TELKOM awarded a R91.1m advisory contract to Bain last year without following an open bidding process, according to a document seen by Bloomberg News.
The March 24 letter, a response by Telkom deputy information officer Anton Klopper to a request under the Promotion of Access to Information Act, showed there was no record of a published or archived competitive process that led to the selection of Bain, the Boston-based management consulting firm.
Firms that have the government as a shareholder should procure goods and services in a process "that is fair, transparent, equitable, competitive and cost effective" to comply with the Public Finance Management Act (PFMA), said Claire Barclay, a Johannesburg-based lawyer at DLA Cliffe Dekker Hofmeyr.
Telkom, about 40% owned by the state, falls under that category.
CEO Sipho Maseko hired Bain to advise on Telkom’s broadband and mobile strategy as he sought to stem years of sliding sales amid shrinking demand for landline services. Bain was picked within days of the CEO’s arrival at Telkom on April 1 last year, he said last December.
Telkom is a "schedule 2" public entity alongside other partly or fully state-owned companies such as South African Airways and Eskom. Schedule 2 companies were obliged to comply with the PFMA when awarding tenders, said Ms Barclay, who has not worked for Telkom or acted in any dispute against it.
The auditor-general was responsible for auditing all government departments and public entities, Ms Barclay said.
Telkom’s board was responsible for ensuring it complied with the act, she said.
Telkom spokesman Pynee Chetty said in an e-mailed response to questions: "The fact that Telkom is the only listed company on the JSE which is listed in schedule 2 to the PFMA unfairly distinguishes Telkom from other public listed companies and materially prejudices its ability to compete for capital and business in the open market."
Telkom stock has gained 79% this year, making it the second-best performer on the JSE’s all share index, and giving Telkom a market value of about R26bn.
Mr Maseko said he regularly visited Bain’s Johannesburg offices in the 10-month period between leaving his previous employer, Vodacom, and joining Pretoria-based Telkom. He also had meetings with McKinsey, Boston Consulting, Accenture and Delta Partners.
Mr Maseko did not seek formal proposals from other consultancy firms, said people with knowledge of the matter, asking not to be named because deliberations are private.
"Single sourcing will only be justified if practically no one else can perform a service except the appointed contractor. Otherwise, the constitutional requirement is clear on competitiveness," Ms Barclay said.