Maximum Profit Recovery (Pty) Ltd v Umkhanyakude District Municipality and Another (D12061/2024) [2025] ZAKZDHC 32 (23 May 2025)

Case Note

Case Name: Maximum Profit Recovery (Pty) Ltd v Umkhan Yakude District Municipality and PK Consulting Group CC
Citation: Case No. D 12061/2024, High Court of South Africa, KwaZulu-Natal Local Division, Durban
Date: 2024

Reportability

This case is reportable as it deals with constitutional challenges to public procurement decisions and alleged irregularities in the awarding process for municipal services. The decision under review implicates fundamental principles including fairness, transparency, and accountability in state procurement—core elements protected under the Constitution. The case highlights the tension between a municipality’s discretionary procurement practices and statutory as well as internal regulatory frameworks governing supply chain management.

The judgment is significant because it scrutinizes the application of administrative justice in the awarding of public contracts. It emphasizes that even after a bid is initially successful, the subsequent procurement processes must satisfy legal and procedural fairness requirements. The case serves as an important precedent in ensuring that governmental decisions are open to rigorous judicial review when they conflict with established procurement policies and constitutional imperatives.

Furthermore, this decision underscores the court’s role in protecting the integrity of public procurement processes. It reaffirms the necessity for all relevant panel members to be given equal opportunity under competitive bidding rules, thereby reinforcing the constitutional mandate of fairness in administrative action.

Cases Cited

Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency and Others 2014 (1) SA 604 (CC)

Legislation Cited

Promotion of Administrative Justice Act 3 of 2000
Preferential Procurement Policy Framework Act 5 of 2000
Local Government: Municipal Finance Management Act 56 of 2003
Municipal Supply Chain Management Regulations

Rules of Court Cited

No specific rules of court were cited beyond the reference to the Municipal Supply Chain Management Regulations and their associated provisions.

HEADNOTE

Summary

The judgment concerns the decision of the Umkhan Yakude District Municipality to appoint a service provider at a rate based on a percentage rather than under the originally tendered hourly rates, in contravention of both its internal Supply Chain Management policies and relevant statutory provisions. The court found that the municipality’s quotation process was procedurally unfair and conflicted with its own procurement regulations, especially given that not all panel members were invited to submit quotations. This discrepancy in process and procedure led to the decision being declared unconstitutional and unlawful.

In reaching its decision, the court examined the discrepancies between the municipality’s original tender specifications and the subsequent quotation process for the 12-month VAT review services. The court considered the statutory framework governing public procurement and administrative fairness, particularly focusing on provisions of the Promotion of Administrative Justice Act as well as the Municipal Supply Chain Management Regulations. The analysis revealed significant procedural flaws and a lack of transparency in the decision-making process.

Finally, the court’s reasoning underscored the importance of adhering to competitive bidding processes and internal policies that ensure fair allocation of work among panel members. The decision ultimately resulted in the annulment of the appointment along with associated contracts, setting aside any payments made under the flawed process and imposing remedial measures to correct the procurement irregularities.

Key Issues

The key issues addressed in the judgment include the constitutional validity of the municipality’s decision to appoint a service provider outside the established competitive bidding process, the procedural fairness of the quotation process, and whether the municipality’s actions complied with its internal Supply Chain Management policies and relevant procurement legislation. The analysis also focused on the impact of failing to invite all panel members to quote, which raised concerns over transparency and accountability in public procurement.

Held

The court held that the appointment of the second respondent for VAT review and recovery services was constitutionally invalid and unlawful. The municipality’s decision, and any resulting agreements or payments made thereunder, was set aside. The municipality was further interdicted from using its quotation process under the contested tender and ordered to reallocate work in accordance with competitive point scoring of panel members, with preference given to the highest-scoring tenderers.

THE FACTS

In March 2024, the Umkhan Yakude District Municipality issued an invitation to tender for a panel of accounting support services over a period of 36 months, which included various disciplines such as financial statements, audit support, and VAT review and recovery. Maximum Profit Recovery (MPR) submitted a bid solely for the VAT services discipline and was subsequently appointed to the panel along with PK Consulting Group CC. However, after the panel was established, the municipality later initiated a separate quotation process for the VAT review service spanning 12 months.

