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2024
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[2024] ZAECMHC 16
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Kuzobalula v Ingquza Local Municipality and Another (4797/2023) [2024] ZAECMHC 16 (28 March 2024)
IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE
DIVISION, MTHATHA)
Case No. 4797/2023
Heard on: 31
January 2024
Date delivered: 28
March 2024
In the matter between:
PHARAOHS CONSTRUCTION
JV
KUZOBALULA
Applicant
And
INGQUZA LOCAL
MUNICIPALITY
First
Respondent
MAONA CHIA
JV
Second
Respondent
JUDGMENT
MAJIKI J:
[1]
The
applicant approached court in two parts, for interdict pending review
and the review. In Part A the applicant urgently
sought to
interdict and restrain Ingquza Hill Municipality (the municipality)
from implementing or giving effect to a certain specified
bid award
to
Maona CHIA JV (CHIA)
or taking steps to give effect to the
purported withdrawal or re-advertisement or taking steps pursuant
thereto in respect of the
said bid. It also sought certain documents
relating to the decisions to giving of notice to award and withdrawal
of the bid.
[2]
The
municipality and the applicant had raised respective objections
regarding the applicant’s stringent truncated time frames
and
the delay in the filing of the answering affidavit and other related
issues. Nonetheless, on 12 December 2023 when the matter
was in court
for the opposed interdict proceedings, it was ordered that the matter
be postponed to 23 January 2024 for the hearing
of the review
application in Part B. The litigants were afforded an
opportunity to file further affidavits.
[3]
In
the review application the applicant sought-
‘
1.
THAT
the decision of the First Respondent to award the Bid for the
construction of new municipal offices in Lusikisiki (Ref no.:
ILHM/117/2022-23/roads)
(“
the Bid”
) to the Second
Respondent be and is hereby set aside;
2.
THAT
the decision of the First Respondent to withdraw the Bid be and is
hereby set aside;
3.
THAT
the First Respondent be and is hereby directed to discontinue the
tendering process initiated in substitution for the Bid;
4.
THAT
the First Respondent be and is hereby directed to implement the
recommendation of its Bid Adjudication Committee with regard to
the
Bid by awarding the contract for the construction of new municipal
offices in Lusikisiki (Ref no.: ILHM/117/2022-23/roads)
to the
Applicant and concluding the required Service Level Agreement with
the Applicant within 10 (ten) days of the order.
This is the opposed
review application that was eventually heard. The applicant
abandoned the rule 30 application and supplementary
affidavit filed
on its behalf.
BACKGROUND
[4]
On
6 April 2023 the municipality advertised in the daily dispatch, a
tender inviting bids for the construction of offices in Lusikisiki,
bid number IHLM/117/2022-23 Roads (the bid). The closing date
for submission of bids was 23 May 2023. The tender validity
period was extended to 6 October 2023. The cost of the project
was over R90 million.
[5]
The
tender advertisement contained various requirements which the bidders
were required to comply with. They included construction
specifications, latest central supplier data base, signed joint
venture agreement, where applicable, proof of registration with
Construction Industry Development Board (CIDB), compulsory
declarations, annual audited financial statements for the past five
years (five year financial statements) and etc. The tender
document further set out the details of tender procedures, compulsory
returnable documents, tender evaluation, scoring, pricing
instructions, bill of quantities and construction specifications.
Bidders who met the requirements were scored for functionally and
thereafter price and preference.
[6]
Clause
F2.1 specifically required the tenderers to register with CIDB for a
8GB or higher class of construction work. For
joint ventures
the lead partner had to have 8GB or higher class of grading, and each
member of the joint venture had to be registered
with CIDB. Clause
F.2.23 required CIDB contractor, if satisfies grading through joint
venture, to submit contractor registration
certificate in respect of
each partner. Among compulsory returnable documents MBD8, a
declaration of bidder’s past
supply chain management practice,
had to be signed by all the partners in a joint venture, with a
separate declaration in respect
of each partner.
[7]
The
applicant and Chia were among the entities that submitted bids. The
applicant’s bid price was 97, 879, 634.72, Chia’s
bid
price was 94, 737, 685.37. All bids received were entered in a
tender closing register, which is a public document.
[8]
The
Bid Evaluation Committee (BEC) established in terms of the management
policy considered each bid and evaluated the bid for responsiveness
and compliance, in terms of the criterion which was comprehensively
contained in the bid document. It considered the applicant
to
be the preferred bidder and recommended it to the Bid Adjudication
Committee (BAC) as such.
[9]
On
10 October 2023, after several enquiries, the applicant learnt from a
representative of Ikwezi newspaper that the intention to
award bid
was published in the said newspaper on 6 October 2023. That
newspaper is published in Kokstad, KwaZulu Natal the
area of Chia,
and not in the Eastern Cape, where the municipality is situated.
The notice was not published in the daily
dispatch, the Eastern Cape
newspaper, as the original tender document on 6 April 2023.
[10]
The
notice gave information that the municipality intended to award the
tender to Chia. Chia had neither achieved functionality
nor
scored on price and preference.
