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7 minute read
23 Oct 2019
8:09 am

Eskom accuses Deloitte of corruption and (maybe) plagiarism

Moneyweb

On top of participating in a rigged tender process, Eskom says Deloitte may have stolen work from McKinsey.

Eskom's Jabu Mabuza. Picture: Simphiwe Mbokazi / African News Agency / ANA

In the same court bid where Eskom is accusing Deloitte of irregularly being awarded tender contracts worth R207 million, the power utility has also insinuated that Deloitte may have plagiarised some of the contents of its proposals from global consulting firm McKinsey.

This is an added blow the company’s professional integrity after Eskom announced on Monday evening that it is pursuing legal action against Deloitte and some former Eskom executives whom it says went to “extraordinary lengths” to ensure that the advisory firm benefitted from unlawfully and unconstitutionally awarded tenders.

In court papers seen by Moneyweb, Eskom asks the court to set aside the contracts and recover the R207 million paid to Deloitte. It also calls for former chief financial officer (CFO) Anoj Singh and former acting head of group capital Prish Govender to pay costs.

A peculiar addition to the parties in Eskom’s bid is McKinsey, which is listed as the fourth respondent – not to claim any relief but rather to provide it with the opportunity to “raise concerns” about the “striking similarities” between two proposals it had sent to Govender and the those Deloitte used in its applications.

Damning communication

The cash-strapped utility has been engaged in various efforts to recoup funds that were lost to corruption and state capture under the former board and executive of the utility. It has so far managed to recover almost R1 billion in fees from McKinsey for a dodgy contract with Gupta-linked Trillian Capital Partners.

At the beginning of October, the Pretoria High Court dismissed Trillian’s attempts to appeal a court order, instructing it to repay the remaining R600 million owed to Eskom.

Eskom’s assurance and forensic department has now added Deloitte to the list of companies that need to pay back the money. This comes after it uncovered “damning” documents, many of which were compiled by Deloitte, from the archived mail servers of Singh and Govender while conducting a “high level audit” on the awards a couple of weeks ago.

In the court papers, Eskom’s acting chief executive and chair Jabu Mabuza outlines how Deloitte came to pocket R207 million for a CFO Transition Laboratory and two tenders in 2016, which it says were awarded by “manipulating” the newly approved tender processes that Eskom had in place.

The alleged irregular process involved the use of “off-the-record” proposals to model the scope and requirements of the tenders to suit Deloitte.

Mabuza further explains that despite Deloitte coming last compared to other bidders on cost, which was the most critical component of the tender ranking process, it was awarded the tenders anyway. This was mainly due to the relationship between a senior Deloitte official and Singh and Govender.

Deloitte’s proposals 

Between March and June 2016, in interactions that mainly involved Deloitte director Shamal Sivasanker and the two Eskom officials, Deloitte sent five “off-the-record” proposals to Eskom where it laid out a case to render strategic, business and management consulting services to the power utility that included cost calculations.

This was months before an ‘official’ tender process was started.

Govender only made a formal request for such services to be procured in August. The tenders were awarded through a closed tender process, which was open to a handful of pre-selected consultants and allowed Eskom to lawfully deviate from normal tender processes in order to fast-track procurement when there was an urgent need.

Two-day CFO ‘orientation’ for R2.14m

The first proposal came in March 2016, two weeks before Deloitte facilitated the CFO Lab on April 14 and 15, a process meant to assist Singh in navigating his role as CFO despite him having occupied the role since August 2015. The company was paid R2.14 million for the lab, which Eskom now wants to repaid because no tender process was followed at all.

The services that Deloitte proposed offering Eskom included assisting the utility with tariff and regulatory clearing account applications to the National Energy Regulator of South Africa; this email was sent by Deloitte’s Sivasanker to Singh.

About two weeks after the CFO Lab a second proposal dropped between the same parties. This time Sivasanker proposed that Deloitte assist Eskom in establishing a results management office (RMO) and, at the utility’s discretion, to provide support and analysis.

“Significantly, in his letter, Mr Sivasanker said that Deloitte was presenting its ‘revised and updated proposal’, which took into account the requirements that had been discussed at the end of April 2016,” notes Mabuza.

In the third proposal, Deloitte offers to help Eskom with its close consolidate report and its planning, budgeting and forecasting activities; this was sent in May 2016.

In June 2016 Deloitte sent its fourth proposal, in terms of which it would assist Eskom in implementing the SAP ‘Hana’ (high-performance analytic appliance) for its business intelligence platform.

The last proposal was submitted on June 15 and related to assisting Eskom in setting up a new role and function of Group Capital Integration and Assurance (GCIA). This proposal was accompanied by a letter sent by Sivasanker to Govender two days earlier.

In September, Govender was promoted to the newly created position of general manager of GCIA by Singh.

Curiouser and curiouser 

Mabuza states that nothing was done about the proposals until August 2016, when many of the services Deloitte put forward in its five proposals featured as services that consultants and suppliers would have to render to Eskom in the requests for quotations (RQFs) that were issued by Govender regarding the two tenders.

Not only is there a clear link between the criteria for the services that Eskom went on to procure and Deloitte’s proposals, but in its responses to Eskom’s request for quotations, Mabuza says Deloitte did not mention that it had previously sent proposals that dealt with the same items out for tender. Moreover, that its responses went on to regurgitate the contents of certain pages from those proposals.

“In effect, Mr Govender and Mr Singh permitted Deloitte not only to determine the scope of services but also how they were to be characterised, and the tenders were adjudicated on those bases,” says Mabuza.

“I submit that it is difficult to conceive of a process that could in substance be less fair, equitable, transparent or competitive,” he adds.

McKinsey

The unfairness may also extend to Deloitte making use of work by McKinsey.

McKinsey was one of the tenderers but its bid was not evaluated, allegedly because it missed the deadline of September 15, 2016.

Outside of creating a process that seemed to have a predetermined outcome to not only ensure that Deloitte won the tenders but also “benefitted handsomely”, Mabuza states that proposals that were sent by McKinsey to Govender appear to have been forwarded to Deloitte.

This specifically refers to the RMO Corporate Plan that McKinsey emailed to Govender on April 1, 2016.

There is no record to show that this document was forwarded to Deloitte, but, says Mabuza, the company’s quotation for one of the tenders “has elements contained in McKinsey’s proposal and in some areas uses the same wording”.

Where there is clear proof of Govender sending McKinsey’s documents to Deloitte relates to a document where the consultancy firm included its GCIA operating model.

“Surprisingly, Mr Govender forwarded the same email and attachment to Mr Sivasanker on the day after, with the following note: ‘As discussed’,” says Mabuza.

Deloitte’s proposal on the GCIA is also similar to McKinsey’s proposal.

Deloitte comment 

In response to questions on Tuesday Deloitte disputed the allegations made by Eskom, adding that it welcomed the opportunity to put its version of events before a court of law.

Deloitte Consulting has been engaging in good faith with Eskom on this matter for some time now in order to assist Eskom to understand the processes followed and the value that Deloitte Consulting has delivered to Eskom,” it said

“Our legal team is currently studying the Eskom legal documents in order to prepare our legal response.”

McKinsey could not be reached for comment.

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