Moseme Road Construction CC and Others v King Civil Engineering Contractors (Pty) Ltd and Another (385/2009) [2010] ZASCA 13; 2010 (4) SA 359 (SCA) ; [2010] 3 All SA 549 (SCA) (15 March 2010)

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Moseme Road Construction CC and Others v King Civil Engineering Contractors (Pty) Ltd and Another (385/2009) [2010] ZASCA 13; 2010 (4) SA 359 (SCA) ; [2010] 3 All SA 549 (SCA) (15 March 2010)

THE
SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH
AFRICA
JUDGMENT
Case No 385/2009
In
the matter between:
MOSEME
ROAD CONSTRUCTION CC First Appellant
LONEROCK
CONSTRUCTION (PTY) LTD Second Appellant
THE
MEC FOR THE DEPARTMENT OF PUBLIC
TRANSPORT,
ROADS AND WORKS OF THE
GAUTENG
PROVINCIAL GOVERNMENT Third Appellant
and
KING
CIVIL ENGINEERING CONTRACTORS
(PTY)
LTD First Respondent
LUDONGA
CONSTRUCTION CC Second Respondent
Neutral
citation:
Moseme Road Construction CC v
King Civil Engineering CC
(385/2009)
[2010]
ZASCA 13
(15 March 2010)
Coram:
Harms
DP, Nugent, Cloete and Lewis JJA and Theron AJA
Heard:
26
February 2010
Delivered:
15
March 2010
Summary:
Tender award – setting aside – award of
contract by court to unsuccessful tenderer – inappropriate in the
circumstances.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
The South
Gauteng High Court (Johannesburg) (Jajbhay J sitting as court of
first instance):
1 The appeal is upheld with costs.
2 The order of the court below is set aside and replaced
with an order dismissing the application with costs and making no
order on
the counter-application.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
HARMS DP (NUGENT, CLOETE and LEWIS JJA concurring):
[1] This appeal concerns the award of a government
tender. These awards often give rise to public concern – and they
are a fruitful
source of litigation. Courts (including this court)
are swamped with unsuccessful tenderers that seek to have the award
of contracts
set aside and for the contracts to be awarded to them.
The grounds on which these applications are based are many. Sometimes
the
award has been tainted with fraud or corruption, but more often
it is the result of negligence or incompetence or the failure to
comply with one of the myriad rules and regulations that apply to
tenders. Sometimes the successful tenderer is to be blamed for
the
problem but then there are cases where he is innocent. Many cases are
bedevilled by delay, whether in launching the application
(and also
because the facts were not readily available or easily ascertainable)
or because of delays and suspensions inherent in
the appeal
procedure. If the applicant succeeds the contract may have to be
stopped in its tracks with possibly devastating consequences
for
government or the successful tenderer or both. Conversely, if the
works are allowed to be completed, the tenderer that should
have been
awarded the tender would unjustly be deprived of the benefits of the
contract. There are also cases where the final judgment
issues only
after completion of the contract. It is not necessary to adumbrate
further. Tendering has become a risky business and
courts are often
placed in an invidious position in exercising their administrative
law discretion – a discretion that may be academic
in a particular
case, leaving a wronged tenderer without any effective remedy.
1
[2] The award of government tenders is governed by s
217(1) of the Constitution. Awards must be made in accordance with a
system that
is fair, equitable, transparent, competitive and
cost-effective. But a procurement system may provide for categories
of preference
and for the advancement of categories of persons (s
217(2)). National legislation must prescribe the framework for the
implementation
of any preferential policy (s 217(3)). This is done by
the
Preferential Procurement Policy Framework Act 5 of 2000
. It
provides that organs of state must determine their preferential
procurement policy based on a points system. The importance of
the
points system is that contracts must be awarded to the tenderer who
scores the highest points unless objective criteria justify
the award
to another tenderer
(s 2(1)(f)).
[3] The
Construction Industry Development Board Act 38
of 2000
provides for a national register of contractors. Contractors
are categorized ‘in a manner that facilitates public sector
procurement
and promotes contractor development’
(s 16(1)).
Contractors registered in a particular category are in terms of the
regulations under this Act considered to be capable of undertaking
a
contract in a particular range of tender values.
