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[2010] ZAWCHC 174
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SA Metal & Machinery Co (Pty) Ltd v City of Cape Town (9440/2010) [2010] ZAWCHC 174; 2011 (1) SA 348 (WCC) (18 August 2010)
REPORTABLE
Republic
of South Africa
IN THE HIGH COURT OF SOUTH AFRICA
(WESTERN CAPE HIGH COURT, CAPE TOWN)
Case No: 9440/2010
In the matter between:
SA METAL & MACHINERY CO (PTY) LTD Applicant
and
THE CITY OF CAPE TOWN Respondent
JUDGMENT DELIVERED: 18 AUGUST 2010
BINNS-WARD, J:
The applicant, which is a company engaged in business as a scrap
metal dealer, and is described in the founding affidavit as
‘the
largest scrap metal dealer in the Western Cape’, has applied
for an order ‘reviewing and setting aside
the Respondent’s
administrative action of issuing request for quotation no.
R031000734’. The respondent is the City
of Cape Town, which
is a municipality, established in terms of
s 12
of the
Local
Government: Municipal Structures Act, No. 117 of 1998
. Although the
founding papers make no reference thereto,
1
the application is identifiably one brought in terms of s 6 of
the Promotion of Administrative Justice Act, No. 3 of 2000
(‘PAJA’).
Request for quotation no. R031000734 (to which I shall refer as ‘the
RFQ’) was an invitation issued by the respondent
‘for
the purchase and removal of scrap high voltage transformers in the
attached Pricing Schedule’. The reference
to ‘scrap
high voltage transformers’ fell to be understood in the
broader context of the RFQ to mean ‘scrap
transformers, mini
substations and switchgear’, including ‘MV Switchgear’,
‘HV Switchgear’, ‘MV
Metering Units’ and
‘Ring Main Units’.
It is evident that all of the items of equipment that were the
subject matter of the RFQ were used by the respondent in the
reticulation of electricity. It is also evident that the items in
issue were not being disposed of for re-use, but only for scrap
purposes. One of the ‘responsiveness criteria’
applicable to the RFQ was the requirement that the ‘vendor’
2
had to clearly state in its quotation ‘that the Scrap
transformers, Mini substations and Switchgear purchased from the
City of Cape Town will not be refurbished and reintroduced into the
South African market’.
3
In context it is thus no cause for surprise that the allegation by
the deponent to the founding affidavit that ‘[T]he
only
potential purchasers for the electrical equipment would be scrap
metal dealers such as the Applicant’ was not denied
by the
respondent. Indeed, the proof of that allegation is borne out by
the evidence that the only parties to whom the respondent’s
officials drew direct attention to the RFQ, which had been
advertised for general attention on the City’s website, were
scrap dealers; and that all the parties who in any manner expressed
any interest in responding to the RFQ were also scrap dealers.
One of the parties directly alerted to the existence of the RFQ by
the City’s responsible functionary was the applicant.
The
applicant showed some signs of interest in the RFQ, but it did not
submit a quotation. Instead, some two weeks after the
expiry of the
time by which quotations in response to the RFQ had to be submitted,
the applicant launched proceedings for an
interdict prohibiting the
respondent from awarding any contract pursuant to the RFQ pending
the determination of judicial review
proceedings to set aside the
RFQ. By agreement between the parties, and against a suitable
undertaking by the respondent, the
interdict proceedings were not
proceeded with. In terms of the agreement, an order was obtained
permitting the disposal of the
review on an expedited timetable.
The costs of the interdict proceedings were stood over for
determination in the review application.
The applicant contends that the RFQ is unlawful. It is trite that
the procurement or disposal of goods and services by organs
of State
by means of any process required to comply with s 217 of the
Constitution, or the relevant derivative legislation,
such as
Chapter 11 of the Local Government: Municipal Finance Management
Act, No. 56 of 2003 (‘the MFMA’), qualifies
as
‘administrative action’ within the meaning of PAJA.
4
As a party with an interest in tendering to acquire the goods in
question, the applicant is entitled in the circumstances to
assert
its constitutional right to lawful administrative action. There is
thus no merit in the respondent’s allegation
that the
applicant lacks legal standing to challenge the legality of the RFQ
in judicial review proceedings; indeed, the allegation
was not
pressed with any conviction at the hearing, advisedly so.
