In a nutshell — Mkhize-era Department of Health’s ‘suspicious’ R486m lease deal

The Department of Public Works and Infrastructure (DPWI) in 2019 issued a tender to find a new head office for the Department of Health (DoH).

The open tender process collapsed under questionable circumstances, paving the way for the appointment of the DoH’s new landlord through a “deviation” from standard procurement processes.

Our full investigation can be accessed here. 

The Department of Health moved into its new leased building in 2021. (Photo: Supplied)

Here are key takeaways from Scorpio’s months-long investigation:

• Hiroworx, a subsidiary of Nthoese Developments, clinched the seven-year lease deal. The DoH is occupying the company’s building on the outskirts of Pretoria. Hiroworx will be paid much more money thanks to the fact that an open bid process was abandoned.

Hiroworx had submitted a bid to accommodate the DoH at a cost of R295.5-million for a period of five years. Thanks to the collapsed bid process and the subsequent tender deviation, Hiroworx could now receive up to R486.7-million for a seven-year lease.

• Before the DoH bid, Hiroworx had secured a lease deal with the department of cooperative governance and traditional affairs (Cogta). Hiroworx would have charged Cogta roughly R344-million for a seven-year lease. But Cogta walked away from the lease deal, opening the door for the DPWI to instead install the DoH as Hiroworx’s new tenant. To do this, the DPWI had to abandon the open tender process for the DoH’s new building. It also had to get approval from the National Treasury (NT) to appoint Hiroworx through a deviation from standard procurement processes. Because the DoH required more floor space, Hiroworx as a result secured a costlier lease deal.


• Documents from the DPWI and the NT put the cost of the DoH lease deal at R486.7-million. Hiroworx says this figure is incorrect. It claims the lease deal is worth “approximately” R444.8-million, still significantly more than its offerings in the original Cogta and DoH bids. The company won’t show us the lease agreement, though, so the R486.7-million figure is the only one we have that is reflected in official documentation.

Herbert Theledi, CEO of Nthoese Developments, which owns the DoH’s new headquarters through a subsidiary called Hiroworx. (Photo: Supplied)

• The DoH effectively “piggy-backed” on the cancelled Cogta lease, but there is concern over the manner in which Hiroworx had won the Cogta tender. The company’s bid price was much higher than those of other shortlisted bidders. The DPWI said it had to disqualify the rival bidders because their buildings were supposedly in the wrong areas.

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• The DPWI could appoint Hiroworx for the Cogta lease on the basis that its building is in the vicinity of Thaba Tshwane, one of the areas included in the bid specifications. There are allegations that Thaba Tshwane was specified in the bid in order to benefit Hiroworx. This would amount to bid-rigging. Hiroworx strongly denied the allegation and said it was “totally unfounded”. The DPWI said it was Cogta that asked for the area’s inclusion in the specifications. This was during the time in which Dr Zweli Mkhize led Cogta. Cogta said it couldn’t say who exactly was responsible for the directive.

 

• For the DPWI to appoint Hiroworx through a tender deviation, the DoH bid process had to be aborted. In order for this to happen, the DPWI effectively had to disqualify Hiroworx’s rival bidders. As with the Cogta bid, the DPWI claimed these companies’ bids were “non-responsive”. But there is cause to question the DPWI’s decision. Documents pertaining to the process leave a strong impression that the DPWI tried very hard to find reasons for booting one of the rival bidders from the tender. This company, SKG Africa, has lodged a court application in which it details the “suspicious” manner in which the open tender process fell apart. SKG wants the court to set aside Hiroworx’s subsequent appointment.


• The DoH has washed its hands of the lease deal, saying it had been the DPWI’s responsibility to conclude the contract. But key DoH personnel had been involved in the administrative process that led to Hiroworx’s eventual appointment. These included Dr Anban Pillay and Shireen Pardesi, two senior DoH staffers who’d both been implicated in and censured over the Digital Vibes fiasco.


• Former health minister Dr Zweli Mkhize had also played a role in Hiroworx’s appointment. What’s more, in one key aspect, the Hiroworx deal bears similarities to the Digital Vibes contract. Like Digital Vibes, Hiroworx first won a contract from Cogta when Mkhize led that department.

But after Mkhize had moved from Cogta to the DoH, it was the DoH that then became Hiroworx’s tenant. Through all of this, Hiroworx ended up securing a more lucrative lease deal.

Dr Anban Pillay with Dr Zweli Mkhize in 2019. (Photo: supplied)

• Cogta’s reasons for walking away from its lease deal with Hiroworx cast serious doubts over the desirability of the property as a head office for a national government department. When Nkosazana Dlamini Zuma took over from Mkhize at Cogta, she raised health and safety concerns over Hiroworx’s building. The building is located next to an active stone quarry. It is also far from the Pretoria CBD and from the residential areas from where many of the DoH’s staffers have to travel. Finally, the area around the building is unsafe, and several DoH employees have already fallen prey to criminals. The DoH said it has addressed the security issues. It also said its “environmental health and safety assessment” concluded that the building was at least “safer” than the department’s former building in the Pretoria CBD.


• The lease deal Hiroworx clinched as a result of the tender deviation may be classified as irregular expenditure. The DPWI had to submit certain documents to the NT in order for the latter to approve the deviation. This included an environmental assessment, as well as records that would enable the NT to determine whether the cost of the lease was market-related. The NT told us its support for the transaction would fall away if the DPWI did not submit the documents. The NT confirmed that the DPWI had indeed failed to submit the documents.


• Hiroworx and its parent company, Nthoese Developments, strongly denied any wrongdoing. The company said the higher cost for the ultimate lease agreement didn’t constitute a cost creep, seeing as the “basic rental calculation per square metre” had remained the same. The company’s lawyer, Stan Fanaroff, accused Daily Maverick of conducting a “witch hunt” against his client. DM