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EOH faces R44m fine for delays in home affairs tender

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Home affairs minister Aaron Motsoaledi.
Home affairs minister Aaron Motsoaledi.

The Department of Home Affairs (DHA) has moved to salvage the controversial multimillion-rand Automated Biometric Identification System (ABIS) tender and slapped technology services company EOH with a R44 million penalty over delays in the implementation of the project.

After months of wrangling and negotiations over the delays, the DHA has fined EOH over the R400 million contract and has recommended it be ceded to a suitable subcontractor.

The department has since approached National Treasury seeking guidance on the matter.

EOH is contesting this penalty and the amount is under dispute.

This is not the first time EOH has been hit with a fine in recent months. In July, the company was penalised R7.5 million by the Johannesburg Stock Exchange (JSE) for publishing false information in its 2017 and 2018 financial results.

The latest details of the fallout between EOH and the department were revealed in Parliament last week by home affairs minister Dr Aaron Motsoaledi, who presented a rescue plan for the ABIS to the portfolio committee on home affairs.

The contract was for EOH to migrate data on the current Home Affairs National Identification System, which only records photos and fingerprints of South African citizens, to the new ABIS.

The final implementation of the system would provide a single source of identification for citizens across state institutions and private sector entities.

The contract was processed by the State Information Technology Agency and awarded by the DHA.

However, the project was delayed after the missing of master files in the ABIS contract with EOH and a forensic audit is under way into the contract.

Delivery discrepancies

In his presentation to the portfolio committee, Motsoaledi revealed that out of the R400 million contract, R224 million had already been spent on services, infrastructure and software.

He also said in terms of the contract, if there are any delays in the implementation of the project, the DHA reserved the right to levy a penalty for every month of delay.

“In invoking this penalty clause, DHA levied a penalty of R43 973 141.80 against EOH because the project has already been delayed by two years. EOH is contesting this penalty and hence the amount is under dispute. The contract also stipulates that such disputes are to be mediated by a senior counsel appointed jointly by the DHA and EOH Mthombo,” he said.

The joint appointment has already been made and the mediation process is starting this week.

Furthermore, the minister said EOH has taken a decision to exit all government contracts and as part of its exit plan from the DHA contract, EOH is proposing to cede the work to a subcontractor.

“In the event of EOH exiting, the contract still needs to be salvaged because most plans of modernisation of DHA services revolves around ABIS,” Motsoaledi said.

The minister added that the legal opinion obtained by the DHA suggested that ceding is permissible, subject to certain requirements being met.

According to Motsoaledi, after meeting with officials from the Department of Communications and Digital Technologies, it was decided that the DHA proceed with the ceding, provided the cession is approved by National Treasury.

“The DHA has already approached National Treasury for guidance. It is recommended that the portfolio committee notes the decision to cede the ABIS contract to a suitable subcontractor, subject to the finalisation of the negotiations and approval by National Treasury.”

Discord continues

EOH, however, has denied it is quitting government contracts.

A spokesperson says the company has noted the minister’s presentation, adding: “EOH remains committed to the project insofar as the engagements under way present viable options which are commercially sustainable for both parties.

“EOH maintains and intends to maintain its ongoing strategic relationships and engagements with the government insofar as those relationships and engagements are commercially sustainable.”

Further, in terms of the contract, EOH said it is disputing that it is the cause of the delays.

“In this regard, EOH and the DHA are proactively and constructively engaging one another through their respective attorneys with a view to securing an amicable outcome to the difficulties encountered on the Automated Biometric Identification System project to date. There are presently no arrangements or agreements in place concerning the replacement of EOH on that project, whether by cession or otherwise.”

The JSE-listed company has been battling with a myriad challenges − operational and legal.

EOH’s problems surfaced after Microsoft in February last year terminated its contract with the IT services company after an anonymous whistle-blower filed a complaint with the US Securities and Exchange Commission about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

The new EOH management team expressly requested an ENSafrica investigation following the Microsoft issue, in order to uncover any other potentially unethical business practices.

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