Here is our record of facts, key milestones and answers to questions that have been raised around our contracts with Eskom and Transnet.
T-Systems South Africa (TSSA) is supportive of the work that parliament and others are engaged in to get to the bottom of the allegations of state-capture. Due to our long-standing relationships with Eskom and Transnet which started in 2010 following our acquisition of state-IT company arivia.kom in an open tender, it is natural that TSSA would also be mentioned in this narrative. While I expect a high degree of scrutiny and speculation to continue until the various investigations have been completed, I am also well aware that this has caused anxiety amongst all of us, particularly as some of the details that have been referenced are not accurate.
Context and facts are important in what is a complex matter. It is for this reason that I am placing on the record the facts, key milestones and answers to questions that have been raised around our contracts with Eskom and Transnet
We expect that new information will come to light during the next few months as various investigations unfold.
There has also been some publicity around our court challenge of a decision by Transnet to retract its planned award of a large IT contract to T-Systems. It is important to note that this is a commercial matter, with vested competitive interests at play. T-Systems welcomes the court process as it will provide a transparent, independent and objective judicial ruling on this matter. We will be lodging our court papers soon. These will be in the public domain.
It is against this highly fluid backdrop that our Exco and Board have agreed that I should update you on an ongoing basis. We want to be transparent and ensure there is a central repository where you can access accurate information on these inter-related matters as the situation unfolds.
We have increased our investigations as new information has come to light in recent months, and have taken decisive action to terminate contracts where required. We will continue to act where needed, guided by our core values and ethical principles throughout this process.
The official and independant Bowmans’ investigation, which was finalised in October 2017, did not identify any evidence that T-Systems directly or indirectly made any irregular payments, nor directly or indirectly requested any other individual or entity to make any irregular payment on its behalf.
We have terminated and will terminate supplier contracts whenever there were or are any doubts about ethical behaviour in doing business.
The Bowmans Report suggested that we further improve our compliance rules with regards to supplier monitoring. Since we want to adhere to the highest standards we are implementing all corrective measures recommended by Bowmans.
We will continue to act where needed, guided by our core values and ethical principles throughout this process.
I will provide updates on any new developments as the various processes unfold.
OVERVIEW TO ESKOM AND TRANSNET RELATIONSHIPS
TSSA’s empowerment credentials and localization strategy:
T-Systems SA is a proudly South African company, with a Level 2 BEE rating under the new codes. We have been open about our strategy and our localisation and supplier development programs, which we embarked on in the true spirit of transformation and nation building. This is aligned with our global strategy of sticking to our areas of expertise and “buying in” or partnering with other firms (our “make or buy” strategy).
TSSA’s value proposition:
In the seven years since we bought arivia.kom (the ICT service provider previously owned by Eskom, Transnet and Denel) in an open tender, T-Systems has delivered a significant turnaround in service quality and price. We now meet 97% - 99% of our service level agreement targets across all clients (including Eskom and Transnet) while delivering significant cost savings. We win and keep our clients because of our strong value proposition across the areas of service quality, cost, innovation, reliability and our demonstrable commitment to South Africa.
Bowman Gilfillan’s investigation:
In mid-2017, with the support of T-Systems International’s compliance division, we instructed the law firm Bowman Gilfillan Inc. (Bowmans) to conduct a comprehensive and independent investigation into the conduct of certain of our supplier development companies. This also included an investigation of our own conduct arising from our interaction with those companies. This was in response to new information that came to light through the media and other published reports. The Bowmans investigation did not identify any evidence that T-Systems directly or indirectly made any irregular payments, nor directly or indirectly requested any other individual or entity to make any irregular payment on its behalf. We have nevertheless terminated all our contracts with three of our supplier development companies due to the potential compliance and reputation risks related to the ecosystem in which they appear to do business.
TSSA has 5 key rules for signing up business partners and customers:
- Contracts must be in place for all services being rendered;
- Services must be clearly defined in our contracts;
- Monetary values of the services must be defined in the contracts;
- Services must be rendered at market related prices;
- Contracts must be obtained through a transparent process with no undue influence.
We will continue to abide by these rules and our corporate values as guiding principles.
A: Key Points
- T-Systems is not a Gupta company;
- Salim Essa was never engaged as a T-Systems sales agent and no payments were ever made to Essa.
- Transnet lawfully extended our original 5-year contract by another 2 years. The original contract with Transnet in 2010 included a clause that allowed for this extension.
- The revenue of the Transnet deal increased during the 2-year extension period because of a significant increase in scope and volume of work requested by Transnet. Contracts are in place and quality services are being rendered at benchmarked price points.
