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[2015] ZAFSHC 205
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Icon Construction (Pty) Ltd v Dihlabeng Local Municipality and Others (A90/2015) [2015] ZAFSHC 205 (10 September 2015)
IN THE
HIGH COURT
OF SOUTH AFRICA
FREE
STATE
DIVISION,
BLOEMFONTEIN
Case No:
A90/2015
In the matter
between
ICON
CONSTRUCTION
(PTY)
LTD
Applicant
and
The
DIHLABENG
LOCAL
MUNICIPALITY
1st Respondent
GRIDON
TRADING CC t/a SINETHEMBA
CONSTRUCTION
2nd Respondent
UDUMO
26 (PTY) LTD t/a ULTIMATE DYNAMIC
3rd
Respondent
ESOR
CONSTRUCTION (PTY) LTD
4th
Respondent
CORAM:
NAIDOO, J et C REINDERS AJ
JUDGMENT:
NAIDOO, J
HEARD
ON:
22 JUNE 2015
DELIVERED
O
N:
10 SEPTEMBER 2015
[1]
This matter was brought before us as a review in terms of Section 6
of the Promotion of Administrative Justice Act 3 of 2000
(PAJA), read
with Rule 53(4) of the Uniform Rules of Court. The 4th respondent
(Esor) was initially not a party to these proceedings
and brought an
application to intervene, which was not opposed by the applicant
(Icon) and the 2nd and 3rd respondents (Sinethemba
and Ultimate
Dynamic respectively). Leave was granted for it to intervene and it
was consequently joined as 4th respondent. I should
mention that the
first respondent (the Municipality) initially opposed the application
by the applicant, but prior to the hearing
of this matter on 22 June
2015, it withdrew its opposition, following an agreement between it
and Icon that the latter would not
pursue a costs order against the
Municipality. Ultimate Dynamic brought a counter-application in which
it claimed, in essence,
that the decision of the Municipality to
award the tender for Contract PW47/2014 to Sinethemba be reviewed and
set aside, and that
the tender should be awarded to Ultimate Dynamic.
At the hearing of this matter, Ultimate Dynamic indicated that it
would not proceed
with the counter-application. We ultimately granted
an order on 22 June 2015 in the following terms:
1.1
The application succeeds to the extent that an order in terms
of
prayer 1 of the Notice of Motion is granted;
1.2
The decision is referred back to the first respondent
to
re-advertise, within 30 days, the invitation to bid for the works,
should it decide to proceed with the works forming the subject
matter
of this application;
1.3
The second respondent is directed to pay the applicant's costs
1.4
The reasons for this order are to follow.
The following are
the reasons mentioned in the order.
[2] The Municipality
called for tenders on 12 November 2014 for certain works which it
described as "Contract No. PW47/2014,
Dihlabeng Bulk Water
Supply Scheme, Construction of Bulk Water Pipeline and Appurtenant
Works between Paul Roux and Rosendal"
(the works). Icon and
others submitted tenders for the works to be undertaken for and on
behalf of the Municipality. The Municipality
in its advertisement
initially called for tenders from contractors with a 6 CEPE grading
as determined by the Construction Industry
Development Board (CIDB)
but at a compulsory pre-bid briefing meeting, it advised bidders that
this was an error and that only
contractors with a CIDB ?CE grading
will qualify. Icon's tender was rejected and the Municipality awarded
the tender to Sinethemba.
Icon then approached this court for an
urgent interim order in which it sought immediate cessation of the
implementation of the
contract that would follow the granting of the
tender. An order was ultimately granted by agreement between the
parties, on 14
May 2015, in terms whereof dates were agreed for the
filing of process and documents in furtherance of this review
application.
[3]
In assailing the Municipality's decision to award the contract to
Sinethemba, Icon set out in detail the process involved in
the
evaluation, adjudication and award of bids/tenders, as well as the
outcomes at the various stages of the process in respect
of its bid
and those of Sinethemba and Ultimate Dynamic. It is not necessary to
repeat all the details in this judgment. I will,
however, refer to
those aspects which bear on the validity/regularity of the process
involved in the tender which is the subject
matter of this
application. Icon starts by asserting that it has a CIDB grading of
9CE, which entitles it to perform contracts
of any monetary value. It
also has a Broad Based Black Economic Empowerment (BBBEE) rating of
Level 3. The Municipality, through
its engineer, Rudnat Projects CC
(Rudnat), conducted a pre-bid estimation of the value of the works
and determined it to be Sixty
Two Million Eight Hundred and Eighty
Thousand Nine Hundred and Ten Rand and Sixteen Cents (R62 880
910.16). As I indicated in paragraph
[2] of this judgment, the
Municipality called for bids from contractors with a CIDB
?CE grading. The parties in this matter
are in agreement that the ceiling limit for a contractor with a ?CE
grading is a contract
not exceeding R40 million in value. Ultimate
Dynamic and Esor support Icon's application for review and request a
referral back
to the first respondent for re evaluation and
reconsideration of all bids. Icon also sought, in its Notice of
Motion, a referral
back to the first respondent of all bids for re
evaluation and reconsideration. It sought, in the alternative, an
order that
the first respondent be directed to re-advertise the
contract and call for new tenders in respect of the works. I will
return to
this aspect later.
