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[2015] ZASCA 208
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Westinghouse Electric Belgium Societe Anonyme v Eskom Holdings (Soc) Ltd and Another (476/2015) [2015] ZASCA 208; [2016] 1 All SA 483 (SCA); 2016 (3) SA 1 (SCA) (9 December 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 476/2015
In
the matter between:
WESTINGHOUSE ELECTRIC
BELGIUM
SOCIÉTÉ
ANONYME
APPELLANT
and
ESKOM HOLDINGS (SOC)
LTD
FIRST RESPONDENT
AREVA NP INCORPORATED
IN FRANCE
SECOND
RESPONDENT
Neutral
Citation:
Westinghouse
v Eskom Holdings
(476/2015)
[2015] ZASCA 208 (9 December 2015)
Coram:
Lewis,
Ponnan, Theron, Petse and Mathopo JJA
Heard:
23
November 2015
Delivered:
9
December 2015
Summary:
Review
of tender award: where an administrative body takes into account
considerations that are extraneous to the tender evaluation
criteria,
as set out in the invitation to bid, its decision to make the award
is unlawful and procedurally unfair. Award set aside
and matter
remitted to administrative body for reconsideration.
ORDER
On
appeal from:
Gauteng
Local Division of the High Court, Johannesburg (Carelse J sitting as
court of first instance).
1
The appeal is upheld and the cross appeal is dismissed, in each
instance with the costs of three counsel.
2
The order of the court a quo is set aside and replaced with the
following:
‘
(a)
The application to review and set aside the decision of the Bid
Tender Committee of 12 August
2014 succeeds with the costs of three
counsel.
(b)
The matter is remitted to Eskom Holdings
(Soc) Ltd for reconsideration in terms of s 8(1)
(c)
(i)
of the
Promotion of Administrative Justice Act 3 of 2000
.’
JUDGMENT
Lewis
JA (Ponnan, Theron, Petse and Mathopo JJA concurring)
[1]
The issue for determination in this appeal is the lawfulness of a
tender process conducted by the first respondent, Eskom Holdings
Soc
Ltd (Eskom). Eskom is a public company, the entire share capital of
which is owned by the State. It is thus an organ of state,
as
contemplated in the Constitution and the Promotion of Administrative
Justice Act 3 of 2000 (PAJA). The tender process involved
two
bidders, the appellant, Westinghouse Electric Belgium Société
Anonyme (Westinghouse) and the second respondent,
Areva NP
Incorporated in France (Areva). The tender was in respect of the
replacement of six steam generators at the Koeberg nuclear
power
station in the Western Cape. The replacement will cost some R5
billion. The tender was awarded to Areva on 12 August 2014.
[2]
On 15 August 2014 Eskom advised Westinghouse that its bid had been
unsuccessful. It immediately sought an urgent interdict in
the
Gauteng Local Division of the High Court, Johannesburg to stop Eskom
and Areva from concluding a contract for the replacement
of the steam
generators. It withdrew the application for reasons that are not
germane to this appeal. It then sought an urgent
review of the
decision to award the tender to Areva, in the same court, in
September 2014. Both Eskom and Areva opposed the application,
which
was dismissed by Carelse J in March 2015. Westinghouse appeals
against the substantive order and Areva cross-appeals against
the
order of the court a quo that the application be dismissed with the
costs of only two counsel when it had employed three. The
appeal by
Westinghouse and cross-appeal by Areva lie to this court with the
leave of the court a quo.
[3]
The basis for the application, which lies at the heart of the appeal,
is that the decision to award the tender to Areva was
taken
unlawfully. The reasons for the decision were said to be ‘strategic
considerations’, and the existence of a ‘float’
(a
buffer period of three months) in Areva’s bid, which Eskom
concedes were not part of the specified tender criteria. Areva,
on
the other hand, contended that these considerations were embodied in
the tender criteria.
[4]
If Westinghouse is correct that the award was unlawful, it asks that
this court order that it be awarded the tender, since its
bid was
about R140 million cheaper than Areva’s and, in addition, its
supplier development and localisation contribution
(SD & L),
which was part of the tender criteria, was worth about R157 million
more than Areva’s. These figures are contested,
but the
respondents concede that the bids were evenly matched in all other
respects. Thus Westinghouse argues that, had Eskom not
taken into
account strategic considerations, the award would have been made to
it.
[5]
The questions to be determined are accordingly whether the award
followed an unlawful tender process, and if so, whether this
court
should substitute Westinghouse for Areva as the successful bidder.
Areva also contends that Westinghouse did not have locus
standi to
institute the application or pursue the appeal since, it argues, in
fact the bid was made by an American company, Westinghouse
Electric
Company LLC (Westinghouse USA), for which it was acting as agent.
Westinghouse denies that it is an agent, and maintains
that it was
the party that made the bid. And of course Areva’s cross-appeal
against the costs order should also be considered
in the event that
the appeal does not succeed.
[6]
It should be noted that Eskom and Areva did in fact enter into the
envisaged contract and the work is proceeding. Eskom maintains
that
the work must be completed by 2018, when there will be a
planned shutdown of the Koeberg plant in stages, and the steam
generators would then be replaced. None of the parties deny that the
replacement of the generators is vital to the country’s
power
grid and that the energy crisis that affects it will be greatly
exacerbated if the work for which Westinghouse and Areva
tendered is
not done urgently. Some background is required.
The
Koeberg power station
[7]
Koeberg is the only nuclear power station in Africa. It comprises two
units each of which has three steam generators. The equipment
was
first manufactured by Areva (formerly known as Framatone). The plans
were designed by Westinghouse USA. There is a planned
shutdown of
Koeberg in 2018 – for some reason referred to as the ‘X23’
outage. Since at least 2010 Eskom has
known of the need to replace
the steam generators, which are prone to ‘Inter Granular Stress
Corrosion Cracking’, and
which necessitates their replacement.
By the end of 2014, the one unit had been in operation for 30 years,
and by the end of this
year the second unit will also have been
operating for 30 years. Eskom considered that by 2018 they would need
to be replaced.
It also regarded nuclear safety as a priority. It
started a tender process for the replacement in 2010 but cancelled
it.
