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[2011] ZAFSHC 212
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Jorian Constructions CC v Mangaung Local Municipality and Others (513/2011) [2011] ZAFSHC 212 (22 December 2011)
FREE
STATE HIGH COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
Case No. : 513/2011
In
the matter between:-
JORIAN
CONSTRUCTION CC
…..............................................
Applicant
and
THE
MANGAUNG LOCAL MUNICIPALITY
…................
1
st
Respondent
THE
CHAIRMAN: BID ADJUDICATION
COMMITTEE:
CONTRACT W0905B
…..........................
2
nd
Respondent
PRO-CARE
CIVILS (PTY) LTD
…...................................
3
rd
Respondent
_______________________________________________________
CORAM:
MUSI, JP
et
NAIDOO, AJ
_______________________________________________________
JUDGMENT BY:
MUSI, JP
_______________________________________________________
HEARD ON:
21 NOVEMBER 2011
_______________________________________________________
DELIVERED ON:
22 DECEMBER 2011
_______________________________________________________
INTRODUCTION
[1]
This is a review application in terms of which the applicant seeks
the following orders:
1.
The awarding of the contract no.
W0905B
, for the Addition to
Northern WWTW: Sewer Station & Pumplines by the second
respondent, under the auspices of the first respondent,
such contract
having been awarded to the third respondent, be reviewed and set
aside.
2.
The awarding of said contract be referred back to the first and
second respondents for deliberation and awarding afresh.
3.
The first respondent be ordered to pay the costs of the application.
Alternatively, and in the event of any of the other respondents
opposing, then and in that case, such respondent, jointly and
severally, payment by one the other to be absolved.
The
facts of the case are largely undisputed and are briefly set out
hereunder.
FACTUAL
BACKGROUND
[2]
During April 2010 the City Manager of the first respondent
municipality called for tenders to be submitted in respect of work
to
be done on two projects. The one project went under the name W09058,
for sewer mains, and the other W0905B for a sewer pump
station and
pipelines. The applicant tendered for contract W0905B and this is the
only contract with which these proceedings are
concerned. There were
other bidders but the tender was ultimately awarded to Pro-Care
Civils (Pty) Ltd, the third respondent herein.
Clearly, the third
respondent has an interest in these proceedings but it has not filed
any papers and will presumably abide the
decision of the court.
Henceforth any reference to the respondents shall be reference to the
first and second respondents collectively.
[3]
The assessment and evaluation of the bids went through several
stages. Firstly, the respondents engaged the services of engineering
consultants by the name of Aurecon, which did the initial evaluation
of the bids and awarded points to each bidder. They awarded
the
applicant the highest points, followed by the third respondent.
Aurecon’s report went to the Tender Evaluation Committee
of the
first respondent’s municipality, which adopted Aurecon’s
report save in one major respect. They disqualified
the applicant on
the basis that it was being investigated by the first respondent’s
Anti-fraud and Corruption Unit. This
referred to allegations of
fronting, about which more is to follow. The Tender Evaluation
Committee recommended that the tender
be awarded to the third
respondent. The Tender Evaluation Committee report then went to the
Bid Adjudication Committee of the first
respondent, which endorsed
the recommendation that the tender be awarded to the third
respondent. Finally, all the reports went
to the first respondent’s
City Manager, Mr Msibi, on whose shoulders the final decision rested.
He endorsed the recommendation
to award the contract the third
respondent and duly did so. It is this decision that forms the
subject of these proceedings.
[4]
It should be noted at this juncture that Aurecon had no power of
recommendation and in fact made no recommendation. It can be
accepted
that they based their assessment purely on the documentation placed
before them by the respondents. The tender evaluation
and bid
adjudication committees, on the other hand, are component structures
of the municipality and each had the power to made
recommendations,
as they indeed did. It may also be noted that each of these
committees applied their minds independently to the
process as shown
by the fact that whereas the Tender Evaluation Committee had
recommended that both contract A and B be awarded
to the same entity,
the Bid Adjudication Committee disagreed and decided that tender A be
awarded to a separate entity. I think
it can also be accepted that
Aurecon, being an outsider, would not necessarily be privy to some of
the information that the tender
evaluation and bid adjudication
committees would have had.
