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[2012] ZAGPPHC 126
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Vuna Health Care Logistics (Mpumalanga) (Pty) Ltd v Mec of Health and Social Development, Mpumalanga Provincial Government and Others (5948/2011) [2012] ZAGPPHC 126 (22 June 2012)
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT PRETORIA
CASE
NO: 5948/2011
DATE:22/06/2012
In
the matter between:
VUNA
HEALTH CARE LOGISTICS (MPUMALANGA) (PTY) LIMITED
…..................
Applicant
And
THE
MEC OF HEALTH AND
SOCIAL
..............................................................
First
Respondent
DEVELOPMENT,
MPUMALANGA PROVINCIAL
GOVERNMENT
SAFARMEX
(PTY)
LIMITED
.........................................................................
Second
Respondent
AMALGAMATED
LOGISTICS MPUMALANGA (PTY) LIMITED
..................
Third
Respondent
BAKONI
HEALTH CARE SOLUTION (PTY)
LIMITED
..................................
Fourth
Respondent
ETHELM
HEALTHCARE RESOURCES
(PTY)
..............................................
Fifth Respondent
LIMITED
PHARMACEUTICAL
CONSORTIUM
..............................................................
Sixth
Respondent
MPILONDE
MEDICAL
SUPPLIES
.............................................................
Seventh
Respondent
JUDGMENT
FABRICIUS
J,
1.
This
is an application in which Vuna seeks the review and setting aside of
the decision of the First Respondent, taken on or about
2 August
2010, to award the tender to Safarmex.
2.
In
addition to this primary relief, Vuna seeks an order declaring that
any contract entered into between the Department and Safarmex
in
consequence of the tender award is null and void, but it is not in
dispute that as the result of urgent applications by Third
Respondent, the actual contract was not awarded to the second
Respondent, and that the relevant services are being rendered on
a
month-to-month basis, pending a review.
3.
In
the final instance, Vuna asks that this court award the tender to
Vuna or in the alternative that the award of the tender is
remitted
to the Department and that the Department be directed to reconsider
the tender and to award it anew.
4.
On
or about 1 April 2010, the Department advertised the tender. Thus the
Department sought to identify an appropriate service-provider
to take
upon itself the responsibility of managing the procurement,
warehousing and distribution of pharmaceuticals and surgical
sundries
and the supply and management of information relating thereto for and
on behalf of the Department.
5.
These
services were to be provided within the Mpumalanga Province over a
period of three years, which period was to commence on
1 September
2010. Applicant is responsible for rendering similar services in the
Limpopo Province on a far greater scale that would
be required in
Mpumalanga.
6.
On
2 August 2010, Vuna was advised that its tender bid had been
unsuccessful. It was not provided with any reasons as to why it
had
failed. The Second Respondent was the successful tenderer.
7.
In
sum, Vuna's present position is as follows:
7.1
fundamental irregularities tainted the process by which the
Department reached the decision to award the tender to Safarmex,
which renders that decision liable to be reviewed and set aside in
terms of several subsections of section 6 of PAJA;
7.2
in terms both of substance and procedure, the application by the
Department of a so-called "pricing benchmark' was incorrect,
improper and irregular. This particular bench-mark was applied during
the adjudication process without notice to any tendering
party;
7.3
the unwarranted and clandestine application of the so-called "pricing
benchmark' deprived Vuna of a fair chance to have
its tender bid
properly adjudicated and, accordingly, ran counter to several of the
most fundamental principles underpinning public
procurement, namely
those of cost-effectiveness or value for money; fairness; and
transparency.
Therefore,
as appears from the facts pleaded in Vuna's affidavits, the decision
by the Department to award the tender to Safarmex
was allegedly
tainted in all of the following ways:
8.1
First, by failing to comply with a mandatory and material procedure
or condition prescribed by the relevant statutory empowering
provisions, the Department breached section 6(2)(b) of PAJA. In this
regard, in particular, the award of the tender was required
to:
8.1.1
promote the efficient, economic and effective use of public resources
(section 195(1)(b) of the Constitution);
8.1.2
be in accordance with a system which is fair, equitable, transparent,
competitive and cost-effective (section 217(1) of the
Constitution);
8.1.3
secure transparency, accountability and sound management of the
revenue, expenditure, assets and liabilities of the Department
(section 2 of the PFMA);
8.1.4
form part of an appropriate procurement and provisioning system which
is fair, equitable,
transparent,
competitive and cost-effective (section 38(1)(iii) of the PFMA);
8.1.5
be evaluated, adjudicated and implemented in terms of a preferential
procurement policy or framework involving a preference
point system
in terms of which inter alia the lowest acceptable tender must score
90 points for price (section 2(1)(b)(i) of the
PPFA); and/or
8.1.6
be evaluated, adjudicated and implemented in terms of a preferential
procurement policy or framework involving a preference
point system
in terms of which inter alia the contract must be awarded to the
tenderer who scores the highest points unless objective
criteria
justify the award to another tenderer (section 2(1 )(f) of the PPFA).
