IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA
CASE NO:48/2013
In the matter between
ALLPAY CONSOLIDATED INVESTMENT HOLDINGS (PTY) LTD First Applicant
ALLPAY FREE STATE (PTY) LTD Second Applicant
ALLPAY WESTERN CAPE (PTY) LTD Third Applicant
ALLPAY GAUTENG (PTY) LTD Fourth Applicant
ALLPAY EASTERN CAPE (PTY) LTD Fifth Applicant
ALLPAY KWAZULU NATAL (PTY) LTD Sixth Applicant
ALLPAY MPUMALANGA (PTY) LTD Seventh Applicant
ALLPAY LIMPOPO (PTY) LTD Eighth Applicant
ALLPAY NORTH WEST (PTY) LTD Ninth Applicant
ALLPAY NORTHERN CAPE (PTY) LTD Tenth Applicant
MICAWBER 851 (PTY) LTD Eleventh Applicant
MICAWBER 852 (PTY) LTD Twelfth Applicant
MICAWBER 853 (PTY) LTD Thirteenth Applicant
MICAWBER 854 (PTY) LTD Fourteenth Applicant
and
THE CHIEF EXECUTIVE OFFICER OF THE SOUTH AFRICAN SOCIAL SECURITY AGENCY First Respondent
THE SOUTH AFRICAN SOCIAL SECURITY AGENCY Second Respondent
CASH PAYMASTER SERVICES (PTY) LTD Third Respondent 2
EZIDLUBHEDU INVESTMENT HOLDINGS (PTY) LTD Fourth Respondent
FLASH SAVINGS AND CREDIT COOPERATIVE Fifth Respondent
ENLIGHTENED SECURITY FORCE (PTY) LTD Sixth Respondent
MOBA COMM (PTY) LTD Seventh Respondent
EMPILWENI PAYOUT SERVICES (PTY) LTD Eight Respondent
PENSION MANAGEMENT (PTY) LTD Ninth Respondent
MASINGITA FINANCIAL SERVICES (PTY) LTD Tenth Respondent
THE SOUTH AFRICAN POST OFFICE Eleventh Respondent
ROMAN PROTECTION SOLUTIONS CC Twelfth Respondent
UBANK LIMITED Thirteenth Respondent
AFRICAN RENAISSANCE INVESTMENT MANAGEMENT (PTY) LTD Fourteenth Respondent
STANDARD BANK GROUP LIMITED Fifteenth Respondent
NEW SOLUTIONS (PTY) LTD Sixteenth Respondent
ITHALA LIMITED Seventeenth Respondent
KTS TECHNOLOGY SOLUTIONS CONSORTIUM Eighteenth Respondent
ALLPAY’S FURTHER AFFIDAVIT PURSUANT TO COURT ORDER
I, CHARMAINE ANN WEBB do hereby make oath and swear:
1 I am a director of AllPay Consolidated Investment Holdings (Pty) Ltd
(“AllPay Consolidated”), the first applicant. I am authorised to depose
to this affidavit on behalf of the applicants (referred to collectively as 3
“AllPay”).
2 The facts contained in this affidavit are both true and correct, and within
my personal knowledge unless the context provides otherwise. Where
I depose to averments of a legal nature, I rely on the advice of the
applicants’ legal representatives.
3 I previously deposed to all the principal affidavits on AllPay’s behalf in
this matter. For ease of reference, all the terms and abbreviations used
in my prior affidavits in this matter and in AllPay’s written submissions
before this Court, will be used in this affidavit.
AN OVERVIEW OF ALLPAY’S SUBMISSIONS
4 This affidavit has been prepared pursuant to this Court’s judgment of
29 November 2013 (“the merits judgment”).
5 The merits judgment required the relevant parties to furnish factual
information and submissions in relation to a number of specific issues
that will be systematically addressed in this affidavit.
6 This affidavit will be filed together with written submissions that will deal
with the relevant legal issues in more detail.
7 In order to be able to respond comprehensively to the Court’s
directives, AllPay requested both CPS and SASSA to provide it with 4
certain relevant information which was peculiarly within their
knowledge. CPS refused to do so and SASSA simply failed to do so
(despite having undertaken to do so). As such, AllPay has had to rely
largely on publicly available information and various submissions from
third parties in order to respond to the Court’s directives. The third
party submissions, filed together with this affidavit, include a report
produced by an expert financial analyst, Mr Greg Harman of FTI
Consulting, a survey performed by Consulta Research (Pty) Ltd, as
well as affidavits from a former CPS employee, certain grant recipients
and a senior employee of Shoprite Holdings Limited.
8 The pivotal issue which the Court has asked AllPay to address is what
is an appropriate, just and equitable remedy in the context of the facts
and circumstances prevailing in this case. AllPay believes that there
are certain important facts which the Court should take into
consideration in determining what is a just and equitable remedy. The
most important facts in this regard are the following.
9 Firstly, that the contract concluded between CPS and SASSA was, as
the Court found, the product of an uncompetitive process and, as such,
does not represent value for money to any of SASSA, the fiscus or the
South African public. The detailed analysis prepared by FTI Consulting
demonstrates that it is a very profitable contract for CPS having an
internal rate of return (on a conservative basis) of between 62% and
148% (depending on the assumptions which are made and whether the
calculations are based on CPS’s Financial Model which formed part of 5
its bid or NET1 UEPS Technologies Inc’s (“NET1”) (CPS’s parent
company published reports). Indeed, it appears that the Financial
Proposal made to SASSA by CPS contemplated an internal rate of
return of 120% compared to the average market related return in South
Africa in 2012 of approximately 13.5% (rounded up to 14%). FTI have
calculated that the bid submitted by AllPay would have cost SASSA
almost approximately R926 million less than the CPS contract. In those
circumstances it is clear that the perpetuation of the CPS contract –
which is designed to benefit CPS and its shareholders – cannot be in
the public interest.
10 Secondly, it is now clear from the Consulta survey and the various
affidavits filed by a number of beneficiaries that, despite the contract
being in place for nearly two years, the much vaunted biometric
verification system touted by CPS as the mechanism for eliminating
fraud (which was the basis advanced for excluding AllPay on the
application of Bidders Notice 2, and which SASSA proclaimed was a
central reason for choosing CPS over AllPay) is, in fact, not
operational. Not only is it confirmed (by the survey, by grant recipients,
Shoprite and a former CPS employee) that grants accessed through
ATMs do not require biometric verification of any sort, but so too
payments into bank accounts do not require biometric verification.
Payments at merchants equally occur without any form of biometric
verification (except in a small number of cases). In fact, certain cards
issued by CPS can be used without even having to enter a PIN code in 6
order to access the funds in question.
11 On 29 January 2014, the day before these submissions were due, and
while this affidavit was in the process of being finalised, SASSA
published an advertisement in certain newspapers (which I will discuss
further below). This advertisement confirms the fact that voice
verification is not currently taking place and suggests that SASSA and
CPS only now, almost two years into the contract, intend in the near
future to roll out some form of voice verification.
12 The timing of this announcement could hardly be coincidental, given
that it was published only a day before submissions were due and
nearly two months after the Court declared that the award of the tender
to CPS was unconstitutional, and in circumstances where AllPay made
enquiries, on 9 December 2013, to SASSA and CPS after the delivery
of the merits judgment, regarding whether biometric verification is
actually taking place..
13 It is therefore inconceivable that two years after the contract between
CPS and SASSA was concluded, what was feted as the lynchpin of the
CPS model, is only now being touted to be rolled out (and has still not
been implemented). It can only be assumed that this belated
suggestion that voice verification will be implemented, coming as it
does two months after the suspended declaration of invalidity and
where the Court has indicated that it will be considering appropriate
remedies, including the ordering of a fresh tender, has only now been 7
announced with a view to bolstering in some way CPS’s and SASSA’s
submissions as to why a fresh tender should not be ordered.
14 Moreover, it is clear that after failing to roll out voice verification for
almost two years, SASSA and CPS now suggest that CPS intends to
roll it out on no more than three days’ notice to beneficiaries. In this
regard it should be noted that the advertisement indicates that as part
of this sudden phased roll out, life verification by voice will be required
for “payment in February” (i.e. for the payments which will take place
at the beginning of February 2014, that is in 3 days after the
advertisement was first published) in respect of 1.5 million
beneficiaries. Beneficiaries who are too ill to be able to call, are
nevertheless somehow meant to appoint procurators in that same time-
frame, or face not being paid. Moreover, the advertisement indicates
that some beneficiaries have not even had their voices captured, thus
requiring them to attend at SASSA offices effectively to undergo a
further enrolment process, before they will be able to make use of voice
verification.
15 It appears inconceivable that, other than for some poorly considered
litigation strategy, SASSA (together with CPS) would seek to introduce
this requirement on three days’ notice to the relevant beneficiaries
(assuming that the beneficiaries would have seen the advertisement
which appears only to have been published in three newspapers).
16 The only inference that can be drawn is that SASSA has introduced 8
this requirement (with no notice) solely as part of its litigation strategy
and with no concern for beneficiaries. This approach is consistent with
the disregard which both CPS and SASSA have shown for the interests
of beneficiaries (as confirmed by the experience of Shoprite regarding
the large number of beneficiaries who access their grants at Shoprite
retail outlets). Evidently, SASSA and CPS are prepared to announce,
and attempt to implement (almost with no notice), a last minute and ill
thought out voice verification scheme, thus compromising the delivery
of social grants to beneficiaries, for no reason other than a belated
attempt to meet the criticism regarding the fact that voice verification
has not been rolled out (together with their failure to have drawn this to
the attention of the various courts that have considered the matter) and
perhaps as some ill-conceived attempt to bolster their argument that no
new tender should be conducted.
17 The absence of biometric verification in the day-to-day operations of
the social grant system administered by CPS points to serious flaws in
the current model which has been implemented, but it also calls into
question the weight which can be attached to submissions which are
made by CPS and SASSA. Not once in the course of these
proceedings did either SASSA or CPS alert any of the three courts
(including the Supreme Court of Appeal and the Constitutional Court),
which have dealt with the matter, to the fact that biometric verification
does not in fact occur (other than at cash pay points). To the contrary,
both SASSA and CPS have consistently sought to suggest that this 9
was and is the “unique” feature of the CPS model which distinguished it
from all other competing offerings. The position advanced was that the
distinguishing feature of the CPS tender was biometric verification
across the board. The fact that this is not happening in practice also
calls into question the price the fiscus, through SASSA, is currently
paying CPS for its solution, given that one would expect that biometric
verification formed part of CPS’s alleged costs in rendering the service
to SASSA.
18 Thirdly, it would also appear from the facts that are publicly available to
AllPay that beneficiaries are being very negatively affected by the
system of social grant administration which currently prevails, including
the fact that significant deductions are being made from grant
payments, including by companies which form part of the CPS holding
company, the NET1 Group. This has even led to SASSA taking out
advertisements in national newspapers to warn beneficiaries against
falling prey to scams and ambush marketing tactics via the use of
cellular phone technology by companies offering financial products
such as micro loans, insurance products and clothing accounts, which
companies claim to be working with or endorsed by SASSA.
Beneficiaries are advised not to utilise their SASSA payment cards as
security for loans and to purchase any financial services products other
than the one funeral policy deduction that does not exceed 10% of the
grant value, which SASSA has allowed in terms of applicable
legislation. Beneficiaries are further requested to report any SASSA 10
official involved in the sale or promotion of any products that require
payment by way of the SASSA payment card.
19 The supporting affidavit of a representative of the largest national
retailer, Shoprite, reveals the worrying state of the current social grant
system and the prejudice and hardships being suffered by beneficiaries
as a result.
20 In summary, the facts set out in this affidavit point to a severely
compromised and dysfunctional system, arising from and perpetuated
by a failure of proper oversight by SASSA, which is provided in terms of
a contract that is very lucrative to CPS and its shareholders. The facts
call out for an explanation from SASSA and CPS about why the public,
beneficiaries, and various courts were led to believe that a
comprehensive system of biometric verification was the hallmark of the
CPS solution, when the facts indicate that no such system is currently
in operation. The current state of affairs comes as little surprise to
AllPay. Given the defective manner in which the tender process was
conducted, SASSA opened the door to uncompetitive (and hence more
expensive) state procurement, and a solution that, despite the high
price being paid therefor, is not being provided – not to mention all the
attendant difficulties with the current system that are detailed in this
affidavit.
21 AllPay’s submissions will be guided by the following key principles: 11
21.1 The starting point of the remedial enquiry is that this Court
declared the awarding of the tender to CPS to be constitutionally
invalid (order 3). The Court’s declaration of invalidity was
premised, inter alia, on its finding that the tender process was
“entirely uncompetitive[,] …obviating any true, comparative
consideration of cost-effectiveness.”1
21.2 Second, this Court suspended that declaration for an express
purpose, in order to allow it to determine a just and equitable
remedy (see order 4). This provides the framework within which
the “remedies hearing” will take place.
21.3 Third, and allied to the second principle, is that section
172(1)(b)(ii) of the Constitution makes plain that a suspension of
invalidity (whatever its period may be) is meant for one purpose,
and one purpose only: “to allow the competent authority to
correct the defect”. The competent authority, or other party
seeking a suspension, bears the burden of justifying the need for
the suspension and its duration. However, the suspension of
invalidity should not be utilised to immunise the competent
authority from the need to cure the defect. A failure to require a
fresh tender or reconsideration of the tender in order to correct
the constitutional defects in the tender process, save in the most
exceptional circumstances, would have the following
consequences:
1 See para 85 of the Court’s judgment. 12
21.3.1 It would have a chilling effect on the judicial review of
tenders - tenderers would have little incentive to
undertake the costly, and lengthy process required to
challenge unconstitutional tenderers;
21.3.2 It would encourage laxity on the part of officials in relation
to ensuring that tender processes are fair and
competitive, since officials would be aware that even
manifestly unconstitutional and uncompetitive tenders will
be allowed to stand, even if they are successfully
challenged in court. Put differently, it would disincentivise
strict fealty to the requirements of the Constitution, the
Preferential Public Procurement Framework Act, the
Public Finance Management Act, and the Promotion of
Administrative Justice Act, thus opening the door to
uncompetitive state procurement, which not only denies
the state value for money, but in turn would exacerbate
the possibility of malfeasance and corruption.
21.3.3 In summary: a failure to require a constitutionally invalid
tender to be redone, by allowing it to stand despite its
invalidity, would be a failure to prioritise and insist upon
procedurally fair tendering. As this Court held in its merits
judgment: “insistence on compliance with process
formalities has a three-fold purpose: (a) it ensures
fairness to participants in the bid process; (b) it 13
enhances the likelihood of efficiency and optimality
in the outcome; and (c) it serves as a guardian
against a process skewed by corrupt influences.”2
21.4 Fourth, the interests of social grants beneficiaries must be
protected, including their right to the best social grants system at
the best price, awarded after a scrupulously fair and competitive
tender process. As appears from the detailed analysis which has
been performed (and which is discussed below), the contract
between SASSA and CPS is the product of an un-competitive
tender process – it is a contract which will result in significant
financial gain to CPS and the NET1 Group and does not
represent “value for money” to SASSA or the South African
public.
22 The four key principles should set the framework for this Court’s
analysis of the key facts which will be discussed more fully in this
affidavit. In summary those facts are as follows:
22.1 A new tender process, which includes a correction of the RFP in
light of the ambiguities found by this Court, and which allows
parties to retender or bid afresh, can be completed in
approximately 7 months.
22.2 After the announcement of the winning bidder, that bidder can
take over the payment of social grants from the incumbent
2 Para 27. 14
(assuming CPS were to be unsuccessful) within two months (or
two and a half months to allow two weeks for a new contract to
be concluded). As was provided for in the current RFP, the ability
to start implementing the solution after a short period of time can
be a requirement of the tender, which can be assessed during
the adjudication process.
22.3 The implementation of a new system, or the effective taking over
of the current system, pursuant to a new tender, can occur after
a new RFP is issued with a price cap, as was done in the current
tender (CPS’s price was just below the maximum price). Thus a
new contract entered into to distribute social grants for five years
would cost SASSA no more than it is currently paying CPS, and
may well save SASSA money, since a constitutionally compliant,
competitive tender process is more likely to lead to better priced
bids being submitted (not to mention a better service, since all
tenderers will be aware of what is required). Put differently, it
would result in SASSA obtaining a better model at a cheaper
price.
22.4 Expert evidence from Mr Harman (attached hereto marked
CW20) highlights that as an example of the potential cost-
benefits of a competitive tender, had AllPay’s tender been
accepted, SASSA would have paid approximately R926 million
less over five years. It is also unlikely that, in a competitive
tender, SASSA would have been able to award a tender to an 15
entity (such as CPS) which indicated in its Financial Proposal
that it wished to achieve an internal rate of return of 120% (and
this does not take account of other lines of revenue which
CPS/NET1 would derive from the SASSA contract). Mr Harman
of FTI concludes in relation to the anticipated rate of return of
120% that “the SASSA contract was expected to be highly
profitable, especially given the nature of this investment,
which is arguably low risk given that the revenues are
secured by a long term Government contract”. Indeed, it was
anticipated by CPS that by 31 January 2014, CPS expected to
generate positive cash flows of R 108 million (after allowing for a
return on capital and taking into account working capital and
excluding other lines of revenue associated with the SASSA
contract).
