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[2016] ZAFSHC 159
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Q CIVILS (Pty)Ltd v Mangaung Metropolitan Municipality and Others (A48/2016) [2016] ZAFSHC 159 (8 September 2016)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
number: A48/2016
In
the matter between:
Q
CIVILS (PTY)
LTD
…........................
Applicant
and
MANGAUNG
METROPOLITAN MUNICIPALITY
…............................
First Respondent
FMP
CONTRACTORS CC
….........................
Second Respondent
CORAM:
JORDAAN, ADJP
et
DAFFUE, J
HEARD
ON:
8 AUGUST 2016
JUDGMENT
BY:
DAFFUE,
J
DELIVERED
ON:
8
SEPTEMBER 2016
I
INTRODUCTION
[1]
The central issue for determination in this application is the
lawfulness of a tender process conducted by the Mangaung Metropolitan
Municipality. The unsuccessful bidder and the Municipality who
called for bids for the upgrading of a street in Bloemfontein
are at
loggerheads and this court is approached to primarily review and set
aside the award of the bid to the successful bidder.
II
THE PARTIES
[2]
The applicant is Q Civils (Pty) Ltd, (“Q Civils”), a
registered construction company specialising in all fields
of general
construction and civil engineering works.
[3]
First respondent is the Mangaung Metropolitan Municipality, (“the
Municipality”), duly established in terms of the
Local
Government: Municipal Structures Act, 117/1998.
[4]
Second respondent is FMP Contractors CC, (“FMP”), a close
corporation duly registered as such.
III
THE RELIEF CLAIMED
[5]
Save for a prayer for condonation based on urgency which is not
repeated, Q Civils seeks the following relief
ex facie
the
notice of motion:
“
2.
The First Respondent’s decision to eliminate the Applicant from
the tender process for
BID 263 (A) - 2014/2015: Upgrading of
street and storm water: De Bruyn street
is reviewed and set
aside, alternatively is declared to be unlawful and set aside;
3.
The First Respondent’s awarding of the bid mentioned in prayer
2 above to the Second Respondent is reviewed and set aside,
alternatively is declared to be unlawful and is set aside;
4.
In terms of
section 8
of the
Promotion of Administrative Justice Act,
3 of 2000
, the First Respondent is ordered to conclude an agreement
with the Applicant for the construction of the remainder of the work
to be performed and related to the bid mentioned in paragraph 2
above.
5.
As far as it may be deemed necessary, the Applicant’s non
adherence to
section 7
of PAJA, related to the exhaustion of alive
and pending internal remedies, is condoned as being in the interest
of justice.
6.
The First Respondent is ordered to pay the costs of this
application. Alternatively, and should the Second Respondent
oppose, then in that case, the Second Respondent is to pay the costs
of the application, together with the First Respondent, jointly
and
severally, payment by one, the other to be absolved.”
[6]
The application is opposed by the Municipality only. FMP
opposed the interim interdict proceedings issued under case number
422/2016 by Q Civils in terms whereof the Municipality and FMP were
interdicted and restrained by Van Zyl, J on 18 February 2016
from in
any way further implementing and/or executing the Municipality’s
decision to award the aforesaid bid to FMP, pending
the institution
of review proceedings for the review and setting aside of the
aforesaid decision.
IV
THE ESSENCE OF THE DISPUTE BETWEEN THE PARTIES
[7]
The questions to be determined are whether the award was made in
consequence of an unlawful tender process, and if so, whether
Q
Civils should be substituted by the court for FMP as the successful
bidder.
[8]
Several allegations are made by Q Civils in support of the submission
that the Municipality’s decision to award the bid
to FMP should
be set aside. It is, as alleged, vitiated by an error of fact in that
Q Civils’ bid did not exceed any 15%
threshold. It is also
procedurally unfair insofar as Q Civils wasn’t afforded an
opportunity to explain its price tendered
before a decision was
taken. In conclusion it is alleged that the cumulative effect
of the irregularities is such that the
decision is not only arbitrary
and irrational, but also unlawful.
[9]
When Q Civils’ complaints are properly evaluated, the real
issue is in essence its dissatisfaction that its bid was disqualified
“
simply because the price
(tendered)
was below a pre-set
deviation percentage”
of 15%
from the engineer’s estimate or the average bid price.
[10]
In its opposition of the application the Municipality relies on the
fact that it was necessary for its Bid Evaluation Committee
(“BEC”)
and its Bid Adjudication Committee (“BAC”) to consider a
risk analysis and in order to do that,
it was determined before
considering the various bids that those bidders who would deviate by
more than 15% from the engineer’s
estimate or the average bid
of the bidders, would be disqualified. The rationale is stated
as follows in the Bid Technical
Assessment Report under the heading
“Risk Analysis”:
“
In Table 3.5, the
percentage deviation of the tendered amount is indicated. The
risk to the Municipality increases where rates
of tenderers deviate
by more than 15% than (sic) the average or estimated rates.
Too
low rates result in cash flow problems to the contractor, slower
progress of the works, increased safety risks and reduction
in
quality of work; but
Alternatively,
where rates are more than 15% higher than the average tendered rates,
the risk to the Municipality increases with
regard to a possible
increase in project costs when the quantities increases
(sic)
substantially.”
[11]
It was eventually found that Q Civils’ bid was 22.66% below the
engineer’s estimate and 17.12% below the average
price tendered
by bidders. These deviations are both in excess of the 15% deviation
that was applied across the board. Based on
this Q Civils together
with three other bidders were found to be “non-responsible”
by the BEC. Contrary thereto the
bid of FMP was 15.03% less than the
engineer’s estimate and 8.94% less than the bidders’
average price. The BEC eventually
recommended that the bid be awarded
to FMP, which recommendation was ultimately accepted by the BAC which
committee resolved to
award the bid to FMP.
