In 2018 an anonymous email arrived in my inbox. It was from an employee at Eskom and they had an issue with our reporting.
“It is strange that in all your articles you have never mentioned Deloitte’s role and relationships with Gupta company Nkonki…
“I work for Eskom and [am] saddened that your investigations are not conclusive, unless you are protecting Deloitte – it is the feeling of many here as this matter is so glaring.”
In fact, Deloitte was on our radar.
We knew that Deloitte had received two consulting contracts at Eskom where it had partnered with Nkonki Inc, the pioneering black-owned auditing firm which was covertly taken over by Gupta lieutenant Salim Essa.
We had sent questions to Deloitte Africa chief executive Lwazi Bam about the firm’s partnership with Nkonki, and received a 13-page letter in response. But we had concluded that Deloitte teamed up with Nkonki before Essa’s buyout. And with little else to go on, we had parked the story by mid-2018.
Then, in October 2019, Eskom’s then chair, Jabu Mabuza, filed an explosive affidavit in court, demanding that the firm pay back R207-million in consulting fees from contracts dating back to 2016, when Essa crony Anoj Singh was Eskom’s chief financial officer.
Mabuza told the court that Eskom only discovered this evidence after accessing emails of the senior employees who had since left the company.
“It is those emails that suggested that the awards of the two [contracts] to Deloitte were not only irregular but highly improper… Most of the emails were brought to our attention only in the past few weeks and some are still being recovered.”
Suddenly, the allegations we had heard begged closer scrutiny.
Mabuza’s affidavit, filed in the Johannesburg high court, tells a simple story: Deloitte was awarded two consulting contracts in September 2016, despite its prices being dramatically higher than other bidders.
On a piece of work known as the Business Improvement Project, Deloitte bid R79.1-million, while the competing bids were R16-million and R9.1-million.
On another project, the Results Management Office, Deloitte bid R88.8-million while the competing bids were R14.6-million and R13.3-million.
Despite this, officials who evaluated the bids were instructed to ignore price as a factor and awarded both contracts to Deloitte. With two contract extensions and another, smaller project Deloitte’s bill would eventually reach R207-million.
“This shows pure corruption on the part of Deloitte and the Eskom executives who facilitated these contracts with absolutely no regard for Eskom’s sustainability,” Mabuza said in a statement Eskom released at the time.
Of course, the story is not quite so simple but, we discovered, no less damning for Deloitte.
In digging into this dispute, we scoured more than 1 000 pages of evidence Eskom submitted to court, including emails, contracts, minutes of meetings, proposals from rival consulting firms and bid evaluation scorecards.
- Go to our Evidence docket for all the court documents.
We also spoke to a dozen individuals who were well-placed to comment on the facts, including employees of state-owned entities, rival consulting firms and Nkonki insiders. Another two tipoffs came from anonymous sources. None of the people we spoke to were willing to be identified.
“This is feeding trough bullshit,” one consultant told us when shown a breakdown Deloitte’s fees. “This is what immiserates our country and bankrupts it.”
Deloitte has not filed its response to Mabuza’s affidavit, and for a month refused to respond to questions. Eventually, as the extent of our investigation became apparent, Deloitte Consulting managing director for Africa Thiru Pillay agreed to sit down with us for a three-and-a-half-hour interview.
He shot back at Eskom’s “pure corruption” claim and instead accused Eskom of trying to bully Deloitte into a settlement. He said that over months of discussions Deloitte had refused to concede that it was “complicit with irregular procurement” or that there was “any undertone of corruption” in its dealings with Eskom.
“Eskom’s view was that we should be concerned about the value of our brand. And my response … was that we are very happy to share our perspective … at the Zondo Commission … or the court, basically that we would not be intimidated into a settlement,” he told us.
But Eskom is not backing down: “Eskom former employees and some corporate citizens were involved in corrupt dealings which caused Eskom a great deal of financial losses. The board and management of Eskom are discharging their fiduciary duties by recovering all monies that were irregularly paid to suppliers and Deloitte is no exception,” it told us in a written reply last week.