22.5 After a new tender process, it would be possible and technically
viable for the winning bidder to make use of the biometric and
personal information already captured by CPS and owned by
SASSA during the enrolment process, so that no new bulk
enrolment process would need to occur – thus minimising any
inconvenience to the beneficiaries. There are also a range of
technical solutions that would ensure that beneficiaries continue
to be paid in an uninterrupted manner while a smooth transition
to a new system is implemented. 16
22.6 Expert evidence shows that CPS/NET1, even on very
conservative assumptions (excluding a number of potential
additional lines of revenue), would by the end of October 2014
(at the latest – on the basis of its financial proposal, it would
already have done so during 2013) already have covered all of
its costs in implementing the tender, made a profit, and in fact, by
the end of any new tender process, would also have earned a
reasonable rate of return on its investments in implementing the
new tender. In other words, even if its contract were to come to
an end once a new bidder was in a position to take over pursuant
to a new tender process, CPS would be in a better financial
position than had it not been awarded the tender in the first
place.
22.7 The expert evidence also shows that CPS’s expected rate of
return on the full five-year contract (if it were allowed to stay in
place) would be between 62% and 148% (depending on the
assumptions used and whether the forecast rate of return in the
bid proposal is used or the publicly available information to be
found in NET1’s Financial Statements is used). The expert, Mr
Harman, considers that these rates of return indicate that the
contract does not result in good value for money for SASSA.
This can be demonstrated by the following simple example – on
the basis of an internal rate of return of 120% (which was
included in CPS’s financial proposal as part of the bid process), if
R100 were invested for a year, up to R220 will be earned at the 17
end of the year (R120 of which is profit). The high nature of that
return is clear when compared with the average market rate of
return in South Africa which in 2012 was 13.5%.
22.8 During any transition period (envisaged to be approximately a
nine and a half month period, being the period for a new tender
and hand over period), it is clear that it would make financial
sense for CPS to continue distributing grants and earning a
more-than-healthy return on its investment. In the circumstances,
AllPay does not believe CPS would realistically suggest that it
would or could refuse to perform under its current contract, if this
Court were to suspend the declaration of invalidity while a fresh
tender is undertaken. Even though it is not lawfully entitled to
walk away from the contract, should it nevertheless threaten that
it intends doing so, then emergency arrangements can be made
to ensure that beneficiaries continue to be paid. SASSA is given
emergency contract powers in terms of the Treasury
Regulations, and AllPay and its parent company ABSA have the
technical, financial, and human resources to ensure that
beneficiaries continue to be paid, should SASSA elect to contract
with AllPay, as part of any interim emergency solution.
22.9 The contract at issue is for the distribution of social grants on a
monthly basis. It is unlike a contract for a fixed project, such as
the construction of a bridge or airport, which has a definite end
point. The distribution of social grants is an on-going obligation 18
on SASSA that it will be required to fulfil every month,
indefinitely. While CPS’s contract currently ends on 31 March
2017 (which is in any event more than three years away), there is
the very real possibly that it may be extended. Firstly, the
contract between SASSA and CPS envisages that there may be
an extension. Secondly, prior to SASSA’s current contract with
CPS, AllPay’s, CPS’s, and Empilweni’s contracts to distribute
social grants were all extended (in increments) for an additional
five to eight years, without a new tender process by SASSA.
22.10 The current social grant payment system in place is far from the
perfect system suggested by SASSA and CPS before this Court:
22.10.1 First, despite it being trumpeted as the key feature of
CPS’s system, currently almost two years into the
contract, beneficiaries who receive their grants from
ATMs or merchants (through Point of Sale devices at the
till points) are not being biometrically verified on a
monthly basis – there is no fingerprint biometric
verification at the point of withdrawal, nor voice
verification prior to transfer of the grant into the
beneficiary’s account. It also appears that in some
instances, CPS has still not replaced its old NET1 cards
(which pre-date the current tender), which are not
interoperable and can only be used at retailers which
have rented the relevant terminals from NET1. 19
22.10.2 Second, there are a number of third-party reports which
indicate there are serious concerns about deductions
being made from beneficiaries’ accounts, sometimes by
companies that are, like CPS, wholly owned by NET1
(NET1’s and CPS’s CEO, is Serge Belamant). Moreover,
it also appears that all beneficiaries are being charged
bank fees for making ATM withdrawals, which, since their
cards are issued by Grindrod Bank which has no ATMs of
its own, are particularly high (there are always additional
charges for drawing cash from another bank’s ATMs). It
also appears that certain beneficiaries are being charged
when they withdraw money from point of sales devices at
stores. In this regard, a statistically sound survey of
beneficiaries by an independent research firm confirms
that 27% of beneficiaries are having money deducted
from their accounts, and that these deductions range
between approximately R10 and up to 90% of the grant
amount.
22.10.3 Third, retail stores are not equipped with the necessary
facilities for large numbers of grant beneficiaries to
receive their grants resulting in significant difficulties for
the beneficiaries and the stores, including that
beneficiaries are being forced to wait in queues for hours
to receive their grants. The model which has been
implemented by CPS has a very negative impact on 20
beneficiaries (and retailers) as appears from a detailed
supporting affidavit which has been provided by Shoprite.
22.10.4 Shoprite indicates that it accounts for approximately 50%
of payments of social grants through retailers and that the
CPS model leads to long queues as well as causing
instability in the payment processing system, resulting in
the system “going down” at peak times at the beginning
of the month when large number of beneficiaries attempt
to use their Grindrod Bank branded cards to access their
grants. This has an impact on other shoppers as well as
beneficiaries (including elderly and infirm beneficiaries).
22.10.5 Shoprite indicates that in the first few days of the month,
many of its stores have between 3,000 and 4,000
beneficiaries queuing to receive their grants and that
retail outlets are not geared up to deal with such large
numbers, especially elderly people and children. Not only
are there numerous practical consequences which arise
from the long queues in the shops (which have a negative
impact on beneficiaries, other customers and Shoprite
itself), but the need to have large amounts of money at
the beginning of the month available to pay beneficiaries
has also led to an increase in the number of robberies,
which also has a very negative impact on beneficiaries. It
would appear that CPS has effectively shifted the 21
operational requirements of paying the beneficiaries to
the major retailers, while CPS continues to extract
handsome profits from the very favourable agreement
which it has concluded with SASSA.
22.10.6 Lastly, there are on-going investigations by the US
authorities into the actions of NET1 in winning the tender
and whether it violated US anti-corruption legislation. This
has already led to the institution of class action lawsuits in
the United States, which has been instituted by
shareholders to obtain compensation in relation failure to
disclose the alleged violation of US anti-corruption
legislation.
23 In light of these principles, and given the facts (more fully developed
below) AllPay submits that the just and equitable relief that should be
granted is as follows:
23.1 In the circumstances of this case, fealty to the principle of legality
requires that the tender should be referred back to SASSA so
that a fresh tender can be undertaken to correct the irregularities
of the tender process that have been identified by this Court and
declared unconstitutional.
23.2 However, in order to ensure that there is no prejudice to
beneficiaries, the Court’s suspension of the declaration of
invalidity should be lifted only after a new tender process has 22
been completed and after the new winning bidder is given time to
take over the distribution of social grants. CPS should be allowed
and required to continue providing social grants in the interim in
terms of its contract with SASSA until the new tender process
has been concluded and the winning bidder is in a position to
take over. It will be submitted that if the declaration of invalidity is
suspended until the new winning bidder is in place, this will have
the legal effect of meaning that CPS is in any event bound by its
existing contract with SASSA until the declaration of invalidity
comes into force.
23.3 The Court should impose a specific period within which the fresh
tender should be completed to avoid unnecessary delay (subject
to the right to approach the Court to seek an extension of that
time period).
23.4 AllPay submits that while there may be a number of ways that
the errors identified by a court could be corrected in a new tender
process, given the nature of irregularities in this case, it would be
just and equitable to all participants in the process for the
following new tender process to be adopted:
23.4.1 SASSA should be given an opportunity to remedy the
ambiguities in the RFP in light of this Court’s merits
judgment;
23.4.2 The tender should be open to the public (alternatively, to
all parties that paid for the bid documentation in relation 23
to the initial RFP, regardless of whether they had bid or
not) to bid on the new amended RFP; and
23.4.3 The new tender should at least be for the same period as
the previous tender (being five years).
24 Lastly, it will be submitted that, given the facts in this case, there is no
other remedy that will adequately vindicate the public interest as well
as the interest of AllPay and the other tenderers if a fresh tender is not
ordered by this Court. It will also be demonstrated that the cost of
leaving the current system in place will far exceed the potential costs
associated with a new tender process.
25 It will also be argued that considerable scepticism should be accorded
to submissions made by SASSA and CPS. Not only have they failed to
provide AllPay with relevant information in order for AllPay to respond
fully to the Court’s directive, but it is also clear that they have not been
frank with the Courts throughout the litigation which progressed from
the High Court, through the Supreme Court of Appeal to this Court.
26 Another development which I wish to draw to the Court’s attention is a
recent approach to AllPay’s BEE partners by a certain Mr Mazwi Yako,
who is one of CPS’s prominent BEE partners. Mr Yako approached
some of AllPay’s BEE partners during January 2014 and proposed that
the matter before this Court should be resolved between the parties
before 10 February 2014 on the basis that SASSA pay AllPay an 24
amount equivalent to the profit which AllPay would have derived from a
24 month period of the contract. In exchange, AllPay would agree that
CPS could continue with the current contract and complete the duration
of the agreement. Accordingly to Mr Yako this proposal would have the
benefit of avoiding a new tender process which, in his view, could result
in neither CPS nor AllPay winning the tender as a result of renewed
competition from other bidders who may already have had sight of
AllPay and CPS’s tender proposals as a result of these court
proceedings. He also indicated that in the event that AllPay was
successful insofar as the Court ordered a new tender process that CPS
would then elect not to participate in any new tender proceedings but
instead would sue SASSA for the profits it would have derived from the
balance of the current contract particularly in circumstances where
CPS had already incurred all the capital costs of rolling out the new
social grant system.
27 AllPay advised its BEE partners that it would not entertain any such
proposals from CPS, which seemed to AllPay to run contrary to the
previous ruling of this Court on the merits of the matter and which, if
entertained by AllPay, could potentially undermine the rule of law and
the benefits that a new tender process would result in. Accordingly,
AllPay advised its BEE partners not to entertain any further discussions
from Mr Yako and wished to ensure that this approach is brought to the
attention of this Court.
25
Outline of this affidavit
28 In its order, this Court listed a number of issues in respect of which it
required the parties to provide factual information and written
submissions.
29 Those issues are as follows:
29.1 The time and steps necessary, and the costs likely to be
incurred, in the initiation and completion of a new tender process
for a national social grant payment system.
29.2 The time and steps necessary, and the costs likely to be
incurred, in the implementation of a new system after the tender
process is completed.
29.3 The just and equitable arrangements that should be made for the
continued operation of the payment of social grants until a new
system is implemented.
29.4 Cost implications for:
29.4.1 CPS if a new tender process is ordered and
implemented, and how these costs could be ameliorated
or offset; and
29.4.2 the state if a new tender process is ordered and
implemented, and how these costs could be ameliorated. 26
29.5 What would be in the public interest when determining a just and
equitable remedy.
29.6 Data and statistics on the implementation of the tender to date.
29.7 Whether CPS is under a public duty or is constitutionally or
otherwise obliged to assist in the transitional arrangements.
29.8 Whether there is any other remedy available to the applicant to
protect or enforce its private interests in the event that a new
tender process is not ordered.
29.9 Any other information considered relevant.
30 For ease of reference I will deal with these issues sequentially.
However, in doing so there is an inevitable amount of overlap in
relation to certain of the issues. I will therefore adopt an approach that
references the key facts and submissions without duplication.
INTRODUCTION: THE NATURE OF THE IRREGULARITIES
31 Before dealing with each of the issues identified by this Court, I briefly
set out certain general considerations that flow from the Court’s merits
judgment, in order to provide a framework in which to consider the
specific remedial issues raised by this Court.
32 I am advised that it is important when considering what just and
equitable relief to order, to consider the nature of the irregularities 27
identified by the Court,3 as one of the key purposes of such relief is to
ensure that the constitutional infringements are rectified.
33 There were two key findings by this Court in relation to the tender
process that has been declared invalid:
33.1 First, what SASSA required from bidders was unclear and
therefore the tender process was not able to elicit the best
solution at the best price.4
Secondly, the winning tenderer’s claim that its BEE consortium partners
would manage or execute 74% of the contract was never
assessed by SASSA prior to awarding the contract to them.5 In
other words, the winning bidder’s ability to perform the contract in
the manner suggested was not assessed.
34 Thus, the findings of this Court make it clear that the tender was
fundamentally flawed in two important respects that entirely nullify the
requirements of section 217 of the Constitution.
THE TIME AND STEPS NECESSARY, AND THE COSTS LIKELY TO BE INCURRED, IN THE INITIATION AND COMPLETION OF A NEW TENDER PROCESS FOR A NATIONAL SOCIAL GRANT PAYMENT SYSTEM
3 See para 45 of the merit judgment. 4 Para 85, the Court held, “The purpose of a tender is not to reward bidders who are clever enough to decipher unclear directions. It is to elicit the best solution through a process that is fair, equitable, transparent, cost-effective and competitive. Because of the uncertainty caused by the wording of the Request for Proposals and Bidders Notice 2, that purpose was not achieved in this case.” 5 Para 72. 28
Introduction: the nature of a new tender process
35 AllPay submits that a new tender process should be ordered by this
Court in order to correct the previous tender process that has been
declared unconstitutional. Therefore, in considering the practical
implications of initiation and completion of a new tender process the
starting point must be the material irregularities identified in respect of
the previous tender by this Court.
36 As discussed previously, the merits judgment makes it clear that the
RFP and Bidders Notice 2 had particular and significant ambiguities in
relation to what precisely was required from bidders regarding
biometric verification, particularly in relation to how often and in what
instances it was obligatory. This created uncertainty on the part of
bidders and adjudicators alike. This may have led to certain bidders
withdrawing.6
37 This finding has a number of important implications for how a new
tender process is undertaken.
38 First, it appears evident that in a new tender process SASSA would
need to make amendments to the RFP to clarify the issues identified by
this Court.
6 See fn 97 of the merits judgment. 29
39 Second, it might be suggested that since AllPay and CPS were the
only two tenderers that were shortlisted after the technical evaluation
(albeit as against the ambiguous RFP), only they should be allowed to
be part of the new tender process. However, AllPay submits that this is
not a just and equitable outcome. The just and equitable way to correct
the constitutionally defective tender is to re-open bids from the public
(or at the least all those bidders who originally requested and paid for
bid documentation). This is because the ambiguity in the RFP, and
indeed the further ambiguity created by Bidders Notice 2, may well
have led to certain parties withdrawing and potentially it could have led
to the unfair lowering of scores of other bidders (since, as the Court
found, the adjudicators themselves were uncertain as to the true
criteria). Moreover, there is always the possibility that bidders (or
potential bidders) other than AllPay would have offered better solutions
had what SASSA wanted been made clear by the RFP. In other words,
a competitive tender process which complied with the requirements of
section 217 may have resulted in SASSA obtaining a better social
grant payment model at a much reduced price.
40 Third, all bidders should be entitled to submit fresh bids in relation to
the amended RFP. That is so for the following reasons:
40.1 First, this is because once the RFP is properly amended, bidders
would need to craft their bids in relation to the new clarified bid
terms. Bidders would be disadvantaged if their previous bids are 30
judged against the amended criteria; particularly when the
previous tenders were drawn up to meet unclear requirements.
40.2 Second, the Court also found, in particular, that CPS had failed
properly to give sufficient information in relation to its black
economic empowerment partners who it alleged would undertake
74% of the work. It appears that if CPS were forced to have its
current bid adjudicated again this may well mean that it would be
“knocked out” because, as this Court has already found, CPS
has not furnished enough information as part of its bid.
40.3 Third, assuming that bids are allowed from those parties who
paid for the bid documentation but elected not to submit a bid,
given the ambiguity in the RFP, if bidders who had previously
submitted bids were prohibited from amending their bids, the new
bidders would be at an advantage, since they would be allowed
to prepare their bids in light of the amended RFP (since they had
not submitted any previous bids), whereas other bidders like
AllPay would be held to its current bids (prepared without sight of
the amended RFP). It is submitted that this process would not be
fair or comply with the principles of section 217.
41 To summarise: it is AllPay’s submission that, given the nature and
materiality of the irregularities found, the only practical just and
equitable remedy would be one that requires a fresh tender process,
with a revised RFP, and with prospective bidders allowed to submit
fresh tenders accordingly. 31
42 AllPay accepts that it may be fair that only those parties who
considered bidding in the previous tender by paying the necessary fee
and requesting the bid documentation should be allowed to bid in the
fresh tender process. Nevertheless, AllPay submits that to avoid any
uncertainty, or suggested prejudice from any third parties, it would be
best for this Court to order a fresh tender process without prescribing
who may bid.
The time and steps necessary for a new tender process
43 As already stated above, it is AllPay’s submission that in any order for
a fresh tender process, SASSA should be ordered or allowed to clarify
its current RFP. This submission by AllPay assumes that the current
RFP and its objectives should be retained but that clarification and
amendment can occur in order to avoid any uncertainty as to the type
of biometric verification required and the instances in which it will be
required and whether it is only a preference or a mandatory
requirement.
44 The fact that SASSA would simply be amending the current RFP under
guidance of this Court’s judgment, means that this should significantly
reduce the time taken to prepare a clarified RFP. Indeed it is AllPay’s
submission for the reasons set out below that such a clarification of the
RFP and amendment can be achieved by giving SASSA no more than
two weeks to prepare proper amendments to the RFP so as to avoid
any ambiguity in relation to the areas identified by the Court, in 32
particular biometric verification and how and when it is required. Such a
shortened time frame is furthermore appropriate in light of the fact that
SASSA has been aware since early December 2013 when this Court
issued its judgment that the RFP would in all likelihood require
clarification – it would have been irresponsible for SASSA not to have
taken any steps to begin the process of clarification, and any failure by
it to do so could never be an excuse for further delays beyond a
maximum of two weeks for clarification to be effected to the RFP.
