In this, the fifth of our six-part series on the unfolding education crisis, we profile EduSolutions, its directors and those of its holding company. We examine the company’s historical relationship with public procurement, the current contracts that it has with various tiers of government, and the relationships its key directors have with leading public officials.
Media professionals are free to use all copy and photographs from this series on condition Corruption Watch is credited as the source.
At the centre of the Limpopo textbook scandal is EduSolutions, a company that was contracted to order, purchase and distribute all the textbooks, educational material and toys, in contravention of supply chain management regulations from Treasury and public finance management laws.
The company, trading under Pty Trade73, has contracts in three other provinces, and questions are now being asked in the provincial legislature about the legalities of its contract with the Mpumalanga Education Department and whether that province is getting value for money from the deal, which also sees publisher discounts being awarded to EduSolutions on top of an estimated R38-million in management fees.
It has also emerged that EduSolutions parent company African Access presently employs a number of formerly senior provincial and educational officials, and previously employed an advisor to the now embattled Basic Education Minister Angie Motshekga.
With regard to the Limpopo textbook probe, glaring irregularities have been identified in two reports, a Special Investigating Unit (SIU) investigation and court papers by former Limpopo education’s general manager: Budget and whistleblower, Solly Tshitangano. These include :
• Concerns about the lack of documentation explaining why 22 of 23 bid documents received for the procurement and distribution of Learner Teacher Support Material in Limpopo were disqualified for technical reasons by the bid adjudication committee, with only EduSolutions bid being accepted
• Tshitangano’s call for the tender bid to be re-advertised to make it more competitive was not followed, according to his court documents.
• The deal with EduSolutions was eventually cancelled by the bid adjudication committee, this was overridden by senior management.
• The awarding of 70% of the 30% discount originally negotiated between publishers and government to EduSolutions.
• The deal, which was advertised for a three-year period, was suddenly prolonged to four years.
• Contraventions that involve the procurement and payment of grade R toys and science kits.
• Approval of discounts relating to science kits provided by EduSolutions.
• The irregular approval of a R19-million budget increase to EduSolutions for procurement and distribution of textbooks.
• Some 70% of the management fee was also paid within 30 days of the commencement date of the contract.
• Certifying and paying for goods without ensuring they had been delivered to the warehouse, and then, according to the SIU probe, indicating they had been delivered when they had not.
• There are also investigations into the awarding of EduSolutions transport tenders and the leasing of a warehouse by the department.
• Additional amounts were approved by the then chief financial officer and services outsourced without a cost or benefit analysis done, or a proper proposal submitted by the user.
Shaun Battleman, head of EduSolutions’s parent company African Access, is said to be well connected politically. A benefactor of President Jacob Zuma’s Education Trust, he was also involved in former African National Congress chief whip Mbulelo Goniwe’s trust. Goniwe was the official who signed off a deal that saw EduSolutions supply stationery to the ANC parliamentary caucus in 2005.
African Access and its legal representative have repeatedly denied that EduSolutions’ contacts were the result of its CEO’s political connections, despite claims by former employee, security consultant Dirk Coetzee that Battleman and President Zuma’s relationship was not limited to discussions relating to the president’s trust.
There is footage on African Access’s website which shows Battleman accompanying Zuma on a trip to the US in 2011.
EduSolutions has confirmed Zuma and Battleman do know each other, but said this does not indicate any wrongdoing.
It has also emerged that African Access has a former senior provincial education government official, as well as a senior Gauteng official, who still serves on boards relating to the province. When it initially bid for its first tenders in Gauteng, it had as executives, a former advisor to the education minister, a senior national department official and a former deputy director-general of the national Department of Education, who allegedly assisted in drawing up the first tenders with Gauteng.
Find out more about African Access staff and their government links here.
There are presently no rules preventing government officials from moving to companies dealing with their departments, but it is agreed that it can give bidding companies an unfair advantage when comes to bidding for government contracts. The number of government officials, both past and present, on this company’s payroll raise inevitable questions about political influence in the education sector.
Government failure to react to whistleblower report delays intervention
It’s not clear why government and Education Minister Angie Motshekga in particular, failed to act on information submitted by senior advocate Pat Ellis on 17 January 2012. According to media reports and court documents surrounding the Section27 case, Ellis said the Limpopo EduSolutions contract was more than likely invalid and in contravention of the Constitution, supply chain regulations and the Public Finance Management Act, yet the EduSolutions contract was only cancelled four months later. Section27 has told the courts that the delay served to exacerbate the situation in the province, and meant that service providers had to be found
This was not, however, the first time that government had been informed of concerns surrounding the deal. Tshitangano, who at the time was acting chief financial officer in the Limpopo education department, refused to sign off the deal with EduSolutions in 2010 because it contravened supply chain management rules.
