Department of Labour and Siemens to split in South Africa


The Department of Labour (DOL) will not renew its contract with Siemens to deliver its IT systems. DOL acting director-general Sam Morotoba presented the current status of the contract to Parliament's labour portfolio committee last week. He said a letter of termination, with the intention not to renew the contract, was given to Siemens.

The public private partnership (PPP) began in 2002 and, apart from escalating costs, was plagued by other irregularities and challenges. The DOL sought outside help in the form of a diagnostic analysis by audit firm KPMG.

Siemens had subcontracted the delivery of its services and the department was not happy with this. KPMG found that since the department had not agreed to this, there was a contractor default, and the department should ask Siemens to rectify it. The report also found there was no feasibility study done, nor any agreement from the department on the use of a SAP platform.

In addition, there was no reconciliation done by Siemens against the baseline in the contract for licences, and so the report said the department is not liable for additional costs with regard to licences.

Despite the contractor default on Siemens' part, the KPMG report says a termination of the contract will prove too onerous. For this reason, it suggests a negotiated termination since the legal route will also be costly.

There are areas where the DOL can implement penalties, like for the late commencement of services, says KPMG. “There is evidence of billing inconsistently with the intention of the contract,” says the report. It adds that the department must review invoices and reclaim these bills.

There are about eight projects still in progress by Siemens, with the longest term one set to be completed in October.

The department has a strategic plan towards achieving the completion of the PPP. Thus it has done a diagnostic review of the partnership and established an internal steering committee to manage the transition to a new IT delivery model.

The development of a draft plan for the exit and transfer of the PPP is currently in consultation; a new ICT strategy is being developed by the State IT Agency (SITA); and the department will conduct a feasibility study on a new ICT delivery model once the strategy is completed.

Morotoba also said there is a process under way to resource the current office of the CIO to manage closure and transition. The department secured the involvement and participation of National Treasury, SITA and the State Attorney to assist in resolving current PPP contract problems.

SITA's contract manager was appointed to oversee the PPP's contractual matters and high-level engagement with Siemens is under way, according to Morotoba. The DOL adds that it is also implementing the recommendations of the KPMG report and is requesting an early contract termination for October this year.

The department also says it has strengthened governance structures to oversee current IT projects. The management committee receives regular progress reports and provides guidance to the IT steering committee. Morotoba said there is an increased participation of business stakeholders at forums.

The costs of the PPP increased and are expected to rise further despite the many challenges that plague the systems, according to a National Treasury review in November.

The partnership had initially been costed at R1.2 billion, but has now risen to R1.3 billion. Morotoba said this increase is due to the increase in the consumer price index, services relating to the annual report, and an increase in end-user devices.

He also said there were still 22 months of the contract left to run. The projected cost at the end of the contract in November next year is R1.9 billion. The reasons for establishing the PPP include the high turnover of IT staff in the public sector; difficulty in reaching IT objectives; the automation of services towards e-government initiatives; the department's need to improve its IT capacity and expertise; and the need to exploit international best practice.

The deliverables comprised of data centre services, local area network services, IT help-desk, office productivity, customer satisfaction, end-user access, and the deployment of end-user devices, such as desktops, laptops and printers.

Systems development included training services for new systems; the design, construction and implementation of new systems; and maintenance, support and enhancement. The treasury's review of the system found several flaws in the PPP, including that there was insufficient monitoring and contract management by the DOL.

There was no consistent change management implemented by the department for integration of the business into the new IT environment, and delays were encountered in implementation of the improvement services due to inadequate detail of business processes.

The treasury also found that a lack of contract understanding by DOL stakeholders resulted in contractual remedies not being utilised when Siemens' performance was inadequate. Siemens did not respond to ITWeb's queries by the time of publication.