Erasibo

Congratulations, you’ve landed a new contract a public sector institution (PSI). This may have not been your first time being awarded a contract from a PSI, so you feel confident that you will manage this contract successfully and get paid on time.  You deliver the the service to specification and contract terms of reference. You have reasonable expectation that you will receive payment on time, as outlined in your contract. This however turns out not to be the case. What are your options to getting what you earned?

Firstly you need to understand that the South African government has as its policy intention the aim of both growing the economy and redistributing the countries wealth through its own procurement processes. This implies supporting SMMEs to become involved in the delivery of public sector programmes. This applies equally whether your service is a high end strategy for government or a catering facility.

After much failure and criticism about the way the public sector operates, government being led by the Presidency and National Treasury are driving forward performance improvement approaches in the public sector to do away with issues like late payment and weak contract management. There is a clear understanding by the leadership in government that there are many within the public service who don’t do their jobs as required and thereby slow down the overall process of transformation in the country. These people hide behind the power of their institution. The leadership in government have started cleaning house and putting into place systems to allow you to complain better so that they can improve the functioning of the public sector. Recently,  the Presidency has signed Performance Agreements with Ministers. The plan is for all the accounting heads of government agencies to be tied into this Performance Agreement process. The intention behind these agreements is to link the political structure together with the delivery structure. However government is still notorious for being a poor payer and hamstringing small business, especially small black business, by paying late or not following their own procurement procedures on supply chain management.

Small companies have to think carefully about their options to recoup what is owed to them. They have to think carefully because the legal route is expensive and long drawn out and in the meantime you are burning up your cash reserves.

So what can you do in addition to following the remedies in your contract? In most cases your contract would specify an arbitration clause which should be followed first. We’d like to suggest a combination of tactics that are not mutually exclusive from each other. The tactics we suggest are intended to place pressure on an institution to quickly resolves and prioritise your issues, otherwise you might end up being a low priority.

You need to make sure that your payment is being held back for reasons other than non performance. The approach we are spelling out only works for issues where non payment is linked to a SCM violation by your public sector client. You as the owner of your business needs to determine whether you need a soft strategy to get your funds out from your non paying client – and this is typically favoured where your cash flow is not being eminently threatened by the non payment, or a hard strategy where you are weeks or even days (in the case of SMMEs) away from cash flow woes.

Other contract related matters such as contesting of results require more specific specialist intervention i.e. get a good contract lawyer. Contact us and we can recommend a few if you need referrals.

1.     Do a situational analysis: Important questions and steps before you decide on a course of action:

• Examine your contract to see if the terms and conditions are clearly outlined and that you have met these obligations.
• Where deviations or changes to the contact have taken place, do you have approval of these confirmed in writing by the client. If no,  a client could contest that these were required and not pay for the changes or resulting contract deviations.
• Have you invoiced according to the specifications? You need to make sure you invoiced using the correct procedure spelt out by your client. you also need to make sure you have provided them with all your substantiation documents – e,g, some contracts require an auditors sign-off on the invoicing.
• Before taking any action you need to formally approach your client about the delayed payment. You need to ask in writing of your contract manager where your payment is. If you get no response we suggest contacting their finance department directly to enquire about your payment. All too often what has taken place is that your late payment is as a result of someone not pushing through the payment on time. If this your problem, a friendly reminded of payment should get your funds through to you. Simple.

  The simple route is always the best route, relations are important and you always want to keep them going. However if you can’t access your contract manager or get assistance from the finance department you are left with limited options and cash burning out, in this instance consider the following further steps.

2.     Go to the head of the organisation: Once you have confirmed that you have both a payment and communications problem with the client go to the institution’s head. Don’t wait, the institution’s head is the accounting officer and is responsible for dealing with late payments. Please remember that late payment for a PSI is an issue the Auditor General’s office will want to know about. It is in the interest of the agency’s head not to have the AG asking questions about simple SCM issues.

Write a calm letter to the head of the institution explaining in detail the problem and your attempts to resolve the issue, and appeal for their assistance. We also suggest that you copy the letter to your contract manager. You should notify the contract manager so that the contract manager can feel some pressure from your approach to the institution’s head.