[4]
There are four main grounds on which Icon attacks the validity of the
Municipality's decision to award the tender to Sinethemba,
which Esor
and Ultimate Dynamic agree with:
4.1 Sinethemba did not have
the required CIDB grading at the time of submission of its
bid, the
closing date for which was 15 December 2014;
4.2 The Municipality allowed
Sinethemba to submit further documentation after the closing date
for
submission of bids in order to prove its CIDB status. This was
allowed by the Tender Appeal Committee, in spite of the
recommendations,
to the contrary, by the Bid Evaluation and Bid
Adjudication Committees;
4.3 Sinethemba submitted an
incorrect BBBEE certificate, upon which it was awarded points.
This
was not detected by either the consulting engineer or the
Municipality; and
4.4 The Tender Appeal
Committee did not conduct a risk analysis in respect of Sinethemba,
in spite of this being a requirement to qualify for the award of the
tender
[5]
It is common cause that Sinethemba, at the closing date for
submission of bids, being 15 December 2014 held a CIDB grading of
6
CEPE. After the pre-bid briefing meeting in November 2014, it appears
that Sinethemba applied to the CIDB for an upgrading of
its grading
to ?CE. It merely submitted, with its bid, a confirmation of the
receipt of such application. Nothing else was mentioned
in regard to
its grading, for example that it was capable of being registered in a
?CE or higher class, prior to the evaluation
of submissions, as was
required by the tender document (see F.2.1). Icon, Ultimate Dynamic
and Esor all hold the view that as Sinethemba
did not hold a ?CE
grading at the time it submitted its bid, its bid was non-compliant,
did not qualify as an acceptable tender
and should not have been
considered any further. The upgrading applied for was granted
subsequent to the closing date for bids
and Sinethemba was allowed to
file such confirmation in February 2015, on the basis that this was
before the bid was evaluated
on 11 March 2014. The Bid Evaluation and
Bid Adjudication Committees rejected Sinethemba's bid. Sinethemba
lodged an internal appeal
and the Tender Appeal Committee upheld the
appeal and subsequently, after considering the bids of Icon, Ultimate
Dynamic and Esor
as well, awarded the contract to Sinethemba.
[6]
Sinethemba submitted a BBBEE certificate dated 2 December 2014, which
reflected that it had 55% Black ownership and a BBBEE
score of 78. A
score of 0 (zero) was allocated on this certificate for socio
economic development. It appears that this is
an "incorrect"
certificate , as Sinethemba does not have any Black ownership. It
attached to its opposing affidavit another
certificate, which bears
the same date as the incorrect certificate, but which reflects that
it in fact has no Black ownership.
This certificate now reflects an
allocation of 19 points for socio-economic development. Sinethemba's
explanation is that the incorrect
certificate was erroneously
attached to its tender documents by one of its assistants. The
evaluation of its bid and award of points
was clearly based on the
"incorrect" certificate. There is no explanation for the
allocation of 19 points for socio-economic
development in the second
certificate
[7]
It is common cause that an essential stage in the process of
evaluating, considering and ultimately awarding a contract is a
risk
analysis of the various bidders. There is no indication in the
minutes of the Tender Appeal Committee that a risk analysis
was
specifically conducted in respect of Sinthemba. One of the more
important purposes of a risk analysis is to determine whether
the
rates quoted by a bidder are market related and whether the bidder
has the capability of undertaking and completing the works
satisfactorily at those rates. This analysis also assists in
assessing the cost-effectiveness of the bid. Skewed figures would
logically yield an incorrect assessment. It is not in dispute that
Sinethemba's bid was approximately 27% - 28% below the Municipality's
pre-bid estimate. Icon alleges that a 10% variance with the estimate
is allowable whereas Sinethemba indicates that a 20% variance
is in
fact permissible. Either way, Sinethemba's bid exceeded the
permissible/acceptable variance rate. In the opposing affidavits
put
up by the Municipality, the acting Municipal Manager, Mr Molatseli,
as well as Mr Khiba, the Municipality's Budget and Expenditure
Manager who was also the Chairperson of the Appeal Committee, both of
whom were the deponents to those affidavits, indicated that
Sinethemba previously successfully completed construction contracts
in excess of Nine Million Rand (R9 000 000.00). On this basis,
and in
spite of Sinethemba's tender price being substantially lower than the
pre-bid estimate as well as the tender prices of the
other bidders,
the Tender Appeal Committee was of the view that Sinethemba could
successfully undertake and complete the works
in the present matter.