The grounds upon which the applicant alleges that the RFQ was
unlawful are that the ‘RFQ conditions’ are alleged
to
offend against the requirements of:
Section 217 of the Constitution
5
and s 112 of the MFMA (Section 112 of the MFMA is, in
essence, a restatement of the principles enshrined in terms of
s 217(1) of the Constitution. It also prescribes certain
criteria with which the supply chain management policy that every
local authority is obliged, by s 111 of the MFMA, to adopt and
implement in order to achieve compliance with the aforementioned
constitutional principles, must adhere. Section 112 is contained
within Part 1 of Chapter 11 of the MFMA, which applies, amongst
other matters, to ‘the disposal by a municipality or
municipal entity of goods no longer needed.’
6
);
Regulation 2 of the Supply Chain Management Regulations;
7
The Respondent’s Supply Chain Management Policy;
8
Section 2 of the Preferential Procurement Policy Framework Act, No.
5 of 2000 (‘the PPPF Act’)
9
;
Regulation 4 of the Preferential Procurement
Regulations,2001
10
;
and
Section 14 of the MFMA.
11
The grounds upon which the RFQ is alleged to offend against the
aforementioned legislation were expressed as follows by the deponent
to the founding affidavit: ‘The infringement lies in the fact
that the rfq conditions are neither fair nor equitable, since
the
subject-matter of the tender is incapable of being determined. The
competitiveness and cost-effectiveness of any tenders
that might be
submitted would not be capable of being determined by the
Respondent. The detriment not only to potential and
actual
tenderers, but also to the Respondent itself and hence to the
general public as represented by the Respondent’s
ratepayers
is in the circumstances self-evident.’ On this basis it was
contended that that ‘the administrative action
of issuing the
rfq was (i) ‘in contravention of the legislative,
regulatory and policy provisions set out above and
in any event not
authorised by the empowering provisions’; (ii) ‘not
rationally connected to the purposes of
the empowering provisions’;
(iii) ‘unconstitutional and otherwise unlawful’ and
(iv) ‘materially
influenced by an error of law’.
The respondent had in the past dealt with the disposal of redundant
equipment of the nature in issue by accumulating a small
number,
usually about twenty, of the items and then inviting tenders for
their purchase. It was decided in 2009 to alter this
practice and
instead institute a regime of disposing of the equipment on what was
described as an ‘as and when’ basis.
This, in essence,
would entail the appointment of a contractor, or a number of
contractors, who would be committed to purchasing
and removing
obsolete or redundant equipment as and when the municipality wished
to dispose of each item during the contract
period, which was
contemplated to extend over two to three years. The evident
consequence of the proposed change would be that
the local authority
would be relieved of the need to warehouse the disused items pending
their periodic disposal. It was explained
by the deponent to the
respondent’s answering affidavit that the historic practice of
periodic disposal gave rise to certain
environmental hazards, the
manifestation whereof would be ameliorated by the intended new
method of disposal. The reason for
the proposed change, however,
seems to me to be of no relevance. The only relevant enquiry is
whether the basis upon which the
public has been invited to apply
for the award of contracts for its implementation is lawful, or not.
The applicant contends, however, that the historically used approach
was ‘the most advantageous way for the [r]espondent
to deal
with the matter’. In expressing itself in this manner the
applicant evidently sought to establish a basis to argue
that the
method of disposal represented by the RFQ did not comply with
clause 340 of the respondent’s supply chain
management
policy
12
and therefore offended against the respondent’s obligation in
terms of s 111 of the MFMA to implement that policy.
The answer to the question of what might be considered a ‘most
advantageous’ means of disposal of goods no longer
needed by
the City entails a business judgment by the functionary responsible
for making the election. The most advantageous
of the four means of
selling unneeded goods described in clause 340 of the SCMP does not
necessarily equate to the means whereby
the highest price could be
obtained. Depending on the peculiar circumstances, other questions
might impact on the determination.
The costs of storage, transport,
advertising and administrative management are just some of the other
considerations that come
to mind as in all probability bearing on
the decision in a matter such as this. The choosing of the ‘most
advantageous’
method of disposal from those that may be
selected in terms of clause 340 of the respondent’s SCMP
is the function
of the respondent’s municipal council,
alternatively, and indeed in most cases, that of the council’s
responsible
delegates appointed pursuant to the scheme of delegation
which a local authority is enjoined by s 59 of the Local
Government:
Municipal Systems Act, No. 32 of 2000 (‘the
Systems Act’) to have in place. The election involved
requires the taking
of a business decision entailing the exercise of
a value judgment. It is analogous, in a management context, to the
type of
decision making in which, in a judicial context, a court
engages when it exercises a judicial discretion. Absent clear proof
of a material misdirection, or gross unreasonableness by the
relevant decision-maker, a court will not interfere in such a
decision.