The
tender process
[8]
The process currently under review began in 2012. It lasted two
years. Eskom, as an organ of state, is required to adopt a Supply
Chain Management Procedure (SCM procedure). The one in place when the
tender process began was adopted in September 2011. This
requires
Eskom to comply with various requirements that stem from s 217(1) of
the Constitution, which provides that organs of state
must, when
procuring goods or services, follow ‘a system that is fair,
equitable, transparent, competitive and cost-effective’.
Effect is given to s 217 of the Constitution by the Preferential
Procurement Policy Framework Act 5 of 2000. (See s 217(3)
of the
Constitution.)
[9]
Eskom’s SCM procedure follows the prescripts of the
Constitution and the Act. Relaxation of the SCM procedure is
permissible
only with specific authority and where deviations are
required to obtain funding or technical benefits. And any deviation
must
still meet the constitutional imperatives. The policy is
implemented through a variety of committees, the ones involved in
this
tender process being primarily the Executive Procurement
Sub-Committee (EXCOPS) and the Board Tender Committee (BTC).
[10]
The SCM procedure obliges Eskom to formulate tender criteria clearly
and without ambiguity; to attach weightings to each criterion
and to
evaluate and rank bidders on the basis of their total points
allocated in respect of each criterion. The tender criteria
were not
changed during the course of the tender process. At the start of the
process, when Eskom invited expressions of interest
in the tender,
and when it issued documentation for the tender on 18 August 2012,
the tender was divided into three lots. It was
envisaged that
different lots would be awarded to different bidders. The first lot
was for the manufacture and delivery of replacement
steam generators.
The second was for their installation and associated work. The third
was for engineering and safety analyses
consequent on the
replacement. Eskom required the replacement to take place during the
planned outage commencing in June 2018.
[11]
The process that ensued was exhaustive. The expressions of interest,
following the invitation in June 2012, were audited by
an independent
consultant: this established a shortlist of suppliers who qualified.
Only Westinghouse and Areva qualified to make
bids.
[12]
The invitations to tender that followed recorded that:
‘
The
tender evaluation process will be based on evaluating the overall
value to Eskom rather than the tendered prices only. Eskom
reserves
the right not to award this tender to the highest ranked or highest
scoring tender, as it needs to leverage or align its
procurement
practices to driving Socio-economic development objectives that are
enshrined in various government policies such as:
BBBEE [broad based
black economic empowerment], Plan Industrial Policy Action and the
New Growth Path. Preference will be given
to responses who score high
in these areas.’
[13]
The criteria for the evaluation of responsive tenders were:
·
Supplier
Development and Localisation [SD & L] 10 % for BBBEE and 20 %
Localisation and development;
·
Financial is 35 %;
and
·
35 % Technical
including SHE [safety health and environment]; Programme and
Quality.’
[14]
However, as both Westinghouse and Areva are foreign-owned entities
the BBBEE requirement and evaluation fell away. And so the
committee
evaluating the tenders (the BTC) could take into account only SD &
L, technical criteria and the cost. The deviation
that allowed for
special initiatives was not applicable. The invitation to tender also
provided that Eskom reserved the right to
conduct a further
procurement process through negotiating with bidders, even after the
evaluation process, provided that it had
the permission of the Eskom
Board of Directors or the relevant delegated authority.
[15]
Both Westinghouse and Areva submitted bids in respect of all three
lots. Eskom appointed a committee of 25 members with the
requisite
technical skills. Its role was to assess the bids with reference to
the bid criteria and to make recommendations to the
EXCOPS. The
EXCOPS would then make recommendations to the BTC, which was the
delegated authority charged with making the final
determination. In
December 2012 the technical committee recommended to the EXCOPS that
Westinghouse be awarded the tenders in respect
of Lots 1 and 3 and
that Areva be awarded the tender for Lot 2. On 14 January 2013, the
EXCOPS made the same recommendation to
the BTC.
[16]
In February 2013, the BTC, having considered the recommendations of
the EXCOPS, concluded that it did not have the expertise
to make a
final determination in respect of the bids, and resolved to appoint a
Swiss firm, AF-Consult Switzerland Limited (AF
Consult), to advise it
on technical matters. AF Consult is a consultant in the area of
energy, environmental and nuclear technology.
It was required to
address a number of issues, including the timing of the replacement
of the steam generators, the business case
made out and whether the
technical specifications were appropriately developed. It was,
however, requested to concentrate on the
technical aspects of the
evaluation. On Eskom’s version, there were two qualifying bids,
both of which could meet Eskom’s
requirements: there was very
little difference between the two.
[17]
AF Consult produced a report in July 2013. It made three ‘top’
recommendations. These were that (a) Eskom should
consider a more
thorough evaluation of rejected technical options in Lots 1 and 3;
that (b) it should consider whether all lots
should be ‘delivered
by one supplier’; and that (c) Eskom should take into account
previous experience for Koeberg
and Eskom with the suppliers. Most
significantly, AF Consult suggested that certain ‘strategic
considerations’ should
be taken into account by Eskom. As it
expressly said in the main body of the report, one item not
previously considered was Eskom’s
previous experience with
bidders. Another was that the bidders should be asked to improve
their localisation and development of
skills applicable for work on
nuclear power projects in South Africa. Thirdly, Eskom should
consider issues such as gaining experience
with foreign suppliers.
These matters were not part of the bid specifications.
[18]
On 13 December 2013, and pursuant to AF Consult’s
recommendations, Eskom invited Westinghouse and Areva to submit
composite
bids for the three lots. The tender evaluation
criteria were not changed. No new criteria were introduced. And on 14
January
2014 they both submitted composite bids.
[19]
The technical committee met again to consider the new bids and then
recommended to the EXCOPS that Lots 1 and 3 should be awarded
to
Westinghouse. The EXCOPS in turn recommended to the BTC that the
award in respect of Lot 2 should be determined after a process
of
competitive negotiation with both bidders. The BTC was advised to
approve a mandate to negotiate with suppliers, but not conclude
any
contract, in order to ‘extract more value in terms of price and
supplier development and localisation benefits’.
The EXCOPS
accepted the recommendation of the technical committee that the
tenders in respect of Lots 1 and 3 be awarded to Westinghouse
and so
recommended to the BTC.
[20]
However, the BTC did not accept the EXCOPS recommendations. It
preferred to enter into a composite contract in respect of the
three
lots. Thus a further subcommittee (the Exco Task Team) was appointed
by Eskom’s ‘interim chief executive officer’
on 14
May 2014. It was mandated to consider the issue of a single composite
contract. The Exco Task Team recommended that a composite
contract
should be concluded after parallel negotiations with both
Westinghouse and Areva, which would be led by an independent
person.