Previous tender as a model in relation to time taken
45 While it is not certain what facts SASSA will provide in relation to the
time it envisages for holding a fresh tender process, the time-frames
involved in the tender that has now been declared invalid by the Court
provide a useful indication of the likely time-frames and necessary
steps to be taken. If anything, AllPay submits that the process could be
dealt with even more expeditiously than was the case in the “first
round”.
46 The record confirms the following in relation to the timeframe taken for
the tender process that has been declared invalid by this Court.
46.1 First, the original RFP was published on 15 April 2011,7 with a
deadline for submission of bids by 27 May 20118 (this was later
extended, due in part to the publication of further notices, in
7 Record 1:40, FA para 71; Record 1:49, FA para 93; Record 1:87- 170, FA CW5. 8 Record 1:49, FA para 93. 33
particular Bidders Notice 2, to 27 June 2011).9 This means that it
takes approximately 1.5 months in the usual course from
publication to submission.
46.2 The bid evaluation process before the BEC lasted from 27 June
2011 to 8 November 2011. 10 That is a period of just over 4
months.
46.3 The BAC received the BEC’s report and made its final
recommendation on 25 November 2011. That was a period of
approximately 3 weeks from the date on which it first met.
46.4 For some reason, the BAC report was only presented to the CEO
of SASSA for consideration on 27 December 2011. 11 During
December 2011, the consent of the Minister of Social
Development was also obtained,12 although a formal letter was
only addressed to CPS on 17 January 2012.13 It seems that from
the time that the CEO received this letter in the middle of the
holiday season, the process took a little over 2 weeks. AllPay
suggests that outside of the festive season this process would
probably take no more than 1 week.
9 Record 1:54, FA para 110. 10 Record 10:1634-1637, BAC Report, BAC Process; Record 10:1675 Minutes meetings of 8, 9 and 25 November 2012. 11 Record 3:381, SASSA FAA para 42. 12 Record 3:382, SASSA FAA 3:382. 13 Record 10:1653-1654. 34
47 The above indicates that from the time of publishing the RFP to the
time of advising the winning tenderer, the entire process should
normally take (if the previous tender is used as a guide) no more than
six and a half months and a total of seven months, if two weeks are
allowed to revise the RFP.
48 AllPay submits that the steps taken in the previous tender are the
appropriate steps that would need to be taken in a new tender process.
These steps are thus capable of being completed in 7 months or less.
49 There is no reason to believe that a fresh tender process would not be
completed within this timeframe. Below, AllPay will set out its basis for
submitting that the taking over of the payment of social grants, after a
fresh tender, can be completed expeditiously.
50 Given the need for speed, and the particular importance of this tender
to the government’s constitutional obligations, it is submitted that it will
be important for the reconsideration to be performed as quickly as
possible, and preferably with this Court setting the time-frame (with the
possibility of an approach to the Court to extend the time frame on
good cause shown).
Costs of a new tender process
51 The costs that would be incurred in holding a fresh tender will, I
assume, be furnished by SASSA. 35
52 However, it should be noted that, as with the previous tender, bidders
would probably be required to pay a fee in order to receive the tender
documentation and bid. In the previous tender the RFP required a non-
refundable payment of R20 000 per bidder.14 This should offset any
costs of redoing the tender on SASSA’s part.
53 Secondly, any consideration of the costs would need to be viewed in
light of the benefits of a new competitive tender, which this Court has
accepted leads to facilitation of the state acquiring the best solution at
the most competitive price.
54 Thirdly, whatever cost SASSA must bear in redoing an unconstitutional
tender process, is the cost that flows from the requirement that organs
of state comply with the statutory and constitutional law framework
which governs their activities.
THE TIME AND STEPS NECESSARY, AND THE COSTS LIKELY TO BE INCURRED, IN THE IMPLEMENTATION OF A NEW SYSTEM AFTER THE TENDER PROCESS IS COMPLETED.
Background facts
55 In order properly to assess the practical implications of implementing a
new system, it is important to first set out, for this Court’s benefit:
55.1 The time taken by CPS to take over the provision of social grants
after winning the last tender;
14 RFP, section B, clause 4, Record 1:129. 36
55.2 The nature of the current system that is currently in place and
that would be replaced, or be taken over, as opposed to the
system which was promised; and
55.3 The nature of the information that has been captured under the
current tender, which SASSA would be able to provide a winning
bidder.
Time taken to take over payment of social grants by CPS
56 The current tender has shown that it is more than possible for a new
party to take over distribution of social grants in multiple provinces with
no or minimal disruption to the provision of social grants to the public
and that this transition can be achieved relatively quickly.
57 The record shows that CPS was able to take over the distribution of
social grants in all provinces (4 of which it had not previously operated
in) in approximately 2 months (or 2.5 months, if two weeks are allowed
for the conclusion of a contract).
57.1 Before being awarded the tender, CPS was the incumbent
service provider only in respect of the following provinces: North-
West, Limpopo, Northern Cape, Kwa-Zulu Natal and a part of the
Eastern Cape (distributing grants to approximately 3.2 million
beneficiaries – less than a third of the national total);15
15 Record 5:783, CPS SAA para 13. 37
57.2 The awarding of the tender was announced on 17 January
2012;16
57.3 SASSA and CPS only signed the service level agreement on 3
February 2012;17
57.4 CPS started distributing social grants to over 10 million
beneficiaries in all provinces on 1 April 2012;18
57.5 This short-time frame is not surprising since under clause 14 of
the RFP, Section B, headed “Conditions for Acceptance”,
(below which it reads “These conditions are non-negotiable
and Bidders are required to sign acceptance thereof”), an
even shorter time frame is envisaged in sub-clause 14.11, which
provides that:
“The Successful Bidder/s must be available to start within
30 (thirty) working days after the date on which the contract
is signed by both parties.”19
57.6 There is no reason why similar requirements in relation to being
able to take over the payment of the social grants (assuming
CPS is not successful) should not be made one of the conditions
of a fresh tender, such as the ability to start providing the service
approximately two months (or, even, 30 working days) after
16 SASSA Announcement, 17 January 2012 (CPS IAA, Annexure “SB1”) Record 1:285. 17 Record 2:291, SASSA IAA para 17. 18 Record 2:294, SASSA IAA para 27. 19 Record 1:133. 38
entering into a contract and this could be assessed through the
tender process.
58 All told, the previous tender makes it clear that if this Court were to
order a fresh new tender process that is open to all bidders, the entire
tender process from the amendment of the RFP to the complete hand-
over to the winning tenderer should be concluded in not more than 9.5
months.
The current system: Biometric verification
59 SASSA (and CPS) have always maintained that the key feature of
CPS’s proposed solution, and which allowed it to meet what SASSA
ultimately interpreted Bidders Notice 2 to require, was that it offered a
biometric verification system which allowed for biometric verification
prior to each payment. In particular, it was stressed that the CPS
system permitted of voice verification of banked beneficiaries prior to
funds being paid into the beneficiaries’ accounts.20
60 For instance SASSA’s Supplementary Answering Affidavit makes it
clear that the contract was awarded to CPS on the basis that a central
part of their solution was that:
“Additionally and importantly, the solution [offered by CPS]
20 See eg CPS’s Answering Affidavit page 251, paragraph 34; page 256, paragraph 38.6; pg 382, para 42.4]; CPS’s answering affidavit in this Court, page 7608, paragraph 11.1. 39
provides for biometric verification at all stages when payment is made to the beneficiary. By biometric verification is meant finger and/or voice recognition at the payment stage.21
…
“CPS on the other hand provided for biometric verification at least once a month.”22
61 This was also made clear in the BAC Narrative Report, which said:
“In their oral presentation, CPS confirmed that all grant payments (irrespective of whether cash or electronic) would be biometrically verified each time payment was made.”23
62 Indeed, as counsel for SASSA informed the High Court at the hearing
of this matter in relation to what solution CPS had offered and why this
was important:
“The idea was to identify a person by taking his palm print and 10 finger prints but then again a person will die if you are only going to verify that every year then a person can die and some spook can draw on that benefits being awarded for the whole year. Various solutions were suggested but what CPS came up with was this. It said that in addition to the fingerprint verification they have a voice verification. Now in this age of technology it is so that you can even, if you have a cold or you are hoarse or something the machine will pick up your voice and will identify it like they will identify your finger prints or...... the system whereby you phone in to a number, toll free number and you say who you are, you[r] voice get[s] recognised and then you get clearance to pay and you do that every month so that there is a monthly biometric verification of the beneficiary and that the beneficiary is alive and the beneficiary is the one who is going to - who has got
21 Record 5:722, para 16]; 22 Record 5:732, para 49.2]; 23 Record 1517. Furthermore, the BEC minutes show the following (7 October 2011): “Dr Belamant confirmed that biometric verification was required before each grant payment. This he said could be done at cash pay points on the day of payment or prior using any of the biometric verification options available to a beneficiary such as voice recognition, thereafter the beneficiary could access their grant at any payment channel.” Record, pg 1759 40
the bank account and then you can pay into that bank account of that person who has identified himself or herself by speaking to your machine. That is and there are lots of other features but that is the key feature.”24
63 I attach a copy of the relevant pages of the transcript from the High
Court as annexure CWF1.
64 Moreover, before this Court, CPS’s counsel stated in their written
submissions that: “The SCA rightly held that, on the undisputed
facts, CPS provided for biometric verification of all payments
(including all electronic payments), while AllPay did not do so in
regard to electronic payments. Consequently and regardless of
whether biometric verification was considered a preference or a
requirement, CPS would have been the preferred bidder.”25
65 Furthermore, before this Court, CPS said on affidavit that, “Since the
award of the tender to CPS, from 1 April 2012, CPS has
successfully implemented the system it proposed”.26
66 The facts now reveal that two years into the new contract, what was
touted in this litigation as the hallmark of CPS’s success, being
biometric verification of banked beneficiaries by way of voice
verification, has not in fact been implemented – as discussed below, it
was only on the eve of this affidavit being filed that the first indication
24 Pg 105-6 of the Transcript. 25 CPS’s Constitutional Court Heads Para 26, pg 8. 26 Page 7926, paragraph 16. 41
was given that voice verification may be implemented in the future. In
these circumstances it is deeply concerning that, CPS could say to this
Court on affidavit that it has successfully implemented the system. In
addition, it is also clear that there is no biometric verification taking
place in relation to most beneficiaries who withdraw their grants from
merchants such as Shoprite or Pick ‘n Pay or through ATMs.
67 In particular, in preparing these submissions it has become clear from a
variety of sources (which are detailed below), that in respect of
beneficiaries who receive their grants either by drawing their money
from ATMs or accessing their money from point of sales devices at
merchants such as Shoprite or Pick ‘n Pay, they are not required to do
voice verification or (with the exception of the old NET1 cards in certain
provinces) any type of biometric verification at all prior to grants being
transferred into their accounts, or prior to withdrawing their grants from
ATMs. Similarly, beneficiaries are able to receive their grants from
vendors (that is shops) by means of point of sale devices with only the
use of their PIN codes, and without the need for any monthly biometric
(including voice) verification prior to or at the time of receiving their
grant. What is even more concerning is the fact that certain cards
which have been issued by CPS do not even require the entry of a PIN
number and any person in possession of the card in question can
access the grant by presenting the card to a teller.
68 That this is indeed the position is clearly articulated in a beneficiaries’
guide recently published by SASSA itself. I refer in this regard to the 42
document titled, “You & Your New SASSA Payment Card”, published
by SASSA on September 2013, and available on its website (“the
Guide”).27 I attach a copy marked CWF2 for ease of reference.
69 The Guide confirms the following:
69.1 There is no voice verification, or other biometric verification, prior
to transfer into a beneficiaries’ account or withdrawal from an
ATM (see pages 1, 2 and 5, under the heading “Where can I use
my SASSA payment card?”). In particular, the following is
stated:
“Your SASSA Payment Card can be used from the first day of the month at either a conventional Cash Pay Point or at a participating payment vendor (such as Boxer, Pick & Pay, Checkers, Shoprite, Spar) or at an ATM.
….
If you proceed to an ATM you will insert your card into the card slot/opening – where after you will be prompted to key in your secret PIN, select the type of bank account you have (which in this instance is a Savings Account). Next, you will be prompted to type in the amount you wish to withdraw. The money will be dispensed by the ATM.”
70 When receiving payment from shops (vendors) using Point of Sale
devices a PIN code can be used in the alternative to the biometric
fingerprint verification. In particular on page 4 it is noted that:
See http://www.sassa.gov.za/index.php/knowledge-centre/category/2- publications?download=163:sassa-card-dl-booklet-sep-2013, last accessed on 30 January 2014. 43
“Should you opt to go to a participating payment vendor (such as Boxer, Pick & Pay, Checkers, Shoprite, Spar) proceed directly to the cashier and request payment – you can determine the amount.
Should you wish to withdraw, provided it does not exceed the amount which is available on your card. The cashier will swipe your card at the electronic funds transfer (EFT) device and request you to place your finger on the biometric scanner or key in your secret PIN on the EFT device. If the PIN is found to be correct the cashier will be able to process payment of your grant money.” (emphasis added)
71 The ability to access grants with only a PIN code at ATMs and from
vendors using Point of Sale devices is emphasised by the Guide, which
states that:
“Your PIN code is the 4-digit number that you choose when you first received your SASSA Payment Card. Your PIN must be kept secure (a secret). Do not share your PIN with any other person – because they can then use your card and draw your money.” (pg 7) (emphasis added)
72 AllPay has also commissioned Consulta Research (Pty) Ltd
(“Consulta”), which is affiliated to the University of Pretoria, to conduct
an independent survey amongst grant recipients to determine the
extent to which voice verification is being used. Out of a representative
sample of 599, only two beneficiaries suggested that SASSA (with the
current CPS system in place) performs voice verification on a monthly
basis. Put differently, of those who mentioned voice verification as a
form of verification, 99% indicated that the money was paid into their
accounts on a monthly basis without any form of voice verification. A 44
copy of the Consulta Report and an affidavit from Professor Adre
Schreuder of Consulta is attached marked CWF3.
73 AllPay has also obtained an affidavit from a former AllPay employee,
Mr Louis Nel, who headed CPS’s Bethlehem branch from 31 March
2012 to 25 February 2013, when he left the employ of CPS. A copy of
Mr Nel’s affidavit is attached marked CWF4.
74 In addition to the survey and the affidavit from Mr Nel, AllPay has also
obtained affidavits from several pensioners in Bloemfontein. Copies of
these affidavits have been attached marked CWF5.
75 Lastly, AllPay has obtained an affidavit from Mr Carel Goosen, the
Deputy Managing Director and Financial Director of Shoprite Holdings
Limited (“Shoprite”). I attach a copy of his affidavit marked CWF6, and
ask that it be read as if specifically incorporated herein.
76 What appears clearly from these affidavits is the following:
76.1 While grant recipients’28 and beneficiaries’ biometric data (being
finger prints and voice) were captured during enrolment, grant
recipients and beneficaries are not required to perform voice
verification on a monthly basis.
28 According to the RFP (Record 1:121), a grant recipient is a beneficiary, a primary care giver, or a procurator who receive a grant on behalf of another. 45
76.2 Where the beneficiary elected to receive the grant into his or her
existing (or non-Grindrod Bank) bank account, the beneficiary
was required to make a call to a CPS call centre to inform CPS of
this election. After this call is placed, the money is paid into the
bank account on a monthly basis without the need for any further
telephone calls. The beneficiary in question will access the
money in the account in the normal manner in which account-
holders access their money at a banking institution including by
drawing the money from an ATM after entering a PIN code into
the ATM.
76.3 Where the beneficiary did not elect to receive the grant payment
into an existing bank account and simply uses the SASSA card
(being a MasterCard issued by Grindrod Bank) to access the
grant, there is also no requirement to make a telephone call on a
monthly basis. Put differently, according to these affidavits, there
is no voice verification taking place on a monthly basis in relation
to beneficiaries who have elected to have their money paid
directly into a bank account.
76.4 If the beneficiary accesses the account in question by way of a
withdrawal from an ATM, there is no requirement to perform any
form of biometric verification at the ATM (or prior to withdrawing
the money from the ATM). The only requirement is that the
beneficiary should enter his or her PIN code into the ATM. 46
76.5 The pensioners’ affidavits indicate that for them the procedure to
access money at a teller in a retail outlet or merchant store is
very similar. The beneficiary (or his or her representative) will
give the SASSA card to the teller at the merchant, who will insert
the card into a point of sale device. The beneficiary will then
enter the PIN code into the point of sale device and will then
receive the money from the teller. The beneficiaries confirm that
at no stage during the process do they currently have to scan
their fingerprints at the point of sale nor do they have to provide a
sample of their voice before they are able to receive their grants.
In fact, certain of the beneficiaries have indicated that because
they are too frail to go to an ATM or retailer, their children will
draw the money for them by using their SASSA card and PIN
code.
77 Mr Goosen from Shoprite, has also indicated in very detailed terms the
major flaws in the current social grants payment system implemented
by CPS in relation to verification. He also highlights a number of
significant operational difficulties arising from the CPS system which I
will discuss further below:
77.1 The biometric verification proclaimed by CPS (and SASSA) as a
feature of its system is not generally required before beneficiaries
are able to draw funds from point of sale devices.
