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[2018] ZAGPJHC 455
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Mining Qualifications Authority v IFU Training Institute (Pty) Ltd (2016/44912) [2018] ZAGPJHC 455 (26 June 2018)
REPUBLIC
OF SOUTH AFRICA
THE
HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2016/44912
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
In
the matter between:
MINING
QUALIFICATIONS
AUTHORITY
Applicant
and
IFT
TRAINING INSTITUTE (PTY) LTD
Respondent
JUDGMENT
Headnote
Applicant,
an organ of state reviewed itself for committing irregularities in
processing a tender to respondent – test for
such review the
principle of legality not PAJA following
Gijima
On
the facts, irregularties were committed by ex-CEO, who subverted a
tender evaluation and adjudication process by retrieving the
respondents bid from the discard bin and awarded the tender to it
without any evaluation of adjudication
Procurement
process not observed
Held
– tender set aside – invalidity of contract suspended
until new tender validly awarded – respondent to forfeit
its
profits – statement and debatement ordered.
SUTHERLAND
J
INTRODUCTION:
[1]
The applicant, the Mining Qualifications Authority, an Organ of State
established under the Mine and Safety Act 29 of 1996,
seeks to review
its own decision to award a tender to the respondent, IFU Training
Institute(Pty) Ltd, which a private contractor.
The applicant is an
entity mandated to administer skills training schemes for the mining
sector. As part of it work, it outsources
such management
responsibilities to private contractors. The present case concerns a
project to train artisans in the Northern
Cape Province.
[2]
The test for such a review is the application of the principle of
legality, more particularly whether the action of the organ
of state
was incompliance with several public procurement instruments, resting
ultimately on section 217(1) of the Constitution
which provides that
procurement of services be “….in accordance with a
system which is fair, equitable, transparent
competitive and cost –
effective.”
[1]
[3]
At issue is:
3.1.
first, whether the bid by the respondent, was in four respects
irregular, and if so, were the
irregularities material, warranting
disqualification, and,
3.2.
second, whether an unlawful deviation by the applicant in the award
of the tender to the respondent
occurred.
[4]
The alleged Bid irregularities committed by the respondent are:
4.1.
The absence of an original tax clearance certificate for the Northern
Cape Rural College (RCNC),
an entity that was to participate in the
delivery of the service which was the subject matter of the tender.
4.2.
The subcontracting to the NCRC of more than 25% of the tender.
4.
3 The absence of accreditation, at the time of the
bid, to undertake tuition in diesel mechanics, one of the
four
courses constituting the training project.
4.4.
The misrepresentation that the respondent had thirty years’
experience in the relevant
field of managing technical skills
education.
[5]
The alleged unlawful deviations from the tender procedure are
multiple, but, in essence, is centred on plucking the respondent
out
from the discarded bidders bin and circumventing the competitive
evaluation process to award the tender to it.
[6]
The approach to such a controversy is to first determine whether an
irregularity was committed and if it constitutes a ground
of review,
whereafter, its materiality to the purpose for which the stipulation
in the bid invitation is determined.
[2]
THE
BID IRREGULARITIES
[7]
The respondents bid was initially disqualified. The disqualification
was for failing to furnish an original tax clearance certificate
for
the NRC college and for awarding 80 % of the tender, in terms of a
subcontract, to NCRC, which was in excess of the 25%
maximum
prescribed by the tender specifications, that could be so
subcontracted. There were further irregularities uncovered
later as a
result of the Auditor-General’s intervention.
The
grounds of the initial disqualification
The
subcontracting to the NCRC of more than 25% of the tender.
[8]
The relationship between the respondent and the NCRC was stated by
the respondent to be a subcontract. In argument, the applicant
sought
to escape from this declaration.
[9]
Respondent stated “80%” in answer to the question: “What
% of the contract will be subcontracted?” Apparently,
when the
officials perusing the Bid for formal compliance read that statement
the Bid was disqualified and not evaluated. At least,
prima facie
that response by the applicant’s officials was proper.