13
The applicant has not come close to establishing such a basis for
interference with the decision-maker’s determination
that the
RFQ afforded the most advantageous means of disposal in the
circumstances. All it has done, by argument, rather than
by
evidence, is to suggest that higher prices might be achieved in
terms of the historically used method because that method,
according
to the applicant, entailed less risk for the tenderer. The argument
is conjectural; and, in any event, as already
observed, achievable
price is only one of the criteria which the decision-maker would
have had to consider.
The applicant, no doubt conscious of the thinness of its case in
this respect, sought to contend that it was for the respondent
in
its answering papers to establish a sufficiently reasoned basis for
the alteration in the method of disposal of redundant
transformers
and sub-stations. That approach was misconceived in the
circumstances of this case. In the context of
its
institution of judicial review proceedings, it was for the applicant
to make out a case for the impugnment of the decision it
sought to
challenge. The case needed to be made out by means of evidence, not
conjecture.
The initial invitation to treat for the disposal of redundant goods
over a two to three year period had been issued by the respondent
in
tender no. 221/210/09 in October 2009. Three scrap dealers,
including the applicant, submitted tenders in response to
that
invitation. However, before the result of the consideration of the
tenders submitted had been determined, the applicant
instituted an
application for an interdict restraining the respondent from making
an award pending judgment in an application
by the applicant to have
the invitation to tender reviewed and set aside. In those
proceedings, just as it did in respect of
the interdict proceedings
mentioned in , above, the respondent addressed the application with
an undertaking, but proceeded,
in the interim, with an evaluation of
the tenders that had been submitted. All of those tenders were
found to be non-responsive.
In the absence of any ‘acceptable
tenders’, within the meaning of that term in the PPPF Act, the
tender had to be
aborted,
14
with the result that the basis for the interim interdict and the
related review application fell away.
It was then determined by the respondent that a fresh invitation to
tender for a two to three year contract of the sort described
earlier should be issued. The delay caused by the failure of the
October 2009 tender exercise and the related events had, however,
led to the build up of a relatively large accumulation of redundant
equipment in the respondent’s electricity department
warehouses. The respondent decided to address the need created by
this situation by issuing the RFQ. The object of the RFQ
was to
elicit the submission of offers for the purchase of the accumulated
stockpile of redundant equipment, as well as for the
purchase of any
like equipment that might become redundant during a period of six
months after the award of any contract pursuant
to the acceptance of
any quotation submitted in response thereto.
It is appropriate at this stage to describe some of the relevant
features of the RFQ. It required tenderers to submit prices
for
each of six different classifications of equipment. Transformers
constituted one of these classes. In respect of transformers,
tenderers were required to specify offered prices per unit and by
category. Seven categories were specified, ranging from 10kVA
-300kVA to 50MVA and higher. Similarly, in respect of ‘mini
substations’, two categories were specified. The RFQ
specified that the tender contract would be ‘on an as and when
required basis (ad hoc)’. This plainly related not
to the
disposal of the accumulated stockpile, but only to the items that
might become redundant during the six month executory
period of the
contemplated contract(s). The RFQ provided that the respondent
reserved the right to determine whether the product
would be
collected by the tenderer, or delivered by the respondent. However,
tendered prices had to be submitted on the basis
of including
provision for collection by the tenderer from any place ‘right
throughout the City’.
15
The RFQ provided that the respondent reserved ‘the right to
accept all, some or none of the quotations submitted either
wholly
or in part’.
16
Tenderers were required to clearly state any qualifications to
their quotations in a separate covering letter.
17
The RFQ provided the telephone number and email address details of
a contact person to whom enquiries and requests for additional
information could be addressed by interested parties before the
closing date
18
.
It also provided particulars of the place, date and time of a ‘site
meeting’ and ‘strongly recommended that
all prospective
Vendors attend the site meeting’.
19
A briefing session was held on 28 April 2010 at the
respondent’s warehouse in Ndabeni, at which the biggest
stockpile
of accumulated scrapped equipment was stored.
The RFQ was published on the respondent’s website on 22 April
2010. The closing date for the submission of responses
was 30 April
2010. The functionary responsible for the process was concerned
that the request might escape the notice of
some of the potentially
interested parties by virtue of not having been published in the
press and on account of the relatively
short time afforded for the
submission of quotations.
20
He therefore telephoned representatives of each of the scrap
dealers which had submitted tenders in response to tender
no. 221/210/09
in October 2009 to advise them directly of the
RFQ. The applicant was telephonically informed on 26 April
2010. The functionary’s
concern was to try to encourage
participation so as to enhance the competitiveness of the process.