[11]
On
11 October 2023, following the notice of the intention to award the
bid, the applicant wrote a letter to the municipality requesting
reasons why its bid was not successful as well as reasons for
awarding tender to Chia.
[12]
On
20 October 2023 the municipality issued letters to the bidders
advising that the municipal manager decided to cancel the tender
process and had the intention to issue an updated tender
advertisement in due course. However, according to the
applicant
the said letter was not sent to the applicant. On 24
October, 6 November and twice on 9 November 2023 the applicant sent
emails to the municipality raising concerns about the bid process and
failure to receive a response directly or through its attorneys.
The
one response from the municipality on 6 November 2023 was only an
acknowledgement of the correspondence and made no reference
to the
letter of 20 October 2023. The letter of cancellation was only
received on 14 November 2023.
THE REVIEW
[13]
According
to the applicant fourteen (14) bids were received. VCM2, attached by
the municipality which recorded eleven (11) bids
related to a tender
closing register dated 4 October 2022. Clearly it was in
respect of a process prior to the current bid
which closed on 23 May
2023.
[14]
According
to the applicant the municipality’s decision to withdraw the
tender is an administrative action as defined in the
Promotion of
Administrative Justice Act, 3 of 2000 (PAJA). The applicant avers
further that both the award of the bid
to Chia and the
purported withdrawal are unlawful and irregular, they should be set
aside. The decision that the applicant was
the preferred bidder also
constitutes a binding administrative action which ought to have been
given effect to, as required by
the Preferential Procurement Policy
Framework Act 5/2000 (PPPF) and the PPPFA regulations, 2022 (current
regulations). The
bid committee was functus
efficio.
The
applicant acquired vested rights and a legitimate expectation to be
awarded the bid.
[15]
According
to the applicant the grounds for review of the three decisions, even
on the municipalities version are:
15.1
The
decisions not to award the bid to the applicant and award it to Chia
did not meet the standards of lawfulness, fairness, competitive
bidding, price effectiveness as contemplated in section 217 of the
Constitution. No objective criteria was published justifying
the
award of the tender to another tenderer other than the one who scored
the highest points as provided for in section 2(1) (f)
of PPPFA.
15.2
The
decision to prefer Chia evidenced bias and falls to be set aside
under section 6(2) (a) (1) and (111), (b), (c), (e) (f), (h)
and (i)
of PAJA.
15.3
The
decision to withdraw the bid was purportedly taken in terms of an
enabling provision that had been repealed and was, not effective
at
the time. That is a ground in terms of section 6(2) (a) (i)
PAJA and on the grounds of legality. Consequently, the reliance
on
regulation 13 of the 2017 PPPFA regulations was misplaced and is
irrational.
15.4
The
municipality’s failure to comply with notice requirement of the
enabling provision in terms of which it purported to withdraw
the
tender but not publish the decision to withdraw, constitute a ground
for review in terms of section 6(2) (b) of PAJA.
15.5
Failure
of the municipality to explain reasons to withdraw the bid and to
afford bidders a hearing prior the said decision constitutes
a ground
for review in terms of section 6(2) (c) of PAJA. The compliant
bidders were not given an opportunity to be heard
before that
decision was made. Further, the erroneous belief that the regulations
prohibit the five year financial statement requirement
in order to
make a decision constitutes an error of law and is reviewable in
terms of section 6(2) (d) of PAJA.
[16]
The
decision to withdraw the tender process affects the rights and
interests of persons like the applicant as the preferred candidate
by
the committees.
[17]
According
to the applicant, it scored the highest points in the bid evaluation
process. Chia on the other hand was awarded
the tender despite
the fact that it did not meet the bid requirements, it did not
achieve functionality and was not scored by the
bid committees.
[18]
The
conduct of the municipal manager was not open and transparent.
The applicant did
request, on numerous occasions, information concerning the bid award,
relevant bid documents and the decision
to award the bid to Chia.
The municipality refused to furnish the information.
[19]
The
applicant advised the municipality that it was going to take legal
action. The municipality then informed the applicant
that the
tender was withdrawn and would be re-advertised.
[20]
The
applicant sets out the bid process that was followed, which the
municipality did not dispute. The first stage was that only
bidders
who complied with compulsory returnable documents were eligible to be
scored for functionality. The second stage was that
the bidders had
to be scored against criteria, set out in tables at pages 3 and 4 of
the tender document. Bidders were required
to score 70 out of
100 points to achieve functionality. The third stage was that
the bids were scored on price and preference
in accordance with the
PPPFA. The PPPFA established a framework which provided
preference point system in which points are
allocated for specific
goals and price. The
90/
10
preference
point system was applied because the contract exceeded R50 million.
The lowest acceptable tender would score maximum
of 90 points for
price.
[21]
The
applicant’s enquiries on 11 October 2023 reveal that the status
of the lead partner of Chia was suspended by the CIDB.
At best,
on 5 December 2023 Chia only had a grading of 7GB and 2GB
respectively, when considering information supplied in the answering
affidavit. The municipality cannot rely on annexure VCM 10, the
extracted information therein does not meet the required
grading, the
lead partner had to have 8GB grading or higher. The second
member of the joint venture was not registered with
CIDB.