8.2
Second, by framing and accepting the untested assumption that Vuna's
tender price was not "realistic" or not "possible"
and, in consequence of that assumption, disqualifying its bid without
investigating whether that was in fact so, the Department
breached
sections 3(1) and 6(2)(c) of PAJA, both of which guarantee the right
to procedural fairness. This is plainly the more
so since the
Department refrained from inviting Vuna to address this fundamental
and far-reaching but erroneous "pricing
6.
benchmark
assumption and refrained, in response to correspondence directed to
it by Vuna which sought to question aspects of the
point-scoring
system under the tender, from pointing out that this assumption
underpinned the evaluation and adjudication processes.
8.3
Third, by taking account of and giving weight to wholly irrelevant
considerations (which included the monthly price it erroneously
supposed it was then paying to Third Respondent for rendering the
services), the Department breached section 6(2)(e)(iii) of PAJA
and,
in fact, improperly closed its mind to Vuna's tender bid.
8.4
Fourth, by failing to take account of pertinently relevant
considerations, which included the body of expertise and experience
acquired by Vuna in similar contracts in other provinces the
Department deprived itself of the chance fairly and realistically
to
appraise the ability of Vuna to provide the services at its tender
price, thereby breaching section 6(2)(e)(iii) of PAJA.
8.5
Fifth, by disqualifying the three best tender bids on the strength of
an untested and clandestine so-called "pricing benchmark",
the Department breached section 6(2)(e)(vi) of PAJA by acting
arbitrarily and/or capriciously. This is made all the more starkly
apparent by the fact that the Department elected to award the tender
to Safarmex, which had received a negative score for price
and had
finished a distant fourth in the evaluation and adjudication
processes conducted under its aegis.
8.6
Sixth, the Department's decision bore no rational connection to the
purpose it sought to achieve through the award of the tender
since
the very essence of a tender process is to obtain the most
cost-effective service, which goal the Department directly flouted.
The fact that the Department thus breached section 6(2)(f)(ii) of
PAJA could not be plainer: irrationally, it rejected the tender
of a
tendering party which not only had a vast body of accumulated
experience and expertise in the rendering of the services, but
also
offered to provide the services at the cheapest price.
8.7
Seventh, since, in the circumstances, the decision of the Department
to award the tender to Safarmex was so unreasonable that
no
reasonable person could have exercised the relevant power and/or
performed the relevant functions, the Department breached section
6(2)(h) of PAJA.
8.8
Finally, the Department's decision breached the principle of legality
and was, moreover, unconstitutional in that it ran counter
to the
principle of fairness underpinning the Bill of Rights and, in the
context of public procurement, enshrined in section 217
of the
Constitution.
At
the outset, it must be emphasised, that in the tender process
conducted by the Department in terms of the bid specifications
as
articulated in the Invitation to Bid document, Vuna emerged as the
victor. In fact, it finished far ahead of its nearest rival,
namely
Amalgamated the Third Respondent. In its turn, Safarmex trailed
distantly behind Vuna, Amalgamated and PharmCon.
10.
Once
the invitation to bid had closed at noon on 14 May 2010, the
Evaluation Committee which was entrusted with the task of evaluating
the submitted tender bids under the aegis and control of the
Department, compiled a report. This report was to be presented to
the
Adjudication Committee. Upon the basis of the results recorded in the
report, the Adjudication Committee was to decide which
compliant
tendering party would be awarded the tender.
11.
This
report indicates the following:
11.1
Vuna obtained the highest points for price. While Vuna attained 92
points (which translated into 40 out of a possible 40 points),
Amalgamated attained 40.73 points (which translated into
23.43
out of a possible 40), PharmCon attained 22.15 points (which
translated into 22.59 out of 40), and Safarmex attained minus
33.78
points (which translated into 16.68 out of a possible 40 points).
11.2
Under the rubric of functionality, marked out of a total of 60
points, the Evaluation Committee appraised the four leading
tendering
parties as follows. Amalgamated were awarded 54.33 points; PharmCon,
52 points; Vuna, 51.33 points; and Safarmex, 50.33
points.