On 28 April 2010, being the same day as the briefing session, a
representative of the applicant telephoned the contact person
named
in the RFQ and enquired where the accumulated scrapped equipment
that was up for sale was stored. He was informed that
the items
were at the warehouses in Ndabeni, Brackenfell and Bloemhof. The
applicant did not send a representative to the briefing
meeting, but
on the following day it did send representatives to inspect the
equipment at the Ndabeni and Brackenfell warehouses.
Representatives of five scrap dealing businesses, including one
based in Gauteng, attended the briefing on 28 April.
By the time the period for the submission of quotations closed on
30 April, two submissions had been received. The applicant
did
not submit a quotation. A director of the applicant company, who
was the deponent to its founding affidavit in these proceedings,
telephoned the respondent’s contact person on 29 April 2010
and informed the latter that the applicant could not submit
a
response to the RFQ because it did not know exactly where the items
were. The complaint obviously could not have related to
the
accumulated stockpile and must have been directed at the part of the
proposal bearing on the six month period during which
any contractor
would be committed to the purchase and removal of redundant
equipment as and when it became available and from
wherever in the
city it happened to be. Indeed, during argument it was on that
aspect that the applicant’s counsel also
placed the main
emphasis. In the applicant’s papers the complaint was
articulated in the following way: ‘that the
merx
is
unknown and incapable of determination’.
There is no merit in the complaint that the subject matter of the
RFQ was too vaguely defined. The nature and quantity of the
goods
in the accumulated stockpile were readily ascertainable by
inspection, or on enquiry, in terms of the procedures available
in
terms of the advertised RFQ process. Insofar as the applicant
professes to have been concerned that the categories of transformers
involved did not by their indicated performance capacities afford a
sufficient basis for an adequately formulated offer price,
the
difficulty could, in my view, effectively have been addressed by
qualifying the relevant offer appropriately, as permitted
in terms
of the RFQ. The applicant gave as an illustration of its concern
that a transformer with copper conductor windings
would have a much
higher scrap value than one with aluminium windings. It could have
qualified its quotation by making the distinction
a pertinent
qualification. On the basis of the evidence in the respondent’s
answering affidavit it would appear that it
is in fact unlikely that
any of the transformers subject of the RFQ have conductors with
aluminium windings. The applicant could
have obtained this
information in terms of the RFQ process by posing the question to
the respondent’s contact person.
Equivalent observations
would meet the concern by the applicant that it would need to draw a
distinction for the purpose of submitting
a proposal between
transformers that have become redundant through effluxion of time
and those that are no longer serviceable
because of some
catastrophic effect such as fire or explosion, and also the concern
by the applicant that some of the transformers
might contain toxic
polychlorinated biphenyls.
Likewise, with regard to the items that might become redundant
during the six month executory period of any awarded contract,
these
were identifiable with sufficient certainty. Their nature was
determined in the RFQ documentation in the manner described
earlier
in this judgment and their number fell to be determined by
objectively identifiable events occurring during a fixed period.
That a measure of risk might be entailed, in that the quantity of
items, or the distances involved in having to transport them
from as
yet unidentifiable locations anywhere in the metropolitan area,
might impact on the price that should be offered, does
not afford a
valid basis to vitiate the process as unlawful.
Supply chain management is part of the business of any local
government. In many of its characteristics it is indistinguishable
from the conduct of the business of a commercial enterprise. I am
not aware of any provision in the legislation relied upon
by the
applicant which prohibits supply chain managers in the local sphere
of government from undertaking business risk in the
discharge of
their functions. Such constraints as are apparent in the statutory
instruments are directed rather at the achievement
of responsible
management. I have already dealt above in another context with the
contention that the prices achievable by the
disposal method
selected by the respondent might arguably not be as high as by other
methods. What I said there applies equally
in the context of the
applicant’s contention currently under consideration. The
element of inherent risk that might be
entailed in bidding for goods
the supply of which is affected by imponderables does not give rise
to unfairness or a lack of
transparency. Nor is it inherently
inequitable, because, in the nature of things, the identified risk
cuts both ways as between
buyer and seller. It does not adversely
affect the competitive nature of the RFQ process because the
uncertainty is a factor
which affects all the tenderers.
