Telkom caught up in police deal scandal

Telkom is billing the national police service for two contracts that cover virtually the same work, five people familiar with the situation have said.

The Pretoria-based company secured a contract to work on the service’s switching centres, which allow the South African Police Service to communicate with staff and stations across the country, and started work in mid-2016 using Netxcom ICT Solutions as a subcontractor, the people said, declining to be identified because they aren’t authorised to speak to the press.

While Netxcom is continuing to do the work, Telkom has withheld some of the payments it owes to the subcontractor even though it has continued to receive money from the police, the people said.

It is now in a legal dispute with Netxcom, which has sued to get the money it believes it is owed. Telkom said it did withhold some payments to subcontractors because of contractual “inadequacies” — without naming Netxcom.

A few months after Netxcom started work, Telkom signed a separate R497-million contract, which will run for five years, with the police to do the same work on the same switching centres with a few minor additions. That agreement includes another subcontractor known as AppCentrix as a participant. It was not put through a competitive bidding process, as is mandatory for all government contracts over R1-million unless the requirement is waived by the national treasury.

The treasury said that it is unaware of the contract. The State Information Technology Agency, or Sita, which procures IT on behalf of government, was not consulted by the police on this contract as is also mandatory, the people said, declining to be identified because the information isn’t public.

Confidentiality

Telkom spokeswoman Noma Faku cited confidentiality clauses when asked why a tender for the new contract had not been held. The police and Sita didn’t respond to queries. Netxcom and AppCentrix declined to comment.

“As a principle, Telkom does not withhold payment to its vendors,” Faku said by e-mail, saying she was commenting on behalf of George Candiotes, Telkom’s executive for legal services. “However, during 2017 Telkom conducted a supplier review. Based on this certain actions were taken between Telkom and suppliers including the withholding of payments where certain inadequacies in the contractual arrangements were identified.”

E-mails between senior officials of of Telkom’s BCX unit said that the failure to pay Netxcom was souring Telkom’s relationship with the police and that Netxcom was still doing work for the police.

Telkom hasn’t answered questions on how the two contracts with the police differ.

The revelations come as Cyril Ramaphosa, who took over as president in February, is overseeing a drive to stem irregular and wasteful spending that’s led to the termination of boards of state companies.

Internal e-mail communication, seen by Bloomberg, between Telkom staff including its CEO, Sipho Maseko, and Candiotes corroborated what the people said about the non-payment of fees to NetXcom.

The South African Police Service “has not indicated any direct issues with the vendors or the work and we are receiving payment”, Candiotes said in an April e-mail to Maseko. “Our view is that we are currently exposed in the instance where we cannot show why we cannot make payment, despite our contentions we have terminated the agreement.”

Telkom, which is 41% owned by the government, is trying to terminate the relationship with Netxcom in favour of its newer contract, the people said.  — Reported by Nkululeko Ncana, (c) 2018 Bloomberg LP