Gijima, the IT company controlled by controversial businessman Robert Gumede, is seen as too important to be allowed to fail, according to a source familiar with the thinking behind this week’s deal between the company and the department of home affairs.

The deal covers the conclusion of the 2008 Who Am I Online contract, which was intended to digitise and integrate the government’s management and tracking of citizens’ identities and movement, and which home affairs repudiated in April last year.

The project faltered when costs more than doubled and Gijima struggled to deliver the border control system needed ahead of the Fifa World Cup.

The SA Revenue Service (Sars) stepped in to deliver the movement control system.

In terms of this week’s settlement it appears Sars has effectively taken over the project, leaving Gijima the junior partner.

Gijima originally bid R2,1bn in 2007, but by the time the deal was signed in 2008 the price had ballooned to R4,5bn.

Following the settlement the budgeted cost has come down to R2,5bn, shaving some R2bn off the 2008 figure.

An investigation is continuing into the circumstances surrounding the signing of the R4,5bn contract, which included a complicated lease agreement with equipment suppliers to cover the budget shortfall, later ruled contrary to public finance regulations.

Detailing the terms of the settlement, home affairs director-general Mkhuseli Apleni told the Mail & Guardian the new system would be developed largely by Sars and Gijima’s involvement would be limited to hardware management and support.

“We will be building the system in collaboration with Sars, which will work with us to ensure the development is completed. Sars will provide business analysts, project managers, coders and other staff, although some of the work will be done by subcontractors.”

Apleni said these resources would be made available by Sars to home affairs at no cost, because they were already paid for by the government through the receiver’s labour bill.

He said the details of the finances had not yet been finalised and who would be getting what would be resolved only once subcontractors had been chosen.

“We’ve dealt with this at a high level and we now need to detail the specific costs. How much Gijima will get will depend on the maintenance of servers and computers and the nature of their support. Details of the supplier contracts have yet to be finalised,” said Apleni.

Gijima chief executive Jonas Bogoshi put a brave face on the deal, saying the R1,2bn the government is still to spend will flow through his company, although he would not disclose the margins.

“The support part, which is R800m, is what Gijima will be working on, so that is a Gijima fund. It is the implementation of the servers and the PCs and the maintenance and support of them.”

Bogoshi said Gijima would not retain all these funds because it would be required to pay for hardware.

“We’ll be making little, if any, margin on this, because we’re not a hardware company but more of a support and maintenance company.”

Gijima appears to be paying dearly for the rescue operation.

The company disclosed settlement expenses of R373,9m this week and its share price is roughly half what it was in 2010 when home affairs repudiated the contract.

“We wrote off R373,9m. About R260m was a reversal of invoices that we gave them,” said Bogoshi.

“We invoiced them but said that for the purposes of settlement you don’t have to pay that. That is why we’re declaring a loss now.”

The write-down on invoices gives some credence to rumours that Gijima overcharged for its services, which Bogoshi vehemently denied.

A source close to the process said government negotiators had been “pretty brutal” but Gijima would not have agreed to a settlement that took the company over the edge.

The government has considerable leverage with Gijima because state work constitutes close to half the company’s revenues.

Said Bogoshi: “The settlement has hurt us; you must have seen the share price.

“Government is a very powerful entity and a very big part of our business. For us they constituted 49% of our business at end-June last year.”

Bogoshi said litigation was an option, but spending five to six years in court and enduring a payment freeze while potentially alienating the government was too great a risk.

But the risk is not over.

Home affairs regards the settlement as commercial only, saying that the agreement does not prevent the department from investigating any irregularities in the tender award, contracts or payments.

“The payments made to date are viewed as irregular by the auditor general because there were issues with [state IT agency] Sita awarding the tender,” Apleni said.

The auditor-general wrote a report after irregularities were discovered in the 2008-2009 financial reports, but Apleni said home affairs could not comment on this because of the threat of litigation and subsequent negotiations, which made the matter sub judice.

“We’re now ready to submit comments to the auditor general and refer this back to Scopa (Parliament’s public accounts committee).”

Apleni said the DHA had also briefed professor Harvey Wainer of Wits University to conduct a forensic investigation into the project to determine if there had been any legal or financial improprieties.

Wainer carried out a preliminary investigation that informed home affairs’ approach to settlement.

“If someone in the process has done something untoward we’ll follow this to the logical conclusion,” said Apleni.

He said this might include charging any people implicated.

“For a finance lease one must get treasury approval, but this was not done. We’re now waiting for a forensic report that will indicate why,” he said.

“We need to see why there was a violation of the Public Finance Management Act and who was responsible. We’re serious on the issue of corruption, so we can’t sweep this under the carpet.”

Apleni said he expected forensic reports to be tabled in Parliament by May 2010, while completion of the home affairs modernisation programme was expected to take two years. — Mandy de Waal and Sam Sole, Mail & Guardian