Specialised Outsourcing says its lawyers have a strong case against Umgeni Water
Bruce Whitfield
On the eve of Umgeni Water concluding its investigation into whether the contract for its outsourced treasury functions to JSE Securities Exchange-listed
Specialised Outsourcing was awarded fraudulently, the company has sued the parastatal for more than R40-million in unpaid invoices.
The move was not unexpected. Umgeni released an announcement in April in which
it said it had provided for the payments by securing the necessary guarantees
for the payments from its bankers, but Outsourcing would need to take legal action in order for those guarantees to remain valid.
Outsourcing said in a statement this week that its lawyers were confident it had
a strong case against Umgeni, and said the firm was unlikely to suffer any loss
as a result of the action. But the outcome of any court battle or settlement,
which is likely to follow the announcement, is heavily dependent on what is turned up by the Umgeni investigators.
The outcome of the internal investigation into allegations of fraud and corruption was due to be handed over to Minister of Water Affairs and Forestry
Ronnie Kasrils by the close of business on Thursday. Now it is up to the water
affairs minister to decide which parts of advocate Manie Meyer’s report, if any,
will be made public.
Specialised Outsourcing said in its statement on Wednesday that, due to the fact
that it was now suing Umgeni Water, it regarded the matter as sub judice. That
may preclude it from commenting publicly about any findings that emerge from the
Umgeni investigation.
But chief executive Dave McLean says that is entirely dependent on what the report contains.
“As far as we understand,” he said, “the report focuses on the awarding on the
contract, and if there is anything in the report that could jeopardise our case
against Umgeni we would naturally not be able to comment. But we will look at
it, and have to make a decision based on the report.”
Meyer and his team have been investigating the allegations that bribes changed
hands in 1997 when Umgeni originally awarded the contract for its treasury functions to Specialised Outsourcing. Central to the investigation has been Outsourcing founder Dave King, who was in charge at the firm when the contract
was concluded.
He said in April that he’d faced a hostile barrage of questions from Meyer, but
added that the investigator’s tone softened during the course of his interview.
Specialised Outsourcing, which has been under the management of current CEO Dave
McLean since March last year, was subsequently fired from the account, and King
was appointed to oversee Umgeni’s treasury functions on a temporary basis. The
work is scheduled to be put out to tender, and King has said his new company,
Financial Insourcing Specialists, would be among the nearly 30 firms bidding for
the business.
Sources close to the investigation tell the Mail & Guardian that while the Meyer
report is a commercial and not a criminal one, there are likely to be several
people who will find their lives made extremely uncomfortable by its findings.
There is plenty at stake. Careers, reputations and even the future of Specialised Outsourcing are dependent upon what the investigation turns up.
If the investigation finds that the original contract was awarded fraudulently,
Outsourcing may be forced to pay back all the fees earned on the contract since
inception. That figure could be as high as R82-million, wiping out more than
half of the company’s R135-million cash pile.
During McLean’s tenure at Outsourcing, the share price plummeted from more than
R20 to about a tenth of that level.
Since McLean has been at the helm, Umgeni has cancelled its contract, embarked
on its legal dispute, refused to pay invoices and launched its fraud investigation.
Days before Umgeni terminated all dealings with Outsourcing a month ago, the
water provider’s chief executive, Cromet Molepo, instructed the company to mirror all its records to make the transition to a new treasury outsourcing firm
simpler. Outsourcing did not meet the deadline and threatened to play hard ball
and not hand over the documents until Umgeni settled its invoices.
After negotiations between teams of lawyers, Outsourcing relented and the documents were handed over.
The reasons behind that rather dramatic change in the relationship could be revealed in the investigation report which began as a focus on King’s possible
involvement in wrongdoing. The fact that King was brought back into the Umgeni
fold after Molepo fired Outsourcing would suggest the focus of the investigation
shifted after King was interviewed by the team looking into the alleged irregularities.
Should the internal enquiry turn up any evidence of criminal wrongdoing, the
KwaZulu-Natal Directorate of Public Prosecutions will have to decide whether
charges will be laid against any particular party.
Molepo is on record as saying there is strong evidence to suggest that the awarding of the contract was not a normal business transaction.