Further searches on 19 and 20 October indicated that by those dates
Chia still did not meet the required grading.
Chia therefore
did not meet the mandatory CIDB registration, prior to the evaluation
of submissions and ought to have been disqualified.
According to
annexure FA7 to the answering affidavit, Chia’s CIDB was
suspended.
[22]
Further,
the MBD 8 form was only signed by one partner of the joint venture.
The BEC’s report recorded ‘Mandatory documents
not fully
attached’. MBD forms had to be completed in terms of
Treasury instructions. The bid notice prescribed
that, failure
to have joint venture signed by both parties would lead to
disqualification.
[23]
On
13 October 2023 following further enquiries about information
regarding the bid evaluation, in particular, the functionality,
from
the municipality, the municipal manager responded. He stated
that various factors were taken into account when considering
the
tender, such as price, functionality etc. According to the
applicant that information was vague. Furthermore, that
approach could not be reconciled with the intention to re-advertise
the bid. As regards the request for documents he said
the
documents were privileged and private information, despite the fact
that minutes are public documents. Even the bid document
after
submission becomes a public document. The applicant in a review
is entitled to all information relevant to the impugned
decisions or
proceedings especially if such documents throw light on the decision
making process.
[24]
A
photo of a single page from the minutes of BAC from an anonymous
person was sent to the applicant. It indicated that only
four
(4) bidders,
Drop dot, Temi Construction JV Mvumba Trading
Enterprise, Rapid Builders
Constructors
and the applicant
achieved functionality. The applicant scored 3,5 out of 10 for
specific goals and 90 points for price as
the lowest acceptable
tender.
[25]
The
applicant avers that it should have been awarded the bid by virtue of
section 2(1) (g) of the PPPFA read with regulation 5(4)
of the
current regulations. It was improper for the municipality not
to award the tender. It was also irregular for
the municipality
to disguise its irregularity by not properly advertising the bid
award and not to inform the bidder of the outcome
of the bid
process. Section 75 (1) (a) and (g) of the Local Government
Municipal Finance Management Act 56 of 2003 (the MFMA)
read with MFMA
circular 62 issued by the national treasury and circular 83 of MFMA
require the bid award to be placed on the municipality
website.
The bid award was not published in the municipal website and e-tender
publication portal. That was a clear effort
to hide the bid process.
[26]
On
9 November 2023 the applicant recorded the applicant’s
objection to the intention to award the bid to Chia. Had there been
no appeal under section 62 of the Municipal Systems Act or an
objection under paragraphs 49 and 50 of the municipality’s
SCM
policy, the decision would have been implemented. According to the
applicant the intention to award constituted a decision.
The
applicant had also stated that if documents previously requested were
not furnished in 24 hours, it could take action.
[27]
With
no reason being given for the withdrawal, the applicant submits that
the withdrawal was malafide. The municipality was
not entitled
to unilaterally withdraw the bid. The conduct of the
municipality and the municipal manager is suspicious in
relation to
the decision about the award of the bid, the improper advertisement
of the outcome and that of withholding the bid
documents.
[28]
The
applicant received documents following the order for the delivery of
record in terms of rule 53. However, the applicant
says it was
furnished with limited documents. The applicant submits that the
decisions made by the municipality are contradictory,
unlawful and
irrational. They fall to be reviewed and set aside. It
identified the applicant as the preferred bidder; it
stated its
intention to award the bit to Chia and that it announced that the
tender had been withdrawn. The applicant avers
that this is an
exceptional matter where substitution should be ordered in terms of
section 8(1)(c) (ii) (aa) of PAJA. It
would be equitable to
direct the municipality to implement the recommendations of BEC and
award the tender to the applicant.
[29]
There
was no lawful justification to prefer Chia. The municipal
manager had no power to substitute the recommendation of the
BEC.
The decision evidences unfair preference and bias.
[30]
It
was erroneous for the municipal manager to believe that the
regulation prohibits a bid requirement of five (5) years’
financial statements. The three year requirement is a minimum
period. The municipality is not precluded from setting
more
stringent standards. That would not be surprising considering that
the scale of the project and the cost of construction works
was over
R90 million.
[31]
According
to the applicant no explanation is given by the municipality for the
irregularities. The tender process was manipulated
to come to the
conclusion of awarding the bid to Chia. The municipality manufactured
documents in order to evade responsibility
for its actions. It
attached annexure VCM3 as if it was the F11 attached in the founding
affidavit. Items 8, 9 and
10 are not the same. The last
paragraph of F11 appears on the next page in VCM3. VCM9, the
attached Municipal Finance
Act regulations also omitted paragraphs 23
to 50. Paragraph 23 provides for publishing of bid results,
paragraphs 49 and
50 provides for appeal and objections procedures.
[32]
The
municipality had set requirements which ensured that the successful
bidder was technically able to undertake the construction
works, had
resources to do so and was financially sound. These included
appointment of a principal agent (resident engineer,
Masilakhe
Consulting) in advance to assist to compile the bid. With
regard to the financial statements requirements, the
municipality
could have applied the three year threshold and issued a
clarification or briefing note as it usually happens with
complex bid
processes.
