Siemens, DOL under investigation

Johannesburg, 14 Feb 2011
Read time 3min 30sec

The IT contract between the Department of Labour (DOL) and Siemens is being investigated.

Labour parliamentary portfolio committee secretary Luvo Nxelewa says the matter is being referred to the relevant investigating authorities and more details will be available later this month.

This comes after the committee's chairman, Elleck Nchabeleng, said several matters around the controversial contract need to be delved into due to the many irregularities that arose in a KPMG diagnostic report.

He adds that the report indicated deeper issues that are, as yet, to be uncovered.

At a committee meeting last week, the DOL said it would not renew its contract with Siemens to deliver its IT systems and will negotiate an early termination of the contract for October.

Admitting failure

“I understand that the entire file is now being handed over to Scopa [standing committee on public accounts] for investigation,” says Democratic Alliance shadow minister of labour Ian Ollis.

He adds that the allegation made at the meeting was that some form of backhand was being deployed and there were people in the department receiving untoward “donations” for allowing poor performance to continue.

However, Ollis adds that the facts have not yet been made clear. “The problem is that the initial contract was drafted extremely poorly and this was admitted by the Department of Labour.”

He says it included very little method to hold Siemens accountable, or to terminate the contract upon non-delivery of service or poor performance, which has been the case. Ollis also says it allows for corruption, because it's too broad.

“The DOL also admitted there was a poor record of monitoring and implementation on the part of the department.”

Unresolved challenges

The public-private partnership (PPP) between the DOL and Siemens began in 2002 and, apart from escalating costs, was plagued by other irregularities and challenges. The DOL sought outside help in the form of a diagnostic analysis by audit firm KPMG.

Siemens had subcontracted the delivery of its services and the department was not happy with this.

KPMG found that since the department had not agreed to this, there was a contractor default, and the department should ask Siemens to rectify it. The report also found there was no feasibility study done, nor any agreement from the department on the use of a SAP platform.

In addition, there was no reconciliation done by Siemens against the baseline in the contract for licences, and so the report said the department is not liable for additional costs with regard to licences.

Escalating costs

The partnership had initially been costed at R1.2 billion, but has now risen to R1.3 billion. The department said this increase is due to the rise in the consumer price index, services relating to the annual report, and an increase in end-user devices.

There are still 22 months of the contract left to run. The projected cost at the end of the contract in November next year is expected to be R1.9 billion.

The department secured the involvement and participation of National Treasury, SITA and the State Attorney to assist in resolving current PPP contract problems.

The DOL adds that it is implementing the recommendations of the KPMG report, as well as negotiating for an early contract termination, since the contract only ends in November next year.

Siemens says it is in a long-term partnership with the department and has not been provided with the KPMG report presented to Parliament's portfolio committee.

"We, of course, have high interest to discuss this matter with the department and all other open issues with the clear goal of finding a solution for a successful implementation of all projects covered by the contract," says Siemens head of corporate affairs Sithembile Mokaeane.

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