77.2 There are four separate types of card in issue, which causes
considerable confusion for grant recipients and also for Shoprite 47
staff. This does not meet the RFP requirement of “sameness” of
experience and also increases the risk of fraud.
77.3 In addition, CPS continues to use (in the provinces where it
previously held the contract to provide social grant payment
services) its old NET1 payment cards which are not interoperable
with the banking system and can only be used at retailers which
have rented self-standing terminals from NET1.
77.4 Certain cards have been issued without PIN codes and thus
since biometric verification is not required at point of sales
devices, these cards can be used to withdraw money at tills by
anyone who is in possession of them even without having to
enter a PIN code.
78 Mr Goosen also indicates that the payments processing system for the
SASSA branded MasterCard cards (issued by Grindrod Bank) creates
significant instability at the beginning of the month and leads to the
system “going down” which has a negative impact on beneficiaries as
well as other shoppers.
79 In light of these revelations, it appears that a serious question mark is
raised regarding that which was submitted before this Court by SASSA
and CPS in respect of their current system. SASSA as an organ of
state bears particular constitutional obligations to be open and frank in
litigation in which it is involved. It appears that it has not been frank with 48
the courts which have been tasked with assessing this matter, including
this Court.
80 AllPay's concerns regarding the fact that despite the contract having
been in place for almost two years, no biometric verification is taking
place at all in relation to banked beneficiaries, beneficiaries who
access their grants through ATMs and points of sale at retailers has
now been unequivocally confirmed by an advertisement which was
placed on 29 January 2014 (the day before these submissions were
due to be filed). A copy of this advertisement has been attached
marked CW7. I can confirm that the advertisement appears in only
three newspapers (I understand that the advertisement was only
“booked” with the newspapers on 28 January 2014), and was placed
on SASSA’s website during the course of 28 January 2014, but was
not displayed prominently, but rather it could only be accessed by
scrolling through the main screen menus and having regard to the
advertisements section (there is nothing on the main screen to indicate
that a new advertisement had been added to this section).
81 The advertisement is entitled “PROOF OF LIFE CERTIFICATION
THROUGH VOICE ACTIVATION FOR BENEFICIARIES UTILISING
PIN CODES TO ACCESS THEIR SOCIAL GRANTS”.
82 The entire tenor of the advertisement makes it plain that there is
currently no compulsory biometric verification for persons accessing
their grants from retailers at point of sale devices or ATMs, and in 49
particular that currently no voice verification is occurring, and is only too
be implemented in the future. This is entirely consistent with what
AllPay has learned from the various sources set out above, include, in
particular, Shoprite.
83 In this regard, the advertisement provides, inter alia, as follows:
“Voice activation will be conducted in two Phases. Phase 1
will be targeting 1,5 million beneficiaries, who access their
grants using a PIN Code. An SMS message will be sent to
beneficiaries in order to activate voice to enable payment in
February 2014.
Phase 2 will be implemented in March 2014 for all
beneficiaries utilizing Pin codes.
If you did not receive an sms do not panic as your grant will
still be paid.
Beneficiaries that have received an sms but are unable to call
due to ill health must appoint a procurator.
Home visits will be conducted where the procurator and
beneficiary must be present for the voice recording of the
procurator. 50
Beneficiaries that are using PIN codes but voice was not
recorded must please visit the nearest SASSA office for your
voice to be recorded.”
84 This advertisement puts the matter beyond doubt - despite the
impression which has been created by SASSA and CPS in three
courts, including this Court, that every payment of a grant is preceded
by biometric verification and in the case of beneficiaries who access
their grants from ATMs or at point of sales devices, by voice
verification, no voice verification has to date in fact been performed by
CPS at all (as explained in this affidavit, it is also clear that no biometric
verification is occurring in relation to withdrawals from ATMs or at
points of sale). This alleged aspect of the CPS model has throughout
these proceedings been touted as the central feature of the CPS
model.
85 Given the enquiries which AllPay has been making in relation as to
whether biometric verification has been taking place (other than at cash
pay points), including letters which were addressed to SASSA and CPS
on 9 December 2013 (following the merits decision of this Court), which
will be discussed in more detail below, I do not believe that it is
coincidental that this advertisement was placed on the day before
these submissions were due. I believe this was done in a belated effort
to address this obvious issue, so that they can, try to convince this
Court that voice verification will be rolled out in the near future. 51
86 It is inconceivable that two years down the line, what was indicated to
be the central feature of the CPS model is only now, two months after
the suspended declaration of invalidity and in circumstances where the
Court has indicated that it wishes submissions to be made about a just
and equitable remedy, with virtually no prior notice to any party
(including Shoprite) being rolled out. As mentioned in the introduction,
it can only be assumed that this belated suggestion that voice
verification will be implemented, coming as it does two months after the
suspended declaration of invalidity and where the Court has indicated
that it will be considering appropriate remedies, including the ordering
of a fresh tender, has only been announced with a view to bolstering in
someway CPS’s and SASSA’s submissions as to why a fresh tender
should not be ordered.
87 There is also a significant concern that the advertisement has been
placed solely for the purposes of avoiding the obvious inferences which
will be drawn from the fact that for nearly two years of a five year
contract, CPS has not been offering biometric verification on any
meaningful scale, despite failing to ever draw this to the Court’s,
attention, including the High Court and the Supreme Court of Appeal.
88 The scant details as to how this belated phased roll out of life
verification by voice is to be implemented is also telling:
88.1 The advertisement makes it clear that for 1.5 million beneficiaries
they will be required to be voice verified for “payment in 52
February” (i.e. for the payments which will take place at the
beginning of February 2014, that is 3 days after the
advertisement was first published);
88.2 beneficiaries who are too ill to be able to call, are somehow
meant to appoint procurators in that same time-frame, or face not
being paid their grants;
88.3 certain beneficiaries, have not even had their voice captured, so
they will now need to go through a further enrolment process to
be able to receive their grants.
The ownership of biometric and other enrolment data
89 Regarding the time and necessary steps for implementing a new
system, I respectfully point out a number of important aspects which
will ensure that there can be a smooth and speedy transition to a new
service provider if this Court orders SASSA to implement a new tender
process.
90 First, in terms of the RFP "all enrolment Data is the exclusive
property of SASSA ... This Data must be made available to SASSA
at any time SASSA requires it."29
29 The RFP, section C, clause 3.1.17, Record 138. 53
91 This is also made clear by the service level agreement and the contract
entered into between CPS and SASSA, pursuant to the tender (which
have been attached marked CW8 and CW9, respectively).
92 The contract makes clear that “All Data kept and held by the
Contractor for the purpose of rendering the Services is and shall
remain the sole property of SASSA, and the Contractor shall,
when requested, provide the Beneficiary information to SASSA.”30
93 The “data” clearly means all the beneficiaries’ information, including
biometric information, since in terms of the contract,
“"Data" means the information (including Biometrics) of
Beneficiaries obtained by the Contractor through the execution of
the Agreement;”31
94 The service level agreement further makes clear that:
“12.1 All Data obtained by the Contractor in order to provide the
Services shall be stored and maintained by the Contractor on a
separate and distinct information technology database which
shall be SQL compliant.
30 Clause 10.2 of the Contract. 31 Clause 2.1.11. 54
12.2 All Payment records, Data and Biometric Data shall remain
the property of SASSA, and may not be altered or disposed of
without prior approval of SASSA.”
95 On the assumption that SASSA and CPS have complied with the terms
of the service level agreement, the contract and the RFP, this
information would be provided by SASSA to the new winning tenderer.
This would allow them to transfer the beneficiaries onto a new system
without the need for bulk enrolment, since all the biometric data of
beneficiaries, as well as other information, would already have been
captured and made available to SASSA.
The time and step necessary to implement a new system after a fresh tender
The capacity of AllPay to take over in a short timeframe
96 As already indicated:
96.1 in the past tender under review, CPS was able to take over
payments across the country within approximately two months of
signing the contract with SASSA and the contract was concluded
within two weeks of the announcement of the winning tenderer;
96.2 the RFP made it a requirement that “[t]he Successful Bidder/s
must be available to start within 30 (thirty) working days
after the date on which the contract is signed by both 55
parties”.32 Thus, the ability to be able to take over the payment
of social grants expeditiously can be a stated requirement of the
tender once again. This would be a requirement of the tender
and thus SASSA’s own bid adjudicators (with the requisite
technical expertise), will assess tenderers’ abilities to deliver on
this. Only a tenderer that confirms that this is the position will be
successful in the tender.
97 In AllPay’s experience as a social grant distributor (in multiple
provinces) for many years, together with ABSA, its parent company, it
believes that if it were to be awarded a fresh tender, it would be able to
match or improve on the time taken by CPS, and would in fact be able
to minimise any inconvenience to beneficiaries.
98 I pause at this moment to re-iterate that AllPay is a wholly owned
subsidiary of ABSA Group Ltd (which has recently changed its name to
Barclays Africa Group Ltd). For the sake of convenience I will continue
to refer to the group as “ABSA”.
99 ABSA is one of South Africa’s and Africa’s major financial services
providers offering personal and business banking, credit cards,
corporate and investment banking, wealth and investment
management. ABSA is also the largest acquiring bank in South Africa.
This means that it provides the banking facilities at merchants or retail
outlets to allow them to process card transactions on point of sale
32 Clause 14.11 56
devices. It is the acquiring bank to almost twice as many merchants as
its nearest competitor. It therefore has significant expertise in
processing payments, including cash withdrawals, at point of sale
devices throughout the country.
100 In particular, compared to the current service provided by CPS and
Grindrod, ABSA has a much larger footprint of direct and indirect
access points that beneficiaries could benefit from. AllPay, through
ABSA, has direct access to infrastructure and an operational
knowledge base to rebuild the operations required to fulfil the solution
in urban and rural areas. This includes:
100.1 direct access to 6,500 ABSA ATMs;
100.2 ABSA’s provision of card-acquiring services to over 80% of all
the major retailers in South Africa; and
100.3 ABSA also has an extensive branch network (with approximately
850 branches) across South Africa.
101 This positions AllPay ideally to extend service through this footprint.
102 ABSA has already been integrally involved in ensuring that SASSA
cardholders are able to draw their grants from shops under the new
CPS system. As part of CPS’s new system some 10 million
MasterCard bank cards were issued to grant recipients. This allowed
them to draw money from shops at point of sale devices. It is ABSA’s 57
duty to process these transactions in its capacity as the major acquiring
bank in South Africa. The massive increase in the number of these
transactions, due to the implementation of the new system, led to the
current infrastructure at retail outlets being put under significant strain
(as discussed in detail by Mr Goosen, and referred to above). This is
something that CPS had apparently failed to cater for itself.
Nevertheless, ABSA, in its capacity as the acquiring bank, worked with
MasterCard and the retail outlets to ensure that capacity to process
these transactions (from a technical and infrastructural point of view)
was increased.
103 AllPay has always operated with the full involvement and backing of
ABSA, and would continue to do so in any fresh tender process. A
confirmatory affidavit of Arnold Rautenbach, the Head of ABSA Retail
Banking South Africa, will be filed together with this affidavit.
The options available for the expeditious implementation of a new system after the tender
104 As noted above, CPS was able to take over the current payment of
social grants within two months after being awarded the tender
(although, as discussed above, it now appears that it has not
implemented the full system it proposed). 58
105 In this section, I will provide some details from AllPay’s perspective
about the steps and time necessary to implement a new system, were
it to be successful in a new competitive tender.
106 I have been advised that the assessment of AllPay’s and Absa’s
technical expertise in relation to facilitating a smooth, expeditious,
transition to a new system, that meets the key requirements of the RFP
(as clarified), and offers the best solution at the best price, would be
assessed during the course of a new tender; however, AllPay is
confident that it is able to do so. Ultimately in a fresh tender the
evaluation committee and its technical advisers, would be tasked with
assessing whether AllPay would be in a position to take over the tender
in the necessary time, and do so in a way that minimised
inconvenience to beneficiaries.
107 I have been advised that it may be useful for this Court to be given
some details (in broad terms), as to how AllPay would propose taking
over the current system (and then improving on it) if it were to be
awarded the tender (depending on what the revised RFP required), in
light of the key facts discussed above.
107.1 First, since there has been an extensive re-enrolment of
beneficiaries, which has included the taking of their biometric
information (information now owned by SASSA), a new tenderer
would be able to make use of that information in its new solution
without the need to re-enrol all new beneficiaries, since it has 59
already been captured33 (provided that SASSA and CPS have
complied with the terms of the contract, service level agreement
and the RFP).
107.2 Second, there are certain options available to ensure a smooth
transition, which will be discussed below, for instance at least at
the beginning of a new contract, if required to (and depending on
how the RFP is recast), AllPay (or indeed another tenderer with
the requisite technical competence), could either continue to pay
the grant money into the pre-existing Grindrod bank accounts (or
into other bank accounts, in the instances were beneficiaries
have elected to be paid into these), which could be retained, thus
ensuring that beneficiaries could be paid without having to be
issued with new cards.
108 AllPay makes this submission based on the following factors, which as
I have already indicated I set out in broad terms only (as this Court is
not being called upon to assess AllPay’s technical solution, in the event
of a new tender):
108.1 As already mentioned as part of the rolling out of CPS’s system,
grants recipients have been issued with MasterCard cards linked
33 As discussed above, and in the confirmatory affidavits, as part of the CPS system most grants recipients (those that receive grants on their own behalf, or on behalf of others) have now been issued with SASSA MasterCard bank cards, linked to a Grindrod Bank account. It appears that most grants are paid into these Grindrod Bank accounts; although, certain recipients have retained their existing bank accounts and have been allowed to be paid into those as an alternative, and it seems that there are some instances of the old NET1 cash cards still being used. 60
to a Grindrod Bank account. For instance, MasterCard on its
website, notes the following:
“As part of the SASSA re-registration process, each recipient has a bank account opened for them, which is offered free of monthly charges by Grindrod Bank. Recipients can deposit funds into their bank account via electronic funds transfer (EFT) or third party bank transfer.
The SASSA Debit MasterCard card can be used anywhere MasterCard cards are accepted, and grant recipients can make purchases, check their account balances and withdraw cash at till points without incurring transaction charges at selected South African retailers. Recipients can also withdraw cash at any ATM, which does however attract transaction charges.”34
108.2 Given that all the biometric and other information of beneficiaries
has already been captured in the enrolment process subject to
the current tender, and belongs to SASSA, such information can
be provided to the new winning tenderer.
108.3 The new winning tenderer could make use of that information to
allow for a seamless taking over of the current payment of
beneficiaries without the need for large-scale re-enrolment of all
beneficiaries.
108.4 There are a range of possible solutions that AllPay could
implement to ensure a smooth and expeditious transition to
minimise any disruption or inconvenience to beneficiaries:
34 http://newsroom.mastercard.com/press-releases/ten-million-sassa-mastercard- cards-issued-to-south-african-social-grant/. 61
108.4.1 First, even before a full transfer to a new system occurs,
and particularly if there are any difficulties experienced
with this, AllPay would immediately be able to pay grants
into the Grindrod accounts (or any other existing
beneficiary bank accounts, where grants are paid into),
so that beneficiaries continued to receive their grants as
before and use their existing SASSA MasterCard cards
(or any other bank cards) at ATMs, point of sale devices,
and/or at cash pay points (which may need to be
replaced, or taken over, as discussed below) as they do
currently.
108.4.2 Second, AllPay, through ABSA, is able to make use of
certain innovative cardless banking solutions, which are
currently utilised in the market by ABSA, to ensure the
immediate payment of beneficiaries. For instance, these
would allow cash vouchers (in the form of a unique code)
to be sent via sms to a beneficiary’s cellphone, the
beneficiary would then be able to redeem the voucher
and receive the cash (their grant) from ABSA ATMs or at
merchants. This option could immediately be used as an
interim solution to ensure that beneficiaries are paid, in
the unlikely event that there are any difficulties in paying
directly into existing bank accounts, and for any
beneficiaries that, for some reason, have not been issued
with a MasterCard card linked to a Grindrod Bank 62
account. In relation to this solution, I highlight, as
discussed above, the extensive banking and retail
footprint that ABSA would be able to leverage in this
regard.
108.4.3 Third, from a technical perspective, AllPay, through
ABSA, is able to take over the existing SASSA
MasterCard cards that have been issued to the grant
recipients.
108.4.4 As indicated, currently these cards are linked to Grindrod
Bank accounts.
108.4.5 At present, save for a few exceptions all recipients
receive their grants via new SASSA branded bank cards
(which are MasterCard cards) either from cash pay-points
(owned by CPS), or at shops (merchants) by swiping the
card at Point of Sale devices, and then being paid from
the till, or from Bank ATMs.
108.4.6 To properly explain how this taking over of the existing
MasterCard cards would work, I need to briefly explain
how a card transaction is processed.
108.4.7 Card transactions are routed between banks based on
the first six characters of the card number. This is
referred to as the BIN number (Bank Identification
number). 63
108.4.8 Presently, the SASSA cards have a BIN number that is
registered with Grindrod Bank. All acquiring banks (that is
banks that process card payments at shops or ATMs, as
previously explained) configure these BIN numbers on
their systems and when a card transaction with the
SASSA BIN arrives, the transaction is routed to Grindrod
Bank for processing.
108.4.9 It is possible for this BIN number to be taken over.
108.4.10 For instance if AllPay were to be awarded a new
contract, ABSA could take over the processing of the
Grindrod BIN number. This would require all acquiring
banks to update their systems to route transactions with
the SASSA BIN number to ABSA for processing and not
to Grindrod Bank any further.
