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[2021] ZAGPPHC 13
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Collins Sebola Financial Services (Pty) Ltd v South African Forestry Company SOC (Ltd) and Others (21375/20) [2021] ZAGPPHC 13 (14 January 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED.
Case
No: 21375/20
In
the matter between:
COLLINS
SEBOLA FINANCIAL SERVICES (PTY) LTD
APPLICANT
and
SOUTH
AFRICAN FORESTRY COMPANY SOC LTD
FIRST RESPONDENT
TSEPO
MOHANENG
SECOND RESPONDENT
CLEMENT
NHUVUNGA
THIRD
RESPONDENT
THE
CHAIRPERSON OF THE BID SPECIFICATION
COMMITTEE
OF THE FIRST RESPONDENT IN
RESPECT
OF THE RFB 011/2019
FOURTH RESPONDENT
THE
CHAIRPERSON OF THE BID EVALUATION
COMMITTEE
OF THE FIRST RESPONDENT IN
RESPECT
OF THE RFB 011/2019
FIFTH
RESPONDENT
THE
CHAIRPERSON OF THE BID ADJUDICATION
COMMITTEE
OF THE FIRST RESPONDENT IN
RESPECT
OF THE RFB 011/2019
SIXTH
RESPONDENT
PHEPHA
MV SECURITY SERVICE
SEVENTH RESPONDENT
THE
CHAIRPERSON OF THE AUDIT COMMITTEE
OF
THE FIRST RESPONDENT
EIGHTH RESPONDENT
THE
CHAIRPERSON OF THE FINANCIAL
COMMITTEE
OF THE FIRST RESPONDENT
NINTH RESPONDENT
PHUTHADICHABA
TRADING ENTERPRISE CC
TENTH RESPONDENT
JUDGMENT
BASSON
J
INTRODUCTION
[1]
This is yet again another dispute about
the awarding of a tender. The applicant, together with the
seventh respondent, were
the successful bidders in respect of a
tender for the supply of security and associated services to
different forest plantations
owned and operated by the first
respondent across different regions in the country. The seventh
respondent received a substantial
portion of the contract value for
the supply of the relevant services to the value of R 62 193 884.32.
The applicant
received approximately a third of the contract
value to the order of R 18 285 386.01.
[2]
The applicant is Collins Sebola Financial
Services (Pty) Ltd, Registration Number: 2014/012078/07 and trades
under,
inter alia,
the
name CS Security, an enterprise that provides guarding services and
alarm sales and service. The deponent to the affidavit
on
behalf of the applicant is Mr. Collins Sebola (“Sebola”)
the sole shareholder and sole director of the applicant.
[3]
The
applicant was the preferred bidder in terms of the Preferential
Procurement Policy Framework Act
[1]
(“PPPFA”) and the regulations thereto in respect of the
tender that is the subject of this application. Despite
having
been the preferred bidder, the applicant was ultimately only awarded
approximately a third of the tender with the bulk awarded
to the
seventh respondent, Phepha.
[4]
The
first respondent is South African Forestry Company SOC Ltd. The
first respondent is a major public entity in terms of
Schedule 2 to
the Public Finance Management Act
[2]
(“the PFMA”).
[5]
The second respondent is Mr. Tsepo
Mohaneng, the Chief Executive Officer and Accounting Officer and also
a director of the first
respondent. He is cited in such
capacity. No relief is sought against the second respondent.
[6]
The third respondent is Mr. Clement
Nhuvunga who is the senior manager of the supply chain management of
the first respondent.
He is cited in such capacity. No
relief is sought against the third respondent.
[7]
The fourth respondent is the Chairperson
of the Bid Specification Committee of the first respondent in respect
of RFB 011/2019.
He is cited in his capacity as chairperson of
that committee. No relief is sought against the fourth
respondent.
[8]
The fifth respondent is the Chairperson of
the Bid Evaluation Committee of the first respondent in respect of
RFB 011/2019.
He is cited in his capacity as chairperson of
that committee. No relief is sought against the fifth
respondent.
[9]
The sixth respondent is Mr. Dumisa
Hlatshwayo (“Hlatshwayo”) who is cited in his capacity as
Chairperson of the Bid
Adjudication Committee of the first
respondent. He is also the Chief Financial Officer and a
director of the first respondent.
No relief is sought against the
sixth respondent.
[10]
The seventh respondent is Phepha MV
Security Service (Pty) Ltd (Registration Number: 2017/286721/07)
(“Phepha”).
The seventh respondent was awarded
approximately 74% of the work in respect of the tender under
consideration.
[11]
The application is opposed on behalf of
all the respondents except for the seventh respondent (Phepha).
THE DISPUTE
[12]
The applicant feels aggrieved by the award
and contends that it was entitled to the exclusive and sole award to
render the relevant
services to the first respondent.
[13]
It is common cause that the applicant
scored 100 points on the 90:10 system in terms of the PPPFA and
Phepha scored 95 points.
Both the applicant and Phepha scored
full points in respect of specific goals as contemplated in section
2(1)(d) of the PPPFA.
In respect of points for price and
functionality, the applicant trumped Phepha. The applicant also
trumped Phepha in respect
of price for the whole project. It is
further common cause that the applicant was the preferred bidder in
respect of the
whole of the tender throughout the evaluation process
until the meeting of the Bid Adjudication Committee held on 12
December 2019.
I will return to this meeting in more detail
later in the judgment.
[14]
The applicant launched a semi-urgent
review application on 31 March 2020 in which it sought an order not
only for the setting aside
of the award of (part of) the tender to
Phepha, but also for an order of substitution directing the first
respondent to award the
whole of the tender to it. A special
allocation for the hearing of the matter on 9 October 2020 has been
directed by order
of the Acting Deputy Judge President.
[15]
The respondents oppose the review and
submit that none of the grounds of review are well founded. They
also submit that the
applicant has already concluded the relevant
contract with the first respondent in which it agreed to supply
security services
in respect of the portion of the tender awarded to
it and has not sought to set aside that contract. By virtue of
that election,
the respondents argue that the applicant has no
cognisable cause of complaint, and that it would neither be just nor
equitable
to set aside the award or portion of the tender to Phepha.
