Business

Metropolitan Health accused of using black business as front to get tender worth hundreds of millions

2019-03-19 16:49

A black business entity has filed a lawsuit against the company, alleging it was used to bag a lucrative government contract

Metropolitan Health faces allegations that it used a small black business as a front to bag a government tender worth hundreds of millions of rands.

These allegations are contained in papers attached to a R60 million lawsuit, filed by Johannesburg businessman Solly Mlondobozi against Metropolitan Health.

Metropolitan Health is a subsidiary of the financial services conglomerate Metropolitan, which, in turn, is a subsidiary of MMI Holdings.

In papers filed in the Western Cape High Court in October last year, Mlondobozi claims that in 2015, Metropolitan Health used his broad-based black economic empowerment (BBBEE) status to score a multimillion-rand contract to administer the Government Employees Medical Scheme (Gems).

Gems is a restricted medical scheme for public service employees and their beneficiaries. The scheme has 1.8 million beneficiaries.

Mlondobozi claims to have been awarded a contract to distribute medical aid claim messages to Gems members on behalf of Metropolitan via SMS and MMS, and other related information.

Mlondobozi alleges that after winning the tender, Metropolitan used the services of his company, Ntsumi Telecommunications, for 18 months after landing the contract, following which Metropolitan dumped him.

However, Metropolitan Health is defending the action and filed an exception notice in January, asking the judge to throw the case out of court.

It is also seeking a costs order against Ntsumi Telecommunications.

The matter has yet to be heard in the Western Cape High Court, but is likely to be heard in court only in the second half of this year, Mlondobozi said.

“Gems considered and took into account who Metropolitan Health’s intended subcontractors were (which included Ntsumi Telecommunications) in deciding who to award the Gems tender to,” the papers state.

In responding papers, Metropolitan claimed that Mlondobozi had no right to have been awarded a subcontract for the provision of the SMS service, saying: “[Ntsumi Telecommunications] does not allege that [Metropolitan] infringed any of its rights or legally recognised interests.”

The company also argues in court papers that Mlondobozi’s case was weak and was not based on sufficient facts; that the country’s BBBEE codes “were enacted in the public interest” and were not legally enforceable; and that Metropolitan could not be sued for breaching them.

In Mlondobozi’s court papers, he states that he and Metropolitan Health had agreed that, should Gems award the tender to Metropolitan, the company would subcontract a portion of the contract.

In the particulars of his claim, Mlondobozi said that “prior to submitting its tender, [Metropolitan] obtained prices and/or quotations from [Ntsumi Telecommunications] to render the telecommunications services portion of Metropolitan Health’s tender, which involved two components: SMS communication between Metropolitan and Gems and its members (the SMS service) and MMS communication between Metropolitan and Gems and its members (the MMS service)”.

Ntsumi Telecommunications provided Metropolitan Health with prices and quotations in respect of its services, and these figures were used as part of Metropolitan Health’s tender bid, the court papers claim.

“Gems considered and took into account who Metropolitan Health’s intended subcontractors were (which included Ntsumi Telecommunications) in deciding who to award the Gems tender to,” the papers state.

Mlondobozi, who started delivering MMS messages to Gems’ members on behalf of Metropolitan Health in January 2015, said the company terminated his services at the end of August 2016.

At the time, Metropolitan had only been using Ntsumi’s MMS service, but had not started using its SMS service as per the contract with Mlondobozi.

Metropolitan should “not have included [his company’s] prices and quotations for SMS and MMS services in its Gems tender without intending to award such subcontracts to [Ntsumi Telecommunications]”, argued Mlondobozi.

The company, he said, should also not have “relied on [his company’s] Level 1 BBBEE rating on its Gems tender in circumstances where it did not ultimately use the plaintiff to render such services”.

He also said that Metropolitan should not “have acted in any manner which would constitute a fronting practice, as defined in the BBBEE Act”.

The papers claim Metropolitan Health later subcontracted another company to deliver the SMS services.

The financial services company acted dishonestly to both Gems and Ntsumi, and it was therefore “guilty of fronting”, claims Mlondobozi in court papers.

In response, Metropolitan Health CEO Ali Hamdulay said on Friday: “Metropolitan Health is satisfied that it acted at all times in accordance with the law and within its contractual obligations to Ntsumi. We categorically refute that Metropolitan Health used Ntsumi as a front, or that Metropolitan is guilty of fronting in any manner.

“We remain confident of the strength of our defence to the claims and assertions made by Ntsumi, which we find baseless and without any merit.”

Hamdulay said Metropolitan Health was forced to terminate Ntsumi’s contract because Gems had decided to cancel its outgoing communication service portion of the contract.

“Gems contracted separately and directly with another BBBEE company to provide these services. Metropolitan Health was not involved in the process of appointing this new service provider,” he said.

“In light of Gems having terminated the outgoing communication service portion of its contract with Metropolitan Health, the latter, in turn, terminated its contract for telecommunications services by Ntsumi, given that this portion of work was no longer needed.”

Gems, said Hamdulay, had awarded the tender to Metropolitan Health on merit and because the company had the appropriate infrastructure, expertise and experience to administer the largest medical scheme in the public sector.

He declined to reveal the value of the contract, but sources close to the company told City Press that during the first year of the contract, Gems paid Metropolitan Health about R100 million a month.

“I am told that at some point, Gems reduced the contract dramatically to about R40 million a month,” said a source with close knowledge of the contract between Metropolitan Health and Gems.

Hamdulay said Metropolitan Health subcontracts several Level 1 BBBEE subcontractors and plays an instrumental role in empowering black-owned and managed businesses.

“It is proud of its reputation in empowering black entrepreneurs, black women and historically disadvantaged individuals.”

Mlondobozi said he was a former senior executive and had worked for companies such as Absa, BMW and Standard Bank before starting Ntsumi Telecommunications in 2007.

Mlondobozi has a BSc honours degree in microbiology from the former University of Natal, now the University of KwaZulu-Natal.

Ntsumi Telecommunications provided telecommunications and cybersecurity services to both private and public sector entities, he said.

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July 21 2019