11.3
Upon these two scores being added together to total a score out of
100, the four leading tenderers fared as follows. By attaining
no
more than a total of 67.01%, Safarmex trailed behind Vuna,
Amalgamated and PharmCon. PharmCon and Amalgamated were placed close
together, scoring 74.59% and 77.76% respectively. Vuna's total score
was far ahead of all three its rivals. It scored 91.33%.
11.4
While the scores for functionality attained by the four leading
tendering parties were relatively close, the central reason
for
Vuna's emerging as the victor was that it would provide the services
at a price of R2,593,000.00 per month. This price was
approximately
R1.5 million below the price proffered by its closest rival,
Amalgamated, which quoted a monthly price of
R4,089,000.00.
On the other hand, the weakest of the four leading tendering parties,
namely Safarmex, quoted a significantly greater
monthly price of
R6,217,000.00.
12.
However,
in spite of the fact that Vuna's tender thus clearly emerged as the
most cost-effective one, and indeed in spite of the
fact that both
Amalgamated and PharmCon also beat the Safarmex's tender by a large
margin, the Evaluation Committee stated in the
report that the tender
prices offered by Vuna, Amalgamated and PharmCon were not "realistic"
and that, for that reason,
they should fall out of the tender
process.
13.
In
making these recommendations, the Evaluation Committee laboured under
the assumption that the price which the Department was
paying for the
services before the award of the tender was a cognisable benchmark
for all tendering parties, and that any tender
bid priced below such
benchmark was unrealistic.
14.
Moreover,
in the report, the Evaluation Committee was of the view that the
monthly amount then expended on the services by the Department
was
R7.1
million.
15.
Subsequently,
on or about 25 June 2010, once the report had been submitted, the
Adjudication Committee directed a letter to the
Evaluation Committee
in which it called for further documents and in which it directed
that further inquiries be undertaken.
16.
Among
other instructions, the Evaluation Committee was in this letter
required "to do the market research to determine the
baseline
for pricing". On or about 30 June 2010, the Evaluation Committee
submitted its response to the aforementioned request.
17.
In
respect of the instruction that the Evaluation Committee undertake
market research to determine the "baseline for pricing",
the Adjudication Committee was simply referred to a recordal in the
Evaluation Committee's report that "[c]currently the Department
of Health is paying R614,852 million total expenditure per annum and
R51,238 million which is an average payment per month"
and to a
"Vulindlela report".
In
responding to the Adjudication Committee's instruction in this
manner, the Evaluation Committee reneged on its task to conduct
proper market research, and in consequence, neither the Evaluation
Committee nor the Adjudication Committee came to be apprised
of
accurate, reliable data relating to the Department's then-current
expenditure for the services.
19.
Nonetheless,
despite the deficiency of the "research" undertaken by the
Evaluation Committee, at a meeting convened on
1 July 2010, the
Adjudication Committee purported to use as a yardstick for evaluating
the tenders the Department's alleged then-current
expenditure for the
services. The Adjudication Committee also "used the current
expenditure by the department of R7.1 million
on the service under
consideration as a baseline for final determination of realistic
pricing"
20.
This
figure of R7.1 million was reached in the absence of any supporting
documentation. It was without foundation and was, quite
simply,
wrong. In fact, at that time, Amalgamated, which was the holder of
the previous tender for the provision of the services,
charged R4.4
million per month for the services.
21.
In
its answering papers in the urgent application under case number
51356/10, and in its answering affidavit in this application,
the
Department has sought ex post facto to justify or rationalise the
figure of R7.1 million per month in a markedly different
way.
However, at no point has the Department addressed the fact that both
the Evaluation and Adjudication Committees were in the
course of the
tender process plainly of the opinion that the Department was then
spending R7.1 million per month on the services.
22.
In
this ex post facto explanation, the Department's then-current monthly
expenditure on the services was no longer R7.1 million.
Yet, this
attempt at an ex post facto explanation on the part of the Department
indicates that the figure of R7.1 million (together
with the
calculation that produced it) is itself baseless and irrational.
23.
The
Department committed a fundamental error of reasoning by, upon
predicting what its total monthly expenditure might be, apportioning
10% of that figure to the services. Without any rational basis for
this position, the Department states as follows: "The services
tendered for and which are the subject of enquiry in this
application, are accepted by the [Department] as 10% of the total
medical
expenditure per annum." The Department fails to provide
any basis for its accepting an a priori figure of 10% of its total
expenditure for the services in this manner.
24.
It
used past figures in order to predict a future benchmark without
debating whether there was a rational basis for using past figures
in
this way.
25.