[33]
With
regard to cancellation of the tender on the basis of alleged material
irregularity, the municipality relied on replaced regulations,
regulation 13 of 2017 preferential procurement regulations. The said
regulations were replaced by the current regulations which
do not
have such cancellation provision. Even old regulation 13 made
provision for cancellation of tender before the award
of tender.
According to the applicant the award herein had already been made to
Chia. It was also not published in
the same manner as the
invitation to tender.
[34]
There
is no confirmation, by the member of BEC, of the averment that the
BEC reconvened and resolved to stand by its earlier decision.
No minutes of the meeting or written resolution has been furnished in
that regard. The email annexed as VCM5 was not from
Eastern
Cape Provincial Treasury as the municipality averred. The
content of the email is to the effect that the project
could be
evaluated or re-advertised. There was no advice that the tender
be cancelled. The municipality also said the
treasury advised
it not to deviate from its own bid requirements.
[35]
The
applicant disputes that the publication of the notice of intention to
award the tender had a neutral effect. It permitted
appeal and
objection processes in terms of section 62 of the Systems Act or
paragraphs 49 and 50 of SCM regulations. None
of the objections
raised the five (5) year financial statement requirement, which the
municipality said was a motivating factor
to withdraw the tender.
The municipality has also not transparent about the internal legal
advice regarding the said requirement.
JUST AND EQUITABLE RELIEF
[36]
The
applicant submits that the court must declare the municipality’s
action unlawful and make a just and equitable order.
The
circumstances of this case are exceptional. The municipality should
be directed to implement the recommendations of the BEC
and award the
tender to the applicant. There has not been a change in the
applicant’s circumstances regarding its ability
and capacity to
perform the work. There would be no basis for the municipality
to reconsider a bid for the construction works.
The applicant
submits that the provision of the services is necessary and enhances
public services. The re-advertising and
re-evaluation of new
bids would have the effect of validating the municipality’s
irregular and unlawful conduct which would
result in a great
injustice. It would further a wasteful and inefficient use of
resources.
THE RESPONDENTS’
VERSION
[37]
According
to the municipality, the recommendation of any bidder as the
preferred bidder does not necessarily imply that the said
bidder is
absolutely and conclusively the preferred bidder. The BAC that
receives the views and reasons of the BEC still
do consider if it
agrees with BEC. The BAC, depending on its delegation in terms
of Section 59(1) of the Local Government
Municipal System Act of 2000
(Systems Act) may make a final award of the preferred bidder.
The BAC through the municipal
delegation makes recommendations to the
municipal manager, the accounting officer. If the BAC detects
irregularities, it
may still remit the matter back to the BEC to
reconsider the matter in the light of irregularities. The
recommendation complained
of, that of appointing Chia, could also be
changed anytime by the BAC or municipal manager in the execution of
the Municipality’s
Supply Chain policy and applicable
prescripts.
[38]
The
BAC viewed the requirement of five year financial statements
requirement as unlawful. The supply chain regulations from
national treasury (SCM regulations) require those financial
statements to be for three (3) years. Then, the BAC returned
the matter to the BEC recommending that the tender be cancelled and
that it be re-advertised with the correct requirements.
The BEC
considered what BAC recommended but did not alter its decision that
recommended the applicant as a preferred bidder.
The BEC
received advice from the provincial treasury that in the light of the
two inconsistent decisions of the committees, the
tender should be
cancelled and be re-advertised.
[39]
The
municipal manager’s view was that he was not bound by the two
committee recommendations. He considered that if the
five (5)
year requirement was substituted with three (3) years, Chia would be
the most compliant bidder, based on price and functionality,
it would
be the preferred bidder.
[40]
The
municipal manager issued the notice of intention to award the tender
to the second respondent. Simultaneously he sought
internal
legal advice as to whether the five (5) year financial statement
requirement was a material irregularity. The notice
to award
was not an award, he could still seek advice, but the notice was
meant to test whether bidders felt prejudiced by the
five (5) year
requirement.
[41]
According
to the municipality there was nothing irrational about issuing the
intention to award. It was a neutral act as the
final award had
not been made. Even after the final award was made, if he was
later advised that the five (5) year requirement
for audited
financial statement was a material irregularity, the municipal
manager could approach the courts for self-review.
[42]
When
the municipality received objections on that very issue of five (5)
year audited financial statements, that became one of the
motivating
factors to take the decision to withdraw the tender before the award
and re-advertise in a manner compliant to regulations.
The
internal advice was also that the said requirement was contrary to
the regulations. According to the respondent that
constituted
an irregularity justifying the cancellation of the tender process.
[43]
In
terms of regulation 13 of the 2017 PPPFA regulations the organ of
state may cancel the tender invitation if there is a material
irregularity in the tender process. Municipality supply chain
practices are constitutionally obliged to be fair, transparent
and
cost effective. Requiring information that is contrary to the PPPFA
regulation was unfair to the would be bidders, who did
not bid due to
that requirement. In terms of Regulation 21 of the regulation
under Local Government Municipal Finance Management
Act, 2003
(Municipal Finance Act) the requirement is for three (3) year
financial statements. It was within the municipal
manager’s
inherent power and authority to regularise administrative defects
that would affect fairness of the tender process,
even in the absence
of the regulations.
