Rogue Tenderers: Treasury Drops the Gavel
how not to win lucrative public tenders
- Medi-Core Technologies (Pty) Ltd., a front company whose contract to supply condoms and lubricants was cancelled due to illicit conduct was banned from doing business with government
- A probe by the National Treasury confirmed uSpiked’s investigations that had revealed glaring anomalies, which officials at the National Department of Health had overlooked when they awarded the R776.8 million contract to Medi-Core
- The North Gauteng High Court threw out Medi-Core’s urgent application challenging the powers of the National Treasury
- Our previous reports detailed dubious ways that some pharmaceutical companies employ to bagged lucrative contracts, including price fixing, collusion, fraud, extortion, racketeering, conspiracy, antitrust and anti-competitive behaviour.
For the better part of last year, uSpiked Investigative Team published a series of stories exposing questionable multi-billion-rand tender schemes at the Department of Health. Specifically, our team uncovered how contracted suppliers arbitrary increased prices of pharmaceutical products and the loopholes used by companies to illegally win lucrative public tenders.
Exactly a year ago today, attorney John Small representing Chen-Yen Wu and his wife Li-Jung-Wu (owners of various companies under probe by Treasury) threatened to sue uSpiked if we didn’t retract our reports that detailed the schemes devised by the couple to beat procurement processes. uSpiked called the attorney’s bluff and stood by the findings.
It appears Attorney Small’s threat to us was well calculated and meant to mitigate a probe that had been launched by the National Treasury into another of his clients, Medi-Core Technologies (Pty) Ltd., which we had found to be a front used by Chen-Yen and Li-Jung-Wu to successfully bid for the condoms and lubricants tender. Also on the radar of the National Treasury’s Office of the Chief Procurement Officer (OCPO) were several other companies, including Barrs Medical (Pty) Ltd, a condoms and lubricants supplier that had deliberately falsified its BEE credentials.
Treasury’s investigation into Medi-Core revealed one irregularity that we hadn’t verified. During an inspection of the company’s ‘facilities’ in Durban, it emerged the company did not have 30 employees as had been alleged by the front-man, Moonilal Hansraj Seopursat. It transpired that Seopursat wasn’t even an employee of Medi-Core Technologies (Pty) Ltd., a company the couple had registered in his name.
OCPO officials could not find supporting documentation for the 30 employees, among other claims.
The axe fell for the Wu’s in March when the National Treasury instructed the Department of Health to cancel all the contracts awarded to Medi-Core. The findings by the Treasury confirmed our own published reports.
To understand the motivation for Medi-Core’s next move, let’s consider the implication of the ban by Treasury. The ‘meddling’ by Treasury had threatened Medi-Core’s cash cow – the health department’s lucrative tenders.
Our team of data journalist had pored over the condoms and lubricants tender (HM01-2015CNDM) and found the cost had ballooned by R1.9b due to a series of deliberate calculation errors that saw rand values for lubricants rise by one hundred times.
Soon thereafter the National Department of Health rectified the costly error, but the suppliers devised a fresh scheme. They repeatedly approached the Department to allow them to hike their prices by as much as 21% within just a few months of the tenders being awarded.
In fact, similar bizarre procurement irregularities and unjustified price increases appeared in almost all pharmaceutical contracts that we looked at. In a nutshell, some pharmaceutical companies were winning lucrative public contracts through criminal activities, including price fixing, collusion, fraud, extortion, racketeering, conspiracy, antitrust and anti-competitive behaviours.
Medi-Core Technologies, knowingly being a front for the previously blacklisted couple, clinched an initial R776.8 million contract to supply condoms and lubricants. The company was later awarded more contracts by the department.
With nearly R800m at stake, it was completely reasonable for Attorney Small to institute an urgent court application at the North Gauteng High Court (Pretoria) on behalf of Medi-Core, seeking an injunction to stop the National Treasury from acting against the rogue company. In the court papers, Medi-Core questioned the National Treasury’s powers to ‘interfere’ in the operations of the National Department of Health. When costs ballooned by astronomical amounts (R296m for the condoms and lubricants) due to greed and possible involvement of some unethical public servants, the Treasury should have kept off, according to Medi-Core and its attorneys.
Stated Seopursat in the founding affidavit; “The National Department of Health appears to have become paralysed and is incapable of making a decision regarding Medi-Core as its supplier. All of this is as a result of the strange and unjustified approach adopted by the National Treasury towards Medi-Core.”
Anyone who does business with the government should be aware of the National Treasury’s oversight role, but apparently not Seopursat, the purported managing director of a company that would have collected hundreds of millions of rand from taxpayers had we not spotted their scheme.
Seopursat confirmed in the same affidavit that he was a full-time employee of Wupro Technologies, a company owned by Chen-Yen Wu that had previously been blacklisted for tender fraud. How was he able to serve his purported new company while on full-time employment at Wupro Technologies?
If he was working for Medi-Core as he separately claimed in the same affidavit, and if he owned the company as claimed, why would Wu’s Wupro Technologies pay him for working at Medi-Core?
