Brief Summary

Administrative Law — Tender Review — Compliance with mandatory requirements — Applicant sought to review the decision to award a tender for mechanical installation and maintenance services, arguing that the first respondent improperly disqualified its bid due to non-compliance with mandatory UIF certificate requirements, while allowing other non-compliant bids to proceed. The court found that the applicant's bid did not meet the specified mandatory requirements and that the first respondent's actions were consistent with the tender conditions, leading to the conclusion that the decisions were rational and lawful.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings concerned an application for judicial review under the Promotion of Administrative Justice Act 3 of 2000 (PAJA) arising from a public procurement process. The applicant, Spec Joint Venture, sought the review and setting aside of decisions taken by the Minister: Department of Water and Sanitation (the first respondent) to award a tender for mechanical and related major plant and machinery services to Zana Manzi Services (Pty) Ltd (the second respondent) and Phunya Consulting CC (the third respondent).

The matter was heard in the High Court of South Africa, Eastern Cape Division, Gqeberha. The tender decisions under challenge were made on 21 June 2022 (Eastern Cape portion awarded to the second respondent) and 29 September 2022 (Western Cape portion awarded to the second and third respondents). On 2 February 2023, the court granted an order reviewing and setting aside the impugned decisions and remitting the matter to the first respondent to commence the procurement process afresh. The judgment delivered on 17 February 2023 provided reasons for that earlier order.

The dispute concerned the lawfulness of the tender evaluation and award process, and in particular whether non-compliance with a mandatory tender requirement relating to UIF compliance documentation could be condoned or “relaxed” in the evaluation process, and whether the first respondent acted lawfully in how it treated non-compliant bidders.

2. Material Facts

The first respondent issued an invitation to tender for the appointment of contractors under a three-year term contract for mechanical and related major plant and machinery installation, maintenance, repair, refurbishment and upgrade for southern operations in the Eastern and Western Cape. Following mandatory briefing sessions held on 13 and 15 July 2021, a total of 23 tenders were submitted, including those of the applicant and the second and third respondents.

The tender evaluation process was structured into seven phases, beginning with Phase 1: Mandatory Requirements. The tender invitation expressly recorded that failure to submit any of the documents listed under Phase 1 would render a bid non-responsive and result in disqualification. A central mandatory requirement was item 10, which required “[a] copy of a valid UIF certificate of compliance or copy of a valid letter of good standing/tender letter (verification will be done with the Department of Labour)”.

It was common cause that the applicant was a joint venture comprised of three entities and that, for purposes of compliance, the applicant’s bid had to be assessed with reference to the mandatory requirements applicable to the joint venture members, including the lead partner. It was also common cause that two of the joint venture entities (including the lead partner) failed to submit valid UIF certificates of compliance. Instead, the applicant submitted alternative documents (including statements) and provided a cover letter asserting that the entities were UIF-compliant notwithstanding what was reflected on the Department of Employment and Labour website. The court recorded that the applicant’s alternative documentation was not included in item 10 as an acceptable substitute for the documents specified there.

The court further recorded as undisputed that the documents submitted by the applicant did not comply with the mandatory tender requirement in item 10.

The minutes of the Bid Evaluation Committee (BEC) reflected that other bidders, including the second respondent and Bicacon (Pty) Ltd, had also failed to submit the specified UIF compliance documentation. Rather than declaring those bids non-responsive and disqualifying them at Phase 1, the BEC recommended that their documents be forwarded to the Department of Labour for verification. The minutes recorded that the Department of Labour confirmed that declarations and contributions were up to date at bid closing, but that UIF certificates had not been issued, with the result that those bids were allowed to proceed for further evaluation.

In contrast, the first respondent’s stance in the litigation was that the applicant was not considered further because of its non-compliance with the mandatory requirements, specifically its lead partner’s failure to submit a valid UIF certificate of compliance. The applicant contended, in substance, that the first respondent had relaxed mandatory requirements for certain bidders but not for others, and that it had sufficient information to verify the applicant’s UIF status but failed to do so.

A further factual contention advanced by the applicant was that UIF compliance certificates had ceased to be issued (or were issued only intermittently) by the Department of Labour prior to the tender. The court found that this contention was not supported by the papers, and referred to the first respondent’s reliance on departmental circulars issued in March and April 2022 (after bid submission). The court also noted that a certificate of compliance had been issued to the second respondent on 29 July 2021, and that the applicant’s own explanatory letter submitted with its bid did not allege an inability to obtain the required certificates. In addition, the court recorded that the applicant did not contend that it was unable to obtain the alternative documentation expressly contemplated by item 10, namely a letter of good standing/tender letter.

