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[2022] ZAFSHC 206
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Ntiyiso Consulting CC v Maluti-A-Phofung Local Municipality (1215/2019) [2022] ZAFSHC 206 (22 August 2022)

IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No:
1215/2019
Reportable:
YES/NO
Of
Interest to other Judges: YES/NO
Circulate
to Magistrates: YES/NO
In
the matter between:
NTIYISO
CONSULTING CC
(Registration
Number: 2005/015119/23)

Plaintiff
and
MALUTI-A-PHOFUNG
LOCAL MUNICIPALITY
Defendant
JUDGMENT
BY:
C
REINDERS, ADJP
HEARD
ON:
11
MARCH 2022
DELIVERED
ON:
22
AUGUST 2022
This
judgment was handed down electronically by circulation to the
parties’ representatives by email, and release to SAFLII.

The date and time for hand-down is deemed to be 13:00 on 22 August
2022.
[1]
On 15 March 2019 the plaintiff, Ntyiso Consulting CC, instituted
action against the
defendant, the Maluti-a-Phofung Local Municipality
(the “MAP”), for payment in the amounts of R 1 924 119.36

and R 1 357 930.57 respectively. Plaintiff’s action
is premised on its appointment by the defendant to render certain

services to it, amongst others billing support and debt collection.
Plaintiff avers that a total amount of R 3 279 912.41
is
owed by the defendant for such services rendered, subsequent to the
defendant having appointed it as service provider in terms
of a
written letter of appointment.
[2]
The plaintiff in its particulars of claim plead that on 12 July 2017
it submitted
a written “Revenue Management and Enhancement
Program Proposal” (“the proposal”) to the defendant
for consideration.
The project costing is reflected in the proposal.
Plaintiff was furnished with a written letter of appointment dated 30
August
2017 and signed by Mr MS Nyembe, the acting municipal manager
at the time. Hereafter a Service Level Agreement was concluded and

signed by Mr Nyembe on 4 September 2017 (“the SLA”). Two
invoices for work done was rendered for the amounts as indicated

hereinbefore. Despite demanding payment, defendant has failed to do
so.
[3]
The defendant opposed the relief claimed, raised a special plea
headed “Illegality
of appointment/contract” and filed a
counter-claim for declaratory relief.
[4]
At the heart of the disputes between the parties lies the procurement
of services
by an organ of state,
in casu
a municipality. I
find it apposite to deal with the applicable legislative framework at
this juncture already.
4.1
In
Bohlokong Computer Solutions (Pty) Ltd v
Maluti-a-Phofung Local Municipality
[2021] JOL 51773
(FB)
a
full bench of this division in dealing with procurements as above,
formulated a summary of the legislative imperatives:
“
[13]
… The laws governing procurement by organs of state are
governed by Section 217 (1) of the Constitution of 1996
(the
constitution). It provides that when an organ of state in the
national, provincial or local sphere of government, or any other

institution identified in national legislation, contracts for goods
or services, it must do so in accordance with a system which
is fair,
equitable, transparent and cost effective. Ordinarily, the
foundational principles set out in Section 217(1) require of
the
procuring authority to hold competitive bidding processes.
[14]
The Constitution provides for the enactment of the national
legislation that stipulates a framework within
which preferential
procurement must be implemented.  The Preferential Procurement
Policy Framework Act (PPPFA) was enacted
in compliance with the
aforementioned constitutional requirement. The PPPFA prescribes that
an organ of state must determine its
preferential procurement policy
and implement it within the confines of the Act. The legislation does
allow deviation from the
normal processes where valid reason have
been clearly set out.
[15]
The Procurement in Municipalities is governed by the Local
Government:  Municipal Finance Management
Act 5 of 2003 (The
Act). The Act underpins the principles prescribed by section 217 of
the Constitution. Its regulations provide
for deviation from the
normal processes of procurement where necessary. Regulation 32
of
Municipal Supply Chain Management Regulations (Regulation
32)
provides as follows:
“
A
supply chain management policy may allow the accounting officer to
procure goods or services for the municipality
or municipal entity
under       a contract secured by another
organ of state, but only if-
a)
the contract has been secured by that other
organ of state by means of a competitive bidding process
applicable
to that organ of state;
b)
the municipality or entity has no reason to
believe that such contract was not validly procured;
c)
there are demonstrable discounts or
benefits for the municipality or entity to do so; and
d)
that other organ of state and the service
provider have consented to such procurement in writing.
Sub
regulation (1) (c) and (d) do not apply if-
a)
a municipal entity procures goods or
services through a contract secured by its parent municipality;
or
b)
a municipality procures goods or
services through a contract secured by a municipal entity of
which it
is the parent municipality”
[16]
Regulation 32
allows a municipality or a municipal entity to dispense with the
competitive bidding process
provided
that such municipality or municipal entity complies with the
requirements
stated above. The fundamental requirements set out in section 217 of
the Constitution are of cardinal importance when the contracting