108.4.11 The process usually involves the banks agreeing a
specific date for the transfer of a BIN number.
108.4.12 ABSA would then also require the scheme and
PIN keys associated with the BIN number from Grindrod
Bank to configure the cards with ABSA’s own security
systems (this is necessary to allow ABSA to validate the
card and PIN code during a transaction).
108.4.13 Lastly, Grindrod Bank will have to supply the
account numbers and balances to be converted to ABSA 64
systems so that transactions can be authorised for a
SASSA beneficiary against the correct account and
balance.
108.4.14 ABSA has taken over cards, through a conversion
process, similar to the one described above, in a number
of instances, most recently taking over all Woolworths
branded credit cards from Mercantile Bank, and is thus
experienced in this process.35
108.4.15 Depending what the RFP required, and what
arrangement SASSA and the winning tenderer were able
to reach with Grindrod (although we foresee no reason
why Grindrod would want to cause any delay in this
regard), this process of transferring the BIN numbers and
retaining the current cards has one particular advantage.
It would mean that the beneficiaries could continue to
receive their grants as before, their SASSA branded
cards would be retained and would simply now be backed
by a different bank (with the concomitant additional
functionality that ABSA and AllPay would propose in a
new tender).
35 I have been advised that it is not necessary to go into too much detail, but ABSA has been involved in the following BIN number take overs in the last few years: the migration from Volkskas Bank to Absa Bank, the migration of United Bank to Absa Bank and Trustbank to Absa from 1996 – 1998, the taking over of Unifer Cards by Absa; and most recently the taking over of Woolworths Credit Cards from Mercantile Bank in 2006.
65
108.4.16 The use of the MasterCard cards would continue
at ATM and shops as before. In relation to cash pay
points which are specifically owned by CPS and are not
found in retail stores (in which case, the beneficiaries can
simply draw their grants from the retailers’ point of sale
devices at the till), these would need to be replaced or
alternative arrangements made, during the two month
period prior to taking over the system. AllPay believes
that it could replace the cash machines expeditiously
either by making use of mobile ATMs, or if CPS is willing
to lease its machines (which it already does in respect of
certain free standing terminals in sthe case of Shoprite),
these CPS machines could be retained on an ad hoc
basis if necessary. Obviously, the finer details of what
AllPay, and other bidders would suggest, will be
contained in their tenders, which will be carefully
assessed by the BEC and its technical advisors.
108.4.17 The take over period of transferring the card
information to ABSA would take a few months to
complete. As mentioned above, even before a full
transfer occurred, AllPay would immediately be able to
pay grants into the Grindrod accounts, so that
beneficiaries continued to receive their grants. 66
108.4.18 Fourth, after any interim period, the main solution
that AllPay would intend to offer (in very broad terms)
which could be gradually phased in so as to minimise
disruption to beneficiaries, which is relatively straight
forward, would be to issue new ABSA interoperable (and
biometrically enabled) bank cards to beneficiaries linked
to special ABSA accounts, but without requiring any full
re-enrolment process, since all the beneficiaries’ personal
and biometric data, which is owned by SASSA, should
have already been captured upon implementing the
current system. This information could be utilised to issue
ABSA cards to all beneficiaries on an expedited basis.
109 To summarise, therefore: AllPay is confident that, if a new tender were
to be issued and it were successful in the tender process, it would be
able to take over in a similar time frame to that in which CPS took over
under the current tender. That means that it could be in place in two
months - which would require no further involvement by CPS. AllPay
could be facilitating all the payments within that two-month period from
entering into a contract.
110 Obviously any proposal by AllPay would depend to some extent on
what final details were contained in the tender specifications and what
SASSA indicated it required. 67
111 However, AllPay has based its estimated time-frames on an
assessment of what it thinks can be achieved if a similar system to that
contained in the current RFP is requested.36
112 As already indicated, it appears clear that, in fact, the current system in
place, implemented by CPS, does not include biometric verification for
all payments. Only beneficiaries who attend at cash pay points are
regularly biometrically verified.
113 Nevertheless, it should be noted that AllPay offered physical biometric
verification (which included voice verification and facial recognition as
alternatives to finger print verification) at cash pay points and as part of
its yearly verification in its original tender, and would be able to offer
remote biometric verification by way of voice verification for payment
from ATMs or Bank point of sale devices (both of which do not currently
have biometric capabilities). ABSA’s overall parent company Barclays
Bank plc already offers this service (remote voice verification) for some
of its bank offerings, working in collaboration with a third party company
that specialises in these services, and AllPay and ABSA have
confirmed that if necessary, AllPay would be able to make use of this
pre-existing relationship and expertise to implement the system
expeditiously.
36 Issues that would need to be clarified include whether biometric verification would be required for all payments and whether this could occur at the time of transfer into beneficiaries’ accounts. 68
114 While obviously AllPay is not expected to place a hypothetical new
tender before this Court, it has sought to give some assurances based
on engaging with its technical team, to show that it could take over the
current system within two months of the tender being awarded.
115 Finally on this score, I stress an important point. That is, it is assumed
that for practical reasons a new tender would need to be offered for a
similar timeframe as the previous tender, being five years. This will
ensure that SASSA is able to get the best possible price for the service
(as discussed below), because the bidders will be able to spread the
costs of implementing their system over a longer period. To ensure a
competitive and cost effective tender, it is thus important that the new
contract not be unnecessarily truncated. Moreover, from a practical
point of view, a short contractual term would only lead to potential
further disruptions associated with the need for transition (after the new
contract is over) to yet another new payment system. It is best practice
for tender bodies to ensure that contracts are awarded for reasonable
periods of time. In the current situation that period of time, as already
made clear by the previous tender, is five years.
Costs of implementing a new tender 69
116 It is not clear whether the information sought by the Court in order 5.237
envisages the Court considering the costs to a new winning tenderer in
implementing a new system.
117 To the extent that this is necessary, in relation to the costs of
implementing a new tender from a tenderer's perspective, it is
submitted that a good guide, at least from AllPay’s point of view, would
be its own financial proposals already included in the record.38.
118 Nevertheless, it is submitted that the key issue would be whether the
implementation of a new system, or the taking over of the existing
system by a new tenderer, would cost SASSA more than it is currently
paying.
119 AllPay can indicate that it has no reason to believe new bidders would
not be able to tender within the previous price cap set by SASSA. That
would mean that SASSA would pay no more to a new bidder than it is
currently paying CPS, and given that the process will be competitive, it
is likely that SASSA may well receive better offers than CPS’s, thus
resulting in a cheaper price than that in the current contract with CPS.
120 For the sake of clarity, it is important to note that the way that the
current tender was structured, which I assume will be replicated in a
new tender, is that SASSA’s costs are limited to an all-inclusive
37 “The time and steps necessary, and the costs likely to be incurred, in the implementation of a new system after the tender process is completed.” 38 Suitably adjusted, depending on the terms of a new RFP. 70
monthly fee per grant recipient paid (regardless of how many grants
they were receiving) (with a cap of R16.50 (including Vat)). Indeed, the
RFP provided that the “firm price” to be paid was: “the all-inclusive
transaction fee charges per Grant Recipient 39 charged by the
Bidder to SASSA for provision of services for the duration of the
contract, which Firm Price shall not be in excess of R16.50 (VAT
inclusive) (Sixteen rand and fifty cents) per transaction per
month”.40
121 It is then for the bidders (and the winning bidder) to bear the costs of
implementing their system within the amount tendered for each
payment effected to grant recipients.
122 In the last tender AllPay's average price across all provinces was
R14.76, which was less than the average CPS price, which was
R16.44.41
123 Ultimately, it will be the task of the BEC and its technical advisors to
assess who has offered the most cost effective solution.
39 "Grant Recipient'' is defined as “a Beneficiary, a primary care giver or a Procurator who receives one or more Social Grants;”. Record 1:121. 40 Record 1:121. 41 Record 7: 1241: 15-17, AllPay’s Technical and Financial Affidavit, para 135. CPS’s supposedly lower bid of R13.98 was rejected because it did not meet the tender requirements (Record 10:1780, BEC Minutes 28 October 2011 para 2.3.1), in particular because the BEC found that “This option shifts the risk of closing pay points to SASSA. If SASSA does not close any pay points within the first three months, the monthly price per beneficiary payment will be R21.44 (RI3.98 + R7.46 in penalties). SASSA will have to close at least 7647 pay points in three months in order to be equivalent to Option A. Therefore, Option B is not feasible.” Record 11:1855:19 – 1856:8, BEC Report. 71
The cost-benefit of a competitive tender
124 A key premise of s 217 of the Constitution is that fair public tendering
leads to the state and the public receiving the best solutions at the best
possible price.
125 If one considers the past tender, as made clear by this Court the tender
was completely uncompetitive, since there was no assessment of price
between competing bids.
126 In considering this issue, one of the important factors to be noted is the
cost to SASSA (and also the South African public) of the system which
has been implemented by CPS pursuant to the award of the tender to
CPS by SASSA.
127 AllPay has commissioned a report by Mr Greg Harman, a Senior
Managing Director in the Economic and Financial Consulting practice
of FTI Consulting. FTI Consulting is a global expert services firm
specialising in, inter alia, damage analysis, valuation, competition and
regulation. As discussed in more detail at the end of this affidavit, CPS
and SASSA have refused (in the case of CPS) or failed (in the case of
SASSA) to provide AllPay (or even its legal team subject to
confidentiality undertakings) with access to various documentation,
including relevant financial information to enable AllPay to provide the
Court with detailed submissions in this regard. 72
128 Accordingly, Mr Harman’s report is based on various publicly available
documents including CPS’s financial model which formed part of its
response to the RFP and also public announcements by CPS’s
ultimate holding company, NET1, which is listed on the NASDAQ
(including the reports which have been filed with the United States
Securities Exchange Commission) as well as statements made in
various affidavits filed on behalf of CPS in this litigation.
129 As appears from the detailed report which has been prepared by Mr
Harman and which will be filed with this affidavit, Mr Harman concludes
that the contract between SASSA and CPS does not appear to
represent “value for money” for either SASSA or the South African
public.
130 Mr Harman’s conclusions rest on the facts that:
130.1 the internal rate of return of the project will result in CPS and the
NET1 Group of companies making a return of between 62% and
148% depending on the assumptions adopted and whether the
calculation is based on the financial proposal which formed part
of CPS’s bid or the published results of NET1. On any basis,
these returns are significantly higher than average market returns
in South Africa of approximately 13.5% for 2012. These are
conservative calculations as they do not take account of all of the
lines of revenue which CPS/NET1 will generated from the
contract with SASSA. 73
130.2 Hence, given that the internal rate of return of the contract to
provide payment services in relation to social grants is
substantially higher than the average returns of South African
companies in 2012, the contract price must be substantially
higher than would have resulted from a competitive tender
process. On this basis alone, the current contract does not
represent ‘value for money’ to SASSA.
130.3 It should be noted from Mr Harman’s report that his calculations
have been prepared on a conservative basis (as he has not
taken into account all of the potential revenue streams which will
be generated from the project, including (for example) those
arising from the micro-loans made by NET1 companies to
beneficiaries as well as the air time and funeral policies which
are sold by the NET1 Group to beneficiaries).
130.4 Mr Harman also concludes that the price differential between
AllPay’s bid and that of CPS has meant that by accepting the
CPS tender, SASSA (and, therefore, ultimately the State) will,
over the life of the contract, pay approximately R 926 million
more than had SASSA accepted AllPay’s tender.
130.5 This confirms the conclusion which was reached by this Court
that the awarding of the tender to CPS did not result from a
competitive tender process. Logically, a competitive tender
process is also one which would generally ensure that the State
is able to obtain goods or services at the most competitive price. 74
130.6 Indeed, Mr Harman notes that a generally accepted objective of
a procurement policy is to achieve value for money. In this
regard, a key factor in determining value for money is the
contract cost, and a competitive procurement process seeks to
achieve this through competition. In this case, because the only
party which was assessed from a financial perspective was CPS,
this means that there was no proper assessment of the cost of
the solution offered by CPS against other offers to ensure that
SASSA was able to select the most cost-effective offer. This has
effectively resulted in SASSA paying a very high price for the
service which it obtains from CPS. This theoretical conclusion is
amply demonstrated in this matter where CPS will be making
very significant profits on the contract which it has concluded with
SASSA.
131 This Court cannot, with any certainty, know what price SASSA may
ultimately be able to obtain in any fresh tender process, when its
requirements are known by all and all bidders can compete fairly.
However, the price differential between CPS’s and AllPay’s offering at
least makes it clear that there may well be significant financial benefit
associated with a fresh tender process. Even without that factual
illustration, as already submitted, section 217 is predicated on precisely
the assumption that competitive tendering leads to better services
being obtained at better prices. As this Court has recognised, 75
“insistence on compliance with process formalities … enhances
the likelihood of efficiency and optimality in the outcome”. 42
132 This is an important benefit which would be lost if no new tender
process is ordered.
THE JUST AND EQUITABLE ARRANGEMENTS THAT SHOULD BE MADE
FOR THE CONTINUED OPERATION OF THE PAYMENT OF SOCIAL
GRANTS UNTIL A NEW SYSTEM IS IMPLEMENTED
The interest of the beneficiaries and the interim solution
133 AllPay has always accepted that the necessary remedy of setting aside
the current tender and contract, and the ordering of a fresh tender to
correct the serious irregularities in the tender process, would likely
necessitate an interim solution which allows the beneficiaries to
continue to receive their grants without any significant disruption.
134 As a consequence, when a new tender is ordered the current
incumbent service provider, CPS, should be allowed and required to
continue providing the service in terms of its contract with SASSA until
such time as the new tender process has been completed, and a new
winning bidder is able to take over provision of the service.
42 Merits judgment para 27. 76
135 I submit that it is unlikely that CPS would wish to stop providing social
grants, since if it is allowed to continue until a new tender is awarded it
receives at least two advantages. First, it obtains the on-going benefit
of incumbency when the next tender is considered. Second, and more
importantly, it is able to earn further very healthy profits by continuing to
be paid by SASSA for providing the service.
136 In any event, from a legal point of view I am advised that CPS would
not be entitled to simply walk away from its contract with SASSA. The
basis for this submission is dealt with in the section below in relation to
CPS’s obligations to assist in a transition, and is more fully discussed in
the written submissions.
137 As AllPay has always maintained, should this Court disagree with this
legal position (which even CPS appears to accept), then CPS should
be put to an election; if it refuses to continue with the contract on an
interim basis, then SASSA is given powers under the Treasury
Regulations in extraordinary circumstances to enter into emergency
measures and contracts, and SASSA should advise this Court as to
what measures could be put in place in the current circumstances.43
138 As will be described below, SASSA could also look to AllPay as part of
an interim solution, should CPS choose to issue such a threat, in
43 Treasury Regulations Clause 16A6.4; See also: Chief Executive Officer, South African Social Security Agency v Cash Paymaster Services (Pty) Ltd 2012 (1) SA 216 (SCA) paras 20-22. 77
assisting it to ensure that social grants continue to be paid while a new
tender is completed.
139 This is not an offer idly made. It is one that AllPay, together with ABSA,
has carefully considered together with their technical experts and we
are confident that we have the technical, financial, and human
resources to take over the provision of social grants in an emergency. I
have personally participated in these meetings.
The practicalities of taking over the system in an emergency
140 As more fully discussed below, it is submitted that CPS would be
legally obliged to continue providing services in terms of the contract,
while the tender is redone, if the declaration of invalidity is suspended,
and in any event, it would benefit financially from doing so.
141 Yet, should CPS refuse to continue providing social grants (lawfully or
unlawfully), AllPay confirms that if SASSA were to elicit its assistance,
it could take over the provision of social grants in an emergency
situation, while the tender is redone.
142 Indeed, AllPay has always stated in the litigation that it would be in a
position to take over the provision of social grant payment services 78
across the country on an emergency interim basis should that prove
necessary. Importantly, this was not challenged by SASSA.44
143 AllPay reaffirms that this is still the position.
144 Much of that ability is already highlighted above in relation to how
AllPay would quickly take over the tender if it were successful. It would
be merely a process of expediting this in an emergency situation, using
the considerable expertise, resources and personnel at AllPay’s
disposal as part of the ABSA group.
145 In particular, the following will allow for an expedited take over of the
current grants system as an interim measure if necessary;
145.1 Grant recipients have all (or almost all) been issued with
MasterCard cards and Grindrod Bank accounts (or have elected
to be paid into existing bank accounts);
145.2 AllPay, or any other party that SASSA contracts with in an
emergency, could ensure that payments are made into those
accounts;
145.3 Grant recipients who access their grants at merchants or ATMs
would be able to continue to collect their grants as per usual.
Nothing would change;
44 Record 7:1133, CRA paras 104.2 and 105. 79
145.4 As already indicated, these recipients are in fact not, under the
current arrangement with CPS and SASSA, biometrically verified
prior to payment. So no biometric verification would need to be
conducted, and PIN codes could be used (as they are currently).
But, if biometric verification were to be required (or if indeed
SASSA does now finally attempt to urgently roll out biometric
verification, and in particular voice verification, at the last minute
as discussed above), AllPay would be able to provide this
functionality since the biometric data is owned by SASSA and
would have to be handed over by CPS to any new party taking
over payment. As indicated above, AllPay is in a position to
implement voice verification, as well as other forms of biometric
verification, and to do so urgently if necessary.
