Government ineptitude impacts the most vulnerable (Social Grants Case)
Black Sash Trust v Minister of Social Development and Others (2017)
Should the Constitutional Court validate an unlawful contract to ensure that 17 million people receive their social grants?
Background
In two previous judgments, in 2013 and 2014 respectively, the Constitutional Court had invalidated the biggest tender contract in South Africa’s history between the South African Social Security Agency (SASSA) and the private party tasked with distributing social grants on its behalf, Cash Paymaster Services (CPS) (Pty) Ltd, due to a number of irregularities in the tender process.
The Constitutional Court suspended the invalidity of the unlawful contract until 31 March 2017 to provide SASSA with an opportunity to rerun a clean tender process or to take over the payment of social grants itself. SASSA was ordered to report to the Court at every step of the new tender process to ensure that it met its deadline.
In November 2015, SASSA reported to the Constitutional Court that it had decided not to award a new tender, and that it would itself take over the payment of social grants. On accepting this assurance, the Constitutional Court discharged its supervisory role over the matter.
By April 2016, the responsible functionaries at SASSA had been aware that they could not comply with their undertaking to the Court to pay social grants from 1 April 2017. Despite advice from CPS and other partners, neither SASSA nor the Minister of Social Development, Bathabile Dlamini, took steps to inform the Court of the problems they were experiencing.
At the time of the expiry of the CPS contract on 31 March 2017, the country was confronted with a potential disaster where SASSA was unable to fulfil its constitutional obligation of providing social assistance to 17 million beneficiaries who depended on social grants to live. In order to get itself out of this predicament, SASSA wanted to enter into a new contract with CPS without a competitive tender process as required by the Constitution.
Path to the Constitutional Court
In March 2017, when it became apparent that SASSA would be unable to pay social grants, the Black Sash and Freedom Under Law filed an urgent application with the Constitutional Court. The Court was placed in a tenuous position. It had to decide whether, in order to ensure that 17 million people did not go without the social grants, it should approve an extension of the contract between SASSA and CPS. This contract was concluded under unconstitutional circumstances as the Constitution requires that SASSA should have followed a fair tender process to appoint a service provider.
Some of the Arguments
Black Sash Trust / Freedom Under Law
In light of the soon-to-expire contract between SASSA and CPS which would mean social grants would not be paid unless they conclude an interim contract, the Black Sash and Freedom Under Law argued that:
- The details of the negotiations and conclusion of the interim contract between SASSA and CPS be disclosed to the Court;
- CPS is under a duty to act reasonably in negotiating the interim contract with SASSA;
- The interim contract must contain adequate safeguards for various aspects of the personal privacy, dignity and autonomy of grant beneficiaries;
- The Minister and SASSA must file continuous reports with the Court on the steps taken and to be taken to ensure that payment of social grants is made; and
- CPS must file with the Court an audited statement of expenses, income, and net profit earned under the interim contract.
Minister of Social Development / South African Social Security Agency (Sassa)
The Minister and SASSA did not oppose the intervention of the Black Sash and Freedom Under Law, but did oppose the extent of the disclosure of documentary information required, as well as a request for the Court to determine, in advance, the terms of the price and duration on which SASSA and CPS may contract with each other. Similarly, CPS did not object to the intervention of the parties, but also objected to the extent of the disclosure sought and the imposition of contractual terms by the Court.
What did the Constitutional Court decide?
In a judgment handed down expeditiously on 17 March 2017, the Court put an end to months of uncertainty about the payment of social grants after the contract with CPS expired on 31 March. It ruled that CPS must continue to pay social grants on behalf of SASSA for another year – at the same price.
The Court took over supervision of the matter, ordering Minister Bathabile Dlamini and SASSA to report to the Court every three months on progress with SASSA’s plans to take over the payment system itself, or to hand it over to other contractors within a year. The Court stated that its supervisory role was not one of its own choosing. It followed “from the failure of SASSA and the Minister to keep their promise to this Court and the people of South Africa”. The Court also ordered SASSA to develop and roll out a plan for the future payment of grants post March 2018.
On the question of profits from the social grant payment system over the next year, the judges ruled that CPS must file full accounts with SASSA, and that SASSA must in turn file these with the National Treasury. CPS also had to give SASSA’s auditors “full and unfettered access” to its books. The Court found that CPS had no right to benefit from “unlawful” contracts and would have to pay back profits made from the contracts with SASSA. The judgment was scathing about SASSA and Minister Dlamini, and ordered her to show why she should not pay the legal costs of the Black Sash and Freedom Under Law for the application from her own pocket.
Impact and Significance
Freedom Under Law said that the ruling was “a victory not only for grant beneficiaries but for all South Africans”.
We’re pleased that the Court only extended the period of the contract at its existing rate and conditions. It’s a real celebration of the judiciary … It’s a good day in our office. But it was a pity the judiciary had been called to intervene in a matter which should have been handled by the executive.
David Lewis
Corruption Watch Director
The Constitutional Court invoked its powers in terms of section 38 of the Superior Courts Act, and appointed Judge Ngoepe to inquire and report on the debacle at SASSA. The Ngoepe Inquiry was significant as it forced a political head of government, the Minister of Social Development, to appear in public to testify. Secondly, it heavily influenced the Constitutional Court’s decision that Minister Dlamini was personally liable for 20% of the costs of the court case against SASSA.
In February 2018, Minister Dlamini was removed as Minister of Social Development and appointed as the Minister of Women in the Presidency. The contract between CPS and SASSA came to an end as ordered by the Constitutional Court on 31 March 2018. Without the SASSA contract, CPS has reported major financial losses.
The Constitutional Court had held that CPS had no right to benefit from “unlawful” contracts with SASSA. Freedom Under Law asked the Constitutional Court to order CPS to provide auditors with verification of its profits made from the contracts with SASSA. On behalf of CPS, accounting firms KPMG and Mazars concluded that CPS made profits of about R252 million in the period from April 2012 to September 2018. However, Freedom Under Law’s own investigations revealed that CPS had understated its profits by a massive R843 million for the period. Freedom Under Law has asked that once a new report on the profits has been approved by the National Treasury, that CPS be ordered to pay back all the profits made from the contracts. It has been reported that CPS will have to pay close to R1 billion in profits back to SASSA. However, CPS claims that it is bankrupt.
