City Press & Transnet Litigation

18 Jun 2018

T-Systems responds:

On Sunday 17 June 2018, City Press published an article pertaining to the pending litigation of the award by Transnet of the new IT Master Services Agreement (MSA). In this article it was alleged that Transnet’s Acquisitions and Disposals Committee (ADC) had displayed bias at its meeting of 13 February 2017 in that it recommended the award of the MSA to T-Systems and not Gijima, a rival bidder.
We are deeply disappointed that media platforms are being actively used to harm our reputation and have therefore decided to engage our stakeholders directly to clarify the issues raised and answer questions regarding accusations made. Furthermore, we would like to give our stakeholders the reassurance that we will make no compromises on our ethics and will take the necessary steps to deal with any breaches of our values and principles that may come to light.
The article in the City Press contains many factual errors and material distortions of the facts. On Thursday 14 June 2018, prior to publication of the article, we were presented with a set of questions and were asked to respond to the questions as a matter of urgency. Most of the detailed responses we gave to the journalist were ignored, resulting in an inaccurate, one-sided article. The article replicates many of the allegations made by Gijima in its answering affidavit, which was filed the day after the article was published. We are engaging the newspaper’s editors to discuss our concerns on the inaccurate reporting and the potential harm to our business and reputation, while considering further steps to protect our reputation. This update serves to correct the deficiencies and convey our answers that were ignored in the article.

The Transnet litigation

In summary, the litigation concerns the award of an approximately R1.5bn, five-year contract to supply critical ICT services to Transnet (not data services as alleged in the City Press article). These are critical services to Transnet. Any failure to Transnet’s IT systems – particularly the data centre threatens staff and customer safety and could bring the entire South African port and rail network to a halt. In early 2016, Transnet initiated an exhaustive six stage open tender process with nine bidders. In June 2016, after the fourth round of the bid process Transnet selected T-Systems (lowest price of R1. 56bn) and the Ubuntu consortium (second lowest at R1.78bn) to advance to the final Best and Final Offer (BAFO) stage of the bid process.
The Ubuntu consortium subsequently withdrew from the bid process, claiming that its strategic partner could not guarantee its price. Transnet decided to replace the bid submitted by the Ubuntu consortium with the bid submitted by Gijima. It bears mentioning that many of the staff previously employed by Ubuntu (who had been privy to Ubuntu’s confidential information pertaining to its bid including pricing) took up employment with Gijima. Shortly thereafter, at the BAFO stage, Gijima inexplicably dropped their price massively from R1.90bn to R1.34bn. T-Systems reduced its price marginally from R1.56bn to R1.55bn. Because Transnet perceived risk with the Gijima bid, particularly regarding the unexplained drop in price, this element was included in the overall risk assessment that Transnet planned under the RFP. Transnet’s expert advisor Gartner, a leading information technology research and advisory company, found that the Gijima bid created “major” and “almost certain” risk to Transnet. In contrast the Gartner review identified no major risks associated with the T-Systems bid. Some of the risks Gartner identified with the Gijima bid include:
  • Security: there was no separate Security Operations Centre.
  • Services: they did not quote on all elements of the required services rendering price comparisons meaningless.
  • Transition: they could not commit to completely transitioning Transnet’s IT services within six months – the standard other bidders had to meet and which is critical to Transnet.
  • Experience: they failed to prove it had the requisite experience operating a data centre and hosting services.
From the reading of the transcript, which has been submitted as a publicly-available court document, it appears that the ADC at its meeting of 13 February 2017, was concerned about the risks associated with the Gijima bid when it made its recommendation to the award the MSA to T-Systems. The meeting transcripts show stark differences of opinion. Some members of the committee argued passionately for the Gijima bid on the basis that it was now the cheapest and they felt that the risks were contained. Others were worried that Gijima had been given multiple opportunities to adjust their bid and were concerned about the very significant drop in their bid price. Most importantly, they were also not satisfied that the risks to Transnet, as raised by Gartner, were adequately addressed.
Ultimately, Transnet awarded the contract to T-Systems, informing us in a letter of intent (“LOI”) on 3 March 2017. Gijima then initiated a complaints process to the Transnet ombudsman, which ultimately reached National Treasury. T-Systems was not given an opportunity to participate in this appeal process or make representations to National Treasury. Transnet then decided to rescind its decision to award the MSA to T-Systems. In this regard Transnet initiated a court application to obtain a declaratory order that it was entitled to rescind the award of the MSA to T-Systems. T-Systems has opposed Transnet’s application on the basis that it is of the view that Transnet is not entitled to rescind the award of the MSA. We believe that Transnet’s decision to award the MSA to T-Systems is correct, both technically and legally. It is our view that T-Systems was awarded the contract based on its price, modernisation, service standards and importantly, the low risk to Transnet’s IT system.