- T-Systems is currently in a dispute with Transnet. The core of the current dispute seems to be around the Transnet Board now rescinding its prior decision to consider the risks identified in the second bidder’s response as part of their decision process. Transnet created this dispute, as they are retracting their original decision.
- It was stated in the Eskom parliamentary inquiry that Eskom could have saved up to R1 billion/year by insourcing its IT functions, thus implying that T-Systems had prevented this saving.
- A R1 billion/ year saving is highly improbable given that Eskom’s all-inclusive average spend with T-Systems from 2010 to 2014 was less than R1bn/year.
- We have not wasted any taxpayers’ money.
- The independent investigation conducted by law firm Bowman Gilfillan Inc. (Bowmans) did not identify any evidence that T-Systems directly or indirectly made any irregular payments, nor directly or indirectly requested any other individual or entity to make any irregular payment on its behalf;
- We will not tolerate any unethical behaviour inside our organisation or at our suppliers and business partners.
- We have, and will continue to terminate supplier contracts should we have any doubts about their governance processes, external relationships or ethical behaviour.
- We will continue to investigate any allegations and take decisive action if required.
B: Priority areas for clarification
1. Is T-Systems a Gupta linked company?
- T-Systems South Africa (TSSA) is 70% owned by T-Systems International and 30% owned by B-BBEE shareholders (20% through an employee empowerment trust and 10% in an ICT education focused community trust)
- T-Systems has done business with three third party suppliers (Sechaba, Zestilor and GSS) that media or other reports allege had links (directly or indirectly) with the Guptas.
- At the time that TSSA engaged these companies, we were not aware of these relationships.
- As allegations surfaced we increased our internal and external investigations. We also contracted an independent and respected legal firm, Bowmans to investigate
- All our relationships with Sechaba, Zestilor and GSS have been terminated.
- There are more detail on these companies below.
- On 7 February 2018 an article in The Daily Maverick made mention of an internship of Archit Gupta with T-Systems. T-Systems South Africa does not have: i) any record of Archit Gupta with T-Systems, ii) any record of Archit Gupta being part of its internship programme or iii) any record of Archit Gupta having attended its ICT academy. A person with a very similar name has applied for employment during the 2014 time period mentioned, but were not successful since preference is given to South African citizens.
2. Did T-Systems prevent Eskom from saving R1 billion / year?
- Absolutely not. We were very surprised to see this number surface in the parliamentary hearings. A saving of R1bn a year would be highly improbable, as Eskom’s all-inclusive average spend with T-Systems from 2010 to 2014, the period in question, was less than R1 billion a year.
- We do however believe that it would have been possible for Eskom to save approximately R1 billion over a five-year period. We outlined this in our proposal to Eskom in June 2013.
- After 2014 Eskom insourced (brought in-house) more than 50% of the services they were getting from T-Systems.
- T-Systems cannot comment on behalf of Eskom on whether they did in fact achieve these intended savings since then.
- In a submission by the Eskom Board to the Eskom parliamentary inquiry on the 5th of December 2017, the Eskom Board states in paragraph 5.4 that: “Eskom saved approximately R 800 000 000.00 (eight hundred million rand) by continuing to use the services T-Systems because T-Systems allowed certain functions which were the responsibility of T-Systems to be carried out ‘inhouse’ by Eskom.” (added 08 Febr 2018)
3. Did Eskom’s contract extension enable T-Systems to benefit at the expense of Eskom and taxpayers?
- Eskom did not extend the T-Systems contract, it entered into a disengagement period as outlined in the terms and conditions of our original contract. T-Systems was paid for services rendered as agreed in the original contract. A disengagement period is normal business practice for large ICT contracts and is designed to ensure that the client is not suddenly left with no ICT services and support.
- This also allowed Eskom time to prepare new tenders, going through a proper open tender process with several phases, contracting a new supplier, and then transitioning between different service providers.
- Furthermore T-Systems provided additional discounts of 17% to Eskom during the disengagement period.
- T-Systems delivered quality services with +/- 300 specialists dedicated to Eskom, at competitive and independently benchmarked price points.
- It is therefore not right to suggest that we have wasted any taxpayers’ money.
- There is more detail on this question further down under the Eskom sub-heading
4. Is T-Systems the SAP implementation partner at Transnet & Eskom?
- T-Systems is one of many implementation companies for SAP in South Africa.
- T-Systems has done very little work with SAP at Eskom or Transnet.
- The majority of SAP work at Transnet and Eskom is provided by other major IT service providers or by Eskom and Transet themselves.
5. How did you come to meet Salim Essa?
- We were introduced to Salim Essa in 2013 when he was a board member of the state-owned IT company, Broadband Infraco (BBI).