2
[4] The essential facts are these. The Gauteng
Department of Public Transport, Roads and Works invited tenders for
the construction
of a section of Beyers Naudé Drive into a dual
carriageway. (The Department is represented in this case by the
responsible MEC,
the third appellant.) The advertised tender
invitation specified the classification of tenderers who could
tender. It was 8CE PE
or 9CE, signifying civil engineering
contractors considered capable of performing contracts having a value
in excess of R100m. The
present respondents, who eventually submitted
a joint venture tender, did not qualify in terms of the
advertisement. (I shall refer
to the joint venture as ‘King’.)
The first and second appellants, another joint venture and,
eventually the successful tenderer
(to whom I shall refer as Moseme)
did qualify. At the obligatory site meeting that preceded the tender
award those present were informed
in response to a question put on
behalf of King that parties with a lower classification (8CE or 7CE
PE – for contracts with a
tender value of less than R100m) could
also tender. An addendum to the tender documents issued subsequently
was to the same effect.
King fell within the lower group and
tendered. The tenders received went through an evaluation process.
King’s tender, having scored
the highest points, was recommended in
the technical evaluation report prepared by the Department’s
engineer; in the standard submissions
prepared by the project
manager; and in the minutes of the functional sourcing team.
[5] At the final assessment the Departmental Acquisition
Council disqualified King’s tender ‘on the rule of unfair
competition’
and awarded the contract to Moseme. According to its
minutes it would have been unfair to those 8CE and 7CE PE contractors
who had
been unaware of the change, which would have permitted them
to tender, to award it to King without a notice in the media. King’s
tender was accordingly disqualified in spite of the amendment of the
tender documents because it was not in accordance with the
advertisement.
In other words, King’s tender was disqualified
because of an error by the Department. The error was, unbeknown to
King, that the
information given at the site meeting was wrong and
that the Department had failed to change the tender documents.
[6] Dissatisfied, King launched an application for an
urgent interim interdict, which was dismissed on the ground of
balance of convenience.
Undeterred, King launched the present
proceedings as a matter of urgency, seeking the review of the
decision to award the contract
to Moseme, and its setting aside.
Additionally, King asked that the court should award the contract to
it since its tender was for
the lowest price, had scored the highest
points, and was recommended during the evaluation process. Moseme
adopted a somewhat ambivalent
attitude: it did not oppose the review
but only the prayer for the award of the contract to King, and by way
of counter-application
Moseme sought an order declaring that the
contract was to remain extant in spite of the review. The Department,
however, opposed
King’s application in all its aspects.
[7] The grounds for review were many, all attacking the
award to Moseme while the real complaint was the disqualification of
King.
It was for instance said that the award to Moseme was unlawful
because it had not scored the most points; and that the award was
materially influenced by an error of law, was made on the basis of
irrelevant considerations, or arbitrarily or capriciously.
[8] The high court (Jajbhay J) granted the relief sought
by King. In relation to the review he found that the decision was
taken arbitrarily;
that the matter had not been considered properly;
and that the Department had taken irrelevant considerations into
account. I am
prepared to accept for purposes of this judgment that
the fact that there may have been 8CE and 7CE PE contractors who
could have
tendered but had failed to do so because they were unaware
of the changed classification was not a ground for disqualifying
King’s
tender. One would have thought that if the Council had
concerns about those contractors it would have been a simple matter
either
to advertise or to revert to the higher classification by
issuing another addendum or informing the tenderers of the decision.
[9] Having found that the award was reviewable, the
court below held, without more, that it was just and equitable to set
the decision
aside. It then proceeded to consider whether to remit
the matter to the Council for reconsideration or to award the
contract to King
because it was an exceptional case under PAJA.
3
It adopted the latter option on both a legal and a factual basis. The
legal ground was that since King had scored the highest points
and
had submitted the lowest tender it was a foregone conclusion that the
Department was obliged in law to award the contract to
King, and that
it would have been a waste of time to remit the matter for
reconsideration.
[10] The court, in exercising its discretion, added the
factual consideration that it was not impracticable to set aside the
decision
because, although the work had begun, it was a
‘re-measurable’ contract which meant that King would not be paid
for something
it had not done and, presumably, that Moseme would be
paid for the work it had completed.
[11] In assessing whether or not the court had erred it
is necessary to refer to the
Oudekraal
judgment where this court said the following:
4
‘
It will
be apparent from that analysis that the substantive validity or
invalidity of an administrative act will seldom have relevance
in
isolation of the consequences that it is said to have produced –
the validity of the administrative act might be relevant in
relation
to some consequences, or even in relation to some persons, and not in
relation to others – and for that reason it will
generally be
inappropriate for a court to pronounce by way of declaration upon the
validity or invalidity of such an act in isolation
of particular
consequences that are said to have been produced.’