Despite the original tender requirements calling for hourly rates, the municipality issued an invitation for quotations that resulted in the unusual selection of a percentage-based fee (14.25%) specifically from the second respondent. The process involved sending the invitation for quotations to only three panel members without clear documentation as to how these members were selected. The procedural irregularity and the deviation from the municipality’s Supply Chain Management policies ignited the review by MPR.

Consequently, MPR challenged the municipality’s decision on the grounds that it breached both statutory procurement regulations and constitutional mandates. The crux of the matter lay in the perceived lack of fairness in omitting other panel members from the quotation process and the arbitrary nature of the decision-making process.

THE ISSUES

The legal questions before the court were whether the municipality’s decision to appoint the second respondent through a selective quotation process was constitutionally and procedurally valid. The court was tasked with determining if the municipality violated its own Supply Chain Management policies and public procurement regulations by excluding other panel members from submitting quotations. Moreover, the court had to assess if the process compromised the fairness and transparency required under the Promotion of Administrative Justice Act and the Preferential Procurement Policy Framework Act.

The issue also extended to whether the municipality’s discretion in awarding contracts on an “as and when required” basis was being abused. The court scrutinized if the departure from competitive tendering in a contract exceeding R200,000 could be justified under the applicable legal framework.

ANALYSIS

The court’s analysis centered on the statutory and constitutional requirements governing public procurement. In examining the municipality's internal policies and the Municipal Supply Chain Management Regulations, the court found that the quotation process used for awarding the VAT review services was both procedurally flawed and lacking in transparency. Key regulatory provisions were identified that mandated competitive bidding for contracts above a certain value, and the failure to adhere to these provisions rendered the appointment process irregular.

The reasoning further highlighted that the municipality’s failure to document the basis for selecting only three panel members to submit quotations undermined the fairness of the procedure. In addressing the discrepancy between the quoted percentage-based remuneration and the originally tendered hourly rates, the court noted that such deviation from standard practice significantly disadvantaged the principles of fairness and accountability. Legislative provisions related to administrative justice and procurement policy were central to this determination.

Moreover, the court underscored that even though the municipality had delegated some discretion in awarding work, that discretion was strictly bound by internal and statutory protocols designed to ensure fairness. The analysis demonstrated that no reasonable justification could be found for breaching these protocols, which ultimately led to the setting aside of the municipality’s decision and contractual arrangements.

REMEDY

The court ordered that the municipality’s decision to appoint the second respondent based on the disputed quotation process be declared constitutionally invalid and unlawful. All agreements entered into pursuant to this decision were set aside, and any payments made by the municipality to the second respondent were ordered to be repaid. Additionally, the municipality was interdicted from using its previous quotation process for procuring goods and services falling within the scope of the contested tender.

The remedial measures further required the municipality to reallocate work by conducting a point scoring exercise of all panel members, giving preference to the highest-scoring tenderer. The court also ordered that the applicants’ costs, including those arising from the employment of Senior Counsel, be paid on Scale C. This comprehensive remedy was designed to restore fairness, maintain accountability, and ensure adherence to both statutory and internal procurement protocols.

LEGAL PRINCIPLES

The legal principles established in this case reaffirm that public procurement processes must adhere strictly to the principles of fairness, transparency, and accountability. The judgment emphasizes that any deviation from established competitive bidding processes, especially in contracts exceeding statutory thresholds, is subject to rigorous judicial review. Constitutional mandates such as those set out in section 217 of the Constitution and relevant administrative justice legislation must be observed at all times.

The decision illustrates that internal municipal policies, when aligned with statutory procurement regulations, have binding effect and any violation thereof can lead to remedies including the annulment of contracts and reallocation of work. It also reinforces the principle that the integrity of public procurement is not maintained solely by the awarding of bids but must continue through the management and amendment of contracts. Finally, the judgment confirms that judicial intervention is warranted when there is a failure to provide all eligible bidders with a fair chance to compete, ensuring that public funds are managed in accordance with legal and constitutional standards.