The Supreme Court of Appeal (SCA) has upheld an appeal against the Department of Defence and Military Veterans, declaring a R60 million tender awarded to Zeal Health Innovations (Pty) Ltd in 2015 invalid and unlawful.
According to the SCA, the tender was advertised in January 2015, with the goal of providing healthcare and wellness services to 16,000 military veterans.
Zeal Health was awarded the tender in May 2015, and a three-year contract was concluded. However, the department failed to pay Zeal Health for its services, prompting the company to launch an urgent application in the High Court in September 2015.
The SCA’s decision last week was based on the department’s failure to adhere to budgetary constraints and its unlawful commitment to liability.
The court found that the acting director-general at the time, whose name is known to The Star, had breached the Public Finance Management Act by committing to liability without ensuring that the necessary funds were available.
The SCA held that the contract price did not fall within the budget when the tender was awarded and that the acting director-general had committed the department to a liability of between R35.9 million and R18.2 million, which had not been appropriated for services in the 2015/2016 financial year.
The court also found that the acting director-general had acted unlawfully when he breached the provisions of the Public Finance Management Act. The awarding of the tender to Zeal Health was therefore declared unlawful and invalid.
The SCA’s decision has consequences for the department, as it means that there was no lawful basis for the department to conclude the contract with Zeal Health.
The memorandum of understanding and the government order issued in favour of Zeal Health were also declared invalid.
However, the SCA did find that Zeal Health was entitled to payment for any amount it could establish, as a just and equitable remedy.
The department’s poor financial management systems have been a subject of concern, with the Auditor-General (AG) revealing irregularities in the department’s purchasing of medical equipment and spending on unoccupied properties.
The AG reported that over the last five years, the Department of Defence accounted for the vast majority of irregular expenditure within government departments, at R14.39 billion, due to overspending on salaries.
The department’s spokesperson, Siphiwe Dlamini, was not available for comment at the time of going to print despite a series of phone calls from ‘The Star’.
However, responding to a report in October, Dlamini reportedly said the department had already developed an action plan to address issues raised by the AG.
The department’s financial woes started in the earlier years after reports that it may not be able to pay salaries.
In 2023, it was reported that it had significantly overspent on employee salaries, to the tune of R12 billion over the last seven years, and is facing billions of rand of budget cuts this year, putting further strain on the SA National Defence Force (SANDF).
According to reports, the then Parliament’s Portfolio Committee on Defence and Military Veterans (PCDMV) was on September 6, 2023, briefed by the department on its first quarter 2023/24 performance and compensation of employee (CoE) challenges.
A presentation prepared by Chief of Human Resources, Vice Admiral Asiel Kubu, revealed R12.9 billion in irregular expenditure on the compensation of employees since the 2016/17 financial year as the SANDF spent more on salaries than was budgeted.
For 2022/23, the CoE appropriation was R31 billion, but actual expenditure was R34 billion (the total defence budget for that year was R51 billion).
The Star