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[2010] ZAWCHC 442
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SA Metal & Machinery Co (Pty) Ltd v The City of Cape Town (9440/2010) [2010] ZAWCHC 442 (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
PRESIDING
JUDGE:
JUDGE
A.G. BINNS-WARD
JUDGMENT
BY :
JUDGE
A.G. BINNS-WARD
FOR
THE APPLICANT:
ADV.
E. FAGAN SC
INSTRUCTED
BY: Bernardt Vukic Potash & Getz
Cape
Town
FOR
THE RESPONDENT :
ADV.
S.P. ROSENBERG SC
INSTRUCTED
BY: Cliffe Dekker Hofmeyr Inc.
Cape
Town
DATE
OF HEARING: 13 AUGUST 2010
DATE
OF JUDGMENT; 18 AUGUST 2010
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:
[1] 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').
[2] 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'.
[3] 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.
[4] 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 ofthe 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.
[5] 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 s217 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.
[6] 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:
(a) 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
);
(b) Regulation 2 of the
Supply Chain Management Regulations;
7
(c) The Respondent's
Supply Chain Management Policy;
8
(d) Section 2 of the
Preferential Procurement Policy Framework Act, No. 5 of 2000 ('the
PPPF Act')
9
;
(e) Regulation 4 of the
Preferential Procurement Regulations,2001
10
;
and
(f) Section 14 of the
MFMA.
11
[7] 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'.
[8] 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.
[9]
The applicant contends, however, that the historically used approach
was 'the most advantageous way for the [Respondent 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.
[10] 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.
[11]
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.
[12] 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 [4], 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.
[13] 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.
[14] 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 quotationssubmitted 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.
[15] 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.
[16] 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.
[17]
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'.
[18] 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.
[19] 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.
[20] 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
[21] 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.
[22] 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'.
[23] 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.
[24]
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.
[25] 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.
[26]
In my view the construction which best meets the contextual
employment of the term is that offered in a guideline in respect
of
capital assetmanagement 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
1
.
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.
[27] 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.
[28] 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 mighthave 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.
[29] 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.
[30] The documentation
attached to the applicant's replying papers indicates that the
respondent's municipal manager has been
delegated thepower 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.
[31] 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.
[32] 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
[33] 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:
1. The application is
dismissed with costs, including the costs of two counsel.
2. 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
1.
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.
2.
Subsection
(1) does not prevent the organs of state or institutions referred to
in that subsection from implementing a procurement
policy providing
for-
a.
categories
of preference in the allocation of contracts; and
b.
the
protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
3.
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 no 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
services.
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
M
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 & Finansiele 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].