A huge contract to audit and assess homes with asbestos roofing awarded by the Free State’s department of human settlements (FSHS) in 2014 contravened several procurement laws and regulations, a new report by Public Protector Busisiwe Mkhwebane has found.

The most alarming finding in the PP’s latest report is that only R21.3-million of the total amount of R230-million paid to the main contractor ended up being utilised for the asbestos audit. This affirms long-held suspicions that the contract amounted to little more than an opportunity to drain funds from the province’s coffers and that those involved in the scheme had made off with more than R200-million in taxpayers’ money.

Another shocking finding is that an earlier Auditor General report, concluded in July 2015, clearly showed that the contract was irregular. But even after it received the AG report, the FSHS “still made further payments of R139-million towards the service provider,” Mkhwebane found.

Various elements of the asbestos deal was unpacked in this reporter’s book, Gangster State, including strong links between one of the main role-players and then Free State Premier Ace Magashule. Before he was gunned down in Sandton in 2017, businessman Igo Mpambani had compiled a suspicious “cost of business” spreadsheet that detailed how payments from the FSHS would be carved up between several parties. A certain “AM” was due to receive R10-million, according to the document. Further to this, leaked emails showed that Magashule’s PA, Moroadi Cholota, had requested money from Mpambani on behalf of her boss. These requests were made during the time in which the FSHS executed the asbestos project.

(NB: Pieter-Louis Myburgh won the Taco Kuiper Investigative Journalism Award on Friday 15 May for his Gangster State book – Ed)

Allegations that the contract illicitly benefitted Magashule and other government officials did not fall within the purview of the PP investigation, but Scorpio has determined that the Hawks and the Special Investigating Unit (SIU) are currently investigating suspicious cash flows linked to the deal.

The FSHS in late 2014 appointed a joint-venture between Gauteng-based Blackhead Consulting and the late Mpambani’s Diamond Hill Trading to identify and remove asbestos roofs in the province. The “removal” part of the deal was later omitted from the Service Level Agreement from FSHS. The Blackhead Consulting-Diamond Hill JV therefore merely “identified” and “assessed” around 36,000 asbestos roofs. The companies did not replace a single asbestos roof but still walked away with R230-million in fees.

Instead of putting the contract out to tender, the FSHS appointed Blackhead Consulting and Diamond Hill through the controversial “piggy-back” mechanism provided for in the National Treasury’s procurement regulations. The FSHS participated in an earlier contract Blackhead Consulting had won from the Gauteng department of human settlements.

After the Blackhead Consulting-Diamond Hill JV clinched the contract, it subcontracted a company called Mastertrade 232 to perform the asbestos audit at a cost of R44.2-million.

Mastertrade 232 subsequently sub-subcontracted a company called ORI Group to perform the actual work at a cost of only R21.3-million.

But Mkhwebane has found that the appointment process had been replete with legal flaws.

“The Department [FSHS] participated in an expired contract of the Gauteng Department of Human Settlements and did not conduct a due diligence investigation before participating in this contract. The Department was in possession of the Gauteng Department’s Service Level Agreement (SLA) which had clearly expired. This constitutes a contravention of the legislative prescripts as interpreted in the Blue Nightingale case. This conduct amounts to improper conduct as envisaged in section 182(1) of the Constitution and maladministration as envisaged in the . . . Public Protector Act,” reads the report.

The PP also determined that there were considerable discrepancies between the original Gauteng contract and the one Blackhead Consulting-Diamond Hill clinched in the Free State.

“. . . the services were not the same as specified in the existing contract and also the price was higher,” she found. This was in contravention of the relevant Treasury regulations and constituted improper conduct and maladministration.

The report is a scathing indictment of the FSHS officials who oversaw the contract, especially the Head of Department (HOD), Nthimotse “Tim” Mokhesi.

“The findings . . . indicate wilful conduct and gross negligence in terms of . . . the Public Finance Management Act (PFMA) on the part of the accounting officer, Mr TN Mokhesi . . . He failed to execute his fiduciary duties in terms of the Public Finance Management Act and the Supply Chain Management Policy of the department,” reads the report.

The fact that Mokhesi had not acted on the July 2015 AG report also amounted to “gross negligence” and a failure to execute his fiduciary duties, according to the report.

Mkhwebane’s assessment of how Blackhead Consulting and Diamond Hill utilised the R230-million it received from the department is a deeply disturbing affirmation of the sheer wastage frequently involved in government contracts.

After the Blackhead Consulting-Diamond Hill JV clinched the contract, it subcontracted a company called Mastertrade 232 to perform the asbestos audit at a cost of R44.2-million.

Mastertrade 232 subsequently sub-subcontracted a company called ORI Group to perform the actual work at a cost of only R21.3-million.

“The evidence and documents prove that the project was 100% completed . . . by the ORI Group (company subcontracted by Mastertrade) at a fee of R21.3-million while the service provider appointed was paid R230-million,” reads the report.

“I can come to no other conclusion that the services provided were not cost-effective and that the department did not receive value for money,” Mkhwebane found.

As part of the legally-binding remedial actions, Mkhwebane recommended that Free State Premier Sisi Ntombela “take[s] the appropriate steps to ensure that the conduct of the accounting officer is investigated [in terms of the PFMA] and that the conduct is reported . . . to the South African Police Service and the Directorate for Priority Crime Investigation (Hawks) within 60 days.”

She also ordered further investigations into the roles of the department’s director for supply chain management and the chief financial officer at the time of the asbestos deal.

“The Premier has received the report and is currently considering it. The Premier will respond to the Public Protector within the timeframes as determined by the Public Protector,” said Kopung Ralikontsane, the director-general in the department of the premier.

Mokhesi, who is still occupying the position of HOD, did not respond to Scorpio’s queries.

Neither did Blackhead Consulting’s owner, Edwin Sodi.

Oupa Segalwe, spokesperson for the Public Protector, said Mkhwebane will explain her findings at an upcoming press conference, after which the report will be published on the PP’s website.

Leona Kleynhans, a DA member of the Free State’s provincial legislature and the original complainant in the asbestos matter, said she was still studying the report.

“I am relieved that we have been vindicated after five years of fighting against this contract. It is a pity that the contract couldn’t be stopped in 2015 and that so much public money had to be stolen from the people of the Free State,” said Kleynhans.

“We’ll be adamant that the recommendations are followed to the letter and, if they’re not, we will take action,” added Kleynhans. DM