R60m for three weeks’ work
One of Mabuza’s more sensational claims was that “Deloitte was paid nearly R60-million for three weeks’ work.”
This is not entirely accurate: It is true that three weeks after Deloitte won the contract it submitted two invoices totaling R59.1-million which were paid on the same day. But a breakdown attached to those invoices indicated that Deloitte claimed its consultants had already performed 35 850 hours of work – a clearly impossible feat for the 13 intervening business days.
Enter Bam, the Deloitte Africa chief executive: He previously told us that, starting in March 2016, Deloitte began approaching Eskom’s then chief financial officer, Anoj Singh, with unsolicited proposals.
The first was to assist Eskom with its Multi-Year Price Determination (MYPD) submission to the National Energy Regulator, where Eskom would apply to set electricity prices for the next two years.
“This proposal was critical and urgent to Eskom because Eskom needed to start preparing its tariff application,” Bam explained in his 13-page letter.
Unsolicited proposals were allowed in terms of Eskom’s Procurement and Supply Management Procedure, he assured us, even providing us with a copy of the 156-page manual to underscore his point.
“This … requires Eskom, following receipt of an unsolicited proposal, to issue an RFQ [request for quotation] to the market to give the market a fair opportunity to respond.”
But here was the kicker: “Although this did not occur often, sometimes, because of Eskom’s urgent need for the services set out in the unsolicited proposal, service providers at times commenced work ‘on risk’ … before the RFQ had been issued and the contracting has been concluded.
“In these cases, [it was] on the understanding that if the service provider was unsuccessful in securing the work, then this was at the service provider’s risk,” Bam told us, underlining the last phrase in his letter.
In other words, Bam was saying that Deloitte was willing to gamble that it would get the contract, even carrying out thousands of hours of work with no guarantee that it would get paid.
But what is curious is that the MYPD project was not the only instance where Deloitte supposedly rolled the dice.
Between April and June 2016, Deloitte started work on another four unsolicited proposals: establishing a results management office (RMO) in the finance department; building a separate RMO for Eskom’s IT department; introducing SAP’s Hana software to Eskom; and assisting with planning, budgeting and forecasting.
All five projects would eventually be bundled up into the two contracts that Deloitte was awarded in September 2016. But by this point Deloitte’s “at risk” bill would be sitting at R59.1-million.
[sidebarContentSingleImage target=modal url=https://amabhungane.org/wp-content/uploads/2020/01/GRAPHIC-1_Bright-colours.jpg][/sidebarContentSingleImage]
Based on Deloitte’s own figures this amounted to one director, one associate director, six senior managers, 10 managers, 13 senior consultants, seven consultants and four analysts – 42 people in total – working full time for five months straight. (See graphic: Deloitte’s army of consultants.)
All supposedly at risk.
“Nobody – no Deloitte director or partner – is going to sign off on a genuine ‘at risk’ R50-million; this is a ‘wink, wink, nudge, nudge’,” a consultant from a rival firm told us. “Think about it, what private sector firm would run R50-million at risk with a [state-owned entity]? What’s the logical nexus that allows you to say, ‘This is okay’? It doesn’t make sense, unless there’s an understanding – a solid understanding – that the power broker on the other side will pull the contract across.”
In other words, what would reduce Deloitte’s risk was knowing it had the contract in the bag.
In 100 words or less
“There is one intriguing matter that should be mentioned,” Mabuza told the court in his affidavit. “Annexed to [most of the proposals] … was a form for its acceptance.”
The one-page document he is referring is less than 100 words long and stated that whoever signed it would bind Eskom to accept both the “scope” and “budget” of Deloitte’s unsolicited proposals.
Although this makes a mockery of the Public Finance Management Act, National Treasury’s practice note on the use of consultants, Eskom’s own procurement rules and section 217 of the Constitution, Eskom officials signed three of the flimsy one-page contracts.
