The national Department of Health (DoH) is about to fork out nearly R500m on a “suspicious”, possibly irregular lease contract for its new head office in a “questionable tender” deal, with the landlord being paid at least R149m more than the original bid price.
The tender was administered by the Department of Public Works, but health officials were closely involved, a Daily Maverick’s Scorpio investigation has found.
The “unsafe” building, alleged bid-rigging and a deviation from standard procurement processes are just some of the elements in the DoH R486m lease deal with Hiroworx, a company controlled by Herbert Theledi’s Nthoese Developments.
The Department of Public Works and Infrastructure (DPWI) administered the tender on behalf of the DoH, but senior health officials were closely involved in the process.
After an open bid process collapsed, Hiroworx in 2020 clinched a lease deal from the DoH through a tender “deviation”. Through this, Hiroworx will pocket between R149m and R191m more than it would have earned had it won the DoH deal through the open tender.
Hiroworx lawyer Stan Fanaroff denied any dubious or unlawful conduct in the deal.
Documents from the DPWI and the National Treasury (NT) put the cost of the lease deal at R486.7m. Hiroworx claimed the correct figure is R444.8m.
Events leading up to the Hiroworx contract bear similarities to the Digital Vibes affair.
Like Digital Vibes, Hiroworx first won a contract from the Department of Co-operative Governance & Traditional Affairs (Cogta) when former Health Minister Dr Zweli Mkhize led this department.
However, after he took over as Health Minister, Cogta backed out of the contract and Hiroworx instead secured a costlier lease deal from Mkhize’s DoH.
Other key DoH figures implicated in the Digital Vibes scandal also appear in the Hiroworx lease saga.
In 2021, the DoH’s staffers moved from the rundown Civitas building in Pretoria’s CBD to their new head office south of the city (its nearest neighbour being 1 Military Hospital), changing the former name Exxaro to Dr AB Xuma.
The move came after more than two years of administrative wrangling between several departments.
Odd specification
Our investigation starts in January 2019, when then Health Minister Dr Aaron Motsoaledi said the DoH wanted a new building as the Civitas building had become a health hazard.
That same month, Cogta also started looking for a new home.
Led by Mkhize, Cogta approached the DPWI for assistance. It is customary for the DPWI to administer tenders for new offices on behalf of so-called client departments.
Also in January 2019, Theledi’s Nthoese Developments contacted Growthpoint Properties, which owned the old Exxaro building.
Nthoese wanted to buy the building from Growthpoint. When the transaction was later finalised, Nthoese took ownership through a subsidiary called Hiroworx.
In April 2019, the DPWI issued a tender to find new offices for Cogta. Prospective landlords with assets in Hatfield, Brooklyn, Arcadia and, oddly, Thaba Tshwane, were invited to submit bids, the winner to secure a seven-year lease deal.
The building Nthoese was acquiring from Growthpoint happened to be in Thaba Tshwane, an area mostly known for its military base, far from Pretoria’s CBD, which would later become contentious.
Some sources said Thaba Tshwane had been included in the bid specifications to favour Hiroworx, which the company denied.
Thaba Tshwane was included in the tender specifications as “an instruction from the client, Cogta”, the DPWI said. Cogta said the decision was made during Mkhize’s time as minister, but it couldn’t say why.
Rivals disqualified
In May 2019, meanwhile, Mkhize left Cogta to become Health Minister.
Next, in July 2019, the DPWI issued a tender to find a new building for the DoH, with a five-year lease. Hiroworx submitted a bid for this too – so the company was now in the running for both tenders.
Having kicked off first, the DPWI’s tender for Cogta’s new offices was the quickest to be concluded.
In May 2019, the DPWI’s bid evaluation committee (BEC) recommended Hiroworx’s offering. The department’s bid adjudication committee (BAC) in October 2019 ratified the BEC’s decision.
Hiroworx said it had submitted a bid for R355m, later “negotiated down” to R346.7m.
The signed lease agreement between Hiroworx and Cogta, meanwhile, shows the seven-year lease would have cost R381.5m. Whatever the case, the Hiroworx bid was costlier than its cheapest rival.
A record of shortlisted bidders from the DPWI showed a company called SKG Africa had submitted a bid for only R177.6m – R169m less than Hiroworx’s own figure for the Cogta lease.
Asked how Hiroworx won, considering this cost difference, the DPWI said SKG Africa and another rival bidder, which had also submitted a cheaper bid, were disqualified from the bid process.
