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[2009] ZAGPJHC 128
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3P Consulting (Pty) Limited v Gauteng MEC for Health (32100/2009) [2009] ZAGPJHC 128 (10 December 2009)
SOUTH
GAUTENG HIGH COURT
JOHANNESBURG
RAPPORTEERBAAR:
NEE
VAN
BELANG VIR ANDER REGTERS: NEE.
HERSIEN.
CASE
NO: 32100/2009
DATE:
10/12/2009
In the matter between
3P CONSULTING (PTY)
LIMITED Applicant
and
GAUTENG MEC FOR
HEALTH Respondent
JUDGMENT
LAMONT
J:
The
applicant has instituted proceedings against the
respondent, seeking a
declarator that the services agreement between the applicant and
respondent was duly renewed; a direction
that the
respondent implement
the terms of the renewed agreement for payment of certain monies and
costs.
During
April/May 2007 the respondent published advertisements
calling for proposals
by service providers for the drafting and facilitation, as well as
the implementation of what was described
as a turnaround strategy for
the respondent.
Proposed
tenderers were required to attend a briefing session. During the
briefing session a document was distributed to those persons
who
attended. As appears more fully from the terms of reference the
respondent was faced with challenges regarding efficient, innovative
and well coordinated ways of managing facilities and projects so as
not only to meet their mandate with insufficient budgets but
also to
include new benchmarks and associated best practices.
The
respondent sought proposals as to how to deal with this matter. The
terms of reference were broadly framed and did not stipulate
the
expected duration of the proposed agreement. What is apparent from
the invitation to submit proposals is that the respondent
sought to
employ particular person who could deal with a variety of problems
which were framed in the form of a project. The proposed
project was
not time based but was project based. For this reason, it seems to
me, no time was stipulated. It is apparent that
the time contemplated
would be the time required to complete the project.
During
May 2007 the applicant submitted a proposal to the respondent. On 5
June 2007 the respondent accepted the proposal, subject
to the
signing of a service agreement. In 2 July 2007 the service agreement
was signed. In terms of clause 3 of the service agreement
the
applicant was required to provide and execute the project, and
provide the respondent with such additional services as
were agreed from time
to time. The respondent was obliged to provide
the
applicant with the relevant information it required to enable the
completion of the
works, access to the relevant equipment and data,
and
such assistance generally as was needed.
The
proposal submitted by the applicant contained a projected
timeframe. The
projected timeframe was provided with the objective of providing a
transparent, complainant, timeously executed project
within
budget. The proposed
timeframe illustrated in its terms the applicant’s
direct involvement. It
stipulated that there would be a large number of
variables, and that in
the view of the applicant the way in which the
maximum
possible potential could be (achieved was that the project
duration be for an
initial period of 24 months, renewable for a further
period of 24 months.
The renewable element was stated to be required
to
ensure the optimum skill transfer protection of intellectual property
and to ensure of
continuity.
The
proposal anticipated that the entire team would reduce on an annual
basis by approximately 20% per annum as the capacity
support programmes
enabled the internal staff to be trained to
appropriate
levels. If the staff were to be reduced by approximately
20% per annum it is
immediately apparent that the four year term either
contemplated an
accelerated process at: some point, or that the project
would take five years.
This notwithstanding, what was contained within the offer was a two
year initial plus a two year renewal
period.
It
is further apparent that what was put out to tender was the
respondent's need to
find a particular person to do a particular piece of
work. The applicant
proposed that the work could be done within the
timeframe set out in
its proposal. The period of two years as an initial period had not
been contemplated by the respondent until
it was suggested by the
applicant. It is apparent from the internal records and
workings of the
respondent that it referred to the two year period once
the applicant had
raised this time period. It may be that this was the
respondent's shorthand
way of referring to the lengthy project
timeframe
contained as a component of the proposal. It may be that
the respondent had,
once it saw the proposal, identified two years as the appropriate
period.
Whichever
the case, at the time the proposal was submitted there was no time
period contemplated for the project to be completed.
The period of two
years is mentioned for the first time in a letter of
5
June 2007 appointing the applicant- and is also mentioned in the
respondent's internal
document dated;4 June 2007 where it appears
against
the caption "contract duration". In the submission document
dated 4 June 2007 it
appears in the caption "request of the GSSC for
DAC approval of the
award in respect of the request for proposal for the
establishment of a
project management unit for a period of two years
..."
and in paragraph 1 of the letter requesting the approval. It appears
also in the Minutes of the departmental acquisition
council of 4 June
2007 "6.2 Ref 1/5/3-TA request of the GSSC for health DAC
approval of the award in respect of the request
for proposal for the
establishment of a
project management Unit for a period of two years ...
decision approved".
