Listed IT infrastructure company ConvergeNet is concerned government may not award critical tenders before March next year.
The company earns half its profit from government work, explains CEO Pieter Bouwer. However, there have been delays in the publication and awarding of State IT Agency (SITA) tenders.
“Business in the government segment was also slower than expected, due - in part - to the March general election and the widely expected changes in the administration,” it says.
ConvergeNet had been hoping to be awarded some government work in mid-year, and had bolstered its skills and resources to beef up its ability to provide services to government.
However, its additional spending did not translate into extra revenue during the year, and is not expected to greatly boost this year's results to August 2010 either. If tenders do get awarded in March, this will only add about six months' worth of revenue, he explains.
In October, SITA claimed it had improved its turnaround times for tenders, with each now taking an average of 73.74 days to be awarded. In the past three years, it issued 163 tenders, of which 86 have been awarded, 63 are under evaluation and 14 cancelled.
Cost watch
Bouwer says this is not a complete disaster, as it is involved in some tenders as a provider to companies that have won government deals. This, he explains, gives ConvergeNet access to some of the profits and margins.
In addition, once tenders are awarded, they will give the company annuity income for a few years. Bouwer explains that contracts are awarded for three years, but are usually extended for another year while government goes through the tender process again.
While SA seems to be slowly coming out of the recession, Bouwer does not expect the current year to see a “major release in economic activity”. He expects companies to continue putting pressure on prices paid for services, and government will also watch costs.
However, some spending must still go ahead, such as the 2010 World Cup. Bouwer says the acquisition by its subsidiary Sizwe Africa IT Group of 74% of Tswelopele Technological Solutions last December will benefit from the tournament.
Share