amaBhungane 18 May 2020

National Treasury has deemed a controversial City of Johannesburg fleet contract ‘irregular’, instructing it should be cancelled and subjected to a forensic investigation.

A letter dated 20 February 2020 and signed by Treasury director-general Dondo Mogajane contains a catalogue of irregularities in the City of Johannesburg’s vehicle fleet tender, which was awarded to politically connected service provider Afrirent in late 2018.

AmaBhungane first wrote about the controversial contract – and Afrirent payments to a Julius Malema-linked account – after sources raised allegations of political meddling by the EFF.

The city maintained the award to Afrirent was above board and followed proper procurement processes.

Afrirent garnered the main fleet contract, worth well in excess of a billion rand, after the City aborted a competitive bid because of flaws in the tender process. 

The incumbent service provider, Avis, was set to be reappointed but the tender was cancelled on 18 May 2018 due to “a material defect in its specification”. 

Avis’s existing contract was extended as City officials tried to restart the tender process. 

But after further extensions of Avis’s term, the City opted to replace Avis with Afrirent in late 2018 by “piggybacking” on a tender Afrirent had won with the much smaller Mogale City municipality. 

The letter from Treasury notes, “There was no reason provided why the specification was not corrected so the tender could be re-advertised.” 

The Municipal Finance Management Act and procurement regulations allow for an organ of state to adopt a contract secured by another organ of state on condition that the other organ of state awarded the contract through a competitive bid.  

According to the regulations, this is only permissible where there is no reason to believe that the contract was “not validly procured”. There should also be demonstrable benefits in doing this and the contracts should be of similar scope. 

In previous correspondence with amaBhungane, Treasury noted that the “regulation is being abused”. 

AmaBhungane’s earlier reports also raised questions about the City’s rationale for choosing to piggyback on Mogale City’s contract. 

Now, Treasury’s letter casts further doubt on the process it followed to arrive at the decision to sign on Afrirent. 

Treasury letter

Afrirent said it had not seen the letter and defended its appointment, saying, “The contract with the City of Johannesburg was properly awarded, and we are properly performing in terms thereof.”

However, the Treasury letter points out the “huge difference in the size of scope” between Mogale City’s needs and those of Johannesburg. The former required a mere 168 vehicles compared to the 2,732 required by the country’s largest city. 

Our sources underscored this disparity from the very beginning. 

At the time of amaBhungane’s initial investigation, we were told that it made little sense for Johannesburg to borrow a contract that was so vastly out of sync with the City’s requirements. 

The Mogale City contract was worth R100-million, whereas Johannesburg’s was worth more than 10 times that amount, according to the letter, which adds that this was something flagged as a concern at a City of Johannesburg committee meeting to adjudicate the award to Afrirent.

Another anomaly raised by the Treasury letter is that no contract between Mogale City and Afrirent existed at the time the City of Johannesburg asked to piggyback on the contract.

“The letter from [City of Johannesburg] dated 10 July 2018 to [Mogale City] requesting participation was signed before the contract between [Mogale] and Afrirent was signed on 13 July 2018.”

The letter goes on to highlight the discrepancies in the terms and conditions between the Mogale City and Johannesburg contacts with Afrirent. 

Mogale City used a finance lease, meaning it would take ownership of the vehicles at the end of the contract. Joburg, on the other hand, is renting the vehicles, meaning it retains no assets at the end of the lease. 

Treasury’s letter calls for the contract to be “declared irregular and cancelled”, and orders the City of Johannesburg to “commission a forensic investigation within thirty days of receiving this letter and provide National Treasury with progress reports on the forensic investigation”. 

In response to written questions, mayoral spokesperson Mlimandlela Ndamase said:

“The mayor indeed received a letter from the DG of the National Treasury and has subsequently responded on 28 April 2020.

“The contract remains in place and the City has an active investigation into the contract whose update/report is yet to be received.”

The City did not provide any details of the investigation or the letter of 28 April, nor did it explain why the contract was not cancelled. 

A Treasury spokesperson told amaBhungane that they had not received any progress reports from the city. 

In amaBhungane’s previous reporting, sources claimed that the EFF was given a say in the running of City departments – giving them the opportunity to influence procurement – in return for supporting the then-mayor of the DA-led administration, Herman Mashaba. 

Backing up the claim of EFF influence in City tenders, our initial article pointed to apparent kickbacks paid by Afrirent to Mahuna Investments – a slush fund linked to party leader Malema and fronted by a cousin of his. 

Subsequent reports contained further evidence of payments to Malema. 

Mashaba has always vehemently denied the allegation that he allowed the EFF to have a hand in decisions over tenders.

Afrirent claimed to be unaware of Malema being linked to Mahuna. 

The company also denied that the payments to Mahuna were in connection with its City of Johannesburg contract, saying that the payments were for work they had subcontracted to Mahuna in connection with a rural development contract in Limpopo. 

Our subsequent reporting, however, raised doubts about the company’s alibi for the payments.

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