Medical Waste: The curious case of a contract that was extended for 16 years

Now, in a move likely to open the door to even more irregular expenditure, the province’s recently advertised medical waste tender has been cancelled. In the meantime, medical waste services in KZN are being provided in terms of a contract that appears to be costing government as much as triple the previous contract.

“Irregular and unlawful”

The appropriate disposal of medical waste is one of the most basic functions of a well-functioning healthcare system. In South Africa, public sector medical waste services are largely outsourced to private companies who are responsible for the collection of medical waste from healthcare facilities and its disposal in accordance with regulations. Medical waste includes everything from anatomical waste such as human tissue, to pharmaceuticals, and used bandages and needles.

Following a tender process in 1998, the KwaZulu-Natal (KZN) Department of Health awarded a contract for the province’s medical waste services to a company called Compass Medical Waste Services. The contract expired in 2003, but was extended. While contract extensions of a few months are often considered irregular, they are not all that unusual.

In this case, however, the contract would eventually be extended for a total of 16 years, with Compass still providing services in terms of the 1998 contract in the first quarter of 2019. Compass took the KZN Department of Health to court when the contract was eventually terminated in March 2019.

In a judgement delivered in the Pietermaritzburg High Court, Judge Jerome Mnguni did not mince his words regarding the extension. “I am satisfied that the extension of the contract on a month to month basis for such a prolonged period was irregular and unlawful, and that the arrangement between Compass and the Department in allowing Compass to continue rendering services for such an inordinate period offends section 217 of the Constitution and should be frowned upon,” his judgement read.

“The situation certainly was extraordinary, but Compass has not at any stage been ‘willing to go along’ with the status quo,” says Ian du Randt, Managing Director at Compass Medical Waste. “Compass made numerous attempts to regularise the situation, including through costly litigation. The situation, created by the Department of Health, has largely been out of Compass control.” du Randt was responding to a question on whether the company had been willing to go along with the extensions as long as it benefited the company.

AG flags irregular contract management

The 16-year extension of the Compass contract seems indicative of wider dysfunction in the KZN Department of Health. In his audit opinion of the department for the 2018/19 financial year, the Auditor-General (AG) specifically flagged such month-to-month contract extensions as a problem.

Spokesperson for the AG’s office Africa Bosa confirmed to Spotlight that these expired month-to-month contracts added to the department’s multi-billion rand irregular expenditure, which includes the province’s medical waste contracts. “The department still needs to investigate all cases of irregular expenditure as legislated,” said Bosa. Due to confidentiality considerations as prescribed by the Public Audit Act, Bosa could not provide specific information regarding contracts with Compass and another service provider, Buhle Waste Services.

In response to a question on whether the AG over the years made any finding relating to medical waste contracts in the KZN health department and the nature thereof, Bosa said these old contracts are all part of the irregular expenditure – a balance that accumulated over years and which now stands at about R13-billion. Of this amount a total of R10,5-billion was irregular expenditure for previous years. The annual report shows that these “expired month-to-month-contracts” resulted in irregular expenditure of R2,5-billion in just the 2018/19 financial year. In the annual report, the AG expressed a qualified audit opinion on the department’s finances based on irregular expenditure that is, among others, rooted in poor contract management.

New contract, new questions

On terminating the contract with Compass in March 2019 with a month’s notice, the KZN Department of Health decided to piggy-back on a medical waste contract awarded in Mpumalanga following a tender process in that province. In some cases the Public Finance Management Act allows provinces to piggy-back on contracts in other provinces in this way – although the decision to do so has to be properly motivated and the court is yet to decide whether the decision was justified in this case. (Spotlight previously reported in its Health4Sale investigative series how the company Buthelezi EMS were given aeromedical contracts in Limpopo, Mpumalanga and the North West using such piggy-backing provisions.)

One of the questions on which the Pietermaritzburg High Court will have to decide in a review hearing set for 7 February 2020 is whether the KZN Department of Health exchanged one questionable contract for another. For one thing, the Mpumalanga contract was awarded to Buhle in November 2015 for a three-year period until November 2018 and thereafter extended on a month-to-month basis – in other words, the KZN Department of Health is piggybacking on yet another contract that is on a month-to-month extension.

Maybe most startling from a public interest point of view, is Compass’s claim that under the new contract with a company called Buhle Waste, the KZN Department of Health is being charged as much as triple what they were being charged by Compass earlier this year. According to Compass, medical waste costs to hospitals in KZN have increased from R2.9-million a month to about R10.7-million per month under this new contract.

As part of its review application, Compass’s lawyers earlier this year attempted to subpoena invoices that Buhle submitted to four KZN hospitals. The invoices were not provided, but Compass did obtain photographs of the invoices through confidential sources at the hospitals. Spotlight has seen photographs of the invoices and they appear to be authentic.