[12] A declaration of invalidity
of the tender award in this case can also not be considered in
isolation. One has to consider the
possible consequences. Only two
possibilities were canvassed: the one favoured by the high court,
namely setting aside the award
and awarding the contract to King; and
the one proposed by Moseme and the Department, which was to leave the
contract extant. Acceptance
of the latter alternative would make the
review academic. Consequently, it is only necessary to decide whether
as a matter of law
the Council was obliged to award the contract to
King and, if not, whether it was appropriate for the court below to
have done so.
[13] King, in support of the
court’s legal finding, relied on
s 2(1)(f)
of the
Preferential
Procurement Policy Framework Act: contracts
must be awarded to the
tenderer who scores the highest points unless objective criteria
justify the award to another tenderer. The
first problem with the
submission is that it fails to take into account the fact that the
invitation to tender stated that tenders
were to be awarded on the
basis of the principle that work will be distributed amongst
contractors or entities that have not previously
been awarded
contracts. This aspect was not considered by the Council –
something it would have had to consider if it came to an
assessment
of King’s tender vis-à-vis that of Moseme.
[14] More importantly, the submission ignores the
preferential system introduced by the regulations under the
Construction Industry Development Board Act. The
scheme of things
under r 25 is this: In soliciting a tender the employer must
stipulate that only tender offers by contractors who
are registered
in the category of registration required in terms of r 25(3) may be
evaluated in relation to that contract. To qualify
for evaluation,
the contractor grading designation must describe the nature of the
works (in this case it is CE for civil engineering);
and it must be
based on the estimated tender value. On the evidence the estimated
tender value at the time of the advertisement and
thereafter exceeded
R100m and, accordingly, the tender invitation had to refer to the
higher classification, which it did. The regulation
states further
that on receipt of tender offers the employer must determine the
final lowest category of registration required for
their evaluation
and that a tender offer received from a contractor who does not then
qualify must be rejected. According to the
adjusted tender amounts
(including that of King) the tender fell within the higher
classification (they varied between R107m and
R137m). This means, as
I understand the regulations, that King’s tender had to be
disqualified at that stage – irrespective of
what the advertisement
or tender documents had said – unless the employer exercised its
discretion under reg 25(7A) to award the
tender in prescribed
circumstances to someone who has tendered outside his range. Whether
the Council could or should have exercised
its discretion is not the
question. The fact is that King was not as a matter of law entitled
to the contract and that the court
below erred on this aspect.
[15] Something has to be said about the court’s
approach to the ease with which it considered it possible to replace
Moseme with
King, an approach supported on appeal on behalf of King.
It is useful to begin with a reference to
Sapela.
5
The high court had found, and this court confirmed, that the award of
the tender was ‘tainted’. The high court had set the award
aside
and referred the matter back to the tender body. But an appeal was
lodged, which suspended the order, and the high court refused
to
uplift the suspension. This court had to consider whether the high
court was correct in setting aside the contract and concluded
that
the high court had erred because, at the time the application was
heard in the high court, the contract had been performed in
part and
t
he order, if implemented,
would not only have been disruptive but would also have given rise to
a host of problems not only in relation
to a new tender process and
also in relation to the work to be performed (para 27). The judgment
in
Sapela
concluded (para
29):
‘
In my
view, the circumstances of the present case as outlined above, are
such that it falls within the category of those cases where
by reason
of the effluxion of time (and intervening events) an invalid
administrative act must be permitted to stand. While the court
a
quo
correctly found that the award of each of the three tenders was
invalid when made, it appears not to have appreciated that it had
a
discretion to decline to set aside those awards.’
In other words, ‘considerations
of pragmatism and practicality’ were relevant in the exercise of
the discretion (para 28).
[16] The facts in
Eskom
Holdings
were
different, as was the result.
6
The contract involved ad hoc removal of material and its subsequent
processing and sale. It was not an indivisible contract such
as an
engineering contract. The high court awarded the contract to the
innocent tenderer. The order was suspended pending the appeal.
When
the appeal was heard the contract had just three months to run.
