Social grants: why a new contract with CPS may be invalid and what the Con Court can do to fix the mess

The Department of Social Development and SASSA have gone to great lengths to avoid asking the Constitutional Court for help to ensure that social grants are paid in a legal and cost effective manner after the current invalid contract of Cash Paymaster Services (CPS) comes to an end on 31 March this year. To understand why this failure is either catastrophically incompetent or corrupt (or both) it is important to understand why the Constitutional Court’s help is needed and what the Court can do to fix the problems created by the Department and SASSA’s incomprehensible conduct.

Several years ago, when the Constitutional Court declared invalid the awarding of a tender to CPS to deliver social grants, it suspended the order invalidating the contract until a new tender could be awarded or, if no contract was awarded, until the contract came to an end. As no new tender was awarded, this means that the original (invalid) contract will lapse on the 31 of March.

Because the contract is invalid and because it will come to an end on 31 March, it is not legally possible to extend the contract. SASSA therefore either had to make another plan (which it did not do – despite falsely promising the Constitutional Court that it would) or it had to conclude a new contract with CPS (something SASSA and the Department seemed suspiciously eager to do).

Why the Department and SASSA have been so eager to conclude a new contract with CPS (a company who, in other circumstances, Minister Bathabile Dlamini and other defenders of the Gupta family would have described as a blue-chip member of White Monopoly Capital), remains a great mystery – especially for those who are reluctant to impute corrupt motives to the Departments, SASSA and CPS.

In any event, the legal problem faced by the Department, SASSA and CPS is that the Constitution, the relevant legislation and Treasury regulations appear to prohibit the role players from entering into a legally valid new contract at this stage. Pertinently, section 217 of the Constitution states:

When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

Even if CPS had not unlawfully been granted the original tender and had not been placed in a unique position to benefit from the unlawful contract by being positioned as the only private company with the ability to deliver grants for the foreseeable future, the new contract would probably have been invalid. This is because the contract would not have been concluded in terms of a fair, equitable, transparent, competitive and cost-effective process.

Treasury regulations allow for a deviation of the normal procedures to contract services in exceptional circumstances such as an emergency situation. But these are not applicable when the emergency situation was created by the parties to the contract. Because SASSA and the Department appear to be responsible for creating the crisis which has placed CPS in the position of being the only private company who are capable at such short notice to deliver social grants, it does not seem as if Treasury has the legal power to grant permission for deviating from the requirements of section 217 of the Constitution.

SASSA insisted that the reason why CPS was originally chosen and why no other private company or the Post Office could deliver grants was because CPS had the technology to validate every grant recipient through a biometric system. CPS said it would be able to verify the identity of each recipients whose money is paid into a bank account through voice recognition technology. It is partly on this basis that it was awarded the illegal tender and why it is now again the only private company in the running to pay grants. But the system is not currently working. If you phone SASSA’s voice verification number you are told SASSA no longer requires voice verification.

SASSA has also not done what it promised the Constitutional Court it would do to fix the problem. In this context, it is difficult not to conclude that SASSA and the Department are responsible for the crisis. So even if it wanted to, the Treasury does not seem to have the legal power to allow for a deviation from the normal procedures to contract services as required by section 217 of the Constitution.

Entering into a new contract with CPS will therefore almost certainly be unconstitutional and the contract is likely to be found to be invalid if challenged in court.

This is why SASSA and the Department should have approached the Constitutional Court months ago to assist it to deal with the problem.

The Constitutional Court has always maintained that the most pressing concern is to ensure that there is no disruption in the payment of social grants as the paying of these grants affect the lives of millions of vulnerable citizens and because it forms part of the constitutional obligation of the state (contained in section 27(1)(c) of the Bill of Rights) to provide access to social security to everyone.

When confronted with a breach of any provision of the Constitution (including the flouting of section 217 by SASSA, the Department and CPS), the Constitutional must declare that conduct unconstitutional and invalid. This means that the Constitutional Court may have to declare that the new contract entered into between SASSA and CPS are unconstitutional and invalid.

