'Criminal fronting', bid rigging in Prasa train deal - court

2017-07-04 11:44
Prasa. (Duncan Alfreds, News24)

Prasa. (Duncan Alfreds, News24)

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Johannesburg – Prasa’s "unlawful" tender for new locomotives was rigged to favour the winning bidder, and Swifambo Rail Leasing, the company that won the R3.5bn tender in 2013, maintained a "criminal" fronting relationship with the European manufacturer of the trains.

These are some of the damning findings in Judge EJ Francis’s scathing judgment in the Passenger Rail Agency of South Africa’s (Prasa) successful application to have the controversial contract reviewed and set aside.

The High Court in Johannesburg delivered its judgment on Monday following an application brought by the then newly-constituted Prasa board in 2015 under the leadership of board chairperson Popo Molefe.

In one of the harshest legal condemnations of a public tender in recent years, the court found that international manufacturing giant General Electric would have won the tender had Prasa’s "corrupt tender process" not been specifically tailored in order to favour Swifambo’s bid.

ALSO READ: Molefe: Board 'vindicated' by Prasa court ruling

"Corruption is a cancer that is slowly eating the fabric of our society. If it is left unchecked it will devour our entire society. Chemotherapy is needed to curb it … There is simply no reason why the respondent [Swifambo] should benefit from an unlawful award that was peppered with so many irregularities," the court found.

Judge Francis took particular exception to the manner in which Swifambo was explicitly favoured in the bid process. He also slammed the fronting relationship between Swifambo and Vossloh Espana, the Spanish-based manufacturer of the Afro 4000 locomotives, and added that this kind of conduct was destroying the viability of genuine broad-based black economic empowerment (BBBEE).

Rigged bid

Prasa’s original request for proposal (RFP) asked bidders to submit proposals for the leasing of locomotives. The fact that Prasa eventually awarded the contract to Swifambo on the basis of an outright purchase option was highly irregular, seeing as Swifambo’s competitors did not have a chance to submit bids for the purchase of locomotives, the court found.

"It is clear that Prasa had changed the procurement strategy to accord with the bid submitted by Swifambo and the BAC [bid adjudication committee] recommended that the appointment be based on the outright purchase option," found Judge Francis.

Further to this, Swifambo should not have been allowed to participate in the tender in the first place, seeing as the company did not have a valid VAT number, as required by law.

"A bidder who fails to provide a valid tax clearance certificate from SARS will result in automatic disqualification of the bidder … Swifambo should have been automatically disqualified and should not have been allowed to take part in the bid and awarded the tender," the court ruled.

ALSO READ: Prasa welcomes judgment against Swifambo Rail

Judge Francis then admonished Prasa for allowing "Dr" Daniel Mthimkhulu, who according to the judgment was "masquerading as an engineer with a doctorate" whilst having no such qualifications, to write a set of technical specifications for the bid that specifically favoured the trains Swifambo intended to sub-contract from Vossloh Espana.

"In numerous instances items appeared to have been included in the specifications to ensure that Swifambo was awarded more technical points in the technical evaluation phase of the procurement process," wrote Francis.

The judgment includes a variety of examples of such items.

"The inclusion of the above items materially affected the award of the tender. If those items were excluded the tender would have been awarded to another bidder: GE South African Technology," the court found, before labelling the bid scoring process as "irrational" and "unreasonable".

Judge Francis furthermore found that Prasa failed to comply with various other prerequisites for the awarding of large government contracts, including obtaining approval from the minister of transport and national treasury.

Trains too tall?

Though it was the issue of the height of the Afro 4000 locomotives that first drew attention to the contract, Judge Francis did not make a finding with regards to this technical consideration.

He did, however, find that the trains indeed exceeded the height specifications provided for in the original bid documents.

"The locomotives acquired under the contract [were] not evaluated by the committee responsible for the technical evaluation. A direct result of this is that inter alia the diesel-electronic locomotives that were required exceeded the maximum height specified," the court found.

But seeing as the court heard the matter as a review court, Francis only had to "determine whether there were any irregularities committed when the tender was awarded".

"If the goods that were received does not meet the specifications that is a separate cause of action," the court ruled.

"Criminal" BEE fronting

Francis saved his harshest verdict for the dubious relationship between Swifambo and Vossloh.

"It is clear that Swifambo under the agreement with Vossloh was merely a token participant that received monetary compensation in exchange for the use of its B-BBEE rating … There is no substantive empowerment evident under the agreement between Vossloh and Swifambo. There is no transfer of skills during the agreement or after," the court found.

According to Francis, Swifambo could be liable for criminal prosecution on the basis of this fronting relationship.

"The contractual agreement between Swifambo and Vossloh amounts to a fronting practice and is a criminal offence under the B-BBEE Act.

"Swifambo’s involvement in a fronting act also justifies the setting aside of the contract," the court found.

Swifambo on Monday evening vowed in a terse media statement that it would challenge the ruling.

"Swifambo notes the court judgment delivered today at the South Gauteng High Court setting aside its locomotive contract with PRASA. We will be filing a notice to appeal the court's judgment and legal grounds for challenging the judgment shall be set out in the appeal papers," the company stated.

WATCH: Leaked video shows oversized Prasa trains narrowly missing workshop entrance


Read more on:    prasa  |  johannesburg  |  corruption  |  tenders

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