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The North West’s cash-strapped local municipality in Rustenburg – once dubbed the country’s fastest-growing city – has blown the lid on an alleged inflated fleet contract, laying the details bare before the North West High Court in Mahikeng.
In a counter application lodged against the service provider, KSP Group, which claims the municipality violated its service level agreement with the company by suspending payments, municipal manager Edward Komane pulled no punches, saying that “the extent of the price overinflation gave rise to reasonable suspicion that there might have been wrongdoing” and the Hawks had been enlisted to assist in the investigation.
The municipality wants the court to review and set aside the R480 million deal awarded in October last year, as well as two other associated contracts, saying this would “stop the unconscionable conduct in this matter and the loss to the public purse of what is easily more than R100 million which is so desperately needed by the municipality to provide municipal services to the citizens of Rustenburg”.
According to a local municipal watchdog in Rustenburg, Munsolve, the council’s financial position in the 2017/18 financial statements had deteriorated to the extent that the municipality was unable to meet its short-term obligations – the assets register stood at R684 million and the liabilities exceeded R1.1 billion.
But insiders said halting payments on the KSP contract, as well as those of UPS and Rise Now Trading, was bringing some stability towards financial recovery.
The legal dispute between Rustenburg municipality and KSP was scheduled to be heard before the high court on an urgent basis last Thursday, but it has since been enrolled in the normal court roll.
Komane said in court documents that the revelations of financial irregularities were first picked up by the Auditor-General and it became apparent that three companies, although they had separate contracts with the municipality, “are linked and associated, have common directors and staff, and share premises”.
He said each was awarded tenders or contracts by the municipality for material at grossly overinflated sums of money “in circumstances where there were serious irregularities in the procurement processes”.
With a previous fleet of 400 vehicles – traffic police, construction, maintenance and waste collection vehicles, as well as vehicles for municipal officials – Komane said the municipality needed to replace some of the fleet which was old and unreliable, but under the KSP agreement “the municipality is overpaying no less than R120 million for the vehicles that [the company] is supplying pursuant to the award and service level agreement”.
He said the contract was not put out for a competitive tender process and that the overall cost over the three-year period exceeded the municipality’s budgeted funds by more than R236 million.
He said the contract was signed by his predecessor, Nqobile Sithole, who resigned in February citing interference in her work and issues of tribalism.
He said the fact that a construction and engineering company was supplying vehicles was questionable, more so because “all that KSP seem to have done is sell vehicles [at vastly inflated prices] to the municipality. For this they added on an administration fee of more than R48 million and R60 million in finance costs,” he said.
For example, he said, had the municipality purchased 45 Case TLBs – tractor-loader backhoes – directly from the dealer it would have spent R40 million including VAT.
Under the contract with KSP the municipality paid a total of R69 million for the same units.
In its court papers KSP said that a service level agreement had been concluded with the municipality and a payment of R141 million was successfully processed in March this year.
But since April two other invoices totalling R251 million had not been paid and in June the municipality informed the company that it was suspending payments pending an investigation into the contract.
The company disagreed with the municipality’s position because to acquire the equipment the company had to “obtain credit” and was therefore indebted to suppliers for an amount of R188 million, being the cost of acquisition, assembly, manufacturing and delivery.
“The applicant’s suppliers and lenders have complied with their obligations and the applicant has no defence to a claim from its suppliers for payment of these outstanding amounts,” KSP said.
The company said the notification of suspension of the contract was “based only on suspicion of the undisclosed so-called material irregularities of which the applicant has no knowledge, and which is not elaborated upon at all”.
The company said while the payment was not forthcoming, the municipality was “in possession of unpaid vehicles, machinery and equipment to the value of R250 million, all of which are new and being used by the [municipality] for the intended purposes”.
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