Cash Paymaster Services finally reveals grants fee value

The value of the proposed new contract between Cash Paymaster Services (CPS) and the South African Social Security Agency (Sassa) was finally revealed late on Thursday, when the firm disclosed to the Constitutional Court its fee to distribute social grants for the next two years would be R4.7bn.

This is according to an affidavit filed with the court on Thursday by CPS director Nunthakumarin Pillay. During Wednesday’s hearings, CPS had been coy over the amount, clearly to the irritation of the court.

"It is proposed that the cost of the interim contract over the two-year period would be fixed at R194m [including VAT] per month, regardless of the number of beneficiaries paid by CPS," he said in the affidavit.

"The total cost of the interim contract over the two-year period would therefore amount to R4.656bn."

The contract was negotiated by the two parties last week.

However, it was not signed after a ministerial task team, led by Minister in the Presidency Jeff Radebe, instructed that

the negotiations be terminated and new negotiations start

when the Treasury has given written consent.

On Friday at 10am, the Constitutional Court will announce whether it will accept these terms, or whether it will propose another solution or a different fee structure for the interim period. Parties in the court matter, which was brought by the Black Sash last week in a bid to reinstate the court’s supervision over the contract, are at odds on the length of the interim contract.

The Black Sash has argued for a six-month contract, while Freedom Under Law, which applied to intervene in the matter, has proposed a 12-month contract.

Social Development Minister Bathabile Dlamini and Sassa have asked the court to allow the relationship with CPS to carry on for another two years, while CPS said it would be happy with a 12-or 24-month contract.

"If it assists the court, and to the extent that the court may be disposed to a period shorter than 24 months, CPS has no objection to an order that the parties must contract on the same terms as the 2012 contract and service level agreement, subject to a price increase as determined by the auditor-general," Pillay said in his affidavit. He said CPS would undertake to file its motivation for an increase within seven calendar days.

The fee charged by CPS under the 2012 contract was R16.44 per recipient. According to Pillay in the last year the total fee charged amounted to a little more than R2bn, which calculated to a monthly fee of about R171.6m. He said with a 6.6% Consumer Price index adjustment it would amount to R182,964,621.76 in the first year and R195,040,286.80 in the second year. This was an average of R189,002,454 a month over two years.

CPS’s proposal constituted, in effect, an increase from the current R16.44 to R17.53 in year one and R18.68 in year two.

"The basis of this calculation is the firm price stipulated in the 2012 contract subject to a two year CPI adjustment from April 1 2017, applied to the anticipated growth in grant beneficiary numbers in accordance with the national budget on a straight line basis," Pillay said.

The expected growth in the number of beneficiaries had been taken into account, hence the difference between R189,002,454, applying an increase of 6.6% to the preceding 12-month average, and the R194,000,000, the amounted quoted by CPS. "Because of the fact that recipients are able to collect their grants anywhere in the country, at any paypoint, CPS would be required to maintain most of its infrastructure for the duration of the contract, regardless of the number of beneficiaries paid," Pillay said.

To the extent that it may be possible to reduce infrastructure, he said it was impossible to anticipate how, when, where and to what degree as this stage as there was no phase-out plan. The back office IT infrastructure would also need to be maintained in its entirety.

This was the reason CPS had quoted a fixed fee, he said.

"Sassa would, of course, get the benefit if the beneficiary numbers increase beyond what is anticipated in the budget, as the amount per recipient would be less," Pillay said.