Court upholds Net1's social security tender

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Dual-listed Net1 UEPS Technologies has won a court bid in the South African Supreme Court of Appeal, which yesterday handed down a judgment finding that a R10 billion social security payments tender process was valid and legal.

Rival bidder AllPay had alleged Net1's win of the multimillion-rand deal - to distribute about 15 million social security grants to 10 million people - was unlawful. Last August, the North Gauteng High Court ruled that, while the deal was illegal and invalid, it would remain in place so that payments could continue.

AllPay appealed the ruling that allowed the contract to remain in place, while Net1 appealed the decision that the deal was illegal and invalid.

However, a full bench of judges has decided the process followed by the South African Social Security Agency (SASSA) in awarding the contract to Net1's wholly-owned subsidiary, Cash Paymaster Services (CPS), was valid and legal.

"Accordingly, the contract between SASSA and CPS, to distribute social welfare grants to 10 million South Africans every month, for a period of five years, remains in full force and effect," says Net1 in a statement.

The company is also under investigation by the US Securities and Exchange Commission and the Department of Justice's Criminal Division to determine whether there was bribery involved in the awarding of the deal.

Net1 has decided to sue AllPay for R478 million for allegedly injuring its reputation.

No issues

In the decision, written by judge Robert Nugent, the court said: "SASSA was entitled to have the solution it required if that solution was available. CPS was able to provide that solution. AllPay could not."

AllPay had argued there were irregularities in the awarding of the deal, but the court found any small irregularities that may have occurred were not material.

"It seems to me that it would be most prejudicial to the public interest if inconsequential irregularities alone were to be capable of invalidating the contract. But I need not base myself on that in this case. In my view, there were no unlawful irregularities."

Nugent added that the North Gauteng High Court's order should not have been made.

Robust solution

SASSA had elected to implement a biometric system to root out fraud in the payments process. According to the judgment, the task of distributing grants was previously the responsibility of the various provincial authorities.

SASSA was established to bring the payment of social grants under a single umbrella. What it inherited when the responsibilities of the provincial authorities were assigned to it was described in its affidavits as "disintegrated social security systems, lack of uniform grant administration processes, ineffective IT systems and interfaces, costly administration fees, fraud and corruption, and poor management of outsourced payment services", wrote Nugent.

Nugent said that, when SASSA inherited its responsibilities, most grants were being paid in cash by contracted service providers. "Transporting large sums of cash to numerous payment points, some located deep in the rural countryside, presents substantial security risks in itself."

A biometric solution would eliminate these risks, as well as ensure payments are made to the correct people. Some 21 bids were received by the closing date for the contract, and only CPS and AllPay proceeded to the stage at which they made oral presentations.

CPS's bid scored higher and it was awarded the deal, writes Nugent.

"AllPay was unsuccessful in the bid, because it lacked the expertise relating to enrolment solution and payment solution - the determinative criteria in evaluating a system sought by [SASSA] and which contained the essential elements to address the mischief of abuse by claimants for social grants who do not qualify."

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