Chris Spillane

TELKOM awarded a R91.1 million advisory contract to Bain last year without following an open bidding process, according to a document seen by Bloomberg News.

The March 24 letter, a response by Telkom deputy information officer Anton Klopper to a request under the Promotion of Access to Information Act, showed there was no record of a published or archived competitive process that led to the selection of Bain, the Boston-based management consulting firm.

Companies that count the government as a shareholder should procure goods and services in a process “that is fair, transparent, equitable, competitive and cost effective” to comply with the Public Finance Management Act (PFMA), according to Claire Barclay, a Johannesburg-based lawyer at DLA Cliffe Dekker Hofmeyr. Telkom, about 40 percent owned by the government, would fall under that category, she said.

Pynee Chetty, a Telkom spokesman, declined to comment on contractual arrangements with the company’s suppliers. Cheryl Krauss, a spokeswoman for Bain in New York, was not available for comment.

Chief executive Sipho Maseko hired Bain to advise on Telkom’s broadband and mobile strategy as he sought to stem years of sliding sales amid shrinking demand for landline services. Bain had been picked within days of the chief executive’s arrival at Telkom in April last year, Maseko said during an interview in December last year.

Maseko had cancelled an engagement to speak to business people at the Rand Club in Johannesburg last night to attend a meeting with chairman Jabu Mabuza, according to Chetty. Maseko was not available to comment for the story. Klopper declined to comment on the letter.

Telkom belongs to “Schedule 2” public entities alongside other partially or fully state-owned companies such as SAA and Eskom. Schedule 2 companies are obliged to comply with the PFMA when awarding tenders, according to Barclay.

“The fact that Telkom is the only listed company on the JSE which is listed in Schedule 2 to the PFMA, unfairly distinguishes Telkom from other public listed companies and materially prejudices its ability to compete for capital and business in the open market,” Chetty said.

Telkom shares rose 0.8 percent to close at R49.72 on the JSE yesterday. The stock has gained 78 percent this year, giving the carrier a market value of about R25.7 billion.

Maseko had regularly visited Bain’s Johannesburg offices in the 10-month period between leaving his previous employer, Vodacom Group, and joining Telkom, the chief executive said in December, noting that he had also had meetings with McKinsey, Boston Consulting Group, Accenture and Delta Partners.

Maseko did not seek formal proposals from other consultancy firms, according to people with knowledge of the matter. They asked not to be named because the deliberations were private.

“Single sourcing will only be justified if practically no one else can perform a service except the appointed contractor. Otherwise, the constitutional requirement is clear on competitiveness,” Barclay said yesterday.

Recent tenders Telkom has conducted include contracts for video-on-demand and audit services, according to the company’s website. – Bloomberg