[12]The
different viewpoints of the parties will be evaluated
infra
when the evidence is considered together with the parties’
submissions and the authorities.
V
THE TENDER PROCESS
[13]
I deem it apposite to briefly set out the procurement process
followed in casu. It was not dealt with in detail in the affidavits,
but it should be common cause, bearing in mind the documents filed in
terms of
rule 53
– the Record of Decision (“ROD”).
[14
In January 2015 the engineers, Ndlovu Nganyama (Pty) Ltd as
consulting engineers presented to the Municipality an estimate of
the
costs for the upgrading of De Bruyn Street from a gravel to a
surfaced road together with the associated stormwater works.
The
matter was thereafter referred to the Municipality’s Bid
Specification Committee to prepare a comprehensive bid specification
– the tender document – whereafter approval was obtained
for invitations of bids.
[15]
Bids were invited in June 2015. Save for certain minimum
requirements specified in the invitation as published, the
invitation
inter alia
specified that the lowest bid would not necessarily
be accepted, that the Municipality’s Supply Chain Management
Policy (“SCMP”)
and the PPPFA and its regulations would
apply and bids that are invalid, non- responsible in terms of clause
16.2.16 of the SCMP,
would be disqualified.
[16]
The Municipality requested a Bid Technical Assessment report from the
consulting engineer which report dated August 2015 appears
in the ROD
from page 67 to page 108. In this report the engineer deals in depth
with all bids. It is in this report – from
page 74 of the ROD
and further – that the engineer explains the
ratio
for
the 15% deviation referred to above.
[17]The
BEC considered the bids. It is important to take note that the
engineer, Mr Mamokatsaba of Ndlovu Ngonyama attended the
first
meeting of the BEC on 26 August 2015.
Ex
facie
the minutes he presented the
item relating to the particular tender and stated that twenty eight
bids had been received, but five
disqualified as these were found to
be non-responsive. The twenty three others were further evaluated and
the committee members
were pertinently referred to item 3.5 of the
engineer’s report pertaining to his risk analysis and the
percentage deviations
of all these bids. The engineer furthermore
confirmed that his estimates were based on current construction
projects of local municipalities
in the Free State. The engineer
indicated in his risk analysis that Q Civils’ tender was
regarded as “high risk”
and also that it quoted
“unbalanced rates, some items on the critical sections he has
price (sic) too low or too high.”
The BEC resolved at its first
meeting to continue a due diligence process. It is not certain
whether Q Civils and the other
three bidders were found to be
non-responsible at this meeting as the minutes are quiet in this
regard.
[18]
On 2 September 2015 the BEC met again but was still not in position
to make any recommendation. On 16 September 2015 and after
finalising
its due diligence process, it recommended FMP to the BAC. It is
evident from the report of the BEC submitted to the
BAC that it
considered the twenty three bidders for functionality and that once
this was done Q Civils and seven others were evaluated
risk
assessment in accordance with the engineer’s risk analysis set
out above. The bids of Q Civils and three others were
found to be
non-responsible in terms of clause 16.2.16.2 of the SCMP and
disqualified. In paragraph 8.3 of the report the
BEC stated
that the bids of these bidders were “substantially below or
above 15% deviation from the engineer’s or the
average price
submitted.” Obviously the committee conflated the wording
of the SCMP with the test of the engineer and
this led to confusion
on behalf of the deponent to the answering affidavit and even the
Municipality’s counsel as will be
indicated
infra.
[19]
The BAC sat on 16 October 2015, considered the relevant report
ex
facie
the minutes and awarded the bid to FMP.
VI
ALLEGED FAILURE TO EXHAUST AN INTERNAL REMEDY
[20]
The Municipality has placed enormous emphasis on Q Civils’
alleged failure to exhaust an available internal remedy.
It is
therefore necessary to consider this aspect before any attempt is
made to adjudicate the merits of the review application.
[21]
The Municipality placed reliance on
regulations 49
and
50
of the
Municipal Supply Chain Management Regulations promulgated
as
envisaged in the Local Government: Municipal Finance Management Act,
56/2003, which regulations took effect on 1 July 2005.
[22]
It is not difficult to understand why the Municipality decided to
rely on these regulations; its decision was probably triggered
by the
contents of the letter of Q Civils dated 13 January 2016 indicating
that it did not agree with the award and wished to lodge
a formal
dispute/objection in terms of regulation 49 regarding the appointment
of FMP.
[23]
Regulation 49 stipulates that the supply chain management policy of a
municipality must allow persons aggrieved by decisions
or actions
taken by the municipality in the implementation of its supply chain
management system, to lodge within 14 days of the
decision or action
a written objection or complaint against the decision or action.
Regulation 50 obliges a municipality
to “provide for the
appointment by the accounting officer of an independent and impartial
person…….
a.
to assist in the resolution of disputes
between a municipality or municipal entity and other persons
regarding –
(i)
any decisions or actions taken by the
municipality or municipal entity in the implementation of its supply
chain management system;
or
(ii)
any matter arising from a contract
awarded in the course of its supply chain management system; or
b.
to deal with objections, complaints or
queries regarding any such decisions or actions or any matters
arising from such contract.”
In
terms of regulation 50 (4)–(6) the person appointed must strive
to resolve promptly all disputes, objections, complaints
or queries
and if these are not resolved within sixty days, the matter may be
referred to the relevant provincial treasury.
If the provincial
treasury cannot resolve the dispute the matter may be referred to the
National Treasury for resolution.
[24]
It is clear from these two regulations that whoever is appointed to
act in accordance with regulation 50, does not sit as an
appeal
tribunal and does not have the right to set aside a decision
pertaining to the award of a bid or to nullify a contract entered
into between a municipality and a successful bidder. Such a
person clearly does also not have any review authority and therefore
no power to enforce an effective remedy. Before an alleged
internal remedy can qualify as such in terms of s 7(2) of PAJA
it
would have to provide a prejudiced person with an effective remedy.