He sent repeated internal memos during 2010 to the bid adjudication committee, the chief financial officer and provincial education department head Benny Boshielo, which now all form part of labour court documents appealing Tshitangano’s eventual dismissal.
It did not help Tshitangano’s cause that firm Neo Africa conducted two forensic investigations which found no evidence of wrongdoing on the part of the Limpopo education department when it came to the EduSolutions contract, and in fact found Tshitangano guilty of breaching financial regulations and of failure to follow tender procedure.
Tshitangano, who had become aware that his repeated objections to the Limpopo government were going to be ignored internally, sent letters to the Premier of Limpopo, the Public Protector, the Presidency, and eventually the Ministry of Education about concerns surrounding the EduSolutions contract, but again he got no response.
Instead, he was suspended and eventually dismissed in April 2011. His evidence became crucial, however, at the end of 2011 when Treasury stepped in to take over the running of the cash-strapped province, and discovered the education department was in so much trouble that it was already in the process of spending its 2013 budget.
At that point it was allegedly recommended by Ellis, who appears to have seen Tshitangano’s letters, that some of the allegations be investigated.
In an interview with Corruption Watch on 19 September, EduSolutions defended itself against the allegations levelled against it, saying the Gauteng education department would not have extended its 2008 contract until 2013 if it was not happy with the company’s service. It also said that the allegations were an attempt to discredit the company and did not reflect the true situation.
EduSolutions – a history of delivery and contract issues
The Limpopo textbook scandal is not the first time EduSolutions has appeared in the media in relation to both its delivery, and the way it structures its contracts, yet the company presently has contracts to procure and supply textbooks and learning materials in Gauteng, Mpumalanga and KwaZulu-Natal as well.
By 2006 questions were already being asked in Gauteng about the economic sense in having one company procure and distribute all textbooks and learning materials. David Quail, a former principal and Democratic Alliance spokesperson on education at that time requested an investigation into the Gauteng contract to establish if money was not being wasted with regard to procurement and distribution of textbooks.
In the same year disgruntled Gauteng suppliers converged on EduSolutions offices demanding to be paid. At the time Panyaza Lesufi, who was then spokesperson for the then Gauteng Education MEC Angie Motshekga and remains her spokesperson today, told Beeld newspaper that the case was being investigated and the contract would not be considered for renewal. It was renewed again in 2008.
Documents in Corruption Watch’s possession allege that during the period from 2004 and 2006, EduSolutions had operational weaknesses, which hampered delivery.
According to the documents, no warehouse system existed and products were not organised under titles, so it was difficult to put together individual consignments. Corruption Watch was told that Gauteng principals who complained about stock not being received were shown a proof of delivery slip, but the process was manual and there were no barcodes or other technology to prove the delivery slip related to that order or to an order for another school. This meant principals often found themselves without recourse if they received an incomplete order. Quail confirmed delivery complaints over this period.
The schools involved are Section 20 schools, which do not have control over their own funds, like the independently administered Section 21, or formal model C schools. The Gauteng education department was informed about delivery quotas based on EduSolutions’ system which did not allow for independent verification, as the company ran the whole procurement chain from start to finish.
The documents also talk of stock, allegedly lying strewn and uncategorised on the warehouse floor during the same period. The source recalls an instance when the Gauteng education contract was to be renewed in 2006 and an inspection of the warehouse scheduled.
The staff were allegedly told to move stock which had not been delivered to schools to an office building near the EduSolutions warehouse based just outside Johannesburg .The stock was allegedly returned to the main warehouse, recorded as EduSolutions stock, and later sold to the Gauteng department of education.
Incidents of overpricing when it came to delivery of printed products like catalogues and information material, and scientific calculators to schools were also provided by the source, whose information has been given to the relevant authorities.
During this period a number of former education officials were employed by EduSolutions. The source said they assisted in drafting tenders, negotiating with suppliers and developing a catalogue of products, all of which the source asserts gave the company extraordinary power and negotiating ability.
“They knew exactly how to draw up the documents to ensure that EduSolutions qualified,” the source said.
This source also said that they saw the company being given preferential payment status by government departments, with invoices for the company being placed ahead of other providers.
The source said EduSolutions’ Gauteng warehouse was in a state of chaos by 2005, just two years after the company was established. This was supported by Dirk Coetzee, who recently told News24 that he had seen 12 truckloads of books, that were not sent to schools, hidden from education officials; EduSolutions receiving preferential treatment by provinces; and former education official Salama Hendricks assisting EduSolutions founder and African Access chief executive Shaun Battleman to secure lucrative government contracts, roughly between 2005 and 2009.
Despite complaints in the media about delivery, EduSolutions also went on to secure contracts in KwaZulu-Natal, Limpopo and then Mpumalanga.
