Telkom SA SOC Ltd, the partly state-owned South African telecommunications company, is billing the national police service for two contracts that cover virtually the same work, five people familiar with the situation said.

The Pretoria-based company secured a contract to work on the service’s switching centers, which allow the South African Police Service to communicate with staff and stations across the country, and started work in mid 2016 using Netxcom ICT Solutions (Pty) Ltd as a subcontractor, the people said, declining to be identified because they aren’t authorized to speak to the press.

While Netxcom is continuing to do the work, Telkom has withheld some of the payments it owes to the subcontractor even though it has continued to receive money from the police, the people said. It is now in a legal dispute with Netxcom, which has sued to get the money it believes it is owed.

Telkom said it did withhold some payments to subcontractors because of contractual “inadequacies” without naming Netxcom.

A few months after Netxcom started work, Telkom signed a separate R497 million ($34 million) contract, which will run for five years, with the police to do the same work on the same switching centers with a few minor additions.

That agreement, which has been seen by Bloomberg, includes another subcontractor known as AppCentrix (Pty) Ltd as a participant. It was not put through a competitive bidding process, as is mandatory for all government contracts over 1 million rand unless the requirement is waived by the National Treasury.

Treasury Unaware

The Treasury says that it is unaware of the contract. The State Information Technology Agency, or SITA, which procures all of government’s information technology, was not consulted by the police on this contract as is also mandatory, the people said, declining to be identified because the information isn’t public.

Telkom spokeswoman Nomalungelo Faku cited confidentiality clauses when asked why a tender for the new contract had not been held. The police and SITA didn’t respond to queries. Netxcom and AppCentrix declined to comment.

“As a principle, Telkom does not withhold payment to its vendors,” Faku said by email, saying she was commenting on behalf of George Candiotes, Telkom’s executive for legal services.

“However, during 2017 Telkom conducted a supplier review. Based on this certain actions were taken between Telkom and suppliers including the withholding of payments where certain inadequacies in the contractual arrangements were identified.”

Wasteful spending

Emails between senior officials of of Telkom’s BCX unit seen by Bloomberg said that the failure to pay Netxcom was souring Telkom’s relationship with the police and that Netxcom was still doing work for the police.

Telkom hasn’t answered questions on how the two contracts with the police differ.

The revelations come as Cyril Ramaphosa, who took over as president in February, is overseeing a drive to stem irregular and wasteful spending that’s led to the termination of boards of state companies.

Internal email communication, seen by Bloomberg, between Telkom staff including its chief executive officer, Sipho Maseko, and Candiotes corroborated what the people said about the non-payment of fees to NetXcom.

The South African Police Service “has not indicated any direct issues with the vendors or the work and we are receiving payment,” Candiotes said in an April email to Maseko. “Our view is that we are currently exposed in the instance where we cannot show why we cannot make payment, despite our contentions we have terminated the agreement.”

Telkom, which is 41% owned by the government, is trying to terminate the relationship with Netxcom in favor of its newer contract, the people said.

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