See:
Lohan Civil-Tebogo Joint Venture v Mangaung Plaaslike
Munisipaliteit
[2009] ZAFSHC 21
ad paras [32] – [34],
an unreported judgment delivered on 27 February 2009 and the
persuasive article by Bolton P,
Municipal tender awards and
internal appeals by unsuccessful bidders,
PER/PELJ
2010(13)3 p 71 and further. In any event, the regulation itself
clarifies any uncertainties that may exist insofar as regulation
50(7) reads as follows:
“
This
regulation must not be read as affecting a person’s rights
to
approach a court at any time
.”
(emphasis added.)
[25]
The Municipality’s reliance on the following judgments is
ill-founded and the submissions in that regard are not valid:
In
Dengetenge Holdings (Pty) Ltd v
Southern Sphere Mining and Development Co Ltd and Others
2014 (5) SA 138
CC
s 96
(1) and (3) of the
Mineral and Petroleum
Resources Development Act, 28 of 2002
was the subject of
consideration. Sub-section (1) provides for an internal appeal
process and sub-section (3) clearly stipulates
that no person may
apply to court for review of an administrative decision until such
person has exhausted his/her remedies in
terms of sub-section (1).
This case is no authority in support of the Municipality’s
viewpoint as it is clearly distinguishable
from the facts in
casu
where the regulations do not make provision for any appeal process.
The facts in
Koyabe and Others v
Minister of Home Affairs and Others
2010 (4) SA 327
(CC), also relied upon, are totally distinguishable
from the facts in
casu
.
In paragraph [35] of the judgment the court considered what an
internal remedy is and stated: “Internal remedies are
designed
to provide immediate and cost-effective relief, giving the executive
the opportunity to utilise its own mechanisms, rectifying
irregularities first, before aggrieved parties resort to
litigation.” In
Koyabe
the applicants were declared to be prohibited persons in terms of the
Immigration Act, 13 of 2002
and were to be deported to their home
country. They sought the review and setting aside of these decisions,
but they failed to
firstly refer the matter to the Minister for
review in terms of
s 8
of the Act. The Constitutional Court
eventually found, as the High Court, that the application was
premature for failing to exhaust
the available internal remedy.
The quotation in the Municipality’s heads of argument from
paragraph [47] of the
Koyabe
judgment is
inapplicable
in
casu.
Nichol and another v
Registrar of Pension Funds and Others
2008 (1) SA 383
(SCA) was also relied on. In this matter the internal
remedy available to the appellant was an appeal to the Financial
Services
Appeal Board under s 26 of the Financial Services Act, 97 of
1990, which internal remedy was not exhausted. Having found no
exceptional
circumstances in terms of s 7(2)(c) of PAJA the Supreme
Court of Appeal dismissed the appeal. The Municipality’s
submission,
based on the judgment in
Nicholl,
that regulations 49 and 50 created internal remedies is without any
merit.
[26]
It was pointed out on behalf of the municipality that Q Civils’
application was “addressed at” (sic) s 62
of the Local
Government: Municipal Services Act, 32 of 2000 (“the Systems
Act”) notwithstanding the letter of objection
relying on
regulation 49 as indicated
supra
. According to the
municipality Q Civils could in any event not rely on s 62 which is
totally inappropriate in
casu
as it is only available to a
person whose rights have been affected by a political structure,
political office bearer, councillor
or staff member. I do not agree
with this submission which is in direct conflict with a judgment of
the Supreme Court of Appeal.
See:
Groenewald NO and Others v M5
Developments (Cape) (Pty) Ltd
2010 (5) SA 82
SCA paras [18] –
[21].
[27]
However the internal appeal process provided for in s 62 cannot be
seen as an available internal remedy for an aggrieved and
unsuccessful bidder where the contract was already entered into with
the successful bidder who has already started with execution
of the
work in terms of the contract. See the unambiguous wording of s 62(3)
of the Systems Act and
Loghdey v Advanced Parking Solutions CC
and Another
2009 (5) SA 595
(CPD) at paras [25] to [33] and
City of Cape Town v Reader and Others
[2008] ZASCA 130
;
2009 (1) SA 555
(SCA) at paras [34] to [36]. It is important to note that the facts
in
Loghdey
can be distinguished from those in
Groenewald
supra
insofar as no rights had
accrued to the preferred bidder (M5) in
Groenewald
at
the time of the appeal.
[28]
In
casu
the uncontested evidence,
ex facie
the
answering affidavit of FMP in the interdict proceedings which was
also placed before us, is to the effect that FMP had already
started
with contract works. By the time the interdict was granted FMP had
already performed almost R2m worth of work on the particular
project.The appeal authority to be appointed in terms of s 62 could
not revoke FMP’s accrued rights. I therefore conclude
that Q
Civils would not be able to obtain effective redress by either making
use of the provisions of regulation 50 or s 62. Consequently
it was
not necessary for Q Civils to prove any exceptional circumstances to
justify an exemption in terms of s 7(2)(c) of PAJA
and no condonation
application was required.
VII
THE AUTHORITIES RELATING TO REVIEWS.
[29]
Section 217 of the Constitution is the starting point for an
evaluation of the proper approach to an assessment of the
constitutional
validity of State procurement processes. It
reads as follows:
“
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.”