- BBI, like Eskom and Transnet, fall under the Department of Public Enterprises.
- In 2013, we intended to partner with BBI on the Transnet Network RFP to provide network related services to Transnet. The reason was that TSSA does not own a physical wide area telecommunications newtwork (WAN) in South Africa. Partnering with such a network provider would have been a pre-requisite in this tender. This would have been a public private partnership (PPP).
- A core part of the value proposition of the TSSA/BBI partnership was that BBI could use some of the funding obtained from the Transnet contract to increase their network footprint across South Africa.
- By doing that, BBI could deliver on their mandate - which is to provide broadband services where there is poor network coverage by commercial network providers.
- Essa was one of the BBI representatives as part of the BBI/T-Systems public private partnership.
- We were unsuccessful in the tender and did not end up working with BBI.
- Essa was never engaged as a T-Systems sales agent or as any other T-System agent or business partner. Essa did not operate on behalf of T-Systems, and no payments were ever made to Essa.
6. What has T-Systems learnt? (added 23 Nov 2017)
- Continue to promote and embed our current practices to investigate all allegations and take decisive action when we find areas of concern.
- With the benefit of hindsight, and as information has come our attention, it appears that there was an attempt to target a significant part of the ICT spends of Eskom & Transnet It is therefore critical to constantly reinforce among all employees our five clear and simple compliance guidelines to steer our engagements with business partners and customers:
- Contracts must be in place for all services being rendered;
- Services must be clearly defined in our contracts;
- Monetary values of the services must be defined in the contracts;
- Services must be rendered at market related prices;
- Contracts must be obtained through a transparent process with no undue influence.
- We operate as part of a large and complex eco-system of companies and individuals. Any changes in these eco-systems can directly or indirectly impact our business, our customers, our employees and our partners.
- The on-going review of all our partners is now more important than ever, and we therefore need to continuously monitor, observe, learn and respond to this changing environment.
- Increased vigilance must become pervasive across the organisation as part of our culture to complement our ethical leadership and compliance practices.
- This is an on-going learning process.
7. Has this affected T-Systems operations in any way? (added 23 Nov 2017)
- The allegations and associations are disturbing to all stakeholders, including our staff, key customers and partners.
- T-Systems is not a Gupta company, however the negative associations are damaging our brand and reputation.
- In spite of this, our employees continue to perform well. We have also received support from our customers and other stakeholders.
C: BOWMANS' INVESTIGATION
1. Why did we initiate an external investigation?
- We noted media and other reports that alleged abuses of transformation initiatives, in particular supplier development programs.
- T-Systems had been referenced in this narrative.
- In each case that our suppliers were mentioned, we did our own investigations. TSSA and our parent company, T-Systems International view all allegations of impropriety in a very serious light.
- We increased our due diligence to identify and manage risk around all our suppliers.
- With the support of T-Systems International’s compliance division, we also instructed the law firm Bowman Gilfillan Inc. (Bowmans) in July 2017 to conduct a comprehensive and independent investigation.
2. What was the scope of the Bowmans investigation?
Bowmans conducted a comprehensive and independent investigation into the conduct of T-Systems and that of certain of our supplier development companies.
Their work included, but was not limited to:
- Review of contracts and other relevant documentation;
- Profiling of involved entities and individuals;
- Electronic review, including an e-mail review;
- Financial books and records review;
- Review of relevant internal process and practices; and
- Interviews with relevant employees.
3. What was the outcome of the Bowmans investigation?
- Bowmans’ investigation, was finalised on 13 October 2017. They did not identify any evidence that T-Systems directly or indirectly made any irregular payments, nor directly or indirectly requested any individual or entity to make any irregular payment on its behalf.
- We have nevertheless terminated our contracts with supplier development companies Sechaba, Zestilor and GSS due to collective compliance risk.
- The investigation further identified internal compliance controls within T-Systems that require enhancement, including employee training and awareness, supplier on-boarding processes, and the need to perform periodic, comprehensive reviews of our suppliers’ compliance in order to monitor and identify potential compliance and reputational risks. All corrective measures recommended by Bowmans are being implemented.
1. What services did we deliver to Eskom as part of the original contract?
- Server support
- Desktop support
- Service desk
- Network support
- WAN services
- Storage and backup
- Database services
- Security service
- Business Application Support Centre (BASC)
2. What services were insourced by Eskom, and when?
- WAN services (insourced end 2014)
- Storage and backup (insourced end 2014)
- Database services (insourced end 2014)
- Security service (insourced mid 2014)
- Business Application Support Centre (insourced end 2012)
3. What percentage of the Eskom contract value was insourced over time?
- T-Systems’ Eskom revenue decreased by 54% from 2013 to 2015 despite significant increases in the volumes of services we provided.