[44]
The
BEC decision to select the applicant as a preferred bidder was not a
decision in the legal sense. It was a recommendation
that did
not have external effect and could not be effected. It does not
constitute an administrative action, it is a recommendation.
[45]
Regarding
information requested by the applicant, the municipality avers that
it is a public body in terms of the Promotion of Access
to
Information Act (PAIA). The municipality was also not given
reasonable period to supply the information. The applicant
ought to have sought information through the relevant processes in
terms of applicable legislation. The notice of intention
to
award the bid published in Ikwezi newspaper was published in the
newspaper that circulates within the jurisdiction of the
municipality.
It is only the publication that is done out of Kokstad.
[46]
The
municipality denies that it had information demonstrating that Chia’s
CIDB status was suspended. Chia in its tender document
included
information which showed that its CIDB status was valid. As for the
confidentiality of BEC report, it was based on the
fact that such
report involved information about third parties. The procurement
process had not been completed as no award had
been made.
[47]
The
municipality denies the relevance of section 75(1)(e) of the
Municipality Management Finance Act regarding the publication of
the
notice to award the tender. There were no unsuccessful bidders
at that stage as there was no decision to award the tender
to any
bidder. The withdrawal letter of 20 October 2023 was sent to
the email address obtained from the applicant’s
official
documents and its central supplier database registration.
[48]
The
withdrawal of the tender was not mala fide. The municipality
denies illegality on its part. There was an irregularity
in the
tender process. The withdrawal was done to prevent an illegality or
harm to all bidders. The applicant will get another
opportunity to
submit a bid. If there was any illegality the applicant would be
entitled to compensation under section 8 of PAJA.
[49]
During
the hearing the municipality raised the point, for the first time,
that the tender was not valid beyond 6 October 2023. On
6 October the
municipality only issued a notice to award the tender to the second
respondent. On 10 October 2023 when the
applicant learnt of the
said intention and on 11 October 2023 when it enquired as to why it
was not successful no final award had
been made. The notice of
intention to award, allowed the tenderers to make representations
before the final award was made.
[50]
The
issue for determination is whether any of the actions complained of
constituted an administrative decision in terms of PAJA
and therefore
reviewable. Further, whether an order for substitution is justifiable
in the circumstances of this case.
[51]
The
issue about the validity of the tender does not seem to be consistent
with the municipality’s pleaded case. The
municipality in
its version issued the notice to award on the date to which the
period of the tender was extended. It is not clear
what the
municipality would do with representations, objections to or appeal
against its intention to award to Chia, if it considered
the tender
to have been invalid. An important observation regarding
finality of the decision to award a tender was made in
Mixshelf
1(Pty) Ltd
;
[2010] ZAWCHC 70
(9 February 2010) at paragraph 32,
that is only against an effective decision that an appeal ordinarily
lies. However, therein
a clear decision to award the tender had
been made. In the present case had the notice of intention to award
not attracted objections
the award to Chia would have gone through.
I do not agree that the said notice had a neutral effect or had no
effect, such
that beyond 6 October 2023 the tender would have been
withdrawn at will or the procurement process in these circumstances
would
have come to an end. In the municipality’s version
the tender was withdrawn for a different reason that of
non-compliance
with SCM regulations. In any event, I agree with
the applicant, the notice of award interrupted the period of validity
of
the tender, having been made on the date the tender would have
expired.
[52]
Section
1 of PAJA defines an administrative action.
In
Minister of Defence
and Military Veterans v Motau and others
2014 (3) SA 69
CC at
paragraph 25 broke down the definition as follows:
(a)
there
must be a decision of an administrative nature
(b)
by
an organ of state or a natural or juristic person.
(c)
exercising
public power or performing public function
(d)
in
terms of any legislation or empowering provision
(e)
that
adversely affects rights
(f)
that has a direct external legal effect
(g)
and
that does not fall under any of the listed exclusions.
[53]
In
Madibeng Local Municipality v DDP Valuers
[2020] ZASCA 70
(19
June 2020) paragraphs 16,17 the court had to determine whether an
organ of state’s decision to cancel a tender is reviewable
under PAJA. It differentiated between the decision to cancel
prior to adjudication of the tender and tender cancelled during
the
tender process. Therein tender was cancelled after an award had
been made but set aside.
City of Tshwane Metropolitan
Municipality and others v
Nambiti Technologies (Pty) Ltd
2016 (2) SA 495
[24-34] states:
“
[24]
Whether
the cancellation of a tender before adjudication is administrative
action in terms of these requirements depends on whether
it involves
a decision of an administrative nature and whether it has direct,
external legal effect. I do not think that the decision
in this case
satisfied either of these criteria.
[25]
To
determine if action by an organ of state is administrative action
requires an analysis of the nature of the action in question
and a
positive decision that it is of an administrative character.
8
Here the decision related to a matter of procurement. The issue of a
tender indicated that the City wished to procure certain services.