Relying on
Sapela,
the argument was that it was impracticable at that stage to terminate
the contract and award it to the innocent tenderer. This Court
found
that it was not impracticable in view of the nature of the particular
contract (para 16).
[17] Two further comments should
be made. The first is that the successful tenderer in
Eskom
Holdings
was, at
least in part, to blame for the tainted award because its tender was
flawed (at para 14). That is not the position here. The
second
comment flows from an argument by Moseme that the contract was now
near completion and that, because of the intervening facts,
the order
below should be set aside. There is a conceptual problem with the
submission. The issue on appeal is whether the order
granted by the
court below was correct at the time it issued. Supervening events
cannot affect the answer although they might conceivably
affect
enforceability on the ground of supervening impossibility.
[18] Then there is
Millennium
Waste.
7
This court said (at para 22):
‘
This
guideline involves a process of striking a balance between the
applicant’s interests, on the one hand, and the interests of
the
respondents, on the other. It is impermissible for the court to
confine itself, as the court below did, to the interests of the
one
side only.’
That contract, which was
divisible, related to the provision of services, and this court did
not, on finding a defect in the award,
set the contract aside but
crafted an order with care to suit the occasion.
[19] The judgment in
Millennium
Waste
pointed
out that the difficulty that is presented by invalid administrative
acts is that they have often been acted upon by the time
they are
brought under review (at para 23):
‘
That
difficulty is particularly acute when a decision is taken to accept a
tender. A decision to accept a tender is almost always
acted upon
immediately by the conclusion of a contract with the tenderer, and
that is often immediately followed by further contracts
concluded by
the tenderer in executing the contract. To set aside the decision to
accept the tender, with the effect that the contract
is rendered void
from the outset, can have catastrophic consequences for an innocent
tenderer, and adverse consequences for the public
at large in whose
interests the administrative body or official purported to act.’
[20] Against that background I
proceed to consider the appropriateness of the learned judge’s
premise that it
was not impracticable to
set aside the decision because, although the work had begun, it was a
‘re-measurable’ contract which
meant that King would not be paid
for something it had not done and, presumably, that Moseme would be
paid for the work it had completed.
I believe that the high court did
not consider fully the implications of the order in the context of a
contract that has to be measured.
8
First, each tenderer will weight and price different items
differently. Any particular costed item will as a matter of course
differ
from tender to tender. Then there are items, such as
preliminaries and establishment, which in themselves provide no value
for the
employer and for which each contractor would in principle be
entitled. But it goes further. The setting aside of a contract has a
number of consequences. The first contractor may not be able to claim
under the revoked contract and be left with an enrichment claim,
and
the employer may not have a claim for defective workmanship. The
second contractor may even have a claim for damages against
the
employer in respect of loss of profit on the executed part of the
contract because it has now become contractually entitled to
the
whole contract.
[21] These problems may not be of any consequence in the
case of corruption or fraud or where the successful tenderer was
complicit
in the irregularity.
9
But, as said, that is not the case. The learned judge, in reaching
his conclusion, failed to have any regard to the position of the
innocent Moseme. He also did not consider the degree of the
irregularity. He assumed incorrectly that King was entitled to the
contract
and he underestimated the adverse consequences of the order.
I therefore conclude that he erred in the exercise of his discretion.
This means that King, in spite of the imperfect administrative
process, is not entitled to any relief. Not every slip in the
administration
of tenders is necessarily to be visited by judicial
sanction.
[22] It follows that the appeal must be upheld with
costs. Costs of two counsel cannot be justified. The order as granted
in favour
of King has to be set aside. Moseme’s counter-application
that the contract should have remained extant, which was dismissed,
consequently
becomes academic. It was in any event unnecessary and
did not cause any additional costs.
[23] The following order issues:
1 The appeal is upheld with costs.
2 The order of the court below is set aside and replaced
with an order dismissing the application with costs, and making no
order
on the counter-application.
__________________
L T C Harms
Deputy President
THERON AJA:
[24] I have had the benefit of reading the judgment of
my colleague, Harms DP. I concur with the reasoning and the
order in respect of the merits, but I do not agree with
the costs order.
