Regard must be had to the higher standard of conduct expected from public officials, and the number of falsehoods that have been put forward by the Public Protector in the course of the litigation. This conduct included the numerous “misstatements”, like misrepresenting, under oath, her reliance on evidence of economic experts in drawing up the report, failing to provide a complete record, ordered and indexed, so that the contents thereof could be determined, failing to disclose material meetings and then obfuscating the reasons for them and the reasons why they had not been previously disclosed, and generally failing to provide the court with a frank and candid account of her conduct in preparing the report. The punitive aspect of the costs order therefore stands.
In the world we live in, one in which our President was bribed by a man who later was released from prison despite the fact that he was not terminally ill as he fraudulently claimed, in which allegations of tender fraud and corruption continues to swirl around well-connected politicians like Julius Malema and Siphiwe Nyanda, in which the ANC government announces almost every week that it will investigate whether a plan should be made to actually plan to deal with corruption, in which serious and credible allegations of tender fraud and corruption are dismissed by politicians and those who have bribed our politicians because “no court has actually found them guilty of any crime”, in this world the most recent judgment of the Constitutional Court should be welcomed.
Although the judgment will not stop tender fraud and corruption, it does send a signal that municipalities and other organs of state have a duty to investigate any credible allegations of tender fraud and corruption. Municipalities will no longer be able to credibly protect politicians and those who bribe them by claiming that everyone is innocent until proven guilty and that no court has found the individual or company guilty of anything: they will have to investigate the matter.
In Viking Pony Pumps (Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems (Pty) Ltd and Another a unanimous Constitutional Court – in a judgment written by Justice Mogoeng Mogoeng – made it clear that there was a heavy onus on organs of state (municipalities, parastatals, provincial and national departments) to investigate allegations of tender fraud when they are made aware of it.
Although the case dealt with the issue of “fronting” to gain tenders from a municipality, the principles set out in the case could have far wider application. Fronting is the practice of companies owned by white people where they sign up black people as “shareholders” and “directors” in name only in order to gain a competitive advantage in obtaining tenders from organs of state.
In this case, a disgruntled (white) former director and 10% shareholder of Viking Pony Pumps and a disgruntled (black) former 35% shareholder in the company went to its competitors (Hidro-Tech Systems), who had lost out on many tenders awarded to the guys from Viking Pony Pumps because the latter company had a 70% black “shareholding” and therefore scored higher on their BEE credentials, and provided them with information about the fronting at the company they used to be associated with. The director alleged that while he was paid R23500 per month the 35% black shareholder was paid only R5600 per month and had no control or influence whatsoever over the company.
The City of Cape Town did a perfunctory investigation after receiving a complaint from Hidro-Tech Systems, but this did not satisfy the latter and it approached the court to order the city to properly investigate the allegations. In terms of the Local Government Municipal Finance Management Act and its regulations:
An organ of state must, upon detecting that a preference in terms of the Act and these regulations has been obtained on a fraudulent basis, or any specified goals are not attained in the performance of the contract, act against the person awarded the contract.
The Pony Pumps guys argued for a narrow interpretation of this regulation, while the Hidro-Tech Systems guys asked the court to give a wider interpretation to this regulation. The Court opted for the second approach, noting that regulation 15(1) ensures that no organ of state will remain passive in the face of evidence of fraudulent preferment but is obliged to take appropriate steps to correct the situation.
This means that when a municipality “discovers”, “get to know”, “come to the realisation”, “are informed”, “have reason to believe”, or “entertain a reasonable suspicion”, that allegations, of a fraudulent misrepresentation by the successful tenderer, so as to profit from preference points, are plausible, it has a duty to investigate these allegations and act on them.
In other words it is not the existence of conclusive evidence of a fraudulent misrepresentation that should trigger responsive action from an organ of state. It is the awareness of information which, if verified through proper investigation, could potentially expose a fraudulent scheme.
This means that municipalities have a positive obligation to investigate any credible allegations of fronting or other forms of fraud by a person who tendered successfully for business. As Justice Mogoeng pointed out:
It would be incorrect to construe it to mean that something is detected only when its existence has already been conclusively established as a fact. Obtaining any information that gives rise to a reasonable suspicion that preference points might have been fraudulently awarded does amount to a detection. There are, however, different degrees and levels of detection. At the one level the information might be somewhat scanty yet capable of exposing corruption in a particular tender. At times the information detected might be conclusive. It is the level of detection that determines the appropriateness of the action to be taken against the alleged offending party.
And once they have information about tender fraud, the municipality has a legal duty to investigate the matter properly or to ask an outside agency or institution to investigate the matter properly. If it fails to do so, it can be ordered to do so by the court. All those Municipalities in Limpopo who might have awarded tenders to companies associated with Julius Malema, might therefore well have a duty to investigate these allegations of fraud on the part of the companies who obtained the tenders and then did shoddy work.
This interpretation flows from section 217(1) of the Constitution which states that:
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.
Although this judgment should therefore be welcomed, the big problem is that – practically speaking – most organs of state who are legally required to investigate fronting and other forms of tender fraud, will perhaps be less enthusiastic about conducting such investigations when the fraud relates to the fact that the company is associated with an ANC leader or with someone who is closely associated with an ANC leader. If one happens to be the nephew or the son of the President, say, and allegations surface that one has obtained a tender on a fraudulent basis, which ANC controlled municipality is really going to investigate this matter seriously?
Given the fact that the ANC sees nothing wrong with being involved (through Chancellor House) in seriously corrupt practices by tendering for contracts essentially to itself, the judgment is probably not going to address the deep and ever spreading problem of corruption associated with the ANC as a political party and with many leaders of the ANC and those who have bought of leaders of the ANC. As long as the ANC, through Chancellor House, obtains tenders from ANC controlled organs of state, all this talk about dealing with corruption is about as credible as a promise by a sex worker or a Catholic Priest that he or she will remain celibate.BACK TO TOP