The source said that between 2004 and 2006, the KwaZulu-Natal education department allegedly overpaid for transporting goods to its schools. It’s alleged the province paid about R10 a kilogram for the service, while the contractor was paid about R1. The documents also talk about delivery being outsourced to small contractors, the majority of whom had no delivery experience but were connected either politically or to EduSolutions employees. Fees of 8% of the value of the stock were paid to service providers – far above the market price for transporting goods.
The contracting of small employees with no previous skills by EduSolutions was exposed in a Carte Blanche interview in July 2012, when Allan Langton, the financial adviser of Richards Bay businessman Mthokozisi Nxumalo, spoke to presenters about his surprise at suddenly finding out that Nxumalo had been subcontracted by EduSolutions to deliver books in KwaZulu-Natal.
Nxumalo is head of events company Andisa Unathi Investment. Langton said: “It did not make any sense at all. How did we get this work? What do we know about logistics? What do we know about delivering textbooks?”
He alleged the group was awarded the contract because of his boss’s connection to a senior North Coast ANC official. In 2010, Langton handed over invoices and data relating to the textbook deals to the Hawks.
Delivery problems in Gauteng appear to have continued after that, despite assurances by EduSolutions in their interview with Corruption Watch that they had fixed the system by 2007.
In 2007, the Gauteng education department, led by Angie Motshekga, assured the public that textbooks and supplies would be delivered to Gauteng schools by January 2008, and that many textbooks had already been delivered to schools despite some governing bodies saying otherwise. At the time, EduSolutions said budgets had been received late. Despite the problems encountered in Gauteng, the province has extended its contract until 2013 under MEC Barbara Creecy.
EduSolutions has denied that there was any collusion between company staff and Limpopo officials, but queries by Treasury and investigative units about the contract has shone the spotlight on the deal with Mpumalanga’s education department.
Questions are now being asked about the contract between EduSolutions and Mpumalanga’s department of education, with Anthony Benadie, the DA leader in the province, calling for an investigation. In July 2012, the party questioned the billing of a management fee plus the lion’s share of the bulk discount from publishers. Benadie said the province could oversee its supply of books for a fraction of the price.
He also questioned why the chief financial officer had made EduSolutions a priority debtor, ensuring it was paid ahead of other suppliers.
The party said it had received complaints from some schools in Mpumalanga that they had not received all the textbooks they had ordered. Mpumalanga’s education department refused a number of requests by Corruption Watch for clarity regarding its contract with EduSolutions.
Other cases where EduSolutions made headlines
In 2008 EduSolutions was embroiled in an investigation involving a number of ANC parliamentary caucus support service officials, who were suspended and subsequently fired for fraud relating to unauthorised transactions and irregularities in signing of contracts in 2005. EduSolutions was contracted at the time to supply materials and stationery to the department.
The deal was allegedly signed off by ANC chief whip Mbulelo Goniwe, who lost his job after being accused of sexual harassment in 2007. Goniwe has since told the media that the deal with EduSolutions had been recommended to him and was based on a collective decision. Goniwe also confirmed a relationship with Battleman and the EduSolultions boss’s involvement in the Matthew Goniwe Trust.
It is not clear if EduSolutions was investigated with regard to supplies to the ANC caucus, but allegations did arise around alleged overpricing of goods supplied. In the same year, charges were laid against Gauteng education department officials, allegedly involved in price fixing of school supplies.
On 9 January 2008 then Gauteng MEC Motshekga said criminal charges had been laid against officials. She said an investigation was being launched to look into whether EduSolutions was involved in price fixing. It’s not clear what became of that investigation, but it would appear that no evidence was found, because the department renewed its contract in 2008 for three more years. The contract has since been extended to March 2013.
How does EduSolutions make its money from its education contracts?
Provincial education departments previously negotiated prices, procured and delivered textbooks and other support material from publishers and suppliers to Section 20 schools – non-former Model C schools that cannot manage themselves. The departments would receive a 30% bulk trade discount from publishers and suppliers.
In Gauteng, Mpumalanga, KwaZulu-Natal and Limpopo, EduSolutions took over this role, distributing school material to schools and negotiating directly with publishers and suppliers for books, stationery and educational items. It also took the majority of the 30% bulk discount.
In some cases it took over the running of warehouses. EduSolutions also received a management fee of about 8% or 9%, depending on the size of the budget.
EduSolutions replies to Corruption Watch
EduSolutions this week defended its performance in the four provinces, saying that many of the allegations against it were unfounded and that the company was being unfairly targeted. The company admitted, as had been claimed by a former employee, that it had some teething problems with distribution of textbooks and educational material when it started its contact with Gauteng, but said these were ironed out by 2007.
Themba Ndlovu, speaking on behalf of EduSolutions, he said it did not have a centralised system at the start of trade, but had had a few storage areas, which had created problems when it came to keeping track of stock. He said they could now inform a department where its orders were, and establish if an incorrect order was sent out and correct and resend it immediately.
