Brief Summary

Tender Law — Review of tender award — Applicants, Quality Plant Hire CC and Expectra 388 CC, challenged the Greater Tzaneen Municipality's decision to award tenders for road upgrades to other bidders, alleging non-compliance with procurement regulations — The Municipality contended that the Applicants' bids did not meet the functionality criteria — Court held that the Municipality's decision to award the tenders was lawful and justified, as the Applicants failed to demonstrate that their bids passed the required functionality test, thus dismissing the review applications.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings consisted of two closely related applications for judicial review of municipal tender awards, heard together and determined in a single judgment. The applicants in both matters were Quality Plant Hire CC and Expectra 388 CC, acting as a joint venture. The first respondent in both matters was The Greater Tzaneen Municipality. In case number 99728/15 the successful tenderer was Selby Construction CC (second respondent). In case number 99729/15 the successful tenderers were Matlala Nyapele Investment & Properties CC and Readira Refuse Services CC (second and third respondents), referred to collectively in the judgment as “Readira”.

The dispute arose from the Municipality’s decisions to award two road-upgrading tenders to other bidders and to treat the applicants’ bids as having failed the functionality threshold. The applicants initially sought reasons and procurement documentation from the Municipality, as well as an undertaking that implementation would be suspended pending a possible review. When those efforts did not yield results, the applicants launched an application for interim relief restraining implementation pending review, and obtained an interim interdict on 1 December 2015. The successful tenderers sought leave to appeal and continued implementing the tenders, after which the applicants pursued further interlocutory steps (including a Rule 30 notice and a contemplated contempt application).

By order of Fabricius J dated 26 January 2016, the review applications were enrolled by special motion for expedited determination. At the hearing before Crouse AJ, an additional interlocutory dispute arose concerning an application (formally by Readira) to strike out material introduced in reply rather than by supplementary affidavit.

The general subject-matter concerned public procurement in local government, specifically the lawfulness and procedural fairness of a two-stage tender evaluation process involving a functionality assessment, the adequacy of the review record, and the propriety of remedies where implementation had proceeded despite interim relief.

2. Material Facts

The Municipality invited tenders for two projects. Project 06/2015 concerned upgrading the gravel road between Mafarana and Burgersfort to a tar road (“Project 1”). Project 02/2015 concerned upgrading the gravel road from Moruji to Matshwi/Kheshokolwe to a tar road (“Project 2”). The applicants tendered for both projects as a joint venture. On 28 August 2015, the Municipality awarded Project 1 to Selby and Project 2 to Readira.

It was common cause that the tender system applied a functionality stage with a minimum threshold (70%), after which qualifying tenders would proceed to a further evaluation stage in terms of the preferential procurement framework. The Municipality’s case in both reviews was that the applicants did not meet the required functionality score and were therefore excluded from further consideration.

The functionality criteria included four components. It was accepted that the applicants scored full points for reputation and references (40 points) and financial references (10 points). It was also accepted that the applicants scored zero for experience of staff and personnel (20 points) because the site agent lacked the specified academic qualification, despite extensive experience. The critical disputed component was plant and equipment (30 points), which the Municipality evaluated on an “all-or-nothing” basis: absence of any item meant a zero score.

A document generated in the tender process was a spreadsheet dated 28 July 2015 listing bidders’ plant and equipment. On that spreadsheet the applicants were marked as lacking an excavator, water tanker, and grader. However, the applicants’ bid documentation stated that the joint venture had available the required plant and equipment and attached registration papers. The judgment accepted the applicants’ explanation that the supposed omissions on the spreadsheet resulted from descriptive mismatches in the registration certificates, such as excavators being described as “long crawlers” and other equipment not being described in the form expected by the evaluation committee.

The Bid Evaluation Committee (BEC) report indicated that, after observing that licensing certificates did not contain certain descriptions, the BEC sought clarification from an unnamed municipal licensing official and then proceeded to disqualify tenderers without inviting them to clarify or respond. The Municipality later stated that the applicants had failed to prove ownership and/or lease contracts for the required equipment. The court found that the contemporaneous documentation did not support the proposition that ownership by the joint venture (as opposed to access to equipment) was the operative disqualification rationale, and drew the inference that this ownership-based rationale was advanced ex post facto.

In relation to the review record, the court found that what was filed was severely deficient. For both projects, the record essentially contained the applicants’ tender documents (without markings) and a blank tender document, without adequate documentation demonstrating decision-making, scoring, reasons, or how the process reached the awards made.

