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[2012] ZAGPPHC 55
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MACP Construction (Pty) Ltd v Greater Tzaneen Municipality and Another (5906/2012) [2012] ZAGPPHC 55 (12 April 2012)
NOT
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT,
PRETORIA
REPUBLIC OF SOUTH AFRICA
CASE
NO: 5906/2012
DATE:12/04/2012
In
the matter between:
MACP
CONSTRUCTION (PTY)
LIMITED
....................................................................
Applicant
and
GREATER
TZANEEN
MUNICIPALITY
............................................................
First Respondent
MAKGETSI
CONSTRUCTION ENTERPRISES CC
...................................
Second
Respondent
JUDGMENT
Tuchten
J:
1.
The applicant ("MacP") seeks urgently to review and set
aside a decision by the Municipal Manager of the first respondent
("the Municipality") to award to the second respondent
("Makgetsi") a tender worth R33 223 649,84 to upgrade
a
road in the province of Limpopo ("the tender"). In terms of
a written application brought during the hearing before
me, MacP
applied to amend its notice of motion to include in the relief sought
an order setting aside the service level agreement
which was
concluded between the Municipality and Makgetsi after it was awarded
the tender. No prejudice has been caused by the
amendment and it is
granted.
2.
The application is opposed by both respondents although only the
Municipality delivered affidavits.
3.
The tender was initiated by an advertisement published on 7 October
2011, to which 15 tenderers responded. Both MacP and Makgetsi
tendered. The tender invitation restricted prospective tenderers to
experienced service providers with a Construction Industry
Development Board grading of 6CEPE or higher. The advertisement made
it clear that the Municipality was not obliged to accept the
lowest
or any bid,
4.
Pursuant to the relevant legislation, the tenders were first
considered by a bid evaluation committee ("the BEC").
Because of previous difficulties encountered by the Municipality, it
appointed to the BEC a consulting engineer in private practice,
Mr
Mojapelo, to evaluate the bids.
5.
Mr Mojapelo proceeded to evaluate the bids and produced a report of
his findings dated 6 December 2011. He proceeded to recommend
the
elimination of six tenderers on the grounds of various deficiencies
in their tenders which he described as resulting in a lack
of
completeness or responsiveness to tender requirements. Neither MacP
nor Makgetsi was so eliminated.
6.
Using his own professional experience, Mr Mojapelo estimated the cost
of construction, which he concluded was R33 956 379,06.
He then did
something which I consider rather curious. He added up the sums
tendered by the fifteen tenderers (ie including in
this sum the
tenders of the six tenders already recommended for elimination) and
divided the sum of the fifteen tenderers by fifteen,
thereby arriving
at an arithmetical average of R33 490 740,66. He then compared the
tendered prices of the remaining nine tenderers
with both his
estimated price and the arithmetical average.
7.
Using these data, Mr Mojapelo concluded that MacP deviated from the
estimated price by 30% and from the average price by 29%.
Makgetsi
deviated by 2% from the estimated price and 1% from the average
price.
8.
Mr Mojapelo then conducted an exercise which he described as a
sensitivity analysis of rates. By this he meant the rates within
each
of the tenders themselves. He concluded that the rates tendered by
Makgetsi were acceptable. But he was critical of the rates
tendered
by MacP, Mr Mojapelo noted:
Most
of their rates do not compare favourably with the average prices. On
major items such as double seal, the rates are 55,34%
less and borrow
materials are 50,75% less. ... On items such as mass earthworks and
drains are 50,75% and 54,74% less respectively.
With low rates on
these major items, it clearly indicates that the tenderer Is facing a
risk of not being able to carry out the
work. Therefore the rates are
not acceptable, [my emphasis]
9.
Mr Mojapelo also noted that MacP had submitted a "deviation/
qualification" in relation to its rates for certain items
because it specified in its tender that its rates did not include a
rate for a base slab and for unsuitable material. This was
raised by
the Municipal Manager in her answering affidavit on behalf of the
Municipality "in passing" and does not seem
to have
featured with any prominence, if at all, in the decision making
process.
10.
Mr Mojapelo made it clear in his report that when he referred to
average prices in the context I have just quoted, he was referring
to
a table attached to his report as annexure A. Annexure A reflected a
comparison with each of the tender items, beginning with
"general
requirements and preparations" and ending with "finishing
the road and road reserve and treating old roads".
11.