- This was because :-
- Eskom started to insource services – so some of these costs would be reflected in their internal IT budget and
- Additional savings of 17% were given through to Eskom on services T-Systems delivered over the period.
4. How many people worked on the Eskom contract?
- In 2010, following the acquisition of arivia.kom, which is when we took the contract over, around 600 peopled worked on Eskom.
- Over the period the number of people reduced to 290 by November 2017 due to improved efficiencies and changes in services rendered
5. Was the T-Systems Eskom contract overpriced?
- No. Independent benchmark clauses (enabled by reputable independent parties, e.g. Gartner, as outlined in our contract) ensured that prices remained market related at all times. In fact, Eskom was entitled to terminate services should T-Systems not adjust to market prices.
- Throughout the engagement with Eskom, we adjusted our prices to ensure alignment with these independent benchmarks and the market.
- We even went as far as providing a 17% discount during the two-year disengagement period, which was post the initial five-year term.
6. Have we delivered quality service to Eskom?
- Definitely. We maintained an average service level of 99.18% during 2016 and delivered 100% service levels for May - August 2017.
- This is a significant improvement compared to early in the contract, when we were still trying to improve delivery and achieve efficiencies after the arivia.kom acquisition.
7. Why was the Eskom contract extended, past the original 2-year extension?
- The original contract was for five years with the option for Eskom to extend for a further two years
- Eskom decided not to extend. Instead it opted for a 2-year disengagement with T-Systems, to allow it to engage the market in an open tender process.
- This process includes: preparing RFPs, going through a proper open tender process with several phases, contracting a new supplier, and then transitioning between potential different service providers on a contract of the scale, scope and complexity of Eskom’s required significant time.
8. What is the current status on the Eskom contract?
- The 2016 RFP was cancelled and a revised RFP was issued to the market to align with Eskom's new cloud based IT strategy.
- Following Eskom's cancelation of the 2016 Eskom RFPs, our disengagement was extended to April 2018.
- T-Systems responded to some of the Eskom 2017 RFPs as part of an open tender process, and have been informed that Eskom is still evaluating the responses.
9. What did T-Systems do to assist Eskom during the load shedding period?
- We started engaging with Eskom on potential smart metering solutions (March 2011), and co-developed smart metering solutions specifically focusing on Eskom’s challenges and use cases.
- While Eskom decided not to engage us on these smart solutions, we believe and informed them that Eskom could have saved between R4.5 billion and R6 billion over a 5-year period with smart metering as this would have helped cut back on its diesel spend during the load shedding period.
10. Eskom extends T-Systems SA IT contract to end of August 2018
- On 26 April 2018 Eskom requested T-Systems South Africa to extend our MSA contract by an additional four months. T-Systems is the incumbent provider of ICT services to Eskom. T-Systems SA’s contract was due to end on 30 April 2018.
- We have agreed to this short extension to enable Eskom to complete its current ICT tender processes, thus allowing sufficient time for us to transition services to successful bidders.
- Separately, T-Systems has responded to several of the Eskom tenders issued in 2017, where these align with our strategic direction and core capabilities.
1. What is the status of your contract with Transnet?
- We participated in a Transnet RFP in 2016 and won the contract through an open tender process.
- In March 2017, we received a “Letter of Intent” from Transnet indicating that we were the preferred bidder and that Transnet wanted to start contract negotiations.
- We followed due process throughout and strongly believe the contract was awarded to T-Systems through a fair open process, based on our value proposition (service quality, cost, innovation, reliability and our demonstrable commitment to South Africa).
- Early August 2017, we received a letter from Transnet indicating that it now intends to rescind the contract and award it to Gijima.
- We appealed the decision and Transnet has now lodged papers asking the court to uphold their changed decision.
- T-Systems welcomes the court process as it will provide a transparent, independent and objective judicial ruling on this matter.
2. What is the value of the current Transnet RFP?
- The value given by the media for this tender (R2,5 billion) is factually incorrect, as the value of the T-Systems tender is around R1,5 billion for a 5 year contract.
3. Do we have a contract in place with Transnet at present?
- Yes. Transnet extended our contract following numerous delays in finalising the outcome of their RFP.
- Our current contract is from 1 October 2017 for a period of 8 months, allowing Transnet to terminate at any time with one month’s notice in this period.
4. Was the Transnet Letter of Intent (LOI) unlawfully adjudicated to T-Systems? (added 14 Nov 2017)
- No, in fact the documents that our lawyers have received through the PAIA process suggest that the exact opposite is true. We are therefore eager to find out what exactly happened.
- It is for this reason that we welcome the court process.