[10]
This statement of the Respondent is explained in the answering
affidavit. It is stated that the 80% answer is a ‘misnomer’
because the question was misunderstood. The deponent of the applicant
states that she thought the question referred to the proportion
of
the
performance
of the project, not to proportion of
value
.
[3]
The true position is said to be that only 21 % was subcontracted to
NCRC. This is plain, the argument runs, from a reading of the
document respondent submitted headed “costs summary”.
[4]
In that summary it is stated that 21% of the costs are attributable
to “training costs”. It is claimed that this
is the
extent of the disbursement to NCRC. Despite the document headed a
‘summary’, there are no other documents comprising
costs
that are the source of the so-called summary, nor is it supplemented
in the papers before this court. In my view, it is not
obvious that
the allegation in the Answering Affidavit is really supported by the
details in the summary. Moreover, why and how
would the reader of the
question and answer know that a different meaning was attributable to
the answer and that by a cross reference
to another part of the bid
submission the clue to an alternative and prevailing meaning could be
found in an obscure reference
to training costs?
[11]
The 80% answer, even if meant to mean something else, is plainly
evidence of non-compliance. In my view, the decision to disqualify
the respondent was justified.
[12]
Was the applicant authorised to forgive such an error in the answer?
No case is made out to explain upon what authority the
‘error’
was addressed and a sort of ‘rectification’ took place.
This aspect is addressed again in the context
of process deviations.
The
absence of a Tax Certificate of NCRC
[13]
The bid specifications required the bidders to furnish an original
tax clearance certificate for themselves and for any other
party with
whom the bidder was in a relationship of a “consortium, joint
venture or subcontractor”.
[5]
The respondent had a relationship with NCRC which it itself described
as that of a sub-contractor. It is common cause no
tax certificate
was produced at the time the bid submission window closed.
[14]
There was some debate about the proper nature of the relationship,
but plainly it certainly fell under the broad range in the
specifications. The notion was advanced that because it was a
stipulation of the project to ‘work with’ local TVET
colleges, and NCRC being such an institution, this requirement could
not really be applicable. Having regard to the broad-spectrum
description of associated parties to whom such a stipulation applied
this contention cannot be correct. The obsession with a subcontract
is misplaced.
[15]
Plainly, the failure was a material non-compliance. The demand for an
original tax certificate is plainly an integrity check
and was
unquestionably information needed by the officials vetting the bids
to be satisfied all the participants in the project
were tax
compliant. Its materiality to the integrity check is self-evident.
[16]
The
ex
post facto
production of a tax certificate showing tax compliance by NCRC is
immaterial. An attempt was made to suggest that everyone would
know
that a TVET college such as the NCRC, does not pay income tax.
Ironically by the time of hearing, a tax clearance certificate
was
issued by SARS and it emerges that the NCRC has a tax number. Quite
for what kind of tax NCRC is accountable is not disclosed.
However,
the nub of the issue is the timeous production of a tax certificate
for the officials of the applicant to know the tax
status of NCRC at
the time that they were obliged to make their decisions about the
compliance with the bid specfications.
The
additional grounds invoked to justify disqualification
The
lack of accreditation for diesel mechanics.
[17]
It is common cause that neither the respondent nor NCRC were
accredited to train diesel mechanics when the bid was submitted
and
indeed, even now, they await, apparently with confidence,
accreditation to be conferred. They were both accredited for
three other courses. The respondent, nevertheless, pitched for all
four courses.
[18]
The respondent plainly is not eligible to have been awarded a bid for
the diesel mechanic course.
[19]
Axiomatically it was a material aspect, and indeed the fact that they
still wait on accreditation, years later, is exactly
why it was
functional to the bid to have the accreditation prior to the bid
submission. It was suggested that severability of the
four courses
was possible. As no real case to underpin that contention is made out
it must fail. The notion of a tender being awarded
to different
bidders for each course is in my view fanciful.