In respect of five of the nine remaining tenderers, amongst whose
number MacP was included, Mr Mojapelo came to the conclusion
that the
tendered rates were unacceptable. The remaining four tenderers,
including Makgetsi, were then considered for further evaluation.
12.
Mr Mojapelo then evaluated the remaining four tenderers for
functionality, which is industry shorthand for capacity to do the
job. Within the criterion of functionality, there are four
subcriteria, each of which is accorded points out of a total of 100,
ie experience: 50; skills of key personnel: 25; and availability of
equipment: 25. Only these remaining four tenderers were scored
by Mr
Mojapelo.
13.
Makgetsi was awarded 77,5 points out a possible 100. For experience,
Makgetsi received 27,5 points and for both the other two
subcriteria
the full 25 points.
14.
The BEC considered Mr Mojapelo's report and recommendations at its
meeting on 20 December 2011 The BEC recommended two tenderers
for
award. One of the two tenderers recommended was Makgetsi.
15.
The next step in the process was the consideration of the BEC's
recommendations by the bid adjudication committee ("BAC")
of the Municipality. The BAC had certain difficulties with the manner
in which the BEC had reached its conclusions and at its meeting
on 22
December 2011 referred the matter back to the BEC for rectification
of its conclusions on point scoring.
16.
On 27 December 2011, the BEC reconsidered the matter and concluded
that its approach to point scoring had been correct. The
BEC
accordingly declined to alter its conclusions on point scoring and
adhered to its recommendations.
17.
On the same day, the BAC once again considered the matter. The BAC
expressed concern about the exclusion of tenderers, especially
on two
grounds, one of which related to inexperience, but resolved to
recommend the tender of Makgetsi for acceptance "as
they scored
the highest points."
18.
The material which had served before the BEC and the BAC, including
Mr Mojapelo's report was then put up to the Municipal Manager,
the
ultimate decision maker and therefore, for the purposes of the
Promotion of Administrative Justice Act, 2000 ("PAJA"),
the
administrator in relation to the tender. The Municipal Manager
awarded the tender to Makgetsi after she had satisfied herself
of the
process followed during the assessment Of the tenders at all its
relevant stages and came to the conclusion that the award
was both
procedurally fair and in the best interests of the Municipality and
the community it served.
19.
By letter dated 29 December 2011, the Municipal Manager notified
Makgetsi that it had been awarded the tender. On 17 January
2012, the
Municipality and Makgetsi concluded the service level agreement to
which I referred earlier.
20.
Makgetsi began to build the road in terms of the tender. But MacP was
aggrieved by the award of the tenderto Makgetsi. MacP
launched
various urgent applications in this court, including an urgent
application to interdict progress on the works under the
tender. On
24 February 2012 this court granted the interdict sought pending the
determination of the review. At this stage, less
than 1% of the work
has been carried out The review application itself was instituted by
notice of motion dated 18 February 2012.
21.
The first question I must decide is whether there is an internal
remedy available to MacP. This is because s 7(2)(a) of PAJA
provides
that no court may review an administrative action unless an internal
remedy provided for has been exhausted. Section 7(2)(a)
is subject to
s 7(2)(c) which, if the court deems it in the interests of justice,
provides for an exemption from the obligation
to exhaust internal
remedies on application, where there are exceptional circumstances.
22.
The respondents contend that there is indeed an internal remedy
available to MacP, as provided for in s 62 of the Municipal
Systems
Act, 2000 ("the Systems Act"). This measure confers a right
of appeal upon a person whose rights are affected
by a decision taken
by a staff member of a municipality such as, in this case, the
Municipal Manager. The right to appeal arises
upon notification of
the decision. It is difficult to fit the present case into that
framework because MacP was never notified
of the decision to award
the tender to Makgetsi.
23.
But I think that the provisions of s 62(3) of the Systems Act are
decisive of the point. Section 62(3) provides that while
the Appeal
Authority constituted under s 62 must consider the appeal and
confirm, vary or revoke the decision.
No
such variation or revocation of a decision may detract from any
rights that might have accrued as a result of the decision.
24.
The award of the tender and the conclusion of the service level
agreement took place before the review was launched. So even
if MacP
qualifies as a person whose rights are affected by the decision and
is not precluded from appealing under s 62 by the lack
of
notification to MacP of the decision, and even if its appeal
were upheld, the success of the appeal would not detract from
Makgetsi's
accrued rights to perform, ie build the road, under the
tender and the service level agreement. So s 62 does not in the
present
circumstances afford MacP an effective remedy.
