SME airs dirty laundry on ‘fronting’
A fronting showdown is looming at the B-BBEE Commission between a Bidvest subsidiary and a small, black-owned company over a laundry tender at the Nelson Mandela Children’s Hospital.
MMK Industrial Laundry, a small business owned by Ivan Motlogeloa, has approached the B-BBEE Commission accusing First Garment Rental, a subsidiary of corporate giant Bidvest, of using it as a front company to win a lucrative laundry tender at the late icon’s eponymous hospital.
At the centre of the dispute, MMK alleges that First Garment Rental used it as a partner in 2017 to win the laundry tender and sidelined it when it commenced work at the hospital.
The commission has now startedits investigation and written to First Garment Rental to answer to the allegations of fronting against it. Fronting is a criminal activity, punishable by law.
The B-BBEE Commission’s Madidimalo Ramare confirmed that the commission had received the complaint and —“after merit assessment” — it was being considered. But he said theinvestigations were of a sensitive nature and the commission had toact with impartiality.
“The allegations emanate from a tender process; however, we are not able to discuss the stage of our processes and the details of the complaint,” said Ramare.
According to the B-BBEE Act, if First Garment Rental were to be found guilty of fronting, it could result in a fine of up to 10% of its annual turnover or a maximum prison term of 10 years for its directors.
Further, the company could be blacklisted from doing business with any organ of state or public entity for up to 10years.
The department of trade and industry defines fronting as the deliberate circumvention or attempted circumvention of the B-BBEE Act and Codes of Good Practice, which commonly involvesreliance on data or claims of compliance based on misrepresentations of facts.
According to documents seen by the Mail & Guardian, MMK, through its lawyers Cliffe Dekker Hofmeyr, wrote to the Bidvest company’s lawyers saying MMK was approached by First Garment Rental in March 2017 with a proposal to enter into an enterprise development (ED) agreement. ED programmes are offered by government and corporates to give black entrepreneurs the opportunity to find support and training to further develop their small businesses.
The same documents were submitted to the B-BBEE Commission, which acknowledged the case in November last year.
In February 2007, preferred bidders were told it was necessary to have an ED partner in order to qualify for the tender “and identify the project structure and service responsibility of the ED partners…”MMK said in its letters to First Garment Rental’s lawyers and the commission.
According to MMK documents, it was agreed in the three-year contract that “revenue would be split between the parties in equal shares in year one”, 83% to MMK and 17% to First Garment Rental in year two and moving to 95% and 5% in year three. The figures were allegedly submitted as part of the presentation to the hospital during the bidding process.
MMK further alleged that First Garment Rental was then awarded the contract and started servicing the hospital in June 2017 on a limited scale —without involving MMK.
First Garment Rental’s lawyers, Werksmans, did not respond to requests for comment.
MMK claimed that it only discovered when it approached the hospital that the partnership had not been recorded properly in the main agreement concluded between the two parties. It did not even know how much the tender was worth.
After several unsuccessful attempts to be given the documents that were submitted in the bid, MMK filed a request in terms of the Promotion of Access to Information Act to First Garment Rental in December last year. First Garment Rental requested an extension until January this year but subsequently declined to hand over the documents.
Motlogeloa also sought the intervention of the minister of small business development, Lindiwe Zulu, in January this year. “I am writing to you out of sheer frustration having tried to resolve this matter amicably but without success. This is a case of possible ‘fronting’ (by Bidvest) and definitely a case of a big company abusing/bullying us as a small SME in a one-sided partnership that has now turned into a costly legal battle,” said Motlogeloa.
Zulu’s office promised to look into the matter.