Digital TV project dodgy tender deals

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National Treasury has found that USAASA's tender bids were not conducted with integrity and did not follow a value for money process, according to Muthambi.
National Treasury has found that USAASA's tender bids were not conducted with integrity and did not follow a value for money process, according to Muthambi.

The Universal Service and Access Agency of SA's (USAASA's) tender process for set-top-boxes (STBs) for the digital migration project lacked integrity and was not one of value for money.

This was revealed by Department of Communications (DOC) minister Faith Muthambi during a joint-committee meeting on the state of digital migration in Parliament last week.

Muthambi delivered the findings of a National Treasury forensic investigation report into the appropriateness of USAASA tenders.

According to Muthambi, last October her department sought Treasury to conduct an investigation regarding the USAASA decoder tender process.

USAASA, the agency which has been charged with the responsibility of managing the production and installation of STBs, announced earlier last year that a R4.3 billion tender to manufacture digital migration decoders was awarded to all the 27 companies that bid for the tender.

However, Treasury's investigation found that the process of evaluation and adjudication of bids was not in line with USAASA's Supply Chain Management (SCM) policy and National Treasury regulations.

In terms of the report, the tender process followed by USAASA led to non-qualifying companies in terms of scores allocation; and establishment of the panel of 27 manufacturers instead of appointing qualifying companies.

Muthambi said: "The Bid Evaluation Committee (BEC) evaluated bids in accordance with the criteria specified in the bid documents and recommended not to award any company for the supply of digital terrestrial television (DTT) antennae and accessories and for the tender to be re-advertised. Instead, USAASA introduced a different evaluation and adjudication processes against the initial criterion."

"The consequence of the appointments and establishment of a panel did not take into account the price negotiation process. When allocating supply volumes by USAASA, companies that quoted lowest prices were not granted volumes. Instead prices were negotiated upwards and not downwards leaving the cost of STBs procured at 37% above the market price at retail. This is in contravention of the SCM and PFMA provisions for "value for money", she added.

Costly management

Muthambi told the portfolio committee the report findings revealed by appointing Ernst & Young (EY), USAASA contravened its own SCM policy. The agency appointed EY to ascertain manufacturing capacity among bidders.

The terms of the SCM policy stipulate that all procurement exceeding R500 000 must be subjected to competitive bid, she said. "However, the appointment of EY did not follow a competitive bid.

"Other three companies were appointed to form part of a BEC, namely, LS Telkom, Bowman Gilfillan and Indyebo Consulting. USAASA claims that companies were appointed to provide technical expertise and as a result the fourth company, Rain Chartered Accountants was appointed to audit the process. Again, the process of appointing these companies did not follow the procurement process. It was initiated by an email sent to 17 companies requesting for proposals.

"Even though EY's quotation was the highest, it was appointed with a cost of over R849 000. The other four companies were also appointed with their quotations above the threshold of R500 000 as dictated by USAASA SCM policy," she continued.

Hold production

Last year, the DOC placed its first order with USAASA for 1.5 million STBs. The order forms part of government's plans to subsidise five million STBs for low income households.

In July, USAASA instructed manufacturers to suspend the production of DTT STBs until further notice. The agency said its decision to suspend production follows the Supreme Court of Appeal's judgement in May.

At the time, USAASA only suspended the production of DTT STBs, while direct to the home decoders were not affected.

However, Treasury's report has recommended that the production process of STBs be stopped with immediate effect.

Muthambi noted: "The recommendation is based on that continuation of the process may be faced with the legal challenge and that with the current situation, the programme will not realise its objective of providing five million STB in consideration of the current funding."

She continued: "The DOC and USAASA are to urgently find a process that will enable the government to realise the goals and objectives of the nine point plan and value for money.

"The office of the CPO is being engaged regarding the findings with the intent to solicit assistance regarding implementation of the National Treasury recommendations. The CPO committed to study the findings and provide recommendations about the appropriate legal process to be followed."

SA missed the June 2015 deadline set by the International Telecommunication Union for countries to switch from analogue to DTT.

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