[16]
The applicant takes issue with this
argument and submits that there is no reason why the award, despite
it having been awarded a
portion of the tender, is not susceptible
for review.
[17]
In essence, what the applicant argues is
that the whole of the tender should have been awarded to it. For
that reason, so
it is argued, the Court should, in the main, not only
set aside the award to Phepha but also substitute the decision of the
first
respondent by awarding or directing the award of the whole of
the tender to the applicant.
[18]
To
the extent that the applicant persists with the order of substitution
it seeks in paragraphs 2.2. and 2.3 of the Notice of Motion,
the
respondents submit that the applicant has not established any factual
and legal foundation for that order of substitution in
the light of
the well-established jurisprudence of the Constitutional Court,
usefully set out in
Trencon
Construction (Pty) Limited v Industrial Development Corporation of
South Africa Limited and Another.
[3]
The respondents argue that the applicant has no right to be
awarded a tender. At best for it, so it was submitted,
it only
has a right to a procedurally fair consideration of its tender.
REVIEW
APPLICATION
[19]
The
applicant relies on the provisions of the Promotion of Administrative
Justice Act
[4]
(“PAJA”)
in this application to have a decision of the Board (“the
Board”) of the first respondent dated
24 February 2020 (to
award part of tender number RFB 011/2019 to Phepha) reviewed and set
aside. As already pointed out,
the applicant also asks for
ancillary relief in terms of section 8(1)(c)(ii)(aa) of PAJA.
[20]
It
is accepted by all the parties that the evaluation and award of the
tenders such as the one in issue in the present case, constitute
“administrative action” as defined in section 1 of PAJA.
The award of the tender is therefore subject to review
by this Court
on any of the grounds of review specified in section 6(2) of PAJA:
[5]
The fairness and lawfulness of the process must therefore be
evaluated in terms of the provisions of PAJA. Where the
award
of the tender does not comply with the provisions of section
51(1)(a)(iii) of the the PFMA and section 2(1)(b)(i) of the
PPPFA,
the Court has the power to review and set aside an award of a tender
and the contract concluded consequential to the award
of the tender.
LEGISLATIVE
FRAMEWORK
[21]
The first respondent is an organ of state
and subject to,
inter alia¸
the PFMA and PPPFA and the 2017 Regulations in terms thereof (“the
PPR”). The first respondent is the third largest
forestry
company which owns and operates forest plantations in the Limpopo,
Mpumalanga and KwaZulu Natal Provinces, as well as
in the Manica and
Sofala Provinces of the Republic of Mozambique. The plantations
that are located in South Africa are divided
into three different
regions: The Northern, Highveld and Central regions.
[22]
Because the first respondent is one of the
major public entities listed in Schedule 2 to the PFMA, it is
required to procure goods
and services in accordance with the system
of procurement which is fair, equitable, transparent, competitive and
cost-effective.
[23]
It
is not in dispute that the provisions of section 51(1)(a)(iii)
[6]
of the PFMA applied to the tender and that it also provided for the
allocation of points in accordance with the criteria referred
to in
section 2(1)(b)(i) of the PPPFA.
[7]
BRIEF EXPOSITION
OF THE FACTS
[24]
I have already referred to the fact that
the applicant, together with Phepha, were the successful bidders in
respect of a tender
but that Phepha received a far more substantial
portion of the contract value of the contract. Pursuant to the
above award,
the first respondent executed two separate contracts on
4 June 2020: One with the applicant and one with Phepha. The
terms
of the contracts expressly set out the location of the forest
plantations in various regions where the relevant services were
required.
In respect of the applicant, the service agreement
concluded between the parties expressly indicates that the relevant
services
will be required for the plantations in parts of the
Northern and Highveld regions.
[25]
The tender related to the supply of
security services in respect of the plantations in the above regions
for a period of three years.
[26]
The Conditions of Tender in respect of
RFB011/2019 provided
inter alia
as follows:
1.
Security services would be rendered in respect of
plantations, other business units, and forest guards.
2.
The value of the tender was estimated to be R70
million to R80 million, i.e. in excess of R50 million.
3.
No “objective criteria” in terms of
section 2(1)(f) of the PPPFA and Regulations 3(e) and 11 of the PPR
are recorded
in the tender conditions.
4.
4In consequence, the 90:10-point system in terms
of section 2(1)(b)(i) of the PPPFA would apply. The Supply
Chain Management
Policy of the applicant also confirmed the
90:10-point system.
THE APPOINTMENT
OF THE SERVICE PROVIDER
[27]
There exists a dispute of opinion between
the applicant and the respondents regarding whether the first
respondent had the right
to appoint more than one bidder or service
provider per region or whether or not to appoint only one service for
all the regions.
[28]
This dispute emanates from the stipulation
in the Conditions of Tender that “
more
than one service provider per region
”
may be appointed. It is also stated that one tenderer may be
appointed in respect of the whole of the contract.
[29]
According to the respondents, the Bids
Specifications Committee (“the BSC”) expressly made it
clear that the first respondent
reserved the right to appoint more
than one bidder or service provider per region or to appoint only one
service provider for all
the regions. At a compulsory briefing
session held with all the bidders, on 10 September 2019, the first
respondent repeated
the choice open to it to either appoint a single
service provider for all the plantations in all the regions, or the
appointment
of more than one service provider per region.
[30]
The respondents further submitted that
none of the bidders, including the applicant, raised any issue
regarding the legality or
justification for the choice set out in the
bid specification. It is not part of the applicant’s
grounds of review
that that choice was invalid or unjustifiable. The
respondents accordingly submit that the applicant’s grounds of
review
must be considered on the premise that the first respondent
was entitled to assess and award the tender in accordance with the
choice it expressly communicated to the bidders.