[30]
In order to comply with s 217(3) the legislature adopted the
Preferential Procurement Policy Framework Act, 5 of 2000 (“the
PPPFA”). “Acceptable tender” is defined in s 1 of
the PPPFA as “any tender which, in all respects, complies
with
the specifications and conditions of tender as set out in the tender
document”. In
Chairperson:
Standing Tender Committee and Others v JFE Sapela Electronics (Pty)
Ltd and others
[2005] 4 ALL SA
487
(SCA) at paragraph [19] Scott JA pointed out that the definition
of “acceptable tender” must be construed against the
background of s217 of the Constitution and continued as follows: “In
other words, whether the tender in all respects complies
with the
specifications and conditions set out in the contract documents must
be judged against these values.” In terms of
s 2(1)(f) of the
PPPFA “the contract must be awarded to the tenderer who scores
the highest points (calculated in accordance
with s 2(1)(b)), unless
objective criteria in addition to those contemplated in paragraphs
(d) and (e) justify the award to another
tenderer.”
[31]
The
Local Government: Municipal Finance Management Act, 56 of 2003
is
equally applicable. Procurement is dealt with in Chapter 11 and the
wording of
s 112(1)
echoes that of s 217(1) of the Constitution.
[32]
A tender process implemented by an organ of state is an
“administrative action” within the meaning of PAJA. See:
Logbro Properties CC v Bedderson
NO and Others
2003 (2) SA 460
(SCA) para [5]. Therefore the applicant
in
casu
was entitled to a lawful and
procedurally fair process. Furthermore, it is well established that
the executive in all spheres are
constrained by the principle that
they may exercise no power and perform no function beyond those
conferred upon them by law. This
is the doctrine of legality. See:
Sapela Electronics
supra
at para [11].
[33]
The proper legal approach pertaining to procurement processes was set
out in the following
dictum
by Froneman, J in
Allpay
Consolidated v Chief Executive Officer, SASSA
2014 (1) SA 604
(CC) at para [22] which I quote:
“
[22]
This judgment holds that:
a.
The suggestion that ‘inconsequential
irregularities’ are of no moment conflates the test for
irregularities and their
import; hence an assessment of the fairness
and lawfulness of the procurement process must be independent of the
outcome of the
tender process.
b.
The materiality of compliance with legal
requirements depends on the extent to which the purpose of the
requirements is attained.
c.
The constitutional and legislative
procurement framework entails supply chain management prescripts that
are legally binding.
d.
The fairness and lawfulness of the
procurement process must be assessed in terms of the provisions of
the Promotion of Administrative
Justice Act, 3 of 2000 (PAJA).
e.
Black economic empowerment generally
requires substantive participation in the management and running of
any enterprise.
f.
The remedy stage is where appropriate consideration must be given to
the public interest in the consequences of setting the procurement
process aside.”
[34]
Froneman J continued in
All Pay
supra
at
paras [28] and [29] to summarise the approach to be followed by a
court considering a review application and I quote: “The
proper
approach is to establish, factually, whether an irregularity
occurred. Then the irregularity must be legally evaluated to
determine whether it amounts to a ground of review under PAJA. This
legal evaluation must, where appropriate, take into account
the
materiality of any deviance from legal requirements, by linking the
question of compliance to the purpose of the provision,
before
concluding that a review ground under PAJA has been established.”
Once this exercise has been completed the court
must consider the
practical difficulties which may flow from declaring the
administrative action constitutionally invalid, bearing
in mind the
just and equitable remedies provided for in the Constitution and
PAJA.
[35]
In
Bel Porto School Governing Body
and Others v Premier, Western Cape
[2002] ZACC 2
;
2002 (3) SA 265
(CC) Chaskalson CJ stated at para [89] for a decision
to be justifiable, “…. it should be a rational decision
taken
lawfully and directed to a proper purpose.” Ponnan JA,
relying on
Pharmaceutical
Manufacturers Association of South Africa and Another: In re Ex Parte
President of the Republic of South Africa and
Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC) expressed himself as follows: “It is well
established that an incident of legality is rational decision-making.
It is
a requirement of the rule of law that the exercise of public
power should not be arbitrary. It follows that decisions must be
rationally
related to the purpose for which the power was given.”
See
Minister of Home Affairs v
Somali Association of South Africa
2015 (3) SA 545
(SCA) at para [18]. However as Nugent JA pointed out
in
Minister of Home Affairs and
Others v Scalabrini Centre
2013
(6) SA 421
(SCA) at para [65]: “… an enquiry into
rationality can be a slippery path that might easily take one
inadvertently
into assessing whether the decision was one the court
considers to be reasonable. As appears from the passage above,
rationality
entails that the decision is founded upon reason - in
contradistinction to one that is arbitrary - which is different to
whether
it was reasonably made. All that is required is a rational
connection between the power being exercised and the decision, and a
finding of objective irrationality will be rare.”
[36]
Insofar as applicant’s counsel relied on
Medirite
v South African Pharmacy Council
(197/2014)
[2015] ZASCA 27
(20 March 2015) it is necessary to mention
the following. The South African Pharmacy Council amended the
rules relating to
“good pharmacy practice” pertaining to
the identification and demarcation of pharmacy premises. These
premises
have to be clearly identified and demarcated if situated on
the premises of any other business or practice and it was
particularly
required that demarcation had to be permanent, solid and
closed-off from floor to ceiling height and must enclose all areas
attached
to the pharmacy, i.e the waiting area, the clinic, the
semi-private and the private area. This caused serious concerns to
the appellant
who operated several pharmacies within Shoprite
Checkers and Checkers Hyper supermarkets, i.e within the precincts of
other business
premises such as supermarkets, although these
pharmacies are run as separate businesses. In paragraph [9] of the
judgment the Supreme
Court of Appeal reiterated that the “…
requirement of rationality is to ensure that the action is not
arbitrary or
capricious and that there is a rational connection to
the facts and the information available to the administrator taking
the decision
and the decision itself.” In that matter the
court, accepting that all of appellant’s pharmacy premises were
clearly
demarcated and identifiable, found that a consideration of
the merits of the decision was “bedevilled by a singular lack
of information as to why the first respondent decided that a wall
meeting the prescribed requirements was necessary.” See
paragraph [11]. The court found that it was not necessary for
permanent walls to be built in order to demarcate and identify
pharmacy
premises and the first respondent’s insistence on this
requirement was “shrouded in mystery.” The evidence
presented
by appellant showed that the costs of building walls would
be substantial, it would have a negative impact on the supermarket
business
model, interfering with the free flow of customers, and
furthermore, bearing in mind the high ceilings or no ceilings at all
in
these buildings, the erections of walls may adversely affect
lightning and ventilation. In conclusion it was found that the
administrative action in introducing the particular subsections to
the rules was both irrational and unreasonable.