145.5 For persons who receive their grants via cash pay points owned
and operated by CPS, in the interim (in an emergency), AllPay or
SASSA would need to acquire or rent these units on an interim
basis, or replace them. Even if they were not immediately
replaced, beneficiaries could still go to shops to receive their
grants at the point of sale devices, or draw their grants from
ATMs. In terms of replacing these cash pay points, AllPay
believes that the simplest way to replace them with machines
that could read and make use of the MasterCard cards that have
been issued to the beneficiaries, would be to replace the
machine, on an interim basis with mobile ABSA ATMs, which 80
ABSA owns (or alternatively, as discussed above, CPS could
potentially be rented by AllPay).
145.6 An alternative option to paying into existing accounts (or where
for some reason beneficiaries do not have accounts), which may
be very effective in an emergency, would be to make use of the
innovative cardless banking solutions discussed above, which
would allow cash vouchers to be sent via SMS to a beneficiary’s
cellphone, the beneficiary would then be able to redeem the
voucher and receive the cash from ABSA ATMs or at merchants.
145.7 Since the above options are meant to be purely interim solutions
deployed in an emergency, the issuance of new cards would not
need to occur immediately, as the key focus would be ensuring
that beneficiaries continue to receive their grants without any
difficulties. Depending on how long the tender process was
allowed to take, and for what time AllPay or another party was
required to take over the payment of grants, then a migration
process, as described above could be undertaken.
145.8 I emphasise that this interim arrangement would ensure that
beneficiaries continued to receive their grants without disruption,
and without the need for any re-registration process.
COST IMPLICATIONS FOR CPS IF A NEW TENDER PROCESS IS ORDERED AND IMPLEMENTED, AND HOW THESE COSTS COULD BE AMELIORATED OR OFFSET 81
146 One of the questions which the Court has requested the parties to
address is the potential cost implications which the early termination of
the contract between SASSA and CPS would have on CPS should the
Court order that SASSA should commence with a fresh tender process.
147 As part of the documentation requested from CPS (as mentioned
above, and discussed more fully below), AllPay requested access to
relevant financial information to enable it to make submissions to the
Court in response to this question. However, CPS refused to provide
the information requested and SASSA adopted an equally obstructive
approach (despite indicating that it would provide certain information to
AllPay, it ultimately failed to provide that information). Accordingly,
AllPay appointed Mr Greg Harman of FTI to perform a detailed financial
analysis based on publicly available information (including affidavits
filed in these proceedings, annual reports of NET1 filed with the US
Securities Exchange Commission, public statements made by CPS’s
CEO, Dr Belamant, and CPS’s financial model which formed part of its
response to the RFP).
148 On the basis of this information, Mr Harman has calculated the returns
which CPS and NET1 will make from the provision of social grant
payment services over the five year term of the contract. As appears
from his report, these returns are between 62% and 148% depending
on the assumptions made and whether it is calculated on the basis of
the Financial Proposal which formed part of CPS’s bid proposal or
NET1’s published reports (as compared to average returns of South 82
African companies in 2012 of 14%). Self evidently, returns of between
120% (as forecast in CPS’s bid proposal) and 148% are high when
compared to the average rate of return.
149 However, Mr Harman has also calculated that based on its bid
proposal, CPS would have recovered all of the investment which it had
made in relation to the contract to provide social grant payment
services as well as a market related return on the investment before
any new tender process and take over could be completed. It should
again be noted that the calculations performed by Mr Harman are
favourable towards CPS in the sense that, not only do they take
account of the actual expenditure which has been made by CPS, but
they also make provision for a reasonable rate of return for CPS over
the period of the investment and also do not take account of certain
additional lines of revenue (such as micro-loans, sales of air time and
sales of funeral policies). This means that, on the basis of Mr Harman’s
calculations, CPS would have recovered not only the actual investment
which it made, but also a return on that investment for the duration of
the investment.
150 As appears from the detailed report prepared by Mr Harman, based on
its bid proposal CPS would have recovered the cost of its investment
(i.e. all costs) associated with the contract with SASSA, including a
reasonable return on investment, by the end of September 2013. 83
151 Based on NET1’s published Financial Statements, Mr Harman
calculates that CPS (and the various entities within the NET1 Group)
would have recovered the costs of the investment (i.e. all costs)
associated with the contract with SASSA, including a reasonable return
on investment by the end of (in a worst case scenario) October 2014.
However, on the basis of a conservative assumption relating to its
ability to sell only 25% of the assets which it has acquired for the
purpose of fulfilling the tender and taking into account only certain
revenues associated with the contract, it could recover its investment
and a return of 14% on its investment as early as April 2014. These are
still conservative assumptions and exclude revenues which are
associated with the sale of air time and funeral policies as well as
revenues associated with micro-loans to beneficiaries.
152 In other words, based on the bid proposal, CPS would already by the
end of 2013 have covered its investment as well as made a return of
14%. On the basis of the conservative analysis premised on the
publicly available information, even in a worst case scenario, which
assumes that none of the assets can be sold by CPS and excludes all
other revenues generated by CPS and NET1, by the end of October
2014, any possible termination of the contract with SASSA would not
result in any financial loss to the NET1 Group (rather it would have
made a healthy financial return).45
45 I stress that the calculations which have been performed by Mr Harman are conservative in the sense that they do not take account of all of the revenue which is earned by the NET1 Group from the contract with SASSA given the lack of information relating to revenue generated in relation to sales of air time, sales of 84
153 What the report prepared by Mr Harman demonstrates clearly is that,
were the Court to order a new tender and this were to result in the early
termination of the contract between CPS and SASSA, CPS would by
the time of the award and implementation of a new tender not suffer
any financial loss under the most conservative assumptions. Indeed, it
would seem likely from the calculations performed by Mr Harman in
relation to the bid proposal (which he believes is likely to isolate the
performance of the contract with SASSA) that the CPS/NET1 Group
anticipated already being able to recover, not only the investment
which it has actually made in relation to the contract, but has also
received a market related return on the investment which it has made.
This means that would have anticipated already likely to be earning
pure profit as at the date of the hearing on 11 February 2014.
154 Simply put, this means that the early termination of the contract
between CPS and SASSA would, by the end of a new tender process,
not result in any negative cost impact on the CPS/NET1 Group. There
is, accordingly, no need for any steps to be taken to ameliorate any
negative impact on CPS as CPS is already benefiting significantly from
the contract and every month which passes will simply increase the
significant financial benefit which is accruing to CPS and the NET1
Group.
funeral policies and micro-loans which are made by NET1 companies to beneficiaries. It is, accordingly, also not possible for Mr Harman to make estimates of the likely return to the NET1 Group from the contract with SASSA in relation to these activities over the duration of the contract, but it can be assumed that these returns will inflate the returns which the NET1 Group has already derived from the contract with SASSA. 85
THE COST IMPLICATIONS FOR THE STATE IF A NEW TENDER
PROCESS IS ORDERED AND IMPLEMENTED, AND HOW THESE COSTS
COULD BE AMELIORATED.
155 SASSA is best placed to set out the costs to redo the tender process
and any other associated costs. I have already dealt with the issue of
the costs benefits to the state and the beneficiaries of implementing a
new solution after a fresh tender process.
156 The costs of holding a fresh tender must be considered in light of two
key points:
156.1 The re-doing of the tender is a normal consequence of a
constitutionally defective tender process, much as the cost to
parliament of amending legislation is the normal consequence of
a law being declared unconstitutional;
156.2 The cost of re-doing the tender stands to be recouped by the
state receiving a more cost effective solution. The fact that
SASSA may well save money for the state by conducting a fresh
tender has been considered above.
WHAT WOULD BE IN THE PUBLIC INTEREST WHEN DETERMINING A
JUST AND EQUITABLE REMEDY
157 As will be discussed in the written submissions, it is always in the
public interest that the principle of legality is upheld, and that 86
unconstitutional tenders are redone to ensure that the best services at
the best price can be procured by the state in a competitive and fair
tender.
158 I have discussed above the transitional arrangement that should be put
in place to ensure that beneficiaries continued to be paid while a fresh
tender process is undertaken.
159 One of the considerations that this Court listed as being relevant to the
appropriate remedy is that:
“SASSA and Cash Paymaster assert that [the current system for
the payment of social grants] is running smoothly and efficiently
and that setting the tender aside would cause great disruption.”46
160 In order properly to assess the practical implications of implementing a
new system it is important to set out for the Court’s benefit the nature of
the current system that is in fact in place, as opposed to the system
which was promised by SASSA and CPS.
161 While AllPay does not seek exhaustively to critique the current
provisions of services by CPS, it is at least important to draw material
facts to this Court’s attention which may have an influence on the
broad costs and practical implications of implementing a new system
46 Merits judgment, paragraph 96. 87
162 In argument, SASSA in particular has repeatedly suggested,
particularly before the High Court and the Supreme Court of Appeal,
that the new system now being provided by CPS is the preferred and
ideal solution and thus the Court should not seek to redo the tender.
163 SASSA’s view in this regard is not borne out by the facts, facts which
are now available after almost two years of implementation of CPS’s
system.
163.1 Most importantly, as demonstrated above, the current system
does not offer value for money to the fiscus or the South African
public and, therefore, comes at a significant cost to the State
(and, therefore, ultimately to beneficiaries).
163.2 Second, as I have discussed above, biometric verification, and in
particular voice verification, is not being conducted prior to
payment, in most instances other than for cash beneficiaries. It
also appears that certain of the SASSA MasterCard cards can be
used at retailers at point of sale devices without even a PIN code
being used. Accordingly from a fraud prevention perspective a
comprehensive system of ensuring that the correct beneficiary is
paid is completely absent, except in the case of cash
beneficiaries. This factual state of affairs is entirely inconsistent
with the version of events which CPS and SASSA placed before
this Court and indicates the deficiencies of the current system. 88
163.3 Third, as I will now discuss, there is a further concern, and that is
the deductions being made from beneficiaries’ accounts, in some
cases by companies affiliated or owned by the NET1 Group. It is
evident that there is a fundamental conflict of interest in CPS’s
holding company, NET1, holding an interest in companies which
make loans to social grant beneficiaries and sell airtime and
funeral policies, while at the same time CPS administers the
payment of social grants to the beneficiaries.
163.4 Fourth, as appears from the detailed affidavit of Mr Goosen of
Shoprite, there are a number of concerning features which
emerge from the manner in which the CPS model impacts on the
delivery of social grants to beneficiaries in retail outlets (as well
as on other members of the public). These include long queues,
a lack of facilities for the aged and infirm and children, increased
risk arising from robberies, and the fact that beneficiaries are
being “hounded” by micro lenders when they draw their money at
the points of sale. The attempt by CPS to transfer the burden of
paying social grants to the major retailers is entirely inconsistent
with the need to ensure dignity for the aged and infirm and does
not comply with the provisions of the RFP.
Deductions from grants
164 On 16 October 2013, the Department of Social Development issued a
press statement detailing areas of particular concern that it had with the 89
implementation of the social grants system, which related to allegations
that CPS was allowing its sister and affiliated companies to make
deductions for micro loans and airtime (which is in violation of the
relevant provisions of the Social Assistance Act) from beneficiaries’
grants, often without the knowledge of the beneficiaries.
165 Given that this is a press statement that the Department itself felt
compelled to release, and directly implicates how the current tender is
being implemented, AllPay submits that it is relevant to this Court’s
consideration of the matter and would, alongside the other aspects of
concern raised by the Department detailed below, presumably be
drawn to the Court’s attention by SASSA.
166 I believe it is important to quote substantially from this press release:
“The Minister of Social Development, Ms Bathabile Dlamini, and the Chief Executive Officer (CEO) of the South African Social Security Agency (SASSA), Ms Virginia Petersen, met with Dr Serge Belamant who is the CEO of CPS and the Chairperson of the NET1 Group, on 15 of October 2013 at SASSA Head Office in Pretoria.
The meeting was held to discuss the allegations of deductions for micro loans and airtime that are effected on beneficiaries' social grants. The deductions are in certain instanced alleged to be effected without the beneficiaries' consent or authorisation.
The Minister demanded that Dr Belamant should instruct the Net1 Group to cease from loading micro loans on the SASSA payment card and also the selling of airtime to social grant beneficiaries, especially to old age grant beneficiaries.
The Minister also demanded that the Net1 Holdings cease to provide micro loans through its Net1 micro lending business to social grant beneficiaries using the SASSA payment card. 90
Minister Dlamini also instructed CPS to ensure that micro lenders and vendors including those within the Net1 Group are not allowed within the perimeters of all social grant pay points within the country to sell their products to social grants beneficiaries.
Dr Belamant, has responded in writing on 16 October 2013 in his capacity as the CEO of CPS that "CPS does not offer any products of whatsoever nature to grant beneficiaries" and also that CPS is an independent legal entity which forms part of the Net1 Group which consist of 44 companies. He also stated that:
"CPS has no jurisdiction over any other company (including other companies in the Net1 group) and cannot prescribe to such companies how they should conduct their business. The provision of loans and airtime products to grant beneficiaries are not outlawed and provided these companies comply with applicable legislation, including the National Credit Act, they are at liberty to pursue these business avenues".
There are other companies within the Net1 Group which are financial services providers that offer financial products (insurance, loans, and airtime) to the public.
The Department of Social Development and SASSA will however explore other avenues in their efforts to put an end to the real or perceived exploitation of the social grant beneficiaries.
SASSA is urging grant beneficiaries not to respond to any text messages offering to buy airtime. SASSA also urges beneficiaries not to enter into loan agreements with micro lenders because repayments will be deducted from their SASSA accounts should they sign these agreements.” (Emphasis added)
167 I attach a copy of the press statement marked CW10.
168 Dr Belamant, in his responses to the serious issue raised by the
Minister of Social Development, sought to suggest that CPS has no
control over what other companies in the NET1 group do. Yet, they,
like CPS are wholly-owned subsidiaries of NET1, and therefore NET1
has control over how they and CPS act. It is a legal fiction to suggest
otherwise. Indeed, Dr Belamant is the CEO of both NET1 and CPS. 91
169 Moreover, the extracts from NET1’s 2013 Annual Report, 47 make it
clear that the responses by Dr Belamant quoted in the SASSA press
release above, the Chairman and CEO of NET1,48 and the CEO of
CPS, were extremely disingenuous.
170 The NET1 Annual Report for 2013, makes explicit the synergy between
the distribution of social grants (operated through CPS) and NET1’s
provision of financial services (albeit that the services may be operated
through a number of separate wholly-owned companies):
“We derive a substantial part of our revenues from our contract with SASSA to provide pension and welfare distribution services throughout South Africa. We are substantially dependent on the continuation of this contract. If we were to lose our SASSA contract, our business would suffer significantly. Further, our business strategy relies on our ability to leverage the social welfare recipient cardholder base to provide them with additional financial and other services. If we cannot successfully do this, we may not be able to grow our business and our financial performance could suffer
……
We are a longstanding contractor to SASSA. Although our current contract has expanded our services to the entire country from the five provinces we previously served, the benefits of higher volumes have been offset by lower per-recipient cardholder pricing. As a result of this lower pricing, our ability to maintain and improve our operating margin in our South African business will depend on our ability to provide the pension and welfare recipient cardholders whom we serve with higher-margin financial and other services. If we cannot successfully capitalize on these opportunities and grow this business, it is likely that our future financial performance would suffer."49
47 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, for the fiscal year ended June 30, 2013. 48 See page 14 of the Annual Report. 49 Pg 16. 92
171 The import hereof is obvious. NET1 is publicly reporting that it makes
use of (“leverages”) its provision of social grants (via CPS) to target
beneficiaries with the provision of other financial services – which as it
admits are “higher-margin” services (so as to offset the lower per-
recipient cardholder pricing earned from SASSA). In other words, it is
using its position as the sole distributer of government social grants to
the poorest and most vulnerable in society, to make money from those
persons, since it does not feel that it is receiving enough compensation
from SASSA (this, of course, is curious in light of the returns FTI
indicates CPS is making off the contract).
172 The Annual Report goes on to note that:
“This business unit [Financial Services] is responsible for identifying financial services products that can be provided to our UEPS cardholders in South Africa and then marketing and implementing the provision of those products. We currently provide micro-loans to our UEPS/EMV cardholders who receive social welfare grants through our system in the KwaZulu-Natal, Northern Cape and Gauteng provinces. We provide the loans ourselves and generate revenue from the service fees charged on these loans.
173 In addition to the press statement released by the Department, there
have been a number of reports of CPS and its associate companies
taking advantage of vulnerable social grants beneficiaries by marketing
loans, insurance, and airtime to beneficiaries and allowing deductions
to be made from beneficiaries’ grants. 93
174 For instance, COSATU issued a press statement in October 2013,
which highlighted a number of the serious issues that had arisen in
relation to deductions from the grants which are paid to beneficiaries. In
particular it pointed out that:
174.1 NET1 UEPS Technologies (NET1) (CPS’s parent company) -
has been using SASSA's social grants database in a scheme
called Umoya Manje, to market airtime to social grant
beneficiaries. The SABC has reported they are "illegally
deducting" money from grant beneficiaries, which means that in
some cases, the beneficiaries receive only a few Rands at the
end of the month.
174.2 “It is alleged that the airtime is sold to social grant
beneficiaries in R5 bundles on a credit basis, and R5.50 gets
deducted from the beneficiary's social grant the following
month. Supposedly only the SASSA card number is needed
to purchase the airtime, leaving the system open to
fraudsters to buy large amounts of airtime and then resell it
with an increased profit margin. The minister has reportedly
described it as a "scam".”
174.3 “Bathabile Dlamini [the Minister of Social Development] has
condemned this practice and accused CPS of being
"reactionary" and not having the interest of the poor at
heart. The Social Development Department says it is talking
to the Reserve Bank to stop the debit orders going through 94
and is considering legal action against CPS and even
terminating its multi-billion rand contract with it.”