25.
I do not think that the interne! remedy contemplated in s 7(2)(c) of
PAJA includes an appeal that can afford an appellant no
effective
remedy. 1 therefore find that the provisions of s 62 of the Systems
Act are no bar to a consideration by the court of
the present
application for review.
26.
MacP advanced three grounds of review;
26.1
that MacP had irrationally been eliminated from consideration on the
grounds that its tendered price was too low in relation
to the
arithmetical average price I mentioned earlier;
26.2
that the Municipality had departed from its own formula for
evaluating experience within the criterion of functionality in
relation to Makgetsi and that if the formula had applied correctly
Makgetsi would, because of its lack of appropriate experience,
have
failed to achieve the threshold minimum points imposed by the
Municipality in relation to functionality;
26.3
that the Municipality failed to evaluate the tenders on the basis
determined by it, ie by allocating 90 points for functionality,
5
points for status as an historically disadvantaged person, 2 points
for having a local presence, 2 points for female ownership
and 1
point for disability. The contention is that the Municipality made
the mistake of allocating only 80 points for price.
27.
The attack on the ground that the arithmetical average had been used
as a yardstick and was irrational was made forthrightly
in the
founding affidavit. The use of the arithmetical average was defended
with equal forthrightness by the Municipal Manager
in the
Municipality's answering affidavit.
28.
The Municipal Manager points out that the acceptance of tenders which
are so low that the successful tenderer is unable to complete
the
work at the tendered price has in the past caused many problems for
the Municipality. The Municipality had from such tenderers
received
substandard work. A further troublesome effect of accepting a tender
that was, measured against a market related tender
price, too low was
that the Municipality would be confronted with the need to raise
additional, unbudgeted, revenue to complete
the work. To obviate
these substantial difficulties, the Municipality had obtained the
services of independent expert consultants,
such as Mr Mojapelo, to
assist the Municipality in evaluating the competing tenders and to
measure the tendered prices against
a market related yardstick.
29.
These are legitimate concerns and, as was accepted by all the parties
during argument, the Municipality cannot be faulted for
appointing a
consulting engineer to guide the BEC and the BAC and the Municipal
Manager in their various functions in relation
to the tender.
30.
Specifically, in relation to the attack on the arithmetical average,
the Municipal Manager said the following:
30.1
After specifically denying that Mr Mojapelo had used his own
estimates to disqualify MacP, she said that the "consulting
engineer used an average price amount
30.2
She put up in support of the use of the arithmetical average, a
National Treasury circular, which she interpreted to mean that
the
National Treasury supported the use of the arithmetical average. "The
average price becomes the 'acceptable price'. In
other words the
acceptable price is taken to be the market related price. This
average price was used as a base for the determination
of a
competitive cost effective market related price."
30.3
"[T]he consulting engineer has confirmed that this is the
universally recognized method in the construction industry employed
to arrive at an acceptable price, The applicant seeks
to obfuscate
the difference between the lowest acceptable price and the lowest
price."
30.4
"This formula [arrived at by the consulting engineer] can .,. be
clarified by way of the following example: if one wants
to determine
the average price of a loaf of bread, one will request the prices of
a loaf of bread from competing outlets, eg Pick
'n PayR8,40, Checkers
R8,00, Shoprite R9,00 and Spar R8,60. To determine the average price
one must take the minimum price and
compare it with the highest price
and determine the average price. The average price will therefore
become the acceptable price."
30.5
"[W]hat the consulting engineer did was to take the lowest price
and compare it to the highest price tendered in order
to determine
the average price. Arithmetically, the sum of all the bids divided by
the total number of bids will yield the average
price which is in
accord with the amount arrived at by the consulting engineer as
recorded in his report."
31.
Counsel for the Municipality confirmed during argument that Mr
Mojapelo had used for this purpose all fifteen tenders submitted.
32.
In my view the arithmetical average calculation is both unscientific
and irrational. Firstly, it takes no account of the possibility
that
one or more of the tenderers might, by legitimate methods have lower
costs of production relative to its competitors. Secondly,
it takes
no account of the possibility that some of the tenderers might, in
the knowledge that the arithmetical average was to
be employed as a
yardstick, have deliberately tendered high in order to have their
lower priced competitors eliminated. Thirdly,
it raises to the level
of objective reliability ..the tendered price of each of the
tenderers and takes no account of the possibility
that some of the
tenderers might not be proven participants in the market in which the
tenders were made.
