The Department of Public Works (DPW) and the South African Police Service (SAPS) have come under fire for misusing public funds in 2009 in an attempt to lease two buildings for the police.

It appeared that improper procurement procedures had been followed in sourcing two buildings for the SAPS, the Sanlam Middestad building in Pretoria and the Transnet Building in Durban.

The Office of the Public Protector became involved at the beginning of August 2010 after a press report was published on the matter and a complaint lodged.

An independent institution, the office’s role is to look into complaints of corruption involving government departments or agencies, or investigate officials who are accused of violating their departments’ ethical codes or codes of conduct.

Constitutional non-compliance

In February 2011 the Public Protector, advocate Thuli Madonsela, released an initial report on the investigation, Against the Rules.

“Primarily, the complaint related to the alleged non-compliance with the requirements of section 217 of the Constitution of the Republic of South Africa, 1996 by the SAPS and the DPW, and the alleged improper involvement the National Commissioner of the SAPS in the procurement of the two buildings,” the Public Protector confirmed in her report.

Section 217 deals with procurement and prescribes that organs of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, in contracting for goods or services, must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. The legal framework within which this is administered is the Preferential Procurement Policy Framework Act.

Later that year in mid-July 2011 Madonsela released the second and final report, Against the rules too, which confirmed that the proposed leases for both buildings were unlawful and that the actions of the two departments amounted to maladministration.

The report also found the likelihood of private individuals enriching themselves at the cost of the taxpayer through the leasing schemes.

“The procurement process did not comply with the requirement of fairness, equitability and transparency,” Madonsela summed up in her general findings.

She added: “It appears from the very nature of the process followed, namely, by entering into a negotiated contract instead of a competitive bidding process, without justification, the constitutional requirements of fairness, equitability and transparency were also not complied with.

The situation was exacerbated by the fact that the contractor had already been involved in the process right from the beginning, even before the total extent of the need was established.”

Both lease agreements were declared null and void and the Public Protector advised that new procurement procedures needed to be undertaken.

Her findings relating to SAPS concluded that it “failed to comply with section 217 of the Constitution, the relevant provisions of the PFMA [the Public Finance Management Act], Treasury Regulations and supply chain management rules and policies. This failure amounted to unlawful, improper conduct and maladministration.”

As for the DPW, “the lease was not in accordance with a system that is cost effective and competitive, as is required by section 217 of the Constitution, the relevant provisions of the PFMA, Treasury Regulations and supply chain management rules and policies. This failure amounted to improper conduct and maladministration.”

Improper procurement procedures

A complaint was first lodged with the Public Protector on 2 August 2010 and by the next day Madonsela had sent a formal request to the National Commissioner of the SAPS Bheki Cele and then minister of the DPW Geoff Doidge not to proceed with the implementation of the leases, pending the finalisation of the investigation.

Madonsela’s preliminary investigations indicated that that proper procurement processes were ignored, and that both departments failed to comply with legal guidelines which should inform such acquisitions: the provisions of the PFMA, Treasury Regulations and supply chain management rules and policies.

The gist of these regulations is to make sure services are procured in accordance with a system that is fair, equitable, transparent, competitive and cost effective.

Both parties responded with an undertaking not to proceed with the implementation of the said leases until the investigation was completed.”

At the time of the initial investigations the lease agreement for the Middestad building was already in place, while procurement for the Transnet building was at an advanced stage, but under review due to queries over the procurement process.

On 25 October 2010 Madonsela released her preliminary findings and advised both the SAPS and the DPW to commence with entirely new procurement processes for both buildings.

The actual Middestad lease agreement was found to be illegal and unlawful, as was the procurement process followed for the Durban building.

On 1 November 2010 Geoff Doidge was replaced as DPW minister by Gwen Mahlangu-Nkabinde.

Five months later, on 1 April 2011, Mahlangu-Nkabinde proceeded with a new procurement process.

Madonsela, however, had requested that “the process be held in abeyance pending the finalisation of this investigation and a pronouncement on the propriety of the procurement process followed”.

The final investigations found that both buildings were acquired through a “negotiated process” with a single service provider, Roux Property Fund (RPF), instead of going through a competitive bidding process.

Madonsela notes that the DPW’s own policies regard a “negotiated process” as the least desirable method of procurement of leased accommodation.

“It entails foregoing the entire prescribed tender process in favour of negotiating with a single service provider and should only be used in exceptional circumstances.”

Minister Mahlangu-Nkabinde claimed that RPF’s Transnet building was the only establishment in the Durban CBD suitable for such SAPS accommodation requirements.

