Home Affairs blows R432 million on undelivered population register system

The Department of Home Affairs has blown R432 million on a new population register system that went undelivered, City Press reports. Warranties and licences of the supporting hardware and software have reportedly expired.

In 2017, Home Affairs appointed ICT firm EOH Holdings to develop two T3 data centres with all equipment, a commercial off-the-shelf solution and the related services to develop interfaces and migrate data from the Home Affairs National Information System (Hanis) to a new data store.

Hanis holds the fingerprint records and facial image records for all persons residing within South Africa, including citizens, permanent residency holders, other residency permit holders, refugees, contract workers and persons detained due to residing illegally within South Africa.

An upgraded version of the system is meant to serve as a single source of identification for the DHA and the police.

Home Affairs and the State Information Technology Agency (Sita) awarded the contract.

The work was supposed to be completed by November 2018, but was not delivered on time.

EOH group chief risk officer Fatima Newman told MyBroadband that the project was “unfortunately delayed for a number of reasons”.

Newman could not elaborate on the reasons, as there was an ongoing arbitration process to resolve the disputed issues on the contract between EOH and the department.

However, EOH had procured and built two data centres as contracted.

“In addition, all contracted interfaces have been built and unit testing has been completed,” Newman said.

“To date, EOH has successfully delivered 51 of the 60 contracted milestones for phase 1 of the Project, which have been signed off and accepted by the department.”

EOH was paid R282 million for the completion of these milestones.

EOH headline

The Auditor-General found that the initial awarding of the tender to EOH was suspicious and said the department must investigate it.

Nexia SAB&T was appointed and discovered that EOH and Sita officials had allegedly engineered an unlawful scheme to ensure EOH would land the contract.

Newman said EOH had cooperated fully with the investigation in this regard, which was included in its Parliamentary report.

In light of the investigation’s findings and to avoid further delays, EOH ceded Phase 2 of the contract to French-owned multinational technology company Idemia, which the department paid over R150 million in April 2021. It gave Idemia six months to complete the work.

Notably, Idemia was the same company initially subcontracted under EOH to do the work. To date, it has not delivered on the project.

Citing sources, City Press reported that Home Affairs minister Aaron Motsoaledi was fuming that the issue had not been resolved and had ordered the department’s legal teams to instigate proceeding to recoup the amounts paid to EOH and Idemia.

The department is also facing litigation from EOH and losing tender bidder NEC XON over the contract.

EOH is demanding the department pay an outstanding balance of R128 million with interest for the 51 of 60 contracted milestones of the project it had completed.

“DHA and EOH are currently resolving the dispute relating to the delays in the project through arbitration proceedings,” Newman said.

Factoring in the payment to Idemia, but excluding the outstanding balance claimed by EOH, Home Affairs has therefore spent R432 million on the undelivered system.

According to the original contract, EOH was supposed to be paid R410 million.

NEC XON has challenged the ceding of the contract to Idemia, which Sita also flagged after Home Affairs consented to it.

Newman told MyBroadband that the ceding of the project had the required legislated approvals.

“As part of EOH’s commitment to deal with the past appropriately, EOH ensured the cession remains within the original budgeted expense and that the hand over is managed appropriately. This has been at EOH’s own cost,” Newman stated.

Aaron Motsoaledi, South African Minister of Home Affairs

EOH has been implicated in various corrupt dealings during the state capture era, which included charging inflated prices and over-invoicing public sector customers with the assistance of individuals within these departments and entities.

The first allegations of corruption surfaced in 2018 and early 2019, when Microsoft terminated EOH’s channel partner agreement due to the awarding of a dubious software supply contract by the Department of Defence.

However, unlike several state-owned companies, these historic sins are something which the company and its new CEO, Stephen van Coller, have admitted.

A former Absa and MTN executive, Van Coller took over EOH in September 2018 and spearheaded its turnaround.

Van Coller’s testimony about the corrupt contracts uncovered at EOH during the State Capture Inquiry was praised by the commission’s chair — Judge Raymond Zondo.

Zondo’s report commended the company’s cooperation with the commission and how it had taken a proactive approach to correct its past wrongdoings.

“There is no other company that has been of greater assistance to the commission in relation to investigations of historical wrongdoing within its ranks,” said Zondo

“It sought to explain what it has already done, and what it proposes to do, to make reparation for such wrongdoing and to prevent similar wrongdoing occurring within its ranks in the future.”

“EOH’s attitude towards the commission is illustrative of the attitude it has taken to regulatory and law enforcement authorities more generally.”

Van Coller credited

Zondo said the main credit should go towards the attitude of Van Coller.

“At the time of his appointment in 2018, he was aware of adverse media reports relating to EOH,” Zondo stated.

“His response to these reports was not to seek to negate them, but rather to investigate to establish whether they were substantiated.”

Under Van Coller, EOH reported its first operating profit since the first allegations of corruption at the company came to light.

It swung from a R1.3-billion loss in 2019/2020 to a R147 million profit in the 2020/2021 period.

More recently, it also reported operating profit for the six months ended January 2022.

Van Coller has overseen a mass departure of executives, including the company’s founders. Under him, EOH has also sold more than 80 entities over the past 30 months, radically reducing EOH’s debt.

The company is suing former directors for more than R6 billion related to alleged corruption.

Sources close to EOH recently told Bloomberg that Van Coller was considering selling the company after its return to profitability.

NEC XON and Idemia did not respond to MyBroadband’s requests for comment by the time of publication.

Now read: Former municipal manager arrested for awarding R215-million IT tender

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Home Affairs blows R432 million on undelivered population register system