No other substantiation is provided for this view.
[8]
Section 33 of the Constitution provides as follows :
"(1) Everyone has the
right to administrative action that
is lawful, reasonable and
procedurally fair.
(2)
Everyone whose rights have
been adversely affected by administrative action has the
right
to be given written reasons."
(3)
National
legislation
must
be
enacted
to
give
effect
to
these
rights,
and
must
-
(a)
provide
for
the review of administrative action by a court or, where appropriate,
an
independent and
impartial tribunal;
(b)
impose a duty on the state
to give effect to the rights in subsections
(1) and (2); and
(c)
promote an efficient
administration"
The
Promotion of Administrative Justice Act 3 of 2000 (PAJA) is the
national legislation envisaged in section 33 of the Constitution.
Section 6(1) of PAJA empowers a person to institute action in a court
for the judicial review of an administrative action. The
relevant
provisions of Section 6 (2) of PAJA provide that
"A
court
or tribunal has
the power
to
judicially review an
administrative action if
-
(a)....
(b)
a mandatory and material
procedure or condition prescribed by an empowering
provision was
not complied with;
(c)
the action was
procedurally
unfair;
(d)
the action was materially
influenced by an error of law;
(e)
the
action
was
taken
-
(i)
... .
(ii) ....
(iii) because irrelevant
considerations were taken into account or relevant considerations
were not considered;
(iv)....
(v)
....
(vi)...."
[9]
The parties in this matter are in agreement that the decision taken
in this matter is an administrative action as defined in
PAJA. When
the process involved in the awarding of the contract to Sinethemba is
viewed in the light of the relevant provisions
of PAJA, it becomes
evident that the Municipality, in taking such administrative action,
did not comply with the peremptory provisions
of the Bid Document,
which usually takes account of the provisions and requirements of the
various policies and legislation relevant
to the Municipality, for
example, the Municipality's Supply Chain Management Policy, with
reference to the
Local Government: Municipal Systems Act 32 of 2000
and the Preferential Procurement Policy Framework Act 5 of 2000.
Sinethemba clearly did not hold a CIDB ?CE rating, as required
by the
Bid Document, at the closing date for submission of bids and did not
meet the requirement that it should have done more
than simply file
an acknowledgement of receipt of its application for an upgrading of
its status. The onus was on Sinethemba to
indicate, and submit
documentation to substantiate, that it was capable of being
registered in the class grading 7CE. In allowing
it to file these
documents almost two months later, the Municipality rendered the
process unfair to all other bidders. I agree
with tile submissions of
Icon and Esor that the interpretation of and reliance placed by the
Municipality on Regulation 25(1A)
of the Regulations to the
Construction Industry Development Board Act 38 of 2000
, is incorrect.
If the words in
Regulation 25(1A)
"...
but
who
is
capable
of
being
so
registered
prior
to
the
evaluation
of those
submissions
may
be evaluated
..."
were intended to mean that documentation to supplement a
bid can be filed at any time up to the date that the bids are
physically
assessed, it would not only make a mockery of the closing
date for submissions, but would lead to an untenable situation that
those
who did not qualify at the closing date, and only later did so,
would be unduly preferred, to the prejudice and detriment of other
bidders who met all requirements at the closing date. It can probably
be argued that such "late filing" of Sinethemba's
grading
certificate may have been accepted had Sinethemba filed, together
with its bid documents, proof of its application for
such
registration, from which it was apparent that it had satisfied the
requirements for such registration. Similarly, the Tender
Appeal
Committee indicates that it invoked
Regulation 25(9)
to accept the
CIDB 7CE certificate after the closing date for submission of bids as
that Regulation empowered it to do so in order
to ensure that
Sinethemba was registered as a 7CE contractor. Esor correctly points
out that
Regulation 25(9)
does not come into play when assessing the
bid at the initial stages, but is a verification process at the end.
The Municipality
appears to concede this in its opposing affidavits
and refers to it as an "error in judgment" In my view, this
is an
error in the interpretation of the law rather than an error in
judgment. I agree, therefore, that the Tender Appeal Committee erred
in allowing the evaluation of Sinethemba's non-qualifying bid and
thereafter awarding the contract to Sinethemba , rendering the
process irregular and unfair.
