The department of labour will not renew its 10-year IT contract with Siemens and plans to seek redress for failures by the electronics giant in the 22 months before it runs out.

This route was recommended by KPMG in a report handed to the department last week, acting director-general Sam Morotoba told parliament’s portfolio committee on labour on Wednesday.

The auditing firm advised that unilaterally scrapping the contract could lead to costly litigation, and that it would be wiser to come to a negotiated arrangement with Siemens. This should however include reviewing areas of the contract where Siemens failed to deliver on its commitments on time, and enforcing the applicable penalties.

KPMG also recommended the department present the company with evidence of over-billing and reclaim the excess it was charged. “We have given notification to Siemens that we will not renew this contract,” Morotoba said.

“We can now enter into negotiations that will result in a make-or-break with Siemens on going forward or not with this contract. We are in the process of setting up high-level negotiations.”

The department has become increasingly concerned over the contract, which dates from 2002 and is due to run until November 2012, as estimates indicated its overall cost would spiral from R1,2bn to R1,9bn as a result of interest rate and inflation changes.

In addition, the service it received from Siemens has not been up to standard, partly as internal restructuring at the company saw it outsource delivery to a subcontractor.

The department said it had not agreed to this arrangement “nor is it obliged to agree to the cession of the contract”. KPMG was of the opinion that it constituted a breach of contract on the part of Siemens.

The department had enlisted the help of the national treasury, the State IT Agency (Sita) and the state attorney, to handle the talks with Siemens, Morotoba said. It was also taking advice from Sita on setting up a new IT management system once the contract with Siemens expires.

“Given the remaining term of the contract we had to look beyond Siemens to develop an exit and transfer plan. That process is currently underway.” — Sapa