authority elects to procure goods in terms of regulation 32. This
process serves as a cost saving measure and a tool to discourage
a
duplication of processes for procurement of the same goods or
services by organs of state. It, therefore, makes business sense
that
the services procured by the requesting municipality and the price
thereof must be exactly the same as those procured by the
originating
municipality.”  (own emphasis added)
[17]
In
Blue Nightingale Trading 397 (Pty) v Amathole District
Municipality
2017 (1) SA 172
(ECG)
at par.34
the court
interpreted the requirements of regulation 32 as follows:
‘
The
constitutionality of the exemption will always depend on the facts of
the particular case. For the exemption to operate under
section 110(2) of LGMFMA, I cannot conceive compliance with the
constitutional imperatives unless the goods or services procured
by
the second organ of state are the same as that required by the first
organ of state, and the contract price is the same.
If the
procurement by the second organ of state had withstood the scrutiny
of due process, there is no need to duplicate the same
process
provided the goods or services and the contract price remain the
same.  If not, the procurement by the first organ
of state was
not subjected to the due procurement processes and supply management
policy, and the constitutional imperatives are
not met.’
[18]
It follows that the terms of the contract between the appellant and
the respondent had to mirror those between
the appellant and
Dihlabeng. …
[19]
Of importance is that it
must be clear that the municipality will
earn a discount or some benefit out of electing the Regulation 32
process
.”. (own emphasis)
[20-22]
…
[23]
Government procurement was entrenched in the constitution to ensure
transparency, fairness and competitiveness.
With no contract existing
between the appellant and the respondent and notice to the appellant
that its services were terminated
with immediate effect, the services
it rendered post 31 August 2018 were in direct violation of
procurement prescripts inclusive
of the Regulation 32 which founded
the relationship between the parties. In
Gobela Consulting
v
Makhado Municipality (Case no 910 /19
[2020] ZASCA 180
22 December
2020)
Molemela JA remarked as follows when dealing with
unsolicited services from service providers:
‘
[15]
Section 113 of the Municipal Finance Management Act provides that a
municipal entity is not obliged to consider an unsolicited
bid
received outside its normal bidding process; it may do so only in
accordance with a prescribed framework. Regulation 2(3) of
Municipal
Supply Chain Management Policy Regulations provides that no
municipality or municipal entity may act otherwise than in
accordance
with its supply chain management policy when procuring goods or
services. Regulation 12 of the same Regulations stipulates
that
subject to Regulation 11 (2), a competitive bidding process must be
followed for procurements above the transaction value
of R 200 000
and in respect of long-term contracts (ie contracts with a duration
period exceeding one year). The municipality,
as an organ of state,
was duty-bound to discharge all its duties and functions in
accordance with those procurement prescripts.’”
4.2
In addition to the above, Mr MC Louw appearing on behalf of the
defendant, invited my attention to a provision
in Circular No 96
issued in terms of the
Local Government:  Municipal Finance
Management Act 5 of 2003
:
“
Panel
of consultants/list of approved service providers and framework
agreements
Municipalities
and municipal entities must not participate on a panel secured by
another organ of state as a panel of consultants
or a list of service
providers or a panel of approved service providers is not a contract.
Municipalities or municipal entities
may only participate on
framework agreements arranged by organs of state, for example, State
Information Technology Agency (SITA),
the relevant treasury; that are
empowered by legislation to arrange such on behalf of other organs of
state.”
[5]
Mr Louw summarised the defendant’s special plea as follow:
“
3.1
Plaintiff could only have been validly appointed- and the Service
Level Agreement validly concluded- in terms of
a competitive bidding
process contemplated by Section 217 of the Constitution of the
Republic of South Africa, 1996 (“
the
Constitution
”), unless the provisions
of
Regulation 32
of the
Municipal Supply Chain Management Regulations
were
applicable.
3.2
No competitive bidding process preceded the appointment of Plaintiff
and/or conclusion of the Service Level
Agreement,
3.3
The provisions of
Regulation 32
of the
Municipal Supply Chain
