McKinsey admits to lapse of judgment in Eskom deal
But the global consultancy says it has not fired any staff nor found evidence of intentional wrongdoing
McKinsey admitted to lapses in judgment and failing to adhere to its administrative processes in its work for Eskom with Gupta-linked Trillian.
But the global consultancy said that it had not fired any staff or found evidence of intentional wrongdoing.
Eskom wants McKinsey and Trillian to pay back the R1.6bn they earned for six months of work, after the utility announced last week that it would go to court to have the unlawful contract set aside.
The contract’s "at risk" payment model, allowing fees to be calculated as a percentage of savings, did not receive Treasury approval, as required by law. This payment method resulted in Eskom paying higher fees to McKinsey and Trillian than if the utility had been billed by the hour.
McKinsey said in a statement early on Tuesday that senior partner Vikas Sagar, who was investigated for instructing Eskom in a letter to pay Trillian directly, had left the firm.
Sagar’s letter "should not have been issued for a party with whom we did not have a subcontract", McKinsey said.
However, the firm "found no evidence of bad faith in the drafting of this letter". Several other McKinsey staffers have been disciplined or left the firm for their role in the scandal.
McKinsey said its findings were based on a review by global general counsel Jean Molino and two law firms of 2.4-million e-mails, hundreds of thousands of documents and more than 60 interviews.
The consultancy admitted that it should not have started working with Trillian before completing a due diligence and without a contract.
"We were not careful enough about who we associated with, did not understand fully the agendas at play and should not have worked alongside Trillian, even for a few months, before completing our due diligence," said McKinsey’s global chief risk officer, Tom Barkin.
McKinsey said Trillian had failed its due diligence "after repeatedly refusing to provide details about its ownership".
"We believe Trillian withheld information from us about its connections to a Gupta family associate," McKinsey said.
The firm had also been unable to confirm Trillian’s black empowerment credential, which was required for Trillian’s appointment as McKinsey’s supplier development partner.
Eskom raised similar concern with Trillian, but the firm insists that it was fully empowered when it conducted work for Eskom.
McKinsey stressed that it "never served the Gupta family nor any companies publicly linked to the Gupta family" and denied it "was involved in any acts of bribery or corruption" related to its work with Eskom, Trillian or Regiments, the company Trillian was spun out of.
However, internal e-mails seen by Business Day show that Sagar and McKinsey partner Alexander Weiss, who remains at the firm, had intended working with Trillian’s Gupta-linked subcontractors.
These included Cutting Edge, a company part owned by the Guptas that reportedly made suspicious payments to alleged Gupta front company Homix.
E-mails that Sagar and Weiss were copied on suggest that they were aware of potential conflicts of interest involving Trillian and the state entities McKinsey was contracted to.
McKinsey reiterated that Eskom had misled the firm by stating that it had received Treasury approval for its billing model.
McKinsey’s contract "explicitly required Eskom to obtain the necessary approvals", the firm said. "We were advised by Eskom on 5 February 2016 that it had received National Treasury approval." This was confirmed by minutes of a steering committee headed by Eskom’s now suspended chief financial officer, Anoj Singh.
The firm said it had suspended all work with state entities in SA until a new risk committee was in place.
Trillian has repeatedly denied any wrongdoing and insisted it billed only for work undertaken with the full knowledge of Eskom and McKinsey.