Additional documents introduced by the applicants in reply were treated as relevant to the review. In particular, in the Project 2 matter, a BAC report dated 6 August 2015 recommended that Project 2 be awarded to Selby for an amount just under R90 million, whereas the award ultimately went to Readira for approximately R99 million. The applicants’ tender for Project 2 was about R15 million lower than Readira’s. On the papers before the court, there was no adequate explanation in the record as to how the recommendation (and/or apparent award) shifted from Selby to Readira, nor proof of compliance with the statutory deviation notification mechanism in section 114(1) of the Municipal Finance Management Act.

Regarding implementation of the projects, it was undisputed that at the time the interim interdict was sought the applicants had shown that work had not commenced. Despite the interim order, work continued, and at the review hearing the respondents raised prejudice based on money already spent and service-delivery needs. The court treated any prejudice arising from continuing implementation after the interim interdict as self-created risk, and criticised the Municipality’s approach to risk management.

3. Legal Issues

The central questions the court was required to determine were whether the Municipality’s procurement decisions and the applicants’ disqualification on functionality were lawful, reasonable, and procedurally fair in terms of the constitutional and statutory framework governing public procurement and administrative action. The dispute predominantly concerned the application of legal standards to the established and inferable facts, including questions of procedural fairness, relevance of considerations, adequacy of reasons and record-keeping, and the legal consequences of non-compliance with procurement prescripts.

A further issue concerned motion procedure, namely whether “new matter” introduced in reply should be struck out under Rule 6(15) as irrelevant or prejudicial, or whether it should be permitted given the nature of review proceedings and the alleged incompleteness of the Rule 53-type record.

The court also had to consider whether the tender invitation complied with Regulation 4 of the Preferential Procurement Regulations, 2011, and if not, whether that non-compliance should lead to the relief sought. This issue involved a legal question (interpretation and mandatory compliance), coupled with a remedial/value judgment in crafting a just and equitable response.

Finally, the court had to determine the appropriate remedy after setting aside administrative action, including whether to order re-running the tender process and how to treat arguments based on implementation already undertaken and public service-delivery considerations.

4. Court’s Reasoning

The court commenced from the constitutional procurement standard in section 217(1) of the Constitution, requiring procurement systems to be fair, equitable, transparent, competitive and cost-effective, and situated municipal procurement within the framework of the Local Government: Municipal Finance Management Act 56 of 2003 and the Municipal Supply Chain Management Regulations. It emphasised that transparency in procurement is directed at preventing abuse, undue influence, and corruption, drawing on authority highlighting the constitutional purpose behind public tender openness.

Striking-out and admission of new matter in reply

On the striking-out application, the court applied Rule 6(15), under which matter may be struck if it is scandalous, vexatious, or irrelevant, and only if the applicant for striking-out demonstrates prejudice. It accepted the established principle that an applicant generally must make out its case in the founding affidavit, but relied on authority recognising a discretion to admit new matter in reply in appropriate or exceptional circumstances, particularly where the material arose later or fairness requires it.

The court exercised its discretion against striking out, reasoning that the additional documents and allegations were largely within the Municipality’s knowledge and should, in fairness, have formed part of a proper review record. It placed weight on the nature of review proceedings, where supplementary affidavits commonly follow the production of a complete record, and on the public-law character of procurement review, which serves constitutional accountability and the rule of law. It also noted that respondents had been invited to seek leave to answer or to supplement but chose not to, which diminished claims of prejudice.

Adequacy of the record, reasons, and broader procurement irregularities

The court considered that a review record is necessary to enable judicial scrutiny of public power and to vindicate the section 34 constitutional entitlement to a fair hearing in justiciable disputes. It found the record filed in both matters severely deficient, consisting largely of the applicants’ tender submission and unrelated or blank tender documentation, without documentation showing the evaluation and award decisions or reasons.

The court linked the absence of adequate reasons to section 5(3) of PAJA, which provides for a presumption that administrative action was taken without good reason if adequate reasons are not furnished. In the Project 2 matter, the court treated the shift from Selby (recommended/appearing to be awarded) to Readira as raising serious transparency concerns, and it analysed the statutory mechanism for deviations from the normal recommendation process in section 114(1) of the Municipal Finance Management Act. It held that the Municipality was obliged to comply with section 114(1) and that proof of such compliance should have appeared in the record. The absence of such proof, in circumstances where it could readily have been produced, led the court to accept that section 114(1) had not been complied with, undermining transparency and fairness.