[37]
In
Sethakatshipa Business Enterprise and others v Mangaung
Metropolitan Municipality
(A917/2014)
[2015] ZAFSHC 32
(10
March 2015) the court found that it was a reviewable irregularity to
declare a bid as unrealistically low without affording
the bidder any
audience on the matter with reference to the judgments of the North
West High Court, to wit
Glo Bul Roads (Pty) Ltd v Premier,
North West Province and others
case number 1620/11 and
Road
Mac Surface (Pty) Ltd v MEC for the Department of Transport and Roads
2006 ZANWHC 54.
Lekale J continued in para [31]:
“
Even
if I am wrong in the preceding findings, I am persuaded by available
case law that fairness dictates that, before disqualifying
first and
third applicants’ tender as non-responsive, the respondent was
supposed to have afforded them a hearing in line
with the rules of
natural justice. Failure to afford them audience is a material
irregularity and constitutes a reviewable irregularity
in terms of
section 6(2)(c) of PAJA.”
In
that matter the applicants who were already contracted to the
respondent as service providers for two years each submitted a
bid
for the Bloemfontein region in response to an invitation to deliver
emergency door to door domestic refuge collection services.
Their bid
price was R9 per household whilst the price eventually determined and
agreed upon with the successful bidders was R9.28
per household. The
court found that the difference between these prices was “not
unreasonably huge to render the two bids
unreliable” and
mentioned that “sight should not be lost of the fact that the
relevant bids came from service providers
who were, at that stage,
rendering the same services to the respondent and who were, as such,
familiar with the costs attendant
thereon.”
[38]
In
Metro Projects CC v Klerksdorp Local Municipality
2004 (1) SA 16
(SCA) Conradie JA said the following in para [13]:
“
In
the
Logbro
Properties
case
supra
,
paras [8] and [9] at 466H - 467C, Cameron JA referred to the
'ever-flexible duty to act fairly' that rested on a provincial tender
committee. Fairness must be decided on the circumstances of each
case. It
may
in given circumstances be fair to ask a tenderer to explain an
ambiguity in its tender; it
may
be fair to allow a tenderer to correct an obvious mistake; it
may,
particularly in a complex tender, be fair to ask for clarification or
details required for its proper evaluation
.
Whatever is done may not cause the process to lose the attribute of
fairness or, in the local government sphere, the attributes
of
transparency, competitiveness and cost-effectiveness.”
(emphasis added.)
In
Metro Projects
the Supreme Court of Appeal set aside
the award by the municipality to the successful bidder and I quote
from para [14]:
“
A
high-ranking municipal official purported to give the ninth
respondent (the eventual successful tenderer) an opportunity of
augmenting
its tender so that its offer might have a better chance of
acceptance by the decision-making body. The augmented offer was at
first
concealed from and then represented to the mayoral committee as
having been the tender offer. It was accepted on that basis. The
deception stripped the tender process of an essential element of
fairness: the equal evaluation of tenders. Where subterfuge and
deceit subvert the essence of a tender process, participation in it
is prejudicial to every one of the competing tenderers whether
it
stood a chance of winning the tender or not.”
See
also in this regard
Premier, Free State and Others v Firechem
Free State (Pty) Ltd
2000 (4) SA 413
(SCA) at para [30] in
respect of the requirement that competitors should be treated
equally.
[39]
In
Westinghouse Electric Belgium
SA v Eskom Holdings (SOC) Ltd and another
2016 (3) SA 1
(SCA) the court reiterated at para [38] that fairness
in the procurement process is a value in itself and at para [39] that
proper
compliance with the procurement process is necessary for a
lawful process. In that case Eskom’s Board tender
committee
(“BTC”) overrode the recommendations of its
technical and executive teams by awarding the contract for
replacement
of six generators at its Koeberg nuclear power station to
Areva and not to Westinghouse. This was done on the basis of
undisclosed
“strategic considerations.” These factors
were neither mentioned in the invitation to bid, nor otherwise
revealed to
the bidders. The strategic considerations were
inter
alia
that Areva was involved in the
original building of Koeberg and that it had more experience. A firm
of consulting engineers appointed
by Eskom during the procurement
process suggested that these factors be taken into account. The court
stated at para [48] that
the fact that the BTC considered the
strategic considerations without informing the two competing bidders
and without making them
part of the bid evaluation criteria appeared
to be fundamentally unfair and it eventually concluded as follows in
para [65]: “In
my view, when the BTC took into account each of
the strategic considerations, and the considerations of the float,
and thus decided
to award the tender to Areva, it made the decision
unlawfully in terms of s 6(2)(e)(iii) of PAJA. And the failure, if
these reasons
were decisive, to refer them to the bidders and give
them the opportunity to clarify their bids, or to reopen the process
and amend
the tender criteria to include the factors, made the whole
process irrational and unlawful. The award must be set aside.
