A vague and poorly drafted contract has cost the Nelson Mandela Bay municipality R69.6m in a settlement payout to revenue enhancement and debt collection company EOH Mthombo.
This is meant to put to bed the longstanding dispute between the city and EOH over how much the municipality was meant to pay the company for old debt collected.
The city’s bean counters will have to find almost R40m in the current operational budget to be able to pay the settlement as it currently only has about R29m available to pay it.
EOH was hired by the municipality in 2015 to verify accounts and collect from ratepayers and other account holders whose bills were more than four months overdue.
They would then be entitled to 10% of the money collected.
Matters became muddied when EOH started billing the municipality for all old debt collected – even money collected by municipal staff and law firms, not just by EOH itself.
In mayor Mongameli Bobani’s confidential report to the council, which met on Tuesday, it states that the dispute between the metro and EOH was fundamentally as a result of the “existing ambiguity in the service level agreement (SLA)”.
At the time, Mpilo Mbambisa was the city manager and Trevor Harper the chief financial officer.
Bobani wrote: “The vagueness in the contract subsequently gave rise to a protracted dispute resolution process between the parties.
“From inception, when the first invoice for debt collection was received from EOH, it was rejected by the NMBM based on the . . . different interpretathe tions of the SLA.
“The argument advanced by EOH is that all payments of 120 days and above form part of their portfolio.
“Accordingly, they [believe] they are entitled to 10% base commission on all related municipal accounts – for example, high energy users; government accounts – irrespective of whether payment was received as a result of actions discharged by other collectors.
“This dispute situation is further compounded by the fact that the billing/ receipting system of the municipality allocates all payments according to oldest debt.
“The NMBM has all along insisted on paying the 10% commission based on demonstrable performance of EOH Mthombo.”
The municipality and EOH battled for years to come to an agreement, with the city eventually obtaining legal advice.
The first lawyer, advocate Richard Buchanan, advised the city to take the matter to an arbitrator and to argue that it was never the municipality’s intention that EOH would be entitled to debt collected when it played no role whatsoever in the money collected.
A second legal opinion, by advocate Shaheed Patel, was that the city should consider EOH’s offer for a settlement, because a lengthy litigation process could be costly.
Patel wrote, in part: “In passing, I must state upfront that I am of the view that there is no economic sense for the municipality to have entered into a contract of this nature, given that the municipality had debt collectors in place at the time of tender.”
The council agreed to the R69.6m settlement amount, with the municipality having to find R39.9m in its budget to fund the payout as it only has R29.7m available.
Bobani wrote that the city had paid EOH R116.9m over the three-year period of the contract. “It was the aim of the municipality that, resulting from this contract, there will be huge improvement in terms of the collection rate to enhance the reserves of the municipality and also critically enhance service delivery,” Bobani wrote.
Between June 2015 and June 2018, the city’s revenue collection rate had, in fact, decreased from 94.2% to 93.1%.
The council agreed that the municipality should pay EOH in full within 30 days of receipt of the invoice.
Acting city manager Peter Neilson confirmed the council had approved the settlement deal.
He said Bobani had instructed that all outstanding matters be settled, including disputes between the city with Sabata and Afrisec.“The mayor is adamant that the city can no longer pay lawyers for matters that have been dragging on for more than three years,” Neilson said.EOH said through a spokesperson: “EOH can confirm that the parties reached amicable agreement with regards to the matters within the Nelson Mandela Bay revenue assurance contract.”