The
Department failed to provide any rational basis for the projected
increase of 22% it built into its ex post-facto explanation
of the
so-called benchmark price of R7.1 million. At least a component of
this figure is attributable to the increase in the cost
of medical
supplies, which cannot rationally affect the cost of inter alia
distributing or warehousing such items. Accordingly,
the so-called
"pricing benchmark" was, on at least two distinct grounds,
fatally flawed and fundamentally deceptive.
While the Evaluation and
Adjudication Committees plainly considered R7.1 million to be the
Department's then-current monthly expenditure,
the explanation
provided by the Department after the fact fails to provide a rational
basis for its application in appraising the
tendering parties' bids.
26.
Not
only did the Department breach several statutory and regulatory
provisions by conducting the tender in the manner that it did,
notably by applying the untested "pricing benchmark" of
which no mention is made in the Invitation to Tender, but this
tainted and rendered fundamentally unfair the process by which the
tender was awarded. This was therefore the crux of Applicant's
case
in my view and reliance was placed on a number of decisions,
contextually relevant. Reference was made to: Du Bois v
Stomdrift-Kamanassie
Besproeiingsraad 2002(5) SA 186 C at 194 E-195
G.
I
must however point out that Griessel J, quite correctly in my view,
also held that the requirement of procedural fairness must
be
contextual and relative. In Logbro Properties CC v Bedderson NO and
Others
2003 (2) SA 460
SCA it was, also in that context, held that
representations by compliant tenderers should have been invited
before a final decision
regarding the outcome of the tender was
taken.
27.
Traditionally,
procedural fairness comprises two components, namely audi alteram
partem and nemo iudex in re sua. The former maxim,
which embodies the
notion that a party should be granted the opportunity to be heard, is
relevant here and dovetails with the requirement
addressed above, ie.
that the invitation to bid must set out the basis upon which tender
bids would be evaluated and adjudicated.
See also Minister of
Environmental
Affairs
and Tourism v Bato Star Fishing 2003(6) SA 407 SCA at 436, and
Steenkamp v Provincial Tender Board, Eastern Cape 2007(3)
SA 121 CC
at 136C.
28.
This
is so because a basis of evaluation or adjudication that is kept
hidden deprives a tendering party of its right to address
it, and to
show the Organ of State why or how it plays to the tendering party's
strengths. In other words, it deprives the tendering
party of its
right to be heard. This, as I have said, was Applicant's main
argument, and I agree with it and the reasoning behind
it. The
mentioned authorities make this clear and it is also contained in
s3(2)(ii) of PAJA.
29.
In
the instant case, Vuna was not granted an opportunity to explain its
figures which, in light of the clandestine "pricing
benchmark',
the Department considered to be unrealistic. Had Vuna been afforded
such an opportunity, it would have had the chance
to set out the
reasons for its pricing and dispel the doubts of the Department. In
doing so, Vuna could, for instance, specifically
have been able to
indicate to the Department that its notably low proffered price was a
product of its extensive body of accumulated
experience and expertise
in the pharmaceutical industry and, more crucially, in the provision
of
substantively identical services in neighbouring provinces
It
is apparent from Applicant's affidavits that, it is currently
providing very similar services in the Limpopo Province:
29.1
In the Limpopo Province, Vuna provides services to the appropriate
government department that are identical in nature to the
services.
The Limpopo tender requires Vuna to service 45 hospitals and
approximately 500 clinics. This it does for a price per
month of
approximately R2.8 million.
29.2
The tender requires the service-provider awarded it to service 32
hospitals and approximately 325 clinics.
29.3
Accordingly, while the tender is markedly smaller in scope than
Vuna's Limpopo tender, it requires Vuna to have a prepackaging
unit,
which requirement is absent from the Limpopo tender.
29.4
Nevertheless, it is plain that the tender and Vuna's Limpopo tender
are broadly comparable in scope. Accordingly, since the
applicant is,
in terms of the Limpopo tender, able to deliver services at a similar
price to a significantly greater number of
hospitals and clinics than
is encompassed in the tender, the Department's conclusion that Vuna's
monthly pricing is "unrealistic"
cannot be sustained merely
on the say-so of the Adjudication Committee, and/or the Evaluation
Committee.
30.
Respondents,
however, relied on the unreported decision of Wagley J. in Mhonko's
Waste and Security Services CC and Others v Transnet
and Others Case
No. 9137/2006 of 7 March 2007 Transnet had also applied a bench-mark
which had then not been communicated to the
tenderers. The learned
Judge found this process not to have been unfair for that reason. He
gave no reasons for that conclusion,
nor did he deal with any
contextual argument or relevant authorities. I am therefore
constrained to disagree with it. It is not
in line with the
authorities that I have mentioned, nor in line with s3 of PAJA.
31.
