Timeline of a Telkom tender
When Robert Gumede tendered to produce phonecards for Telkom in 2002, he had just come out of a bad break-up with his business partner and his company was in trouble.
The Telkom tender gave Gumede a “kick of life”, in his own words.
Gumede’s relationship with British businessman John Sterenborg started in August 2000 when Gumede bought 26% of Applied Card Technologies (ACT), a card-manufacturing plant in Heriotdale owned by Sterenborg and his wife, Elizabeth.
The Sterenborgs sold their shares to Gumede for just over R30-million. They needed a black business partner to comply with BEE legislation, as well as contracts and cash.
In Gumede they saw all of this.
At the Section 417 hearing into the liquidation of ACT, Gumede was asked whether he was familiar with tendering. He replied: “That’s what I do for a living.”
His main task was to generate business from mobile operators and the government.
It was clear from the start that Gumede and Sterenborg had their sights on the government’s ID-card tender that had been mooted since the early 2000s.
In February 2003, at the Section 417 hearing, Gumede said: “A national ID was what drove me to do the deal, and obviously the banking sector and the telecommunications sector.”
So convinced were the two that they would be in the running for the sought-after ID-card tender that a special share-option clause was written into the contract between the Sterenborgs and Gumede. Upon the signing of a subcontract between ACT and the main contractor to provide the cards, Gumede would instantly receive the option of buying a further 21,5% of ACT.
In an annexure to the contract it was recorded that Gijima, Gumede’s company, “has the ability and the opportunity to promote the company” for the ID-card tender.
Partnership on the rocks
But before their dream could be realised (the government still has not awarded the ID-card tender), the promising partnership between Gumede and Sterenborg was on the rocks; and in July 2006 Gumede successfully sued Sterenborg and his wife in the Johannesburg High Court for breach of profit warranties. The court awarded Gumede damages of almost R40-million.
Four “frivolous” (as Gumede put it) attempts by Sterenborg to take legal action against him and GijimaAST were all settled or decided with costs in favour of Gumede.
Gumede says Sterenborg did not fully disclose the company’s financial position to him when he bought shares and overstated ACT’s technical capabilities; Sterenborg accused Gumede of meeting industry players behind his back and not bringing in business.
ACT was in a quandary and attempts to secure contracts from Vodacom and Cell C failed.
On August 4 2001 Gumede bought the balance of ACT’s shares from the Sterenborgs for about R2-million—a far cry from the R30-million he had paid a year earlier for 26% of the company.
There was a glimmer of hope for ACT, now 100% owned by Gumede, when Telkom advertised a pre-qualification notice for the local production of phonecards at the end of August 2001.
The purpose of this process, as explained by Telkom employees at the Section 417 hearing, was to assess the capability of manufacturing plants.
This was an “open” tender and ACT, as well as three other companies, was found to be capable of fulfilling Telkom’s requirements.
Before the formal tender process could start, another player entered the Gumede/Sterenborg spat: Brait Merchant Bank. ACT, under Sterenborg, had borrowed money to keep the business afloat and Brait wanted R12-million back in October 2001.
Gumede claimed not to have known about Sterenborg’s deal with Brait and opposed Brait’s attempt to liquidate ACT.
He failed and on February 27 2002—five days after Telkom officially published the tender for phonecard manufacturing—the Johannesburg High Court liquidated ACT.
On February 25 Gijima’s general manager, Tebogo Khaas, had attended a briefing session at Telkom and collected the tender documentation for “Gijima Afrika Smart Technologies/ACT”.
The day after ACT’s liquidation, a letter under Gumede’s name, but signed by Khaas, went to Telkom, informing it Gijima “now intend to set up our own smart card operation which will not have the black cloud of Sterenborg and ACT”.
At the 417 inquiry, Gumede’s advocate said his instructions were “that this document was prepared by Mr Khaas using Mr Gumede’s name.
“Although Mr Gumede knew about it, it was signed by Mr Khaas.”
Khaas refused to answer the Mail & Guardian‘s questions.
Less than a month later, on March 20 2002, Gijima Information Technologies Afrika (Gita) submitted its proposal to Telkom.