The Koeberg team, it recommended, ‘should consider all project
risks and the implications of meeting the Outage 23
schedule with the
appropriate risk mitigation actions’.
[21]
On 2 June 2014 the BTC resolved to accept the recommendation of the
Exco Task Team, and to embark upon the process of parallel
negotiation that would involve team members with Eskom specific plant
knowledge or Eskom employees who were not part of the evaluation
team. It required that negotiations were to be concluded ‘so as
not to delay Eskom’s readiness for the 2018 outage
and enable
it to adhere to the Outage 23 Project [X23] Schedule.’
The
parallel negotiations
[22]
Westinghouse and Areva were invited to engage in parallel
negotiations with Eskom on 13 June 2014. They were led by an
independent
consultant from Germany, Mr Ruediger Koenig. Prior to the
commencement of the negotiations, Westinghouse, Areva, and AF Consult
discussed the process telephonically. Eskom advised that, following
the negotiations, they would be expected to make final offers
which
allowed only for cost adjustments on deviations, options or risks
identified in the course of the negotiations. The conversations
were
recorded and minutes made. No mention was made about changing the bid
criteria.
[23]
Thus the original tender criteria, set out above, remained
applicable. The deponent to Eskom’s answering affidavit, Mr
M M
Koko, then the acting Group Executive for Technology and Commercial
at Eskom, attached to the affidavit an unattested statement
by Koenig
describing the negotiations. In it, he confirmed that the original
tender criteria were to apply. He said that the bidders
were advised
at the outset of the negotiations that Eskom would inform them if new
criteria were to be added. None were in fact
introduced. But late in
the negotiations, Koenig did mention that ‘high level decision
factors’ would be considered
and that ‘strategic
considerations’ might be taken into account.
[24]
Koenig added in his statement:
‘
In
the spirit of transparency, throughout the negotiations I made
efforts to emphasise items to both bidders that in my observation
were likely to be of special importance to Eskom. For instance, it
became apparent to me that due to the delays already encountered
in
the procurement process, the ability to meet schedule would be a
critical factor for the selection of a bidder and implementation
of
the project. I can confirm that I therefore personally pressed the
point with each of the bidders, that they should look at
the entire
schedule and demonstrate to Eskom the robustness of their schedule,
and not just adherence by the letter to key dates.’
[25]
Koko confirmed that on the last day of the parallel negotiations,
Eskom advised Westinghouse and Areva that, in addition to
the tender
evaluation criteria, in making the final determination of the award
it would have regard to strategic considerations.
What they would be
was not, however, disclosed. When Westinghouse made enquiries as to
the nature of the strategic considerations,
it was not told. Eskom
representatives were simply unable to respond to requests for
clarification.
[26]
The final offers by Westinghouse and Areva were submitted before the
deadline. Westinghouse, which submitted its final offer
on 11 July
2014, accepted all of Eskom’s contractual terms, which included
the obligation to complete the installation of
the replacement steam
generators during the 2018 scheduled outage. On 28 July
2014, Koko, and Mr T Govender (the Eskom
Group Executive,
Generation), wrote a report to the BTC, which was tabled at its
meeting on 31 July 2014, recommending that a contract
be awarded to
Westinghouse at a contract value of R4 215 682 094, with a
contingency amount of R843 136 418. But they recommended,
in the
alternative, that the award be made to Areva. The Areva contract
value would have been higher, as would the contingency
amount.
[27]
At its meeting on 31 July 2014, the BTC was not prepared to accept a
recommendation in the alternative. It considered that
the bids were
comparable, but noted that Westinghouse’s price was
substantially lower: it ‘translated into a lot of
money’.
The BTC discussed the buffer period of three months (the float) in
Areva’s bid, but agreed that ‘[t]he
schedule risk was
deemed to be equal by the Negotiation Team purely on a factual
basis.’ There was significant discussion
of the float. There
was also a discussion of strategic considerations. In the end, the
BTC resolved that the EXCOPS should meet
urgently to consider a
single recommendation to be placed before it. It agreed to meet again
on 12 August 2014.
[28]
Koko and Mr C Matjila, the acting chief executive officer, prepared a
revised recommendation for the EXCOPS recommending that
a contract be
concluded with Areva. Govender refused to sign this submission. He
wrote, in an email to Koko, Matjila and another
Eskom employee, dated
4 August 2014, that he did not have a basis to change his mind and
that all the decision making structures
should have the opportunity
to consider the alternative recommendations originally made to the
BTC. He acknowledged, however, that
the chief executive officer had
the prerogative to make a different recommendation.
[29]
The EXCOPS held a special meeting on 6 August 2014, and discussed the
question of the float and the cost differential again
at length. It
was noted that there was a risk in the Areva offer since it would be
using a subcontractor, SENPEC (Shanghai Electric
Nuclear Power
Equipment Company Limited), which had worked in China only, and that
the costs might be understated. It resolved
that Eskom should
conclude a contract with Westinghouse. But it again noted that the
BTC might consider concluding a contract with
Areva because of the
importance of the work to be done on schedule.
[30]
A recommendation was sent to the BTC on 7 August 2015 that strategic
issues should be considered in making the final decision,
but
proposed that the contract should be concluded with Westinghouse at a
total contract value of R4 215 682 094, and a contingency
value of
R843 136 418 (20 per cent of the total contract cost). The
recommendation was signed by all the members of the EXCOPS.
Despite
the recommendation the BTC resolved, on 12 August 2014, that the
contract be awarded to Areva.
The
reasons for the BTC’s decision
[31]
The reasons for the volte-face emerge from a letter sent to the
Minister of Public Enterprises by Mr Zola Tsotsi, the Chairman
of the
Eskom Board, and Ms Neo Lesela, the Chair of the BTC, dated 13 August
2014. They said, inter alia:
‘
Having
due consideration of all the facts presented to the BTC, it became
apparent that the management of Eskom’s risk was
the primary
driver of decisions to be made. Key considerations then became
certainty on the ability of the preferred supplier to
manage
adherence to the critical path of Eskom’s project schedule and
the ability to offer benefits for South Africa to meet
its strategic
supplier development and localization imperatives.’
