MDA Law
Developments in public procurement of late
It has been widely publicised that the immediate focus of Minister of Public Works and Infrastructure Minister Dean Macpherson is to “turn South Africa into a construction site”. This sentiment has been echoed by President Cyril Ramaphosa. At MDA, we have, of late, seen a noticeable increase in procurement activity in the public sphere.
MDA has extensive experience in administrative law and public procurement legislation and process. Our services include tender reviews and legal process related to the PAIA Act.
We have noted two judgments of interest handed down during October 2024.
The first of these is Greater Tzaneen Municipality v Bravospan CC[1], an application for leave to appeal by the Municipality to the Constitutional Court, which application for leave to appeal was dismissed on the basis that the Court did not consider granting such application to be in the interests of justice.
The facts of this case are uncomplicated – the Municipality tendered a 12 month security services contract to Bravospan. Upon the conclusion of such twelve month period, the parties engaged and reached agreement regarding a further 12 month period for providing such services. This agreement was not subject to a public procurement process. Bravospan continued to provide such services in the second year of the contract but its invoices went unpaid.
After the expiration of the second 12 months, the Municipality, coming to the realisation that the agreement to extend the services contract was in the absence of a procurement process, brought an application to have such contract declared null and void. This application was successful.
Subsequent to such decision, Bravospan brought proceedings whereby it sought compensation for the services which it had provided. Bravospan pleaded its claim on four alternative causes of action, being (i) delict (ii) fraudulent misrepresentation (iii) unjustified enrichment and (iv) constitutional damages. The High Court found that the claim for unjustified enrichment succeeds and that the other grounds need not be considered. On appeal, the Supreme Court of Appeal held that the claim must succeed rather in terms of section 172(1)(b) of the Constitution which confers a wide discretion on Courts to make an order which is just and equitable. The Court reasoned that it is manifestly unjust for Bravospan to be afforded no compensation for the services it had rendered to the Municipality.
In considering the application for leave to appeal, the Constitutional Court reasoned that the granting of leave to appeal would be contrary to the interests of justice in that it found the development of the common law to allow for Bravospan to claim compensation in such a manner was appropriate in these circumstances and further that the conduct of the Municipality, in engaging a contractor and thereafter refusing to pay them, to amount to unethical conduct.
The Constitutional Court (adding to a series of previous decisions in lower courts relating to the conduct of municipalities, organs of state and government) condemned the Municipality strongly for requesting of Bravospan to continue providing the services while refusing to pay for same – in effect, the Court remarked, that the Municipality’s conduct suggests that it sought to benefit from the services without wishing to pay for them. This conduct, Bilchitz AJ reasoned, constitutes a failure to meet the ethical standards expected from government bodies exercising public power.
This judgment is of interest and application on two grounds.
The first being that in effect, the Constitutional Court has affirmed the development of the common law to allow for the claiming of compensation (for works or services duly performed) on the basis of a tender being declared invalid through a self-review by an organ of state.
The second of these is that the Courts have once again affirmed that organs of state are not entitled to rely on their own failures in taking administrative actions and exercising public power to avoid giving effect to their obligations in respect thereof.
The second of these judgments is APM Terminals BV v Transnet SOC Ltd and Others[2], a matter related to the tender for the operation of the portion of the Durban Harbour termed the Durban Container Terminal Pier 2 by a private sector partner. The tender is question demonstrates a willingness and movement towards the privatisation (or at least greater private involvement) in the operation, maintenance and expansion of key national infrastructure resources.
It appears though that the award of this tender has experienced an obstacle in that the High Court has granted an order whereby Transnet is interdicted, pending the judicial review of tender award, from taking any steps to implement its tender award through the negotiation or conclusion of a contract with the second respondent (International Container Terminal Services Inc – hereinafter referred to as “the successful tenderer”) or any other tenderer.
The Court considered two grounds of review raised by the applicant. The first of which involves the failure of the successful tenderer to provide the correct calculation of a solvency ratio calculation prescribed by Transnet, along with a formula for such calculation, and a minimum requirement in establishing that a tenderer had met the minimum financial requirements. The second grounds follows the first in that Transnet failed, as it said it would in the RFQ, to have an independent third party to verify that successful tenderers bid had met the minimum financial requirements.
The Court found that it appears, and the Court was careful to not make findings which would later bind the court deciding the review, that the solvency ratio calculation was simply not correctly applied by the successful tenderer nor that Transnet obtained a third party verification of the correctness of such calculation.
In attempting to counter this, one of the arguments raised by Transnet was that the public procurement should not be subverted by undue formalism and disqualification of tenders on the basis of immaterial non-compliance. The Court response to this argument was that they are Transnet’s own formalities, they cannot now seek to assert that it is being subjected to undue formalism.
Considering this, the Court reasoned, that the Applicant has, prima facie, prospects of success in the review.
In dealing with whether the Applicant had established the grounds for an interim interdict, Transnet raised that by granting the relief sought, they (and the country as a whole) would be severely prejudiced and that any delay in implementing this tender would cause hardship to the country through the continued underperformance of its primary port. The Court did not entertain this line of arguing – succinctly stating that Transnet has, on its own accord, taken over two and half years to award this tender and premised on this, it becomes difficult for Transnet to sustain that they will be prejudiced by the potential delay caused by the review proceedings.
Transnet further raised that a challenge to its decisions is an “unnecessary interference in the national government’s economic recovery plans”. The Court, once again, did not accept this and stated unequivocally that the government is obliged to promote the rule of law, and that it is the function of the Court to intervene where government or an organ of state acts outside of its legislative or statutory obligations. This interference is merely to ensure the protection of the Applicant’s rights to just administrative action.
While the intention of government may be to initiate economic recovery through increased procurement activity, it appears from these two judgments that the Courts intend, as they should, in strongly upholding proper process and compliance by organs of state and government with their statutory and contractual obligations and undertakings.
Alex Goddard (Associate) – MDA Attorneys – 7 November 2024
[1] 252 CC [2024] ZACC 20.
[2] 2024 ZAKZDHC 69 (9 October 2024).