[31]
I have taken note of this point of
disagreement between the parties. Not much, however, turns on
this in light of my finding
as to why the award should be reviewed
and set aside. As will be pointed out later in the judgment,
the decision was taken
by the Bid Evaluation Committee (“the
BEC”) to award the tender to the applicant as a single service
provider for the
entire region after having duly taken into account
concerns expressed that more than one service provider per region
should be
appointed. The Bid Adjudication Committee (“the
BAC”) had on two occasions (on 8 November and 21 November 2019)
accepted the reports by the BEC recommending that the applicant be
appointed as the single service provider. It was only
on 17
December −a month later −that the BAC inexplicably made
an about turn and changed the allocation of the award.
THE EVALUATION
PROCESS
[32]
The first respondent’s Supply Chain
Management Policy provides for,
inter alia
,
a Bid Specification Committee (“the BSC”); a Bid
Evaluation Committee (“the BEC”) and a Bid Adjudication
Committee (“the BAC”).
Bid
Specification Committee
[33]
The BSC drafts and compiles the
specifications and terms of reference for procurement of goods and
services for the first respondent.
The BSC also determine which
preference point system (i.e 80:20 or 90:10) will be applied and
which evaluation criteria would
apply. The BSC then makes a
recommendation to the BAC for approval of its specification before
tender is published.
Bid
Evaluation Committee
[34]
The
BEC is, according to the Supply Chain Management Policy, one of the
most important phases of the procurement process.
The Policy
states that the evaluation should be based on the pillars of
procurement namely, fairness in the evaluation of tenders,
a
transparent evaluation process, ensuring accountability from all role
players in the process, openness of the evaluation process
and
ensuring that the first respondent receives value for money.
[8]
[35]
The BEC is responsible (
inter
alia)
for evaluating bids in line with the
approved published bid specifications or terms of reference including
evaluation criteria,
weight and specific goals. An important
function of this committee is to evaluate each bidder’s
capability to execute
the contract —the so-called
“functionality” assessment. This committee is also
required to identify all
the risks associated with a recommendation.
[36]
The BEC will then recommend the award of
the bid to the highest scoring bidder. In this matter it is
common cause that the
BEC had twice recommended the applicant as the
preferred bidder.
Bid
Adjudication Committee
[37]
The BAC is “constituted by SAFCOL
Executives and Senior Employees to review and ratify/approve or
reject ….. recommendations
made by the Bid Evaluation
Committee” and to “ensure that a transparent review of
the evaluation is undertaken”.
The BAC is also required
to consider “The preference point system prescribed and that
appropriate goals are identified
and points allocated for those goals
are consistent with the requirements of the PPPFA regulations”.
In this matter
the BAC twice approved the recommendation of the
BEC that the applicant be appointed as the preferred service
provider. It
is only at the third meeting that the BAC made an
about turn on this decision.
THE EVALUATION
PROCESS OF THE BID
[38]
Seventy-nine bidders submitted competing
bids. Some bids were for specific plantations in a particular
region. Others
were for a combination of plantations in more
than one region. Others were for all of the plantations in all
the regions.
Nine bidders’ bids were eliminated during
the pre-qualification phase because their bids failed to comply with
the
pre-qualification requirements prescribed in Bids
Specifications. In addition, 59 bids were found to be
non-responsive in
that they were not accompanied by prescribed
documentation such as public liability insurance.
The
first BEC meeting: 23 and 25 October 2019
[39]
In terms of the first respondent’s
supply chain management policy the BEC is required to consider and
evaluate competing bids,
with reference to functionality, price and
B-BBEE and thereafter to recommend a preferred bidder.
[40]
The following appears from the minutes of
the meeting of the BEC: In respect of functionality, the applicant
scored 88 points and
Phepha scored 71 points. The applicant also
scored the highest total points on B-BBEE. The applicant’s
tender came
to R87 750 115.14 and Phepha’s tender
came to R92 338 372.17: a difference of R4 588 260.00.
[41]
The
evaluation for price and B-BBEE was based on the “90:10
PPPFA”.
[9]
The applicant
received the highest score − a total overall score on the
“90:10 PPFA” of 100. Phepha was
placed second and
scored 95.29. The applicant was then recommended as the
preferred bidder. Next to “reasons
for recommendation”
it is recorded that: “The bidder scored the highest TOTAL
POINTS on Price and B-BBEE evaluation”.
[42]
The following recommendation was
thereafter made:
“
It
is recommended that:
“
The
BAC considers and approves the appointment of Collins Sebola
Financial Services (Pty) Ltd T/A CS Security for the Provisions
of
Security Services, including forest guards, to all the regions of
SAFCOL at an amount of R87 750 115.14 (including
VAT) for a
period of three (03) years.”
[43]
The first respondent thereafter requested
the applicant for a discount on its bid amount. It is common
cause that the BEC
recommended the applicant as the preferred bidder
after it negotiated a discount of 2% from the price originally
tendered by the
applicant. It thus recommended that the
applicant’s bid be accepted at the price of R86 064 474.86
(“the first
recommendation”).
The
first BAC meeting: 8 November 2019
[44]
The first recommendation of the BEC
(recommending the applicant as the preferred bidder) served before
the BAC on 8 November 2019.
[45]
Under the first respondent’s supply
chain management policy, the BAC is required to consider
recommendations submitted to
it by the BEC and thereafter either
accept or reject such recommendation. The BAC is thereafter
required to submit its recommendation
to the Finance Committee of the
first respondent on the award of the tender.
[46]
After deliberations at a meeting of 8
November 2019, the BAC accepted the first recommendation of the BEC
and thereafter recommended
to the Finance Committee that the
applicant be appointed as the preferred bidder. It is important
to note that the applicant
was appointed for the totality of the
tender.
The
Internal Audit Committee: Meeting of 13 November 2019
[47]
The Internal Audit Committee of the first
respondent is then required to consider and audit the recommendation
of the BAC whereafter
it is considered by the Finance Committee in
order to ensure that that recommendation complies with the
requirements for tender
and the supply chain management policy. The
Internal Audit did perform a compliance process and did not find any
issue with
the process.
[48]
In this instance the Internal Audit
Committee considered the recommendation of the BAC and prepared its
report wherein it raised
two concerns. The first was that neither the
BEC nor the BAC evaluated the competing bidders
per
region
in order to assess whether the latter
evaluation would yield a better value for money for the first
respondent. The second
concern was that had the BEC and the BAC
also considered the evaluation of competing bids per region, they
would have identified
a cost-saving for the first respondent to the
order of R1 421 921.51. This, the applicant argued, was not the
task of the
Internal Audit.
