FUL’s Intervention in the Social Grants Crisis

The matter concerns the operation of a contract for the payment of social grants. A third of the country’s citizens are recipients of these grants. In 2012, SASSA contracted with Cash Paymaster Services (Pty) Limited (CPS) to pay social grants on its behalf. That contract was subsequently declared invalid by the Constitutional Court and the order of invalidity suspended so as not to disturb the distribution of grants. Despite assurances provided by SASSA that it intended to take over the payment function of social grants itself, it became apparent as the contract’s expiry date approached that SASSA would instead look to enter into a new contract with CPS.

The Black Sash brought its application to the Constitutional Court, seeking reinstatement of the Court’s supervisory role and certain protections for grant beneficiaries. FUL intervened as second applicant, seeking relief to further discipline the proposed contractual arrangement between CPS and SASSA. The matter had clear implications for the rule of law and the obligations of a constitutional democracy. A ruling of the highest court of the land, carefully structured so as to best protect the rights and interests of the most vulnerable in our country, had been cynically disregarded. Instead the security of those dependent on social grants had been recklessly imperilled in a bid to ensure the interim contracting process escaped scrutiny and oversight.

The Court granted relief in line with the applicants request: the contract was extended for a period of 12 months, sufficient only to allow that a lawful competitive bidding process be put in place and that SASSA capacitate itself so that it can take over the grant payment system. The contract was also extended on the basis of the no-benefit principle requested by FUL i.e. the same terms and conditions as the original agreement. The Court also reassumed its supervisory function and called on the Minister of Social Development to show cause why she should not be liable for the costs of the application in her personal capacity.

Following the Constitutional Court’s judgement, FUL made submissions to the court regarding the appointment of experts to monitor the extension of the contract. In response to parties’ submissions, including FUL’s, relating to the Minister’s personal liability, the Constitutional Court has ordered an inquiry in terms of s 38 of the Superior Courts Act.

Experts, among them several of those proposed by FUL, were appointed by the Court to monitor the transition period.Following submission of the initial expert reports pointing to the lack of appropriate expertise within SASSA and the Ministry of Social Development to oversee the transition to a new grants regime system and indicating that information required by the panel to fulfill their monitoring role has been purposefully withheld from them, FUL again engaged the Court urging it to urgently issue directions ensuring that the panel was given the cooperation and information it re- quired to discharge its monitoring function. Such directions were given.

The section 38 inquiry examining then Minister Bathabile Dlamini’s personal liability resulted in a personal costs order against her by the Constitutional Court.

The Constitutional Court also ordered rigorous auditing and verification requirements for CPS and SASSA at the contract’s conclusion. FUL came to learn that these auditing and verification re- quirements have not been fulfilled by the parties. SASSA’s auditors, Rain, were not given full ac- cess to the working papers of CPS’s auditors, KPMG and Mazars. And yet even with limited access,

Rain still estimates that CPS may have understated its profits for the duration of the contract in an amount of over R800 million.

Presented with these auditing and verification reports, Treasury has not, as it is required to do by the court, made a definitive determination of the profits.

FUL has now again approached the Constitutional Court asking for a rerun of the auditing and verification processes, this time with full access demanded so that Treasury can make an authoritative determination. Moreover, FUL maintains that the searching, rigorous auditing requirements could only have been imposed to ascertain with some degree of the certainty the true extent of those profits so that the determined amount can be ordered returned to Treasury.

This is in keeping with the no-profit principle, articulated by the court to mean that the beneficiary of an unlawful contract has no right to profit from such unlawfulness.

It is not feasible, of course, that every state awarded procurement contract, alleged to be unlawful, be subject to similar levels of scrutiny as that paid by the Constitutional Court to the CPS contract. That would consume too much of the time and resources of South Africa’s already overburdened judiciary. And, as courts would readily admit, they’re not best capacitated to provide this level of oversight routinely.

But should the Constitutional Court grant the order sought, it will stand as precedent and likely greatly enable the disgorgement of profits obtained through other unlawfully awarded contracts. It will certainly stand as strong disincentive to those who would seek to win such contracts in future.

FUL awaits judgement in this matter, which has been delayed as CPS has subsequently gone into liquidation.

The most recent media update on the CPS-SASSA matter can be found here.