But this is not the end of the matter. In terms of section 172(1)(b) of the Constitution the court has the power to make any order that is just and equitable, including an order suspending the declaration of invalidity for any period and on any conditions, to allow the competent authority to correct the defect.

This means the Constitutional Court can suspend the order that the new contract entered into between SASSA and CPS is invalid for a specific period of time in order to ensure – as the court must and will – that the payment of grants is not interrupted. During this time, CPS would continue to be obligated to pay social grants to all beneficiaries.

The Court can order CPS to continue to pay the grants and can even cite CPS director Serge Belamant directly to comply with this order. If CPS fails to pay the grants and just walks away because the company is unhappy with the size of the profits it will be making, the company and Mr Belamant would then be in contempt of court and Belamant could then be jailed.

Furthermore, as the Court has said in the judgment declaring invalid the original awarding of the tender to CPS, the private company is not supposed to benefit from an unlawful contract. This means that the Court has the power to impose any conditions on the parties to ensure that CPS does not unduly benefit from an unlawful contract, a contract which it was only in a position to enter into because it had previously been awarded an unlawful contract.

What kinds of conditions could the Court impose and why would CPS and its friends at the Department and in SASSA be so eager to avoid this at any cost?

First, the Court could impose limits on the profits that CPS would be allowed to rake in from the unlawful contract. It could prohibit CPS from charging more than a certain amount for handling each grant recipient or could even – in an extreme case – order CPS to deliver the grants without profiting in any way from the unlawful contract. This would obviously not be something that CPS (or their friends at SASSA and the Department) would wish to happen.

Second, the Court will almost certainly also retain supervisory jurisdiction over the matter to ensure that CPS, the Department and SASSA comply with the court order. Given the fact that SASSA previously gave assurances to the Court which turned out to be false, the Court may also want to cite individuals (including Minister Dlamini and Serge Belamant) to take personal responsibility for implementing the court order, which could allow the Court later to find them in contempt of court and to have them jailed for flouting the orders of the court if that turned out to be necessary.

Third, the Court could also require all the parties to report back to it every month or every three months on what they have done to fix the problem. It could also require SASSA and CPS to submit financial statements to the Court so that the Court could check whether SASSA was being overcharged or whether CPS was unduly benefiting from an unlawful contract.

Fourth, as CPS and its associate companies have allegedly abused their privileged position as the distributor of social grants, by selling products to grant recipients and by making deductions from their grants, the Court may well prohibit CPS or any of its associate companies from using the personal details of the more than 10 million recipients of grants to market any products to grant recipients and from exploiting vulnerable grant recipients in any other way.

As CPS and associate companies are said to make much of their profit from exploiting the privileged information of grant recipients that CPS is in possession of because it was given an unlawful contract, one can imagine that CPS would do anything in its power to prevent the Constitutional Court from making such an order.

Lastly, the Constitutional Court could also declare that the SASSA grant cards held by beneficiaries as well as the data of all grant beneficiaries held by CPS do not belong to CPS, but belong to the state. The list containing the details of the more than 10 million people who receive social grants is an enormously valuable asset and any company wishing to exploit vulnerable and poor people by selling them products they may not need or could not afford, would probably do anything it could (maybe even outside the four corners of the law?) to hold on to such an asset.

It must be clear that the Constitutional Court has been placed in a difficult position. If CPS is the only company who could deliver social grants from 1 April the Court would have to suspend the invalidity of the contract with CPS for a second time. But as I tried to explain, the Court has enormous power to impose conditions on the parties to limit abuse.

While it makes sense that CPS would do everything in its power to avoid judicial oversight for fear of losing out on making huge profits, what does not make sense is that SASSA and the Department similarly acted to try and protect CPS by avoiding the Constitutional Court at all cost.

The unanswered question is why SASSA and the Department have been so anxious to avoid oversight by the Constitutional Court.

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