SIU wins appeal to have R92m Eastern Cape road fleet contract nullified

4 Nov 2024

The Special Investigating Unit has won its appeal to cancel the Amahlathi Local Municipality’s R92m contract for the hire purchase of road construction equipment, concluding a decade of drama surrounding the agreement.

In 2013, the Eastern Cape’s Amahlathi Local Municipality’s city council, faced with the prospect of considerable embarrassment for failing to spend its municipal infrastructure grant on roads, made a surprising decision to buy R92-million in road fleet equipment.

There was no budget for it, no diesel and no skilled operators. Last week, a full bench of the Eastern Cape High Court ruled that the country’s laws also did not allow for it.

But impressed by what a neighbouring municipality in Port St Johns had, the municipality decided that it could conclude a “piggyback” contract with Kwane Capital, the company responsible for selling road maintenance equipment to that municipality on hire purchase.

What followed was a decade of litigation that finally ended up with the Special Investigating Unit (SIU) winning its case last week.

Appeal Court Judge Jannie Eksteen also ordered that the matter be referred back to the high court to ascertain exactly how much the contracting company, Kwane Capital, should pay back.

No budget

The claim related to a hire purchase agreement between Kwane and the Amahlathi Local Municipality for road construction vehicles, known in municipalities as “white fleet” and “yellow fleet”.

The equipment had been delivered to the municipality and had been in use for two years before the SIU investigation found that the contract was unlawful. Eventually, Kwane repossessed the fleet.

The equipment had been purchased without the involvement of the municipality’s supply chain department.

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According to Eksteen’s judgment, the municipal council decided to buy expensive equipment for which there was no budget in 2014. This was after the councillors were presented with a report that the municipality had only spent 12% of its municipal infrastructure grant. National Treasury was also threatening to withhold funds due to the municipality’s failure to perform.

The municipality serves a large area that includes numerous towns, including Keiskammahoek, Great Kei, Cathcart and Tsomo.

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“This, understandably, placed councillors in an uncomfortable position as they would be held accountable by the community. Thus, at the conclusion of the meeting, the municipal manager, Mr Socikwa, gave an undertaking to the council to devise a turnaround strategy,” Eksteen wrote.

Faced with this dilemma, several municipal officials and the speaker of Amahlathi Municipality attended a meeting of the South African Local Government Association in the Amathole Region of the Eastern Cape.

“Each local municipality was required to deliver its performance report. At this meeting, it emerged that several other municipalities had acquired their own road construction fleet plant and equipment. These municipalities, including Port St Johns, were performing substantially better than the municipality, and the speaker, who testified for Kwane at the trial, said that she was impressed,” Eksteen continued in his judgment.

At the next council meeting, on 25 March 2014, it was decided that the council would begin the process of acquiring road construction machinery for the municipality.

According to papers before the court, everyone had agreed that there was no budget for this. The court heard that councillors did not really understand how other municipalities could buy their road fleet equipment, but were under pressure because they had underspent on the municipal infrastructure grant.

Eksteen explained further in his judgment that the evidence before the trial court was that officials intended to claim against the municipal infrastructure grant allocation as roads were built, to pay instalments on the purchase of the plant.

The equipment was delivered “to the dismay of the supply chain management department, which had played no role in the procurement process”, the judgment continues.

“None of the supply chain management staff, nor the engineering department, had been involved in any planning in respect of the delivery of a large fleet of plant and equipment. No safe storage facility had been prepared, and no provision had been made for insurance of the equipment or the purchase of diesel to operate the equipment. Much of the equipment required specialised operators, and employees of the municipality had not been trained in anticipation of the delivery.”

According to the judgment, Kwane later provided training.

Read more: Eastern Cape’s ailing municipalities rack up R3.1bn in irregular expenditure

Judgment overturned

Following an investigation by the SIU, the contract was cancelled and an application to recover the R92-million paid by the municipality was filed at the Makhanda High Court. The Makhanda High Court, however, ruled that the agreement was lawful. The SIU then appealed to the Supreme Court of Appeal, which granted it leave to appeal before a full bench of the Eastern Cape High Court.

The SIU argued that there was no competitive bidding process for the equipment. The municipal manager later claimed that their agreement would “piggyback” on the Port St Johns Municipality agreement. Later, the municipality claimed that Kwane was the only company that would supply the equipment (both white fleet and yellow fleet) on a hire-purchase basis.

Advocate Richard Buchanan, for the SIU, argued that the two directors of Kwane were “complicit in maladministration and impropriety, at least to the extent that they were aware, or should have been aware, that the contract concluded with the municipality was patently unlawful and did not comply with the constitutional, statutory and supply chain management provisions”.

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Eksteen found that the agreement was unlawful as it contravened section 217 of the Constitution which requires fair, equitable, transparent and competitive procurement of goods and services by the state. In addition, as the lawyers for the SIU argued, the agreement contravened the municipality’s supply chain management procurement policies. DM

Correction: This story was updated at 21:02 on Tuesday, 5 November 2024, to reflect that the judgment was handed down by the Eastern Cape High Court and not the Supreme Court of Appeal.

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