The
Minutes reflect that while the DAC approved the case a
number of comments
were noted for clarity. These comments include a comment made in the
following terms:
"The
plan health agency will function in managing high cost assets,
resources and leveraging funding sources. Core high level
staff will
be transferred from the PMU; gradually escalating migration of
staff with the view of
changing the structure over
four
years from predominantly external to internal
staff."
It
is apparent from the internal document that when the approval was
given the decision making body was aware of the changing structure
which was to be implemented over the four year period, and
made that comment as
part of the information which was required to be
known
for clarity.
It
is apparent from the internal processes that the respondent
was aware of the terms
of the proposal made by the applicant, namely
that
there would be an initial period of two years and a renewal period
of two years. The
service agreement which was concluded between
the
applicant and respondent, pursuant] to the proposal made by the
applicant, and the
decision of the respondent to approve the proposal is
contained in the
services agreement. Paragraph 2.2 of the services
agreement provides
that the agreement commences on 5 June 2007
and
terminates on 4 June 2009 unless extended as contemplated in 2.3 and
2.4 of the agreement. Paragraph 2.3: reads as follows:
"2.3
The department agrees to renew this agreement for a further period of
two years on substantially the same terms as this
agreement, it being
agreed that 6 (six) months prior to 5 June 2009 the parties shall
have afforded each
other
an opportunity to negotiate any matters
relating
to the renewal referred to herein (except for
the
renewal itself)."
Although
paragraph 2.2 referred to paragraphs 2.3 and 2.4 there
appears to be no
paragraph 2.4.
Pursuant
to the agreement concluded, the applicant rendered
the
services it was required to perform. This involved the employment of
extensive staff, specialist consultants and subcontractors.
The
applicant further
seconded staff to the respondent to assist with various
projects. It appears
the respondent must have been satisfied with the applicant's
performance as during the period October/November
2008
the applicant and
respondent entered into negotiations for the renewal
of
the agreement. On 4 December 2008 the applicant presented the
respondent with a
proposal for the renewal of the services agreement
for
a period of three years. The period of three years was proposed
primarily because many
of the current projects which were then being undertaken required the
applicant's expertise and input over
the course
of
the next three years.
The
fact that this additional year period might be required was in
my view foreshadowed
buy what was set out earlier by the applicant in
its
proposal, namely that at a 20% reduction of staff the required period
would be five years.
It
is apparent that at the time when the negotiations for renewal were
undertaken that certain projects could only be completed
in year
number three, and that
there was a need for the personnel to mature in
their
new employment.
On
24 February 2009 the respondent indicated to the applicant that the
acquisition centre had approved the extension of the
agreement at a meeting
on 17 February 2009 but that the approval was
subject
to certain conditions. The conditions related to internal steps
the respondent was
required to take |in obtaining the approval and
implementation of the
renewed service's agreement. The respondent
did
take the relevant steps and on 23 March 2009 the respondent wrote
a letter to the
applicant, approving the applicant's proposal for a period
of three years until
31 May 2012.
A
variety of submissions were made concerning whether or not
the letter of 17
February 2009 was subject to a condition which was not
fulfilled. In my view
it appears that the condition, if it was required to be
fulfilled, was
fulfilled, and in any ; event it appears that the
23
March 2009 letter unconditionally accepted the proposal. In my view
there was no merit in this point.
Subsequent
to March 2009 the respondent commenced distancing itself from the
applicant, and 'resisting the implementation of the
renewed
agreement. During April 2009 a new MEC for health was appointed. It
became apparent from the; respondent's conduct towards
the applicant and
other persons that a review of current initiatives was being
undertaken and that there was consideration being
given to the
realignment of
commitment having regard to the then political mandate.
On
1 June 2009 the respondent took a decision that the
applicant's renewed
services agreement be reviewed with the aim of
terminating it as a
matter of urgency. During June 2009 the respondent
commenced refusing the
applicant access to premises and patently
commenced
repudiating the contract.
On
1 July 2009 the respondent evidenced its conduct in a letter.
In that letter the
respondent states:
“
The
tender document indicated to would be
tenderers
that the project was for a period of two years, which the department
could not vary after the award of the tender."
Accordingly
the contention of the respondent was that the extension of the
services agreement for the additional period
constituted an
arbitrary extension and a failure to take into account
relevant
considerations such as the provisions of the law and the expectations
of other potential service providers. These matters
were
actually set out
within the letter.
The
respondent further claimed that the renewal of the services
agreement was wrongful
and irregular, and reviewable by a court of competent jurisdiction.
The respondent then clearly set out the
position
it
held:
"The
department will no longer perform in terms of
the
purported extension of the contract."
A
clearer repudiation of the contract would be difficult to find. The
claim made by the respondent that; the tender documents indicated
to would be tenderers
that the project was for a period of two years was
incorrect. The tender
document set up no period for the performance of the work. Indeed
what the tender document set up was the
requirement of a person to
perform] a particular project and no
timeframe
within which the project was to be completed.