[32]
They then explained the processes that had led to the decision and
stated that both bidders demonstrated compliance with Eskom’s
technical, commercial and SD & L requirements; that both were
technically capable of performing the work; that both met the
SD &
L targets; and that both had committed to Eskom’s milestones
and contractual terms. The letter continued:
‘
Notwithstanding
the fact that Westinghouse has emerged as the lowest price bidder
with an NPV [Net Present Value] price difference
of 0.99 % excluding
SD & L (equivalent to R36 808 992), the following strategic
considerations were made by the BTC:
·
Areva (then
Framatone) was involved as the nuclear constructor as part of a
consortium and became the OEM [original equipment manufacturer]
for
the plant since the start of operations in 1985;
·
While the original
design for plants of this age is owned by Westinghouse, Areva is the
. . . OEM for Koeberg and on-going
support from it throughout the
life of the plant would be beneficial to safe and reliable
operations;
·
Areva was the main
engineering organization at construction and therefore has the
in-depth information on the design and safety
assumptions. These
factors are relevant considerations for keeping the plant safe
through technical problems and plant upgrades;
·
over the last 15
or so years, Areva generally demonstrated better control of
sub-suppliers and had a stronger overall “branding
control”.
In other words, sub-suppliers generally acted in the Areva image
and/or the Areva overall quality control process
ensured quality of
supply;
·
Areva has, or has
contracts for, approximately 36 SGR projects between 2005 and 2018,
including 9 SGR projects planned between 2015
and 2018, while
Westinghouse in the same period (2005-2018) has had 2 as prime
contractor;
·
Areva has offered
to grant Eskom its intellectual property rights in respect of the
nuclear power station equipment; and
·
In addition to
the . . . SD& L offer that both bidders made to Eskom,
Areva offered during the negotiations to exchange
some training
activities with a study on the feasibility to manufacture nuclear
valves in South Africa. This represents potential
major benefit to
South Africa in terms of localisation and job creation in the short
to medium term. Valves have been designated
by the Department of
Trade and Industry . . . as a commodity for localisation.’
The
letter advised that the decision had been taken by secret ballot and
that there had been four votes in favour of the award to
Areva and
one against.
[33]
As will be immediately apparent, these considerations were not
expressly part of the bid evaluation criteria. Areva contended
that
they were implicit. Eskom conceded, as I have said earlier, that they
were not part of the tender. Moreover, in Eskom’s
answering
affidavit, Koko raised a further reason for the award to Areva: it
had included in an updated schedule a global float
– a three
month buffer period (the float) which optimised meeting the target
date. He said that Westinghouse had not submitted
an updated schedule
and so its advantage shifted when Areva showed that it was able to
mitigate against the risk of delay. Again,
Areva contended that the
performance of the work timeously was an inherent requirement of the
tender criteria. Yet Koko, in the
answering affidavit to the
application for the interdict, denied that the float played a role in
the evaluation process.
Was
the BTC entitled to take into account the strategic considerations?
[34]
The answer to the question whether the BTC was entitled to take into
account what it termed strategic considerations lies in
the bid
evaluation criteria. If they fell outside these criteria then it is
clear that the BTC acted beyond its powers, and thus
unlawfully. And
if any one of the considerations was taken into account when it
should not have been, then that is sufficient to
vitiate the
decision.
[35]
Carelse J in the court a quo considered that the strategic
considerations ‘were relevant considerations for the selection
of the successful bidder. None of the six criteria applied can be
said to be irrelevant considerations.’ She held thus that
the
BTC’s decision was not arbitrary or capricious, and that the
tender process was procedurally fair. In this regard she
relied on
Lawrence Baxter
Administrative Law
(1984) at 446:
‘
Administrative
action based on formal or procedural defects in not always invalid.
Technicality in the law is not an end in itself.
Legal validity is
concerned not with technical but also with substantial correctness.
Substance should not always be sacrificed
to form; in special
circumstances greater good might be achieved by overlooking technical
defects. . . .’
[36]
That is doubtless still good law. In
Allpay Consolidated
Investment Holdings (Pty) Ltd & others v Chief Executive Officer,
South African Social Security Agency &
others
2013 (4) SA 557
(SCA) (
Allpay SCA
) para 96 this court said:
‘
There
will be few cases of any moment in which flaws in the process of
public procurement cannot be found, particularly where it
is
scrutinized intensely with the objective of doing so. But a fair
process does not demand perfection and not every flaw is fatal.’
It
is, of course, only immaterial flaws (termed ‘inconsequential’
by that court) that may be overlooked. The judgment
in
Allpay
SCA
was
reversed on appeal to the Constitutional Court (the principles
formulated by that court are discussed below) but, as I understand
it, that principle was not attacked.
[37]
But the learned judge in the court a quo appeared to overlook the
principle that in assessing the lawfulness of the tender
process a
court must consider only whether the bids have been properly
evaluated against the tender criteria. Other considerations
are
not relevant.
Unfairness
in the process
[38]
It is appropriate at this stage to consider the law as to
unlawfulness in the tender process, both as to the award taken for
the wrong reasons and as to unfairness in the process. There are many
decisions of this court that have held that immaterial irregularities
in a tender process do not necessarily vitiate a tender award.
Allpay SCA
is one. I do not propose to deal with them
comprehensively. It is trite that fairness in the procurement process
is a value in
itself. In
Tetra Mobile Radio (Pty) Ltd v MEC,
Department of Works
2008 (1) SA 438
(SCA) para 9 this court said:
‘
[F]airness
is inherent in the tender procedure. Its very essence is to ensure
that before government, national or provincial, purchases
goods or
services, or enters into contracts for the procurement thereof, a
proper evaluation is done of what is available and at
what price, so
as to ensure cost-effectiveness and competitiveness. Fairness,
transparency and the other facts mentioned in s 217
[of the
Constitution] permeate the procedure for awarding or refusing
tenders.’
[39]
Proper compliance with the procurement process is necessary for the
process to be lawful. Strict rules of compliance have been
laid down
by the Constitutional Court. In
Allpay Consolidated Investment
Holdings (Pty) Ltd & others v Chief Executive Officer, South
African Social Security Agency &
others
[2013] ZACC 42
;
2014
(1) SA 604
(CC) para 39 the court approved the dictum of this court
in
Premier, Free State & others v Firechem Free State (Pty)
Ltd
2000 (4) SA 413
;
[2000] ZASCA 28
(SCA) para 30, where Schutz
JA said:
‘
One
of the requirements . . . is that the body adjudging tenders be
presented with comparable offers in order that its members
should be
able to compare.