3. Legal Issues

The central legal question was whether the first respondent had lawful authority, on a proper construction of the tender documents and the applicable procurement framework, to condone or relax non-compliance with a peremptory mandatory tender requirement (item 10) that was framed as disqualifying if not met.

Closely connected to this was whether, in procurement law and under PAJA, the absence of strict compliance with the mandatory requirement could nonetheless be treated as sufficiently compliant on the basis that the purpose of the requirement (ensuring UIF registration and up-to-date contributions) could allegedly be met through other forms of proof, and whether that type of “materiality” enquiry (as discussed in Constitutional Court jurisprudence) could justify the decision to allow certain non-compliant bids to proceed.

The dispute therefore primarily concerned questions of law and the application of legal principles to largely common-cause facts, namely the content of the tender requirements, the common-cause non-compliance, and whether the first respondent had discretion to condone. To the extent that the applicant relied on a “purpose-based” assessment of compliance, the matter also implicated a value judgment about the materiality of deviation; however, the court treated the decisive issue as the existence (or absence) of lawful power to condone in the first place.

4. Court’s Reasoning

The court began from the premise (common cause between the parties) that the evaluation and award of the tender constituted administrative action reviewable under PAJA. It then located the procurement process within the constitutional framework of section 217(1) of the Constitution, which requires a procurement system that is fair, equitable, transparent, competitive, and cost-effective, subject to the permissibility of preferential procurement policies and the statutory framework contemplated in section 217(3).

The court identified the Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) as the legislation giving effect to section 217(3), and emphasised the statutory concept of an “acceptable tender”, namely one which “in all respects, complies with the specifications and conditions of tender as set out in the tender document”. The court treated acceptability as a threshold requirement, linked to the constitutional procurement values and to the principle of legality, with the consequence that acceptance of a tender failing to meet the threshold would be invalid and liable to be set aside.

In addressing how compliance should be assessed, the court referred to Supreme Court of Appeal authority interpreting “acceptable tender” against the background of section 217(1) values. The court noted the observation (in later authority) that “acceptable tender” cannot require compliance with conditions that are immaterial, unreasonable, or unconstitutional, but also emphasised that it is for the procuring entity, not the court, to decide prerequisites for a valid tender, with non-compliance resulting in disqualification unless the relevant requirement falls into one of those exceptional categories.

Against that background, the applicant’s central submission was that strict insistence on a UIF compliance certificate (without allowing other proof of compliance) was irrational given the purpose of the requirement. The court characterised this as an argument that the first respondent could and should have condoned non-compliance with the prescribed documentary requirement.

The court then applied the general principle that an administrative authority has no inherent power to condone failure to comply with a peremptory requirement, and has such power only if a discretion to condone has been conferred. The decisive enquiry therefore became whether the tender invitation, properly construed, gave the first respondent any express or implied discretion to condone non-compliance with items 1 to 10 of the mandatory requirements. Having considered the tender documents, the court concluded that they did not confer such discretion, either expressly or by implication.

The court engaged with the jurisprudential debate around “substantial compliance” and the “materiality” of deviations, including the Constitutional Court’s statement that materiality depends on the extent to which the purpose of the requirement is attained. However, the court held that those statements were not authority for the proposition that an organ of state may condone non-compliance with a mandatory prerequisite for a valid tender where no discretion exists. The court distinguished the position in Allpay, noting that in that case the administrative authority had reserved a right to disqualify, thereby retaining a discretion to condone; in the present tender, the first respondent retained no such discretion.

The court also recorded its alignment with authority emphasising legality and the limits of condonation in procurement processes, and it treated item 10’s requirement as neither trivial nor minor, and as not immaterial, unreasonable, or unconstitutional. On that basis, the court concluded that the applicant’s tender was not an acceptable tender under the PPPFA threshold. By necessary implication, the same applied to other bids that failed to comply with the mandatory requirements and yet were erroneously allowed to proceed through an effective relaxation of item 10.

Because the first respondent’s process allowed non-compliant bids to be treated as responsive and eligible for further evaluation and award, the court found that the first respondent failed to comply with a mandatory and material procedure or condition prescribed by an empowering provision, as contemplated in section 6(2)(b) of PAJA. The court considered that, having reached this conclusion, it was required by section 172(1)(a) of the Constitution to declare the decisions unlawful on that basis alone. It therefore did not address an additional dispute raised on the papers relating to the Western Cape portion allegedly being awarded outside the tender validity period.

On costs, the court considered the applicant to have been substantially successful and held that costs should follow the result. However, it did not accept that the costs of two counsel were warranted given the crisp and uncomplicated issue for determination.