Cost-effectiveness might well afford a justification for the
conclusion of a contract of the
nature postulated by the RFQ, most
especially its six-month executory period; certainly, the applicant
has not proven anything
to the contrary. The determination of the
precise number of transformers that might be rendered redundant
during the six-month
period might be impossible to determine, but
the history of past occurrences would surely provide a rational
basis for an estimate
forecast by a prospective purchaser for the
purposes of compiling a quotation; and also for any assessment of
cost-effectiveness
by the local authority. If it was thought to be
material, the applicant has not shown that it could not obtain this
information
on enquiry
The applicant’s counsel did not press the contention made in
the applicant’s founding affidavit that the precise
number of
transformers available in each category was a crucial component to
the respondent’s ability to evaluate and score
the quotations
received in a transparent manner. He appeared to accept the
respondent’s argument that its ability to award
separate
contracts in respect of the disposal of each category of equipment
met this criticism. I consider that he was correct
in so doing.
The last issue that must be addressed is the applicant’s
allegation that the issue of the RFQ contravenes s 14 of
the
MFMA. Section 14 regulates the disposal by a local authority of its
‘capital assets’.
The import of the term ‘capital assets’ is not defined
in the Act. It is a term that is commonly used to denote
a number
of very different concepts. In South African jurisprudence, for
example, the term is most frequently encountered in
income tax
cases, but its meaning in that context is plainly not consistent
with its use in s 14 of the MFMA. Its applicable
meaning in
s 14 must be sought from the context in which it is employed
there, but even that is not readily illuminating.
The applicant’s counsel submitted that ‘capital assets’
denotes all the tangible assets of a local authority.
If that were
so it is not apparent why that expression was not used. In my view
it is significant that Chapter 11 of the MMFA
speaks of the disposal
of goods no longer needed and provides that the provisions of Part I
thereof in that regard must be read
with s 14. Reading Part I
of Chapter 11 with s 14 demonstrates that s 14 would apply
to the alienation of unneeded
goods if those goods were ‘capital
assets’ of the local authority, but not otherwise. The
construction contended
for by the applicant’s counsel does not
fit comfortably with the apparent objects of the provision, which
appear to be
twofold: (i) to prohibit taking of any decision by a
local authority to alienate capital assets that are needed for the
municipality
to be able to discharge its core function of providing
at least the minimum of basic municipal services to its community,
21
22
and (ii) to introduce procedural constraints directed at
minimising the possibility of decisions being made in respect of
the
alienation of municipal property in circumstances likely to result
in an unjustifiably adverse effect on the municipality’s
proprietary status. The proprietary status of any person or body is
ordinarily reflected in that person’s financial statements.
It is difficult to accept that the legislature would have intended
to impose the procedural formalities provided in terms of
s 14(2)
of the MFMA in respect of the disposal of goods not needed for the
provision of basic services and the disposal
of which would have no
impact on the municipality’s reportable financial position.
The respondent’s counsel, while acknowledging a degree of
inscrutability in the term as used in the provision, drew on
its
immediate contextual employment to submit that it related to assets
that were in productive use in the provision of municipal
services,
or which could potentially be applied for such purpose. That
construction, while it bears a sensible relation to one
of the
apparent objects of the section, appears to me too narrow to give
effect to the second of its aforementioned discernible
objects.
In my view the construction which best meets the contextual
employment of the term is that offered in a guideline in respect
of
capital asset management in terms of the MFMA published on the
National Treasury website. It is entitled ‘
Local
Government Capital Asset Management Guideline - October 2008
’.
Although the position is not entirely clear, the guideline appears
to have been published pursuant to s 168 of
the MFMA. In terms
of s 168 of the MFMA the Minister responsible for finance may
make guidelines relating to a number of
matters, including the
alienation, letting or disposal of assets by municipalities.
23
The sub-heading to s 168 is ‘Treasury regulations and
guidelines’. A consideration of the guideline shows
that in
the opinion of the Treasury a ‘capital asset’ would be
any asset of a municipality falling within the following
definition:
‘
Capital Assets are all assets with a life cycle of greater
than one year and above the capitalisation threshold (where
applicable).
For example, this would include property, plant and
equipment (infrastructure network, furniture, motor vehicles,
computer equipment,
etc.), intangible assets, and investment
property
.’ ‘Capitalisation threshold’ denotes
‘
the value above which assets are treated as capital assets
and entered into an asset register from which reporting in the
financial
statements (specifically the Statement of Financial
Position) is extracted
’. The guideline labels as ‘minor
assets’ those assets which, on the given approach, would not
qualify as ‘capital
assets’. In this respect it bears
mention that in terms of s 121 of the MFMA a municipality is
required to produce
an annual report in respect of each financial
year and that such report must, amongst other matters, contain a
statement of the
municipality’s financial position.
While the definition of ‘capital asset’ by the National
Treasury in the guideline document is by no means legally
determinative of the meaning of the term in the Act, it does serve,
if regard is had to the stated general objects of the MFMA
set out
in s 2 of the statute
24
and the apparent specific objects of s 14, as the most
plausible of the suggested meanings available to me, and to the
extent necessary I would adopt it.