[10]
The facts surrounding Sinethemba's BBBEE certificate create a sense
of disquiet, as one would have expected that, in view of
the error in
the document being pertinently within the contemplation and knowledge
of Sinethemba's Mr Schonken, greater care would
be taken to ensure
that the correct document was submitted. The disturbing aspect is
that Sinethemba was aware that it received
points on an incorrect
certificate but tries to gloss over it by alleging that even if those
points were deducted, it would still
have scored higher than the
other bidders, completely ignoring the irregularity of such a
situation. Even more worrying is that
this was not detected by the
Engineer or theTender Appeal Committee. The attempt in the
Municipality's opposing affidavit to brush
this aside by saying that
it took the decision to award the tender on the basis of
documentation provided, without acknowledging
the irregularity of the
situation, is equally unsettling. The failure to undertake a risk
assessment with regard to Sinethemba
is, in my view, a serious
irregularity as this could have a large cost implication for the
Municipality, and is certainly not in
the interests of the community
for whose benefit the works are intended.
The pre-bid estimate is substantially
more that Sinethemba's tender. This coupled with the fact that there
is no evidence of Sinethemba
successfully completing a contract in
such an amount, or even Forty Million Rand (R40 000 000.00) which is
the ceiling limit for
a contractor with a CIDB ?CE grading, should
have set the red lights flashing. Instead the Tender Appeal Committee
justifies this
by alleging that Sinethemba has successfully completed
contracts in excess of R9 000 000.00 and that it was satisfied that
Sinethemba
could successfully undertake the works in this matter. I
am constrained to accept the logic or validity of such a submission.
In
my view, these were very relevant considerations which went to the
heart of the fairness and regularity of the process, which the
Municipality failed to appreciate and take into account.
[11] For the reasons
set out above, I am of the view that the decision of the Municipality
falls to be set aside. While Icon, Sinethemba,
Ultimate Dynamic and
Esor have asked that the matter be referred back to the Municipality
for reconsideration and re-evaluation,
I am of the view that the
fairest outcome is to direct the Municipality to re-advertise its
invitation for tenders for the works,
as prayed for, in the
alternative, by Icon. I say this for the following reasons:
11.1
There is consensus between the parties that a contractor with a
CIDB7CE grading may undertake work up to
R40 000 000.00. The pre-bid
estimate was pegged at R62 880 910.16. There is nothing on record to
indicate that the call for tenders
from contractors with a CIDB ?CE
grading is correct or appropriate. The Municipality is silent on
this. If this in fact is an incorrect
requirement and the call should
have been made for contractors with a higher CIDB grading, then many
of the bidders who already
submitted bids would be disqualified, for
example Sinethemba. The other possibility is that a number of
appropriately qualified
contractors would now be able to bid if the
correct grading is called for, which would clearly be in the public
interest and in
keeping with principles of good governance.
11.2
If the matter were referred back for re-evaluation, the current
disputes amongst Icon, Ultimate Dynamic and
Esor may not be resolved,
resulting in further delays and possibly even further litigation. The
works in this matter relates to
the provision of water, which is a
basic right, to residents in the Municipality's area of jurisdiction.
Further delays can only
cause serious prejudice to these residents.
11.3
The tenders which have been submitted already were valid for 90 days.
That period has long passed and it
would, in all probability, be a
futile exercise to re-evaluate these bids.
[12]
We were advised by counsel for the parties in this matter that if the
route of re-advertising were followed, the process could
be back on
track within 2-3 months. In view of this and all of the circumstances
mentioned above, we were of the view that the
order set out in
paragraph [1] above was the most appropriate order to have made.
____________________
S. NAIDOO, J
I
agree
______________________
C
REINDERS AJ
On
behalf of the Applicant: Adv. S Grabler
Instructed by:
Peyper Attorneys
Dynarc House
200 Nelson Mandela Drive
Bloemfontein
(
joyce@peyperattorneys.co.za
)
On
behalf of
2nd
Respondent:Adv
Pienaar
Instructed by:
Roussouws Attorneys
Pres Reitz Street
Bloemfontein
(JH
Conradie)
On
behalf
of
3rd
Respondent:Adv
J
Pretorius
Instructed
by:
Hannes Van Wyk Attorneys
Clo
Spangenberg
Zietsman
and
Bloem 6
Seventh Avenue
Arboretum
Bloemfontein
(Ref:
KH 1026)
On
behalf
of
4th
Respondent: Adv
D Lindstroom
Instructed
by:
John Isabelle Attorneys
Clo
Honey
Attorneys
Inc
Honey Chambers, Northridge Mall
Kenneth Kaunda Road
Bloemfontein
(Ref: BM Jones/evdw/125198)