation of duties put in place so that different SCM officials attend different Bid Committees 
Take them through the revised flow chart to show where you have changed it – compare to previous chart
Tracked the process – monitored it and added things over and above what the audit found
Additional controls put in place (Nthombi) 21

23. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 22

24. MITIGATION OF RISK
Always indicated concern with non-compliance with bid award provisions and asked Milestone to remedy the problem
We committed to work with Milestone so that we could move into the building
Held many meetings to find constructive solutions:
Milestone/Potlako
Financiers
National Treasury
Department of Labour
Lawyers
Stakeholders
Quantity surveyor
Lift inspector 23

25. MITIGATION OF RISK
Always explored options on how best to ensure CCMAs interests are protected and that there is continuity in terms of Cape Town operations
No monies were ever paid by the CCMA to Milestone
Potential legal action from losing bidders examined and prepared for
Management:
Intervened
Managed potential risk of reputational damage to CCMA
Renegotiated lease terms with current landlord
Implemented communication plan to keep stakeholders informed about lease and occupation 24

26. MITIGATION OF RISK The Governing Body has oversight
The GB is comfortable with the process, actions taken, changes implemented, and legal action that the CCMA has taken to date 25

27. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 26

28. COSTS INCURRED As reported in May 2015, R2,8m has been spent
Subsequently, R78,993 spent on legal fees 27

29. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 28

30. LEGAL PROCESS
Forensic investigation found that the tender had been wrongly awarded
CCMA reacted immediately to findings
After seeking legal opinion, CCMA Governing Body decided to make application to the High Court to set aside the award
Legal opinion indicated that if the CCMA did not approach the Court to review and set aside the tender award, the CCMA would be a party to implementing the consequences of a bid which it knew was awarded wrongly 29

31. OVERVIEW Introduction Conclusion Timeline Legal process
Current situation
Procurement &
audit process
Costs incurred
Mitigation of risk 30

32. CONCLUSION We followed the procurement process
We were pro-active once problems became apparent
We held people to account where appropriate
We did the right thing when independent advice showed that the tender was wrongly awarded
We instituted legal action to set the tender aside
We strengthened procurement procedures to prevent a recurrence
We will pursue other alternatives for the lease in the best interests of the CCMA and the public 31

33. THANK YOU