Net1 fights to keep grant contract

ANN CROTTY | 09 November, 2014 00:06

PLANS to reissue a government tender to distribute R120-billion a year in social grants have been thrown into disarray by this week's Constitutional Court challenge by Net1 subsidiary Cash Paymaster Services (CPS).

Just 10 days after the SA Social Security Agency (Sassa) briefing session with parties interested in bidding for the new tender, CPS has lodged a challenge with the Constitutional Court.

The proposed new system required by a previous ruling of the Constitutional Court aims to close loopholes that have allowed various service providers to deduct payments from grant recipients as soon as the grants are deposited into the Sassa-branded bank accounts.

The new grant distributor will - for a set fee of R14.50 a month per recipient - be required to provide an extensive range of free banking services to the 10million or so recipients. These free services include one deposit a month, three withdrawals a month, three enquiries a month and no interbank or interchange fees.

CPS, which currently distributes the grants in terms of a tender ruled invalid by the Constitutional Court earlier this year, would not comment on its legal action, but referred to a Stock Exchange News Service announcement issued on Friday by its holding company Net 1 UEPS Technologies.

The announcement, which deals with Net1's latest quarterly results, notes merely that it intends to participate in the new tender. On Friday, Sassa confirmed that it had received legal papers from CPS.

In court papers, CPS claims that the distribution system now being proposed by Sassa is contrary to existing banking regulations. It also alleges that Sassa has not provided sufficient safeguards to ensure a smooth handover - required in terms of the Constitutional Court's ruling - to the winner of the new tender.

Sassa's proposal requires that grants are paid directly into a bank account for each recipient and that they are not routed through a central sorting system. CPS alleges this contravenes South Africa's banking regulations, which require all payments to go through a centralised system.

Ironically, the current distribution system being used by CPS pays grants directly into bank accounts. While CPS now admits this illegality, it contends that changing it to bring it into line with the law would disrupt the grant payment process.

The Constitutional Court ruled that as the tender awarded to CPS was invalid the tender process must be rerun.

The court also required that there should be no disruption to grant payments during the rerunning of the tender.

Legal sources said this week that whether or not CPS's legal action delayed the tender process would depend on how interventionist the Constitutional Court was. Ahead of the legal action, Sassa's timeline would see a new distributor take over grant payments in the fourth quarter of next year. This would be just one year short of the expiry of the original invalid CPS contract.
The contract, which was won by CPS in 2012, was originally intended to run for five years. It is worth R2-billion a year for CPS.

One legal source, who did not want to be named, said that given its previous stance it was possible that the Constitutional Court would pursue an interventionist stance. "It was very critical of CPS and Sassa when it gave its ruling."

Lynette Maart, the executive director of the Black Sash, said the new RFP bid document provided for better synergy between the social security constitutional mandate, the relevant laws and regulations, the outsourced contract and the accompanying technical banking system.

She said that in the past two years the Black Sash and its community and strategic partners had played a key role in making the government aware of the enormous hardship caused by pervasive unlawful, fraudulent and immoral deductions from Sassa-branded bank accounts. "We will continue to work for a permanent solution to halt these deductions and for grant beneficiaries to secure recourse," she said.

"We've seen too many gogos and other social grant recipients ending up with just R1.20 of their monthly grants after so-called financial service providers have made their deductions."

Sarah Sephton, the regional director of the Legal Resources Centre in Grahamstown, said the RFP document looked good but she was concerned about possible interruptions to delivery of grants during the handover period. "The document doesn't make clear how this will be avoided. To a great extent CPS will be required to ensure there is a smooth handover."