174.4 “These allegations follow even more serious charges, now
being investigated by the Public Protector, that CPS has
been operating an illegal loan scheme targeting social grant
beneficiaries. It is alleged that CPS officials offer and
provide certain beneficiaries "interest-free" microloans with
repayments automatically deducted from their social grants
- some with interest rates as high as 50%. If true, this
mashonisa scheme is not only exploiting then poorest of the
poor but contravenes the Social Assistance Act.”
174.5 “In yet another scandal, reported by the Mail & Guardian
earlier this year, the Financial Services Board (FSB)
suspended the licence of Smart Life, Net1s funeral policy
subsidiary, which was set up to sell funeral policies at social
grant pay points, which again pointed to an abuse of Net1s
monopoly right to distribute grants.”
175 I attach a copy of the press release marked CWF11.
176 In a press release from the Financial Services Board on 1 March 2013,
the public was further advised that (a copy of this is attached marked
CW12): 95
“The Smart Life Insurance Company Limited (“Smart Life”) has been prohibited from carrying on any new insurance business.
This was necessary to safeguard the interest of existing and prospective policyholders. In the Registrar’s view Smart Life no longer has the organisation or management necessary and adequate for carrying on its long-term insurance business, and its current shareholding is contrary to the interests of policyholders.
Smart Life may therefore no longer issue insurance policies to members of the public.
The prohibition does not apply to existing policies.”
177 In a recent e-mail received from the Financial Services Board by
AllPay’s attorneys (attached marked CW13), it is noted that “Following
the Registrar’s concerns that led to a prohibition on The Smart
Life Insurance Company Ltd (Smart Life) carrying on any new
insurance business, the FSB has been conducting an inspection
of the affairs of Smart Life and associated institutions in terms of
section 3 of the Inspection of Financial Institutions Act, No 80 of
1998 (the inspection). We are close to completing the inspection
but we are unable to say when it will be completed”.
178 This challenge to Smart Life’s licences was confirmed by NET1’s own
Annual Report:
“Smart Life is a licensed South African life insurance company however, during January 2013, the South African Financial Services Board, or FSB, suspended Smart Life’s life insurance license and prohibited it from writing any new long-term insurance policies in South Africa. We have prepared a submission to the FSB to uplift the suspension and the FSB is currently conducting an investigation into the affairs of Smart Life, but we cannot predict what the outcome will be. 96
Smart Life provides us with an opportunity to offer relevant insurance products directly to our existing customer and employee base in South Africa. We intend to offer this customer base a full spectrum of products applicable to this market segment, including credit life, group life, funeral and education insurance policies.”
179 The cancelling of Smart Life’s licence is hardly surprising because
there is a clear conflict of interest when NET1 companies market
insurance policies and the like to social grant beneficiaries, as
reportedly found by the Financial Services Board (FSB).
180 News reports indicate that the basis for the suspension of the licence of
Smart life (NET1’s wholly owned subsidiary) was due to a conflict of
interest. Smart Life was set up to market funeral policies at social grant
pay points (as indeed made clear by NET1’s Annual Report). Because
Serge Belamant was CEO of NET1, a director and CEO of CPS, and
the chairman of Smart Life, there was a conflict of interest, and this
"may not be in the interest" of policyholders.
181 This is particularly concerning because as a journalist has noted in the
context of an article about these deductions and the cancellation of the
Smart Life licence:
“it's common knowledge that fly-by-night insurance vultures have
used funeral policies to dupe the poorest into buying products of
dubious value.” 97
182 See the attached article, dated 20 March 2013, by Rob Rose (“Net1
and the dodgy social grants deductions”) marked CW14.
183 It should also be noted from the Consulta Survey (attached previously
as annexure CW3) that up to 27% of beneficiaries surveyed have
indicated that deductions have been made from their grants. It would
appear that these deductions range from deductions of approximately
R10, which would appear to relate to bank charges (presumably where
the grant is withdrawn from an ATM or from certain stores as discussed
above), to beneficiaries who have indicated that up to 90% of their
grants have been deducted before they are able to draw the grant
money.
184 In his affidavit, Mr Goosen of Shoprite also confirms that a subsidiary of
NET1, Moneyline Financial Services (Pty) Ltd, makes loan
advancements directly into the SASSA cards outside stores and also
notes that beneficiaries are often required by micro-lenders to pay them
significant amounts of their social grants immediately once they have
drawn the money from the tellers.
185 The problems do not end there. As noted in the affidavits of the
various pensioners which have been attached as CW5, in many cases
deductions are made of between R2 and up to R70 in respect of these
beneficiaries. 98
186 The question of whether deductions can be made from the social
grants is governed by statute.
187 In terms of s 20(3) and (4) of the Social Grants Assistance Act:
“(3) A beneficiary must without limitation or restriction receive the full amount of a grant to which he or she is entitled before any other person may exercise any right or enforce any claim in respect of that amount.
(4) Despite subsection (3), the Minister may prescribe circumstances under which deductions may be made directly from social assistance grants: Provided that such deductions are necessary and in the interest of the beneficiary.”
188 In terms of regulation 26A of the Regulations to the Social Assistance
Act (GNR.898 of 22 August 2008) SASSA is only allowed to authorise
deductions by authorised financial service providers for funeral
insurance polices, which amount to no more than 10% of the value of
the grant, but this must be requested in writing from the beneficiary,
and this must be specifically allowed by SASSA.
189 The regulations provide as follows:
“26A. Circumstances under which deductions may be made directly from social assistance grants.—(1) The Agency [SASSA] may allow deductions for funeral insurance or scheme to be made directly from a social grant where the beneficiary of the social grant requests such deduction in writing from the Agency.
(2) Subject to the provisions of subregulation (1), the Agency may only allow deductions to be made directly from a social grant where the insurance company requiring such deduction or to whom the money resulting from the deduction is paid, is a financial services provider as defined in section 1 of the Financial 99
Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002) and authorised to act as a financial services provider in terms of section 7 of that Act.
(3) Notwithstanding the provisions of sub-regulation (1), the Agency may only authorise one deduction for a funeral insurance or for a funeral scheme not exceeding ten percent of the value of the beneficiary’s social grant.”
190 I reiterate in this regard that specific information was requested by
AllPay from SASSA as to what deductions had been authorised, but no
information was provided. It is presumed that such information will be
disclosed to this Court in SASSA’s affidavit.
191 From what has been set out above it is clear that this is a significant
problem and concern for the Department of Social Development. It is a
problem which appears to be one that has arisen particularly within the
new system. SASSA believed that the matter was so serious that on 11
December 2013, it took out large colour advertisements in major
newspapers to deal with this issue.
192 The advertisement was titled: “Notice: To Social Grant
Beneficiaries”. It stated that:
“We have recently been swamped with complaints from the public and some of our beneficiaries about companies that offer them financial service products under the pretext that they are working with, or are endorsed by SASSA
SASSA does not have any relationship with, nor does It endorse, any company that offers financial products such as micro loan cell phone airtime, insurance products including life and funeral covers, and clothing accounts. We also neither support nor endorse any products sold by companies within these Industries. 100
SASSA warns its beneficiaries against falling prey to these scams technology W e also call upon grant recipients to be vigilant about and other am bush m marketing tactics via the use of ceil phone insurance and cell phone airtime offers made to them
193 The Notice then lists a number of things that benefices must not do,
which included:
“Authoris[ing] deductions to be made against your card except for the one funeral policy deduction that does not exceed 10% of the grant value, which SASSA has allowed In terms of the legislation.”
194 It is of course not clear why CPS has not stopped the SASSA branded
card from being capable of allowing such deductions, since it bears an
obligation to ensure that the relevant legislation is complied with. I can
only assume that the reason is because it (through its parent company
NET1) has a financial interest in allowing these deductions to continue,
especially for those services offered by companies in the NET1 Group.
As NET1’s own Annual Report indicates its “ability to maintain and
improve [its] operating margin in our South African business”
depends on these “higher-margin” financial service products.
195 One further aspect I draw to the Court’s attention for the sake of
completeness is, as already suggested above, that beneficiaries who
make use of ATMs are charged fees to withdraw their grants by the
banks, and there is some indication, that despite the fact that
withdrawals from retail outlets are supposed to be free, certain
beneficiaries indicate that they are being charged withdrawal fees by
some retail outlets. 101
196 The fact that ATM withdrawals now incur normal bank charges for
beneficiaries is made clear by SASSA’s own public statement (referred
to above). The SASSA Guide provides that:
“Should you go to an ATM to make a withdrawal, normal banking charges will apply – therefore you can not withdraw the full grant amount but must maintain either a minimum balance as required by your bank or ensure that money is available in your bank account to pay for the cost of the bank charges incurred for using the ATM.” (Pg 6)
197 Thus, despite the importance placed in the RFP on banking the
unbanked and moving them onto a banked solution, their access to
those banking facilities is at a steep price.50
198 Those beneficiaries who wish to draw their money from ATMs are now
at a significant disadvantage. Firstly, they must pay for withdrawals
from an ATM. Secondly, because they are banked by Grindrod, which
has none of its own ATMs (compared to ABSA’s 6,500 ATMs),
beneficiaries may pay up to R20 per withdrawal because they will end
up paying the Grindrod bank charge, and the extra charge for
withdrawal from a bank that is different from the one that issued the
card.
50 This is in marked distinction for instance to what AllPay had suggested in its tender. As it had done previously it tendered to allow its bank card beneficiaries (through the Sekulula account it offered to beneficiaries) two free transactions at ABSA ATMs or point of sale devices every month (Record 1:32, para 50.7; pg 329 (annexure CW2). This would allow them to make withdrawals every month, so as to ensure that they could access their grants via the banking system without being charged. 102
199 The affidavits from the Bloemfontein pensioners, discussed earlier, also
indicate that certain of them are being charged fees by some retail
outlets to withdraw their grants, and when they withdraw grants from
ATMs they also incur fees.
Duration of the contract
200 The second general consideration to bear in mind is the nature of the
tender award, which has been declared invalid.
201 As part of being awarded the tender, CPS and SASSA entered into an
agreement to provide social grants in all provinces (made up of a
contract and a service level agreement). I will refer to these
agreements, collectively, as the contract or the agreement, unless the
context indicates otherwise.
202 The agreement has only run for 22 months of its minimum length of 60
months. In other words, currently almost two-thirds of the contract still
remains to be completed.
203 The service provided by the agreement, is the payment of social
grants. This obligation to pay social grants is a continuing one.
204 In the preamble to the main contract, it is recorded that “SASSA is in
terms of the applicable legislative framework responsible for the 103
administration, management and payment of social grants in line
with the Constitution of the Republic of South Africa, 1996.”51
205 In the circumstances, the obligation to pay social grants, on a monthly
basis, is an ongoing obligation. As such, unlike a public tender to
complete a bridge or stadium, the need to continue providing the
service does not come to an end with the completion of the five-year
contract tendered for.
206 Secondly, the contract specifically provides that, it can be extended by
agreement between the parties.52
207 Thirdly, SASSA’s previous contracts (which were originally concluded
with provincial governments, and then taken over by SASSA) with
AllPay, CPS and Empilweni to distribute social grants in the various
provinces were all extended (incrementally) for additional periods
between approximately 5 to 8 years, without any fresh tender.
DATA AND STATISTICS ON THE IMPLEMENTATION OF THE TENDER
TO DATE
208 As will be discussed in more detail below, in order to allow AllPay to
consider the information requested and provide further insight thereon,
51 The contract, clause 1.1. 52 See contract clause 6.5, and clause 3.4. 104
it requested materially relevant information from SASSA (and CPS) in
relation to the current tender.
209 This information included:
209.1 The minutes of all meetings between SASSA and CPS in relation
to the implementation and on-going fulfilment of the social grants
contract entered into between CPS and SASSA, and in particular
the minutes from the national steering committee, the
provincial/regional management committees, and the local
management committees, required to be created by clause 18.1
of the SLA entered into between SASSA and CPS on 3 February
2012, which formal minutes were required to be taken by SASSA
and distributed to members of the committee (in terms of clause
18.6 of the SLA);
209.2 The SOCPEN (the Social Grants Payment System) database,
including the necessary software and files that make up this
system, in respect of the social grants contract;
209.3 All documents or datasets, including but not limited to the
electronic data in respect of enrolment, payment information,
statistical information, management information and any other
agreed upon relevant information (as per clause 12.5 of the
service level agreement), generated since the implementation of
the social grants contract on a monthly basis, relating to:
209.3.1 The number of beneficiaries being paid monthly; 105
209.3.2 The number of beneficiaries receiving their grants in
cash, those receiving payment via the banking system,
and/or making use of a bank card without the ability to
otherwise transact with such bank account;
209.3.3 The ways in which the various types of beneficiaries are
being verified;
209.3.4 The national and provincial breakdown of these figures;
since the implementation of the social grants contract on a
monthly basis.
209.4 All invoices, reconciliation of payments, and management
information reports submitted to SASSA by CPS at the end of
every payment cycle, as required by clause 10.1 of the SLA;
209.5 Any documents, including correspondence, detailing the roll out
of voice verification for monthly payments of banked
beneficiaries, including when the roll out was first initiated, and
how many beneficiaries make use of this service on a month-to-
month basis.
210 None of this information was provided. This will be dealt with in more
detail below.
211 In the circumstances, AllPay is not in a position to provide this court
with any detailed data or statistics on the implementation of the tender. 106
What information is available to AllPay from publicly available sources
has already been dealt with in the previous sections.
WHETHER CPS IS UNDER A PUBLIC DUTY OR IS CONSTITUTIONALLY
OR OTHERWISE OBLIGED TO ASSIST IN THE TRANSITIONAL
ARRANGEMENTS.
212 AllPay’s primary submission is that CPS is bound by its contract with
SASSA to continue providing services in terms thereof until such time
as this Court lifts the suspension of invalidity.
213 By its decision to suspend the declaration of invalidity, this Court has
kept the existing contract between CPS and SASSA alive. The contract
remains in force until the suspension of the declaration of invalidity is
lifted. This Court is entitled, and should, only lift the suspension once
the new tender process has been completed and a transition to the
winning tenderer can be effected. Since the invalidity of the contract
would be suspended, CPS will be bound by the contract to continue
performing in accordance with it. Moreover, by participating in the
tender and entering into the contract and service level agreement with
SASSA, CPS undertook certain constitutional obligations:
214 This issue will be addressed more fully in the written submissions.
215 For present purposes, the facts underlying these submissions are as
follows: 107
215.1 The RFP made it clear that the tender is, inter alia, subject to the
Constitution. This self evidently includes s 172 of the
Constitution.53
215.2 CPS was alive to the risk of review:
215.2.1 Firstly, AllPay had informed both SASSA and CPS that it
was challenging the award of the tender, prior to the
contract even being signed. Secondly, both parties
opposed the application for an interim interdict and
implemented the contract in the face of the expedited
review application and despite letters from AllPay warning
them of the consequences of doing so.
215.2.2 In addition, CPS’s agreement with the BEE partners was
made subject to the successful defence of any review.54
215.3 The contract between CPS and SASSA itself indicates that the
RFP (which, as mentioned, specifically indicates that it was
governed by and would be applied in accordance with the
Constitution)55 forms part of the contract and was incorporated
by reference.56 The contract also provides, in the preamble, that
service being provided by CPS is provided in the context that
“SASSA is in terms of the applicable legislative framework
responsible for the administration, management and
53 RFP, section B, clause 11, Record 1:132. 54 CPS Interim AA, para 65.3, Record 2:268. 55 RFP, section B, clause 11, Record 1:132. 56 See the contract, clause 2.1.2. 108
payment of social grants in line with the Constitution of the
Republic of South Africa, 1996.”57
215.4 Since, the suspension of invalidity granted by this Court on 29
November 2013, CPS has continued to provide the service in
terms of its contract with SASSA. There has been no suggestion
by it that because of the declaration (albeit suspended) it would
be entitled to resile from the contract, or that it or SASSA are no
longer bound by the contract.
ALTERNATIVE REMEDIES IF THIS COURT WERE NOT TO ORDER A
FRESH TENDER PROCESS
216 This Court has called for submissions as to whether there were any
other remedies available to AllPay to protect or enforce its private
interest in the event that a new tender process is not ordered.
217 This issue will be dealt with in detail in AllPay’s written submissions.
218 AllPay’s primary submission is that for the reasons set out in this
affidavit, the only just and equitable solution that ensures proper
respect for the Constitution and the rule of law is a new tender process.
Moreover, any private remedy that could be suggested would by its
very nature benefit only AllPay and not ensure that the state and its
citizens receive the best service at the best price, or respect the
57 The contract, clause 1.1. 109
interests of other bidders who were either excluded or withdrew due to
the irregularities in the tender process. Only a fair, open and
competitive public tender process can safeguard those broader
interests.
219 Nevertheless, AllPay will consider whether there are any other suitable
remedies that would meaningfully vindicate its private interests in the
event that a new tender process was not ordered.
220 The starting point is to consider whether there are any common law
remedies that may be available to AllPay.
Common law
221 I am advised that the only possible remedy in the common law would
be delictual.
222 However, it is now settled law that save in circumstances where fraud
or dishonesty is proven, the awarding of a tender in breach of the
requirements for fair and competitive public procurement does not
ground a delictual claim for damages in our law.58
223 This Court’s merits judgment makes clear that there has not been a
finding that the tender was fraudulently or dishonestly awarded to CPS.
Therefore, absent AllPay being able to prove in a separate action that
58 See Steenkamp NO and Gore NO and South African Post Office v De Lacy & Another 2009 (5) SA 255 (SCA) para 14. 110
there was in fact fraud (something which is always difficult to prove) it
would have no delictual remedy for any damages.
