State capture: Ex-Denel executive tells of ‘flawed’ contract awarded to Gupta-linked firm

FILE PHOTO: Denel company logo is seen at the entrance of their business divisions in Pretoria, South Africa, December 4, 2018 Picture taken December 4, 2018. REUTERS/Siphiwe Sibeko/File Photo
Former group supply chain management executive at Denel, Dennis Mlambo, on Wednesday told the state capture commission how he was sidelined by top managers so tender processes could be flouted to favour a Gupta-linked company.

On Tuesday, former contracts manager at Denel Land Systems (DLS), Celia Malahlela, testified about three contracts the company had awarded to VR Laser, a company linked to the Guptas and former president Jacob Zuma’s son Duduzane Zuma.

She said she was forced to leave DLS, a subsidiary of the state-owned weapons manufacturer Denel, because her attempts to stop capture by the Guptas were ignored.

Mlambo on Wednesday backed up Malahlela’s testimony on the continued irregular awarding of contracts to the Gupta-linked company.

As a major shareholder of LMT Holdings, a manufacturer of defence vehicles, it was Mlambo’s view that Denel was naturally going to insource and procure them for the contract.

“It effectively meant that the work was going to be given to LMT, a subsidiary of Denel, which would have made me happy. I assumed that because I had the support of two key executive members, that [now former CEO of Denel Riaz] Saloojee will actually have no choice but to accommodate this proposal,” Mlambo told the commission.

I was shocked to learn a few months later that the contract had been approved and awarded to VR Laser. That was without my knowledge.

Dennis Mlambo

However, Saloojee and others went behind his back and signed the agreement for 10 years without consulting him.
“I was shocked to learn a few months later that the contract had been approved and awarded to VR Laser. That was without my knowledge. The award was actually kept a secret. I was deliberately left out.
“Because of my position, in terms of the delegation of authority, I was supposed to be one approving before the group CEO could sign. This contract was above R200m. I would have been required to present a proposal to the board in support of Mr Saloojee [for approval],” Mlambo added.
He said Denel acquired LMT because it was strategically positioned to execute some of the needs of the business.
“One of the critical and strategic points we were looking at [when acquiring LMT] was that LMT had the capability to design vehicles which in our case wasn’t that matured, that was a plus. LMT could manufacture and assemble vehicles … We were also looking at future opportunities offshore at that time. It already had contracts in the Middle East, we felt it was a growing market for Denel,” Mlambo told the commission.

Mlambo testified that even if LMT was to share the responsibility of the contract with VR Laser, Denel would first need to amend its policy — an unnecessary and long process.

“I saw no reason we should even debate the reason for giving work to a group subsidiary [LMT]. To me it’s just common sense, it must be done. It didn’t make sense to me that all of a sudden, we must deviate from that position.

“The process was so flawed that it just didn’t even merit any consideration. The outcome should have been rejected on any grounds by anyone.”

He said in his correspondence with DLS regarding the potential company for the contract, they kept referring to VR Laser as a 100% black-owned company.

“They said it was 25.1% black woman-owned, but I did not have any evidence. My instruction to DLS was to desist from using misleading terms,” he said.

Mlambo said he had no evidence of employee profile, ownership, development of employees, and procurement of black companies.

When he rejected the procurement of VR Laser for the contract he gave the following reasons:

  • the evidence on how VR Laser was selected is not available to support the appointment as a single-source supplier;
  • the approval process of the company excluded the supply chain and the reasons thereof have not been furnished; and
  • a recommendation by the Treasury to source quotes and open a contract to tender processes first was ignored.

“I’m not going to entertain this because I was not party to the memorandum of agreement. Those who entered into that agreement are the ones that must approve future transactions – which were, at any rate, going to be irregular.

“In this particular incident, it was possible to go out and find a supplier at a competitive rate.”