I
do however agree with respondent's argument herein that the setting
of a bench-mark is not in itself impermissible during an adjudication
process. It would be in line with the provisions of
s2
of the
Preferential Procurement Policy Framework Act 5 of 2000
, and it would
be a policy-laden issue. See: Logbro Properties supra at par. 21.
32.
Also,
if there is a good reason, i.e. an objectively justifiable reason, it
would in any event not be arbitrary or irrational in
terms of the
relevant provisions of
s6
of PAJA.
33.
A
bench-mark properly set could also contribute to an Organ of State
achieving or obtaining the best value for money under the given
circumstances, depending on the facts. I agree with the contention
that the lowest bid by price would not necessarily be the most
meritorious bid in all circumstances. Cost effectiveness ought to be
related to risk involved on any given facts. Organs of State
have a
broad discretion in determining the factors that they take into
account. A Court is not an Organ of State which has been
empowered to
act according to legislation applicable to it, subject to the
principle of legality of course. See: Fedsure Life Assurance
and
Others v Greater Johannesburg Transitional Metropolitan Council and
Others
[1998] ZACC 17
;
1999 (1) SA 374
CC and Albutt v Centre for the Study of
Violence and Reconciliation
2010 (3) SA 293
CC.
Where
such discretionary power is exercised lawfully (and fairly), the
Courts will not, or ought not, readily interfere with it.
See: Bato
Star Fishing (Pty) Ltd v The Minister of Environmental Affairs
[2004] ZACC 15
;
2004
(4) SA 490
CC par 48.
On
the facts before me I therefore have no hesitation in finding that:
34.1
the setting of a bench-mark for price during an adjudication of a
tender is not per se unlawful in terms of s217 of the Constitution,
the
Public Finance Management Act 1 of 1999
, the
Preferential
Procurement Policy Framework Act 5 of 2000
or the Preferential
Procurement Regulation 2001 published under the latter Act;
34.2
depending on the context, such bench-mark may by unfair, if not
communicated to tenderers together with an invitation to (at
least)
make representation in request of it (at least in writing).
35.
On
the facts before me, the actual bench-mark was arrived at without a
proper reasoned determination of its necessity and the actual
water-mark. It ought to have been communicated to the tenderers with
an invitation to make representations. Accordingly, the application
for review must succeed.
As
I have said, the relevant contract has not been finally concluded
with Second Respondent as a result of previous orders of this
Court
involving Third Respondent. It follows that I am of the view that
considerations of pragmatism and practicality do not stand
in the way
of setting the award of the tender aside See: Chairperson, STC, v JFE
Sapela Electronics
2008 (2) SA 638
SCA at 650 S-D.
37.
I
must accordingly make an order that is just and equitable, in
compliance with the provisions of s8(1) of PAJA. Section 8(1)(c)(i)
is appropriate herein. There are also no exceptional circumstances
present which would empower me to award the tender myself to
Applicant. A Court is not a tender board, liquor board or licensing
board, and it must leave administrators to comply with their
duties
and exercise their functions, lawfully and fairly of course.
The
following order is therefore just on the facts before me:
1.
The award of tender No. HEAL/024/10/NP by First Respondent to Second
Respondent is set aside.
2.
The tender is remitted to First Respondent for re-consideration which
must include a factual determination of a bench-mark, if
such
benchmark is required for purposes of determining the appropriate
price.
3.
If a bench-mark is required and determined in respect of price, each
interested party is to be informed thereof, and the reasons
adopted
in respect of it, and be invited to make at least written
representation in respect of it.
4.
Any such representations are to be considered by First Respondent
before the tender is awarded.
5.
First and Second Respondents are ordered to pay the costs of this
application, including costs of two Counsel.
22
June 2012
H
J FABRICIUS J
JUDGE
OF THE NORTH GAUTENG HIGH COURT
Case
number: 5948/2011
Counsel
for the Applicants: Adv. S. du Toit SC
Adv.
J.J Meiring
Instructed
by: Cliffr Dekker Hofmeyer
C/O
Friedland Hart Solomon & nicholsonFirst Floor
Block
4- Monument Office Park
79
Steenbok Avenue
Monument
Park
Pretoria
Counsel
for the First Respondent: Adv. P.J.J de Jager SC
Adv.
H.C. Janse van Rensburg
Counsel
for the Second Respondent:Adv. Wesley
Instructed
by: The State Attorney
15th
Floor, Saau Building
cnr
Schoeman and Andries Streets
Pretoria
And
Fluxmans
INC
C/O
Jacobson & Levy INC
215
Orient Street
Arcadia
Pretoria
Heard
on: 11/06/2012
Date
of Judgment: 22 June 2012