Last chance: The Constitutional Court could order CPS to continue to pay grants.
ANALYSIS
There might be a practical solution to the South African Social Security Agency (Sassa) grants contract debacle.
The Constitutional Court may still be able to defend against the negotiation of a contract with incumbent Cash Paymaster Services (CPS), and its parent company Net1, that is potentially procedurally unlawful and could cost the fiscus unbudgeted billions, according to one legal expert.
In the 2014 judgment, which ruled the original deal invalid, the Constitutional Court held that CPS was in effect an organ of the state, according to constitutional law professor Pierre de Vos.
“The moment that CPS started delivering that service, they became an organ of state and they invoke constitutional obligations to deliver social grants,” he said.
On that basis, the court could order CPS to continue to pay grants to protect the rights of beneficiaries, and to ensure any new contract negotiated is “not at an inflated price”, De Vos said.
Although the controversial tender was declared invalid, the court suspended the order to allow Sassa either to award a new tender or to begin paying grants itself. CPS was allowed to continue to process payments until a new system was in place, with the deadline being March 31.
The court said: “Cash Paymaster Services cannot simply walk away: it has the constitutional obligation to ensure that a workable payment system remains in place until a new one is operational.”
In an application this week, human rights organisation Black Sash has called on the court to intervene in this spirit.
It has asked the court, among other things, that any new “interim” contract awarded by Sassa is done lawfully and in compliance with the Constitution. It has asked the court to order CPS to “act reasonably” in “negotiating and contracting with Sassa for the purpose of making payments to grant beneficiaries after March 31 2017”.
The court is also asked to reinstate judicial oversight of the department of social development and Sassa while it negotiates the interim arrangement and a long-term solution.
The Black Sash argues that, under these circumstances, “CPS is not at large [sic] to hold Sassa and grant beneficiaries to ransom by refusing to contract except on the most commercially favourable terms. It is obliged to perform its constitutional obligation in a reasonable manner.”
This week, Sassa approached the court for permission to negotiate with CPS to pay grants for another year but, in a bizarre about-turn less than 24 hours later, it withdrew the application.
Why Sassa itself did not approach the court sooner and why it withdrew the application has confounded observers.
It has led to speculation that the bureaucratic bungling and obfuscation has been engineered to ensure that Sassa has no alternative but to negotiate with CPS at a preferential rate.
Sassa has always had the option to go to the court and apply for relief but instead it has “chosen to negotiate” with CPS, pointed out a legal expert who asked not to be named.
De Vos also questioned the reasons for these actions. A red flag to look out for would be whether the parties try to conclude a deal, delaying an approach to the court as long as possible, or until an agreement has been struck, and then present it to the court “as a fait accompli”. The court had limited “institutional capacity” to manage the conclusion of contracts, he added.
“If somebody wants to make money out of this, the last thing they want is for this to go to court,” he said.
Meanwhile, as of Wednesday Sassa appeared to have launched negotiations for a new contract with Net1, based a press release from Net1 as well as comments made by Sassa official Zodwa Mvulane, who told the standing committee on public accounts (Scopa) that Sassa would be negotiating with CPS from March 1. She also confirmed that Sassa did not have a system in place to pay grants, but it was “in the process of procuring” one.
How much extra these talks will cost taxpayers is not clear and the treasury will not be party to the negotiations. Its spokesperson, Yolisa Tyantsi, said, although the treasury was invited to attend, it “took a view that it will not be advisable for it to be part of the process at this stage”.
This was because the social development department might “seek its involvement for compliance purposes at the end of the process”.
She added that a “certain allocation has been approved for the grants”, and that the “regulatory framework does not allow overspending in the absence of compliance with certain requirements”.
The finance department has already refused Sassa once. In correspondence between Sassa chief executive Thokozani Magwaza and the treasury in early February, he requested permission to deviate from normal procurement processes to negotiate with CPS for an “interim arrangement”, adding that it would cost the fiscus an additional R1.3-billion, or between R22 and R25 per beneficiary, compared with the current R16.
The treasury said Sassa should have requested a deviation to advertise a new tender for a short period in December 2016 to avoid “a self-created emergency”. In addition, the finance department would only support the extension of the invalid contract on the same terms and conditions if the Constitutional Court permitted it.
The extra money required by Sassa goes beyond what has been budgeted for. According to the estimates of national expenditure, released with the 2017 budget, Sassa’s budget for payments to contractors must not exceed R2.4-billion in the coming three years.
Net1 said it “looks forward to fair and transparent negotiations with the Sassa”, but its chief executive, Serge Belamant, previously told the Mail & Guardian that a price increase is inevitable.
“We will behave like any profit-making organisation, which we are,” he said in a recent interview, but the company would not use this as an “opportunity to overcharge Sassa and overcharge South African taxpayers”.
In a further bizarre twist to the saga, Magwaza went on sick leave this week, followed by denials by the department of social development that he had been suspended.
Nevertheless, in the application that Sassa made to the court but then withdrew, Magwaza lays bare the crisis it faces. He asked the court to authorise Sassa to engage CPS to provide services for grant payments from April 1 2017 to March 30 2018.
“Sassa believes that it would be in a position within a year to implement interim arrangement to ensure the continued payment of social grants, but the reality is that at present it finds itself in a position where it relied upon CPS to render the services for at least a year,” he said.
“Sassa is not in a position to go on tender for this interim period and its inability … has the real potential of prejudicing the beneficiaries.”
Neither Sassa nor the department of social development responded to questions.
But a response given to Scopa by the department’s director general, Zane Dangor, hints at the strategy officials might be pursuing.
He told MPs that the legal advice provided to Sassa was to negotiate a new contract and it did not need to go to the court. But, in the interests of “due process”, it would submit a document before negotiations, stating the “intentions of the negotiations” the “parameters of the negotiations” and then, once agreed to, it would send a document to the court outlining the “outcomes of the negotiations” and what terms were agreed to.