This is also where Deloitte has substantially changed its story from what Bam told us in 2018 about taking projects on “at risk”, underlined:
“At the time, it is not the case that Eskom was buying all professional services through an RFP [request for proposals],” Pillay, the Deloitte Consulting Africa managing director, told us during our recent three-hour interview.
He explained: “So, what happens is we engage for example Anoj, the CFO … on a proposal and as had been done before, our proposal has an acceptance sheet at the back … and Anoj then signs that, basically saying ‘I accept your proposal and Eskom is making a commitment to you that we are going to be contracting with you.’”
On the Finance RMO project (budget: R34.7-million), Singh signed a 50-word contract but failed to complete any other details or even fill in his name. On the MYPD project (budget: R15-million) Singh merely signed under the words “accepted and agree”.
[sidebarContentSingleImage target=modal url=https://amabhungane.org/wp-content/uploads/2020/01/GRAPHIC-2_In-100-words-or-less.jpg][/sidebarContentSingleImage]
Despite this, Pillay told us that Deloitte considered these contracts binding.
“It certainly was the pattern of behavior of the executives – and it was across not just Anoj but prior – that if you gave them that proposal and they signed that, we did accept that as a commitment by Eskom, and that that person knew what they were doing, and that they were going to navigate the processes on their side in order to get a PO [purchase order] and a contract established with us.”
Pillay told us that in each instance Eskom asked the firm to start work on the projects immediately.
In written answers Deloitte said that in one instance it had mobilised a team of consultants on Eskom’s instructions after Maya Bhana, the general manager in Singh’s office, “verbally accepted” the proposal.
Pillay told us at another point in the interview that “there was a sort of an appreciation that there was some process they were now going to follow and … they will exercise judgement about how they received your proposals.”
“We have now asked Eskom to send us the delegation of authority of the CFO … [and other executives] because these individuals and their predecessors presented themselves in a way that they could sign that document,” Pillay told us.
We conveyed all of this to Eskom which responded in an email loaded with risible contempt:
“The Eskom delegation of authority has never dealt with verbal contracts. Maya Bhana was a [general manager in Singh’s office] and her [delegation of authority] would not allow her to accept proposals on behalf of Eskom…
“Deloitte as a multinational corporate citizen is bound by the Constitution and it is not exempt from … the procurement and supply chain management policies of Eskom. It is also enjoined to conduct its business ethically.”
Bhana agreed, saying in a WhatsApp: “Eskom process does not allow for verbal acceptances. So I would not have given verbal approval or acceptance of a proposal without following a procurement process. Deloitte has worked for Eskom for many years and should understand the procurement process.”
Given how starkly Deloitte’s latest version departed from Bam’s in 2018, we asked Deloitte if it was now repudiating what its own chief executive had told us at the time. Deloitte legal counsel Murray Dicks told us that Bam was merely describing the normal procurement process, but that in 2016 Deloitte believed there was precedent that allowed Eskom in some circumstances to accept unsolicited proposals without an RFQ.
“We therefore continue to dispute that, as at 2016, we knew that an RFQ was mandatory in the event of Eskom receiving an unsolicited proposal,” Dicks told us in a follow-up letter, which included some suggested edits of Bam’s original response (see graphic: What Deloitte’s CEO meant to say).[sidebarContentSingleImage target=modal url=https://amabhungane.org/wp-content/uploads/2020/01/GRAPHIC-3_What-the-CEO-meant-to-say.jpg][/sidebarContentSingleImage]
“Our response to amaBhungane in April 2018 was prepared under a tight deadline to respond to a variety of questions. It was based on interviews with key staff and relied on their recollection of events… We now have far better clarity and understanding of the matter and sequence of events than we did in April 2018.”
But we are not talking about hiring a venue for R10 000 but contracts worth hundreds of millions of rands in a highly competitive industry where up-and-coming black-owned firms are often locked out by the big, international behemoths.