The Public Prosecutor refutes this. “However … the advertisement inviting tenders for the accommodation requirements of the SAPS on 1 April 2011 resulted in six substantive bids being submitted for consideration.”

The Public Protector’s report also identified a likely reason for the speed with which the deals were finalised, this being the main benefactor, RPF’s Roux Shabangu.

She found that “RPF signed purchase agreements for both buildings shortly before the SAPS identified the buildings as alternative accommodation. In both instances the procurement strategy adopted by the DPW resulted in negotiations with RPF exclusively.”

Madonsela concluded that by entering into long-term lease agreements of substantial amounts (R1.1-billion in this instance), which includes operational costs aimed at upgrading buildings significantly, the DPW is “essentially footing the bill for the improvement of properties owned by private entities”.

Shabangu himself is alleged to have put pressure on these departments to hasten and finalise the procurement process.

This deviation from the normal open tender processes seemingly pointed to an urgency in obtaining the buildings which, the Public Protector noted, could not be legitimately justified.

Neither could records be produced showing that these deviations were in fact recorded and reported to Treasury or the Auditor-General as is legally required.

“The purpose of the reporting requirement is clearly to provide the National Treasury, as the custodian of public funds, with an opportunity to note, evaluate and, if necessary, intervene in the procurement process,” she stated.

Role of the SAPS

The role of the National Commissioner of the SAPS Bheki Cele came under the spotlight during the investigations.

He identified both buildings as suitable and did so before formal demand management processes – establishing space and needs requirements – had been initiated and finalised. This is a critical preliminary step in the procurement process as the total lettable area of the respective buildings would have a direct influence on the demand management process of the SAPS.

In the case of the Transnet building, for instance, the space leased from RPF exceeded the total area required as determined by the DPW by over 4 000m2. The report calculated that the additional and unnecessary floor space would amount to a total cost of more than R77-million, excluding operational costs, over the entire lease period.

Cele also did not follow standard procedure, which required the DPW to be the first to be involved in the procurement process. Instead, the SAPS had already engaged with the owners of the building before contacting the DPW, clearly encroaching on the DPW’s mandate.

SAPS officials were overstepping the boundaries in terms of their mandate, the report noted. A number of officials interviewed had the perception that the SAPS could irregularly influence the procurement process.

Indeed warnings and advice from the DPW on the matter were regarded by the SAPS as interference in its affairs. Officials who raised concerns over the process were sidelined and/or deliberately removed from the procurement process, the report noted.

Role of the Department of Public Works

As the custodian and manager of all government assets and leased properties, the Department of Public Works would have been directly and actively involved in the matter.

It was to handle the leases on behalf of the SAPS, ensuring that minimum requirements were met in terms of procurement, cost effectiveness and space requirements.

However, Madonsela found the department had not followed the prescribed process. “The reckless manner in which the DPW dealt with public funds in this case, particularly by not following the prescribed tender process and not ensuring that the State received value for money … fell short of the requirements of good governance and administration,” the report stated.

The needs analysis by SAPS was just below 42 000m2, yet the letter of acceptance from DPW to RPF approved an offer of more than 45 000m2.

“The discrepancy between the approved offer and the final norm document could not be explained by the SAPS or the DPW.”

More than it’s worth

The official complaint also raised concerns over the exorbitant cost being asked for the lease of the two buildings. The formal report estimated the lease cost on the two buildings to be approximately R1.7-billion over the formal lease period of 10 years.

The market rental rate for a building such as the Transnet building was determined by the DPW at R40.00 per m2. The lease agreement signed between RPF and the DPW in respect of the Transnet building reflects a rental rate of R125.30 per m2.

Shabangu later confirmed that the rental for the Middestad building is set at R110/m2. Despite these costs, the buildings were not up to scratch.

The report noted: “In both cases the buildings leased were of a grade C standard and required major refurbishment at a significant cost to the State and were leased at a rental much higher than the market rate for such building.”

Since the release of the findings, Minister of Public Works Gwen Mahlangu-Nkabinde has been replaced, while Cele and Sam Vukela, acting director-general at DPW, have been put on suspension pending internal investigations.

In the meantime, the new minister of public works, Thulas Nxesi, has wasted no time in addressing the pitfalls with the signing of lease agreements in his department. Noting that the area of lease contract management is potentially open to controversy, he announced that all procurement relating to lease agreements will henceforth be adjudicated by the Special Bid Adjudication Committee at head office and final signoff will be done via the office of the director-general.

Public Protector’s report

When the Public Protector was asked to look into proposed leases for two buildings sought by the SAPS in 2009, she found the leases unlawful and the departments involved guilty of maladministration.