If appealing to the agencies head does not resolve your issue. You have a few more options available to you.

3.     Going to the reporting National Department: Your next level of complaint is to go directly to the reporting department.  For exampl,  if your client is a Sectoral Education Training Authority (SETA) their reporitng department is the National Department of Higher Education and Training,  and if your client is a municipality, their reporting department of is the Department of Cooperative Governance and Traditional Affairs (COGTA). You can find out who the reportng department is for your client by vising your client”s website and looking at their annual report.

Once you’ve identified who the reporting department is, you need to know who to speak to within the department. You either contact the Chief Director under whom the agency reports or if this is not clear complain directly to the Director Generals office of that department.

In your letter, stipulate your facts in detail, as in the case with the head of the agency previously, but this time include the facts around your request to the head of the agency failing to provide you with resolution. As in the previous action copy the head of the agency and your contract manager on the communication with the national department.

By now you should be getting a response from your client. They wont want you to be causing waves, impacting on their performance agreements by showing them to be inefficient.

If however you still do not get resolution you now need to escalate the matter to the highest structure you can, outside of the courts, and this is the relevant Minister’s Offices and the Portfolio Committee in Parliament.

4.     The Presidency, The  Minister and Parliament: It sounds daunting – the idea of sending anything to the President, a Minister or to  Parliament. Remember they are accountable to you, they actually do want to hear from you because ultimately you are the end user of what they deliver and you can vote them out.

Parliamentarians also like to find issues to hold government agencies accountable. They can be a great leverage point.

You need to copy your letters to the head of the agency, the Chief Director and Director General, to the President, the Ministers Office and to a member of the Parliamentary Portfolio Committee that holds oversight over the agency you are struggling wit, notifying them that:

• The agency is in breach of SCM rules,
• They have not paid you for services you have rendered. If they have used your work without paying for it – there could also be copywrite violations
• The damage being caused to your business and
• The interest being accrued by the agency in question on the outstanding payment, which is a wastage of public funds.

You can email the Presidents Office on: president@po.gov.za or try the Presidential hot line on 17737. You can find the contact details for the Minister’s Office on the relevant national department’s website – we suggest calling the Ministry and asking for the Minister’s PA’s email address and you can find the details for the relevant Portfolio Committee at Parliament by visiting www.parliament.gov.za and searching for “committees”.

If your payment difficulty is truly down to incompetence or inefficiency or even just spite on the part of your client, but you have stuck to the terms of the contract, this process should see you exert enough pressure on the agency to see you paid on time.

This article was published in Your Business Magazine

Getting Paid by Government_DecJan 2011_Your Business Magazine

Thank you to Armand Du Plessis for pointing out this video. In this talk David Heinemeier Hansson (see below for bio) argues that constraints–fiscal, temporal, or otherwise–drive innovation and effective problem-solving. The most important thing, Hansson believes, is to make a dent in the universe with your company.

Danish-born David Heinemeier Hansson is the programmer and creator of the popular Ruby on Rails web development framework and the Instiki wiki. He is also a partner at the Web-based software development firm 37signals, based in Chicago.

Ruby on Rails provides a “basic development environment” for programmers, according to Wikipedia.org. Based on the programming language Ruby (developed by Japanese programmer Yukihiro Matsumoto in 1995), Ruby on Rails focuses on user interface and “convention over configuration”; meaning, developers can focus on the unique qualities of their Web site or program rather than the building blocks that every application may require. Released in 2004, Ruby on Rails has been incorporated into many applications used by some of the biggest companies, from Twitter to Apple’s 2007 release of Mac OS X v.10.5 “Leopard.”

Aside from his development of Ruby on Rails, Heinemeier Hansson also works as a partner for Web-based software development firm 37signals. Joining the company in 2003, he has helped develop Basecamp, Campfire, Backpack and other Web-based applications. Working in similar ways like Web-based e-mail services like Yahoo! e-mail and Google’s Gmail, 37signals hosts a broad range of IT services for companies, including project management to information-sharing. The firm’s software has been used by Kellogg’s, Sun Microsystems and even Obama ’08.

Hansson received his bachelor’s degree from the Copenhagen Business School in 2005. In that same year, he moved to Chicago and received Hacker of the Year honors for his work on Ruby on Rails from Google and O’Reilly Media. He runs a blog called LoudThinking.com.