- We have followed due process throughout and strongly believe the contract was awarded to T-Systems through a fair and transparent process, based on our value proposition of high quality services at a very competitive price and ensuring minimum risk and business disruption to Transnet’s operations. This is further supported by our commitment to localisation enabled by our status as a Level 2 rated BBBEE contributor under the new codes.
5. Was the Transnet contract unlawfully extended for another 2 years, after the initial 5 year contract? (added 14 Nov 2017)
- The nature of the Transnet Data Services tender was that it was a contract for 5 years with the option for Transnet to extend for a further two years.
- The reason why the two-year extension was included in the original contract, was due to the investment of T-Systems into arivia.kom, and to ensure that Transnet could capitalise on additional cost savings.
- Transnet was thereby legally entitled to extend the contract for a further two years, as per clause 8.2 of the master services agreement.
- The 2-year extension was signed in June 2014, and included
- a cost saving (commitment of 4% savings in 2015 and additional 4% savings in 2016) and
- a supplier development commitment during the 2-year period.
6. Why did the value of the 2-year extension increase so significantly? (added 14 Nov 2017)
- The increase in the monthly run rate values during the extension period was due to significant increase in scope requested by Transnet.
- In addition to our original services, this included:
1. A significant increase in volume growth:
- Since 2015 the storage, backup & server volumes increased month on month;
- Transnet Engineering was the major operational division (OD) that onboarded from November 2014. Prior to this we did not service Transnet Engineering;
- Transnet Group work doubled from July 2014 to mid-2015 mainly based on disaster recovery requirements, and
- Transnet Freight rail also increased from July 2014
2. The results of the benchmark that was done August 2014 where disaster recovery was included for the first time.
7. Why was the contract extended after the initial 2-year extension period, and did T-Systems benefit from this additional extension? (added 14 Nov 2017)
- In early 2016, we participated in a Transnet RFP through an open tender process and submitted our response on 19 January 2016.
- In March 2017, we received a “Letter of Intent” from Transnet indicating that we were the preferred bidder and that Transnet wanted to start contract finalisation and despite various attempts by T-Systems to engage with Transnet, contract negotiations were never concluded.
- As referred to above, our lawyers were granted access to the Transnet decision documents through Public Access to Information Act (PAIA). These highlighted concerns within Transnet itself on the bid process that was followed.
- After various delays and engagements between the various bidders and Transnet, an extension was requested by Transnet to delay the award beyond December 2016 to enable them to finalise the RFP.
- The concerns lead to a dispute that will now have to be settled in court.
- T-Systems did not cause the dispute, and actively engaged with Transnet to finalise the contract.
8. Did T-Systems use undue influence on any member of the Transnet Acquisitions and Disposals Committee? (added 18 Jun 2018)
A detailed response to media allegation of T-Systems having used undue influence at the Transnet ADC, as reported in the City Press published on 17 June 2018, is available on our website and can be accessed here
1. Why did T-Systems terminate its business relationships with GSS, Zestilor and Sechaba?
- T-Systems engaged Bowmans after various concerns were raised in media reports.
- Our relationships with GSS and Zestilor were terminated based on the lack of information provided to T-Systems and other compliance and reputation concerns identified during Bowmans investigation.
- Sechaba participated in the Bowmans’ investigation. We agreed to terminate the contract between us based on potential compliance and reputation risks related to the ecosystem in which they appear to do business.
1. What is the status of T-Systems’ business relationships with Sechaba?
- T-Systems started working with Sechaba in 2011 through a “body shopping” contract - and the relationship developed over time. At the time of entering into contracts with Sechaba, T-Systems was not aware of the allegations raised in the media.
- Sechaba was an established ICT provider that worked with many other multinational IT companies.
- Supplier contracts were in place with Sechaba, for various services being rendered in line with the contracts
- Earlier this year we instructed a leading law firm, Bowmans, to conduct a comprehensive and independent investigation into the conduct of certain of our Supplier Development companies.
- This was in response to new information that had come to light through the media and in other published reports. With the assistance of TSI, we had also increased our due diligence of all our suppliers, including Sechaba.
- Bowmans’ investigation, which was finalised on 13 October 2017, did not identify any evidence that T-Systems directly or indirectly made any irregular payments, nor directly or indirectly requested any other individual or entity to make any irregular payment on its behalf.
- Sechaba participated in the Bowmans’ investigation. Based on compliance risk it was decided by both parties to separate all ties and all contracts with Sechaba were terminated.
2. What is the shareholding of Sechaba?
- Media have raised contradictory and concerning reports on Sechaba’s ownership.
