Orange recycling bag contract riddled with irregularities

The company that won a tender to produce millions of orange recycling bags for eThekwini Municipality was incapable of producing the product, had underquoted and regularly missed its deadlines, an investigation has found.

The company that won a tender to produce millions of orange recycling bags for eThekwini Municipality was incapable of producing the product, had underquoted and regularly missed its deadlines, an investigation has found.

Published Feb 23, 2018

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Durban - A forensic investigation into the awarding of a contract for R90 million to supply orange recycling bags to the city, has found that the tender process was fraught with irregularities. The award was made to a company which lacked experience and the technical knowledge.

The investigators' report, leaked to The Mercury, found that Persian Star Investments 11 CC  was "wrongly awarded this tender" based on misrepresentations it made in terms of its capacity to handle the massive contract.

Persian Star Investments 11 CC continuously failed to meet its end of the deal, resulting in the city running out of these bags.

Introduced a decade ago, the award-winning orange bag programme is an initiative to promote recycling to reduce waste at landfills and promote the separation of waste at source.

But the programme has been beset with problems in recent years.

The company failed to deliver on its first order in 2015 and ended up entering into an arrangement with a competitor which produced bags on its behalf that did not meet the specifications, the report states.

The continuous failure to deliver ended up in the 36-month contract being terminated last year.

Investigators recommended that criminal charges be instituted against Persian and that the company and its directors be barred from ever doing business with the state.

The investigation, conducted by forensics firm NMK Forensics, reveals among other things that:

*The company had misrepresented its experience in the plastics industry by claiming it had seven years' experience; 

*Senior municipal officials allegedly colluded with Persian to circumvent procurement processes;

*Persian had submitted  a quality management certificate belonging to another company

The tender was fraught with irregularities from the start when Persian Star Investments 11 CC quoted 79 cents per bag in its bid. This raised eyebrows, with one of the unsuccessful bidders claiming that the company had underquoted.

The tender specification was lacking as it did not stipulate some of the basic minimum requirements as is the norm for tenders of this magnitude.

These include experience and qualifications of staff and production capacity.

Site visits were never conducted. Inspections would have helped to verify the existence of the factory and technical ability.

“It is highly likely that Persian did not have a fully functional manufacturing factory at the time of applying for this tender, around October 2014,” the report states.

While Persian had submitted samples of the bag during the bidding stage it was not clear where these had been manufactured. 

Investigators later found that Persian had lied about other things which affected its functionality scoring. 

For example, while Persian scored 10 points by claiming  to have more than 7 years' relevant experience, investigators established that the company had only started trading in plastic products in 2012, two years before bidding for the contract. 

At the time, the company’s operations were limited to “buying plastic items and selling them at a profit” and it only started operating a plastic manufacturing plant in September 2015. 

Persian was further scored 10 points for an IS0 9001 (quality management) certificate. However investigators found that this belonged to another company. 

“Persian claimed 20 points for the number of years in relevant business industry and ISO 9001 based on misrepresentations and, as a result, obtained a total of 30 points which resulted in it being further evaluated commercially,” reads the report.

Persian failed to deliver on its first order which was issued on November 2015, later claiming that it could not source input material.

“The reasons provided by Goklin (Naidoo, owner of Persian) are not true. During the forensic investigation evidence was uncovered to prove that Persian had applied for loan funding at Ithala Bank around the same time they were supposed to start supplying the first purchase order.”

Investigators believe that the loan funding was going to assist the company to purchase production material and obtain working capital.

The R13.6 million loan was approved but not disbursed by the bank. Unable to produce the required bags, Persian then turned to its competitor, the Johannesburg based company which also pitched for the job.

A meeting was then held between Naidoo and the owner of the rival company in Durban, allegedly having been facilitated by some municipal officials. The owners of the two companies confirmed to investigators that senior municipal officials  were present but the officials denied this.

The arrangement reached was that the Johannesburg-based company was to manufacture the bags on behalf of Persian at 75 cents per bag. Between December 8, 2015 and February 23, 2016, the company supplied some 5.4 million bags.

The bags, however, were not according to tender specification as they did not have a drawstring and were of a lower quality, investigators found. 

The investigation further raised concerns that despite its failure to fill the contract Persian was awarded another contract by Durban Solid Waste.

Apart from criminal charges against the company, the report recommended disciplinary action against a number of senior and junior city staff who were complicit.

This week the city confirmed receipt of the report saying “city manager Sipho Nzuza is studying the report and will take the necessary corrective action based on the report’s recommendations.”

Leader of the DA Zwakele Mncwango said should the city fail to implement the recommendations, including laying charges against Persian as recommended in the report, his party would not hesitate to lay charges. 

He said the DA intends laying charges next week should the city not act.

A company search reveals that 47-year-old Gokilan “Goklin” Naidoo is the sole director of Persian Star Investment. The Mercury tried numerous times to get hold of Naidoo for comment this week but all attempts were unsuccessful. 

The Mercury

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