But its desire to procure them was always provisional. That follows
from the terms of the advertisement of the tenders, which contained
the caveat that ‘the lowest or any tender will not necessarily
be accepted’. In the standard conditions of tender,
which
counsel agreed applied to both tenders, clause F.1.5.1 provided even
more explicitly that the City ‘may cancel the
tender process
and reject all tender offers at any time before the formation of a
contract’. In cancelling tender CB204/2012
the City was doing
no more than exercising a right it reserved to itself not to proceed
to procure those particular services on
the footing set out in that
tender.
[26]
It
is possible that these express reservations merely made explicit what
would in any event have been the position, namely, that
it is always
open to a public authority, as it would be to a private person, to
decide that it no longer wishes to procure the
goods or services that
are the subject of the tender, either at all or on the terms of that
particular tender. (I stress that there
is no allegation in this case
that the decision was tainted by impropriety such as improper
political influence, fraud, bribery
or corruption, where different
considerations may apply.)
[27]
In
saying this I am aware that reg 10(4) of the Procurement Framework
Regulations 2011,
9
provides that prior to awarding a
tender an organ of state may cancel a tender in three circumstances,
namely if:
· due
to changed circumstances there is no longer a need for the services,
works or goods requested;
· funds
are no longer available to cover the total envisaged expenditure;
· no
acceptable tenders are received.
[28]
In
Trencon
10
it was said that this regulation constrained
the discretion afforded an organ of state by the terms of the tender
and that
a tender could only be cancelled if one of the grounds set
out in the regulations existed. It is unclear what is meant by
‘changed
circumstances’ in this regard. Would it be a
changed circumstance if the organ of state concluded that the terms
of the tender
were detrimental to its interests? What if the goods or
services were still required, but the terms of the tender were no
longer
thought to be favourable? Why should an organ of state be
constrained by the necessity to demonstrate a change of
circumstances,
in order to cancel a tender for goods or services that
it had decided it no longer needed? A change in control of a
municipality
could easily lead to a change in priorities. Is it
suggested that the incoming council would be forced to go ahead with
procurement
decisions with which it did not agree? Take the
simple example of a tender to purchase a new mayoral car. That
the
mayor needed a car might not be in dispute. But the
outgoing council might have issued a tender for the acquisition of a
luxury vehicle, while the incoming council might believe that
something more modest would be appropriate. Would that be a
sufficient
change of circumstances?
[29]
These
are difficult questions.
Trencon
was not concerned
with the cancellation of a tender. It was concerned with whether the
court should have made a substitution
order that a tender awarded to
one company unlawfully be awarded to the tenderer whose bid had been
unlawfully excluded. It is
not clear in what context the argument was
advanced that the public body concerned was not obliged to award any
contract at all.
That was not the factual situation with which
the court was confronted. Assuming that to have been correct, the
reality was that
a contract had been awarded and it was the intention
to proceed with the work. So cancellation was not an issue.
Furthermore, the
statement in question was based on a concession by
counsel that was accepted as correct without explanation.
[30]
The
regulation is couched in permissive, not mandatory, terms. There is
nothing to show that it is intended to be restrictive in
regard to an
organ of state’s powers to cancel a tender. In addition the
organ of state is equally obliged to conduct the
tender process
strictly in accordance with the tender conditions, which also have a
statutory provenance. But there is no need
to resolve these questions
because in this case there was a change in circumstances. The needs
of the City had been reviewed and
it no longer required that SAP
support services be provided to it for the period stipulated in CB
204/2012 or on the same terms
as those in that tender. Its
requirements changed and that is why it cancelled the tender. In
terms of the regulation it was entitled
to do so. No contrary
argument was advanced in Nambiti’s heads of argument.
[31]
Until
the tender was issued the City was entirely free to determine for
itself what it required by way of SAP support services.
The evidence
showed that it had decided that it did not want those services on the
conditions set out in CB204/2012. In other words
it decided to deal
with its requirements for SAP support services on a different basis.
That was a decision it could have reached
at the very outset and
Nambiti would have had no grounds for complaint. I cannot think that
because it thought initially that a
fresh contract on the basis of
CB204/2012 was desirable and then, on reconsideration changed that
view, the decision to cancel
CB204/2012 constituted administrative
action. While there are instances where a decision not to do
something may constitute administrative
action, as in the case of a
failure to issue a passport or an identity document, inaction is not
ordinarily to be equated with
action. Even less so is it
administrative in nature. Administration is concerned with the
implementation of the policies and functions
of government after
those policies and functions have been determined, usually through
the political process or as a result of
actions by the executive. A
decision not to procure certain services does not fit easily into
that framework.
[32]
But
the second aspect seems to me, if anything, clearer. A decision not
to procure services does not have any direct, external legal
effect.
No rights are infringed thereby. Disappointment may be the sentiment
of a tenderer, optimistic that their bid would be
the successful one,
but their rights are not affected. There can be no legal right to a
contract and counsel did not suggest that
there was. When asked to
identify the direct, external, legal effect of cancelling tender
CB204/2012 his sole submission was that
his client had a reasonable
expectation that its tender would be considered by the Bid Evaluation
Committee (BEC) and thereafter
by the BAC. But that expectation was
dependent on there being an ongoing tender process, where principles
of just administrative
action are of full application. Once the
entire tender was cancelled any expectation that the tenders
submitted by tenderers would
be adjudicated by the BEC and the BAC
fell away.