[40]
Objective criteria with reference to s 2(1)(f) of the PPPFA referred
to
supra
can
be defined as those (a) not listed in paragraphs (d) and (e) of
section 2(1) of the PPPFA, (b) which are objective in the sense
that
these can be ascertained objectively and their existence or worth
does not depend on someone’s opinion and (c) bear
some degree
of rationality and relevance to the tender or project. Refer to
Landman J’s summary quoted in para [22] and approved
by the
full bench at para [33] in
Road
Mac Surfacing
supra,
as well as the following
dictum
by Musi AJ (as he then was) in
Pelatona
Projects (Pty) Ltd v Phokwane Municipality and 14 Others
unreported NCD judgment under case 691/04 at para [31]:
“
This
section has two interlinked requirements. Firstly the criteria
must be objective criteria, other than those mentioned
in subsection
(d) and (e). Secondly the objective criteria should justify the
granting of the tender to another tenderer. There
must therefore be a
causal nexus between the two. The additional objective criteria must,
in my view, be discernable from the information
made available to the
decision maker (first respondent). If this is not the case it would
mean that the decision maker may look
at criteria or information
which was never asked from the tenderers. The decision maker will
therefore look at information other
than that put before it.
Such a decision would detract from the fairness of the process. It
may well lead to subjective factors
being taken into consideration.
It is well known that when subjective factors walk in the door
rationality flies out of the window.The
objective criteria justifying
the awarding of the tender to a tenderer other than the one with the
lowest tender should not cause
the process to lose the attributes of
fairness, transparency, competitiveness and cost effectiveness.”
According
to the full bench in
Road Mac
Surfacing
objective criteria are
“those goals which are not specified and not contained in the
PPPFA and which would usually become
apparent when the tenders are
considered and weighed against each other.” These objective
criteria do not have to be stated
in the tender documentation. See
paras [33.2] and [36] of
Road Mac
Surfacing
.
[41]
In case number 821/2005 adjudicated in
Road
Mac Surfacing
supra
on appeal the Departmental Procurement Committee of the North West
Province established a so called “price envelope”,
being
the reasonable price range, to wit a margin of 15% above and 15%
below the benchmark, being the price recommended to the
committee by
the project engineer. In terms hereof bids more than 15% below the
benchmark would not be regarded as acceptable bids,
the rationale
being that if such a low price is accepted, the successful bidder on
probabilities may run the risk of not making
a profit and therefore
would be a risk for the department and the contract may not be
completed by the bidder. The bidder who submitted
a tender price
above the 15% range was considered too expensive and for that reason
the bid was also not an acceptable bid. In
some instances and
specifically where experienced bidders bid substantially higher than
the benchmark, the committee would take
the average tender price as
the benchmark. Landman J in the court
a
quo
found that Raubex obtained the
highest points and that its price fell within the 15% deviation of
the engineer’s price and
average tender price and that it
complied with all bid conditions. On appeal the full bench found that
the committee was entitled
to consider objective factors such as that
the successful bidder, Roucomm Systems was a Northwest based
enterprise, a new entrant
to the project as well as having a maximum
participation as black economic empowerment entity. Therefore the
appeal in that regard
succeeded and the orders of Landman J were set
aside.
[42]
Wallis JA considered objectivity in tender adjudication processes as
follows in
South African National Roads Agency Ltd v Toll
Collect Consortium
2013 (6) SA 356
(SCA) at paras [20]
– [22] (
“
SANRAL”
):
“
[20]
As to objectivity
, which is an aspect of the constitutional
requirement that the public procurement process be fair,
it
requires that the evaluation of the tender be undertaken by means
that are explicable and clear and by standards that do not
permit
individual bias and preference to intrude.
It does not, and
cannot, mean that in every case the process is purely mechanical.
There will be tenders where the process is relatively
mechanical, for
example, where the price tendered is the only relevant factor and the
competing prices are capable of ready comparison.
The application of
the formula for adjudicating preferences under the PPPFA may provide
another example. However, the evaluation
of many tenders is a complex
process involving the consideration and weighing of a number of
diverse factors. The assessment of
the relative importance of these
requires skill, expertise and the exercise of judgment on the part of
the person or body undertaking
the evaluation. That cannot be a
mechanical process.
The evaluator must decide how to weigh each
factor and determine its significance in arriving at an appropriate
decision. Where
that occurs it does not mean that the evaluation is
not objective. Provided the evaluator can identify the relevant
criteria by
which the evaluation was undertaken and the judgment that
was made on the relative importance and weight attached to each, the
process is objective and the procurement process is fair
.
[21]
Where the evaluation of a tender requires the weighing of disparate
factors it will frequently be convenient for the evaluator
to
allocate scores or points to the different factors in accordance with
the weight that the evaluator attaches to these
factors.
But
the adoption of such a system, without it being disclosed to
tenderers in advance, does not mean that the tender process is
not
objective. If anything, the adoption of the scoring system
enhances the objectivity of the process, because, in the event
of a
challenge to the award of the tender, the basis upon which the
evaluation was undertaken emerges clearly.
[22]
The prior disclosure of any such
points system
…..
is
not ordinarily required
, provided
that the basic criteria upon which tenders will be evaluated are
disclosed………..
Disclosure
of any such refined process of scoring in relation to a tender
evaluation
will only be required if
its non-disclosure would mislead tenderers or leave them in the dark
as to the information they should provide in order to satisfy the
requirements of the tender.” (emphasis added).
[43]
An administrator is bound to the reasons given for his or her
decision. See
Transnet Ltd v Goodman Brothers (Pty) Ltd
[2000] ZASCA 151
;
2001 (1) SA 853
(SCA) at para
[10]
. The unsuccessful bidder has
the right to reasons in order to enable him or her to decide or
determine whether his or her
right to lawful administrative action
has been violated or not.
[44]
Non-responsible bids in terms of the clause 16.2.16.2 of the SCMP are
“tenders with a price (sic) that is very high or
very low and
is (sic) therefore not considered a fair and acceptable market price
or quantified and estimated cost by the individual
professional/body.
A fair and acceptable market price or cost estimates are defined on
the basis of the following factors:
(i)
Is the bid price substantially below or higher than that of other
bidders?
(ii)
In repeat purchases, how does the bid price compare with recent
contracts awarded for similar items or work, taking into account
quantified, conditions, terms and other important specifications?