Their bids were “non-responsive because the properties offered were not in the location needed by the bid”, said the department.
Hiroworx had no such issues: its property is in Thaba Tshwane, one of the areas included in the bid specifications.
But this was not the last time the DPWI would proffer this reason for disqualifying Hiroworx’s rivals. Cogta would later back out of this contract, but the deal would form the basis for Hiroworx’s eventual appointment by the DoH.
‘Non-responsive’ — again
In August 2019, meanwhile, the DPWI’s tender for the DoH’s new building closed. Unlike the tender for Cogta, it did not include Thaba Tshwane in its specifications.
Hiroworx’s bid nevertheless remained in the race.
The DPWI told Scorpio Hiroworx’s bid was R300m. Hiroworx said its bid price was R295.5m. This time it looked as if Hiroworx had outdone its rivals in its bidding price.
SKG Africa, one of the companies booted from the Cogta bid, submitted bids for two of its buildings. They came in at R367.8m for each, shows a record of the shortlisted bidders.
Another bidder, Abland, had submitted a bid for R390.7m.
Purely based on the bid prices, Hiroworx should have been a strong contender to win the contract.
This bid process, however, collapsed. The tender would later be cancelled, enabling the DPWI to appoint Hiroworx via a deviation from normal procurement processes.
Crucially, this allowed Hiroworx to bag a deal that would cost the DoH much more.
The DPWI said the tender process for the DoH’s accommodation was cancelled because the bidders were supposedly “non-responsive”, the same excuse the DPWI used to exclude Hiroworx’s rival bidders from the Cogta tender.
At least one of the “non-responsive” bidders is demanding answers.
In October 2020, SKG Africa launched a lawsuit in the Gauteng High Court (Pretoria) which is ongoing, wanting the court to review and set aside the DPWI’s decision to cancel the bid process.
It also wants the court to set aside the lease deal Hiroworx secured through an “emergency procurement process”.
“The decisions by the DPW[I] to cancel the tender appear suspicious and may well be administrative action that is unfair, inequitable, non-transparent, uncompetitive and cost-ineffective,” read the court filings.
Despite being cited as a respondent, the DoH said it “has not received any legal documents or papers related to the leasing of the building”.
Hiroworx wouldn’t discuss the claims in SKG’s court application.
The DoH makes a move
Records filed in SKG Africa’s court application, along with documents Scorpio obtained from sources and through Paia applications show how the tender process for the DoH’s new building imploded, starting in October 2019, a month after the tender closed.
Then, it looked certain that Cogta, not the DoH, would move into the Hiroworx building.
The DPWI’s BAC was about to ratify the BEC’s decision to award the Cogta lease deal to Hiroworx.
But somehow, the DoH discovered that Cogta was close to finalising a deal with Hiroworx, shows correspondence between Malebona Precious Matsoso, the DoH’s then DG, and her counterpart at the DPWI, Sam Vukela.
In one letter, Matsoso asked the DPWI if the DoH could “participate” in the Cogta lease.
In another, Matsoso said the DoH’s space requirements could be adjusted from the original 28 397 square metres to just 17 000 square metres – meaning, the DoH was willing to squeeze into the building with Cogta’s staffers.
At this point, the DPWI’s tender process on behalf of the DoH was ongoing, so Matsoso’s requests seem strange.
Even more curious was a statement by Matsoso in a circular to DoH staffers on 22 October 2022. The then DG claimed, “the (DoH) tender process was aborted at short notice”.
Matsoso told Scorpio this decision came from the DPWI. Matsoso believed the DPWI had cancelled the tender, but the DPWI had made no effort to inform SKG Africa of the development.
In fact, the DPWI kept Hiroworx’s rival bidder under the impression that the bid process was ongoing.
This we know from some of the addenda in SKG Africa’s court filings.
‘Immense pressure’
What the court documents also suggest is that the DPWI was trying to make things as difficult as possible for SKG Africa. On 25 October 2019, a WhatsApp message was sent to SKG’s CEO, Jean du Plessis, from Patience Sethwana, one of the DPWI’s procurement officials involved in the bid process.
It came three days after Matsoso’s circular had effectively declared the tender process dead in the water.
Sethwana “urgently invited” SKG to a meeting concerning the tender for the DoH lease, scheduled for 3pm. Sethwana’s message left Du Plessis with under an hour to teach the DPWI’s head office in Pretoria: he made it on time.
There, DPWI officials requested further information from both SKG Africa and Hiroworx, shows Du Plessis’ affidavit.
