Textbook contracts hang in the balance

2012-06-30 16:06

Some of them may be unlawful, claims Advocate Pat Ellis

EduSolutions’ lucrative contracts to provide other provinces’ school children with textbooks may be unlawful if a legal opinion for the state holds water.

In January, an opinion obtained by the state from Advocate Pat Ellis said the Limpopo tender was “neither fair, equitable, transparent, competitive nor cost ­effective”.

The deal included a controversial 70% cut to the company in all the trade discounts it negotiates with publishers, with the remaining 30% of the discount going to the government.

Publishers routinely offer the ­state a 30% discount on the value of their orders.

Besides Limpopo, EduSolutions also has deals in Gauteng, KwaZulu-Natal and Mpumalanga.

The administration and management fees in those deals are worth nearly R200 million combined.

In management fees alone, EduSolutions’ contract is worth R79 million in Gauteng, R38 million in Mpumalanga and R77 million in KwaZulu-Natal.

As is the case in Limpopo, these amounts do not take into account EduSolutions’ share of the trade discount which can amount to hundreds of millions of rands a year.

Gauteng’s education department said in their contract that EduSolutions takes a 55% cut of the trade discount while Mpumalanga said the company took a 60% share ­there.

KwaZulu-Natal refused to provide the information.

Ellis was sharply critical of many aspects of the Limpopo deal – including EduSolutions taking a share of the trade discount offered by suppliers, which is also present in the other EduSolutions contracts.

Ellis said the contract was open to constitutional challenge as it did not comply with public finance ­management laws.

“In the first instance it means schools have to buy the most expensive books, notwithstanding the quality or the need therefore, with no regard to any budgetary constraints.

“The contractor is assured of its price plus the 70% mark-up. The bulk of the difference in the price for which the supplier buys the books and that for which he sells it, goes to him and only 30% goes to the department.

He is therefore allowed to abuse the government’s spending power to his own advantage and deprives the department of the opportunity to buy books at the proper market value,” said Ellis.

He also said the 30% trade discount was “hardly open to scrutiny” and that the arrangement has deprived the department of an opportunity to get products cheaply and effectively.

“I am confident a proper case can be made for the contract to be ­reviewed and declared void for want of compliance . . .” said Ellis.
The department only acted to terminate the contract nearly five months after it was produced.

The department was asked this week if it would now act on the other contracts involving EduSolutions, but it did not respond.
National Treasury, which holds ultimate authority over state spending, declined to comment.

EduSolutions maintains there is nothing irregular in its contracts with the state and that the allegations against it are malicious and without foundation.

What the government knew

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