The determination of whether or not an asset is taken into account
as a capital asset seems therefore to depend on whether it
is taken
into account in determining the local authority’s financial
position. That determination is dependent on the
municipality’s
accounting policy, which, in turn, must be compliant with the
applicable generally applicable accounting
practices.
25
It follows that the characterisation of goods as a capital asset is
factual question. It may be that some or all of the redundant
goods
that would be the subject of any contract concluded pursuant to the
RFQ process in issue might have been completely depreciated
in the
respondent’s books so as no longer to represent capital
assets.
26
The issue of whether the goods in question are ‘capital
assets’ within the meaning of s 14 of the MFMA has
been
insufficiently established on the papers. The indication that the
goods are regarded by the respondent as having a realisable
value as
scrap is certainly an indication in favour of some probability of
their being accounted for in the municipality’s
statement of
financial position. In the event, without so holding, I am prepared
for present purposes to assume in favour of
the applicant that the
goods being disposed of are in fact ‘capital assets’ of
the municipality within the meaning
of s 14.
Section 14 of the MFMA
27
prohibits a decision by a municipality to transfer or permanently
dispose of a capital asset that is needed to provide the minimum
level of basic municipal services. Capital assets that do not fall
into that category may be transferred or otherwise disposed
of if
the municipal council, or if the matter has been delegated, as
provided for in terms of s 14(4), the municipal manager,
has
first considered the fair market value of the asset and the economic
and community value to be received in exchange for the
asset.
The documentation attached to the applicant’s replying papers
indicates that the respondent’s municipal manager has
been
delegated the power to write off assets up to the value of
R5 million and ‘to dispose of moveable capital assets
below a value of R5 million subject to Section 14(2)(a) and (b)
of the MFMA, provided that, in respect of capital assets
above a
value of R200 000,00 the City Manager shall first consider a
recommendation from the Supply Chain Management Bid
Adjudication
Committee’. As the contemplated total contract value of the
transactions subject to the RFQ is estimated
to be in the region of
R2 million, it would follow that the disposal of the goods in
question falls within the authority
of the City Manager. It is
evident from the latter’s authorisation of the RFQ process
that the assets are not considered
necessary to provide the minimum
level of basic municipal services. That is no cause for surprise
considering their redundancy
and the acceptance by the applicant
that they have residual utility only as scrap metal. The second
consideration namely, the
matters referred to in s 14(2)(b) of
the MFMA, are matters on which the City Manager will only be able to
reach a considered
conclusion after the prices offered as a result
of the RFQ process are put before him.
One of the questions he will have to ask himself is how the market
value of scrapped transformers and mini sub-stations falls
to be
determined. A market value is the price at which a commodity is
disposed of by the notional willing and informed seller
to a
notional willing and informed purchaser. The exercise takes it as a
given that both notional parties would be persons acting
reasonably.
28
It seems to me, having regard to the character of the contracts
contemplated by the RFQ, which, as I have already found, has
not
been shown to be non-compliant with the respondent’s supply
chain management disposal framework, that it may be that
a request
for proposals might in fact be the best method available to
determine the relevant market value to which the City Manager
must
apply his mind. Even if I am wrong in this respect, the fact
remains that the process that the applicant seeks to impugn
has not
reached the stage where the disposal of the goods in question is
assured. The terms of contract offered by the parties
that have
submitted quotations have still to be approved by the City Manager
after consideration of a recommendation from the
respondent’s
Supply Chain Management Bid Adjudication Committee before any
contracts for disposal of the goods can be concluded.
I therefore
agree with the submission of the respondent’s counsel that the
process the applicant seeks to impugn in these
proceedings has not
been shown to be one that will necessarily result in an unlawful
outcome because of a vitiating non-compliance
with s 14 of the
MFMA.
The applicant’s counsel contended, however, that it is evident
that the City Manager will be unable to take a decision
in terms of
s 14(2)(b) in respect of items of equipment that will become
redundant during the six-month executory phase
of the contract. I
do not agree. The goods in question all fall into classes and
categories defined by the terms of the RFQ,
subject to further
definition by any qualifications introduced by the successful
tenderer and acceptable to the respondent.
There is therefore no
difficulty in the way of the City Manager knowing what type of item
is subject to disposal and at what
price. The applicant’s
counsel contended that a further disability affecting the City
Manager’s decision in respect
of the executory portion of the
contemplated contract(s) is the absence of any basis to project the
market prices over that period.
