BRIEFING ON THE WESTERN CAPE LEASE

1. BRIEFING ON THE WESTERN CAPE LEASE PRESENTATION TO THE Parliamentary Portfolio Committee on Labour 09 September 2015

2. OVERVIEW • Introduction Conclusion Timeline • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 01

3. OVERVIEW • Introduction Timeline Conclusion • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 02

4. INTRODUCTION • We applied policy and procedures during the procurement process • We identified a problem as the process progressed and addressed it • We commissioned audits (internal and forensic) • Once the forensic audit found a failure in our systems we proceeded with disciplinary action • We have taken the learnings and introduced new measures to ensure this doesn’t happen again • Mitigating the CCMAs risk in the pursuit of social justice has been our main priority “When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is equitable, transparent, competitive and cost-effective” Section 217, The Constitution of the Republic of South African 03

5. OVERVIEW • Introduction Timeline Conclusion • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 04

6. TIMELINE CCMA calls for bids for Western Cape office Potlako changes name to Milestone Property Group - CCMA not informed 7th Jan: Tender awarded to Potlako subject to clarification of ownership Jan 2012 July 2012 Jan 2013 05 Competitive bid process followed

7. TIMELINE Lease agreement concluded between CCMA and Potlako Became obvious that Potlako could not deliver occupation for various reasons We tried to ensure we could occupy building Pro-actively identified problems and agreed to alternative solutions Nedbank approved mortgage bond for Milestone March 2013 June 2013 Nov 2013 Dec 2013 06 Current lease extended per agreement

8. TIMELINE 1 March: Legal and beneficial occupation was not possible due to bidder not meeting commitments Outcome of Forensic Audit Bidder given notice to remedy breaches via Nedbank Further solutions explored and alternatives agreed Jan 2014March 2014 April 2014 July/ August 2014 07

9. TIMELINE Meetings with lawyers and landlord to consider options Process of disciplinary action commenced Application to High Court to set tender aside Building sold to Grand Parade Investments August 2014 September 2014 November 2014 08

10. TIMELINE Building transferred and registered in Grand Parade Investments name Nedbank advised CCMA they have no further interest in the building March 2015 April 2015 09

11. OVERVIEW • Introduction Conclusion Timeline • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 10

12. CURRENT SITUATION • 1 Heerengracht sold to Grand Parade Investments in Nov 2014 and transfer took place in April 2015 • Building sold for R45.6 million • The sale amounts to repudiation of the bidders obligations under the lease agreement with the CCMA • The CCMA have sent a letter to Milestone’s attorneys cancelling the lease based on breach as the bidder is not in a position to offer beneficial and legal occupation to the CCMA • Milestone’s only possible response is withdrawal from lease or to interdict CCMA from continuing with new lease tender 11

13. CURRENT SITUATION • To date there has been no indication from Grand Parade Investments (current owners) that they will pursue this matter with the CCMA • CCMA High Court application to have tender award set aside is being opposed by Milestone therefore CCMA has no option but to proceed • Future options for CCMA to secure premises for Western Cape Offices: • Long term securing of premises for region linked to legal stance in terms of new owners and the lease as well as High Court application to have lease set aside • Lease expires 30 November 2015 with Darling Street landlord - they have agreed to a six month extension with option of a further six months 12

14. OVERVIEW • Introduction Conclusion Timeline • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 13

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16. REASONS FOR FORENSIC AUDIT • Bidder failed to deliver beneficial and legal occupation as originally or subsequently agreed • External expert opinion confirmed that Milestone could not deliver beneficial and legal occupation on agreed date • Bidder did not meet commitments in terms of the award, amongst others: • Parking • Disabled parking • Lifts • Attempts to remedy the breach via the financier (Nedbank) proved unsuccessful 15

17. FORENSIC AUDIT • Forensic audit commissioned • Forensic auditors analysed a large number of documents and interviewed all people associated with the process • Forensic audit contract was managed to ensure costs did not go beyond agreed amount 16