In fact, Eskom had a plan to remedy this, but Deloitte seemingly would try to bypass that too.
The panel in the works
By June 2016, Eskom was in the final stages of establishing a panel of 27 pre-approved consulting firms to bid on exactly this kind of work. Nine spots would be given to the big players like Deloitte, McKinsey and Bain, but another 18 would be reserved for local, black-owned firms.
The purpose of the panel was to “contribute to a fair distribution of work among consultants; and provide ‘greater governance’ in their appointment”, Mabuza told the court.
Deloitte knew the panel was imminent; records show that on 31 May 2016 Eskom invited Deloitte to a meeting to negotiate hourly rates for work on the panel. But instead of waiting, Deloitte delivered another three unsolicited proposals over the next week.
“[W]ere we trying to subvert the panel? The answer is ‘no’,” Pillay told us.
Treasury has repeatedly warned government and state-owned entities about blowing millions on consultants. Before hiring a consultant, they should do a needs analysis to make sure that the job cannot be done in-house.
But when Sean Maritz, Eskom’s then chief information officer, received Deloitte’s proposal to implement an SAP Hana project two days later, he waited just one day before approving the project, along with its R37.2-million price tag.
That was on a Friday. On the Monday, Maritz received another unsolicited proposal from Deloitte, this time to establish an RMO for the IT department for R19.7-million. Again, he waited just one day before signing Deloitte’s acceptance form.
In response to questions, Maritz told us: “No work can be paid for if there is not is a contract number.”
He would not comment on why he signed the acceptance forms or whether he considered them binding, saying: “I am not in a position to answer on anything related to Eskom procurement process because I am not in their employment currently.”
Bam described both these projects as “critical” to Eskom, but the anonymous Eskom employee who emailed us disagreed and described both the SAP Hana and IT RMO projects as “imposed on … the IT division by Anoj” and, in their view, “disastrous projects aimed simply at looting”.
Pillay told us: “We did not impose ourselves on Eskom by stressing that this thing was urgent and it was not urgent. And we were certainly not trying to work where there was no need.”
By 13 June 2016, as Eskom was finalising the panel of service providers, Deloitte had teams deployed on all five consulting projects that it had brought to Eskom unsolicited.
“Anoj comes back to us and says, ‘Now that you are on the panel, we are now going to use the framework of the panel in order to get your contract for the work you’ve already started on and for the contracts and the documents I’ve signed,’” Pillay explained.
We asked Deloitte whether this set off alarm bells. After all, the panel was designed to allow different firms to compete for work. But Deloitte told us: “It was unclear how the panel would be used.”
Unfazed, Deloitte kept ploughing resources into the five projects. Remember those 35 850 hours? Over the next 10 weeks Deloitte ramped up their teams and began hiring subcontractors.
The off-the-record meetings
Pillay told us the first sign of trouble emerged in a one-on-one meeting with Singh on 29 August 2016.
Pillay said it had been several weeks since Deloitte had mobilised resources, but no contract was forthcoming.
“We have an internal review and we say to the project team: This is unacceptable… we cannot work at risk in this way. And I call for a meeting with Anoj to be set up.”
Pillay goes to see Singh, alone: “I then say to him, ’Here’s a list of projects that our business is now working with you on. We mobilised … this was done in good faith. These contracts are not forthcoming. This is unacceptable.’”
Two days later, Eskom came back with bad news: Deloitte would need to go through a competitive bidding process to win the work.
“We then had a meeting internally … and we said, ‘That is ridiculous because he has now signed our letter and he’s reneging. Now what are our options?’ So we said, ‘Firstly, he must commit that he’s going to pay us for the work we’ve done up to this point.’”
Pause here for a moment and consider this: Deloitte had no contracts beyond the handful of half-completed one-pagers that Singh and Maritz had signed. Deloitte had taken no legal advice on whether these documents would stand up in court. And the bill Deloitte wanted Eskom to pay was sitting at more than R50-million.