Related Links: http://loudthinking.com/ http://37signals.com/

Sourced from: Standford Ecorner

If you woke up feeling 2011 was going to be the year you took on the world and capitalized on the fact that you have come through the recession intact, think again if running a small business is what you do. If the Amendments to the Labour Relations, Basic Conditions of Employment, Employment Equity and Employment Services Acts come into being, you might have to seriously reconsider if it is viable to remain in business or not.

If your business model is based upon the employment of employees on a temporary or casual basis, than your business will come under attack. Ensuring that all employees, outside of much defined circumstances, will under the new Act, be forced to be made permanent. This will have drastic impacts on certain industries, especially service related industries where income and job security is linked directly to performance of employees.

Bet you didn’t factor this “unknown known” into your strategy planning.

South Africa historically has been pro-employer. Since 1994 workers have seen their rights entrenched and empowered under the South African constitution, various pieces of legislation and institutions such as the CCMA. South Africa is no longer viewed as pro-employer, however because of the rights won by workers and the high level of “labour action” these rights allow workers, South Africa is described as a country where” Cost competitiveness has been jeopardized by insider dominated wage bargaining..”

Now South Africa has a set of draft Amendments to most of the significant labour relations legislation. We want to touch on what are the implications of the Act and how will this affect your business?

The Amendments were tabled to address the undermining of general conditions of employment of workers that occurs through companies outsourcing their employment of employees via labour brokering firms.  The unions argue that labour brokering is equivalent to “a form of modern slavery” and further that in order to ensure “decent work” for South Africans, the term “decent work” needs to be synonymous with “permanent” employment and that labour brokering should be banned outright.

While, nobody wants to perpetuate “modern slavery” and surely everyone is entitled to “decent work” the Amendments being debated heatedly have high implications for the way you do business. It must be pointed out that many countries use a combination of approaches that allow fixed-term contracts to play their legitimate economic role while preventing abuse. The concern with the Amendments

Some of the key issues you should be concerned about as a business owner are:

• The amendments preclude the employment of foreigners over national citizens. If your business runs on the employment of foreign nationals, this practice will now be illegal and heavy penalties will be enforced.
• Ensuring that all fixed/temporary contracts become permanent and all employees are directly employed by a company as opposed to intermediaries, such as labour brokers, places increased risk on companies. Companies will need to seriously prioritise posts needed which will affect the number of people they will be able to hire within the confines of the required minimum wage and conditions of services.
• There is the possibility that as many  jobs could be at risk if employers chose to convert current temporary contracts to permanent ones. Coming out of an economic recession, where industry is risk averse and not confident of growth, job losses will seriously impact on the country. These job losses don’t just mean increased unemployed, it means less consumers to consume the services and good being sold by particularly small South African businesses.
• The amendments would violate the Constitution of South Africa; in that it would infringe on the right to choose a trade, occupation or profession freely. An employee could also not choose temporary employment as an option. This will have huge impacts on for instance, women, who need to work on a temporary basis to cater for the care of children and young people working informally to support themselves through university, etc
• The amendments across the Labour Relations Act (and other linked labour specific legislation) could destabilize institutions such as the CCMA and UIF by significantly increasing the workloads on these intuitions. These institutions will have to increase their capacity, which in the meantime will result in huge backlogs in unresolved cases. In addition to the cost of capacitating these organizations which will be borne by the State, businesses will have to cover the cost of maintaining employees of suspension for longer periods of time.
• If the amendments go through unchanged, your business could be faced with the situation where you need to let go of your current workforce and be fighting several claims at the CCMA.

These amendments could very well be a game changer. How does one plan to expand your business not knowing how drastically your rules will be changed? The unions need to start getting to grip with the concept of the bottom line, if there’s no bottom line there’s only the welfare line.

There are other ways of regulating this practice – that could even do away with the labour brokering all together, not that this is really a good idea to start with. Why use a stick when a carrot could work. Were no alternatives considered, such as tax breaks or quick access to business support financing, should they not be considered?

