Is Sassa protecting the profits of a private company?

The decision by the South African Social Security Agency (Sassa), under the authority of Social Development Minister Bathabile Dlamini, not to approach the Constitutional Court with a request to extend the contract of Cash Paymaster Services (CPS), requiring the private company to continue handling social grant payments, is difficult to understand. Absent a plausible explanation, it will create the suspicion that the decision was taken solely to benefit a private company (CPS) to enhance its profits.

The Constitutional Court noted in 2013 when it declared invalid the awarding of the tender to CPS to provide services for payment of social grants, that “for many people in this country the payment of social grants by the state provides the only hope of ever living in the material conditions that the Constitution’s values of dignity, freedom and equality promise”.

About 15 million people depend on the payment of these social grants. As the Constitutional Court noted, people who receive social grants are vulnerable and live “at the margins of affluence in our society”.

For some reason Sassa previously decided to contract out its constitutional duty to provide social assistance to vulnerable South Africans to a private company (CPS). In effect, it privatised the distribution of social grants.

However, in November 2013 the Constitutional Court declared invalid the tender awarded to CPS for this purpose. One of the reasons why the tender was declared invalid was because Sassa had failed to check the empowerment credentials of CPS before awarding the contract to it. As the Constitutional Court noted:

There was an obligation on Sassa to ensure that the empowerment credentials of the prospective tenderers were investigated and confirmed before the award was finally made. That obligation became even more crucial when there were no other competitors left in the second stage. There is then an even greater obligation for the tender administrator to confirm the empowerment credentials of the winning bidder.

It is therefore unclear whether CPS complied (and currently complies) with its Black Economic Empowerment obligations as stipulated by the law, as these were never checked properly. In the light of the fact that CPS may not have the requisite BEE credentials (as this was not properly checked, the public do not know if it does), it is strange that Sassa seems to have done everything in its power to protect the contract with CPS and to ensure it continued delivering the service it was originally contracted to do.

The Constitutional Court took a dim view of Sassa’s attitude in this regard. It is worth quoting the Court at length about this matter.

Before concluding, it is necessary to say something about Sassa’s conduct. Sassa is an organ of state. It is bound to the basic values and principles governing public administration set out in section 195 of the Constitution. As is evident from this judgment, and the merits judgment, Sassa’s irregular conduct has been the sole cause for the declaration of invalidity and for the setting aside of the contract between it and Cash Paymaster. This Court sought further submissions from the parties to assist in the difficult task of determining appropriate relief. The importance of this is obvious, not only because of the vast sums of money involved but more importantly, because of the enormous consequences of irregularities where the interests of beneficiaries, particularly children, play a pivotal role in assessing the appropriate remedy. Yet, contrary to the obligations it carries under section 195, Sassa has adopted an unhelpful and almost obstructionist stance. It failed to furnish crucial information to AllPay regarding the implementation of the tender and to Corruption Watch in respect of steps it took to investigate irregularities in the bid and decision-making processes. Its conduct must be deprecated, particularly in view of the important role it plays as guardian of the right to social security and as controller of beneficiaries’ access to social assistance.

In any event, after many twists and turns and after consistently maintaining that it would be able to move payments in-house, Sassa recently admitted that it won’t be able to do so. (I do not have sufficient information to determine whether Sassa misled the Court about this matter.)

Earlier this month Sassa said the only way to make social grant payments from April was to stick with the current service provider (CPS), the same one whose contract was declared invalid.

In one of the three Constitutional Court judgments in the case, the Constitutional Court ruled that CPS had no absolute right to benefit from an unlawful contract and held that:

Any benefit that it may derive from the contract should not be beyond public scrutiny.  [CPS must therefore] provide [the Court with] the financial information to show when the break-even point arrived, or will arrive, and at which point it started making a profit in terms of the unlawful contract.

The Court thus retained jurisdiction in the case to monitor the situation. As the court noted:

Unless the tender is awarded to a different contractor, [CPS] will benefit from an unlawful contract. In that event, the public is entitled to know the extent to which it has so benefited.

The Constitutional Court did not give any indication of how it would respond if it transpired that CPS benefitted financially from the unlawful contract. But the Court retained jurisdiction over the matter and it is conceivable that the Court would order CPS to pay back some or all the profits it made from the unlawful contract.

As CPS is currently the only body who, in the short term, can deliver social grants, it potentially has enormous bargaining power to strike a deal to benefit it – to the detriment of the state and of all South Africans who depend on the state for services.

Sassa had to approach the Court to request it to extend the contract to CPS, because this would ensure that CPS would not be able to conclude a new contract with Sassa on unfavourable terms dictated by the private company.

Absent oversight by the Court, CPS would be able to charge almost any rate it wished to continue to deliver social grants, allowing it to continue to benefit financially merely because it was placed in an advantageous position due to it previously being awarded an unlawful tender.

For this reason alone, the decision not to approach the court is troubling.

But there is a second reason why Sassa is supposed to approach the Court for an extension of the contract. This is because the Constitutional Court held that CPS became an organ of state when it was contracted to provide social grants to citizens as it was implementing the realisation of a constitutional right.

This was not merely an issue of a contract concluded between an organ of state and a private company with which the Court could not interfere. The Constitutional Court – as the body with the power ultimately to interpret and enforce the Constitution – has a duty to ensure that all bodies fulfil their constitutional obligations to provide access to social security to those in need.

Both Sassa and CPS told the Court that a re-run of the tender process would create legal difficulties, because the Court has no power to make a contract for Sassa and CPS, or to amend the existing contract. They argued that if the contract was declared invalid CPS would have no further obligations towards anyone and would be entitled to walk away from the contract without any sanction for doing so.

The Constitutional Court rejected this argument. First, it noted that the Court had the power to suspend the declaration of invalidity of the contract until any new payment process was operational. During the period of suspension, the contract would remain operational and CPS would stay bound to its contractual and constitutional obligations.

But the contract is coming to an end at the end of March. This does not mean that CPS did not continue to be bound by its constitutional duties to provide access to social security to those in need.

The Constitutional Court noted that the state had asked a private company (CPS) to undertake constitutional obligations by entering into the social grant payment contract with Sassa. Even after the contract came to an end, but before the appointment of another service provider, CPS would have constitutional obligations.

This is because – in certain context – private persons or institutions also have the obligation to respect socio-economic rights. This includes the right to access to social security protected by section 27(1)(c) of the Constitution.

The conclusion of a contract with constitutional obligations, and its operation for some time before its dissolution – because of constitutional invalidity – means that grant beneficiaries would have become increasingly dependent on Cash Paymaster fulfilling its constitutional obligations. For this reason, Cash Paymaster cannot simply walk away: it has the constitutional obligation to ensure that a workable payment system remains in place until a new one is operational.

Approaching the Court to extend the contract would have recognised this reality and would have ensured that the Court retained its supervisory jurisdiction over the case, to ensure that social grants are delivered as required by the Constitution in a cost effective and efficient manner. It would also have ensured that CPS remained accountable.

As the Court noted:

In light of the importance of the right to social security and the impact on and potential prejudice to a large number of beneficiaries, the public clearly has an interest in ensuring that the tender is re-run properly. In these circumstances, it is appropriate to impose a structural interdict requiring Sassa to report back to the Court at each of the crucial stages of the new tender process.

One way to read the decision by Sassa not to approach the Court to ask it to extend the CPS contract, is thus that it amounts to an attempt to avoid this form of accountability. If this is correct, the question that arises is why Sassa is again trying to give CPS a free pass.

PS: After publication I was made aware of this article containing evidence that the empowerment deal that was supposed to give CPS its BEE credentials was fraudulent.

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