He also denied that EduSolutions had ever overcharged its provincial clients, saying the company had attempted to save them money by going with the cheapest option. He said occasionally departments specified which suppliers they wished to use, particularly when it involved specialised items, and there were only a few suppliers.
Ndlovu said one of the problems facing the company was that long-serving officials on LTSM (learner teacher support material) committees developed relationships with suppliers, and EduSolutions was put under pressure to procure from these suppliers. “Where we feel it is not justified we have alerted the MEC,” he said.
He could not recall the 2008 price-fixing matter in Gauteng, for which officials were charged, but said it was possible it was related to the problems he had just outlined. Ndlovu did not deny that textbooks might have been removed by EduSolutions staff from one of its warehouses around 2005/2006, but denied it misled Gauteng officials by hiding books that had not been delivered.
“The national education department has had three curriculum changes, but it has no stock disposal policy, so there is no clarity on what to do with out of date textbooks,” he said, adding the problem continues today. “Old stock was often removed and stored elsewhere.” He did not comment on allegations that the stock removed was allegedly later resold to the Gauteng education department.
EduSolutions also disputes allegations that its contracts, awarding it the lion’s share of the 30% bulk discount from publishers, were unreasonable. He said the discount was originally given to the government to cover distribution costs – a role EduSolutions now carried out.
The company has been criticised for its decision to employ small contractors, which were paid 8% of the value of the product for delivery, when larger courier companies would charge cheaper rates.
Ndlovu said the company had made a decision to employ small BEE companies, but it also had practical applications, as these companies, which operated in rural and out of the way places, were best equipped to find the schools.
Allegations that these smaller delivery companies were not experienced and that some contractors arrived on foot for their first meetings, later hiring vehicles, were not broached by the company. Neither were allegations that some companies, like Andisa Unathi Investment mentioned earlier, appear to have been selected because of political affiliations.
Ndlovu could not recall the 150 000 allegedly overpriced science calculators given to Gauteng schools and paid for from a grant, according to a source’s account. He did say that the oft-repeated allegation that the company charged R13 a pencil, neglected to mention that these were special art pencils. “You can’t just go to CNA, find the first pencil you see and then say that is the price schools ought to be paying,” he said.
When it came to Limpopo, Ndlovu said they were prevented from ordering books earlier in the year because of budget shortages, and that schools did not receive books they ordered because the Limpopo education department’s R458-million budget was slashed to R246-million, and books were removed from the list.
Ndlovu denied comments made in ex-Limpopo education administrator Dr Anis Karodia’s report that the company had been reluctant to hand over records relating to school orders, and said that department had no accurate database when they took over the contract in 2011. “We had to draw up our own database because the schools listed on Limpopo’s database was incomplete and the data had to be cleaned up.”
In the case of Mpumalanga, schools were not getting the books they ordered because district officials would change orders based on school budgets.
Status of EduSolutions contracts in KwaZulu-Natal, Gauteng and Mpumalanga
Questions are being asked about the millions being paid to EduSolutions in management fees, but Gauteng and KwaZulu-Natal are apparently happy with the company’s service, despite the occasional hiccup.
Gauteng MEC for Education Barbara Creecy extended the province’s contract with EduSolutions until March 2013, after it expired on March 2011, based on a performance and legal review by the department. EduSolutions received a management fee of 8% (R38-million) for the 2011-2012 financial year and receives 55% of the bulk discount.
Despite Creecy’s assurance that 98% of books were delivered to the schools in Gauteng, some schools, in particular Eldorado Park and Somelulwazi primary school in Freedom Park, said in June 2012 that they did not have sufficient text books, according to a survey carried out by the DA.
KwaZulu-Natal, which is paying EduSolutions R77-million in management fees, also told Corruption Watch that it had no problems with the company as a supplier, but was presently involved in a court battle against a former supplier, Indiza Suppliers. The value of that province’s textbook order was R508-million.
Mpumalanga, which is paying R38-million in management fees to EduSolutions, ignored repeated requests for comment on the company’s performance. Its reluctance to reply may stem from calls for investigations into the MEC’s relationship with EduSolutions and the conditions of the contract.
Coming up
Next week, in the last article of our series on the unfolding education crisis, we will look at the lessons learned, including government outsourcing solutions, and the collective failure of unions, parents and the government to timeously respond to a growing problem. We will also identify problems in other provinces, such as the Eastern Cape.
Previous installments in the series:
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Excerpt
In this, the fifth of our six-part series on the unfolding education crisis, we profile EduSolutions, its directors and those of its holding company. We examine the company’s historical relationship with public procurement, the current contracts that it has with various tiers of government, and the relationships its key directors have with leading public officials.
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