Another
is that a tender should speak for itself. Its real import may not be
tucked away, apart from its terms
.
Yet another requirement is that competitors should be treated
equally, in the sense that they should all be entitled to tender
for
the same thing. Competitiveness is not served by only one or some of
the tenderers knowing what is the true subject of the
tender. . . .
that would deprive the public of the benefit of an open and
competitive process.’ (My emphasis.)
[40]
The Constitutional Court said in
Allpay
(para 40):
‘
Compliance
with the requirements for a valid tender process, issued in
accordance with the constitutional and legislative procurement
framework, is thus legally required. These requirements are not
merely internal prescripts that [the tender awarding body] may
disregard at whim. To hold otherwise would undermine the demands of
equal treatment, transparency and efficiency under the Constitution.
Once a particular administrative process is prescribed by law, it is
subject to the norms of procedural fairness codified by PAJA.
Deviations from the procedure will be assessed in terms of those
norms of procedural fairness. That does not mean that administrators
may never depart from the system put in place or that deviations will
necessarily result in procedural unfairness. But it does
mean that,
where administrators depart from procedures, the basis for doing so
will have to be reasonable and justifiable, and
the process of change
must be procedurally fair.’ (Footnotes omitted.)
[41]
See also
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2007 (3) SA 121
;
[2006] ZACC 16
(CC) para 60, where the
Constitutional Court said that strict compliance with tender
procedures by both bidders and adjudicators
is of central importance
in public procurement tenders. In
Allpay
the court said also (para 92) that ‘the purpose of a tender is
not to reward bidders who are clever enough to decipher unclear
directions. It is to elicit the best solution through a process that
is fair, equitable, transparent, cost-effective and competitive’.
[42]
The gravamen of the Constitutional Court judgment in
Allpay
is
that in order to ensure a fair outcome in a tender award, the process
itself must be fair. If the process is compromised it
cannot be known
what course it would have taken if the procedural requirements had
been properly observed (para 24).
[43]
The tender invitation, which sets out the evaluation criteria,
together with the constitutional and legislative procurement
provisions, constitute the legally binding framework within which
tenders have to be submitted, evaluated and awarded. There is
no room
for departure from these provisions (
Allpay
para 38).
Taking
a decision for a reason that is irrelevant or bad
[44]
It is a well-established principle that if an administrative body
takes into account any reason for its decision which is bad,
or
irrelevant, then the whole decision, even if there are other good
reasons for it, is vitiated. In
Patel v Witbank Town Council
1931 TPD 284
Tindall J said (at 290);
‘
[W]hat
is the effect upon the refusal of holding that, while it has not been
shown that grounds 1, 2, 4 and 5 are assailable, it
has been shown
that ground 3 is a bad ground for a refusal? Now it seems to me, if I
am correct in holding that ground 3 put forward
by the council is
bad, that the result is that the whole decision goes by the board;
for this is not a ground of no importance,
it is a ground which
substantially influenced the council in its decision . . . .
This ground having substantially influenced
the decision of the
committee, it follows that the committee allowed its decision to be
influenced by a consideration which ought
not to have weighed with
it.’
[45]
This passage was approved by this court in
Rustenburg
Platinum Mines (Rustenburg Section) v Commission for Conciliation,
Mediation and Arbitration
2007 (1) SA 576
(SCA) para 34 where Cameron JA said: ‘This
dimension of rationality in decision-making predates its
constitutional formulation.’
Once a bad reason plays a
significant role in the outcome it is not possible to say that the
reasons given for it provide a rational
connection to it. (The
decision of this court was reversed by the Constitutional Court but
this principle was not questioned:
Sidumo
& another v Rustenburg Platinum Mines Ltd & others
2008 (2) SA 24
;
[2007] ZACC 22
(CC)).
[46]
The taking of a decision for a reason that is assailable – one,
in this case, that falls outside the parameters of the
bid criteria –
clearly vitiates the decision itself. Section 6 of the Promotion of
Administrative Justice Act 3 of 2000 (PAJA)
provides:
‘
6
Judicial review of administrative action
(1)
Any person may institute proceedings in a court or a tribunal for the
judicial review of an administrative action.
(2)
A court or tribunal has the power to judicially review an
administrative action if–
(a)
the
administrator who took it –
(i)
was not authorised to do so by the empowering provision;
(ii)
acted under a delegation of power which was not authorised by the
empowering provision; or
(iii)
was biased or reasonably suspected of bias;
(b)
a mandatory
and material procedure or condition prescribed by an empowering
provision was not complied with;
(c)
the action
was procedurally unfair;
(d)
the action
was materially influenced by an error of law;
(e)
the action
was taken –
(i)
for
a reason not authorised by the empowering provision;
(ii)
for an ulterior purpose or motive;
(iii)
because irrelevant considerations were taken into account or relevant
considerations were not considered;
.
. . .’ (My emphasis.)
Unfair
process
[47]
Westinghouse argues that the whole process of the award of the tender
was unlawful because there was not proper compliance
with the tender
requirements by the BTC. Thus there was no fairness; an efficient
process was not ensured; and there was no safeguard
against
corruption. In
Allpay
Froneman J said (para 27):
‘
[D]eviations
from fair process may themselves all too often be symptoms of
corruption or malfeasance in the process. In other
words, an unfair
process may betoken a deliberately skewed process. Hence insistence
on compliance with process formalities has
a threefold purpose:
(a)
it ensures fairness to participants in the bid process;
(b)
it enhances the likelihood of efficiency and optimality in the
outcome; and
(c)
it serves as a guardian against a process skewed by corrupt
influences.’
[48]
The very fact that the BTC resorted to strategic considerations
without making these known to either Westinghouse or Areva,
and
without making them part of the bid evaluation criteria, appears to
me to be fundamentally unfair. And the fact that Eskom
added to these
in its answering affidavit by stating that the BTC had also had
regard to the float added injury to insult. No mention
was made of
this consideration in the letter to the Minister and of course
Westinghouse was not given the opportunity to point
out where, in its
schedule, it had built in buffer periods to avoid delay in the
completion of the work.