PAJA
224 The question then arises whether there are any public law or statutory
remedies that may avail AllPay.
225 There is at least one alternative statutory remedy if the tender process
is not set aside that flows from PAJA. That is the entitlement for the
court to order compensation in exceptional circumstances in terms of
section 8(1)(c)(ii)(bb) of PAJA.
226 The nature of this remedy will be fully discussed in the written
submissions, but I will summarise certain points that are relevant to the
facts that would need to be placed before this Court.
227 Given that this Court has found that section 8 of PAJA gives effect to
the requirement for just and equitable relief, it appears that the ability
for the court to order compensation is therefore an equitable remedy
open to this Court in the event that it does not set aside the decision.
228 In the absence of fraud or dishonesty, the type of compensation that
might be ordered by the Court will be in line with the applicant’s out of
pocket expenses in bidding in the unconstitutional tender process. 111
229 Any decision by this Court not to order a new tender, despite the
serious defects in the tender process that rendered it bereft of any
competitiveness, would constitute the necessary exceptional
circumstances, that would allow the Court, in its discretion, to award
AllPay compensation.
230 In the circumstances, were the Court to take the view that it would not
set aside the tender then this Court does have a broad discretion to
award compensation that is just and equitable in the circumstances,
which could include AllPay’s out of pocket expenses in bidding for the
tender that this Court has now declared invalid.
231 To the extent that this Court ultimately (despite all that AllPay submits
below on the question of a just and equitable remedy) decides to make
such an order, I set out of pocket expenses incurred by AllPay:
231.1 AllPay has calculated that its approximate costs of preparing and
submitted its bid to SASSA were R5.54 million;
231.2 I attach hereto marked CW15 a schedule of the costs that make
up that figure.
232 However, I stress that AllPay submits that this remedy is inappropriate
for vindicating AllPay’s rights for a number of reasons:
232.1 Unlike ordering a fresh tender, an order to pay out-of-pocket
expenses, does not sufficiently entrench or give respect to the 112
requirements of just administrative action and the requirements
for constitutional public procurement;
232.2 AllPay’s out-of-pocket expenses in relation to bidding for the
tender, pale into insignificance when compared to the opportunity
to compete for a large multi-billion rand tender in a fair tender
process. Even in the unfair tender process that this Court has
declared uncompetitive and unconstitutional, AllPay was able to
demonstrate that it had, at worst, a 50% chance of being
awarded the tender (since it and CPS were the only bidders
originally shortlisted), even though its tender price was not
compared with that of the winning bidder (had it been, the
evidence of FTI indicates that AllPay’s tender would have been
shown to be significantly cheaper). Logically this means that in a
fair tender it must have a high likelihood of being successful.
That is so moreover when it is recalled that it was a previous
incumbent service provider in four of the nine provinces in South
Africa, and its business was largely built around the provision of
this service to SASSA. The unconstitutional tender process
robbed AllPay of the opportunity to compete fairly to retain and
expend the services it had been offering to SASSA and the
government for almost 12 years.
232.3 Thus, absent compensation for that lost opportunity to fairly
compete for the significant profits inherent in this tender, mere 113
compensation for out-of-pocket expenses can never suitably
vindicate its private interests.
232.4 Importantly, any attempt to award compensation to AllPay, is an
inadequate remedy as it does nothing to remedy the violation of
other tenderers’ rights and those who chose not to tender and
withdrew given the irregularities in the tender process. Merely
permitting AllPay to seek private compensation does not
vindicate their rights.
232.5 Similarly, compensation does nothing to remedy the effect on the
fiscus and the public of being forced to pay for a service which
was awarded in a completely uncompetitive tender process.
Section 217 of the Constitution is predicated on the accepted
view that a competitive tender would lead to a better service at a
better price. The value of such a competitive tender would be lost
if no new tender process is ordered.
OTHER RELEVANT CONSIDERATIONS
Investigations into the current tender
233 According to NET1’s Annual Report for 2013, the following is stated in
relation to the on-going criminal investigation into its conduct in winning
the tender: 114
“On November 30, 2012, we received a letter from the U.S. Department of Justice, Criminal Division, informing us that the DOJ and the Federal Bureau of Investigation have begun an investigation into whether we and our subsidiaries, including our officers, directors, employees, and agents and other persons and entities possibly affiliated with us violated provisions of the FCPA [the US Foreign Corrupt Practice Act] and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing our SASSA contract and also engaged in violations of the federal securities laws in connection with statements made by us in our SEC filings regarding this contract. On the same date, we received a letter from the Division of Enforcement of the SEC advising us that it is also conducting an investigation concerning our company. The SEC letter states that the investigation is a non- public, fact-finding inquiry and that the SEC investigation does not mean that the SEC has concluded that we or anyone else has broken the law or that the SEC has a negative opinion of any person, entity or security. We are continuing to cooperate with the DOJ and the SEC regarding these investigations.
We have been, and will continue to be, exposed to a variety of negative consequences as a result of these investigations. There could be one or more enforcement actions in respect of the matters that are the subject of one or both of the investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders or other relief, criminal convictions and/or penalties. We cannot predict accurately at this time the outcome or impact of the investigations.”
234 I attach a copy of the relevant portion of the 2013 Annual Report as
CW16. I offer to make available a full copy of the report (which is
voluminous) should this Court require it. The report is in any event
available online at http://ir.net1.com/phoenix.zhtml?c=73876&p=irol-
reportsAnnual. 115
235 NET1 does not suggest that the investigations are frivolous or that they
will or can be successfully defended.
236 Any of these outcomes (“judgments, settlements, fines, penalties,
injunctions, cease and desist orders or other relief, criminal
convictions and/or penalties”) could have substantially negative
knock-on effects on the entire system of social grant payments in South
Africa, and ultimately on beneficiaries.
237 Related to this investigation by the American authorities, class action
lawsuits have been instituted on the back of these alleged violations of
the Foreign Corrupt Practices Act. AllPay’s attorney received a copy of
the following press release by the firm of US attorney that had instituted
one of the class actions. The press release provided, inter alia, that:
“Howard G. Smith announces that a class action lawsuit has been filed in the United States District Court for the Southern District of New York on behalf of a class (the "Class") comprising all purchasers of the securities of Net 1 UEPS Technologies, Inc. ("Net1" or the "Company") (NASDAQ:UEPS) between August 27, 2009 and November 27, 2013, inclusive (the "Class Period"). …..
The Complaint alleges that the Company and certain of its executive officers issued materially false and misleading statements throughout the Class Period concerning the Company's business and operations. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that the Company's practices to secure contracts in South Africa were in violation of the Foreign Corrupt Practices Act and, as a result, the Company's financial statements were materially false and misleading at all relevant times.
On December 4, 2012, Net1 disclosed that the U.S. Department of Justice, Criminal Division, and the Federal Bureau of Investigation 116
had begun an investigation into whether Net1 and its subsidiaries, including certain of their employees and agents and other possibly affiliated persons and entities, violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa. Then, on November 29, 2013, Net1 disclosed that the Constitutional Court of South Africa ruled that the tender process followed by the South African Social Security Agency in awarding a contract to Net1's wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited was constitutionally invalid.”
238 Another class action has been instituted against NET1 by Pomerantz
LLP. As a press release published in the Wall Street Journal
indicates:59
“Pomerantz LLP has filed a class action lawsuit against Net 1 UEPS Technologies, Inc. ("Net 1" or the "Company")(NASDAQ: UEPS) and certain of its officers. The class action, filed in United States District Court, Southern District of New York, and docketed under 13-CIV-9100, is on behalf of a class consisting of all persons or entities who purchased or otherwise acquired Net 1 securities between August 27, 2009 and November 27, 2013 both dates inclusive (the "Class Period"). This class action seeks to recover damages against Defendants for alleged violations of the federal securities laws pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
If you are a shareholder who purchased Net 1 securities during the Class Period, you have until February 24, 2014 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll free, x237. Those who inquire by e-mail are encouraged to
59 See Wall Street Journal, January 24, 2014, SHAREHOLDER ALERT: Pomerantz Law Firm has filed a Class Action Against NET1 UEPS Technologies, Inc. and Certain Officers – UEPS (available at http://online.wsj.com/article/PR-CO- 20140124-910864.html) 117 include their mailing address, telephone number, and number of shares purchased.
Net 1 holds a non-exclusive worldwide license to the Universal Electronic Payment System ("UEPS"). The Company commercializes the smart card based service through alliances with banks, card services, and retail organizations.
Throughout the Class Period, defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies. Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company's practices to secure contracts in South Africa were in violation of the Foreign Corrupt Practices Act ("FCPA"); and (ii) as a result of the above, the Company's financial statements were materially false and misleading at all relevant times.
On December 4, 2012, the Company disclosed that it was under investigation by the U.S. Department of Justice, Criminal Division and the Division of the Enforcement of the Securities and Exchange Commission to determine whether the Company has "violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with SASSA to provide social welfare and benefits payments." On this news, Net 1 stock declined $4.62 per share, or nearly 59%, to close at $3.22 per share on December 4, 2012.
Then, on November 29, 2013, the Company announced that the South African Constitutional Court ruled that the tender process followed by the SASSA in awarding a contract to Net1's wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited ("CPS") was constitutionally invalid. On news of the South African Court's decision, the Company's shares fell $3.34 per share to close at $8.19 per share, a one day decline of over 28%, on unusually high trading volume.
The Pomerantz Firm, with offices in New York, Chicago, Florida, and San Diego, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 70 years later, the Pomerantz Firm continues in the tradition he established, fighting 118
for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com.”
239 The fact of these class action lawsuits, which is predicated on alleged
violations of the Foreign Corrupt Practices Act by NET1 and its officials,
who include the executives of CPS, indicates that violations are taken
seriously and believed to be capable of being proven, and of course
indicates that the company could face substantial civil claims too.
240 It is anticipated that this information and the risks associated therewith
will be elaborated upon by CPS and/or SASSA in their respective
affidavits. For AllPay’s part, I submit that this information is relevant to
ensure that the Court is made fully aware of all facts that may have a
bearing on considerations as to whether it is just and equitable to keep
in place (for any longer than is strictly necessary) the contract arising
from the tender process that this Court has found was unconstitutional.
It should also be noted that if CPS’s officials were ultimately precluded
from overseeing the implementation of the social grants payment
system as a result of the investigation in the United States and any
subsequent actions, this would also pose serious risks for the stability
of the system, particularly given the fact that the other members of the
consortium have not been properly assessed.
Advertising costs 119
241 To the extent SASSA wishes to suggest that part of the cost of
implementing a new tender system may be advertising, AllPay believes
it is important to draw the following facts to the Court’s attention.
242 In particular after the SCA judgment was handed down in this matter,
and at a time that there was obviously the real prospect of an appeal to
this Court, SASSA chose to take out full page advertisements in all of
the major Sunday Papers. The advertisements ran to four full pages,
and thus would have been particularly costly to SASSA.
243 I attach a copy of one of these advertisements marked CW17.
244 The nature of these advertisements, demonstrates that at least a
portion of SASSA’s previous advertising costs could hardly be argued
to be necessary to run a new tender and implement a new payment
system. Indeed, the advertisements contain extensive quotations from
the Supreme Court of Appeal judgment and appear to be an attempt by
SASSA to vindicate itself in the media. It is noteworthy that no such
advertisements were placed after this Court delivered its merits
judgment.
245 Whatever costs SASSA may have to incur in relation to advertising a
new tender process are costs that SASSA has attracted for itself.
Unlike the costs associated with the advertisements SASSA placed in
the media following the SCA’s judgment, the costs of advertising a new 120
tender process following this Court’s judgment will be meaningfully and
properly incurred.
Documents requested and not provided and SASSA’s constitutional obligation
246 As mentioned briefly above, given the type of information sought by the
Court in its order, AllPay, through its attorneys, wrote to SASSA and
CPS on 9 December 2013 requesting documentation uniquely within
their knowledge which may be of assistance to this Court, and which
would have allowed AllPay to make fuller submissions to assist this
Court. To allow SASSA and CPS sufficient time to provide the
information, it was suggested that the information be provided by 6
January 2014.
247 None of the information was provided, I attach marked CW18 and
CW19 respectively bundles of the correspondence in relation to these
requests with both SASSA’s and CPS’s legal representatives. The
correspondence is self-explanatory and I would ask this Court to
consider it as if specifically incorporated.
248 AllPay’s legal representatives made clear that AllPay was willing to
receive any of the information on a confidential basis, so that only its
lawyers and independent experts would see it, if this was deemed
necessary by SASSA or CPS. 121
249 In the State Attorney’s initial response on 10 December 2013, it
indicated that since SASSA was in the process of gathering information
to comply with this Court’s order, SASSA did not have the capacity to
provide the information requested by AllPay.
250 On 12 December 2013, AllPay’s attorneys wrote back to the State
Attorney and requested SASSA to furnish AllPay with the relevant
information that had already been gathered or would be collated by 6
January 2014. AllPay’s legal representatives also reiterated their offer
to inspect the documents at the State Attorney’s offices.
251 On 17 December 2013, CPS’s attorneys wrote back to AllPay’s
attorneys. While they disputed the need to provide much of the
information requested, they indicated that they had no objection to
SASSA furnishing AllPay with beneficiary numbers, and the minutes of
meetings between CPS and SASSA (provided they did not contain any
commercial or other proprietary information relating to CPS).
252 On 17 December 2013, after receipt of the letter from CPS’s attorneys,
AllPay’s attorneys (“Nortons”) wrote to the State Attorney to advise
them of CPS’s attitude in relation to the minutes and the beneficiary
numbers, and therefore asked SASSA to furnish that information to
AllPay.
253 The failure by SASSA to provide the requested information is
particularly problematic. The correspondence demonstrates the 122
numerous requests made for the information and the continual refrain
from the State Attorney that it would provide the information when it
was able, or its diversion that it was taking instructions from SASSA.
254 On 19 December 2013, the State Attorney wrote back to Nortons and
indicated that SASSA could not commit to any timeframes to provide
the requested information, but indicated that SASSA would revert with
information as and when it was in a position to do so.
255 On 21 December 2013, Nortons wrote to the State Attorney, noting the
documents requested could be provided in a piecemeal fashion, and
indicating that if it would expedite access to the documents, Nortons
was happy to inspect the relevant documents at the State Attorney’s
offices.
256 Having received no response, on 2 January 2014, Nortons wrote to the
State Attorney seeking clarity on when it may expect to receive the
information and documentation requested from SASSA.
257 On 6 January 2014, the State Attorney wrote to Nortons and indicated
that they had forwarded Nortons’ letter of 2 January to SASSA to seek
instructions and would revert when those instructions were received.
258 Nortons has received no response. As a result, despite requesting
relevant information from SASSA on 9 December 2013, at the time of
preparing this affidavit, almost two months later, none of the 123
information had been furnished to AllPay.
259 With respect it is submitted that SASSA’s actions as an organ of state
amount to a dereliction of its constitutional duty.60
260 In crafting the request for information, AllPay had regard to the contract
and service level agreement entered into between CPS and SASSA to
give effect to the current tender. These agreements gave some
particularity in relation to the type of evidence that SASSA would have
at its disposal.
CONCLUSION
261 Given the facts set out above, and in light of the relevant legal
considerations, AllPay submits that a just and equitable order should
be in the following terms:
261.1 That the declaration of invalidity (which AllPay submits
invalidates the tender and the contract with CPS) be suspended
to allow the following to occur:
261.1.1 A fresh tender process for the distribution of social grants
in all provinces for a five year period;
60 See section 165(4), and section 195 of the Constitution, Matatiele Municipality v President of the Republic of South Africa and others 2006 (5) SA 47 (CC) paras 107- 110; and In re Van der Merwe and another v Taylor NO and others 2008 (1) SA 1 (CC) at paras 71-72. 124
261.1.2 The conclusion of a new contract with the winning bidder
(or bidders, should the tender process lead to the
contract being awarded to more than one bidder, as
envisaged in the current RFP).
261.1.3 The hand-over of payment of social grants to the winning
bidder(s).
261.2 The process described above shall be completed in the following
time frames:
261.2.1 The fresh tender must be advertised and finally
adjudicated and the winning bidder(s) announced within 7
months;
261.2.2 A new contract must be signed with the winning bidder(s)
within two weeks of the announcement;
261.2.3 The winning bidder(s) must take over the payment of
social grants within 2 months of the signature of the
contract.
261.3 Should any party believe that it is not possible to conclude the
tender process in the time-frame set out above, they shall be
entitled to approach this Court, on good cause shown, to seek an
extension prior to the expiry of the relevant time-frame. 125
261.4 Once the process set out above has been concluded the
suspension of the declaration of invalidity will end and the
declaration will come into force.
261.5 During this process CPS shall continue to provide social grant
services in terms of its extant contract and SLA with SASSA,
save that:
261.5.1 the contract and SLA will come to an end prospectively
when the declaration of invalidity comes into effect at the
conclusion of the process set out above;
261.5.2 CPS shall be entitled to claim all moneys that are
properly due to it in terms of the contract and SLA up to
the date when the declaration of invalidity comes into
force and to retain all moneys that were properly paid to it
at that date.
261.6 That SASSA and CPS be ordered to pay the costs of this further
remedy hearing, including the costs of three counsel.
______DEPONENT
126
Signed and sworn to before me at ______on this the ____ day of
January 2014, the deponent having acknowledged that she knows and understands the contents of this affidavit.
______
COMMISSIONER OF OATHS Full names: Business address: Designation: Capacity: