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2021
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[2021] ZAGPJHC 128
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Siemens (Pty) Ltd v Eskom Holdings (SOC) Ltd and Another (29841/2019) [2021] ZAGPJHC 128 (16 August 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
LOCAL DIVISION, JOHANNESBURG)
Case No: 29841 / 2019
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
REVISED
DATE:
16 AUGUST 2021
In
the matter between:
SIEMENS
(PTY)
LTD
Applicant
and
ESKOM
HOLDINGS (SOC)
LTD
First Respondent
SENTA
SQUARE (PTY)
LTD
Second Respondent
JUDGMENT
WILSON
AJ
:
1
The applicant (“Siemens”)
competed, unsuccessfully, for a 36-month contract to perform control
and instrumentation maintenance
(“the work”) at Camden
Power Station in Mpumalanga. The work was put out to tender by the
first respondent (“Eskom”).
In the end, Eskom chose to
award the work to the second respondent (“Senta Square”).
2
The issue in this application is
whether Eskom did so pursuant to a lawful tender process. That tender
process commenced on 18 September
2018, when Eskom issued an
invitation to tender to undertake the work for the 36 months between
1 March 2019 and 28 February 2022.
At that time, Siemens had been
carrying the work out on Eskom’s behalf for at least 12 years,
having itself successfully
tendered for the work on four previous
occasions.
3
However, at the first stage of the
tender process initiated on 18 September 2018 (“the first
tender process”), Siemens,
together with everyone else who
responded to that tender, was disqualified after failing to achieve
an adequate technical evaluation
score. The reason for Siemens’
low technical evaluation score was apparently that the majority of
the documents presented
to certify Siemens’ technical capacity
were not themselves certified as true copies of the originals.
4
Ostensibly on the basis that no-one
was able to meet its technical evaluation criteria, Eskom cancelled
the first tender process.
On 9 November 2018, it started the process
afresh by reissuing an invitation to tender in substantially the same
terms as the invitation
that initiated the first tender process.
5
Siemens tendered again. This time,
it attained a high score at the technical evaluation stage, but was
nonetheless disqualified
again, apparently because it failed to
demonstrate that it had met the “prequalification criteria”
specified in the
invitation to tender. It is the nature, meaning, and
application of these criteria that lie at the centre of this case.
6
Siemens having been disqualified,
the work was eventually awarded to Senta Square. Senta Square
commenced the work on 1 March 2019.
Its contract for the work expires
on 28 February 2022.
7
In its founding affidavit, Siemens
launched a wide-ranging attack on every stage of the tender process.
It sought to review its
disqualification from the first tender
process (“decision one”), the cancelation of the first
tender process (“decision
two”), and its disqualification
from the second tender process (“decision three”).
8
By the time the matter came before
me, however, Siemens had abandoned its attack on decisions one and
two. Mr. Wasserman, who appeared
for Siemens, instead focussed his
fire on decision three.
9
Decision three was assailed on
essentially two grounds. The first was that the prequalification
criteria which Eskom said Siemens
had failed to meet were not, in
fact, prequalification criteria at all, or had, at the very least,
been wrongly applied if they
were. The second ground was that Senta
Square had been unfairly advantaged in the second tender process,
because its technical
score (which was initially very low, and, in
any event, much lower than Siemens’ score) was irrationally
adjusted upwards
after it emerged as the strongest performer on
various Broad-Based Black Economic Empowerment (“B-BBEE”)
criteria,
against which the parties’ bids were also evaluated.
10
On the view I take of this case, it
is only necessary for me to address Siemens’ first ground. It
is, accordingly, to the
nature and application of the
prequalification criteria in the second tender process that I now
turn.
The
prequalification criteria
11
The invitation to tender in the
second tender process specified that tenderers would be required to
meet a series of prequalification
criteria. Tenderers were required
to have a “stipulated minimum B-BBEE status level”; to be
an “exempt micro
enterprise” or “EME”; to be
a qualifying small enterprise or “QSE”; or to undertake
to subcontract
at least 30% of the work to EMEs or QSEs in various
categories.
12
These prequalification criteria are
identical, in all material respects, to the criteria specified in
section 4 of the Preferential
Procurement Regulations, 2017 (“the
Regulations”) made in terms of the Preferential Procurement
Policy Framework Act
5 of 2000 (“the Procurement Act”).
Section 4 of the Regulations requires Eskom, if it intends “to
apply pre-qualifying
criteria to advance certain designated groups”
to specify this in its invitation to tender, setting out which
prequalification
criteria will govern the types of tenderers who will
be permitted to respond to the tender.
13
In other words, if it seeks to
impose prequalification criteria, Eskom must say what those criteria
are. It must specify whether
it will consider proposals from
tenderers possessed of a B-BBEE status level, or from QSEs and EMEs,
or from tenderers who undertake
to subcontract at least 30% of the
work to QSEs or EMEs, or, indeed, some rational combination of these
categories of potential
tenderers.
14
There was some debate during
argument about whether Eskom could rationally require a tenderer to
meet all of these criteria cumulatively.
Ms. Govender, who appeared
for Eskom, submitted that the Regulations could appropriately be read
to allow Eskom to require a tenderer
to have an acceptable B-BBEE
status level,
and
to be an EME or a QSE,
and
to undertake to subcontract at least 30% of the work to other EMEs or
QSEs.
15
I am not convinced that this is the
correct interpretation of the Regulations, but that is not,
ultimately, an issue that I have
to decide.
16
This is because Eskom itself
expressed the prequalification criteria disjunctively in its
invitation to tender. It stated that tenderers
would only have to
meet one of the three prequalification criteria in order for their
bids to be considered. This is plain from
the insertion of the words
“and/or” between each of the prequalification criteria
specified at paragraph 3.11 of the
invitation to tender.
17
Mr. Wasserman spent some time trying
to persuade me that the prequalification criteria were never really
applicable at all. His
argument was not without merit. Eskom’s
invitation to tender is far from a model of clarity. Page 3 of the
invitation states
that tenders would be evaluated by reference to the
prequalification criteria “if applicable”. Clause 3.11 at
page
8 of the invitation sets out the prequalification criteria, but
the words “not applicable” appear in square brackets
alongside them.
18
At page 13 of the document, however,
the prequalification criteria reappear. Confirmation that they have
been met is classified
as a “mandatory returnable”. If
evidence that they have been met is not submitted, it is declared, in
boldface red
ink, that “the tenderer will be disqualified”.
Page 55 of the invitation states that Eskom may cancel any contract
flowing from the tender process if it turns out that a tenderer’s
“B-BBEE status level” has been “claimed
or obtained
fraudulently”. Page 5 of the invitation declares that a “tender
that fails to meet any prequalifying criteria
stipulated in the
tender documents is an unacceptable tender”. That statement
refers back to section 4 (2) of the Regulations.
Furthermore, a
“Target Setting Report”, which accompanied the
invitation, requires the submission of a letter of intent
that
demonstrates a commitment to subcontracting 30% of the work to an EME
or QSE which is “at least 51% owned by black people
living in
rural or under developed areas or townships”.
19
Notwithstanding the sometimes
confusing nature of the tender documents, when evaluated as a whole,
they appear to me to evidence
Eskom’s intention to apply the
prequalification criteria set out in clause 3.13. The words “not
applicable” in
square brackets are best explained as a
formatting error, and the words “if applicable” at page
three of the invitation
do not specifically preclude the inference
that the prequalification criteria are, in fact, applicable.
20
Although it was open to Mr.
Wasserman to argue that the tender process should be set aside for
vagueness (
Allpay consolidated
Investments v Chief Executive Officer, SASA
2014 (1) SA 604
(CC) (“
Allpay
”),
para 87), he did not do so. I think that was wise. On a fair reading
of the documents as a whole, the fact that Eskom
intended the
prequalification criteria to apply to the tender is clear enough.
21
Accordingly, Siemens had to meet the
prequalification criteria, as they appeared on the invitation to
tender. It follows that, on
Eskom’s own disjunctive
construction of how those criteria would apply, if Siemens can
demonstrate that it met any one of
the three pre-qualification
criteria, then it was incorrectly disqualified from the second tender
process.
Did
Siemens meet the prequalification criteria?
22
There is no dispute on the papers
that Siemans met at least one of the three prequalification criteria
– the requirement to
commit to subcontract 30% of the work to
qualifying QSEs and EMEs. This is recorded in Eskom’s Supplier
Development and Localisation
Evaluation Report, which was compiled as
part of the tender evaluation process. The relevant part of this
report is quoted at paragraph
6.8.4 of Siemens’ supplementary
founding affidavit, to which the report is itself attached. There,
Eskom accepts that Siemens
“does commit to subcontracting”
at least 30% of the work to qualifying QSEs and EMEs. Nonetheless,
the report concludes,
Siemens’ “B-BBE status and level”
does not “allow them to tender for this work”.
23
At paragraph 242 of its answering
affidavit, Eskom baldly admits these allegations.
24
It follows that Eskom accepted that
Siemens had met at least one of the three prequalification criteria.
25
Eskom nonetheless concluded that
this was insufficient to meet the criteria as they were set out in
the invitation to tender. But
that was erroneous.
26
There was some debate in argument
about whether the subcontracting commitment had to be embodied in a
special letter of intent,
which, it was contended, Siemens had not
submitted. It is true, as Ms. Govender argued, both that a letter of
intent was referred
to in the tender documents, and that Siemens did
not submit a document that styled itself as a letter of intent. But
this could
hardly be material, given that the purpose of the letter
of intent was to satisfy Eskom that Siemens really had committed to
the
requisite level of subcontracting. Eskom flatly admits on the
papers that it was satisfied of this fact. It is in any event far
from clear on the invitation to tender that the letter had to follow
a specific format, or be submitted separately and independently
from
other tender documents, much less that the failure to do so could
reasonably have been treated as fatal to an otherwise compliant
tender.
Review
under the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”)
27
Siemens assailed its
disqualification from the second tender process on a wide range of
grounds specified in section 6 of PAJA.
However, it is only necessary
for me to mention two of these grounds.
28
Section 6 (2) (b) of PAJA empowers a
court to set aside administrative action taken despite non-compliance
with a “mandatory
and material procedure or condition”
specified in an empowering provision. It is clear, because the
Constitutional Court
tells us so, that an invitation to tender forms
a critical part of the empowering framework within which tender
awards are made
(
Allpay
,
para 58). Non-compliance with a material condition in an invitation
to tender is accordingly an irregularity in the tender process
itself.
29
Here the non-compliance is clear.
The invitation to tender required that only one out of the three
B-BBEE prequalification criteria
had to be met. Siemens met one out
of three of those criteria, but was disqualified for failing to meet
at least one of the other
two. This is at odds with the conditions
set in the invitation to tender itself.
30
For that reason, the decision to
disqualify Siemens lacked, in addition, the necessary rational
connection to the purpose for which
it was taken. This is contrary to
6 (2) (f) (ii) (aa) of PAJA. The decision to disqualify Siemens was
ostensibly taken to conform
to the prequalification criteria. But, on
their face, those criteria did not bear the meaning that Eskom
ascribed to them. There
was accordingly no basis on which the
criteria could rationally justify Siemens’ disqualification
from the tender process.
31
There can be no doubt that these
irregularities were material to the second tender process. They
involve the proper application
of critically important social
transformation goals. When Eskom invites a tender, it does so not on
its own behalf, but on behalf
of the public at large (
Allpay
,
para 56). The public has a right to expect that public procurement
social transformation goals embodied in B-BBEE criteria are
clearly
stated, and rationally and lawfully applied. In this case, that did
not happen.
Remedy
32
Siemens’ disqualification from
the second tender process was accordingly unlawful. That tainted the
tender process as a whole,
and rendered Senta Square’s
appointment unlawful and invalid.
33
However, that is not the end of the
matter. There is a fairly sharp separation in law between the
legality of the decision to award
the contract to Senta Square, and
the remedy that ought to be granted for that illegality.
34
Given the present fragility of South
Africa’s power distribution system, I am loath to simply set
aside the tender process
without some sense of what effect, if any,
that would have on Camden Power Station and its productive capacity.
I am alive to the
fact that the contract awarded to Senta Square
pursuant to the tender has only just over six months left to run. I
need to know
how, on the facts, that might affect any order I make to
require the tender process to be rerun.
35
I also am sensitive to the fact that
Senta Square has not, to date, participated in these proceedings.
This is no doubt because
of the identity of its interests with those
of Eskom, and the fact that Eskom was clearly better placed than
Senta Square to defend
the tender process. However, now that the
tender process has been found to have been unlawful, Senta may well
have a renewed interest
in participating in these proceedings. It
should clearly be given an opportunity to be heard at the remedy
stage.
36
Both Mr. Wasserman and Ms. Govender
accepted that there is very little on the papers as they stand that
would assist me in crafting
a just and equitable remedy. They
accepted that, if I were to find for Siemens on any of its grounds of
review, further argument
and evidence would be necessary to determine
a such a remedy.
37
Accordingly, I will issue an order
declaring the award of the tender to Senta Square to have been
unlawful. However, I will suspend
that declaration pending the
determination of a just and equitable remedy under section 8 of PAJA.
The effect of this order is
accordingly that, pending the
determination of that remedy, Senta Square and Eskom must continue to
perform on the terms of their
agreement to carry out the work. How,
if at all, that will change before the expiry of the agreement must
await my judgment on
the remedy to be granted.
38
For all of these reasons, I make the
following order –
1.
It is declared that the first respondent’s
award of the tender for control and instrumentation maintenance at
Camden Power
Station in Mpumalanga between 1 March 2019 and 28
February 2022 to the second respondent was unlawful.
2.
The declaration made in paragraph 1 of this
order is suspended, pending the determination of a just and equitable
remedy.
3.
The parties are directed to furnish factual
information on affidavit, and further written submissions, on the
just and equitable
remedy to be granted in light of this judgment, by
no later than 3 September 2021.
4.
The application is set down on 13 September
2021 for a further hearing on the determination of a just and
equitable remedy.
5.
The first respondent is directed to pay the
applicant’s costs to date.
S
D J WILSON
Acting
Judge of the High Court
This
judgment was prepared and authored by Acting Judge Wilson. It is
handed down electronically by circulation to the parties or
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 16 August 2021.
HEARD
ON:
20 July 2021
DECIDED
ON:
16 August 2021
For
the Applicant:
J Wasserman SC
Instructed
by Pinsent Masons Inc
For
the Respondent:
T Govender
Instructed
by FY Renqe Inc