Despite this, Pillay told us that Singh promised Eskom would pay. We asked: Were any of these meetings recorded or minuted?
The answer was ‘no’: “[U]nfortunately, we don’t have this in writing but we have internal emails in the feedback that is now being provided to us by our lead partner [Shamal Sivasanker], who says Eskom … will honor payment for the work we have done so far, because we mobilised in good faith at their request.”
We asked whether anyone from Deloitte sent a follow-up email confirming the rather extraordinary commitment that Singh had supposedly made. The answer, again, was ‘no’.
Eskom told us it had no record of Singh or anyone else agreeing to pay Deloitte for work done but added that it had named Singh as a respondent in the case to force him to put a version under oath.
“Eskom is a victim of maladministration, fraud and corruption perpetrated by its former employees and corporates. This is a relationship between a corruptor and a corruptee,” it told us last week.
When contacted, Singh would only say that he was “not part of … any procurement team that made the award of any tender at Eskom”.
The allegation that Eskom has put in court papers is that behind the scenes, Singh’s team was already hard at work ensuring that the full contract – and not just the first R50-million – would be delivered to Deloitte’s door.
“[H]ow Deloitte came to be awarded the two Task Orders paints a very disturbing and worrying general picture. It indicates the extent to which processes and procedures at state institutions … can be manipulated so that pre-determined outcomes can be achieved by abuse and improper use of power by those in senior positions,” Mabuza told the court in his affidavit.
“But the picture is even scarier: it shows the extent to which off the record dealings between suppliers and employees of organs of state can shape desired outcomes … to ensure that certain tenders were awarded to a particular tenderer.”
Later in the affidavit he states: “The official tender process that followed was simply a charade, to purportedly legitimise and sanitise the irregularities and improprieties.”
Three weeks before the Singh-Pillay meeting at the end August 2016, Eskom’s then head of group capital, Prish Govender, had drawn up two internal memos explaining why Eskom needed to hire consultants for two new projects.
Contained in the motivations were the five projects Deloitte was already working on – a rather crucial fact that Govender seemingly failed to mention to anyone at Eskom.
Eskom’s assurance and forensic department would later compile a report, detailing the many similarities between Deloitte’s unsolicited proposals, the internal motivation that Govender drew up and the RFQs that were eventually sent out to the market, implying that the Deloitte proposals had effectively been used as a template for the tender.
“[I]n effect, Mr Govender and Mr Singh permitted Deloitte not only to determine the scope of services, but also how they were to be characterised… I submit that it is difficult to conceive of a process that could in substance be less fair, equitable, transparent or competitive,” Mabuza told the court.
On 8 September 2016, Eskom invited a handful of consulting firms to bid on two new consulting projects: Business Improvement Project and the Results Management Office.
The deadline was tight – just one week – but the cost of putting together a detailed proposal was still significant. Consulting firms that we spoke to put the cost at anywhere between “tens of thousands” and R250 000.
What other bidders were not told was that they were bidding against Deloitte for work that, in some cases, Deloitte had already completed and for which it had been promised payment.
We put it to Pillay that Eskom officials had a perverse incentive to select Deloitte in order to regularise the contracts it was already working on. For example, Eskom could not make good on its supposed promise to pay Deloitte without a contract, and even though Deloitte delivered its first invoice before the bidding closed, this went unpaid.
If Deloitte happened to win the contract, that problem went away.
“Eskom’s view is that the RFP process was an afterthought aimed at sanitising the corrupt conduct that had already unfolded,” Eskom told us last week.
We put it to Pillay that Eskom’s failure to disclose any of this was a fraud on other bidders, but he disagreed.
“[O]ur presence there was not a secret … the major players in the market knew that,” Pillay insisted.
Which may explain why so few of them bothered to compete. In the end, just three firms submitted bids for the Business Improvement Project: Deloitte and two empowerment players, Ariogenix and Durapi.
