Usually, investors pay attention. Those who own Net1 shares, which are listed on the JSE and Nasdaq, appear to be focusing elsewhere. The company’s shares had risen 55% in the past year as investors shrugged off a two and a half year court challenge against its lucrative R10bn contract to supply the SA Government’s Social Grants. Today the stock price fell 26%, albeit on small volume, after the highest court in the land ruled that there were sufficient irregularities for the existing contract to be terminated and a fresh tender held. In this CNBC Africa interview, Attorney Anthony Norton whose client, banking group Absa, fought the case all the way to the Supreme Court, explains what it all means. – AH
ALEC HOGG: We’ll get back to the ICT story in just a little while, but we have some breaking news now. The Constitutional Court ruled that a new tender process must be conducted in the grant case involving in Net One, UEPS (it used to be called Apitech) and the banking group Absa. Anthony Norton from Norton’s joins us on the line. Anthony, you were representing Absa in this case. In real layman’s terms, we’re becoming a lot more familiar as South Africans, with what happens in the courts, but what happened in this case?
ANTHONY NORTON: Well, this has been a bit of a long running saga, which went all the way from the High Court, to the Supreme Court, and now ultimately, to the Constitutional Court. What it was really in essence about, was a review of SASSA’s decision to award the R10bn social grants tender to CPS. Ultimately, the Constitutional Court found last year that the award of the social grant tender to CPS was irregular and unlawful. Today’s judgment was what was an appropriate remedy under the circumstances, and what the court did was to order a fresh tender process and it told SASSA that it must initiate a new process within 30 days of today’s order, and that the new tender must be for a period of five years.
ALEC HOGG: In other words, Net One has lost its biggest bit of business.
ANTHONY NORTON: Well, not really. What the court said is, ‘to avoid any disruption to social grant payments, the contract will remain in place for the time being until a new tender process has been conducted. Once the new tender process has been conducted, SASSA will then take a decision as to whether to award a new tender. If it did take a decision at that stage to award a new tender, and the party to whom it was going to award the new tender was not CPS, then clearly the contract would change’. However, for the time being, that contract remains in place in order to avoid disruption of social grant payments.
ALEC HOGG: How long could it last for – this temporary period during which Net One has the tender?
ANTHONY NORTON: Well, the court has essentially ensured that the new tender process must be initiated within 30 days, so within a month of today’s order, a new tender process must be initiated by SASSA. The court hasn’t described exactly how long that will take, but obviously, that must be done within a reasonably quick duration. I think we’re talking a couple of months for a new tender process to be initiated and completed. SASSA will then need to report back to the court about the outcome of the tender process.
ALEC HOGG: The stock market is usually very smart about these things. Net One’s share price is up 50 percent in the past year. There’s somebody betting somewhere that they’re not going to lose it.
ANTHONY NORTON: It’s difficult for me to comment on practicalities like this. I think what the court was at pains to ensure today, was that there’s going to be a fair and transparent new tender process going forward. Obviously, the expectation is that the most competitive and efficient tender will ultimately win. It’s obviously difficult for me to comment on who that will be, but I think that’s clearly what the courts ultimate intention is.
ALEC HOGG: What were these irregularities?
ANTHONY NORTON: Well, I think there were a couple. The first one was that the tender criteria was not clear. When SASSA specified the tender criteria, it didn’t make it clear to all of the bidders exactly what it required in terms of the tender specifications. That was obviously a primary issue. The second major irregularity was the CPS’s black empowerment partners were never assessed by SASSA, so although it was indicated that they would take over some of their operational aspects of the tender, SASSA never evaluated their ability to do so. Those are the two primary irregularities, which the court identified.
ALEC HOGG: So it isn’t bribery and corruption, as one might jump to that conclusion.
ANTHONY NORTON: Correct. There were no findings by the court of bribery and corruption, but clearly, the court found that the irregularities identified were sufficiently serious to mitigate the tender process and to ensure that a new tender process should be conducted.
ALEC HOGG: Obviously, your client – Absa – must be pretty confident that they’d have a good go at getting the tender next time around. Why else would they go through so much trouble?
ANTHONY NORTON: Well, I think it was based on two issues. Obviously, from a commercial point of view, they do feel they have a very good offering and that they have good prospects of getting a new tender. I think there’s also a more important principle issue in this case, which was that it was very important in the context – particularly of very large public procurement tenders of this type – that fair and lawful tender processes are followed. If major institutions in this country like Absa and Allpay, don’t ensure that lawful processes are followed, that sets a very bad precedent going forward. I therefore think there was a very important issue of principle for the future state of public procurement in this country, which was at stake in this case.
ALEC HOGG: Indeed, but shareholders don’t really care that much about principles. They care about the bottom line, and I’m sure that’s what motivated Absa more. Anthony, in closing, how long have they been fighting this in court and what might it have cost those parties?
ANTHONY NORTON: Well, this case has been running for over two-and-a-half years through three courts at considerable legal expenditure I think, on all sides, in order to get to today’s court decision.
ALEC HOGG: Millions or tens of millions?
ANTHONY NORTON: Millions is, I think, a fair reflection.
ALEC HOGG: Anthony Norton, Founder and Director of Norton’s.