The invoices show that Buhle charged Addington Hospital R307,712 in April 2019 for medical waste services in contrast to the R46,073 the hospital was charged a few months earlier under the previous contract (Compass).

Spotlight tried to verify the costs at these and other hospitals in KZN, but our queries were referred to the provincial Department of Health. The KZN Department of Health ignored various e-mailed questions for almost a month and spokesperson for health, Noluthando Nkosi eventually told Spotlight that the department will not be responding to Spotlight’s questions. Nkosi would not say why the department decided not to comment. Incidentally, the AG’s office also struggled to access information from the department. Bosa said the AG “experienced difficulty” in auditing the department’s irregular expenditure especially due to insufficient documentation.

Spotlight has, however, seen the KZN Department of Health’s replying papers in the case to be heard in February 2020. The department notably does not dispute Compass’s claim that costs have increased dramatically. It seems possible though that they will argue that, for technical reasons, they could not have anticipated the increased cost at the time they entered into the contract.

Dr Phetole David Sekete, founder and CEO of Buhle, did not provide an outright denial that costs have increased, but questioned whether meaningful comparisons could be made between the two companies’ prices. He told Spotlight that, “Buhle Waste is not privy to the scope and pricing structure of the previous contract held by Compass in order for such a comparison to be factually based”. He also said that the “scope of goods and services provided under the current contract likely exceeds the previous contract scope”. (See Buhle’s full set of responses to our questions here.)

Further complicating the picture is Compass’s claim that they have not received any increases over the last decade and that accordingly they have for many years been providing a service at 2008 prices. Compass, however, argues that even with price increases, their prices will still be well below those currently being charged by Buhle. In a matter not directly related to the previously mentioned litigation, Compass is also claiming over R200-million from the department in backpay. (See Compass’s full set of responses to our questions here.)

Political connections

Apart from the cost question, Compass also questions why specifically the Mpumalanga contract was piggybacked on rather than those in other provinces. The KZN Department of Health offers no clear answer to this question in the court papers.

There is, however, some reason to believe that the department was looking to replace Compass with a black-owned company and that this may have influenced the decision.

In May 2019, shortly after the award of the new contract to Buhle, the department released a statement calling the appointment of Buhle a “shining example of radical economic transformation”. As explained earlier, the award of the KZN contract to Buhle was not the result of an open tender process in KZN with BBBEE scoring (the legal mechanism for black economic empowerment), but rather a result of the province’s decision to participate in the Mpumalanga contract.

The department’s statement went on to refer to Compass as “a single, white-owned monopolistic waste management company that had managed medical waste in the province for the past 20 years”. The claim of breaking Compass’s monopoly is also made in the KZN Department of Health’s justification to Treasury for piggy-backing on the Mpumalanga contract.

At our count, Buhle had government contracts in four other provinces at the time they were given this contract – which means that if the intent is to reduce market concentration nationally then Buhle is not a company you would choose to give more contracts to. Both Compass and Buhle sub-contract some of the work to other entities.

Did Dhlomo interfere?

Another troubling suggestion of political interference relates to a medical waste tender that the KZN Department of Health advertised in 2013, but was never implemented. Initially, most of this tender was awarded to Buhle, but after Compass successfully appealed the award, Compass was to be the service provider for the entire province. Various legal wranglings followed, and the tender was never implemented – which is partly why the 1998 tender lasted until 2019.

Former chief financial officer in the KZN Department of Health, Enos Ravhura claimed under oath in court papers that then MEC for Health Sibongiseni Dhlomo (now Chair of the Parliamentary Portfolio Committee on Health) sent him the below SMS’s in November 2013 relating to this tender:

Messages

“Afternoon comrade. I just got disturbing news that the original decision of the Bids Adjudication Committee to award our company two regions has been reversed and Compass waste has subsequently been awarded all four regions. I am shocked that this can happen with the ANC in power …”

It is also claimed that Dhlomo wrote in another message:

Mr Ravhura is it true that you once awarded the tender for waste management to Compass? If you did that, did you ever consider the political implications of that? If you withdraw that award, as I will instruct you to do, what reasons will you give back to them? Why does it appear that you seem to believe you operate in the environment that has no political leadership?

When approached for comment, Dhlomo at first told Spotlight the content and text is incorrect and that he never said it “in the way it is put down here” (in the question). “If you phone me on this one, I will clarify for you,” he said but when Spotlight called, he asked for more background and again undertook to respond in writing. Dhlomo eventually (through his secretary) wrote back: “Question 4 is an allegation mentioned by Mr Ravhura in court papers. I was not asked about this in court and it is his word in court papers which still needs to be tested. I am not going to comment on this matter now as this matter is handled by my lawyers and we are dealing with the media on it.” Spotlight’s attempts to get hold of Ravhura was unsuccessful.