The
meeting of the Finance Committee
[49]
The report of the Internal Audit Committee
was considered by the Finance Committee together with the
recommendation of the BAC.
The Finance Committee resolved not
to approve the recommendation of the BAC because of the concerns
raised. It then
resolved to remit the matter to the BEC and the
BAC for further consideration in the light of the concerns expressed
by the Audit
Committee.
The
second BEC meeting: 19 November 2019
[50]
The BEC reconvened on 19 November 2019 to
specifically consider the concerns of the Audit Committee and the
Finance Committee.
The BEC concluded that it was not entitled
to evaluate the competing bids per region in order to determine
whether it should recommend
the appointment of more than one bidder
per region. The BEC therefore disagreed with the concerns raised by
the Audit Committee
and recorded the following:
“
The
BEC therefore finds the IAR [Internal Audit Report] misleading in the
pronouncements that there could have been a saving and
that there is
a loss that will result in wasteful expenditure, as the context from
which the Internal Audit base its concerns is
misunderstood.”
[51]
The recommendation by Internal Audit that
possible capacity or delivery issues “would have probably
resulted from awarding
1 service provider on all regions” was
specifically considered and rejected. The BEC concluded that
this would not
be an issue “as the functionality evaluation
tested this and this is a contractual matter and should be dealt with
as such”.
It is further specifically recorded in the
report that it (the BEC) was of the view that it would be impractical
to appoint
more than one service provider per region.
[52]
The BEC, for the second time, recommended
the appointment of the applicant as the preferred bidder and sole
supplier of the security
services for all the plantations in all the
regions (“the second recommendation”).
The
second BAC meeting: 21 November 2019
[53]
The BAC considered the second
recommendation of the BEC on 21 November 2019 together with the
concerns raised by the Audit Committee
in its report. The BAC
resolved to adopt the second recommendation of the BEC. The
following is noted in the minutes
signed by Hlatshwayo:
“
In
addition, BAC noted the concern of the Internal Audit with regard to
the cost saving if appointing service providers per region,
but of
the view that value for money not only comprises cost saving, but
include opportunity costs, which will be a netter saving
and
logistically best for the company to appoint one service provider for
all regions.”
The
second meeting of the Finance Committee
[54]
The Finance Committee met again on 22
November 2019. It noted that the queries raised by the Audit
Committee were not addressed
by the BEC and the BAC. It also
concluded that the BEC was mistaken when it made the second
recommendation on the basis that
it was not permitted to evaluate
competing bids on a regional basis. The Finance Committee
indicated that the invitation
for tenders expressly reserved the
right for the first respondent to appoint more than one bidder per
region, and that the BEC
had the right to evaluate competing bids on
a regional basis.
[55]
The Finance Committee then concluded that
–
“
it
would not be appropriate for the [finance] committee to support the
recommendations of the BAC to appoint Collins Sebola Financial
Services (Pty) Limited t/a CS Security (the applicant) for the
provision of security services as the internal audit report did
not
provide assurance that the supply chain process has been followed in
line with applicable laws and policies”.
[56]
Once again, the Finance Committee remitted
the matter back to the BEC to address the concerns raised by the
Audit Committee in the
light of the right of the first respondent to
award more than one bidder per region as expressly provided for in
the tender documents.
Letter
of the BEC
[57]
On 5 December 2019, the BEC addressed a
letter to the BAC responding to the Financial Committee’s
concerns. In that
letter the BEC recorded that it has already
responded to the concerns raised by the Internal Audit and raised the
fact that their
report seems not to have been forwarded to the
Financial Committee. The BEC requested that the BAC confirm that all
of their reports
were tabled at the Financial Committee. The
BAC did not respond to the letter of the BEC. The following is
recorded
in the letter:
“
We
however take note of the need to substantiate the reasons for
concluding that the appointment of more than one service provider
per
region is not practical. Therefore, we have attached hereto the
analysis done and reasons (Annexure E), which was not previously
provided.
The
BEC therefore requests that the BAC confirm that the reports, as
attached and except for Annexure E, were tabled at FINCO and
that
they were deliberated on as Annexure A seems to indicate the
contrary.”
[58]
Attached to this document is a document
tabling the risks of appointing more than one service provider per
region. The document
ends by stating that the appointment of
more than one service provider presents a potential higher cost to
the organisation and
will be to the detriment of the first
respondent. The applicant is then recommended as the service
provider. It is
further noted that the risks identified in the
document associated with appointing more than one service provider
per region are
reduced significantly with the appointment of the
applicant as the service provider.
The
status quo as at 5 December 2019
[59]
As at 5 December 2019, the applicant was
the preferred service provider and was twice recommended as such by
the BEC and the BAC.
From the minutes of the meetings of the
BEC and the BAC it is clear that the concerns raised by the Financial
Committee regarding
the appointment of more than one service provider
were considered but rejected. The clear message sent to the
first respondent
was that it was not practical to appoint more than
one service provider per region and that, in fact, there were
significant risks
that may result from appointing more than one
service provider per region. For this reason the applicant was
recommended
as the preferred service provider for the entire region.
[60]
What then changed?
The
third BAC meeting
[61]
The BAC met again on 12 December 2019 to
consider the concerns raised by the Finance Committee and the Audit
Committee. It
then considered the bids of the applicant, Phepha
and Phuthadichaba. This time the bids were evaluated per region
to assess
whether the first respondent would achieve cost-savings
based on that evaluation.
[62]
The BAC then resolved that the bid of
Phuthadichaba was too expensive across all regions and did not bring
about any savings for
the first respondent. It therefore
eliminated that bid from further consideration.
[63]
Thereafter, the BAC considered the bids of
the applicant and Phepha per region to assess whether there would be
any cost-savings.
I should interpose here to refer back to the
letter from the BEC wherein it was specifically stated that the
appointment
of more than one service provider was not in the
interests of the first respondent and in fact, posed significant
risks to the
first respondent.