THE
ISSUES
[5]
The applicant’s case is that it should have been awarded the
tender based on its highest score. It contends that the decision
not
to award the contract to it offends against the applicable statutory
provisions, is not based on any reasonable grounds and
is irrational.
[6]
This case essentially turns on the reasons advanced by the
respondents for not awarding the contract to the applicant, for it
is
not disputed that ordinarily the bidder with the highest points wins
the tender. The reasons advanced are briefly that the Tender
Evaluation Committee suspected, on reasonable grounds, that the
deponent to the applicant’s founding affidavit, M/s Elizabeth
Mojatau (“Mojatau”), who is alleged to be the sole member
of the applicant close corporation is in fact fronting for
someone
else. This allegation goes to the root of the allocation of points,
and if true, it would mean that the applicant was awarded
the points
to which it was not entitled. In other words, that the points would
have been allocated to it fraudulently. For a better
understanding of
the crucial role played by the allocation of points in the awarding
of tenders, it is necessary to give a brief
outline of the relevant
statutory framework.
STATUTORY
FRAMEWORK
[7]
The foremost relevant statutory provision is section 217 of the
Constitution which stipulates in subsection 1 that when an organ
of
state, such as the first respondent, contracts for goods or services
it must do so in accordance with a system that is fair,
equitable,
transparent, competitive and cost effective. However, subsection 2
thereof specifically allows for a procurement policy
that provides
for categories of preferences in the allocation of contracts and for
the protection or advancement of persons or
category of persons
disadvantaged by unfair discrimination.
[8]
The Preferential Procurement Policy Framework, Act 5 of 2000 (“the
Procurement Act”) was enacted precisely in fulfilment
of the
injunction of section 217(3) of the Constitution in order to
prescribe a framework within which the policy of preferring
certain
categories of persons in the awarding of state contracts should be
implemented. Of particular importance for present purposes
are the
Regulations promulgated by the Minister of Finance on 10 August 2001
under the Procurement Act. The regulations give
inter alia
a
definition historically disadvantaged individuals (“HDI”)
and describe the criteria for allocation of points. Significantly,
Regulation 2 stipulates that a maximum of 20 points maybe awarded to
a tenderer for being an HDI. Regulation 13 deals with the
principles
applicable to allocation of preference points and item 4 thereof
specifically prohibits the allocation of preference
points in respect
of HDI’s who are not actively involved in the management of an
enterprise or business and who do not exercise
control over the
enterprise which is commensurate with the degree of their
shareholding or ownership.
[9]
The effect of these regulations is that Mojatau, an HDI, may have had
a 100% ownership of the applicant but if she was not actively
involved in its management and did not exercise control over it that
was commensurate with the degree of her ownership (100% in
this case)
then applicant was not entitled to be allocated preference points. It
is not disputed that the applicant would not have
scored the highest
points had it not been awarded preference points. Viewed in this
context, the allegation of fronting is crucial.
SUSPICION
BASED ON REASONABLE GROUNDS
[10]
The suspicion that Mojatau is fronting arose from a statement that
she made during December 2009, annexure “MK4”
to the
respondent’s answering affidavit. The contents of this
statement can be summarised as follows:
(a)
She started work as a businesswoman in 2007 but struggled because she
did not have the necessary experience.
(b)
She then met Mr Steyn with whom she had previously worked and
appointed him manager. Steyn kept her in the dark about the finances
of the business and she did not know how the funds were utilised. She
was only paid a salary of R6 000,00 per month.
(c)
Steyn informed her about the contracts that he had secured and showed
her the sites in the various towns. However, he did not
tell her how
much money was paid in respect of the work, how much was spent and
how much was outstanding (profits made).
(d)
She then went about investigating quietly until she came across
people with knowledge.
(e)
Some people came to enquire about the jobs and she explained to them
what was happening but they did not come back to her. She
now wants
justice to be done and is asking the police to investigate.
[11]
Now, the contents of this statement have not been disputed. When read
together with the affidavits filed of record, it can
be inferred that
the work or job she is talking about relates to tenders, that the
person she had appointed as manager of her business,
Mr Steyn, was in
charge of securing the contracts through tendering, carried out the
work and was in charge of the finances of
the business. She was shown
the sites where the work was to be done but was not actively involved
and was kept in the dark about
how much money was paid for the work,
how much was disbursed and what was the profit. She only received a
monthly salary.
