Transnet chair must explain McKinsey deal – Zondo

Deputy Chief Justice Raymond Zondo wants the chair of Transnet’s cross-functional evaluation team (CFET) to account before the Commission of Inquiry into State Capture on why international consulting firm McKinsey was awarded a contract by the freight and rail giant without submitting audited financial statements as required.

This followed a revelation during attorney Tshiamo Sedumedi’s testimony at the commission yesterday that McKinsey was awarded a multimillion-rand contract as transaction advisors by Transnet in 2014 without them including audited financial statements in the bid document.

Sedumedi is a director at law firm MNS attorneys in Johannesburg. He said McKinsey was awarded the contract “despite the company’s bid document not complying with bid requirements”.

“The purpose of submitting audited financial statements is to assess the financial stability of bidders.”

Zondo said: “It is strange that the cross functional evaluation team did not pick up that Mckinsey did not submit the audited financial statements. The chairperson of that committee [CFET] may have to be called to account for the omissions in the McKinsey bid document.”

According to Sedumedi, MNS Attorneys report also raised questions on the unlawful appointment of Gupta-linked Regiments Capital as McKinsey consortium partner, replacing Letsema.

“Letsema played an integral role in the McKinsey consortium and it was replaced with Regiments Capital. We found that this was despite necessary assessment of the capabilities of Regiments not having been done,” he said.

The appointment of Regiments, said Sedumedi, was “not only unlawful but inconsistent with the constitution. It [the appointment] was also irregular and failed to comply with the Transnet procurement manual.”

The inclusion of Regiments Capital in the McKinsey consortium saw a substantial spiralling in the value of the contract. Sedumedi said on:

• February 4, 2014, Transnet and Regiments Capital concluded an agreement purporting to extend the scope of the contract in a letter of intent, which was concluded between Transnet and McKinsey, with the contract value increasing from R35.2 million to R41.2 million; and
• July 16, 2015, Transnet and Regiments Capital concluded a second addendum to the master services agreement. This second addendum further changed the scope of services, remuneration model and the duration of the master services agreement – leading to the contract ballooning to R265.5 million.
• The appointment of McKinsey by Transnet saw the consulting company emerging successful over bids presented by three consortiums led by Johannesburg-based law firm Webber Wentzel Attorneys and audit, tax and advisory services companies PricewaterhouseCoopers and KPMG.

Hearings into the capture of Transnet continue.

This article was updated on Thursday evening to reflect a correction that McKinsey withdrew from advising on the procurement of the 1064 locomotives in February 2014.

The McKinsey master services agreement (MSA) of February 2014 had no connection to the separate matter of an agreement in April 2014 between Transnet and Regiments to increase the fee to Regiments.

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