Publication: Business Day Issued: Date: 2004-10-14 Reporter: Patrick Wadula

Tender-Rigging Opens Business to Risks



Business Day

Date 2004-10-14


Patrick Wadula

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Companies that fail to put in place strong systems to avert tender-rigging can expose themselves to crippling lawsuits from unsuccessful bidders who may suspect irregularities in the tender process, says Paul Fontanot, senior manager at Ernst & Young's Global Investigations & Dispute Advisory Services .

An example of such a tender was the second network operator project, which was won by the Nexus consortium.

Several months ago, Nexus chairman Kennedy Memani and his team challenged in court a decision by Communications Minister Ivy Matsepe-Casaburri to ask two companies that had been rivals, Two Consortium and CommuniTel, to put together a joint bid. The tender was subsequently revised.

Fontanot said this week that losing bidders could seek refuge in both case law and legislation if they suspected a tender process was flawed or had been tampered with in favour of certain contractors. A court case could go in favour of the losing bidder and damages paid out by the company that put out the tender, he said. Damages could amount to millions of rand or equal the value of the tender.

In a recent Appeal Court case between transport utility Transnet and losing bidder Sechaba Photscan, Fontanot said, the court awarded damages to the losing bidder.

Sechaba Photscan, the unsuccessful bidder, had sued Transnet for the value of the contract it would have received over the three-year term of the contract on the grounds that the tender process was flawed.

Sechaba was awarded R57m in compensation and the court rejected the respondents' appeal against the settlement.

"Companies and organisations should be cognisant that if the tender process was flawed and the respective individuals on the tender committee (whether they are still in the employ of the company or not) committed a fraud in order to favour one tenderer over another, there are dire consequences for the company issuing the tender offer," said Fontanot.

There were different ways of tampering with the tender process, Fontanot said, warning that the purchasing company was equally responsible if it were established that its officials had awarded a contract irregularly.

Outlining more elaborate schemes employed to influence the outcome of the tender process, Fontanot said parties could tamper with the process by bribing the contracting official to ensure only those companies he represented got to submit bids. This would deprive the purchasing company of the ability to get the best price on the contract.

Another scam, Fontanot said, was when several bidders conspired to split the contracts up and ensure that each got a certain amount of work.

"Instead of submitting confidential bids, the vendors discuss their bid proposals and ensure that each wins a share of the contract," he said.

Another method was to "solicit" bids from fictitious suppliers to justify the contract awarded.

Outlining measures to avert possible lawsuits from unsuccessful bidders, Fontanot said companies needed to review their tender processes to assess their adherence to company policies and procedures.

With acknowledgements to Patrick Wadula and the Business Day.