(iii)
Are there price indices available to determine the changes in labour
and material costs?
(iv)
Market research information to establish fair market price, foods
and
services
procured regularly?
(v)
The above is particularly important for the calculation of preference
point system and the implementation of the price matching
strategy.”
VIII
EVALUATION OF THE FACTS IN LIGHT OF THE PARTIES’
SUBMISSIONS
AND THE AUTHORITIES
[45]
An administrator is bound by the reasons given for his/her decision.
In its first communiqué to Q Civils – the
letter of 16
January 2016 – the reasons for not awarding the bid to Q Civils
are set out. The table relied upon shows that
Q Civils’ bid was
22.66% less than the engineer’s estimate and 17.12% less than
the average bid. The following is then
stipulated after also relying
on the SCMP: “It is against this background that Q Civils (Pty)
Ltd was disqualified as their
price was below 15% deviation from the
engineer’s price and average price submitted.” Clearly
22.66% and 17.12% are
in excess of and/or greater than 15% and not
below and/or smaller than this percentage. This sentence must be read
in proper context,
bearing in mind the inability of the author to
express himself in proper English. The Municipality and its legal
team may be blamed
for the imprecise and even confusing use of the
English language in describing the test suggested by the consulting
engineer to
be adopted in establishing when a tender price is either
“very low” or “very high” or “substantially
below or higher” than that of other bidders and “therefore
not considered a fair and acceptable market price”
in
accordance with clause 16.2.16.2 of the SCMP, which test was accepted
by the BEC and the BAC. In the process the Municipality
and its legal
team in several paragraphs of the papers conflated the terminology of
the SCMP with the deviation principle suggested
by the engineer and
strictly applied by the BEC and the BAC
ex
facie
the ROD. It does not make
sense to speak of “substantially below or above 15% deviation
from the engineer’s or average
price submitted.” At other
places in the papers different versions appear. Substantially below
15% may be 10% and substantially
above 15% may be 20%, but there can
be no doubt that every time the Municipality referred back to the
engineer’s suggestions
as adopted by the committees as is
clearly evident from the tables presented to the court which also
form part of the ROD. The
record speaks for itself: four bids in
excess of the 15% deviation from the engineer’s estimate or the
average bid price
were found to be non-responsible in terms of the
SCMP and the remaining four bids were evaluated further whereupon FMP
was eventually
successful. It is really an issue of substance over
form, but it was not surprising that Q Civils attacked the
Municipality and
the drafters of its documents for the uncertainty
created. Bearing in mind the information before us, I am satisfied
that the engineer,
the BEC, as well as the BAC considered the factors
contained in clause 16.2.16.2 of the SCMP in accepting the 15%
deviation as
a suitable objective factor or criterium.
[46]
Insofar as it is one of the issues raised by Q Civils, I should make
it clear that I could not detect any error of fact as
alleged: Q
Civils’ bid did in fact exceed the 15% deviation threshold and
its counsel did not try to convince us to the contrary.
Contrary to
the allowed deviation of 15%, Q Civils’ bid was 17.12% lower
than the average bid price and 22.66% lower than
the engineer’s
estimate. It passed the test for functionality, but failed the test
relating to risk and the bid was found
to be non-responsible.
The same applied to three other bidders. It was also argued on behalf
of Q Civils that the 15% criterium
was an arbitrary figure and the
rhetoric question was asked as to why was the deviation not fixed at
16% or 14%. Its case is also
that the pre-set 15% deviation was
unlawful, but no authority for this proposition was offered. In my
view the Municipality was
fully entitled to preset the 15% deviation
criterium and I refer to
SANRAL
supra
at
para [22]. At a stage it was even argued that the
Municipality’s committees should have used the norm set out in
the SCMP, i.e. “the bid is substantially below or higher than
that of other bidders.” During argument Q Civils’
counsel conceded the difficulty that may be experienced if a vague
and open-ended factor such as “substantially below or
higher”
was to be applied and also that the bid committees could have
evaluated bids based on a percentage deviation in price,
although
according to him, they should then have explained the percentage
which they failed to do
in casu.
He sought to bolster his argument by
referring to
Medirite
supra
.
In that case Leach JA found that the Minister failed to forward any
reasons whatsoever for the insistence that a permanent wall
from
floor to ceiling be built to identify a pharmacy business conducted
within a mall or similar mixed business complexes. Here,
the engineer
explained the rationale for arriving at the figure of 15% and he
orally presented his written report to the BEC. The
record reflects,
when the tables are scrutinised, that the 15% deviation was accepted
by the BEC and the BAC.
[47]
I cannot find any fault with the rationale for arriving at the
figure of 15%. I find it acceptable that the Municipality’s
risk will increase if a contract is awarded to a contractor who has
put in a bid substantially lower than either the engineer’s
estimate or the average bid price. The reasons advanced, i.e. cash
flow problems, slower work progress, increased safety risks
and
reduction in quality of the works are sound. The rationality test has
been passed. Refer to the
Bel
Porto,
Somali
Association
and
Scalabrini
judgments mentioned in para [35]
supra.
The 15% figure, referred to as a
“price envelope”, is apparently the figure used in the
North West Province. I refer
to the
Road
Mac
judgment
supra
where the court quoted evidence to the effect that a contractor will
on the probabilities not make any profit if its bid is 15%
below the
benchmark and the bid is notwithstanding this awarded to it.
[48]
The Municipality’s deponent stated under oath that the 15%
deviation figure is applied unbiased, objectively and not
arbitrarily. In response Q Civils replied that the rationale for
applying 15% (and not 13% or 16%) was not clear and it continued
as
follows: “I understand that bids that are unrealistically low
cannot be accepted. Notionally, there is nothing wrong with
this
principle. But it must be applied in a lawful manner.” Q Civils
did not state that the 15% deviation principle was applied
in a
different manner as that relied upon by the Municipality. It also
does not state on what basis the principle was not applied
lawfully.