33
In fact, the Treasury circular relied upon by the Municipal Manager
not only does not bear out her contention, but says the opposite:
Deviation
by more than a predetermined range from the costs estimates of the
project or commodity is not a justifiable reason for
the rejection of
a bid and has, therefore, not been approved as an evaluation norm or
criteria [sic].
34.
I can see no legitimate objection against the employment of a duly
qualified and impartial expert in order to advise the Municipality
or
the employment by such an expert in the evaluation process of his or
her own expert estimate of a reasonable price for the work
or
commodity concerned. I accept too, the dangers for the Municipality
if it accepts a tender that is too low. The Municipality
must bear
those dangers in mind when it evaluates the tenders and by
appropriate means eliminate or reduce the risks of such dangers.
I
accept as well that in principle there is no obligation on the
Municipality at any level of the evaluation process to conduct
interviews with the tenderers.
35.
But in the present case, the evaluation method employed by Mr
Mojapelo and adopted by the ultimate decision maker, the Municipal
Manager, was such that unless appropriate steps were taken to
establish whether the tenders that were rejected for being too low
were in fact, evaluated against objective, market related criteria,
too low, the Municipality could not fulfil the constitutional
mandate
imposed upon it in s 217 of the Constitution to contract for goods or
services in accordance with a system which is, inter
alia, fair,
cost-effective and competitive.
36.
Counsel for MacP submitted that the Municipality should have
fulfilled this obligation by arranging an interview between Mr
Mojapelo and officials from MacP. This is no doubt one of the ways in
which the Municipality might have been able to determine
whether the
price tendered by MacP was market related. But it is not for this
court to prescribe how the Municipality should implement
its
constitutional mandate. I would however say this: in my view, the
Municipality is entitled to eliminate from consideration
any tenderer
whose tender has been determined by objective, market related
criteria to be so low that if its tender were accepted,
the
Municipality would run the risks of substandard work or a demand for
additional funds, as discussed above.
37.
It will be clear from the passages that 1 have quoted from the
Municipal Manager's affidavit that the arithmetical average
formed
the basis for the elimination of MacP and others from the number of
those tenderers whose tenders were evaluated in the
final stage of
the process, the only stage at which scoring took place. The
arithmetical average was not something mentioned in
passing or used
as a basis for comparison with an evaluation on legitimate criteria.
The use of the arithmetical average was fundamental
to the evaluation
of the tenders.
38.
I therefore find that the decision of the Municipal Manager under
attack was not rationally connected to the purpose for which
it was
taken, was based on an irrelevant consideration (the arithmetical
average), was so unreasonable that no reasonable person
could have
made that decision on the grounds relied upon and was
unconstitutional because it was not made in accordance with a
system
which is fair, cost-effective and competitive. MacP has therefore
established grounds for review under ss 6(2)(e)(iii),
6(2)(f)(ii)(aa), 6(2)(h) and 6(2)(i) of PAJA.
39.
This does not mean that the decision may not have been the right
one. This court is not qualified to determine which of the
tenderers,
if any, ought to have been awarded the tender. I have arrived at my
conclusion because the process was, in my view,
flawed, not because I
think that the ultimate decision was right or wrong. This conclusion
renders it unnecessary for me to consider
the other two grounds of
review relied upon.
40.
I must refer to an argument by counsel for the Municipality: that
MacP would not have under any circumstances been awarded the
tender
because the Municipality had had previous experience of poor work by
MacP in the execution of tenders awarded to it by the
Municipality.
The submission is however not born out by the Municipal Manager's
affidavit. She does not say that the Municipality
has such a poor ,
impression of MacP's work that it will never grant it another tender.
In fact she merely refers to two instances
in which she says
defective services were rendered after "under quoting by
tenderers".
41.
One of these tenders is alleged to have been executed in 2002 by
MacP. It is alleged by the Municipality that the road washed
away 18
months after it was completed because MacP executed the tender with
substandard materials and poor workmanship and that
the cost of
rebuilding the road caused the Municipality to incur extra expense of
R20 million to reconstruct the road, MacP denies
that it executed any
projects for the Municipality in 2002.
42.