The
‘30 years’ experience’ statement
[20]
It is common cause that in answer to the question: “Total
number of years the company/form has been in business?”
the
respondent answered “30 years”
[21]
The respondent had been formed as a special purpose vehicle for this
project. It had no experience whatsoever of anything.
The answer was,
on the face of it, untrue.
[22]
It follows that it was a misrepresentation. The respondent explains
the circumstances under which that answer was given. Ms
Francis, the
‘controlling mind of the respondent’, says it is she who
claims 30 years’ personal experience, and
she attributed her
personal experience to her freshly minted company. She makes two
significant statements:
22.1.
“
IFU was registered and
incorporated in order to be the SPV through which the rights and
obligations under the SLA were performed.
There is nothing uncommon
about this and it is in fact preferable to have a sanitized entity to
fulfil a contract of this nature
and magnitude”
[6]
22.2.
“I am the controlling mind behind IFU and bring to IFU the
experience which I gained through fulfilling
similar roles in other
businesses over 30 years. That there was no dishonest intent is
evidenced by the fact that it was disclosed
that IFU was only
registered in 2015 and the reference letters submitted pertained to
other businesses in which I was involved”
[7]
[23]
The more significant issue is however is whether the statement
defeated the purpose for which it was asked? The question
obviously solicited experience in undertaking the function specified
in the project
by
the bidder.
The plain truth is that the business indeed had no experience
whatsoever. Francis’ claim of 30 years of experience is
experience
of what? The Answering Affidavit is framed in
general terms and conveys no substantive information, but the bid
itself included
a document submitted by the respondent, as part of
the company profile, headed “company Information”.
[8]
Francis’ experience is described therein. It is said to extend
over 25 years, not 30 years, a curious discrepancy. The main
thrust
is that her strengths lay in marketing. After some waffle she alludes
to her having “… developed and implemented
national
programmes some of which focussed on skills-development and
mentorship to unemployed and marginalised youth”, a
sentence of
some vagueness. Her relevant experience is only thinly mentioned. Two
other staffers are named who have 25 and 18 years’
experience;
their credentials reflect exposure to relevant aspects of the
training project and look reasonably substantial.
[24]
Assuming it was incumbent on the officials perusing the bid to cross
check the statements made, they would have been unable
to conclude
that the controversial answer “30 years” was true, even
if they grasped that the people behind the respondent
were the
repositories of experience. Accordingly, the answer did misrepresent
the expertise available to be marshalled by the respondent.
[25]
However, the bid did not call for any specific experience as a
threshold to eligibility and thus the misstatement was not material
in relation to an aspect of mandatory compliance. The criticism is
confined to a filling in of information untruthfully. Had there
been
an evaluation and at that stage experience was scored for comparison,
the misstatement would have been material and probably
would have put
the respondent at risk for that reason. However, it is not strictly
necessary to decide that question.
THE
DEVIATION IRREGULARITY
[26]
The applicant was obliged to follow the procurement procedures
prescribed by the Treasury.
[9]
The code of conduct alluded to Treasury regulation 16A6.2. The
applicant was required to have a supply chain system that
would
process bids through a process of evaluation and thereafter
adjudication. It is a formal process, and meetings of the committees
were required which were to be recorded and be minuted.
[27]
The respondent was initially disqualified as described above. For
unknown reasons, the then CEO took an interest in the fate
of the
respondents failed bid pursuant to a so-called ‘due diligence’
exercise. He is now the ex-CEO. No evidence of
any due diligence
report exists.
[28]
He instructed Ms Maila, the Executive Stakeholder Relations Manager,
to compose a memorandum, in which the contention was to
be advanced
that the respondent had been unfairly disqualified. Moreover,
the memorandum was to recommend the award of the
tender to the
respondent. This Maila dutifully did. The tender was accordingly
awarded. The document does not expressly identify
itself as an
instrument to effect a deviation from the normal procurement process.