[64]
However, notwithstanding what transpired
prior to this meeting and notwithstanding the fact that the BAC
itself had twice recommended
the applicant as the preferred bidder,
the BAC now concluded that the bid of Phepha provided cost-savings in
most of the Highveld
region, the whole of the Central region and a
subsequent part of the Northern region. The BAC also concluded
that the bid
of the applicant was competitive in parts of the
Northern and Highveld regions.
[65]
As far as the dispute between the parties
is concerned, this meeting of the BAC on 12 December 2019 is the most
important one.
[66]
In considering the about–turn, it is
necessary to also mention the role of Mr. Nhuvunga and Mr. Hlatshwayo
as both of them
ultimately played a pivotal role in the awarding of
the tender to Phepha.
[67]
Mr. Nhuvunga is the Senior Manager of
Supply Chain Management of the first respondent. He is thus the
custodian of the totality
of the procurement process within the first
respondent. Importantly, he attended the meetings of the BAC on
8 and 21 November
2019 when the evaluation by the BEC was supported
by the BAC. At the meeting of 21 November 2019, Mr. Nhuvunga (and Mr.
Hlatshwayo)
added the following to the resolution of the BAC:
“
In
addition, BAC noted the concern of the Internal Audit with regard to
the cost saving if appointing service providers per region,
but is of
the view that value of money not only comprises cost saving, but
include opportunity cost, which will be a better saving
and
logistically best for the company to appoint one service provider for
all reasons.”
[68]
It does not appear from the papers that
the report of the BAC reached the Financial Committee on 22 November
2019. That explains
why the Financial Committee resolved to
refer the matter back to the BEC to again address the concerns of the
Internal Audit. The
question irresistibly arises why did Mr.
Nhuvunga not alert the Financial Committee to the fact that the
concerns had already been
considered.
[69]
Apart from the fact that this inexpiable
about–turn is not explained, what transpired
after
this meeting is even more suspect.
Discount
negotiations
[70]
After that assessment, the BAC sought to
establish from the applicant and Phepha the extent of the discount
they were willing to
offer. Phepha gave a discount of 10.5% of
its prices in the regions identified by the BAC. The applicant
was not willing
to offer any discount on the regions identified by
the BAC. I will return to the significance of this hereinbelow.
[71]
Based on the discount offered by Phepha,
the BAC resolved to recommend the appointment of Phepha as the
preferred bidder for the
plantations in the Highveld and Central
regions and part of the Northern region at the price of R62 193
884.32, and that the applicant
should be appointed for provision of
security services in parts of the Northern and Highveld regions at
the price of R18 285 386.01.
The
Finance Committee meeting
[72]
The recommendation of the BAC was
considered by the Finance Committee on 24 February 2020 and the
Finance Committee resolved to
approve that recommendation because it
addressed the concerns raised by the Audit Committee and assessed the
competing bids on
a regional basis.
[73]
The Finance Committee also accepted the
recommendation of the BAC because the assessment of the competing
bids on a regional basis
achieved savings for the first respondent in
the order of R5 585 204.30.
PRINCIPLES
[74]
The validity of a tender should be
scrutinized against the acceptable principles laid down for awarding
tenders. These principles
have been summarized in
Millennium
Waste Management (Pty) Ltd v Chairperson, Tender Board: Limpopo
Province and Others
as
follows:
“
[4]
The final Constitution lays down minimum requirements for a valid
tender process and contracts entered into following an award
of
tender to a successful tenderer (s 217).
[10]
The
section requires that the tender process, preceding the
conclusion of contracts for the supply of goods and services, must
be
'fair, equitable, transparent, competitive and cost-effective'.
Finally, as the decision to award a tender constitutes administrative
action, it follows that the provisions of the Promotion of
Administrative Justice Act (PAJA) apply to the process. This is the
legislative background against which the present matter must be
considered.”
[11]
[75]
The applicant contends that the goals as
set out in the section 217 of the Constitution were thwarted
resulting in an award of the
tender to Phepha that was not fair,
equitable nor transparent and also not cost effective.
[76]
Was there adherence to the provisions of
the PPPFA? According to the applicant no “objective
criteria” in terms
of section 2(1)(f) of the PPPFA is recorded
in the tender conditions. In consequence, the 90:10-point
system in terms of
section 2(1)(b)(i) of the PPFA would apply. The
Supply Chain Management Policy of the first respondent also confirmed
the
90:10-point system. The relevant sections read as follows:
“
2 Framework
for implementation of preferential procurement policy
(1)
An organ of state must determine its preferential procurement policy
and implement it within the following framework:
(a) A
preference point system must be followed;
(b) (i) for
contracts with a Rand value above a prescribed amount a maximum of 10
points may be allocated
for specific goals as contemplated in
paragraph (d) provided that the lowest acceptable tender
scores 90 points for price;
………………
(f)
the
contract
must be awarded to the tenderer who scores the highest points, unless
objective criteria in addition to those contemplated
in
paragraphs (d) and (e) justify the award to
another tenderer;”
[77]
The applicant submits that it was
therefore imperative for the first respondent to award the tender to
the tenderer who scored the
highest points. I have already
pointed out that the applicant scored the highest points – 100
– as opposed to
Phepha’s 95. The only instance in
which the tender could be awarded to someone else is when the first
respondent had
stipulated objective criteria in the tender document.
But the first respondent never did that.
[78]
It is so that the Request for Bid provided
in paragraph (b) that the first respondent reserves the right to
negotiate price with
the preferred bidder. The reason for this
is sound. The preferred bidder had already scored the highest
in respect
of functionality and price in total and there could be no
prejudice to other bidders when the first respondent negotiated with
the preferred bidder. Clearly, as will be pointed out
hereinbelow, the negotiations cannot just take place randomly in the
way it was done in the present matter.
[79]
Returning to the facts in this matter.