The court also reasoned that, where a bid is successful and the procurement process reaches a “final award” in terms of the Municipality’s own policy definition, substitution of the successful bidder without the prescribed deviation procedure conflicts with constitutional procurement principles. It further considered the cost-effectiveness dimension, noting that awarding at a higher price (after an apparent lower successful bid) without pursuing appropriate remedies or explaining the substitution undermined cost-effective procurement.

Regulation 4 of the Preferential Procurement Regulations

The applicants argued that the tender invitation did not comply with Regulation 4(3) because the initial advertisement did not specify the functionality criteria, weights, or applicable values. The respondents disputed the applicants’ narrow understanding of “invitation to tender.” The court did not decide the interpretive dispute, but accepted, without deciding, that the applicants’ contention could establish a ground of review under section 6(2)(b) of PAJA (non-compliance with a mandatory and material procedure).

However, the court held that even if unlawfulness were established on this basis, it would not have granted the substantive relief sought on this ground alone. Drawing on remedial principles discussed in the AllPay decision, it considered that in crafting a just and equitable order it could take into account the absence of demonstrated prejudice and the likelihood that the same outcome would have resulted even with strict compliance. Because no prejudice was shown and there was no indication the outcome would have differed, the court concluded that the applicants were non-suited on this ground as a basis for the relief sought.

Disqualification on plant and equipment and procedural fairness

The decisive reasoning concerned the functionality assessment for plant and equipment. The court accepted that the Municipality adopted an “all-or-nothing” scoring approach and stated it was not called upon to second-guess the Municipality’s criteria due to deference. The question instead was whether the criteria were applied fairly and lawfully.

On the evidence, the BEC recognised that registration certificates did not contain expected descriptions and sought internal guidance, but then treated that guidance as decisive against bidders without providing them an opportunity to clarify. The court held that the BEC’s focus shifted improperly to who was to blame for incomplete descriptions rather than whether bidders in fact had the required equipment. It found that the applicants’ bid materials indicated access to the equipment and that the spreadsheet’s negative conclusion arose from misreading or misunderstanding descriptors.

The court held that the BEC’s internal “consultation” and subsequent disqualification without inviting clarification offended the rules of natural justice and amounted to a lack of procedural fairness under PAJA. It relied on authority recognising an “ever-flexible” duty of fairness in tender adjudication, including that in complex tenders it may be fair to seek clarification of ambiguities or allow correction of obvious mistakes, provided the process remains fair, transparent, competitive and cost-effective. Given the complexity of the tender documentation and the large values involved, the court considered that the Municipality ought to have called for clarification once it appreciated the registration descriptions did not align with its assumptions.

The court also treated the Municipality’s later reliance on “ownership by the joint venture” as unsupported by the contemporaneous record and inconsistent with the reality that a joint venture is not a separate legal persona. It inferred that this ownership rationale was an afterthought, reinforcing concerns about lack of transparency and rational connection between reasons and decision.

On this basis, the court concluded that the Municipality had disqualified the applicants’ bids on functionality unfairly and unreasonably, and that the applicants should have progressed to the second stage of evaluation. It held that the review must succeed because the Municipality failed to act procedurally fairly, took irrelevant considerations into account and failed to consider relevant considerations, and the decision was not rationally connected to the stated reasons.

Remedy and public interest considerations

Having found reviewable irregularity, the court addressed remedy as a matter of what is fair and equitable. The respondents argued that setting aside the awards would cause prejudice because of work already done and funds already spent, and raised service-delivery considerations. The court held that continuing work after the interim interdict, in circumstances where risk of invalidity was known, was conduct undertaken at the respondents’ own risk, rendering resulting prejudice self-created.

The court criticised the Municipality’s failure to employ the risk management measures required by the supply chain framework and treated its stance—continuing despite objections and a court order—as inconsistent with natural justice and, in the face of an order, contemptuous. It then weighed service delivery against the rule of law, holding that the rule of law must carry decisive weight where procurement unlawfulness undermines constitutional values. The court declined to order that the Municipality compensate the successful tenderers for work done, preferring not to limit any potential private-law remedies between the relevant parties.

5. Outcome and Relief

The court dismissed the striking-out application and granted the reviews in both matters. In case number 99728/15 (Project 1), it reviewed and set aside the Municipality’s decision to disqualify the applicants’ bid, reviewed and set aside the decision awarding the tender to Selby and the associated service level agreement, and ordered the Municipality to commence the tender process afresh within 21 days.

In case number 99729/15 (Project 2), it reviewed and set aside the Municipality’s decision to disqualify the applicants’ bid, reviewed and set aside the decision awarding the tender to Readira and the associated service level agreements, and ordered the Municipality to commence the tender process afresh within 21 days.