The appointment was formalised the same day
that the last supporting
signature appeared on the recommendation schedule, a part of the
memorandum. The contract was concluded
the following day.
[29]
Given the critique set out above about the propriety of the
disqualification on what grounds could it have been undone? The
memorandum opined that the 80% answer was misunderstood, meaning that
the anonymous investigator in the due diligence exercise
spontaneously linked the question and answer with the summary of
costs document, interpreted it and concluded that the right answer
to
the question was 21%. The wriggle out of the failure to give a
tax certificate for NCRC is based on an unsubstantiated
claim that
NCRC is tax exempt, a fact belied by the later tax clearance
certificate furnished.
[30]
The authority to perform this act of revisionism was not authorised
by the bid specifications.
[10]
However, ignoring that difficulty, the conclusion of what must
logically have been thought to be an irregularity by the applicant
in
disqualifying the respondent did not proceed to the further logical
conclusion that the applicant should declare the respondent
a
qualified competitor and allow it to go forward to be evaluated by
the Bid Evaluation Committee (BEC). The decision of, in effect
the
CEO, was to leapfrog that step. Moreover, not only was BEC role
skipped, so was that of the Bid Adjudication committee (BAC).
Thus in
one fluid sweep, the respondents bid was un-disqualified, not
evaluated, not adjudicated and was declared the victorious
winner of
the tender.
[31]
This wave of the wand was represented as a deviation, a procedure
theoretically possible, given appropriate circumstances.
No plausible
circumstances to warrant it have been presented. The high point of
the memorandum is to emphasis the BEE credentials
of the respondent
in comparison with the other bidders and to wax glowingly about the
already signed Memorandum of understanding
with NCRC.
[32]
Moreover, an authentic deviation is required to be decided upon by
the CEO receiving a recommendation which he then approves.
In this
case he was the initiator. Further a report to the Treasury was
mandatory; an obvious integrity check procedure, was not
made.
[33]
Several arguments on behalf of the respondent, gamely but vainly
offered a perspective to rescue the applicant’s conduct
from
impalement on the spike of irregularity.
33.1.
It was suggested that the BAC indeed did consider the respondents
bid. This was based on a round robin type collation
of signatures of
4 of the seven members, who supposedly were impressed by the Maila
memorandum. The argument fails for a number
of reasons: first, the
other three members of the BAC were not, at least on these papers
even aware of the question being put;
second, the very mandate
of the BAC and its function of adjudication are at odds with the idea
of a round robin, which is
nowhere an authorised means of
decision-taking by the BAC; third, what was there to be adjudicated
if the bid had never been submitted
to evaluation the role of the
BEC, who, it is common cause were not given an opportunity to
participate.
33.2.
In addition, the other prescribed features of a lawful deviation are
absent. The CEO must report the deviation
to the Treasury. Such a
report was not made. Moreover, the absence of a minute by the
BAC is another shortcoming. The
round robin signature procedure
was improper
[34]
The award of the tender was the outcome of an outrageous abuse of
authority by the executive of the applicant. It was irregularly
awarded.
The
Delay in launching a review of itself
[35]
As PAJA does not apply, the only rule to apply is that it was brought
within reasonable time. No challenge is made that the
time taken was
unreasonable.
[36]
The explanation for the time elapsed is that a Treasury investigation
unearthed the malfeasance by the executive and from that
moment
onwards matters proceeded expeditiously. The Auditor -General
reported on 8 July 2016, and 9 months after the award
of the tender
on 23 March, this application was launched on 19 December 2016.
CONCLUSIONS
[37]
Accordingly, the treatment of the bid by the applicant’s
executive was vitiated by several irregularities. The deviation
was
crass and unlawful.
[38]
The tender must therefore be set aside and the contract that followed
upon it.
THE
APPROPRIATE REMEDY
[39]
The proposal advanced is that the respondent be required to continue
until a new tender has been properly awarded. An order
suspending
invalidity pending that happening is necessary. The approach in
Allpay
II
is
proposed.
