Front companies and unscrupulous municipal officials, making use of “ghost CVs”, are exploiting gaps in the procurement system. These malpractices have the overall effect of undermining effective procurement and service delivery at large.

How front companies work?

A common pattern has emerged in local government where municipal officials identify or influence the allocation of tenders to front companies registered in the name of their friends or relatives. These companies often lack the expertise and the capacity to deliver. When preparing their bid documents, the front companies often make use of “ghost CVs” and professional registrations of associates, who are sometimes government officials from other provinces. Once the contract has been awarded, the insider network manages the work while the “paper owners and borrowed professionals” receive small amounts of money as compensation. At the end of the day, the municipality deals with a company that looks legitimate on paper but is a front in practice.

How “ghost CVs” work?

Another practice is the use of “ghost CVs”. This happens when a consultancy firm submits a bid using the qualifications of employees who have already resigned, or when municipal officials from elsewhere lend their credentials without participating. For example, a firm may list in the bid support documentation the name of an engineer who is no longer with the firm. This “ghost cv” enhances the prospects of success of the bid, but once the tender has been awarded the “engineer” never pitches to the site. Similarly, a municipal official in one province may be listed as part of a bid team in another municipality without their employer knowing. These "ghosts" inflate capacity on paper while masking the absence of real skills.

How “ghost” companies escape detection?

The Central Supplier Database, managed by the National Treasury, focuses on supplier identity, ownership and compliance. This database tracks companies and their owners to prevent conflicts of interest. Before a contract is awarded, government bodies must verify whether company owners or directors are employees of the state. This is usually done through the Personnel and Salary System, which is a national database that records employees in national and provincial departments. On the other hand, municipalities operate their own payroll and human resources systems, separate from the national Personnel and Salary System. The operation of these separate systems creates a loophole which “ghost” companies targets. It is not easy for a municipality to identify if an official from another municipality is moonlighting in its tenders. The Central Supplier Database can flag national and provincial employees, but it cannot automatically detect municipal employees. This allows front companies and “ghost CVs” to slip through unnoticed unless municipalities run their own checks or an audit process or if a whistle-blower exposes the problem.

Examples from practice

In Madibeng Local Municipality, it is established that companies were awarded large contracts despite lacking the required credentials, and payments were made for work that was never done. This contributed to over R500 million in irregular expenditure and exposed how municipal procurement processes could be manipulated.

In Namasthethu Electricity (Pty) Ltd v City of Cape Town and Another, the court set aside a contract after it emerged that the winning bidder had misrepresented key facts in its submission. The company falsely declared that it had no convictions, even though it had been convicted for tender related corruption. The court held that misrepresentation in bid documents undermines fairness and transparency and therefore declared the award invalid.

In Special Investigating Unit v Matzikama Local Municipality and Others, a COVID-19 PPE contract  was declared unlawful and invalid because municipal officials had failed to disclose conflicts of interest. It was found that the municipal officials involved in adjudicating PPE contract had undisclosed ties to the winning company. Their conflict of interest tainted the process and rendered the award invalid. The court ordered the recovery of the funds from the company and also stressed the need to hold the relevant municipal officials accountable for failing to disclose their interests. This opens the door for the municipality to institute disciplinary proceeding against them.

These examples show that the municipal procurement system is vulnerable to abuse by companies and officials through misrepresentation, among other ways. They also confirm that, when exposed, such practices can lead to contracts being cancelled and officials being held personally accountable.

The consequences of the manipulation of the procurement system

The effects of the manipulation of the procurement systems are serious:

• Genuine firms with relevant capacity are pushed out of competition;
• Municipalities pay inflated rates to middlemen who add little or no value;
• Projects often stall or deliver poor-quality infrastructure because there is no real capacity to deliver;
• Patronage networks spread across provinces, undermining trust in the procurement system and local government, at large;  and
• Even when irregularities are identified, many municipalities fail to investigate or act, which creates an environment where front companies and the use of “ghost CVs” continue to thrive under the cover of paper compliance.

In smaller municipalities, where everyone knows each other, the risks are even higher. Potential whistle-blowers are reluctant to come forward because of fear of retaliation. This silence protects the networks while service delivery collapses.

What does the law say?

The law already prohibits this emerging behaviour:

• The Public Administration Management Act of 2014 forbids state employees from doing business with the state;
• The Municipal Finance Management Act of 2003 requires supply chain management systems to be fair, equitable, transparent, competitive and cost-effective;
• The Prevention and Combating of Corrupt Activities Act of 2004 criminalises abuse of authority for private benefit; and
• Professional councils have set codes of ethics that prohibit the misuse of qualifications and professional registrations.

Thus, the legal framework is clear. The problem is the lack of adequate enforcement.

What can be done?

Several reforms could assist in closing the loopholes:

• Verification with professional councils: Municipal supply chain management officials should confirm that listed professionals are registered with the relevant professional bodies and are in good standing and genuinely employed or contracted.
• Extended screening: Conflict of interest checks on the Central Supplier Database should go beyond directors and owners to include the professionals listed in tender submissions, supported by checks through the Department of Public Service and Administration.
• Affidavits from professionals: Everyone named in a bid should sign a sworn statement confirming their involvement in the project.
• Random spot checks: Municipalities should conduct post-award audits to confirm that the professionals listed in bid documents are working on site or on the project.
• Whistle-blower protection: Municipal employees and professionals must feel safe to report fronting and “ghost CVs” without fear of retaliation. Safety measures should be in place to protect them from any harm or injustice, a topic previously covered in the Bulletin before.

Conclusion

Front companies and “ghost CVs” are not new, but they are now thriving in municipal procurement system due to gaps in the system and the lack of effective enforcement of application legislation. National and provincial employees can be flagged through the Personnel and Salary System, but municipal employees remain outside the net. Until this loophole is closed and enforcement is strengthened, tenders will continue to be captured on paper. This has the overall effect of undermining the delivery of services to communities while public trust in local government continue to weaken.

By Siphiwo Nonzinzi, Town and Regional Planner, Researcher and Consultant, and Director of Urbanist Development Planning Consulting.