In my view the submission is
premised on an unrealistically narrow conception of the object of
the provision. The municipal
manager is not bound in terms of s 14
to dispose of goods only at the highest achievable price, or even at
the determined
market price. He would satisfy the requirements of
the provision if he had regard to the best available indicator of
the current
market price and weighed the economic advantage of a
period fixed contract against the possibly countervailing advantages
of
sticking with the historic process of disposal described
earlier.
29
In the result the application for the review and setting aside of
the RFQ must fail. Counsel were agreed that the costs of the
related interim interdict application, which were reserved, should
follow the result. The following order is made:
The application is dismissed with costs, including the costs of
two counsel.
The applicant is ordered to pay the respondent’s costs in
the interim interdict application stood over for later
determination in terms of the order of court made on 18 June
2010, such costs also to include the costs of two counsel
if such
were employed.
A.G. BINNS-WARD
Judge of the High Court
1
Cf.
Bato Star
Fishing (Pty) Ltd v Minister of Environmental Affairs and Others
[2004] ZACC 15
;
2004
(4)
SA 490
(CC)
(2004 (7) BCLR 687)
at para.s [25]-[27], in which it was
indicated that it was desirable in matters such as this for the
applicant to expressly identify
the provisions of PAJA on which it
relies for a judicial review of administrative action.
2
The inappropriate employment of the noun ‘vendor’
to describe the party which would in fact be acquiring the scrap
items from the City at a monetary consideration is typical of the
often perverted use of language in matters related to the
legislative regulation of government procurement. It is possibly a
by-product of the inapposite sub-heading, ‘Procurement’,
to s 217 of the Constitution of the Republic of South Africa,
1996. The sub-heading is inapposite because it is apparent
that the
constitutional provision and the procurement legislation that has
flowed from it pertain not just to the procurement
of goods by
organs of State, but also to the disposal of goods by such organs.
3
Clause 3.5 of the ‘Responsiveness and
Evaluation Criteria’ section of the RFQ documentation.
4
Cf. e.g.
Logbro
Properties CC v Bedderson NO and Others
[2003]
1 All SA 424 (SCA)
at para. [5].
5
Section 217 of the Constitution reads as follows:
‘
Procurement
When
an organ of state in the national, provincial or local sphere of
government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost-effective.
Subsection
(1) does not prevent the organs of state or institutions referred
to in that subsection from implementing a procurement
policy
providing for-
categories
of preference in the allocation of contracts; and
the
protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
National
legislation must prescribe a framework within which the policy
referred to in subsection (2) must be implemented.’
6
See s 110(1)(b) of the MFMA.
7
Regulation 2 consists of a further reiteration of the principles
enshrined in s 217 of the Constitution and, in addition,
amongst other matters, prescribes that n
o
municipality… may act otherwise than in accordance with its
supply chain management policy when disposing of goods no
longer
needed.
8
The relevant provisions of the respondent’s
supply chain management policy are set out in clauses 337-340:
‘
337. Disposal management provides for an
effective system for the disposal or letting of assets no longer
needed, including unserviceable,
redundant or obsolete assets.
338. Disposal of assets shall be subject to sections 14
and 90 of the Municipal Finance Management Act and any other
applicable
legislation.
339. Assets
may be disposed of in the following ways:
339.1 transferring the asset to another organ of state
in accordance with the provisions of the Municipal Finance
Management Act;
339.2 transferring the asset to another organ of state
at market related value or, when appropriate, free of charge;
339.3 selling
the asset; or
339.4 destroying
the asset.
340. Moveable assets may be sold either by way of
written price quotations, a competitive bidding process, auction or
at market
related prices, whichever is the most advantageous to the
City.’
9
The long title to the
Preferential
Procurement Policy Framework Act proclaims
its purpose to be ‘To
give effect to section 217(3) of the Constitution by providing a
framework for the implementation
of the procurement policy
contemplated in section 217(2) of the Constitution; and to provide
for matters connected therewith’.
The relevance of s 2
of the Act to the current matter appears to be the provision therein
that, subject to certain exceptions
– none of which arise for
consideration in the current matter – an organ of state which
has put a contract out to
tender must award it to the tenderer who
scores the highest points in terms of the points system applicable
in terms of the organ’s
preferential
procurement policy
. The application of the provision is
described in
Chairperson:
Standing Tender Committee and Others v JFE Sapela Electronics (Pty)
Ltd and Others
[2005]
4 All SA 487
(SCA);
2008 (2) SA 638
at para. [11].