[11]
[40]
The risk of prejudice to the learners must be assessed. The Principal
administrative burden seems to be carried by NCRC. The
applicant
suggests it can properly award a new tender within two months. No
interruption in the actual instruction and training
will occur,
provided the termination of the respondent’s role is dovetailed
with its successor.
[41]
The question of a forfeiture of profit was controversial. However,
taking the circumstances under which the respondent came
to be
awarded the tender, no factor is apparent why it should retain any
profit made by its efforts. In my view it unnecessary
that a clear
case of complicity is proven; it is enough that the award is tainted
by irregularity.
[12]
Were it
otherwise, the plea of an innocent tenderer would as matter of course
outweigh the public interest. The pendulum should
usually swing the
other way. What one has not obtained through a fair and transparent
process ought not to vest any moral claim
to retain the spoils.
THE
ORDER
1.
Tender No MQA 13/15-15 to IFU training Institute was irregularly
awarded.
2.
The tender is set aside.
3.
The invalidity of the tender and the contract concluded pursuant
thereto between the parties is
suspended pending the award of a valid
tender.
4.
The respondent shall continue to perform under the contract until
relieved by the award of a valid
contract.
5.
The applicant shall within 5 days of the date of this order initiate
lawful steps towards the award
of a fresh tender.
6.
The respondent shall, upon being called upon in writing to do so by
the applicant, submit to a
statement and debatement of account in
respect of the tender to determine the sum of profits, if any,
derived by the respondent
therefrom.
7.
If the accounting and the sum of profit determined is disputed by
either party, the parties shall
submit to expedited arbitration to
resolve the dispute.
8.
Upon the conclusion of the steps in (5) and/or (6) and upon the
written demand by the applicant
to pay to it the sum of the profits
so derived, the respondent shall pay the determined sum within 60
days thereof, together with
interest a tempore mora as prescribed
from time to time from date of determination of the payable sum until
date of payment.
9.
The respondent shall bear the costs of the application including the
costs of two counsel.
_______________________________
Roland
Sutherland
Judge
of the High Court
Gauteng
Local division, Johannesburg
Heard:
11 June 2018
Judgment:
26 June 2018
For
Applicant:
Adv
Gilbert Marcus, with him
Adv
Emma Webber,
instructed
by Lovell Hoskins Inc.
For
Respondent:
Adv
Andrew Redding SC, with him,
Adv
Mark Wesley,
instructed
by M R Phala Attorneys.
[1]
The other legislative
instruments include the Public Finance Administration act, the
Preferential Procurement Policy Framework
Act, and Treasury
regulations, See in regard to the procurement framework: State
Information Technology Agency v Gijima Holdings
(Pty) Ltd
2018 (2)
SA 23
(CC); Minister of Home Affairs v The Public Protector
[2018] 2
All SA 311
(SCA) at [38]
[2]
See:
Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African social Security Agency
and Others
2014 (1) Sa 604
(CC) [Allpay I] at [27] - [28].
[3]
AA537/64.1
[4]
Record, page109,
[5]
Record: TGM 6.1, page
61.
[6]
Answering Affidavit at
p542/80
[7]
AA542/81
[8]
Record, page 91
[9]
See: Record: 610 ff
“Code of Conduct for Bid adjudication Committees.
[10]
See: Minister of
Environmental affairs and Tourism v Pepper Bay fishing (Pty) Ltd
2012 (4) SA 308
(SCA) at [31] [35]; Dr JS Moroka Municipality v The
Chairperson of the Tender Evaluation Committee of the Dr JS Moroka
municipality
[2014] 1 ALL SA 545
(SCA) at [10] – [15]
[11]
Allpay Consolidated
Investment Holdings (Pty) Ltd Chief executive officer, South African
social Security Agency and Others 2014(4)
SA 179 (CC). the order
granted is at page 181.
[12]
Eg, Allpay II (supra)