- In terms of TSSA’s due diligence, we understood that Sechaba was a family owned business, run by Mr. Krisen Naidoo and majority owned by Ms. Thavagee Gooroocharan. Based on our records, this ownership was again confirmed in 2017.
- Ultimate beneficial ownership information is not publicly available in South Africa and we are reliant on the information we obtained from publicly available company search platforms such as the CIPC database as well as our own enquiries with Sechaba.
F2: Global Softech Solutions (GSS)
1. What is status of T-Systems’ business relationships with GSS?
- T-Systems used Global Softech Solutions (GSS) as a small ‘body-shopping’ supplier of IT contractors from 2011-mid 2017.
- Supplier contracts were in place for GSS services which were being rendered in line with the contracts
- The number of contractors (skilled people) that GSS provided us varied depending on need. GSS provided a maximum of 13 contractors in 2015. By mid-2017, T-Systems used only 2 contractors from GSS.
- The work delivered by GSS was immaterial and declining.
- Following concerns raised in the media and other reports around GSS, T-Systems requested information from GSS on their ownership and governance on the 2 August 2017, which was never provided.
- T-Systems cancelled the GSS body shopping contracts on 17 August 2017.
1. What is the status of T-Systems’ business relationships with Zestilor?
- Eskom originally introduced T-Systems to Zestilor in 2011. Zestilor provided radio network links in a remote area (close to Ladysmith) where there were very few supplier options.
- As part of Eskom’s strategy to insource more ICT services, we ceded the Zestilor contract – this means that Eskom bought the services directly from Zestilor.
- T-Systems was also required to provide PC rentals to Transnet. This requirement was inherited through our acquisition of arivia.kom
- However, PC rentals were not part of the T-Systems core services and were not profitable for T-Systems. We therefore ceded the contract to Zestilor with Transnet’s consent (effective date 1 December 2014)
- Zestilor still rendered administration services to T-Systems for PC rental agreements that were entered into prior 1 December 2014 (R10 per machine – so the fee reduced over time as the number of machines declined)
- Supplier contracts were in place with Zestilor and services were being rendered in line with these contracts
- The work delivered by Zestilor has been immaterial and declining as the number of machines under the rental agreement for which T-Systems paid an administration fee declined.
- Our only other contract with Zestilor was one network radio link at another of our private sector customers
- Following concerns raised in the media and other reports around Zestilor, T-Systems requested information from Zestilor on their ownership and governance on the 2 August 2017, which was never provided.
- T-System cancelled the Zestilor contract on 17 August 2017
2. What does it mean to cede a contract? (Added 14 Nov 2017)
- A contract is ceded if the rights / ownership of the contract is transferred to another party.
- In this case, the contract ownership was ceded to Zestilor from T-Systems, with a condition, that Transnet could terminate the contract at any time, and request ownership to revert back to T-Systems.
3. Why did T-Systems cede the contract, and not sell the contract? (Added 14 Nov 2017)
- PC rentals was not core to T-Systems business, and was not commercially viable to T-Systems. Commercially it was better for T-Systems to cede the contract without compensation than keeping the contract.
- Ceding the contract enabled T-Systems to focus on its core business, while delivering on capability and capacity requirements of Transnet.
4. Why was the PC rentals contract ceded to Zestilor? (Added 14 Nov 2017)
- As part of the Transnet Master Services Agreement (MSA) extension there was a specific requirement for T-Systems to commit to local spend in the category “Capability and Capacity building in South Africa”. This focused on value-added activities of the South African industry through manufacturing or service-related functions commitments (including supplier development and localisation).
- PC rentals was not core to T-Systems business, and T-Systems subsequently proposed ceding the contract to Zestilor, who qualified under local spend in the Capability and Capacity building category.
- Zestilor, with Sahara Computers (established in 1994 and one of the largest distributors in Southern Africa.) seen as capable distribution partner, was well equipped to provide Transnet with all their Personal Computer requirements in accordance with the ceded rentals contract on a national basis
- At the time, we had no reason to believe there were any material concerns about them or their partners.
- More detailed information around the Transnet procurement process would need to be obtained from Transnet.
5. Why was Zestilor used to render administration services to T-Systems for PC rental agreements on equipment purchased prior to the ceding of the contract (Dec 2014) (Added 14 Nov 2017)
- T-Systems still had to support the pc’s that was purchased prior to the cession, and therefore put a services contract in place with Zestilor to assist with the administration services related to this equipment.
- Zestilor was chosen to provide this service to T-Systems because as a result of the cession agreement, T-Systems employees that originally rendered the services for T-Systems were required to be transferred to Zestilor as part of Article 197 of the Labour Relations Act.
- T-Systems therefore did not have any service specific resources left to deliver the administration services required to manage the PC rentals prior to the ceding of the contract (prior to Dec 2014) for the remainder of its rental lifecycle.
