Blackhead ended up raking in hundreds of millions of rands thanks to contracts from the Gauteng housing department, which included those it had received as part of the panel of PRTs, as well as work it had secured at an earlier stage. According to an article in Sunday World in 2015, Blackhead won contracts worth nearly R700 million to build low-cost houses all over Gauteng. Thanks to these deals, Sodi became a very wealthy man, and he certainly knew how to enjoy his riches.
The Sunday World article listed a Rolls-Royce Wraith, a Lamborghini, a Ferrari, a McLaren, a BMW X6 and an Aston Martin as being among the tenderpreneur’s four-wheeled indulgences. 9
Several sources familiar with Sodi told me that his company’s lucrative involvement with the Gauteng housing department was a result of his close relationship with Nomvula Mokonyane, who served as premier of Gauteng from 2009 until 2014, when she became national minister for water and sanitation. Mokonyane’s stint in this department, which lasted until January 2018, has been the subject of countless news reports about dodgy deals involving contractors linked to her.
Sodi apparently continued to benefit from his alleged relationship with Mokonyane after she became minister. In 2016, City Press reported on a R500-million contract that Blackhead Consulting secured from the Department of Water and Sanitation for work on a dam near Tzaneen
in Limpopo. Sodi and Mokonyane were ‘allegedly close friends’, the newspaper reported. 10 In 2017, the auditor-general classified at least one of Blackhead’s contracts from Mokonyane’s department as irregular. 11 Sodi said any claims that his company had scored contracts because of his alleged friendship with Mokonyane were ‘without substance’.
Meanwhile, Blackhead’s appointment to the Gauteng Department of Human Settlements’ panel of PRTs put it on a path that led straight to the coffers of the Free State provincial government. Presumably having set his sights on that province, Sodi probably knew that he would need someone with good connections in the Free State if he were to clinch contracts there. Igo Mpambani, the Welkom local whose Beach on the Track parties and other business dealings had given him access to the province’s social and political circles, must have seemed like the perfect fit.
A shareholders’ agreement between Sodi’s Blackhead Consulting and Mpambani’s 605 Consulting Solutions highlights the value that the latter’s political connections in the Free State and other provinces brought to the table. ‘It is recorded that Ignatius Mpambani has an existing relationship with the provincial governments of the Free State, Northern Cape, North-West and Eastern Cape. 605 Consulting hereby undertakes to procure contracts in relation to consulting engineering and project management from the various clients,’ reads the agreement.
The fact that Mpambani could allegedly ‘procure’ government contracts is a glaring red flag.
A letter from Sodi’s lawyer to Mpambani, sent in September 2016
after the two men had an almost inevitable falling-out over the Free State asbestos auditing contract, further elaborated on Mpambani’s
expected role in the whole affair, summarising the joint-venture agreement between their companies as follows: ‘Blackhead
[Consulting] and Diamond [Hill] would jointly submit a tender in respect of the asbestos eradication programme – Free State …
Diamond [Hill] would attend to all necessary tasks in order to maximize Blackhead’s opportunity of being appointed as a service provider.’ That the document does not elaborate on the ‘necessary tasks’ Mpambani was expected to perform is another red flag.
The paper trail of Sodi’s and Mpambani’s efforts to secure the R255-million asbestos auditing contract from the Free State provincial government leads back to May 2014, when a letter bearing the logos of Blackhead Consulting and Diamond Hill Trading 71 landed in the Free State Department of Human Settlements’ mailbox. It was a formal request from the companies to be appointed by the department for the
‘assessment [and] audit of houses roofed using asbestos material’, and, following the completion of the audit, the ‘handling and disposal of asbestos sheets to an approved, designated disposal site’. 12
According to the letter, Blackhead and Diamond Hill intended to form a joint-venture entity for the project. They put forward some good arguments for why the department should appoint them. ‘An informal study in the Free State province has indicated that the asbestos sheets in a large number of old township houses have deteriorated to great extents with cracks and breakages that most likely release dust particles into the air which is the very cause of asbestos associated diseases,’ read the proposal. For its ‘door-to-door assessment’ of houses with asbestos roofs, Blackhead and Diamond Hill would charge the department R1 350 per house. They would then charge a further R32 760 per house once the project reached the ‘removal and disposal’
phase. All of this would be undertaken on a ‘risk basis’, meaning the FSHS would not need to pay a cent. ‘Diamond Hill/Blackhead Consulting will identify and secure funds on behalf of the Free State Provincial Government for the above costs,’ according to the letter. No indication is given of where Sodi and Mpambani intended to source the money.