SKG Africa was given only three days to submit the information.
Despite “immense pressure” from the short deadline, the company complied.
Next, the DPWI emailed SKG Africa to say the tender’s “validity period” had been extended to 1 December 2019.
So, the tender process was alive, contrary to what the DPWI had apparently told the DoH’s Matsoso.
Meanwhile, the DPWI kept requesting more information from SKG Africa. On the afternoon of 28 October, the department emailed a request for A3 floor plans of the company’s buildings.
The DPWI wanted the plans by 9am the next morning, so SKG scrambled to get those together. Again, SKG Africa managed to comply, shows Du Plessis’ affidavit.
At 11.14am, less than four hours after SKG had submitted the floor plans, Sethwana phoned Du Plessis. The DPWI official said there would be a site inspection at SKG’s building at 11.45am. This placed him “under undue pressure”, but Du Plessis rushed to their property, “arriving at 11.46am”, reads his affidavit.
On 29 November 2019, the DPWI told SKG the tender’s validity period would again be extended – to 2 February 2020.
The deliberations dragged on over December.
On 3 January 2020, SKG’s Du Plessis received another WhatsApp message from Sethwana about another site inspection at the company’s building three days later. Du Plessis, who’d been in East London over Christmas, duly travelled to Gauteng to attend the site inspection, scheduled for 6 January.
Representatives from the DoH, including former chief of staff Shireen Pardesi, attended with DPWI officials.
Pardesi would later be suspended over her role in appointing and processing payments to Digital Vibes, the DoH’s corrupt communications contractor.
‘New process’
At the January meeting, SKG Africa for the first time heard that the original DPWI tender process had been aborted and that the inspection formed part of a “new process”, shows Du Plessis’ affidavit.
The news came from one of the DPWI’s officials, but it wasn’t confirmed in writing. This was more than two months after Matsoso’s circular had stated this as fact.
Du Plessis was “surprised” by the development, as his company hadn’t been informed of the supposed cancellation.
Around now, SKG also began hearing “rumours” that Hiroworx had secured a lease contract through an emergency procurement process.
Only on 31 January 2020 did the company finally receive official confirmation that the tender had indeed been cancelled: when the decision was published in the government’s tender bulletin.
SKG Africa hadn’t received any reason for this, the company claimed in its court application.
It eventually decided to submit a Paia application for records that might detail why the tender had been aborted.
The DPWI wasn’t keen to release anything.
“It [was] only after SKG Africa threaten[ed] to launch an application to compel the DPW[I] to make available the record that the DPW[I] acted and caused a bundle of documents to be filed,” reads SKG’s court filings.
But they were “muddled and in no chronological or otherwise logical form [and were] also to a large extent illegible”, the company claimed.
Floored by floor plans
Scorpio asked the DPWI why the DoH tender had been cancelled. It first said the bidders’ buildings were all located outside the “required area”.
This was the same reason the DPWI had given for disqualifying SKG Africa from the Cogta bid.
But the specifications for the DoH bid clearly included the Pretoria CBD and Centurion. SKG Africa and Abland’s respective buildings are in these areas.
After Scorpio pointed out that at least two of the bidders’ properties were in the correct areas, the DPWI replied: “Kindly disregard the earlier response, which mentioned the location as non-responsiveness for the DoH bid. It was an error,” it claimed.
It then provided another explanation. Remember the floor plans SKG Africa had to submit to the DPWI at short notice? The DPWI now told Scorpio these documents weren’t satisfactory.
“The floor plans layout submitted by the bidder was dated 2015 which meant they were not drawn for the needs assessment of the client (Department of Health),” claimed the DPWI.
But there is reason to view this response with some suspicion.
SKG Africa’s court filings include a letter it sent to the DPWI in October 2019.
“… SKG Africa carried out detailed space planning layouts this weekend for DPW[I]’s consideration and such are attached to this correspondence,” reads one excerpt.
In other words, SKG had submitted fresh layout plans specifically drawn for the tender. The DPWI therefore can’t claim it only received “old” floor plans from SKG.
The second reason for SKG Africa’s exclusion seems equally dubious.
The DPWI told us SKG failed to submit a letter in which the company confirmed the DoH would not incur additional expenses for “tenant installations”. Such expenses are also known as cost overruns.
“Instead, the bidder informed the department that there will be an overrun,” claimed the DPWI.
Again, this is contradicted by the letter SKG sent to the DPWI in October 2019.
