Red flags over EOH’s water deal
Investigation by task team throws up interesting anomalies in tender — then ceases operations
A leaked forensic report has raised questions over EOH’s dealings with the government — at a time when the company has yet to regain the lustre that once made it a market darling.
The information technology company’s share price has lost more than 60% over the past year after allegations of corruption involving an SA Social Security Agency (Sassa) contract surfaced. This was followed by more allegations of corruption involving a company it acquired, Forensic Data Analysts (FDA), run by controversial businessman Keith Keating.
The financial performance of EOH has also weighed on its share price after the 23% slump in earnings the company reported for its half-year to end-January.
These developments prompted a return of founder Asher Bohbot.
The company cleared itself of wrongdoing involving the Sassa contract and reversed the transaction with FDA. EOH also has plans to split its business into two parts, with EOH’s CEO Zunaid Mayet opting to step down from that post and lead Nextec, and seasoned banker Stephen van Coller leading the remaining EOH business from September 1.
But the company does not appear to have left scandal behind it — there are now more questions over state contracts.
In late 2016, the department of water & sanitation (DWS) instituted an investigation into allegations of corruption and maladministration at the department. It appointed a task team led by advocate Terry Motau to, among other things, review contracts awarded since June 2014. One of these contracts involved providing SAP support (an enterprise planning platform) to the department over a period of three years from June 2016, which EOH successfully won.
The department’s various water boards had been using SAP since 2002 with SAP support most recently having been provided by T-Systems. Motau flagged a number of irregularities in the awarding of the contract to EOH.
It appears that EOH provided a legal opinion to the department as to why SAP itself was not allowed to tender for the bid. It is highly unusual to see a competitor attempting to exclude the participation of another through a legal opinion.
Mayet tells the FM the company has no record of having provided the department with a legal opinion in this regard at any time. An SAP spokesperson says the company is not aware of the legal opinion but wouldn’t have bid for the contract in any event.
"This type of work would have been done by SAP’s implementation partners, not SAP," says the spokesperson. EOH is a reseller and implementation partner for SAP.
According to the report, four companies bid for the contract.
Two of these, Baraka IT Solutions and Nambiti Technologies, were eliminated after the first round. Motau noted this may have been procedurally unfair because EOH and T-Systems advanced to later rounds despite having breached what he deemed to be significant specifications of the bid.
As it turned out, T-Systems was comprehensively outscored in the next round, receiving 67.6 points to EOH’s 82.6.
T-Systems apparently lost points for lacking past experience in providing support even though it was the incumbent.
This strange discrepancy meant that only EOH progressed to the last round, where pricing would have been evaluated and compared.
T-Systems’ bid (at R177m) was R44m cheaper than EOH’s, making its departure at the previous round even more suspicious.
The shenanigans didn’t end there.
Motau discovered that the bid adjudication committee authored two page 10s, which each provided two different responses for the points awarded to EOH for price.
Motau wanted to know which page 10 was taken into account when awarding the bid.
Though his report was preliminary, and even though it raised a number of serious issues, he was not able to continue investigating.
It is not clear why this is the case.
What the FM has been able to ascertain is that a complaint was made to the public protector in February 2017 regarding the appointment, by the state attorney acting on behalf of the DWS, of law firm Werksmans as the "correspondent". Werksmans then appointed Motau to undertake the investigation.
Oupa Segalwe, spokesperson for the public protector, confirms that a complaint was made as far back as February 2017, and the investigation into the matter is still under way. But he says the public protector has not instructed anyone that Motau’s work should cease as a result of the complaint.
So there appears to be no basis in law why the forensic investigation should not continue. It was announced with much fanfare in 2016 and had given every indication that an investigation was justified.
Taxpayers, and EOH shareholders, are once again no closer to establishing the truth.