[49]
Westinghouse does not complain about the resort to the negotiations:
it complains that after the negotiations had ended, Eskom
still took
into account factors other than those found in the bid criteria. As I
have pointed out earlier, it is common cause that
these were not
changed after the invitation to tender was made. Areva argues
that these considerations were to be found in
the invitation to bid.
Were
the strategic considerations part of the bid evaluation criteria?
[50]
Westinghouse argues that each of the strategic considerations that
materially influenced the decision to award the tender to
Areva was
not relevant because the respective bids had to be evaluated only
against the published bid criteria: these were the
financial,
technical and the SD & L. Eskom does not contend that the
strategic considerations were bid criteria. It concedes
that they
were not. But Areva argues that all of them are to be found in the
tender documents. I do not propose to analyse its
contentions in any
depth. If any of the considerations that caused the BTC to award the
tender to Areva is outside the parameters
of the bid criteria the
decision is bad in law. In considering each of the strategic
considerations and the float, it must be borne
in mind, as Schutz JA
said in
Firechem
above, that the tender must speak for itself.
The
original equipment manufacturer
[51]
In its letter to the Minister, Eskom listed as the first strategic
consideration that Areva was the manufacturer of the Koeberg
plant.
Westinghouse also lays claim to having been involved in that a
Westinghouse USA design was used. In my view that is irrelevant.
But
in any event, the evaluation in respect of Lot 3 had already taken
into account the fact that Areva was the original equipment
manufacturer (OEM) when assessing the respective experience of the
bidders. In Eskom’s technical assessment it expressly
stated
that in this section no preference should be given to the OEM as it
would amount to bias in favour of Areva. It said that
Westinghouse
had already been penalized for not being the OEM in the section
evaluating ‘management of the input data’.
[52]
It was accordingly not open to the BTC to take the decision based on
this consideration in addition to having evaluated it
when
considering experience. OEM status was not ever part of the tender
criteria. Koko admitted in Eskom’s answering affidavit
that it
was not a specific requirement that the bidder be the OEM, but said
the fact that Areva was such ‘provides an increased
comfort’
to Eskom. It provided more certainty that the work would not be
delayed.
[53]
The BTC thus took into account an irrelevant consideration that was
not part of the tender criteria. For this reason alone
Westinghouse
is justified in arguing that the award was reviewable under s
6(2)
(e)
(iii)
of the PAJA.
Control
over subcontractors and ‘branding control’
[54]
The second strategic consideration that tipped the balance in favour
of Areva was that it had previously ‘generally demonstrated
better control of sub-suppliers and had a stronger overall “branding
control”’. What exactly this meant is unclear.
In any
event this also lay outside the tender award criteria. And it was not
discussed during the negotiating process. No foundation
was laid for
the consideration as a matter of fact. But worst of all, Eskom did
not give Westinghouse the opportunity to defend
its record. And, as a
matter of fact, Areva would have used a subcontractor, SENPEC, that
had never worked outside of China. There
is nothing to suggest that
its previous record gave it, for this award, the edge in this
respect. Indeed, in the Commercial Report
on the bids to the BTC,
Eskom officials said to the BTC that the use of SENPEC ‘requires
specific risk mitigation measures
such as increased oversight quality
assurance activities which Eskom would need to perform’.
[55]
Nonetheless Koko, for Eskom, explained that although neither bidder
was penalized for prior incidents involving subcontractors,
he also
said that this consideration tipped the balance between quality and
costs where the two bidders were equally competent
to perform the
work. A decision based on this consideration as a reason for the
award to Areva is also reviewable under s 6(2)
(e)
(iii)
of the PAJA.
Experience
[56]
The BTC advised the Minister that the third strategic consideration
for the award to Areva was that it had more planned contracts
for
steam generator replacement, in the period between 2005 and 2018,
than did Westinghouse – some 36 – whereas Westinghouse
had but two. This, according to Westinghouse was a bad reason first
because, as a matter of fact, Westinghouse’s primary
subcontractor, Bechtel, has considerable experience. This was
recognized by Eskom when it responded to a criticism made by AF
Consult:
‘
The
scoring assigned to Westinghouse in the individual Lot evaluation
includes the Bechtel experience since, as documented in the
initial
bid document, Westinghouse has a lengthy record of performing SGRs.
Bechtel has been included as a Westinghouse sub-supplier.
This has
not changed for the composite bid.’
[57]
Secondly, the consideration was bad because it had already been taken
into account, as illustrated above. To regard it as tipping
the
balance when both bidders had scored well for experience is plainly
absurd. In fact, Areva had scored 100 per cent, on Eskom’s
version. This too renders the decision reviewable.
Intellectual
Property Rights
[58]
The fourth strategic consideration was said by the BTC to be that
Areva had offered to grant its intellectual property rights
in
respect of Koeberg to Eskom. Again, this was not a criterion of
assessment. Although Eskom does not rely on it now, saying the
factor
is neutral, the letter to the Minister states that it was a reason
for the award to Eskom. It cannot have it both ways.
It was not a
reason relevant to the award, and since the BTC said it had taken it
into account, it took the decision for an irrelevant
reason. That too
is a ground for review.
Areva’s
SD & L offering
[59]
The fifth reason advanced to the Minister for the BTC’s
decision was that, in addition to what Areva had included in
its
tender, in the negotiation process it had offered to exchange certain
training activities for a study on the feasibility of
manufacturing
nuclear valves in South Africa. As Westinghouse argues, this offer is
not quantifiable. Moreover, the SCM procedure
states that the
compliance matrix ‘contains the evaluation framework and
methodology and will be used as the basis for the
evaluation of SD &
L as a criterion’. It continues to state that the compliance
matrix, with adjustments for each tender,
must be included as a
mandatory tender returnable for completion by suppliers.’ Thus,
argues Westinghouse, the additional
offer by Areva was not part of
the compliance matrix and should not have been taken into account.
[60]
Moreover, Areva’s SD & L had to be compared with that of
Westinghouse. As I have already indicated Westinghouse’s
supplier, development and localization offer, made in its bid, was
worth substantially more than that originally offered by Areva.
