CPS expected to make R4.6bn from new contract


Johannesburg - Cash Paymaster Services (CPS) wanted the South African Social Security Agency (Sassa) to pay R4.6bn for its services over the next two years, as it phased out its operations.

According to papers filed at the Constitutional Court on Thursday, CPS had made a proposal to Sassa that the cost of the interim contract over a two-year period be fixed at R194m per month, including VAT, regardless of the number of beneficiaries to which CPS would be providing its services.

This meant that the total cost of the interim contract over that period would amount to R4.6bn.

“The basis of this calculation is the Firm Price stipulated in the 2012 contract subject to a two year CPI adjustment from April 1 2017, applied to the anticipated growth in grant beneficiary numbers in accordance with the National Budget on a straight line basis,” CPS director Nunthakumarin Pillay said in a responding affidavit.

“I emphasize the fact that the anticipated growth in the number of beneficiaries has been taken into account, hence the difference between R189m (applying an increase of 6.6% to the preceding 12 month average) and the R194m (the amount quoted by CPS).”

He said the South African government’s budget for the 2017 financial year had recorded 17 473 539 grant beneficiaries for the 2016/2017 fiscal year. The budget had also projected that the number of beneficiaries for the 2018/2019 fiscal year would be at 17 985 862.

An increase of 512 322 new grant recipients.

“Accordingly the budget projected a 3% increase in the number of beneficiaries from April 2017 to March 2019. For the purposes of its calculation, CPS assumed and applied a similar growth rate in the number of beneficiaries,” Pillay said.

This meant that the fee CPS wanted to charge Sassa for rendering it services to each recipient would rise from the current R16.44 to R17.52 in the first year, and R18.68 in the second year of the contract.

Pillay said part of the reason the price had to increase was so that the company could maintain its infrastructure.

No phase-out plan

“Because of the fact that recipients are able to collect their grants anywhere in the country, at any pay point, CPS would be required to maintain most of its infrastructure for the duration of the contract, regardless of the number of beneficiaries paid.

Debating the option of reducing their infrastructure, Pillay said it was impossible for the company to anticipate how, when, where and to what degree this could be done as there was no phase-out plan in place yet.

“Certainly, the back office IT infrastructure would need to be maintained in its entirety. It is for this reason that CPS quoted a fixed fee.”

However, if the number of beneficiaries were to indeed increase beyond what it had anticipated, Pillay argued that Sassa would be at an advantage and not the company itself.

“Sassa would of course get the benefit if the beneficiary numbers increase beyond what is anticipated in the budget, as the amount per recipient would be less.”

The court ruled in 2013 that CPS’s contract with Sassa was illegal because of tender irregularities and ordered Social Development Minister Bathabile Dlamini in 2014 to make alternative arrangements. After an unsuccessful tender bidding process, in 2015 Dlamini and Sassa told the court it had opted to in source the function, but failed to do so and instead sought to renew its already invalid contract beyond March 31.

Prior written approval

Earlier this year, Sassa told Parliament it had begun talks with CPS with the hopes of having a new agreement, however, due to the invalid nature of the contract, the contract would have to deviate from normal bidding processes.

This was something Treasury was not prepared to unless the Constitutional Court had approved it. An inter-ministerial task team subsequently dumped the proposed two-year deal between the two parties, saying negotiations should start afresh only if and when the National Treasury gave its prior written approval for the deal's violations of procurement rules.

In the last 12 months, CPS charged a total fee of R2bn. This calculated to an average monthly fee of R171.6m, Pillay said.

Pillay said if the court decided to make an order extending the current contract on the same terms, subject to a price increase determined by the Auditor General, it would not object to the extension.

“It [CPS] would respectfully request that any order requires the Auditor General to make his ruling within a further seven calendar days as CPS needs to be in a position to negotiate and finalise contracts with its suppliers and in order to do so it would need to know what it is going to get paid under any interim contract,” Pillay said.

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