At the time of tendering, neither Gita nor any other company in the Gijima group owned a manufacturing plant or equipment to produce phonecards. And as part of its tender application to Telkom, Gita submitted ACT documentation to support its case.
‘Kick of life’
Before it could purchase the equipment, Telkom wanted proof of Gijima’s capability. Gijima turned to ACT liquidator Enver Motala, who provided a letter to Telkom dated May 27 2002.
In the letter Motala stated that “no other industry player will submit a higher bid than Gijima’s bid” and that the liquidators “are in the process of favourably considering the sale of these assets”.
Motala’s words came true. After a vigorous bidding war between Gijima and Brait for ACT’s assets, Gijima finally purchased some of the assets in June 2002. It also continued renting the premises in Heriotdale that ACT had used to produce its cards.
Gumede testified at the Section 417 hearing that he had had to invest R8-million more in equipment to produce smart cards. At the same hearing, Gumede said the Telkom tender gave his company the “kick of life”.
“You do not go and buy equipment before you even have the necessary contract. Ask Sterenborg. Fortunately he never used his own money,” said Gumede.
As part of Telkom’s adjudication process, the company contracted audit firm KPMG to conduct due diligence investigations into each of the four tenderers.
KPMG recommended Gita “with caution” and highlighted the finalisation of ACT’s liquidation, the bridging finance requirement of R2million and the solvency of Gita. KPMG found Gita was “technically insolvent”—its liabilities amounted to R29-million and assets were worth R18-million.
When Telkom finally awarded the contract to Gijima, it went to another company in the group—Gijima Afrika Smart Technologies (Gast). Sterenborg emphasised this at the 417 hearing, accusing Telkom of awarding a contract to a company that was not qualified and did not tender.
Gumede’s advocate defended the move, saying Gita was carrying a number of other contracts and it was more appropriate to “ring-fence” the Telkom tender in Gast.
In response to the M&G‘s questions, Gumede said: “Together with Telkom we agreed to have Gast sign the contract with full guarantees from the mother company, Gita.”
Thapelo Petje, Telkom’s head of procurement, congratulated Gumede in an official letter on June 10 2002. In the same letter he outlined problems Gast still had to solve before Telkom would sign the contract.
These included the liquidation of ACT, obtaining bridging finance of R2million, the solvency of Gita (which owned Gast), obtaining insurance to cover the value of three million phonecards per month, achieving ISO certification for the manufacturing plant and upgrading the security of the plant.
In response Gumede informed Petje that Gijima had been successful in its bid for ACT’s equipment; that R2million had been deposited into an attorney’s trust account; that Gita’s solvency had been restored by subordinating loans; that he was awaiting an insurance quote; that an ISO process would be initiated; and that security would be upgraded.
On July 16 2002 the contract between Gast and Telkom was signed and in May 2003 Gast began delivering phonecards to Telkom.
In August 2005 Gast’s tender was extended for the first time after Telkom’s decision to align the contractual date with its (Telkom’s) financial year. In a letter Petje, as executive for strategic sourcing and BEE, asked Telkom’s head of sales and marketing, Pinky Moholi, to sign off the extension.
According to Petje it is not unusual for Telkom to extend contracts “as long as Telkom is happy with the product and services, including value for money”. The first extension was only for six months—until March 2006.
Petje said Telkom continued to receive phonecards from its previous supplier, Gemplus, until mid-2003, when there was an “oversupply of phonecards and the contract encroached on to Guma’s [Gast’s new name] contractual supply period”.
“It is normal practice within Telkom that the various committees in consumer-related contracts wherein there is an oversupply of products may extend a contract for a short period to cover the lost months in slow-moving stock,” reads Petje’s response.
According to Telkom’s acting group executive for procurement, Mike Midgley, the contract has been extended five times since 2005. By August 2012, the expiry date of the current contract, Gumede’s company would have had the tender for 10 uninterrupted years.
This article was produced by amaBhungane, investigators of the M&G Centre for Investigative Journalism, a nonprofit initiative to enhance capacity for investigative journalism in the public interest. www.amabhungane.co.za.