The Municipality does not identify the tender concerned and gives no
details of the allegedly substandard materials and workmanship
or how
the alleged reconstruction cost of R20 million is arrived at. I do
not think that these rather bald allegations can justify
a refusal by
the Municipality to do business with MacP under any circumstances.
43.
The second such tender relates to a 12 km tarred road from Tickeyline
to Julesburg which the Municipal Manager says was completed
toward
the end of November 2011 and "some three months later was
already showing signs of the use of substandard materials
and bad
workmanship". Strangely, it is not alleged that this road was
constructed by MacP.
44.
In its replying affidavit, however, MacP admits that it was awarded
the tender for the Tickeyline road but asserts that the
road is still
under construction under the auspices of the Limpopo Roads Agency and
puts up a letter from the consulting engineer
dated 13 February 2012
which supports MacP's assertion.
45.
The Municipal Manager did not even identify MacP as the successful
tendererfor the Tickeyline road. The Municipality gives no
particularity or documentary material in support of the allegations
of substandard materials and poor workmanship. The evidence
presented
by MacP in contradiction of the allegation is substantial. I
accordingly do not think that the Municipality has made
a prima facie
case to justify a refusal to award any tender to MacP because of its
experience in relation to the Tickeyline road.
46.
In addition, as counsel for MacP pointed out, the alleged poor
performance in 2002 apparently did not cause the Municipality
to
decline to award the Tickeyline tender to MacP which suggests that
the Municipality's allegations of poor performance may in
general be
somewhat overstated and even inaccurate.
47.
It follows that MacP has made out a case for the setting aside of the
tender and the service level agreement. I tun to the question
of
remedy.
48.
Section 8(1) of PAJA empowers the court in review proceedings to
grant any order that is just and equitable. It seems to me
that the
flaw in the process arose at the stage at which Mr Mojapelo excluded
MacP and another four tenderers, from further consideration
because
of
the conclusion he reached in regard to the disparity between the
tender prices of these five tenderers and the arithmetical average
of
the sum of the fifteen tenders. I do not think that it would be just
and equitable to require the Municipality to repeat those
aspects of
the process which took place before the arithmetical average was
used. So the advertisement for tenders and the fifteen
tenders stand,
as does the exclusion of the six tenderers for want of incompleteness
or responsiveness as described in paragraph
5 above.
49.
It was submitted by the Municipality and by Makgetsi that it would
not be just and equitable to stop the execution of the tender
in its
tracks because the provision of the road to the community would be
delayed and the works had already been initiated, Weighty
as they
are, I do not think that these considerations can prevail. Only a
very small proportion of the works has been executed.
The potential
overspend by the Municipality is some R10 million if MacP's
contention that its tender price is legitimately market
related is
ultimately upheld. The court should wherever possible enforce
compliance with constitutional norms, in this case that
a tender
system which is fair, cost-effective and competitive must be
employed. Litigants who successfully seek constitutional
relief
should wherever possible be awarded effective relief.
1
The work required for a reconsideration of the tenders is limited and
can be completed in a relatively short period.
Order
of court
50.
I make the following order:
1.
The decision of the Municipal Manager of the first respondent to
award tender SCMU 23/2011 ("the tender") to the second
respondent and the service level agreement concluded between the
first and second respondents on 17 January 2012 are hereby set
aside.
2.
The matter is remitted to the first respondent for a reconsideration
of the tender, in the light of this judgment, from the stage
immediately prior to the exclusion of the tenders of the applicant
and four other tenderers from further consideration on the ground
thattheirtendered prices deviated inappropriately from the
arithmetical average arrived at by dividing the sum of the tender
prices
in the tenders received by the first respondent by the number
of tenderers.
3.
For avoidance of doubt, it is declared that nothing in this order
shall render invalid:
3.1
the advertisement of the tender;
3.2
subject to what follows, the tenders received pursuant to such
advertisement;
3.3
the elimination from further consideration of six such tenders on the
ground of incompleteness or non-responsiveness as set
out in
paragraph 10 of the report Of the consulting engineer dated 6
December 2001, annexure MCM34 to the founding affidavit.
4.
The first and second respondents, jointly and severally, must pay the
applicant's costs.
NB
Tuchten
Judge
of the High Court
11
April 2012
1
Fose
v Minister of Safety and Seourity
[1997] ZACC 6
;
1997
(3) SA 786
CC para 69