[33]
No
other direct external legal effect was suggested to us and I can
think of none. Nambiti’s legal entitlement to provide
SAP
support services to the City would expire at the end of
December 2012. Thereafter it had no right to provide those
services.
It had a right to a fair adjudication of tender CB204/2012,
but only so long as that tender remained extant. Once it was
cancelled
none of the tenderers had any rights in relation to, or
arising from, it. In the words of King Lear ‘Nothing will come
of
nothing.’
11
There is no scope in that situation
for the king’s injunction to think again.
[34]
It
follows that the decision by the City to cancel the tender was not
administrative action and was not susceptible of review in
terms of
PAJA. As that was the sole basis upon which the review was brought it
should have failed on this ground. But even if the
decision had been
susceptible to judicial review on the grounds of unfairness advanced
by Nambiti it should not I think have succeeded.
It is appropriate
briefly to state my reasons for saying that (footnotes omitted).
[54]
Therein
the tenders were opened on 13 November 2012. On 30 November
2012 a resolution to fast-track and finalise tender was
made
following declined request of 23 November 2012 to extend existing
contract after review of the terms of tender in the light
of the
city’s needs. The review found services sought in the
tender were inconsistent with the city’s need.
Then
a decision to cancel the tender was made on 7 December 2012.
[55]
The
time from the opening of tender to its cancellation, with the review
undertaken in between and decision to cancel tender, present
different scenario than the present case. The reason to cancel
herein is said to be irregularity, the decision to cancel
was made
after numerous enquiries about outcome of the tender, during the
process of the award, not for any change in municipality’s
needs. The BEC had already recommended, the notice of intention
to award was already issued. I agree with applicant
that the
decision to withdraw or cancel the tender did not flow from a policy
decision related to the need to procure. The
municipality held
a view that the five (5) year requirement was unlawful. The
process of award was only intercepted by objections.
The notice
of intention to award was out there in the public domain. In
the municipality’s view it was testing if any
tenderer would
have felt prejudice, logically if there was none, the award would
have been final.
[56]
Section
2(1)(f) of PPPFA provides that the contract must be awarded to the
tenderer who scores the highest points, unless there
is an objective
criteria justifying the award of the tender to another tenderer other
than the one who scored the highest points.
[57]
Section
217 of the Constitution of the Republic of South Africa, 1996 (the
Constitution) provides:
“
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 and services, it must do so in accordance with a system
which is fair, equitable, transparent,
competitive and cost
effective.”
[58]
The
municipality’s reasons for not awarding the tender to the
preferred bidder are; its view that the five year financial
requirement was unlawful; it was contrary to the regulations and
unfair to would be bidders; the BEC and BAC inconsistent decisions;
reliance on non-existent regulation 13 of 2017 PPPFA to cancel the
tender before an award is made, if there is a material irregularity.
It denies that the CIDB grading did not meet the tender requirements
and that it was obliged to publish in terms of 75 (1) (e)
of MMFA.
The municipality avers that the applicant could claim for
compensation if illegality was proved.
[59]
It
is not in dispute that even on the version of the municipality as at
5 December 2023 from Chia’s supplied grading calculator
8 GB
grading was for calculated grading and class of work for the joint
venture and not lead partner. Further, it is common
cause that
MBD8 was signed by one partner of the joint venture. The BEC
recorded in annexure VCM3 to the answering affidavit
that mandatory
documents were not fully attached by Chia.
[60]
Chia
was therefore not eligible to have its tender evaluated, in terms of
clause F.2.1 of standard conditions of tender. The
notice of
intention to award the tender was not pursued. No award was
made. Consequently, it is not necessary to determine
the issue
of whether PAJA applied thereto.
[61]
Regarding
the decision to withdraw the tender, the municipality relied on
regulation 13, of the 2017 PPPFA regulations. In
relation to
its belief that SCM regulations prohibited five (5) year annual
financial statements requirement. Also, that
the advice of
provincial treasury was to cancel and re-advertise in the light of
BEC and BAC not agreeing on the course to be taken
about the tender
and non-compliance with SCM regulations. In actual fact the
applicable current regulations do not contain
a provision similar to
the one in regulation 13 of 2017 PPPFA regulations. SCM
regulations did not prohibit the five (5)
year period.
Regulation 21(d) requires that in certain circumstances, bidders
should furnish financial statements for the
past three years.
There is no requirement that the said period is a maximum period.
Instead, depending on the circumstances,
in order to prove that the
entity is financially sound, it prescribes the period not to be less
than three (3) years. The period
of more than the said three (3)
years provide more security of the entity’s financial
stability. That was an error
on the part of the municipality.
Its considerations were also irrelevant and unreasonable.