To avoid having to go through a time-consuming tender process, the parties involved made use of a loophole in the legislation that governs the state’s procurement of goods and services. The Public Finance Management Act (PFMA) stipulates that organs of state must appoint contractors through ‘a system which is fair, equitable, transparent, competitive and cost-effective’. This includes running open and competitive tender processes whenever state bodies need to appoint new service providers or suppliers. The Treasury Regulations of 2001, which apply to the PFMA, however, provide for a variety of circumstances under which government entities or departments may deviate from an open and competitive bidding process.
Treasury Regulation 16A6.6, for instance, states: ‘The accounting officer or accounting authority may, on behalf of the department …
participate in any contract arranged by means of a competitive bidding process by any other organ of state, subject to the written approval of such organ of state and the relevant contractors.’ The clause effectively allows one government body to piggyback on the tender process of another. For example, the transport department would technically be allowed to use the services of a company that has already been appointed through a competitive bidding process by the public works department. The provision has since been fine-tuned by the courts, which have found that the goods or services must be the same, as must
the contract price. 13 What this means is that, without a bidding process, the transport department now cannot appoint company X to supply it with computers worth R100 million on the back of a tender granted by the public works department for toilet paper worth R1
million. In this hypothetical scenario, both the price and the type of the goods vary too greatly to qualify for a deviation from the PFMA.
The FSHS made use of Treasury Regulation 16A6.6 to appoint the joint venture between Blackhead and Diamond Hill. In July 2014, FSHS HOD Tim Mokhesi wrote a letter to Margaret-Ann Diedricks, who was acting HOD in Gauteng’s human settlements department, seeking her approval for the appointment of the Blackhead/Diamond Hill joint venture by his department in line with Treasury Regulation 16A6.6. 14 (More than one source has described Mokhesi, whom we met in previous chapters, as Ace Magashule’s henchman in the FSHS.) Diedricks, who would be redeployed to the national Department of Water and Sanitation as director-general later that year after being
‘headhunted’ by Nomvula Mokonyane, 15 wasted no time writing back to Mokhesi: ‘I hereby confirm my decision taken on 21 July 2014 that the Gauteng Department of Human Settlements granted approval in terms of Treasury Regulation 16A6.6 for the Free State Department of Human Settlements to participate in the contract arranged by means of a competitive bidding process from the database of the Gauteng Department of Human Settlements for Professional Resource Teams where Blackhead Consulting (Pty) Ltd was appointed from. ’16
Thabane Zulu, director-general in the national department, wrote a letter to Mokhesi a few weeks later in which he confirmed Diedricks’s decision: the FSHS could appoint Blackhead without a tender process, based on the company’s earlier appointment in Gauteng. 17 Zulu,
coincidentally, also played a key role in the transferral of Shantan Reddy’s R60-million Free State IT contract to the national Department of Energy, as discussed in Chapter 15. He left the Department of Human Settlements in October 2015 to become the Department of Energy’s director general. Zulu said he was sure he had handled the transferral of the asbestos audit contract in a lawful manner. ‘In all probabilities, I would have handled the matter within the legal framework provided in law in handling a matter of this nature. I have always considered legal compliance on all matters during my period at the said department, as part of my sole responsibility as the accounting officer at the time.’