- T-Systems therefore contracted Zestilor to provide administration support for these PCs still in their rental lifecycle as contracted with Transnet.
- The effective date of the contract was 1 March 2015 and T-Systems was to pay Zestilor an admin fee of R10 per PC per month) until all devices were out of their rental period and the requirement became redundant.
6. Why is there communication between Sahara & T-Systems (as part of the Zestilor PC rentals deal)? (Added 14 Nov 2017)
- T-Systems ceded the PC rentals contract to Zestilor effective date 1 Dec 2014.
- From Dec 2014 forward, Zestilor owned and managed the supply of personal computer equipment to Transnet.
- On an operational level, communication from T-Systems were mostly with Zestilor directly as part of a service transition phase and to ensure such services were delivered in line with the contract and at expected service levels.
- Since Zestilor partnered with Sahara, from time to time their staff also featured in correspondence aimed at ensuring services were delivered in line with the contract and at the expected service levels.
7. Did T-Systems know about the link between Zestilor and Salim Essa? (Added 14 Nov 2017)
- At the time T-Systems engaged Zestilor and agreed to cede services to Zestilor, T-Systems was not aware of the relationship between Zestilor shareholder, Zeenat Osmany and Salim Essa. We only became aware of this through recent media and other reports.
F4: CAD House
1. What is the nature and origin of T-Systems' business relationship with CAD House?
- T-Systems has never had a relationship with CAD House
G: The Star Article dated 14 February 2018
1. Did T-Systems steal billions of tax payers money?
- T-Systems did not steal tax payers’ money.
- All work is done with a contract and invoiced accordingly.
- Both Eskom & Transnet contracts included a benchmarking clause to ensure services are being rendered at market related prices. Price reductions were given through in line with these contracts.
2. Did T-Systems deliver substandard quality services to Transnet & Eskom?
- The onboarding of Eskom & Transnet contracts involved the transition and transformation of very complex IT landscapes.
- As an example, with Eskom there were 33 complex IT projects to transform the Eskom IT landscape.
- In 2012, Eskom formally issued 25 letters citing various contractual breaches, with 182 outstanding audit findings, resulting from the extensive amount of change that was required in the environment, from a skills and technical perspective.
- T-Systems paid in excess of R20m of penalties in 2012.
- A Service Improvement Plan (SIP) was launched to address all the contract breaches, and close all the audit finding.
- In mid-2013 service quality was stabilised and T-Systems delivered very well against SLAs since then.
- A Service Improvement Plan (SIP) was also launched at Transnet (it lagged a year behind the Eskom SIP).
- The primary trigger was a security breach.
- The security breach related to services that was rendered to Transnet by Neotel, and not by T-Systems.
- T-Systems however assisted in the stabilisation of the IT environment.
- The improvement plan successfully addressed the security issues, service delivery challenges and repeat audit findings by introducing more disciplined practices.
3. Were the Eskom & Transnet contracts mysteriously extended?
- All contract extensions beyond the initial contract term of 5 years with 2 year extension option, were requested by Eskom & Transnet. Contracts were extended with T-Systems in line with the contract terms.
4. Was there a corrupt deal between Salim Essa and Sechaba Computer Services to enable extension of the contracts?
- As per the investigation that was completed by Bowmans:
- There was no mandate or contract between T-Systems and Salim Essa to enable contract extensions.
- T-Systems did not directly or indirectly make any payment to Salim Essa or Sechaba to enable to extensions.
- T-Systems is not aware of any contracts between Salim Essa & Sechaba.
5. Were employees transferred to Sechaba because they had no capacity to deliver the services?
- In 2011 T-Systems International decided to deliver field services work through third parties.
- This was part of the worldwide "make or buy" strategy which enabled T-Systems South Africa to further its transformation plans.
- This lead to the:
- Establishment of and subcontracting to Nkgwete IT Solutions (majority female black owned) in Mpumalanga region.
- Establishment of and subcontracting to Vumela IT Services (100% black women owned) Kwa-Zulu Natal region.
- Subcontracting to local owned Sechaba (a majority black owned firm) in Gauteng, Western Cape, Inland and Limpopo.
- Employees transferred to these entities as it is the right of the employees to move with the work they perform as the business is transferred.
- Employees were transferred because they were associated with the work and not because of capacity constraints in these entities.
6. Did T-Systems sell their datacentre to Sechaba with no cash transfer?
- T-Systems completed an analysis of their datacentre business and the datacentre market and came to the conclusion that their datacentre business would not be viable unless the occupancy rate within the datacentre could be increased.