The applicant seeks to review the award of the tender on
various grounds. They
include: (i) bias (alternatively
reasonably suspected of bias) in the manner in which the tender was
awarded, particularly in light
of the inexplicable about–turn
on 12 December 2019; (ii) the fact that the mandatory 90:10 scoring
point system was not complied
with. Although that was initially
done, the scoring system was thereafter completely ignored at the
meeting of the BAC on
12 December 2019; (iii) the fact that the award
was procedurally unfair in that Phepha was informed what the amount
was it had
to present as a discount; (iv) the fact that the
prescripts of section 2(1)(a)(b)(i) of the PPPFA were not followed;
(v) the fact
that a price was negotiated with a bidder other than the
preferred bidder; (vi) the fact that the decision was materially
influenced
by an error of law in that objective criteria were not
stipulated and it was an error of law to ignore functionality and
only consider
price; and (vii) the fact that relevant considerations
were ignored. The first respondent considered a discount in
excess
of R 2 million a risk yet when Phepha afforded a discount in
excess of R 7 million, this was not considered but ostensibly
overlooked.
[80]
I am of the view, having considered the
facts, that the applicant succeeds on all of these grounds and that
the (partial) award
to Phepha should therefore be reviewed and set
aside: The tender was not issued in accordance with the
constitutional and
legislative procurement framework and cannot be
said to have been issued in accordance with a system which is fair,
equitable,
transparent, competitive and cost effective – all
principles that are fundamental to a valid tender process. See
Allpay Consolidated Investment Holdings (Pty) Ltd and
Others v Chief Executive Officer, South African Social Security
Agency and
Others
:
“
[32]
The starting point for an evaluation of the proper approach to an
assessment of the constitutional validity of outcomes under
the state
procurement process is thus s 217 of the Constitution:
'(1)
When an organ of state in the national, provincial or local sphere of
government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost-effective.
(2)
Subsection (1) does not prevent the organs of state or institutions
referred to in that subsection from implementing a procurement
policy
providing for —
(a)
categories
of preference in the allocation of contracts; and
(b)
the
protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
(3)
National legislation must prescribe a framework within which the
policy referred to in subsection (2) must be implemented.'
[33]
The national legislation prescribing the framework within which
procurement policy must be implemented is the Preferential
Procurement Policy Framework Act (Procurement Act). The Public
Finance Management Act is also relevant.
[40]
Compliance with the requirements for a valid tender process, issued
in accordance with the constitutional and legislative procurement
framework, is thus legally required. These requirements are not
merely internal prescripts that SASSA may disregard at whim. To
hold
otherwise would undermine the demands of equal treatment,
transparency and efficiency under the Constitution. Once a particular
administrative process is prescribed by law, it is subject to the
norms of procedural fairness codified in PAJA. Deviations from
the
procedure will be assessed in terms of those norms of procedural
fairness. That does not mean that administrators may never
depart
from the system put in place or that deviations will necessarily
result in procedural unfairness. But it does mean
that, where
administrators depart from procedures, the basis for doing so will
have to be reasonable and justifiable, and the process
of change must
be procedurally fair.”
[12]
[81]
I will now turn to the about−turn on
12 December 2019 which resulted in the award of the partial award of
the tender to Phepha
and why I say that principles of fairness and
transparency in the award of the tender were not adhered to.
The
about−turn on 12 December 2019
[82]
During the meeting of the BAC on 12
December 2019, it was now resolved to appoint service providers per
plantation thus deviating
from two previous decisions awarding the
tender to the applicant. The reasons for this about−turn
during that meeting
are not before the Court. I have already
pointed out that the respondents have not placed before the Court the
recording
of the meeting. The recording of this meeting is
pertinently relevant and constitutes, in my view, an important
omission:
There is, in the absence of such recordings, nothing before
the Court to explain the about−turn particularly in light of
the fact that the BAC had on two previous occasions agreed, without
any qualification whatsoever with the evaluation of the BEC,
to
appoint the applicant as the preferred service provider. To
restate: It is important to again point out that the second
time the
BAC had agreed with the BEC was
after
the Internal Audit had raised the possibility of adjudication per
regions.
[83]
It is important to also note that the BAC
had, on both the 21 and 12 December meetings, at its disposal the
letter written to it
on 19 November 2019. In that letter it is
noted that the purpose was to respond to the concerns raised by the
Internal Audit
in the report issued to the BAC dated 11 November
2019. The BEC specifically responded to paragraph 3 of the
Terms of Reference
which provided that “SAFCOL reserves the
right to appoint more than one service provider per region and to
appoint one service
provider for all regions”. The BEC
responded by stating that it was of the view that it is impractical
to appoint more
than one service provider per region. The
letter concludes by stating that:
“
In
conclusion, the BEC stands by its recommendation to BAC, as per the
BEC Report dated 4 November 2019, for the BAC to consider
and approve
the appointment of Collins Sebola Financial Services (Pty) Ltd T/A CS
Security for the Provision of Security Services
at a discounted
amount of R 86 064 474.68 (including VAT) for a period of
three (03) years.”
[84]
In addition, the BAC also had the legal
opinion of the legal advisor of the first respondent in which the
approach of the BAC was
favoured.
[85]
Why the letter of the BEC and the legal
opinion was ignored at the 12 December 2019 meeting of the BAC is not
explained on the papers.
[86]
At the meeting of 12 December 2019, it was
now resolved – as reflected in the Executive Summary dated 17
December 2019 which
the Chairperson of the BAC addressed to the CEO
that:
“
The
reasons furnished by the BEC as per the report are frivolous and
therefore not be accepted by the BAC, moreover the reasons
are not
addressing the concerns as per the Internal Audit Report and
resolution of FINCO.”
It
also informed the CEO that:
“
The
BAC reconvened on the 21
st
November 2019 to consider the recommendations of FINCO and
subsequently instructed the BEC to reconsider their recommendations
and resubmit to the BAC. The BEC subsequently reconvened, however the
committee remained adamant and resolute in their decision
or outcome
to appoint Collins Sebola Trading as CS Security Services Pty (Ltd)
(sic). The BEC cited reasons, which were entirely
not consistent,
objective and not addressing the Internal Audit and FINCO
recommendations respectively.”