With their path now all but cleared, Sodi and Mpambani must have felt quite certain that they would secure the contract, for on 10 August 2014 they finally put pen to paper to formalise the joint-venture agreement between Blackhead and Diamond Hill. ‘The parties to this agreement will tender for the asbestos-related works jointly,’ read the signed document. 18 It was curious wording to include in the agreement, seeing as there would never be a tender process thanks to Treasury Regulation 16A6.6.
On 1 October 2014, Sodi and Mpambani received formal word of their appointment from Mokhesi. ‘After due consultation with the Department of Human Settlements – Gauteng Province and concurrent approval by Free State Provincial Treasury it is with great pleasure to announce that you have been duly appointed … as a Professional Resource Team to assist the Free State Department of Human Settlements in eradicating asbestos in the Free State province,’ read the HOD’s letter. ‘The department wishes to advise that your company has been exclusively appointed for the audit and assessment of asbestos,
handling of hazardous material, removal and disposal of asbestos-contaminated rubble and replacement with SABS approved materials in the Free State Province.’ As an appointment by a government entity is confirmation that the state will pay, it now appeared that the Free State would foot the bill for the project, despite earlier promises from Sodi and Mpambani that they would source funding.
Mokhesi next had his department enter into a service level agreement with Blackhead and Diamond Hill. Finally, in December 2014, Sodi and Mpambani received an IPW document signed by Mokhesi, in which they were instructed to ‘audit, assess and GPS all pre-1994
government housing units in the province at a rate of R850 vat exclusive per unit up to a maximum of 300 000 units (R255m vat exclusive, hereinafter to be referred to as the total project cost)’. There must have been negotiations between the parties after the initial proposal for Diamond Hill and Blackhead to be paid R850 per house as opposed to the R1 350 they had requested. In the greater scheme of things, this would turn out to be a near negligible victory for taxpayers.
A senior FSHS official explained to me why the structure of the deal amounted to a gigantic rip-off: ‘The audit was not necessary in the first place, but let’s say it had to be done. Why did we agree to pay them
[the Blackhead–Diamond Hill joint venture] for a fixed number of houses that they were going to assess? They should only have been paid for the ones where they identified asbestos roofs, not each one they looked at. The fact that they were going to get paid for a predetermined number of houses tells me these guys had come up with R255 million as the target amount for this scam.’
Besides this obvious issue, there were several other problems with the contract and the way in which it was obtained. Firstly, it is always
concerning when companies submit unsolicited requests for work to government. This is exactly what Mpambani and Sodi did when they first wrote to the FSHS in May 2014. It was through similar uninvited approaches that the Gupta-linked consultancy firm McKinsey and its local partners, first Regiments and then Trillian, bagged multibillion-rand advisory contracts from Eskom. 19
Secondly, there is the IPW signed by Mokhesi. In this document, the FSHS agreed to pay R51 million ‘on commencement’ of the project. 20
In other words, Blackhead and Diamond Hill were due to receive a large amount of money up front, long before they submitted anything of value to the department. South Africa has a long history of such problematic upfront payments made to politically connected contractors. For example, in 2016 Eskom made a ‘prepayment’ of just under R660 million to Tegeta Exploration and Resources, one of the Gupta family’s mining entities. Then public protector Thuli Madonsela found that the transaction may have amounted to fraud, 21 and a National Treasury report released in November 2018 called for criminal investigations into this and other matters involving the Guptas and the state-owned power utility. 22
The manner in which Mpambani and Sodi received the IPW is also suspicious. Emails contained in the IgoFiles show that John Matlakala, a director in the FSHS’s supply-chain management division, emailed the IPW from his work account to his private Gmail account on 3
December 2015. He then forwarded the document from his Gmail to Mpambani and Sodi about ten minutes later, cc’ing Mokhesi’s private Yahoo account on the email. It would appear that Matlakala wanted to avoid leaving any trace of communication between him, Mpambani and Sodi on the department’s server. Department insiders describe
Matlakala as being ‘very close’ to Mokhesi and Magashule. The FSHS
said there was nothing sinister about the fact that Mokhesi and the other officials used private email accounts. ‘At the time, the department had problems with the [IT] network, making it difficult to send emails, hence we tended to use Gmail or other private emails.’ Curiously, Matlakala had seemingly not experienced any such difficulties when he sent the IPW from his work account to his private email.