- A decision was made to move ownership of the datacentre to a local company to improve the occupancy rate. T-Systems would become the anchor tenant to this entity to provide. sustainability while the entity could grow the datacentre occupancy. This would align to the T-Systems strategy of global; datacentre consolidation.
- T-Systems embarked on a round of RFQ requesting ideas from the market as to how such a scheme would work. Several proposals were received but all had a challenge regarding the large initial capital investment required.
- In seeking viable models, T-Systems agreed to a contract with Sechaba where the ownership of the datacentre would transfer to Sechaba. The contract removed the requirement for a large upfront investment, but rather agreed on a payment method through the recognition of revenue on deals that both parties could jointly secure towards the value of the datacentre. The transaction would be reversed if the jointly agreed business would not materialise.
- The datacentre valuation was done by obtaining a number of independent assessments of the property.
- The transaction was not a staff incentive scheme or a sham.
- The arrangement subsequently did not result in new business as originally envisaged. This meant that the datacentre value could not be repaid and the transaction was reversed.
- The structure of the transaction and the contracts were thoroughly reviewed by external experts and did not highlight any prima facie evidence that:
- the Data Centre transaction is a simulated transaction or 'sham'; or
- is a BEE front or
- contravenes the provisions of PACCA or constitutes any other corrupt activity.
- The datacentre is currently owned by T-Systems.
7. Should the Transnet contract have been awarded to Gijima?
- T-Systems does not wish to debate the merits of the case in the media. We look forward to concluding the dispute between ourselves, Transnet and Gijima over the IT contract in open court.
8. Is T-Systems deliberately delaying the Transnet RFP litigation process to increase revenue?
The delays in the awarding of the contract are as a result of:
- Transnet’s inability to negotiate after the contract had been awarded,
- Transnet awarded the IT Outsourcing tender to T-Systems in March of 2017 with the agreement to negotiate with T-Systems.
- No such negotiation took place, despite T-Systems repeatedly requesting engagements to negotiate and finalise the contract.
- The change in decision in Transnet regarding the successful bidder.
- T-Systems received a notification from Transnet in August of 2017 that it would reverse its decision to award the services to T-Systems and award the business to Gijima subject to representations made by T-Systems.
- The subsequent referral to the court.
- Subsequent to the T-Systems representation made, Transnet decided to take their decision to reverse the decision to court to have it ratified.
- Current delays in the legal proceedings are related to the availability of documents T-Systems believe to be material to the case.
- As per law Transnet is required to provide TSSA with information around the tender process, however, Transnet has not provided T-Systems with the information.
- T-Systems would like to finalise the Transnet RFP as soon as possible; however it can only be finalised as soon as the information is received from Transnet as per the PAIA act
- T-Systems submitted a formal application requesting Transnet to make various missing documents available as part of the public record so that T-Systems can adequately respond to the court papers that Transnet submitted.
9. The article dated 14 Feb 2018, in the Star, included some additional inaccuracies that would need to be corrected.
- T-Systems take serious offence around the allegations that T-Systems is “raping the country and Transnet of billions”. We proud ourselves for delivering quality services at benchmarked prices in line with our contractual commitments.
- T-Systems appointed Bowmans to perform an independent investigation focused on Compliance risks and conduct. Fluxmans were appointed to assist T-Systems with the Transnet IT Outsource court case.
- T-Systems has never done any work with CAD House (as stated on our internet site) – it is thus not possible to terminate a contract that does not exist.
10. Is T-Systems in breach of the current contracts Supplier Development commitments within the Transnet contract after terminating relationships with its partners?
- No, T-Systems is not in breach of our current supplier development commitments.
- The initial 5-year Transnet contract did not have Supplier Development commitments.
- During the initial 2-year extension, T-Systems committed on a range on Supplier Development commitments expressed in an index. T-Systems performed 42% against a target of 29%.
- During the subsequent 9-month extension (requested by Transnet), T-Systems performed 46% against a target of 29%.
- T-Systems continues to be committed to supplier development.
- During the current 8-month (month-to-month) extension (requested by Transnet), T-Systems has not agreed to Supplier Development commitments since the extension is on a month to month basis. However, the forecast is that T-Systems will achieve a 32% performance with the current service delivery model which is still above the target that Transnet has consistently set.
11. The article alleges that TSSA and BBI failed to deliver on the Transnet Network deal
- Neotel was the incumbent and not T-Systems.
- T-Systems tendered for the deal in partnership with BBI – but the contract was never concluded between Transnet and T-Systems.
- T-Systems has never delivered the services neither were they obliged to do so
- All payments are made and received based on contracts only. There were no network contracts and no payments.
12. T-Systems have sent a rebuttal to the publication on 15 February 2018 and can be found here