[12]
Then there is the affidavit appearing at page 120 of the record,
which was also annexed to the answering affidavit. It was
made in
connection with a previous tender under contract number W0626
submitted to the first respondent. The deponent is N. E.
Miya, who is
apparently the same person as Mojatau. She is cited as a member who
owns a 100% equity in the tendering enterprise.
The purpose of the
affidavit was to confirm the deponent’s shareholding and that
she/he was actively involved in the management
and has control over
the business. But interestingly the affidavit is signed by Mr Steyn.
As can be seen at the bottom of the affidavit,
the tendering business
is described as Jorian Construction, the applicant herein. This
affidavit is
prima facie
evidence of fraud. It strengthens the
inference that it is Steyn who had been submitting tenders on behalf
of the applicant, using
Mojatau’s HDI status.
[13]
The applicant and its legal representatives do not seem to appreciate
the seriousness of this fraudulent affidavit. In the
applicant’s
papers, it is simply dismissed as an incorrect affidavit. The
applicant’s counsel, Mr Grobler, similarly
dismissed it as a
mistake. His attitude appears to be that since the relevant tender
was withdrawn, the fraud can simply be wished
away. Mr Moerane, for
the respondents, pointed out that the deponent was initially Johan
Steyn but this was altered to N. E. Miya.
Counsel suggested that the
alterations were probably made after the Commissioner of Oaths had
signed it. Either way, the document
points to manipulation of the
first respondent’s tender processes.
ARGUMENTS
AND DISCUSSION
[14]
Now, Mr Grobler challenged the respondent’s reliance on the
allegations of fronting on a number of grounds. Firstly,
he pointed
out that Mojatau’s statement related the events that took place
in 2009 long before the impugned decision was
made. He argued that
the City Manager (Mr Msibi) made it clear in his answering affidavit
that the alleged fraud had been investigated
and that such
investigations had been concluded. Counsel submitted that the
investigations had failed to establish any wrongdoing
on the
applicant’s part. This being the case, it was irrational to
rely on the suspicion of fronting, so the argument went.
Counsel
further argued that the City Manager could not be believed when he
says that his decision was based on the suspicion of
fronting because
of the contradictions inherent in his answering affidavit.
[15]
There is indeed a contradiction between paragraphs 5.5 and 5.6 of the
answering affidavit. The Tender Evaluation Committee
disqualified the
applicant’s bid on the basis that the applicant was being
investigated and that the investigations were
still pending. The City
Manager endorsed this in paragraph 5.5. Yet in the next paragraph 5.6
he makes it clear that the investigations
had been concluded and that
they revealed that the deponent was a manager and an alleged 100%
shareholder who did not receive financial
benefits proportionate to
her ostensible shareholding and that she did not exercise control
over the enterprise.
[16]
The difficulty one has is that no affidavit has been filed by any of
the members of the Tender Evaluation Committee and it
may well be
that when they disqualified the applicant the committee was under the
mistaken impression that the fronting allegations
were still under
investigation. What is clear, in my view, is that the City Manager
himself was aware that there were no investigations
pending. A
perusal of the rest of his affidavit clearly reveals that he relied
for his decision on Mojatau’s statement and
the fraudulent
affidavit, both of which were annexed to his affidavit. Viewed in
this context, the contradiction does not detract
from the essence of
the respondent’s case and is not material.
[17]
In dealing with this matter, it is important to keep in mind that it
is the decision of the City Manager that is sought to
be reviewed and
not the decision of the committee that disqualified the applicant.
Although the City Manager was guided by the
recommendation of such
committee, he was the decision maker, and the buck stopped with him.
At the end of the day, it is the City
Manager’s reasons and the
facts on which they are based that must be scrutinised. And there can
be no doubt that his decision
amounts to administrative action as
defined in section 1 of the Promotion of Administrative Justice Act,
nr 3 of 2000 (“PAJA”).
On the other hand, it is doubtful
that the decision of the Tender Evaluation Committee to disqualify
the applicant is administrative
action. In any event, the
disqualification was endorsed by the City Manager and forms part of
his decision.
[18]
The cardinal question is whether the impugned decision was reasonable
and procedurally fair. This is an issue that can only
be decided upon
a conspectus of all the evidence on record and I proceed to deal
therewith.