A third problem is encountered when comparing Blackhead’s contract in Gauteng to the one in the Free State. As mentioned earlier, a deviation from the PFMA in terms of Treasury Regulation 16A6.6
requires that the contract price be more or less the same. I managed to find an IPW from the Gauteng department that confirms Blackhead was appointed for a ‘specialist study’ on asbestos roofs in the Ekurhuleni metro municipality in March 2014. But this project had a value of only R148 million, R107 million less than the Free State contract.
The fourth major problem is that in Gauteng, the asbestos contract related to the appointment of Blackhead Consulting only. For the Free State contract, Blackhead had teamed up with a new player, namely Mpambani’s Diamond Hill. There is no mention in the Treasury Regulations that it is permissible for a government department to appoint a completely new corporate structure, in this case a joint venture between two companies, when invoking Regulation 16A6.6. In this regard, the FSHS had the following to say: ‘Blackhead was the lead contractor with Diamond Hill as a supporting partner. However, the substance of the service had not changed with the inclusion of Diamond Hill.’ The documents I obtained pointed to the contrary. As far as the contract was concerned, Diamond Hill and Blackhead were
clearly equal partners in a joint venture. What’s more, the joint venture’s fees from the FSHS would be paid into a bank account controlled by Diamond Hill’s Mpambani and not by Blackhead or Sodi, as we will come to see.
The fifth and biggest problem with the contract was just how much money Blackhead and Diamond Hill were set to make. The formal letter of appointment and the subsequent service level agreement indicated that the joint venture was appointed not only for the audit and assessment of asbestos roofs, but also for the subsequent handling, removal and disposal of the asbestos-contaminated sheets, as well as their replacement with ‘SABS approved materials’. Recall that in their unsolicited request for the work, Blackhead and Diamond Hill indicated that they would charge R32 760 per house once the project reached the ‘removal and disposal’ phase. The eventual asbestos audit report found that 36 303 houses o
ut of the 300 000 assessed had asbestos roofs. The joint venture therefore had the potential to make another R1.2 billion from the contract. Together with the R255 million for the audit and assessment, Blackhead and Diamond Hill stood to clinch contracts worth more than R1.4 billion without ever submitting a tender.
While it never got that far, I do not doubt for a second that those involved in the scheme intended to drain the full amount from the department. In the IPW received in December 2014, the instruction to perform the audit and assessment work is given as ‘IPW 001’ and is referred to as ‘phase 1’. It seems quite reasonable to infer that ‘IPW
002’ or ‘phase 2’, namely the removal and replacement of the asbestos sheets, would have followed.
In early 2015, the Democratic Alliance in the Free State learnt about
the R255-million asbestos auditing contract and subsequently launched court proceedings to halt what it viewed as a flagrant heist of state resources. It was probably this scrutiny that prevented the roll-out of the scheme’s even more lucrative second phase.
Finally, the sequence in which Mokhesi and the FSHS sent key documents to the joint venture raises further suspicion. In early 2015, Blackhead–Diamond Hill submitted the final audit report to the FSHS.
In the report, they indicated that they had ‘commenced with the audit from the 17th of November 2014’. Yet Mokhesi only signed the IPW
on 2 December, which in any case stated that the ‘commencement period for the appointment will be effective from 01 December 2014’. 23
This meant that Blackhead and Diamond Hill had begun work on the asbestos audit two weeks before they received the instruction from the department to commence with the project.
Most professionals, civil servants and politicians in South Africa take a break between the end of December and the first weeks of January, but those involved in what became the asbestos heist were especially busy during the holiday period of late 2014 and early 2015.
Gangster State Page 27
