Exposed: R1.9 billion Pharmaceutical Contract Bungle

“You who are innocent enough to believe that the forces let loose in your world today are moved by greed for material plunder—the mystics' scramble for spoils is only a screen to conceal from their mind the nature of their motive. Wealth is a means of human life, and they clamor for wealth in imitation of living beings, to pretend to themselves that they desire to live. But their swinish indulgence in plundered luxury is not enjoyment, it is escape. They do not want to own your fortune, they want you to lose it; they do not want to succeed, they want you to fail; they do not want to live, they want you to die; they desire nothing, they hate existence, and they keep running, each trying not to learn that the object of his hatred is himself.” Ayn Rand – Atlas Shrugged

With the official launch of the Central Supplier Database tomorrow (1 September 2015), loopholes that have allowed government officials and suppliers to cut corners will hopefully be sealed.

The Central Supplier Database (CSD) is a technology-enabled strategic sourcing concept that departs from the currently fragmented and manual handling of procurement by various government departments.

When fully operational, the CSD is expected to make public procurement transparent and ensure the government gets the best value for purchases. About 20% of the R500 billion annual public procurement budget is lost to corruption.

The new system will have an electronic interface with the South African Revenue Service (SARS), the Companies and Intellectual Property Commission, the Department of Home Affairs and the Black Economic Empowerment databases.

We believe CSD should incorporate more, and call on the Treasury to consider interfacing the criminal and employment equity databases as well. We also advocate for the inclusion of tax clearances for all registered directors of companies seeking to do business government. Some people may view the requirement for tax clearances for compny directors as an excessive or intrusive demand. But as matters stand, excessive means are exactly what is required to safeguard public funds.

BEE fronting is one of the top issues that have handicapped accountability. Corruption Watch rightly called the practice a criminal offence. Companies that keep winning multi-million rand contracts with government should have directors who are equally contributing to the exchequer and remain in good standing with the Receiver of Revenue. We know about individuals that list their domestic employees as company directors and often without their knowledge. This is purely done to secure lucrative government contracts. This is not only wrong and illegal, but plain evil.

Why do we talk about this now?

Our on-going examination of pharmaceutical procurement contracts signed by the Department of Health has given us reasons to be concerned. We have reported on suppliers suffering from what we call ‘Multiple Identity Disorder’ (MID). The disorder, where the same individuals register numerous entities and bid for contracts, is so entrenched it is unlikely the CSD e-portal would be a panacea. For instance, the JSE-listed Adcock Ingram Limited has two entities doing business with the health department - Adcock Ingram Healthcare (Pty) Ltd has and Adcock Ingram Critical Care (Pty) Ltd.

In the Condom Rush report we wrote about Barrs Medical (Pty) Ltd, another MID patient. When we questioned the department’s director for affordable medicine, Khadija Jamaloodien, about the mechanism used by Barrs Medical (Pty) Ltd, she called it an administrative error that would be rectified later.

At around the same time we contacted Jamaloodien, someone purporting to be a senior employee of the department telephoned us, claiming that some suppliers routinely collude with ‘friends’ within the department to ensure their bids succeed. There is a possibility that the caller was just some disgruntled bidder, nevertheless, the allegation should not be dismissed.

We also received an anonymous email alerting us of a ‘deliberate scheme’ to inflate the prices of products during the drafting stage of contracts, and more specifically the lubricants contract procured under the Condoms Tender. We had questioned the rationale behind the procurement of such huge volume of lubricants, considering that the condoms are already lubricated.

We sought a meeting with one of our confidential sources at the department, and the information we gleaned isn’t pleasant.

Our data processing and tabulations had busted what the source believes to be one of the many ‘deliberate schemes’ to inflate the cost of items after winners are announced. The department still expected the contracted suppliers, Barrs Medical (Pty) Ltd and Medi-Core Technologies (Pty) Ltd to only supply sixty million sachets of lubricants, but the unit price (as per the signed contract) had been increased from R0.3212 and R0.3499 respectively to R32.12 and R34.99. This ballooned the total cost from R19.8 million to R1.9 billion, spread over three years.

That is R1,959,071,400.00 more than what the winning suppliers were entitled to.

How could this have happened? There was clearly an internal audit failure at the department. We asked Jamaloodien why she signed off a contract with inflated volume and pricing. In her response, she stated; “I refer your query regarding the technical issues to Ms. Thato Chidarikire, Director: HIV and AIDS, STIs – Prevention Strategies.” No ma’am, this is not a technical issue but a clear contractual bungle. It is an issue of cost escalation, and not specifications. Few members of the public would know that a sachet of lubricant costs between thirty and forty cents of a rand. 

We also requested copies of the Black Economic Empowerment Certificate submitted by Barrs Medical (Pty) Ltd and Barrs Pharmaceuticals Industries (Pty) Ltd.

Jamaloodien wrote: “On the issue relating to the quantities awarded, I have reviewed the documents to clarify the matter. In Annexure C it is clear that 60 million units will be required over a 3-year period.

“I see where the possible confusion may have arisen. The specification indicates pack of 100 (this is for purposes of packaging) but the quantity awarded in the Contract Circular indicates the number of units in relation to the specification as in Annexure C.

“This has been clarified with all contractors. Rest assured no additional volumes have been awarded to any supplier.”

If the quantity awarded hadn’t changed, then the price surely did change. The contract should have reflected the right price and should not be a mere matter of verbal communication with the winning suppliers. How would the next director of affordable medicine know the details of private communication with a supplier? In such a situation, we believe the inflated signed-off price would likely prevail over any private communication with suppliers.

Jamaloodien said she couldn’t avail the Broad Base Black Economic Empowerment Certificates for Barrs that we were seeking, due to confidentiality issues.

Our contention is that the confidentiality cloak fell the moment the bidder(s) won contracts funded by taxpayers. Simply put, the public has a right to be granted access to records that precipitated the awards.

It is vital to get the records since we already know that the personalities behind the companies whose records we have requested have had dealings with the department using at least three entities - Barrs Pharmaceuticals Industries (Pty) Ltd, Barrs Medical (Pty) Ltd and Sekunjalo Investments Corporation. The verification of the Broad Base Black Economic Empowerment certificates used in landing those contracts would be enlightening.

Entities that wish to maintain secrecy and confidentiality of their operations have no business seeking public-funded business.

We welcome the launch of the Central Supplier Database. The respective departments must now play their parts to ensure only necessary items are sourced. We all have a responsibility to stop plunder and waste of public funds. 

 

 

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