On the Results Management Office, five firms submitted bids – Deloitte, McKinsey, Letsema, Ariogenix and Durapi – but McKinsey, Deloitte’s only competitor from the “big player” panel, was disqualified, seemingly for submitting documents after the deadline.
When the scores were counted, Deloitte had scored the highest on both contracts, but also presented prices up to five times higher than its competitors.
Normally, companies that pass the technical threshold in a tender are judged on price (a score out of 90) and BEE (a score out of 10). That did not happen in this case. Instead Eskom staff that evaluated the bids were told to ignore price.
This was a gift to Deloitte, which outscored its competitors primarily in one category: “Proposal meeting scope requirements”.
Considering that Eskom’s RFQ was based on projects Deloitte had conceived of and partly executed, this was hardly surprising.
“Did we think that there was a possibility that we could lose? Yes,” Pillay told us.
“[I]n hindsight, if you say, ‘Did we have an advantage because we were the incumbent?’ the answer is ‘yes’.”
But this is little consolation to the smaller industry players: “I’ve got to pay salaries at the end of the month and you hope that there’s a fair chance that if you put in [a proposal] that you will win,” one of them told us. “So if you’re filling out a whole bunch of fig leaves [and] it’s sewn up, you’re going to go bankrupt and people are going to lose their jobs.”
“Deloitte … seems to be very excessive.”
When Sanjith Rampath, a senior manager at Eskom and one of the bid evaluators, delivered his scores he included a warning: “The one area that needs to be addressed is the costing from Deloitte which seems to be very excessive.”
Deloitte’s prices – R79.1-million and R88.8-million – were roughly five times higher than the other bidders which bid between R9.1-million and R16-million for each piece of work.
But there is no indication that this was part of the discussions when an Eskom committee headed by Govender met a few days later and awarded the contracts to Deloitte.
Instead the reason for rejecting the other bidders was “inadequate resource loading”, which means that Eskom did not feel that the other bidders had put forward enough consultants for the project.
It is possible that Deloitte simply had the best grasp of how many people it required to execute these projects – Eskom’s own estimates, contained in Govender’s internal motivation, were R91-million and R86-million for each piece of work.
But it is also possible that Eskom relied on the prices in Deloitte’s unsolicited proposals to set the bar.
Pillay conceded that this may be so, but repeatedly stressed Deloitte’s position that Eskom received value for money and that Deloitte’s billing – based on estimates of 35 850 hours initially and over 128 000 hours by the end of the project – was fair.
“When you look at the topics that we are dealing with here – we’re dealing with an MYPD 4 submission, this is a technical piece of work; we’re dealing with an analytics piece of work using an SAP platform to help them with cost reduction and optimising their business… The topics that we were dealing with, they were heart of business, technical issues. They were not … controversial policy topics that were trying to pervert the state.”
He later added: “I do feel we were led down a path by Eskom, and we tried to cooperate and do the best that we could.”
The argument Deloitte has put forward is that even if the contracts were awarded irregularly, Eskom got value for money and therefore Deloitte should not be forced to pay back the money.
“The world is in a very different place today. When you look at what was happening in 2016; our environment is very, very different. In hindsight, when you look at it, you wish you had done things differently, but the question is, ‘Did we add value?’ and I think we did. And what was our intent? Was our intent to go and defraud and exploit Eskom? Definitely not,” Pillay told us.
Into murky waters
“[B]ased on the information that is now at hand, certain inferences are irresistible,” Mabuza wrote in his October affidavit. “Mr Singh had determined by early 2016 that Deloitte was to be the preferred Consulting firm” on certain projects at Eskom.
The question, if Mabuza is right, is why?
This is where we had to depart from the safety of documentary evidence and wade into the murky waters of anonymous and confidential sources. But it is also here where we found person after person who insisted that Deloitte’s contracts formed part of a state capture play.
Part 2 coming soon.
*Additional reporting by Sam Sole.