[87]
These about−turn comments must,
however, be read in light of what the BAC noted in its minutes of the
BAC meeting on 21 November
2019:
“
It
was resolved that the BAC accept the recommendation of the BEC to
appoint Collins Sebola Security Services (Pty) Ltd t/a CS Security
to
provide security services for a period of three (3) years at an
amount of R 86 064 474.68 (inclusive of VAT) and for
further recommendation by EXCO as per the delegation of authority, as
the amount that may be incurred for the services is not within
the
mandate of the BAC.
In
addition, BAC noted the concern of the Internal Audit with regard to
cost saving if appointing service providers per region,
but is of the
view that value for money not only comprises cost saving, but include
opportunity costs, which will be a better saving
and logistically
best for the company to appoint one service provider for all
regions.”
[88]
The BAC, in my view, misled the CEO about
what had transpired prior to the meeting on 12 December 2019: Not
only was the CEO not
told that the BAC had twice recommended the
appointment of the applicant, the BAC in turn omitted to inform the
CEO that the concerns
raised by the Internal Audit and FINCO were
indeed considered but that the applicant was nevertheless recommended
because it was
“logistically best for the company to appoint
one service provider for all regions”. The labelling of
the reasoning
of the BEC as “frivolous” is clearly an
attempt at withholding information from the CEO in respect of the
previous
two resolutions by the BAC to award the tender to the
applicant. As already pointed out, there is no explanation by
the sixth
respondent, Mr. Hlatshwayo, as to why there was such an
about– turn.
[89]
I am thus in agreement with the submission
that the BAC, in their executive summary to the CEO, cannot be seen
as anything but purposively
withholding information.
[90]
As a result of the BAC report, on 24
February 2020 the Board of the first respondent considered the
recommendation of the Finance
Committee. It resolved to accept
that recommendation and decided to award the tender for the supply of
security services
by the seventh respondent for all the plantations
in the whole of the Highveld and Central regions and part of the
Northern region,
at the price of R62 193 884.32.
[91]
The Board also resolved to award part of
the tender to the applicant for the supply of security services in
respect of some of the
plantations in the Northern region at the
price of R18 285 386.01.
[92]
I am, in light of the above, persuaded
that the award of the tender to Phepha falls to be reviewed and set
aside: (i) It is clear
that the 90:10-point scoring system has not
been complied with. (ii) The BAC was compelled to recommend
awarding the bid
to the highest scoring bidder taking into account
objective criteria. This is the imperative of the PPPFA. This
was not done.
Objective criteria were ultimately ignored by the
BAC in December 2019 and replaced by subjective wishes. (iii) The
manner
in which the BAC acted showed a clear intention to awarded the
tender to Phepha on grounds totally disconnected with the clear and
considered recommendations that preceded the 12 December 2019
meeting. To diminish the recommendations of the BEC as
“frivolous”
after the BAC had on two occasions
unconditionally accepted the recommendations of the BEC, shows, in my
view, a clear intent not
only to award the tender to Phepha, but to
mislead the CEO in respect of the unequivocal recommendations that
preceded the meeting
on 12 December 2019. The manner in which the
tender was ultimately awarded to Phepha, taking into account all the
facts, cannot
be interpreted in any other way than a bias in favour
of Phepha. (iv) The tender was ultimately awarded with no
regard to
the risks that it posed for the first respondent. The
first respondent considered it a risk to afford a discount in excess
of R2 million. That is not in dispute. But, when it came
to awarding the tender to Phepha, a discount in excess of
R7 million
was simply ignored. I will now return to this fact.
[93]
In addition to the above and further
underscoring the suspicious circumstances in which the BAC had made
an about–turn. It
is not in dispute that at the meeting
of 12 December 2019, the members of the BAC were in agreement that
any discount on the tender
price in excess of R2 million would be
excessive and would constitute a pertinent risk as to the quality of
the services to the
first respondent. Yet, the first respondent
had no hesitation in accepting the 10.5% discount offered by Phepha
and which
amounted to approximately R7 million. Why red flags
were not raised, is not explained in the papers. What compounds
matters for the respondents is the fact that Mr. Hlatshwayo was
present on 12 December 2019 when it was agreed that a discount
in
excess of R2 million would pose a risk. Yet in the letter to
the CEO of the first respondent this second respondent ostensibly
endorsed the discount with no warning as to the risks attached
thereto. Mr. Hlatshwayo in his letter to FINCO dated 22
February
2020, likewise endorsed the discount without any word of
warning.
[94]
A further shadow is casted over the
actions of the BAC by the fact that it would appear from the facts
that Phepha knew exactly
what amount it had to offer (after discount)
when it made its offer to the first respondent on 18 December 2019.
On 18 December
2019, the first respondent requested a discount from
Phepha on the amount of R69 490 373.54. On the same
day Phepha
offered a discount of 10.5% resulting in an offer of
R62 193 884.32. Yet, on 17 November 2019, a day
earlier, Mr.
Hlatshwayo recorded the exact amount in the Executive
Summary which Phepha offered only one day later.
[95]
When the applicant was requested for a
discount on 31 October 2019, it was imperative for it to furnish the
revised rates or prices.
It was clear that the applicant could
not then give merely a percentage discount. On 1 November 2019,
the applicant
responded to the request and also attached a revised
pricing schedule together with the rates. Yet, when Phepha
provided
its discount it merely gave a discount of 10.5% i.e R7.296
million on the amount with no reference to any rates. Also,
when
the applicant revised its rates, it responded by stating what it
considered in doing so: It considered PSIRA pricing structures,
the
National Minimum Wage Act, and the Private Security Sectoral
Determination. Apart from the fact that Phepha just happened
to
offer the exact discount amount a day after it was recorded by Mr.
Hlatshwayo in the executive summary dated 17 December 2019,
no
particulars are furnished by Phepha in respect of how this discounted
amount had been arrived at, particularly if regard is
had to how the
applicant previously arrived at the discounted rate.
THE RELIEF
[96]
The
tender falls to be reviewed and set aside. Should the Court
substitute the decision of the respondents? The respondents
argued that, should the Court uphold the review, the appropriate
remedy is one of remittal and not the order of substitution sought
by
the applicant. They argue that the applicant has not shown the
existence of exceptional circumstances, in line with the judgment
of
the Constitutional Court in
Trencon
Construction (Pty) Ltd v Industrial Development Corporation of South
Africa Ltd and another
.