10
Regulation 4 regulates the scoring of tenders valued at over R500
000 in respect of the basis upon which preference is to be
given in
the award of contracts to ‘historically disadvantaged
individuals’ within the meaning of that term as defined
in s 1
of Act 5 of 2000.
11
Section 14 of the MFMA provides, insofar as might
be currently relevant:
‘
14.
Disposal of capital assets
1) A municipality may not transfer
ownership as a result of a sale or other transaction or otherwise
permanently dispose of a
capital asset needed to provide the minimum
level of
basic
municipal service
s.
2) A municipality may transfer
ownership or otherwise dispose of a capital asset other than one
contemplated in subsection (1),
but only after the
municipal
council
, in a meeting open to the public-
a) has decided on reasonable grounds that the asset is
not needed to provide the minimum level of basic municipal services;
and
b) has considered the fair market value of the asset
and the economic and community value to be received in exchange for
the asset.
3) A decision by a municipal council
that a specific capital asset is not needed to provide the minimum
level of basic municipal
services, may not be reversed by the
municipality
after
that asset has been sold, transferred or otherwise disposed of.
4) A municipal council may delegate
to the
accounting
officer
of the municipality its power to make the determinations
referred to in subsection (2)(a) and (h) in respect of movable
capital
assets below a value determined by the council.
5) Any transfer of ownership of a
capital asset in terms of subsection (2) or (4) must be fair,
equitable, transparent, competitive
and consistent with the supply
chain management policy which the municipality must have and
maintain in terms of
section
111
.’
12
Clause 340 of the respondent’s supply
chain management policy is quoted at footnote 8, above.
13
Cf.
Bato Star
Fishing
(supra) at para.s [46]-[48].
14
See
Sapela
Electronics
(supra) at para. [11],
where it was held that ‘
The acceptance by an organ of
state of a tender which is not ‘acceptable’ within the
meaning of the [PPFA] is therefore
an invalid act and falls to be
set aside. In other words, the requirement of acceptability is a
threshold requirement.’
15
See §6 of the RFQ documentation ‘Price
Schedule’ and the notes thereto.
16
Clause 7.1 of the ‘Conditions of
Quoting’.
17
Clause 3.3 of the ‘Responsiveness and
Evaluation Criteria in §15 of the RFQ documentation.
18
Clause 3.1 of the ‘Instructions to
Vendors’.
19
Clause 3 of the ‘RFQ Specifications’
in §16 of the RFQ documentation.
20
The advertisement period and the means of
advertising were compliant with the minimum requirements stipulated
in clause 245
of the respondent’s SCMP.
21
Cf. s 73(1)(c) of the Systems Act.
22
If, however, a local authority should
misdirectedly decide on the alienation of capital assets needed for
the provision of basic
municipal services, any consequent alienation
to a
bona fide
third party effected in terms of such decision would nevertheless be
legally effective. This follows from the provisions of
s 14(3).
23
See s 168(1)(g) of the MFMA.
24
Section 2 of the MFMA provides:
The
object of
this Act
is to secure sound and sustainable management of the fiscal and
financial affairs of municipalities and municipal entities by
establishing norms and standards and other requirements for-
a)
ensuring
transparency, accountability and appropriate lines of responsibility
in the fiscal and financial affairs of municipalities
and municipal
entities;
b)
the
management of their revenues, expenditures, assets and liabilities
and the handling of their financial dealings;
c)
budgetary
and financial planning processes and the co-ordination of those
processes with the processes of organs of state in other
spheres of
government;
d)
borrowing;
e)
the
handling of financial problems in municipalities;
f)
supply
chain management: and
g)
other
financial matters.
25
See s 122(3) of the MFMA.
26
In the submission made to the respondent’s
City Manager for authority to write off and dispose of the
accumulated stockpile
of redundant equipment at the Ndabeni
warehouse, a copy of which was attached to the applicant’s
replying papers it is
stated that ‘[T]he asset value of the
units is zero.’
27
The relevant provisions of the section have been
quoted in footnote 11, above.
28
Cf. e.g.
True
Motives 084 (Pty) Ltd v Mahdi
2009 (4)
SA 153
(SCA)
(2009 (7) BCLR 712)
at para. [30];
Bestuursraad
van Sebokeng v M&K Trust & Finansiële Maatskappy (Edms)
Bpk
1973 (3) SA 376
(A) at 384H; and
Minister of Water Affairs v Mostert and
Others
1966 (4) SA 690
(A), especially
at 722C-D.
29
Cf.
Waterval Joint Venture Co. (Pty) Ltd v Johannesburg
Metropolitan Municipality
[2008] 2 All SA 700
(W);
[2008] JOL
21434
(W) at para. [33].