1. PRESENTATION TO THE STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA) ON IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE by SANRAL16 November 2016

2. Contents • Routine Road Maintenance (RRM) • Three quotations • Conflict of Interest • Urgent Procurement • BEE Certificates • Deviations not done under emergency, sole provider or impractical to go out on competitive bidding • Procurement approved not in line with delegations

3. Routine Road Maintenance (RRM) Routine maintenance is performed on pavements as they begin to show signs of deterioration. Typical activities include: • Repairing cracks and potholes as they appear • Patching, edge repair, re-gravelling & grading • Clearing drains & culverts, vegetation control, line-marking, road sign & guard rail repair • Attending to flood damage & geotechnical failures

4. Routine Road Maintenance (RRM)

5. RRM cont. – discussion • Neither the PPPFA nor its regulations define the lowest acceptable price • The definition of the lowest price is therefore open to conjecture • SANRAL has found that when awarding tenders at the lowest price (at face value), SMMEs under-price and submit unviable tenders to get jobs or main contractors exploit sub-contractors • SANRAL therefore developed and introduced a statistical method to establish the lowest acceptable price for each RRM contract

6. RRM cont. – discussion • The mathematical model calculated independently by the University of Pretoria (UP) determines the lowest acceptable price that allows the appointment of a contractor with the most realistic rates at which SMMEs can do work and be financially viable • This method was in use for over 11 years, the AG was aware of the rationale, and there were no findings from the AG or complaints from contractors

7. Jobs created & contractors developed • Literally thousands of job have been created and skills developed through the programme • Many contractors have been developed

8. RRM cont. – discussion • In 2013 the AG declared the method non-compliant with the PPPFA, the total value of RRM was R 2,4bn • To our knowledge there is no regulation defining lowest acceptable price or that the method cannot be used • RRM contracts are awarded for 3 years, renewable for 2 years, subject to satisfactory performance • Contracts in place were left to run their course in order not to incur cancellation claims • New contracts were awarded to the lowest price • The value of remaining contracts is reducing, in 2015 the amount was R 1,5bn and 2016, R1,1bn • The last contracts expire in 2017

9. Three quotations A Women's Day Speaker • Was procured for a specific topic on which she was considered an expert Office Supplies • Were procured from one quotation due to no other invited tenderers responding Mobile phone covers • Were procured without requesting three quotes The total amount involved was R 27 413 • The implicated employees are under investigation

10. Conflict of interest • An employee failed to declare conflict of interest on three projects which had a combined value of R 1 323 860 • The matter is under forensic investigation

11. Urgent procurement • SANRAL is exposed to public liability if a road user suffers loss including loss of life or vehicle damage due to the road condition • Therefore all SANRAL roads have a RRM contractor continuously on all national roads • Due to a contractor being under investigation for unethical practices, the extension to an RRM contract was not exercised, and to limit exposure to public liability, another contractor was appointed in the interim until a public tender could be concluded • The deviation was approved by the Accounting Authority

12. Urgent procurement (cont.) • A similar situation arose where another contract was terminated due to lack of performance by the contractor but the latter commenced legal action to prevent termination • The Accounting Authority resolved not to award any further contracts to this contractor until the legal matter is concluded • This necessitated urgent procurement which was approved by the Accounting Authority as a deviation • The combined amount is R 2 408 000

13. BEE certificates • Due to some rating agencies issuing electronic BEE certificates, it was not possible for tenderers to submit original or certified BEE certificates • Four tenderers were awarded contracts without submitting original or certified BEE certificates (but electronic copies were received) • The combined value of the contracts was R 39 530 882 • The matter has been brought to the attention of National Treasury

14. Deviations not done under emergency, sole provider or impractical to go out on competitive bidding Website • Due to the tender for a website and other communication platforms not being awarded, it was necessary to extend the existing website contract until a re-tender was concluded • The delay could not have been foreseen or planned and was approved as a deviation for urgent procurement to ensure the website continued to operate HARDCAT • A contract was awarded as SANRAL regarded a service provider to be a sole provider based on its market analysis

15. Deviations not done under emergency, sole provider or impractical to go out on competitive bidding ICT Governance • A contract was awarded without following competitive bidding process due to the natural continuation of the previous engagement as allowed for in the National Treasury Regulations • No expenditure was incurred in the current year The combined amount is R 941 000 • The matters are under investigation

16. Procurement approved not in line with delegations • Two projects were not approved in line with delegations - they related to a materials testing laboratory not performing to required standards • After following contractual mitigation measures, it was agreed with all parties to cede the contract to a new laboratory able to perform the work • The new laboratory started with the work before finalising the cession agreement and obtaining officials approval • The amount involved is R 2 350 378 • The matter is under investigation

17. THANK YOU