In paragraph 60 of his affidavit, he wrote; “I explained that I was in fact employed by Wupro Technologies on a full-time basis as an operations manager. I explained that Medi-Core still did not have a sufficient profit margin to employ me on full-time basis but that, given that its business was ramping up, I was considering resigning from Wupro and dedicating all my time to Medi-Core. … I pause to mention that I have since resigned from Medi-Core, in February 2016.”
After considering resigning from Wupro, Seopursat informed the court that he instead resigned from Medi-Core in February 2016. Yet in June when the company was filing the high court application, he declared himself the managing director and one of the shareholders of Medi-Core. However, records from Department of Trade and Industry list him as a director with 0% shares.
If Medi-Core had hoped Treasury would overlook the little-known condoms and lubricants supplier from KwaZulu-Natal [or China] to pursue bigger fish, they were wrong. Despite multiple defects with the application, the Treasury and the National Department of Health successfully opposed the application.
The harder Medi-Core tried to distance itself from the Wu-couple, the deeper they dug themselves into a hole. For instance, in their attempt to prove that they were legitimately leasing a property that was not associated with the Wu couple, they produced records and bank statements showing that Medi-Core was renting office space from Juli Property cc. Had they naively assumed that the close corporation would not be traced back to Li-Jung Wu and her husband Chen-Yen Wu, both of whom were listed as members of the corporation?
Did they also forget paragraph eight of attorney Small’s letter of Demand to uSpiked which had declared: “Our clients, particularly, Chen-Yen Wu, fully supported the new business. Our clients still support Seopursat and Medi-Core Technologies today and share, entirely at arm’s length, facilities and infrastructure with Medi-Core Technologies. Wupro also provides warehousing and logistics services to Medi-Core.”
According to paragraph 116 of Seopursat’s affidavit, some of the reasons given by Treasury for the total ban directive included:
- Still employed by the Blacklisted Wupro Technologies
- Renting property from Wupro Technologies
- Wupro Technologies is delivering condoms on behalf of Medi-Core
- Wupro Technologies is packaging condoms for Medi-Core
- His interest in Wupro Technologies was not declared in paragraph 2.11 of the SBD4 document and that the information provided was accordingly not true and correct
- Medi-Core declared in its response to the invitation to bid that no portion of the contract would be sub-contracted which is not true because the storage, packaging and delivery is provided by Wupro Technologies
- That he claimed that Medi-Core had 30 employees during the engagement with the National Treasury while it declared only two employees from April to October 2015 to UIF, and further declared only one employee from November 2015 to January 2016.
The Treasury left nothing to chance. Having read through the more than 600 pages of filed records and heard arguments by counsels, Honourable Justice Fabricius dismissed Medi-Core’s application with cost.
Medi-Core’s contract to supply condoms and lubricants and other subsequent contracts thereby remained cancelled as had been directed by the OCPO of the National Treasury. The company is further barred from bidding for any future public contracts.
In a peculiar development, it appears that some officials in the Western Cape and KwaZulu-Natal Provincial Departments of Health recently awarded some contracts to Medi-Core despite the directives from the Treasury and the decision made by the North Gauteng High Court.
Commentary by uSpiked’s Editor
When the departure of Kenneth Brown as the Chief Procurement Officer was announced, concerns were raised about the future of that office. I personally wasn’t disturbed. The public needs to know that there are other hard-working and competent individuals at the National Treasury.
The no-nonsense Solly Tshitangano, the Chief Director of Supply Chain Management Governance, Monitoring and Compliance Unit and his team at the OCPO, are some examples of dedicated individuals. For this team, no entity is untouchable and no public funds are too small to be protected from scavengers. Following our reports on the irregularities surrounding the condoms and lubricants tender, the OCPO team did what the department of health had failed to do - they queried the need for lubricants. The national department of health is yet to justify the purchase.
The team also raised the issue of unjustifiable cost overruns, which prompted the Department of Health to revert to the originally contracted pricing, thus saving the exchequer hundreds of millions of rand.
The health department has not re-allocated Medi-Core’s cancelled contract, which makes us wonder if the country actually required a total of 67 billion condoms up until 30 June 2018. While Deputy President Cyril Ramaphosa may have had the pleasure of pitching the new condoms 'designed for maximum pleasure and minimum noise' in parliament, the team at the Treasury is bent on safeguarding the taxpayers' kitty. They are making our work worthwhile.
With the reversal of the hikes and the cancellation of the Medi-core contract, the public has been saved a total of R2.185b.
There must be something wrong with all of us when the Auditor-General reports irregular expenditure year-on-year, currently at R46 billion. We look forward to the day when public officials who are entrusted with public funds can view such funds as belonging to all South Africans and not to 'government'.
The rogue entities may bring the fight to our doorsteps. They may attack our zeal while hunting for our sources (real or perceived); compromise our contractors; and accuse us of having hidden agendas. But they shall not win.
The hiked tender values for condoms and lubricants tender were reversed, but the same is yet to happen for other pharmaceutical tenders we’ve reported on. It would be a travesty of justice if we dropped our guards in celebration. We must always be vigilant.
To our friends who have sacrificed so much for us and to the professionals who have availed their expertise around the clock, thank you.
Our top wish for 2017 is to see less corruption and more transparency and accountability.