[19]
In her supplementary affidavit filed after the record of the
proceedings had been filed, Mojatau says that she had been wholly
unaware of the investigations pertaining to the fronting allegations,
that she had not been contacted at all and had been afforded
absolutely no audience. But interestingly she omits to disclose that
she had in fact been contacted by the first respondent’s
officials and had made a statement to them wherein she complains
about being excluded from the operations of her business. She
deliberately concealed the statement and when it was produced, she
tried to explain herself by alleging, falsely in my view, that
the
contents were dictated to her. Mojatau is clearly untruthful and
unreliable. Further instances of untruthfulness and unreliability
emerge in her replying affidavit. She attempts to explain the
incriminating statement by saying that she had not been active in
the
business because of illhealth. This is what she says:
“
4.4
Between
2007
and
2008
I had fallen extremely ill. This necessitated that I to a large
extent (in that period) hand the management of the entire business
to
Mr
Steyn
.
The only reason for this was because of my illness.
4.5 It is
correct that during that time, I was visited by three officials of
first respondent. I cannot recall their names.”
Two
questions arise. Firstly, if it is true that she had been inactive in
the business because of illhealth and that she had handed
over the
running of the business to Steyn, why then complain about being
excluded from the management thereof? Secondly, she does
not explain
why the statement was made in 2009. She is clearly lying.
[20]
The statement discloses that she is not actively involved in the
running of the business and that she does not exercise control
over
its operations, let alone control commensurate with her 100%
shareholding in it. It is noteworthy that in her replying affidavit
she does not provide any details of her role in the operations of the
business. All she says is that she holds a 100% interest,
that she is
an employee and that she is assisted by people like Mr Steyn. She has
literally left the contents of her incriminating
statement
undisturbed. It is also noteworthy that instead of dealing with these
serious allegations she shifts focus to the fact
that she had not be
given a hearing and her contention that the respondents failed to
produce proof of wrongdoing.
[21]
I agree with Mr Moerane, for the respondents, that it cannot be
correct to insulate the investigation conducted in respect
of the
2009 tender from the tender involved in this case. The investigations
were about the HDI status of the applicant and what
was discovered
then equally applies to the instant tender. The matter would have
been different had Mojatau given a credible explanation
of her role
in the tendering enterprise or how the situation had changed. She has
failed to so and instead tried to mislead this
court. The result is
that the reasons for suspecting that she is fronting remained valid
in respect of the present dispute.
REGULATION
15
1
[22]
There was a dispute in argument whether regulation 15 was applicable
to the instant matter. Counsel for the applicant argued
that this
regulation could only be invoked where a tender had been awarded and
it is discovered that preference points had been
fraudulently
obtained and not in a case, such as the present, where a tender had
not yet been awarded when the applicant was disqualified.
Counsel for
the respondent, on the other hand, argued that once the allegations
of fraud had come to the attention of the Tender
Evaluation
Committee, it was entitled to act in terms of the regulation.
[23]
In my view, regulation 15 is indeed applicable to the instant matter.
The case of
VIKING
PONY AFRICA PUMPS (PTY) LTD t/a TRICOM AFRICA v HIDRO-TECH SYSTEMS
(PTY) LTD AND ANOTHER
2011
(1) SA 327
(CC) provides authority for this. There it was held that
once information was brought to the attention of the organ of state
considering
a tender disclosing that preference points may have been
obtained fraudulently, the organ of state was obliged to act in terms
of regulation 15. The Court interpreted the word “detect”
as meaning
inter
alia
no
more than discovering or getting to know of the relevant allegations.
The words “act against” were interpreted as
including
institution of an investigation into the allegations made against the
tendering entity. In
VIKING
the
complaint related to previous tenders, it being alleged that
VIKING
been
awarded the tenders based on preference points that were fraudulently
awarded.
[24]
In my view, it makes no difference that
in
casu
the
tender had not yet been awarded. What is important is that preference
points had already been awarded to the applicant and information
had
come to light that the points may have been fraudulently obtained. At
this stage, the Tender Evaluation Committee was entitled
to act in
terms of regulation 15. The only question is what form of action
should the respondents have taken.
[25]
At this juncture, it is apposite to refer to what Mogeng J (as he
then was) said in para [34]:
“
[34]
Whenever an enterprise is plausibly accused of having furnished false
information in its tender documents, the organ of State
responsible
for the tender is, upon becoming aware of the alleged
misrepresentation, under an obligation to investigate the matter.
