Financial

More costs for R2bn labour contract

Read time 3min 20sec

Over and above the inflated R2 billion contract with Siemens, the Department of Labour (DOL) will pay for termination support for another 12 months.

The DOL's public-private partnership (PPP) with Siemens - to deliver IT systems - concludes at the end of this month, after 10 years. What initially started off as a contract for R1.2 billion, controversially inflated to R2 billion, and the department now says the costs for the termination support have not yet been negotiated.

The cost of the termination support will be in addition to the R2 billion costs already incurred.

In February 2011, the IT contract between Siemens and the department was put under investigation due to non-delivery, among other issues.

The budget overruns are attributed mainly to additional services and the rise in the consumer price index, according to the department.

EOH support

EOH will provide termination support for about 12 months. "We did not appoint EOH," says the department. It explains that Siemens sold 100% of its IT Solutions and Services in SA to EOH.

"The contract makes provision for a termination support period of up to 12 months, which allows for transition and handover. During this period, EOH will provide continuity of ICT services, as well as wrap up any outstanding project work."

The department admits that by 2003, it should have had an exit strategy, but by 2011 there was still no exit plan. "The end of this contract marks a new frontier in ICT for the department through the establishment of a new ICT operating model focused on building internal capacity."

Accenture appointment

The department also appointed technology services company Accenture to help it with an exit strategy from its contract with Siemens.

This was questioned by labour Parliamentary portfolio committee members, because the appointment was made without a tender process.

"Accenture came in on a specific scope to develop an exit and services plan and the ICT strategy. It did not come in to replace Siemens," says the DOL.

Uncommon problems

After previously stating non-delivery of services for the termination of the contract, the DOL now says the current PPP model will not meet the organisation's changing needs in the future.

"The PPP was the first partnership in SA of its kind and has no doubt encountered many obstacles. Challenges have been experienced in project delays and changing business requirements; however, this is not uncommon in the industry."

The department is working with Siemens on the exit and services transfer project to hand over information and services to the department.

"PricewaterhouseCoopers has been appointed as transaction advisor to assist the department in issuing requests for proposals and selecting ICT service vendors."

Exit threats

The department last month admitted its exit from the Siemens contract posed risks and threats.

CIO Thabo Sefali said expected threats are increased levels of attrition with the current Siemens resource pool, procurement of services that may result in higher than expected costs, the transition to a new operating model, representing an inherent risk in operational stability, and other security risks.

However, he added the threats are being attended to and the DOL is working on plans to mitigate them.

In October, it also announced a new five-year ICT strategy. It said this is to help it enter a new phase of modernisation to increase its operational efficiencies and strengthen its institutional capacity.

1998 was the last time the department had an ICT strategy.

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