Koko
denied, in the answering affidavit, that Eskom had taken the
additional offer by Areva into account. He said that it was an
attractive offer, but that it would be investigated only after the
award was made to Areva. Yet that is not what the BTC said to
the
Minister: either Koko was wrong or the BTC was misleading the
Minister when it said that in addition to the SD & L offers
in
their bids, Areva had offered training activities related
to nuclear generator valves, and that this was a strategic
consideration. The decision is reviewable for this reason too. In
Metro
Projects CC & another v Klerksdorp Municipality & others
2004 (1) SA 16
(SCA) para 14, this court said that to allow a bidder
to ‘augment its tender so that it might have a better chance of
acceptance
by the decision-maker’ is unfair.
The
schedule float
[61]
As I have said, Eskom added a sixth additional reason for the
decision in its answering affidavit. Areva had built in a period
of
three months in its schedule to avert delay. No mention of this was
made to the Minister. Moreover, in its answering affidavit
in the
urgent application for an interdict, Eskom had denied that the float
was a consideration taken into account. So Eskom’s
position is
contradictory.
[62]
Areva argues that the time schedule was always a crucial factor. The
steam generators had to be replaced during the X23 outage.
A buffer
period was thus essential and always known to both bidders. A float
was in fact discussed at the BTC meeting of 31 July
2014, where one
member had asked if the float was a tender requirement. The member
also asked whether Westinghouse had been advised
that the float
carried weight in the adjudication process. But the minutes record
that the schedule risk was deemed to be equal
by the negotiation
team.
[63]
In addition, the EXCOPS report (dated 5 August 2014) to the BTC
stated that if Westinghouse were to ‘slip’
by one month
its cost advantage would be negated. But that is because it
calculated its bid value as R36 million less than that
of Areva,
whereas the actual figure was some R140 million, excluding SD & L
benefits.
[64]
Westinghouse argues thus that the reliance on the float as a reason
for the award was irrational. The BTC failed also to take
into
account that Westinghouse had unconditionally committed to Eskom’s
requirement that the replacement steam generators
had to be installed
in the 2018 outage. It did so under pain of a penalty of R5 million
for each day by which it was late. Westinghouse
maintained that as a
matter of fact it had built in 41 days as a contingency, and had
offered to work seven days a week (instead
of six) that would have
given it a ‘cushion’ of 104 days in addition. There is no
need to determine whether that is
in fact so. Until the BTC took its
decision on 12 August 2014, Westinghouse had not been asked to
demonstrate where the float lay
in its schedule. But it would have
appeared from the schedule and the bid had Eskom been specifically
concerned with a buffer period.
Thus this reason too, advanced by
Eskom for the first time in its answering affidavit, was bad and
rendered the decision reviewable.
The
BTC’s decision was unlawful
[65]
In my view, when the BTC took into account each of the strategic
considerations, and the consideration of the float, and thus
decided
to award the tender to Areva, it made the decision unlawfully in
terms of s 6(2)
(e)
(iii)
of the PAJA. And the failure, if these reasons were decisive, to
refer them to the bidders and give them the opportunity to
clarify
their bids, or to reopen the process and amend the tender criteria to
include the factors, made the whole process irrational
and unlawful.
The award must thus be set aside.
Did
Westinghouse have locus standi to institute proceedings?
[66]
The argument raised by Areva in this regard is that various letters
sent to Eskom reveal that it was acting not for itself
but for its
associated American company, Westinghouse USA. Evidence of this is to
be gleaned from several letters. These include
one dated 21 July
2014, intended to clarify issues raised by Eskom, written on the
letterhead of Westinghouse Electric Belgium
SA, and signed by Mr L
van Hulle, the Vice President for Marketing, Europe, Middle East and
Africa (Van Hulle was the deponent
to Westinghouse’s founding
affidavit); Mr F Wolvaardt, the Eskom Customer Account Manager; and
Mr F Poncelet, the Westinghouse
Marketing Manager Major Projects
Europe, Middle East and Africa. In the letter they wrote: ‘Our
offer, these clarifications
and any subsequent communications
relating to this offer are the property of, and contain information
which is proprietary and
confidential to, Westinghouse Electric
Company LLC, and may be used only for purposes of offer evaluation.’
[67]
In Areva’s answering affidavit, Mr Y-M Pacé, referring
to this statement, pleaded that: ‘From this, it must
be
deduced, I contend, that the true tenderer was not Westinghouse, but
rather Westinghouse USA. This would mean that the applicant
has no
locus standi in these proceedings.’ Areva relies on other
letters too. There is no need to dwell on them. Areva complains
also
that the court a quo did not admit one of them for the wrong reason.
Most of the documents on which Areva relies to show that
Westinghouse
is only an agent, and as such has no standing, are to similar effect:
for example, in its final offer to Eskom made
in July 2014,
Westinghouse wrote to Eskom stating that ‘Westinghouse Electric
Belgium on behalf of Westinghouse Electric
Company is pleased to
submit the present offer to ESKOM’.
[68]
Other documents suggesting that Westinghouse USA is the true tenderer
are a part of the Westinghouse bid that deals with the
use of Bechtel
as a sub-supplier, and in which it is said that the proposal is a
joint effort of Westinghouse USA and Bechtel Power
Corporation
(Bechtel); and a memorandum (signed only on behalf of Bechtel)
dealing with the proposed contract between Westinghouse
and Bechtel
which refers also to Westinghouse USA.
[69]
Westinghouse argues, on the other hand, that it was always the
bidder. Eskom understood it to be such. If the tender had been
awarded to it, the award would have been not to Westinghouse USA but
to it, the company that had in fact submitted the bid. And
it was
Westinghouse that had participated in the negotiations. Areva relies
on
Sandton Civic Precinct (Pty) Ltd v City of Johannesburg &
another
[2008] ZASCA 104
;
2009 (1) SA 317
(SCA) in arguing that Westinghouse has no
standing. There Cameron JA said (para 19):
‘
The
applicant must establish the legal lineage between itself and the
rights-acquiring entity the resolution mentions. That it has
not
done. While in a sense this is technical, and procedural, it also
goes to the substance of the applicant’s entitlement
to come to
court.’
I
consider that Westinghouse has established its legal lineage.
[70]
Moreover, Areva did not deny that Westinghouse had submitted its
first bid in October 2012 and a revised offer in 2014. The
references
to acting on behalf of Westinghouse USA are mere surplusage and must
be disregarded. Areva’s argument on Westinghouse’s
standing must thus fail, as it did in the court a quo.