5. Outcome and Relief

The court reviewed and set aside the decision of the first respondent to award the Eastern Cape portion of tender BID DWS 05-0621 WTE to the second respondent on 21 June 2022.

The court reviewed and set aside the decision of the first respondent to award the Western Cape portion of the tender to the second and third respondents on 29 September 2022.

The impugned decisions were remitted to the first respondent with a direction to start the procurement process afresh for the relevant services.

The first respondent was ordered to pay the costs of the application, with the court indicating that costs of two counsel were not justified on the facts.

Cases Cited

Pharmaceutical Manufacturers Association of SA: In re Ex parte President of the Republic of South Africa [2000] ZACC 1; 2000 (2) SA 674 (CC).

Chairperson, Standing Tender Committee v JFE Sapela Electronics (Pty) Ltd 2008 (2) SA 638 (SCA).

Millennium Waste Management (Pty) Ltd v Chairperson, Tender Board: Limpopo Province 2008 (2) SA 481 (SCA).

Dr JS Moroka Municipality and Others v Betram (Pty) Limited and Another (937/2012) [2013] ZASCA 186; [2014] 1 All SA 545 (SCA) (29 November 2013).

Minister of Environmental Affairs and Tourism v Pepper Bay Fishing (Pty) Ltd; Minister of Environmental Affairs v Smith 2004 (1) SA 308 (SCA).

Overstrand Municipality v Water and Sanitation Services South Africa (Pty) Ltd [2018] 2 All SA 644 (SCA).

Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others [2014] ZACC 42; 2014 (1) SA 604 (CC).

WDR Earthmoving Enterprises and Another v Joe Gqabi District Municipality and Others (392/2017) [2018] ZASCA 72 (30 May 2018).

Weenen Transitional Local Council v Van Dyk [2002] 2 All SA 482 (A) (14 March 2002).

Nkisimane and Others v Santam Insurance Co Ltd 1978 (2) SA 430 (A).

Ex parte Mothuloe (Law Society Transvaal, Intervening) 1996 (4) SA 1131 (T).

Amakahaya Construction CC v Eastern Cape Department of Human Settlements and the Member of the Executive Council of the Eastern Cape Department of Human Settlements (Eastern Cape Division, Grahamstown) Case No. 3782/2021 (unreported).

Legislation Cited

Constitution of the Republic of South Africa, 1996.

Promotion of Administrative Justice Act 3 of 2000.

Preferential Procurement Policy Framework Act 5 of 2000.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicant’s bid did not comply with the tender’s mandatory requirements because it failed to submit the specified UIF compliance documentation contemplated in item 10, and that this non-compliance rendered the bid non-responsive under the tender terms and unacceptable under the statutory procurement framework.

The court held further that the first respondent had no discretion, express or implied in the tender documents, to condone or relax non-compliance with the mandatory prerequisites. As a result, the treatment of non-compliant bids as eligible for further evaluation and award constituted non-compliance with a mandatory and material condition prescribed by an empowering provision for purposes of section 6(2)(b) of PAJA.

On that basis, the court set aside both tender awards and remitted the matter to the first respondent to commence the procurement process anew, with a costs order against the first respondent.

LEGAL PRINCIPLES

A tender submitted in a public procurement process must satisfy the threshold requirement of being an “acceptable tender” under the Preferential Procurement Policy Framework Act 5 of 2000, meaning that it must comply, in all respects, with the specifications and conditions set out in the tender documents, assessed against the constitutional procurement values in section 217(1).

An organ of state may not, consistent with the principle of legality, exercise powers beyond those conferred by law, and therefore may not accept or treat as responsive a tender that fails to meet mandatory prerequisites where those prerequisites are binding and no condonation power is conferred.

As a general principle, an administrative authority has no inherent power to condone non-compliance with a peremptory requirement; it has such power only where it has been afforded a discretion to do so by the relevant empowering instrument, properly construed.

Purpose-based assessments of the “materiality” of compliance in administrative law do not, without more, supply a power to condone non-compliance with mandatory tender prerequisites where the tender framework does not reserve or confer a discretion to waive or overlook non-compliance.

Where a procuring authority fails to comply with a mandatory and material condition prescribed by an empowering provision, this constitutes a reviewable irregularity under section 6(2)(b) of PAJA, and invalid administrative action must be declared unlawful under section 172(1)(a) of the Constitution.

Spec Joint Venture v Minister: Department of Water and Sanitation and Others (2806/2022) [2023] ZAECQBHC 8 (17 February 2023)