[62]
The
decision to withdraw the tender and not to award the tender to the
applicant as the preferred bidder is not explained by the
municipality. Similarly, the intention to award the bid to
Chia, despite Chia not being compliant, in that it did not comply
with the compulsory conditions of the tender, has not been
explained. The actions of the municipality in this regard do
not meet the requirements set out in section 217 of the Constitution
of lawfulness, fairness and price effectiveness. Section 6(2)
(a) (i)
of PAJA provides for review of an administrative action if the
decision maker was not authorised to do so by the empowering
provision. Regulation 13 of 2017 PPPFA regulations was not in
existence at the time the decision to withdraw was taken.
[63]
According
to the BEC report Chia’s tender was found to be unresponsive,
for non compliance with mandatory term of the tender
document.
No explanation has been furnished as to how it was scored for
functionality and further stages as outlined in paragraphs
five and
twenty above, for the municipality to aver that had the five (5) year
period been substituted it would be the preferred
bidder. The letters
communicating the notice to award the bid were not sent to the e-mail
address furnished by the applicant in
its bid document. The objection
which the municipality said raised the five year financial statements
requirement was not attached
to the papers. The attached document has
no reference to the said requirement. The actions of the municipal
manager, including
the ignorance of both the BEC and BAC
recommendations, without more than, testing if any of the tenderers
would say they were prejudiced,
is not satisfactory. The BAC did not
refer to Chia at all in its report. The municipality has not been
transparent about the processes
undertaken in that regard. Its
actions therefore are inconsistent with the provisions of section 217
of the Constitution.
[64]
The
decision to eventually withdraw the tender has no valid legal basis
in the circumstances. There is no objective criteria which
has been
advanced as to why the preferred tenderer was not awarded the tender.
If the municipality was to start the tender process
afresh, that
would have a potential of allowing non compliant tenderers to
regularise those aspects in order to comply with the
tender
requirements.
[65]
Regarding
the reason for withdrawal, being to prevent harm on would be bidders
due to the requirement of financial statements which
exceeded what
the SCM regulations require, it is not supported by the actions of
the municipality. After all the advice the municipality
alleged to
have received, it continued to issue the notice to award the tender
to Chia. The municipality also referred to a repealed
regulation,
which was a misconception. It was also not shown that the withdrawal
of the tender was prompted by an objection from
the tenderers. This
court is not persuaded that the withdrawal of the tender is
rationally connected to the reasons advanced by
the municipality. In
contrast the requirement could be viewed as advancing the purpose the
regulation sought to achieve, that the
entities bidding for the
tender were financially sound.
[66]
The
aspect of not affording the bidders the opportunity to be heard
before the withdrawal of the tender is procedurally unfair and
offends section 6(2)(c) of PAJA. In the circumstances, the applicant
must succeed in having the decision to withdraw the tender
reviewed
and set aside in terms of section 6 of PAJA.
REMEDY
[67]
Even
though there is no record that the objections were finalised, the
referral of the tender to the municipality would not achieve
more as
the notice to award was successfully interrupted and the tender was
eventually not awarded to Chia. That process restored
the position of
being left with the recommended preferred bidder. Section 8 (1)
(c)(aa) of PAJA provides for substitution or varying
of the
administrative action or correcting a defect resulting from
administrative action, in exceptional cases. In the founding
affidavit the applicant referred to the fact that its ability
and capacity to perform the work has not changed. Further,
the re
advertising and re-evaluation of the new bids would have the effect
of validating unlawful conduct and furthering wasteful
and
inefficient use of resources. The applicant is the tenderer Section 2
(1)(f) of the PPPFA provides that the bid be awarded
to, unless there
is an objective criteria justifying the award of the tender to
another tenderer. In argument it was submitted
on its behalf that all
the technical aspects in the evaluation of the tender had been
undertaken and it was recommended as the
preferred bidder.
[68]
In
the light of the above, the administrator is not in a better position
in the consideration of the matter, the evaluation of technical
aspects have concluded. The award of the tender to the applicant is
therefore a foregone conclusion. Furthermore, with no justification
to prefer Chia, the conduct of the municipality suggests undue favour
towards Chia. Consequently, this court is of the view that
exceptional circumstances which satisfy the requirements set out in
Trencon Construction (PTY) Ltd v Individual Development
Corporation
2015 (5) SA 245
CC paragraphs 43 and 47
for an order
of substitution have been satisfied. The following order then would
be just and equitable.
1.
The
decision of the first respondent to withdraw the bid is hereby set
aside;
2.
The
first respondent is hereby directed to discontinue any tendering and
subsequent processes initiated in substitution for the
bid;
3.
The
first respondent is hereby directed to implement the recommendation
of the Bid Evaluation Committee to award the contract for
the
construction of new municipal offices in LUSIKISIKI (Ref no.:
ILHM/117/2022-23/roads) to the applicant and concluding the required
Service Level Agreement with the applicant within 20 (twenty) days of
the service of the order.
4.
The
first respondent is hereby ordered to pay the costs this application.
B MAJIKI
JUDGE OF THE HIGH
COURT
Appearances
Applicant’s Counsel
:
Mr Crampton
Instructed
by
: PKX Attorneys
c/o Messrs Smith Tabata
Incorporated
34 Stanford Terrace
MTHATHA
Respondents’
Counsel :
Mr Maswazi
Instructed
by
: Messrs Jolwana Mgidlana Inc.
No.
19 Park Road
MTHATHA