So what can you do about all of this? Should you shut up shop now fearing the worse? Don’t despair, should this amendment go through parliament it won’t come into effect immediately and there are still legal avenues for challenge, avenues that lead all the way to Constitution Hill and this probably where this fracture between business, government and the Unions will be splint.

If you are a business that makes use of temporary workers, you must start planning for the changes to the labour brokering environment that will be coming in the near future.

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Good presentation from Stephen Timm at the TIPS study.

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Presentations from BUSA and SACCI on SMME access to finance.

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This hands-on workshop (by Nicholas Lamphere) will provide an introduction to the social web and current, popular tools and topics. Social Media has great applications for the public sector agencies.

We are always looking for ways in which smart people try to innovate in business, especially businesses which some may see as being no go areas. Urban Khana for us is one such business.

UrbanKhana (http://urbankhana.co.za) is a dinner delivery service in Cape Town. The company is just a few months old and is showing promise.

Whether you are considering buying a business for a few thousand rand or for a few million rand or whether you are considering starting up a business, a due diligence exercise will prove most useful in providing you with a degree of peace of mind prior to putting pen to paper on the business agreement.

I want to stress that regardless of the size of the deal and regardless of who the parties to the deal are, make sure you undertake a due diligence. I will always advocate for the most thorough due diligence you can afford, this is money, time and effort you should spend in order to save you money, time and effort later. Also remember, you often get the value of service you pay for, so don’t cut corners.

In researching this article I have been staggered to see how little information is readily available on public platforms on the subject of due diligence. What is available is very pricey and usually only talks to high level issues. This is worrying considering how vital a due diligence exercise is, especially to the first time business owner.

What is Due Diligence?

For the purposes of this article, Due Diligence should be understood as an exercise to be undertaken as part of the purchase of a new business. Simply put, due diligence is an investigation into a business with the purpose of proving to the initiator of the due diligence (typically the buyer) whether the facts offered up by the other party to the deal (typically the seller) are in fact a true reflection of the business.

Who should do the Due Diligence?

In order to do a due diligence well you will need two key role players:

1. Professional Assistance: Due Diligence’s exercises are technical in nature and if you have the funds available make use of a professional firm that has done these types of exercises before. Apart from all the certificates and client references that you will get from the firm you hire, check to see if any of the people who will work on your due diligence have ever run businesses before – you cannot under estimate the value of experience.
2. You: Your personal involvement in the due diligence process is vital. The professionals you bring on board work for you, but will not always understand, amongst other issues, precisely what your vision is for the business, what your appetite is for risk is and how you would deal with problems that will be encountered.

I would encourage a more hands on, engagement with your team so that at the end of the day you are getting a due diligence report that will allow you to take an effective decision. You don’t just want a report that says, “Yes do it” or “No don’t do it”. A due diligence is not simply a synopsis on the business you want to acquire or startup. In fact your due diligence report (which will be a detailed report on all aspects of the investigation) can serve as a great tool for guiding your future business plans and strategies for the business should you acquire it.
Some finance houses and banks will offer to do a due diligence for you. Be wary of this service; be wary of any due diligence exercise where the companies doing the exercise for you will profit from your deal outside of the fee you pay for the due diligence.

A Due Diligence Model

Non-Disclosure Agreement

The due diligence exercises should always start with a Non Disclosure Agreement (NDA). Characteristics of the NDA that you should be aware of are:

• The NDA is to be signed between yourself and the seller.
• This agreement essentially protects both parties from the having their confidential business information made public.
• A confidentiality period must be specified. Please remember that the confidentially clause does not apply to illegal activity.
• The NDA should talk to you requiring a Due Diligence and it should specify the high level areas that the Due Diligence will cover. The seller must agree to this. If the seller does not agree to this, walk away.

Due Diligence Areas

A good due diligence exercise will cover the following nine areas1. In addition you (or your team) will need to acquire from the seller the following documents for your due diligence exercise. These documents should be made available to you quickly as the seller should already have these available. If the seller is unable or unwilling to provide this information this would be a cause for serious concern. The fundamentals of running a good business are record keeping.

: *please note the Due Diligence Item column is not exhaustive*

Due diligence is your safety belt, often you only realize that you need it, when the deal has gone sour and your business is in crisis. Do not make that mistake and overlook this process.