[13]
In
that matter the Constitutional Court emphasized that, when a court is
called upon to exercise the discretion conferred upon it
to grant or
refuse an order of substitution, it must bear in mind the separation
of powers principle and afford the necessary deference
to the
administrator whose decision is sought to be reviewed.
[97]
I am in complete agreement with the
principle stated in that judgment that a court should afford the
necessary deference to the
administrator or decision-maker as they
are in the best position to make a decision. In the present
matter the decision-maker
had already held, on more than one
occasion, that the applicant is the preferred bidder. The
tender has been the subject
of a vigorous process which ultimately
resulted in the applicant being held to be the preferred bidder. This
decision had been
reached after having taken into account objective
criteria and after having considered the concerns raised by the
Financial Committee.
By ordering a substitution, this Court is
not usurping the decision-making function of the respondents: It is
merely ordering
that the decision which had been recommended on two
occasions, should be implemented. But for the interference of,
inter alia
Mr.
Hlatshwayo, the tender would have been awarded to the applicant. I
should also mention that I do not accept that just
because contracts
have been concluded and just because the applicant has signed a
contract in which it was afforded only part of
the contract, results
in it being non-suited to contest the award in the manner it did.
[98]
The application therefore succeeds. Costs
should follow the result and should include the costs of senior
counsel where so
employed.
THE ORDER
[99]
The following order is made:
1.
The decision of the Board of the first respondent
dated 24 February 2020 to award part of tender number RFB011/2019 to
the seventh
respondent is reviewed and set aside.
2.
The first respondent is directed to award the
part of tender RFB011/2019 that was awarded to the seventh respondent
to the applicant
at the price which the applicant has tendered for
such part.
3.
The first respondent is ordered to administer a
reasonable and expeditious handover from the seventh respondent to
the applicant.
4.
The respondents, jointly and severally, the one
paying the other to be absolved, are ordered to pay the costs, such
costs to include
the costs occasioned by the employment of senior
counsel.
AC
BASSON
JUDGE
OF THE HIGH COURT
GAUTENG
DIVISION OF THE HIGH COURT, PRETORIA
Electronically
submitted therefore unsigned
Delivered:
This judgment was prepared and authored by the Judge whose name is
reflected and is handed down electronically
by circulation to the
Parties/their legal representatives by email and by uploading it to
the electronic file of this matter on
CaseLines. The date for
hand-down is deemed to be 14 January 2021.
Case
number: 21375/2020
Matter
heard on:
8 October 2020
APPEARANCES
For
the Applicant: ADV
Q PELSER SC
Instructed
by: HURTER
SPIES INC
For
the Respondent: VINCENT
MALEKA SC
Instructed
by: AGRIPPA
MPUNGOSE
AT
MPUNGOSE AND DLAMINI INC
[1]
5 of 2000.
[2]
1 of 1999.
[3]
2015 (5) SA 245
(CC) at paras 34 - 36 and 98.
[4]
3 of 2000.
[5]
Section 6
reads as follows: “
Judicial
review of administrative action
(1)
Any
person may institute proceedings in a court or a tribunal for the
judicial review
of
an administrative action.
(2)
A
court or tribunal has the power to judicially review an
administrative action if-
(a) the
administrator who took it-
(i)
was
not authorised to do so by the empowering provision;
(ii)
acted
under a delegation of power which was not authorised by
the empowering
provision; or
(iii)
was
biased or reasonably suspected of bias;
(b)
a
mandatory and material procedure or condition prescribed by an
empowering
provision was not complied with;
(c)
the
action was procedurally unfair;
(d)
the
action was materially influenced by an error of law;
(e) the
action was taken-
(i)
for
a reason not authorised by the empowering provision;
(ii) for
an ulterior purpose or motive;
(iii)
because
irrelevant considerations were taken into account or
relevant
considerations were not considered;
(iv)
because
of the unauthorised or unwarranted dictates of another
person or body;
(v) in
bad faith; or
(vi) arbitrarily
or capriciously;
(f) the
action itself-
(i)
contravenes
a law or is not authorised by the empowering
provision; or
(ii)
is
not rationally connected to-
(aa) the
purpose for which it was taken;
(bb) the
purpose of the empowering provision;
(cc)
the
information before the administrator; or
(dd)
the
reasons given for it by the administrator;
(g)
the
action concerned consists of a failure to take a decision;
(h)
the
exercise of the power or the performance of the function authorised
by the
empowering
provision, in pursuance of which the administrative action was
purportedly taken, is so unreasonable that no reasonable
person
could have so exercised the power or performed the function; or
(i)
the
action is otherwise unconstitutional or unlawful.”
[6]
Section 51(1)(a)(iii) of the PFMA reflects the constitutional
obligation prescribed in section 217(1) of the Constitution.
[7]
Section 2(1)(b)(i) provides for the application of a preference
point system where 10 points are allocated for attainment of
specific empowerment goals and 90 points are allocated for price.
[8]
Clause 3.2 of the Memorandum from the Chief Financial Officer of the
first respondent addressed to all members of the Bid Committees
on
10 April 2019 setting out their role, functions and powers.
[9]
Page 7 of the minutes.
[10]
Section
217(1) of the Constitution, 108 of 1996 states as follows: “
217
Procurement
(1)
When an organ of state in the national, provincial or local sphere
of government, or any other
institution
identified in national legislation, contracts for goods or services,
it must do so in
accordance
with a system which is fair, equitable, transparent, competitive and
cost-effective.
(2)
Subsection (1) does not prevent the organs of state or institutions
referred to in that subsection
from
implementing a procurement policy providing for-
(a)
categories
of preference in the allocation of contracts; and
(b)
the protection or advancement of persons, or categories of persons,
disadvantaged by
unfair
discrimination.
(3) National
legislation must prescribe a framework within which the policy
referred to in subsection
(2)
must be implemented.”
[11]
2008 (2) SA 481 (SCA).
[12]
2014 (1) SA 604
(CC).
[13]
2015 (5) SA 245
(CC).