[25] The legislative framework for aggrieved parties to
protect their rights in relation to tender procurement has been
comprehensively
set out by Harms DP. However, as this case
demonstrates, it is often extremely difficult for aggrieved parties,
such as King, to
enforce their rights in our courts. The practical
difficulties faced by an aggrieved tenderer were recognised by this
court in
Millennium Waste
10
where Jafta JA said the following:
‘
In conclusion there is one
further matter that needs to be mentioned. It appears that in some
cases applicants for review approach
the High Court promptly for
relief but their cases are not expeditiously heard and as a result by
the time the matter is finally
determined, practical problems
militating against the setting-aside of the challenged decision would
have arisen. Consequently the
scope of granting an effective relief
to vindicate the infringed rights becomes drastically reduced. It
may help if the High Court,
to the extent possible, gives priority to
these matters.’
In appropriate circumstances, a court should be
innovative and use its discretion as a tool ‘for avoiding or
minimising injustice’.
11
Courts should not shy away from carefully fashioning orders which
meet the demands of justice and equity. In terms of
s 8
of the
Promotion of Administrative Justice Act 3 of 2000
a court, in
proceedings for judicial review, is empowered to grant ‘any order
that is just and equitable’.
[26] King was entitled to participate in a procurement
process that was fair, equitable, transparent, competitive and
cost-effective.
12
I accept, as does Harms DP, for purposes of this judgment, that it
was the Department’s negligence and
unjustified
disqualification of King’s tender that resulted in the latter
approaching the high court for relief. King approached
the court
expeditiously in order to protect a legitimate interest but it has
not, in my view, received effective protection or relief.
I am
further of the view that there are special circumstances, as was
found by Scott JA in
Sapela Electronics
,
13
why the Department should pay King’s, as well as Moseme’s
,
costs in the court below.
_____________________
L Theron
Acting Judge of Appeal
APPEARANCES:
FIRST & SECOND APPELLANT: J G Wasserman SC
Instructed by Van der Meer &
Schoonbee Attorneys, Bedfordview
Lovius Block Attorneys, Bloemfontein
THIRD APPELLANT: M
G
Khoza SC
A P S Nxumalo
Instructed by: The State Attorney,
Johannesburg
The State Attorney, Bloemfontein
FIRST AND SECOND RESPONDENTS: S du Toit SC
Q G Leech
Instructed by Earle Friedman &
Associates, Johannesburg
Claude Reid Incorporated Bloemfontein
1
Compare
Sebenza Kahle Trade
CC v Emalahleni Local Municipal Council
[2003] 2 All SA 340 (T);
Intertrade
Two (Pty) Ltd v The MEC for Road and Public Works & another
2007
(6) SA 442
,
[2008] 1 All SA 142
(Ck).
2
Regulations in terms of the
Construction Industry Development Board
Act GG
26427, 9 June 2004, as often amended.
3
Promotion of Administrative Justice Act 3 of 2000
s 8(1)(c).
4
Oudekraal Estates (Pty) Ltd
v City of Cape Town & others
2004 (6) SA 222
(SCA);
[2004] 3 All SA 1
(SCA) para 38.
5
Chairperson: Standing
Tender Committee & others v JFE Sapela Electronics (Pty) Ltd &
others
2008 (2) SA 638
(SCA);
[2005] 4 All SA 487
(SCA).
6
Eskom Holdings Ltd &
another v New Reclamation Group (Pty) Ltd
[2009] ZASCA 8
;
2009 (4) SA 628
(SCA).
7
Millennium Waste Management
(Pty) Ltd v Chairperson of the Tender Board: Limpopo Province &
others
[2007] ZASCA 165
;
[2008] 2 All SA 145
;
2008 (5) BCLR 508
;
2008 (2) SA 481
(SCA).
8
Compare
Darson Construction
(Pty) Ltd v City of Cape Town
2007 (4) SA 488 (C), [2007] 1 All SA 393
(C).
9
Millennium Waste
para 26 and compare
Minister
of Finance & others v Gore NO
2007 (1) SA 111
(SCA);
[2007] 1 All SA 309
(SCA).
10
Millennium Waste Management (Pty) Ltd v Chairperson, Tender
Board: Limpopo Province & others
2008 (2) SA 481
(SCA) para
34.
11
Oudekraal Estates (Pty) Ltd v City of Cape Town & others
2004 (6) SA 222
(SCA) para 36.
12
Section 217(1) of the Constitution.
13
Chairperson, Standing Tender Committee & others v JFE Sapela
Electronics (Pty) Ltd & others
[2005] ZASCA 90
,
2008 (2) SA
638
(SCA),
[2005] 4 All SA 487
(SCA) para 30.