In both matters, the respondents were ordered to pay the applicants’ costs jointly and severally, including the costs of two counsel.

Cases Cited

South African National Roads Agency Ltd v Toll Collect Consortium 2013 (6) SA 356 (SCA)

Van Zyl and others v Government of RSA and others [2005] 4 All SA 96 (T)

Swissborough Diamond Mines (Pty) Ltd v Government of the RSA 1999 (2) SA 279 (T)

Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd and Others 2013 (2) SA 204 (SCA)

Shepard v Tuckers Land Development Corporation (Pty) Ltd (1) 1978 (1) SA 173 (W)

Steenkamp NO v Provincial Tender Board of the Eastern Cape 2007 (3) SA 121 (CC)

Democratic Alliance and Others v Acting National Director of Public Prosecutions and Others 2012 (3) SA 486 (SCA)

Giant Concerts CC v Rinaldo Investments (Pty) Ltd and Others 2013 (3) BCLR 251 (CC)

AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency, and Others 2014 (1) SA 604 (CC)

National Treasury and Others v Opposition To Urban Tolling Alliance and Others 2012 (6) SA 223 (CC)

Metro Projects CC and Another v Klerksdorp Local Municipality and Others [2004] 1 All SA 504 (SCA)

Legislation Cited

Constitution of the Republic of South Africa, 1996 (sections 34, 195, 217)

Promotion of Administrative Justice Act 3 of 2000 (sections 5(3), 6(2)(b))

Local Government: Municipal Finance Management Act 56 of 2003 (sections 2, 105, 111, 114)

Preferential Procurement Policy Framework Act 5 of 2000 (section 2(1))

Broad-Based Black Economic Empowerment Act 53 of 2003 (definition referenced via the Preferential Procurement Regulations)

Rules of Court Cited

Uniform Rules of Court, Rule 6(15)

Uniform Rules of Court, Rule 30

Uniform Rules of Court, Rule 53

Held

The court held that the applicants were procedurally unfairly disqualified at the functionality stage, particularly on the plant and equipment criterion, because the evaluation committees relied on incomplete or mismatched licensing descriptions, sought internal clarification, and then disqualified bidders without affording them an opportunity to clarify ambiguities. This offended the requirements of procedural fairness and constituted reviewable administrative action, including reliance on irrelevant considerations and a lack of rational connection between reasons and outcome.

The court further held that the review records filed were materially deficient and failed to demonstrate a transparent and fair decision-making process, and that in the Project 2 matter the unexplained shift from Selby to Readira, without proven compliance with section 114(1) of the Municipal Finance Management Act, undermined transparency. Although the court accepted that there may have been non-compliance with Regulation 4 of the Preferential Procurement Regulations, it held that this ground, considered alone, would not justify granting the substantive relief sought given the absence of demonstrated prejudice and remedial considerations.

The awards to Selby (Project 1) and to Readira (Project 2), together with the related service level agreements, were reviewed and set aside, and the Municipality was directed to restart both tender processes within 21 days. Costs were awarded against the respondents jointly and severally, including costs of two counsel.

LEGAL PRINCIPLES

Public procurement by an organ of state must comply with section 217(1) of the Constitution, requiring a system that is fair, equitable, transparent, competitive, and cost-effective, and courts may scrutinise procurement as an exercise of public power implicating constitutional accountability and the rule of law.

In review proceedings, the availability of an adequate record of decision is central to the court’s ability to perform its review function, and an inadequate record may materially impair transparency and justifiability, with PAJA providing that the failure to furnish adequate reasons can trigger a presumption that the decision was taken without good reason.

Under Rule 6(15), striking-out of affidavit material requires that the material be scandalous, vexatious, or irrelevant and that the applicant demonstrate prejudice. In review contexts, where relevant information lies within the decision-maker’s knowledge and should have formed part of the record, a court may exercise a discretion to permit additional matter introduced in reply, especially where fairness and the public-law character of the remedy justify doing so.

Tender adjudication is governed by an “ever-flexible” duty of procedural fairness, and depending on context it may be fair for an evaluation body to seek clarification of ambiguities or allow correction of obvious mistakes in order to ensure a fair, transparent, competitive, and cost-effective process, particularly in complex tenders.

Even where a mandatory procurement requirement may have been breached, remedial relief must be determined through what is just and equitable, taking account of factors such as prejudice, public interest, and whether the outcome would likely have differed, while maintaining the constitutional commitment to legality and the rule of law.

Quality Plant Hire CC and Another v Greater Tzaneen Minicipality and Others (99728/15, 99729/15) [2016] ZAGPPHC 619 (26 April 2016)