This stems from the tenderer's obligation to vouch for the
truthfulness and correctness of the information provided in terms of
reg 14. Furthermore, the organ of State has the power to call
upon any tendering enterprise to submit satisfactory documentary
proof of any issue relating to the tender. This would be done to
enable the organ of State to investigate and satisfy itself about
the
correctness or otherwise of the issues relating to the tender. In
sum, reg 15 enjoins the organ of State to 'act against' any
tenderer
that seems to have flouted the law.”
[26]
It is clear that the answer is that the respondents should have
conducted a thorough investigation in order to verify the
allegations. They would have been entitled to call for more
information from the applicant and to demand production of documents
but they were not at that stage obliged to give the applicant any
audience. However, once they had obtained conclusive evidence
they
would have been under an obligation, before making any decision
adverse to the applicant, to give the applicant a hearing.
Now,
whereas the respondents had conducted an investigation into the
allegations of fronting, no conclusive evidence had been established.
What the investigation established is, as I have said,
prima
facie
evidence
of fronting. If the respondents were not inclined to conduct a
thorough investigation in order to obtain conclusive evidence,
which
they should have done, they should then have given the applicant a
hearing before taking the decision to disqualify it. This
they failed
to do and in this respect, the impugned decision was procedurally
flawed.
[27]
This does not, however, mean that the decision should be set aside.
There are other considerations in this matter that militates
against
the setting aside of the impugned decision. In the first place, I
have found that there is
prima
facie
evidence
of fronting in this case. With such cloud hanging over the applicant
it is hardly conceivable that it could be awarded
the tender.
Secondly, a tendering enterprise is under an obligation to play open
cards and be honest and truthful in the presentation
of its bid. I
have found that the deponent to the affidavits filed on behalf of the
applicant has been untruthful and unreliable
and the fraudulent
affidavit points to manipulation of the tender process by the
applicant. Most importantly, I take into account
that no suggestion
whatsoever has been made of any foul play in the awarding of the
tender to the third respondent and it is important
to note that the
third respondent obtained the next highest points. There is not the
slightest suggestion of any fraud or corruption
in the awarding of
the tender to it. One has to take into account also that the tender
relates to the provision of services to
the residents under the first
respondent’s jurisdiction. Any further delay in the execution
of the contract may adversely
impact on the provision of essential
services. The Tender Evaluation Committee highlighted in its report
the need for the two contracts
under W0905A and W0905B to be executed
at the same time and it may well be that these proceedings are
holding up the execution
of other contract. Finally, it is imperative
that the respondents conduct a thorough investigation of the
allegations levelled
against the applicant and establish the truth in
the interest of all the parties
2
.
It will be unreasonable that the execution of the contract be delayed
further pending finalisation of such investigations.
CONCLUSION
[28]
I would in the premises dismiss the application. However, the
circumstances of this case are such that no costs order should
be
made. It is otherwise in the interest of justice that the relevant
allegations be fully and properly investigated so as to either
confirm them or clear the applicant for purpose of future tenders and
I intend to make an order the that effect.
ORDER
[29]
In the result, the following order is made:
(a)
The application is dismissed;
(b)
The respondents are ordered to conduct a further and thorough
investigation of the allegations of fronting levelled against
the
applicant, in order to confirm them or clear the applicant, such
investigation to be concluded within 6 months of delivery
of this
judgment.
______________
H. M. MUSI, JP
I
concur.
_______________
S. NAIDOO, AJ
On
behalf of the applicant: Adv. S Grobler
Instructed
by:
Gous
Vertue & Associates Inc
BLOEMFONTEIN
On
behalf of the respondents: Adv. M T K Moerane SC
With
Adv.
T L Manye
Instructed
by:
Moroka
Attorneys
BLOEMFONTEIN
/eb
1
Subregulation
1 thereof reads as follows: “An organ of state must, upon
detecting that a preference in terms of the Act
and these
regulations has been obtained on a fraudulent basis, or any
specified goals are not obtained of the performance of
the contract,
act against the person awarded the contract.”
2
If
the first respondent’s Anti-fraud and Corruption Unit is
incapable of proper investigation, the assistance of any of
the
specialised investigative units of the South African Police Services
or a firm of forensic auditors can be sought.