Management Regulations were
not complied with in that:
-
the
appointment and Service Level Agreement were not secured “
under
a contract secured by another organ of State
”;
-
(without
detracting from the aforesaid) if the contract was secured under a
contract secured by another organ of State, the other
organ of State
did not secure the appointment of Plaintiff by it in terms of a
competitive bidding process;
-
the
Defendant did not have any reason to believe that a contract secured
by another organ of State was validly procured;
-
there
were no demonstrable discounts or benefits for Defendant in
appointment of Plaintiff and concluding of the Service Level
Agreement;
-
the
other organ of state and the Plaintiff did not consent to the
procurement in writing under and in terms of a contract secured
by
another organ of State.
And
consequently:
-
the
appointment of Plaintiff and the concluding of the subsequent Service
Level Agreement violates the provisions of
Section 217
of
Constitution, Section 113 of the MFMA and
Regulations 12
and
32
of
the
Municipal Supply Chain Management Regulations to
the extent of
the aforesaid non-compliance, and
-
the
appointment of Plaintiff and the conclusion of the Service Level
Agreement are illegal, unenforceable and null and void.”
[6]
Mr Louw added that the defendant’s plea to the merits entails
that:
“
·
the proposal amounts
to an unsolicited bid,
·
the signature
service level agreement by its erstwhile municipal manager does not
constitute a valid acceptance of the unsolicited
bid,
·
Plaintiff did not
render the services as alleged,
·
Plaintiff was not
entitled to payment until such time as it had presented a progress
report, and plaintiff did not present any progress
reports, and
·
There was
consequently no obligation on it to make payment of the amounts
claimed.”
I
was urged to conclude that, in view of the aforementioned, defendant
is entitled to an order declaring the appointment and the
service
level agreement to be null and void.
[7]
To prove its case plaintiff relied on the evidence of its only
witness, Mr Andisa
Ramavhunga, the group chief advisor of the
plaintiff. I wish to state from the outset that Mr Ramavhunga made a
favourable impression
on me as an honest witness. I do not have any
reason not to believe him and accept his evidence. The upshot of his
evidence is
the following:
7.1
The plaintiff provides several services, inter alia financial
support, billing support and debt recovery,
not only to the private
sector but also to governmental organisations. He was personally
involved the proposal (and subsequent
letter of appointment and SLA)
which originated from a chance meeting between himself and a
representative of the defendant. He
was given the opportunity of
presenting the proposal to the Council of the Municipality by way of
a presentation. The submission
(annexed to the particulars of claim
as “N1”) was unsolicited in the sense that there was no
public tender process.
The project costing is set out in the proposal
and divided into, amongst others, Billing Support and Debt
Collection.
7.2
Subsequent to the proposal plaintiff received the letter of
appointment from Mr Nyembe, dated 30 August 2017
(annexure “N3”)
in terms whereof plaintiff was appointed as “
Financial and
Project Management Advisors to Assist with Funding Opportunities,
Organisation and Management of Catalytic Projects
” for
defendant. The duration of the contract was for 36 months and the
scope of duties were set out fully.
7.3
Thereafter, the parties concluded the SLA which was signed by Mr
Nyembe on 4 September 2017 (annexed to the
particulars of claim as
“N2”). The SLA document refers to:
Regulation 32
:
“
Financial and Project Management Advisors to Assist with
Funding Opportunities, Organisation and Management of Catalytic
Projects
”. (own emphasis added)
7.4
Pursuant to the SLA the plaintiff commenced executing its duties in
terms thereof in September 2017. Three
teams of personnel were
tasked: one team was aimed at debt collection (based in
Johannesburg), whilst two teams were stationed
at the premises of the
defendant to attend to the issues of electricity and water metering.
The debt collection team commenced
with calls to debtors as early as
4 September 2017, as is evident from documentation plaintiff relied
upon.
7.5
The basis for reliance on
Regulation 32
for the appointment and
conclusion of the SLA stems from a prior engagement by Plaintiff with
another municipality, namely the
Dr Kenneth Kaunda District
Municipality (“the KKDM”). Prior to the conclusion of the
SLA and on 15 June 2017, the KKDM
issued a letter to defendant
relating to “
KKDM 13/14
”. KKDM confirmed that it
