Tuesday, 25 June, 2024
HomeNews UpdateNo action yet against company which inflated PPE deal by 200%

No action yet against company which inflated PPE deal by 200%

Despite the Competition Commission finding that a company marked up by a whopping 236% the hand sanitiser it sold to the SAPS during the pandemic – scoring R515m in the transaction –  it seems unlikely any heads will roll any time soon.

Red Roses Africa (Pty) Ltd, which had bought the sanitiser directly from Dis-Chem before inflating the price and selling it, has been referred to the Competition Tribunal since the investigation.

It has also now been referred to the NPA.

When Daily Maverick first questioned the deal in 2021, the company claimed innocence, its attorneys threatening to report us to the Press Council. Last week the Competition Commission announced it had “referred a third Covid-19-related public procurement case to the Competition Tribunal for prosecution”.

The Commission says it has found that Red Roses Africa (Pty) Ltd, previously registered as Mainstreet 669 (Pty) Ltd, “charged excessive prices to the SAPS for the supply of bulk hand sanitisers in 25-litres”.

Red Roses had supplied SAPS with 90 000 25-litre containers of sanitiser at R4 700 per 25-litre container, with “a gross mark-up of 236%”. That is 2 250 000 litres of hand sanitiser, or, about 12 litres of sanitiser per SAPS member.

The commission’s investigations stem from special regulations issued on 19 March 2020, under the Disaster Management Act, aimed at prohibiting companies from abusing the Covid-19 crisis to make excessive profits.

But this was just what Red Roses did.

The sale of the sanitiser to the SAPS by Red Roses Africa at a grossly inflated price was first exposed by Daily Maverick in September 2021.

At the time, the company denied being investigated by anyone and said the Competition Commission “had not made any adverse findings against Red Roses”.

However, since then, questions about the R515m contract Red Roses scored with the SAPS – paid in full – have remained. Now the company has also been investigated by the SIU, and featured in its two latest reports to the President.

In April 2023, in another matter concerning SAPS procurement of hand sanitiser, the Competition Tribunal found the company, Blue Collar Occupational Health, guilty of excessive pricing.

Blue Collar Health had supplied SAPS with 10 000 25-litre containers of sanitiser at R3 550 (including VAT) per container. The Commission says this was “a mark-up of 120%” per 25-litre container of hand sanitiser and earned a gross margin of more than 50%. The excess profit or “overcharge to SAPS” amounted to more than R9m.”

Given that Red Roses sold its hand sanitiser at more than R1 150 per 25l more than Blue Collar, the eventual judgement of the Tribunal would seem to be a foregone conclusion. In addition, we know from the SIU’s report that the sanitiser was bought directly from Dis-Chem and delivered by them to the SAPS warehouse in Pretoria.

What is concerning in the Blue Collar case, as well as in this one, is that under the Competition Act there is a cap (of 10% of the annual turnover of a firm) on the administrative fine the Tribunal may levy on a guilty party. As a result, the Tribunal’s statement in April pointed out that because of the cap:

“The penalty amount is significantly lower than the excess profit (i.e., the overcharge to SAPS).” It adds that: “…in terms of section 65(6) of the Competition Act, a person who has suffered loss as a result of a prohibited practice (in this case SAPS), may commence action in a civil court for damages arising out of a prohibited practice.”

Under the Act and the special regulations, the Tribunal does, however, also have the power “to declare the whole or any part of an agreement to be void” and to order a period of imprisonment of no more than 12 months.

Unless it does, lawyers say the danger exists that hundreds of millions of rands obtained through unlawful excessive pricing may only be recovered through civil litigation initiated by the SAPS or through an order of the Special Tribunal. Based on its current lethargy …in investigating large-scale internal PPE corruption, it seems doubtful whether the SAPS, some of whose senior officials are implicated in the sale, has any intention of doing so.

SIU concludes its investigation

However, questions about this contract go deeper than “unconscionable” excessive pricing.

On 3 May, the Presidency published the Third Final Report of the SIU under Regulation 23 of 2020 into Covid-19 corruption on its website. This report updated the ongoing investigation into Red Roses and again declared the procurement unlawful (the SIU report no longer appears on the Presidency website).

It noted that an SAPS whistle-blower alleged that the contract had arisen from “a complete dereliction of duty and complete disregard of accountability by two senior managers”.

“The SCM (supply chain management) department is alleged to have been involved in collusion, price inflation, flouting procurement processes and policies.”

The SIU names two senior officials, from the SAPS and Treasury – Major-General J Riet and Mrs Duiker – who are “alleged to be involved in perpetrating these irregularities”. But the latest SIU report omitted to explain what steps the SIU were recommending.

This week, Kaizer Kanyago, SIU spokesperson, told Daily Maverick the Mainstreet 699/Red Roses investigation has been finalised. He declined to provide names or details but said one criminal referral had been made, as well as three disciplinary referrals to the SAPS and “one civil matter which might be heard by the Special Tribunal or High Court”.

According to another source, though, although progress has now been made on several fronts, what is worrying is that on each front, further investigation and time will be required, possibly taking several more years. Meanwhile, those who carried out and benefited from prima facie unlawful acts continue to hold on to the proceeds of likely corruption.

 

Daily Maverick article – Unconscionable’: Competition Commission says Red Roses Africa marked up hand sanitiser sold to the SAPS by 236% (Open access)

 

See more from MedicalBrief archives:

 

‘Imported’ PPE for SAPS marked up 400%, sourced from Dis-Chem

 

SAPS officers in court over PPE corruption

 

Competition Tribunal told of SAPS sanitiser deal over-charging

 

 

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