In my view the tables presented, those forming part of the ROD and
those attached to the application papers (many which
have been
duplicated) are there for everybody to inspect. The paper trail of
the tender process is substantive proof of a fair,
equitable,
transparent, competitive and lawful tender process.
[49]
It was also submitted that Q Civils should have been allowed an
opportunity to explain its bid price. The reliance on
Metro
Projects
is misplaced. The court
referred in that matter to the “ever-flexible duty to act
fairly” and continued that fairness
must be decided on the
circumstances of each case, e.g. it may be necessary, particularly in
a complex tender, to ask for clarification
from a bidder or bidders
before a proper evaluation can be undertaken. The court clearly did
not lay down a rule of the Medes and
Persians that has to be followed
in each and every case. It will become a cumbersome and nightmarish
process if every time bidders
need to be disqualified, for whatever
reason, to allow them an opportunity to address the relevant
committee(s). In
Sethakatshipa
Business Enterprise
supra
Lekale J insisted that the municipality should have afforded the
unsuccessful bidders an opportunity of a hearing and the failure
to
do so constituted a material irregularity. In my view the bid price
of the unsuccessful bidders who were engaged in similar
services on
behalf of the municipality at the time, was not even 3% lower than
the contract price eventually agreed upon. It could
not be regarded
as substantially too low. The small difference in price and the fact
that the unsuccessful bidders were executing
similar services at the
time and knew all about costing of the particular services must have
persuaded the court to arrive at the
particular decision and in that
regard it cannot be faulted. However the facts
in
casu
are totally distinguishable and
if the court tried to lay down a general rule, I am of the view that
that would be wrong. Refer
again to
Metro
Projects
and my exposition
supra.
In
any event, in our matter the relevant committees had to do with quite
a simple tender pertaining to the upgrading of a road,
something that
frequently has to be adjudicated, and without meaning to be
derogatory, cannot be described as a complex tender.
The facts
in
casu
differ completely from the
facts in
Westinghouse
supra
and we are not bound by that
judgment which in my respectful opinion is no doubt correct bearing
in mind the particular facts.
[50]
The Municipality’s deponent stated under oath that Q Civils was
fully aware of the application of the 15% deviation principle
and
even benefitted as a result in another recent tender process with
reference to the bid number, notwithstanding the fact that
it did not
submit the lowest bid. The particular contract was in respect of the
upgrading of Kenneth Kaunda Road in Bloemfontein.
I refer to
paragraph [9.5] of the answering affidavit as well as the
Municipality’s letter of 16 January 2016 and annexure
M3.1. Q
Civils” response is a bare denial and I quote: “This is
denied – and it does not even serve to embolden
any defence.”
I am satisfied that, following the principle laid down in
Plascon-Evans
,
the Municipality’s version can safely be accepted, especially
insofar as further evidence has been tendered where the 15%
deviation
principle was applied in several recent bids pertaining to
construction contracts.
[51]
I am satisfied that a 15% deviation from either the engineer’s
estimate, or the average bid price – the benchmark
– is
an objective factor and that it qualifies as an objective criterion
for purposes of s 2(1)(f) of PPPFA. Therefore,
although Q
Civils might have scored the highest points, the Municipality’s
BAC was not bound to award the bid to it and was
fully justified to
award the bid to FMP which it did. This cannot be faulted.
[52]
The bid invitation stipulated
inter
alia
that the lowest bid would not
necessarily be accepted, that the SCMP and PPPFA would be applied and
that invalid and non-responsible
bids in terms of clause 16.2.16 of
the SCMP would be disqualified at the opening of bids. Q Civils’
bid was not disqualified
from the outset, but nothing turns on this.
In
Road Mac
supra
the
full bench found that it was unnecessary to disclose certain
objective criteria relied upon by the Province’s tender
committee in the bid invitation. Refer also to
SANRAL
supra
at
para [22]
.
In
Westinghouse
supra
the
Supreme Court of Appeal severely criticised Eskom for the manner in
which so-called “strategic considerations” were
figuratively speaking brought in through the back door whilst these
considerations were never part of the particular bid and falling
outside the parameters of the bid criteria. I considered this
judgment, but it is distinguishable from the facts
in
casu.
Here, all bidders knew from
the outset that a too low or too high bid, or put otherwise, a bid
substantially below or higher than
that of other bidders, will be
disqualified. In order to set an objective yardstick or criterion, a
deviation figure of 15% was
accepted. This figure has been used by
the Municipality in several other similar tender processes, in one
case even to the advantage
of Q Civils.
[53]
In summary, I am satisfied that the process followed
in
casu
was in line with the
Constitution, the PPPFA and the SCMP. Also, that the evaluation of
the bids was “undertaken by means
that are explicable and clear
and by standards that do not permit individual bias and preference to
intrude.” See:
SANRAL
supra
at para [20]
.
I also find, in line with para [22]
of that judgment it was not required to disclose the 15% deviation in
the invitation to bid,
even on the basis that Q Civils or any of the
other bidders were unaware of this criterium. Unlike as submitted by
Q Civils, there
was no unfairness in the process and the decision
reached was not arbitrary, irrational or unlawful.
[54]
In conclusion I find that no irregularity has been committed and
consequently the other questions referred to in
Allpay
supra
do not need any consideration.
IXORDER
[55]
Consequently the following order is issued:
The
application is dismissed with costs.
____________
JP
DAFFUE, J
I
concur
______________
AF
JORDAAN, J
On
behalf of applicant:
Adv. S Grobler
Instructed
by:
Peyper Attorneys
Bloemfontein
On
behalf of respondent: Adv. AH Burger
SC
Instructed
by: Moroka
Attorneys
Bloemfontein