consented to defendant participating in the contract entered into
between it and plaintiff “…
in terms of MFMA SCM
regulation 32
”, which contract (with the KKDM) was for
appointment of plaintiff as “
Financial and project
management advisors to assist with funding opportunities and
organisation management of catalytic projects
for KKDM for a duration
of 3 years, Tender Notice KKDM 13/14”
.
7.6
According to Mr Ramavhunga plaintiff had previously been appointed by
KKDM as a service provider “for
the same services”.
Plaintiff had submitted a tender in response to the tender notice
published by the KKDM which called
for bids for “the
appointment of financial and project management advisors to assist
with funding opportunities and organisation
management of catalytic
projects for KKDM for a duration of 3 years, Tender Notice KKDM
13/14”.  The tender document
was admitted into evidence.
7.7
The “
scope of work
” (deliverables) in terms of
tender no. KKDM 13/14 is described as “
to appoint an
independent, professional and suitably qualified service provider/s
to support the Dr Kenneth Kaunda District Municipality
in the
appointment of financial and project management advisors to assist
with funding opportunities and organisation and management
of
catalytic projects for Dr Kenneth Kaunda District Municipality for a
duration of three years (finance department)
”.
7.8
On 2 February 2015 the KKDM issued a letter to plaintiff confirming
that its tender offer had been accepted
as part of the panel on a
basis as per specification of the tender (“the panel
appointment”). On 9 February 2015 plaintiff
accepted the
appointment to the panel of consultants of the KKDM, (“the
acceptance”). The acceptance of the tender
meant that plaintiff
could be allocated work/contracts in the future, as part of the panel
of service providers. On 30 August 2017
KKDM indeed appointed
Plaintiff, in terms of a “written memorandum of agreement”,
to do “a comprehensive feasibility
study for the regional
hazardous waste project and the applicable PPP procurement
documentation in respect of hazardous waste”.
7.9
During
cross-examination Mr Ramavhunga conceded that the appointment by the
KKDM on 2 February 2015 was as a consequence of plaintiff
having been
enrolled on the panel of consultants. Plaintiff’s appointment
by the defendant was only made after the letter
issued by the KKDM 15
June 2017 confirming that it consented to defendant participating in
the contract entered into between it
and plaintiff “…
in
terms of MFMA SCM
regulation 32
.”
The scope of work in the SLA (with defendant) was “
Financial
and Project Management Advisors to Assist with Funding Opportunities,
Organisation and Management of Catalytic Projects
”
(whilst there was nothing about hazardous waste in the SLA), and in
the KKDM appointment letter, the scope of work relates
to hazardous
waste. Moreover, whilst the panel appointment (of plaintiff) was one
of several service providers to act as consultants
to the KKDM, the
appointment by defendant in terms of the SLA, was the only
appointment of a service provider to the work.
7.10
Mr Ramavhunga
explained that the scope of work covered by the KKDM Project was
substantially wider than what was covered by the
defendant’s
project.  In this regard he referred to the scope of work as per
the KKDM appointment which entailed a wide
scope of work falling
under different categories(“Panels”) as is “reflected
in Tender KKDM13/14 (“
Part C3
Scope of Work”)”. In
terms of the SLA concluded with the defendant the scope of work
entailed “Billing Support,
Bill Presentment and Payment;
Electricity Vending; New accounts into billing systems; Retrospective
billing; Property data (valuation
roll) and Electricity Losses.”
7.11
In respect of the
pricing structure Mr Ramavhunga could not dispute that the fees in
terms of the pricing schedule contained in
the SLA (concluded with
defendant) do not appear in the panel appointment or the KKDM
appointment. He could also not deny that
neither the panel
appointment nor the KKDM appointment have a pricing schedule. He
however explained that such a pricing schedule
would only have been
applicable once the plaintiff was appointed in terms of its initial
panel selection.
[8]
The defendant did not call any witnesses. Accordingly, as submitted
by Mr B Gradidge
representing plaintiff, the evidence of Mr
Ramavhunga stands uncontested. The defendant’s denial that
plaintiff rendered
services to it, is in my view patently wrong. From
the testimony of Mr Ramavhunga and the supporting documents, it would
seem that
the plaintiff indeed rendered services to the defendant, at
the very least those relating to debt recovery to the defendant, who