Substitution
and the appropriate relief
[71]
Westinghouse asks that it be substituted for Areva: Eskom should be
ordered to conclude the contract for the replacement of
the steam
generators to Westinghouse. This is permissible in terms of s 8(1) of
the PAJA which provides that a reviewing court
may grant any order
that is just and equitable. Section 8(1)
(c)
(i)
allows for the matter to be remitted for reconsideration by the
administrator, and 8(1)
(c)
(ii)
provides that in exceptional circumstances a court may substitute or
vary the administrative action.
[72]
In
Gauteng Gambling Board v Silverstar Development & others
2005 (4) SA 67
(SCA) para 29, Heher JA said:
‘
An
administrative functionary that is vested by statute with the power
to consider and approve or reject an application is generally
best
equipped by the variety of its composition, by experience, and its
access to sources of relevant information and expertise
to make the
right decision. The court typically has none of these advantages and
is required to recognise its own limitations.
. . . That is why
remittal is almost always the prudent and proper course.’
He
relied in this regard on, inter alia, the Constitutional Court
decision in
Bato
Star Fishing (Pty) Ltd v Minister of Environmental Affairs &
others
2004 (4) SA 490
;
[2004] ZACC 15
(CC) paras 46-49. The court in
Gauteng
Gambling
nonetheless considered that there were exceptional circumstances in
that matter and because of the inevitability of the outcome,
accepted
that remittal was not necessary and substitution was appropriate.
[73]
The question is essentially one of fairness. In
Commissioner,
Competition Commission v General Council of the Bar of South Africa &
others
2002 (6) SA 606
(SCA) Hefer AP said (para 14):
‘
[T]he
remark in
Johannesburg
City Council v Administrator, Transvaal & another
[1969 (2) SA 72
(T) at 76D-E] that “the Court is slow to assume
a discretion which has by statute been entrusted to another tribunal
or functionary”
does not tell the whole story. For, in order to
give full effect to the right which everyone has to lawful,
reasonable and procedurally
fair administrative action,
considerations of fairness also enter the picture. There will be no
remittal to the administrative
authority where such a step will
operate procedurally unfairly to both parties.’
[74]
Most recently, the Constitutional Court in
Trencon Construction
(Pty) Ltd v Industrial Development Corporation of South Africa &
another
2015 (5) SA 245
;
[2015] ZACC 22
(CC) reversed a decision
of this court which had ordered remittal to a bid evaluation
committee: the committee had wrongly concluded
that one of two bids
was non-responsive. The Constitutional Court held, however, that
substitution was the appropriate remedy.
Khampepe J said (para 47):
‘
To
my mind, given the doctrine of separation of powers, in conducting
this enquiry there are certain factors that should inevitably
hold
greater weight. The first is whether a court is in as good a position
as the administrator to make the decision. The second
is whether the
decision of the administrator is a foregone conclusion. These two
factors must be considered cumulatively. Thereafter,
a court should
still consider other relevant factors. These may include delay,
bias or the incompetence of an administrator.
The ultimate
consideration is whether a substitution order is just and equitable.
This will involve a consideration of fairness
to all implicated
parties. It is prudent to emphasise that the exceptional
circumstances enquiry requires an examination of each
matter on a
case-by-case basis that accounts for all relevant facts and
circumstances.’ (Footnote omitted.)
The
court said further that the first enquiry is whether it is in as good
a position to make the decision as the administrator was.
Second, it
must determine whether a substituted award is a foregone conclusion.
[75]
Westinghouse argues that this court is in as good a position as the
BTC was to award the bid to it and that Eskom should be
ordered to
conclude a contract with it, even though a contract has already been
concluded with Areva and work commenced in September
2014. Further,
it contends, it is a foregone conclusion that Eskom would have
awarded the tender to Westinghouse had the BTC not
taken irrelevant
considerations into account.
[76]
In my view, however, it would not be equitable for this court to
substitute Westinghouse for Areva. First, Eskom, albeit at
the last
minute, decided that various criteria, not part of the bid
specification, were decisive. These were strategic considerations
that gave Areva the advantage, despite Westinghouse’s
considerably less costly bid. Thus the administrator, Eskom, itself
relied on considerations that it regarded as vital but which it had
not placed in the bid criteria. Eskom should accordingly start
the
tender process again and if it still considers that the criteria it
wrongly took into account, or to which it attributed double
weighting, are vital it should include these amongst the bid
evaluation criteria.
[77]
Second, Areva has already started the work. This court does not know
what the consequences of substitution will be. And the
2018 deadline
is looming.
[78]
Westinghouse argues that it is a foregone conclusion that it would
have been the successful bidder had irrelevant considerations
not
been taken into account. Areva argues to the contrary. It is true
that the EXCOPS recommended that Westinghouse be awarded
the
contract. But it also recommended, in the alternative, that the award
should go to Areva despite its bid being more costly.
We do not know
that it is a foregone conclusion that Westinghouse will succeed,
especially if the strategic considerations are
properly taken into
account. Accordingly the matter must be remitted to Eskom for
reconsideration.
The
cross-appeal
[79]
Areva has cross-appealed against the order of Carelse J awarding it
only the costs of two counsel in the court a quo. There
is no merit
in the cross-appeal. In any event it is of no consequence since
Westinhhouse’s appeal succeeds.
Order
[80]
1 The appeal is upheld and the cross-appeal is dismissed, in each
instance with the costs of three counsel.
2
The order of the court a quo is set aside and replaced with the
following:
‘
(a)
The application to review and set aside the decision of the Bid
Tender Committee of 12 August 2014 succeeds with the costs of
three
counsel.
(b)
The matter is remitted to Eskom Holdings (Soc) Ltd for
reconsideration in terms of s 8(1)
(c)
(i)
of the
Promotion of Administrative Justice Act 3 of 2000
.’
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellant:
J J Gauntlett SC (with him D Borgström and L Kelly)
Instructed
by:
Webber Wentzel, Johannesburg
Honey
Attorneys, Bloemfontein
For
First Respondent:
I V Maleka SC (with him H Rajah)
Instructed
by:
Mchunu Attorneys, Johannesburg
Bokwa
Attorneys, Bloemfontein
For
Second Respondent:
P B Hodes SC (with him D Goldberg and D Simonsz)
Instructed
by:
Dentons Incorporated as Kapditwala, Cape Town
Van der Merwe &
Sorour Attorneys, Bloemfontein