18. AUDIT FINDINGS • The Forensic Audit made twenty-seven (27) findings • Critical findings included: • Functionality points applied incorrectly • Perceived BEC bias in favour of Potlako(the preferred bidder) • Functionality Ratings (points) applied inconsistently • Adequate segregation of duties in place • Supply Chain Manager had great influence on award of tender • Criteria changed by Supply Chain Manager • Took pro-active stance immediately 17

19. LINES OF REPORTING(at the time) 18

20. ACTION TAKEN • All parties involved called to account, including: Senior Management • Corporate Services Manager • Head of Legal Department • Chief Financial Officer Bid Adjudication Committee • Bid Adjudication Committee Chairperson • Members of the BAC • Corrective action was taken. Disciplinary measures included hearings, warnings, counselling and training • Consequentially three (3) people left the organisation Management • Supply Chain Manager • Facilities Manager • Deputy Supply Chain Manager Bid Evaluation Committee • Bid Evaluation Committee Chairperson • Members of the BEC 19

21. APPLYING AUDIT LEARNINGS • Update on the changes to the processes for bids with respect to leases were implemented at the time • Included: • Reviewing Supply Chain Policy and Procedure Manual • Retraining Supply Chain Management staff • Re-training of existing Bid Committee members, training of new Bid Committee members • Increased size of Bid Committee members to have a greater pool of skills in the committee 20

22. APPLYING AUDIT LEARNINGS • Update on the changes to the process implemented at the time • All recommendations provided by forensic auditors were implemented as at 31 March 2015 and tracked during the course of the year • Additional controls such as checklists against the SCM standards/regulations developed and applied in all Bid Committees i.e. BSC, BEC and BAC • Additional segregation of duties put in place so that different SCM officials attend different Bid Committees 21

23. OVERVIEW • Introduction Conclusion Timeline • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 22

24. MITIGATION OF RISK • Always indicated concern with non-compliance with bid award provisions and asked Milestone to remedy the problem • We committed to work with Milestone so that we could move into the building • Held many meetings to find constructive solutions: • Milestone/Potlako • Financiers • National Treasury • Department of Labour • Lawyers • Stakeholders • Quantity surveyor • Lift inspector 23

25. MITIGATION OF RISK • Always explored options on how best to ensure CCMAs interests are protected and that there is continuity in terms of Cape Town operations • No monies were ever paid by the CCMA to Milestone • Potential legal action from losing bidders examined and prepared for • Management: • Intervened • Managed potential risk of reputational damage to CCMA • Renegotiated lease terms with current landlord • Implemented communication plan to keep stakeholders informed about lease and occupation 24

26. MITIGATION OF RISK • The Governing Body has oversight • The GB is comfortable with the process, actions taken, changes implemented, and legal action that the CCMA has taken to date 25

27. OVERVIEW • Introduction Timeline Conclusion • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 26

28. COSTS INCURRED • As reported in May 2015, R2,8m has been spent • Subsequently, R78,993 spent on legal fees 27

29. OVERVIEW • Introduction Timeline Conclusion • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 28

30. LEGAL PROCESS • Forensic investigation found that the tender had been wrongly awarded • CCMA reacted immediately to findings • After seeking legal opinion, CCMA Governing Body decided to make application to the High Court to set aside the award • Legal opinion indicated that if the CCMA did not approach the Court to review and set aside the tender award, the CCMA would be a party to implementing the consequences of a bid which it knew was awarded wrongly 29

31. OVERVIEW • Introduction Conclusion Timeline • Legal process Current situation Procurement & audit process Costs incurred Mitigation of risk 30

32. CONCLUSION • We followed the procurement process • We were pro-active once problems became apparent • We held people to account where appropriate • We did the right thing when independent advice showed that the tender was wrongly awarded • We instituted legal action to set the tender aside • We strengthened procurement procedures to prevent a recurrence • We will pursue other alternatives for the lease in the best interests of the CCMA and the public 31

33. THANK YOU