in the words of Mr Ramavhunga “at the time was bleeding dead”.
[9]
Mr Gradidge urged me to give specific consideration to the fact that
defendant was
well aware of the KKDM Project given the content of the
SLA and “any attempt now to escape the consequences of the
contract
on the basis of a technicality should not be countenanced.”
The fundamental requirements set out in section 217 of the

Constitution are of cardinal importance when the contracting
authority elects to procure goods in terms of Regulation 32. I do
not
view opposition by the defendant in respect of the mandated
legislative prescriptions as “a technicality”.
[10]
Mr Louw submitted, amongst others, that the appointment of plaintiff
was as a service provider
placed on the panel of consultants to act
as advisors to the KKDM, nothing more and nothing less.  I am in
agreement with
him. It is in my view evident firstly from the tender
notice calling for bids for “the appointment of financial and
project
management advisors to assist with funding opportunities and
organisation management of catalytic projects for KKDM for a duration

of 3 years, Tender Notice KKDM 13/14”.  Hereafter the
letter of 2 February 2015 issued by the KKDM to plaintiff, confirmed

that its tender offer had been accepted “
as part of the
panel on a basis on as and when basis as per specification of the
tender”
. Plaintiff’s acceptance on 9 February 2015
was in respect of the appointment to the panel of consultants of the
KKDM. Accordingly,
the defendant could not have secured the services
of the plaintiff as mandated by the MFMA circular no 96 referred to
above. Even
should I be wrong in this finding, the plaintiff is still
faced with the legislative imperatives of Regulation 32. I have
difficulty
in finding that the requirement of “demonstrable
discounts or benefit for defendant in the appointment of plaintiff”