Errors and distortions

City Press wrongly states that on 22 February 2016 the ADC “defied Transnet’s management recommendation, as well as Treasury’s advice…”, by awarding T-Systems the contract. We explained to City Press that there was no National Treasury advice at this stage. The ADC meeting in question was held on 13 February 2017. Transnet had not yet awarded the MSA, and hence there was no dispute at that stage that required the intervention of National Treasury. Only after the Transnet’s decision to award the contract to T-Systems did Gijima initiate its complaint. It was five months later (on 18 July) that Treasury opined on the matter. We further explained to City Press that National Treasury had since confirmed in an affidavit that its letter was in fact non-binding on Transnet. In this regard, the article is inaccurate and misleading.
City Press also makes a material mistake by incorrectly comparing the prices charged over five years of an old contract (R2.5bn) to that quoted for a new contract (R1.5bn). City Press did not ask us for our comment in regard to this aspect and hence we were not given an opportunity to explain that the costs of ICT technology and services fall over time due to innovation. Modernised services as requested under the RFP are cheaper to run and cheaper to provide, hence T-Systems was able to pass this saving on to the customer in our bid.
City Press also published a misleading and partial quote from the transcript of the ADC meeting held on 13 February 2017. It included only part of ADC chair Stanley Shane’s sharp criticism of both T-Systems and Gijima. This is similar to the manner in which Gijima, in its affidavit selectively quoted only the criticism of T-Systems, and omitted the exact same criticism of Gijima from the transcript, resulting in a distorted view of T-Systems being portrayed.
A proper and unbiased read of the transcript, will show that Transnet’s ADC was ultimately of the view that the risk associated with awarding the contract to Gijima was not justified. The meeting was attended by 16 senior representatives from Transnet (including its CEO). To suggest, as the City Press journalist does, that one individual, who T Systems has never met or engaged with, could improperly influence the award of the contract to T-Systems, is fanciful.
When T-Systems bought SOE-owned arivia.kom in 2010 it took over the ICT services that they provided to Transnet. The City Press article incorrectly states that T-Systems ceded this contract to Zestilor. T-Systems did not cede the Transnet contract to Zestilor. As has been repeatedly and publicly stated (and previously shared with City Press but ignored), the following occurred: A small part of the services supplied by arivia.kom to Transnet, which were taken over by T-Systems when it acquired arivia.kom, included the supply of PC rentals to Transnet. PC rentals was however not part of the core services offered by T-Systems. T-Systems wanted to exit only the PC rentals part of the business.  Hence with effect from 1 December 2014, with Transnet’s consent, it ceded these obligations to Zestilor. At the time (almost four years ago), T-Systems was not aware of the relationship between Zestilor shareholder, Zeenat Osmany and Salim Essa.
Following concerns raised in the media and other reports related to Zestilor, T-Systems requested information from Zestilor on their ownership and Governance, which was never provided. T-Systems therefore cancelled all contracts with Zestilor.

Going forward

T-Systems wants closure on the pending litigation as soon as possible. T-Systems has agreed to enter a disengagement process whereby Transnet will insource its ICT services. Due to the size and complexity of the contract, transitioning services, assets and affected employees to Transnet is expected to take several months to complete.
This process is a positive and practical approach, which is in the best interests of all parties, while reducing the risk to Transnet and its clients. We will work closely with Transnet to ensure a smooth handover. We are eager to deliver an efficient disengagement and to support Transnet’s insourced strategy.
We trust stakeholders will find this update informative and useful, and that it covers any concerns raised in the media. We will continue to investigate whenever concerns are raised and will continue to take appropriate action. T-Systems is committed to keeping our stakeholders informed as these issues and the related litigation unfolds and will do so directly and on our website.
T-Systems South Africa