“SKG Africa confirms further that there will be no TI [tenant installation] overruns,” reads the letter. In other words, the two reasons the DPWI gave Scorpio for its decision to disqualify SGK Africa warrant scrutiny.
Enter Pillay
After Matsoso left the DoH in late 2019, meanwhile, Dr Anban Pillay took over as the department’s DG. Like Pardesi, Pillay would later be censured for his role in the Digital Vibes affair.
Pillay was instrumental in Hiroworx’s appointment as the DoH’s new landlord. His boss at the time, Mkhize, also played a role.
In December 2019, Pillay wrote to the National Treasury (NT) for permission to deviate from normal tender procedures to urgently sign a new lease deal.
But Pillay had jumped the gun.
When the NT replied to Pillay, it reminded him that the request for a deviation would have to come from the DPWI, not the DoH.
By now, Mkhize and his counterpart at the DPWI, Patricia de Lille, had got involved.
The two ministers met in December 2019, according to an article on SAnews.gov.za, the government’s news site.
“… both ministers resolved that relocating the department [of health] was a matter of urgency,” reads the article.
But if the DoH wanted to get into the Hiroworx building, it would first have to clear some obstacles.
One was the lease deal that Cogta’s then DG, Dan Mashitisho, had signed with Hiroworx in December 2019.
Luckily for the DoH, Cogta decided to get out of the way.
Health and safety concerns
In late January 2020, Cogta informed the DPWI that it would abandon the lease deal with Hiroworx, giving a startling reason.
“The department is not in a position to relocate to the recommended building, due to building proximity to the quarry/mine,” Mashitisho’s successor, Themba Fosi, wrote to the DPWI’s Vukela.
What Fosi was referring to is an active stone quarry west of the Hiroworx building.
When Dr Nkosazana Dlamini Zuma replaced Mkhize as Cogta minister in 2019, she raised concerns over the department’s pending move to the building, according to Cogta’s spokesperson, Lungi Mtshali.
“It is recommended you communicate with the DPWI directly…” said the DoH.
Cost creep
After the NT had told Pillay the DPWI needed permission for a tender deviation, the latter department in March 2020 submitted such a request.
Essentially, the DPWI and the DoH were hoping for permission for the DoH to take over the lease deal from which Cogta had walked away.
For Hiroworx, this administrative intervention would bring about a bonus.
Hiroworx had originally submitted a bid to lease its building to the DoH for R295.5m, for a five-year lease.
Thanks to the deviation, the company would instead get R486.7m for a seven-year lease contract, according to the DPWI’s request to the NT. This is R191m more than the original bid price for the DoH contract.
Hiroworx said the figure in the DPWI document was wrong. It claimed it will accommodate the DoH at a cost of “approximately” R444.8m.
But even this figure is nearly R150m more than what Hiroworx would have received had its bid for the DoH lease been accepted, and if that tender process hadn’t collapsed.
The latest deal was also more lucrative than the R344m lease from which Cogta had walked away.
The DoH lease provided for more floor space than the Cogta contract (28 397m2 vs 21 248m2). But the fact remains that Hiroworx would be earning more money — at least in gross terms.
Treasury’s call — ‘irregular’
On 24 March 2020, the DPWI received the NT’s approval for the tender deviation – with conditions. The DPWI needed to inform the NT whether an environmental assessment was done “to ensure the Department of Health’s health and safety”.
The NT also wanted clarity on whether the lease was “market-related”.
We asked the NT whether the DPWI complied with these requirements. If not, would the entire R486.7m be considered as irregular expenditure?
“If the conditions… were not addressed by the accounting officer and the department went through with the procurement… the support for the transaction falls away and the transaction will be deemed as irregular expenditure…” responded the NT.
It added: “The DPWI did not submit documents to National Treasury pertaining to the procurement of office space and therefore National Treasury has not assessed the documents to test compliance.”
We’re certain this means the expenditure could be deemed as irregular, and sought the DPWI’s comment, but it failed to respond.
Fanaroff said Hiroworx was unaware of any decision to flag the expenditure as irregular.
Currently, the DoH’s employees remain in their “unsafe” head office on the city’s outskirts, while questions persist over how the deal was concluded.
See more from MedicalBrief archives:
End health sector corruption, urges civic group
New Health MEC’s plan to reclaim Gauteng public healthcare
Gauteng hospitals deteriorate further after damning PP report
DA concern over ‘lack of leadership’ in Gauteng Health
Mkhize says ‘no evidence’ implicating him in Digital Vibes scandal
Health Department official resigns over Digital Vibes, colleagues demoted