(and the subsequent conclusion of the service level agreement) was
met.
[11]
Mr Gradidge submitted that “such benefits are clear:
Given
the contents of the documents referred to in evidence, including the
defendant’s own documents which shows that an amount
of
approximately R 10 000 000.00 had been collected by the
Plaintiff by November 2017;
In
addition hereto, it is quite clear that when comparing August 2017 to
September 2017, which was the first month in which the
Plaintiff
started collecting money, there was an increase in revenue by
approximately R 13 000 000.00”.
[12]
This argument does not find favour with me. In my view compliance
with this  requirement
of Regulation 32 cannot be determined
ex
post facto
. At the time when the SLA was concluded, this
requirement must have been met.  There must have been scrutiny
of the terms
of the contract to determine whether such benefits were
evident. Since neither the panel appointment nor the KKDM appointment
contains
a pricing schedule, it follows that there could not have
been a determination of whether the prices charged by the plaintiff
indeed
amounted to “demonstrable discounts or benefits”.
No comparison was done of the pricing structure either in general
in
relation to the type of procurement, or in the SLA concluded between
the plaintiff and KKDM. In my view this was of the utmost
importance
as no other service providers could compete for the awarding of a
service delivery contract and demonstrate that it
could render the
services at a lower price than the plaintiff.
[13]
Mr Gradidge criticized the reliance placed by Mr Louw on the
Blue
Nightingale
principle
that the contracts should mirror each other in relation to the scope
of work and the pricing schedule, stating that
in
casu
, the scope
of work was indeed wider
and
amounted to a lesser amount to be paid by the defendant for the
services rendered as it would have been in appointing another
service
provider
(own
emphasis).  However, even in the event that plaintiff succeeded
in proving that: prior to the conclusion of the SLA the
contract had
been secured by KKDM by means of a competitive bidding process, MAP
had no reason to believe that such contract was
not validly procured
and the KKDM had consented to the said procurement in writing, it was
still incumbent on plaintiff to prove
that
at the time and prior to
the conclusion of the SLA, there were demonstrable discounts or
benefits for MAP in the appointment of
plaintiff and concluding the
Service Level Agreement. In my view plaintiff could not succeed in
proving that there was compliance
with Regulation 32 for the reasons
as set out above. I might mention that Mr Gradidge urged me to find
that plaintiff had demonstrated
at least “substantial
compliance”. There is no room for an interpretation of
Regulation 32 that “substantial”
compliance will suffice.
The wording is clear. The legislature did not intend an option
for compliance with Regulation 32
by inserting the word “or”
between a), b) and c). In fact, it inserted the word “and”
after the requirement
in c), leaving no room for an interpretation of
compliance in any alternative.
[14]
In light of the aforementioned in my considered view the appointment
of plaintiff by defendant,
and the subsequent SLA concluded, did not
muster the mandatory legislative prescripts for procurements in terms
of Regulation 32.
It therefore violates the provisions of
Section 217 of Constitution,
Section 113
of the
Local Government
Municipal Finance Management Act 5 of 2003
and
Regulations 12
and
32
of the
Municipal Supply Chain Management Regulations to
the extent of
the aforesaid non-compliance.  The appointment of plaintiff and
subsequent conclusion of the SLA is accordingly
unlawful and invalid
and null and void
ab initio
.
[15]
It follows therefore that the plaintiffs action is dismissed and the
counter-claim of defendant
is upheld. There is no reason why costs
should not follow suit.
[16]
Consequently I make the following order:
1.
The plaintiff’s
claim is dismissed.
2.
It is declared that
the appointment of plaintiff by defendant on or about 30 August 2017
in accordance with the letter of appointment,
annexure “N3”
to the particulars of claim, is invalid, unenforceable and null and
void.
3.
It is declared that the Service Level Agreement entered into between
plaintiff and defendant
on or about 4 September 2017, annexure “N2”
to the particulars of claim, is invalid, unenforceable and null and
void.
4.
Plaintiff
to pay the costs of the action.
C.
REINDERS, ADJP
On
behalf of the plaintiff:
Adv B Gradidge
Instructed
by:
N.

Moola Incorporated
c/o
Honey Attorneys
BLOEMFONTEIN
On
behalf of the respondent:
Adv MC Louw
Instructed
by:

Bokwa Attorneys
Welkom
c/o
Hill, McHardy & Herbst Inc
BLOEMFONTEIN