It's lights out for Eskom's R1.9bn ICT tender

Johannesburg, 02 Apr 2015

Eskom is in negotiations with T-Systems to extend the current agreement on mutually acceptable terms and conditions.

Beleaguered power utility Eskom has withdrawn its R1.9 billion tender for the provision of outsourcing IT infrastructure services - following a prolonged bidding process - in favour of extending the deal with incumbent T-Systems.

In a brief letter dated 1 April, Eskom informed the three shortlisted bidders - local group Dimension Data, as well as Indian technology firms HCL and Wipro Technologies - that the tender has been cancelled, adding: "Eskom's business strategy and operational requirements have significantly changed."

In response to questions from ITWeb, the utility confirmed negotiations are under way with T-Systems to extend the current agreement on "mutually acceptable terms and conditions". While Eskom did not give further details, it is understood the utility would like to see the contract extended for a further 20-month period.

None of the three shortlisted bidders would comment on the matter, but a source close to one of the companies says it incurred about R5 million in costs as a result of the prolonged bidding process and is weighing up its legal options in light of the cancellation.

"We are in the process of reviewing legal opinion as to our rights to review the process upon either an indefinite extension or cancellation. Our contention is simple - the current provider was disqualified in the first round and yet is being required to continue providing services that do not meet the RFP [request for proposals] requirements."

But Eskom has shrugged off suggestions it may be held liable for the expenses incurred by the shortlisted bidders, as a result of the tender cancellation, saying: "Bidders bid at their own expense."

New contract

Eskom announced last year it would pull the plug on its long-term partnership with outsourcing giant T-Systems, which secured the deal in December 2010, when it purchased state-owned ICT service provider arivia.kom. At the time, the five-year, R500 million per annum deal was described as one of the biggest outsourcing transactions in SA's history.

At the beginning of last year, Eskom put the deal out to tender again, as it was due to expire in January 2015. While the original deal with T-Systems was valued at R2.5 billion, the new contract would have been worth slightly less - R1.9 billion - as Eskom was planning to insource some parts of the contract.

The new tender attracted bids from 11 companies, including local and international giants Business Connexion, IBM, Bytes, Gijima and Tata. T-Systems also rebid for the deal, but Eskom informed the company it failed to make the list of bidders that went through the best and final offer process and local content verification, late last year.

What the T-Systems deal consisted of:

The original Eskom contract was secured by T-Systems in December 2010, after the outsourcing company bought state-owned ICT service provider arivia.kom. These are the details of the original deal that was described as one of the biggest outsourcing transactions in SA's history:
* Five-year deal, worth R500 million a year.
* IT asset base consisting of mainframe equipment, networking equipment, servers, storage, security devices, desktops, IP addressing ranges, and the CA Unicentre toolset that arivia.kom initially acquired.
* 1 200 people who were employed by arivia.kom at the time of the transaction.
* Included other clients such as Transnet, Department of Water Affairs, SAA and others.

However, it is understood bidders received no communication at all until late July last year, by which time it had become apparent the January start would be missed. Insiders close to the deal say the turmoil that has engulfed Eskom in recent months has pushed the ICT contract down the priority list, and has now resulted in the tender being shelved.

A current high-level independent probe into Eskom is looking into a number of challenges facing the utility, including poor generation performance, delays in building new power plants and cash flow problems. Four senior Eskom executives, including CEO Tshediso Matona, have been suspended to ensure the probe is "transparent and uninhibited", while board chairman Zola Tsotsi agreed to step down at the beginning of this week.

The other three executive who have been ordered to step aside until the inquiry is concluded are FD Tsholofelo Molefe, chief of group capital projects Dan Marokane, and commercial and technology head Matshela Koko. All procurement decisions at Eskom have to go through Koko's commercial division, and it is understood his suspension may have been key to Eskom cancelling the ICT tender.

Eskom would not comment on Koko's suspension and the impact it may have had on the tender, but stated the deal was considered at the board tender committee's last meeting.

T-Systems also declined to comment, saying it is unable to discuss customer contracts in open forums or discuss contracts on behalf of any of its customers.