High Court sets aside contentious KZN Health tender

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A failed R2.5bn tender awarded to a finance company – which has caused a chronic shortage of essential medical equipment, including oncology machines, at KwaZulu-Natal’s 300 government hospitals and clinics – has been set aside.

The Times reports that Judge Sidwell Mngadi, sitting in the Pietermaritzburg High Court, has ruled that the contract given in 2015 to Resultant Finance Pty Ltd to oversee the leasing of medical equipment was awarded unlawfully. This was because the company did not comply with an important requirement of the tender – that it be registered with the Financial Services Board (FSB). This, the judge said, rendered the process uncompetitive and unfair to other companies that may have bid but didn’t.

The report says this contract plunged KZN state hospitals into a spiralling crisis and resulted in an investigation by the SA Human Rights Commission, which found the province had failed its cancer patients. The tender, that was finalised in a quick seven weeks, meant that for five years, from May 2015 to April 2020, the department could not obtain any medical equipment worth more than R5,000, other than that which it leased from Resultant Finance (Pty) Ltd. The company was awarded the tender ZNB 5709/2015-H, and was responsible for leasing all “medical and non-medical equipment”.

The report says red flags were raised soon after the tender was awarded: bids were called for in February, Resultant Finance was recommended in March, and the contract was awarded in early April. At about the same time, a new head of the health department, Dr Sifiso Mtshali, was appointed, and the company and the department became embroiled in a legal boxing match.

The company claimed it was unable to secure the equipment – including endoscopy machines, ultrasound and x-ray machines and incubators – because the department was refusing to give it the necessary purchase orders. According to the report, it claimed it had access to hundreds of millions of rands in funding through Standard Bank, Rand Merchant Bank and even the PIC.

The department said it wanted proof of funding, and was not happy with the terms and conditions stipulated by some of the lenders.

The company went to court seeking to enforce the contract after the department cancelled it. The department brought a counter application, saying the contract had been cancelled because of non-performance, lack of funding and because the company was not registered with the FSB.

And then, the report says, Finance MEC Belinda Scott intervened. A forensic investigation was done, and she launched the review application in the High Court. In her application, Scott said the reason for the two-year delay in the litigation was because “officials concerned had either concealed the irregularities, or were blindly unaware of them”. “They only surfaced when the new head of health was appointed, and the forensic investigation was initiated.”

Scott said concerns were raised about the bidding process and, with the assistance of Deloitte and Touche, reports were compiled that indicated irregularities and advised that corrective measures be put in place as a matter of urgency. “This included provincial treasury taking over procurement of the department of health.”

Scott said the deal was contrary to the Constitution, the Public Finance Management Act and Treasury regulations. “The initial procurement list was for R573m. The agreed admin cost was 5.9%, so for this alone, the company was due R34m. The equipment would not belong to the department after five years whereas, if purchased, some machines would have a lifespan of 12 years.”

But, the report says, Resultant Finance, in opposing the application, blamed the delay on “political interference”, and claimed “certain people in the provincial leadership of the ruling party had instructed that the company be frustrated in its execution of the contract without taking into account the interests of patients”. It also accused Scott of essentially sticking her nose in where it didn’t belong. It said the Health Department should “seek to correct its own decision”. There was also nothing wrong with the way the contract was awarded, the company said.

But the judge is quoted in the report as saying, the Treasury should be concerned with all government spending. “This was a high-value contract relating to the expenditure of a substantial part of the department’s budget. The MEC has a direct and substantial interest in this matter.” He said the contract, while viewed as an “innovative and cost-effective way to procure and maintain the equipment while transferring the risk to a third party”, had faltered because there was no experience or precedents.

While he rejected several grounds raised by Scott for the tender to be set aside, he ruled that the non-compliance on the FSB issue was highly irregular.

The report says approached for comment, the MEC said the company had applied for leave to appeal the ruling, which she was opposing. “Treasury is addressing all large contracts, most of which are being extended on a month to month basis. This will take some time, but we are ensuring service delivery at hospitals is not affected.

“Part of Treasury’s intervention is a needs analysis in the department of health to ensure that the most critical needs in health are being addressed during this period of fiscal consolidation. We have made important strides in this regard,” she said.

The report says attempts to contact company CEO Dr Mdu Gama by phone and e-mail were unsuccessful.

The Times report

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