The
claim that the respondent had acted arbitrarily and failed to
take into account the
relevant considerations, including law and
expectations
of service providers I will deal with more fully below.
In
my view insofar as the conclusion of the initial contract for the
period of two years
incorporating the period of the additional two years'
renewal is concerned,
the parties concluded a valid and binding contract. The respondent
followed the formal decision making process
and approved the
contract. It was submitted that the respondent had,
to
the knowledge of the applicant, only had authority to approve the
contract for a period
of two years. Reliance was placed upon the letter
dated
5 June 2007 as substantiation for this submission.
As
I have set out above it is apparent that the period over which
the project was to be
concluded was a 'period which had been defined and created by the
applicant in the proposal. Prior to that
time there
had
been no time period stipulated.
The
respondent, when it
considered
the matter, was aware of the fact that it was considering the
particular contract which it was to approve if it so decided,
and the
terms of that
contract, which in itself; had contained the extension period. This
is apparent from the comment also to the decision
which I have cited
above.
In
addition the respondent could not unilaterally vary the terms of the
offer made by the applicant. In my view the respondent however,
neither intended to
vary those terms nor did it. It intended to, and did
conclude the contract
on the terms contained within the writing. In my
view
as far as the authority was concerned, there is ample evidence
that the respondent’s
officials were properly authorised to contract on
the
basis of the writing. Accordingly, in my view, there is no merit in
the lack of authority submission. The respondent's attack
on the
validity of
the
contract based on authority accordingly must fail. The respondent's
attack on the contract
at an administrative level must, in my view, also fail on the basis
that the administrative action was properly
taken. Inasmuch as I have
considered the administrative action, it is not necessary for me to
deal with the other arguments during
which
submissions
were made that I should not even reach that point. I will deal with
those other arguments below.
The
respondent's case in the answering Affidavit, based on the
invalidity was based
primarily upon the alleged invalidity of the services
agreement. The second
submission concerned the renewal of the
services
agreement which was legally flawed, so it was submitted.
I
have dealt with the considerations concerning the conclusion
of the original
services agreement. Insofar as the renewal of the services agreement
is concerned the renewal was in terms of the
original
tender, and the original approval as contemplated by the contract. It
was for an additional period of one year (originally
in the contract
two years were provided for, and in fact three years was awarded). A
submission was made that because the period
of three years had been
agreed in the renewal, that the renewal of the services agreement was
invalid as the required competitive
processes had not been followed.
The respondent relied on Section 217(a) of the Constitution and
Section 38(1)(a)(iii) of the PFMA
which provides for an organ of
state contracting for goods and services to do so in accordance with
a system which is fair, equitable,
competitive and cost effective.
All
that Section 217 of the Constitution, and Section 38 of the PFMA
require is that the public procurement body procures in accordance
with a system which is fair, equitable, transparent, competitive and
cost effective. The treasury regulations promulgated under
Section 76
of the PFMA expressly provide for an exemption from the competitive
bid requirement which must usually accompany all
public procurement
where it is impractical to engage in a competitive tendering process.
Regulation 16(A)(6.4) provides as follows:
"If
in a specific case it is impractical to invite competitive bids, the
accounting officer or accounting authority may procure
the required
goods or services by other means provided that the reasons for
deviating from inviting competitive bids must be recorded
and
approved by the accounting
officer
or accounting authority."
In
the present case the three year renewal of the services contract, in
my view falls squarely within the ambit of the regulation.
The
original contract for a period of two years plus two years' renewal
contemplated the completion of a project. The tender contemplated
the
identification of an appropriate person to enter into the contract
and perform the work, and complete the project. That person
was
identified in the form of the applicant. The applicant commenced the
work, and in the course of commencing it identified that,
as was
foreshadowed in the original contract, the two plus two year period
might need to be extended. In fact it was required to
be extended to
a three year period. The only person reasonably possible to perform
the works is the applicant, which was integrally
involved with the
completion of the project, having been engaged in it for the initial
period of two years. The applicant over
the period had developed
strategies and tactics by which the project was to be completed.
These
strategies and tactics had been implemented to the satisfaction of
the respondent over the. period. The only person who, in
my view,
logically and properly could complete the works as
contemplated either by
the original contract or by the exception provided for in the
regulation is the applicant. There was accordingly,
in my view, a
proper compliance with a fair, equitable, transparent, competitive
and cost effective system. The treasury regulation
is valid, remains
in force, and is constitutionally acceptable, and remains
unchallenged.
In
my view accordingly there is no administrative law objection to the
renewal of the contract for the three year period. It is
apparent
from the contract concluded between the applicant and the respondent
that the applicant was appointed to the conclusion
of the contract
contractually. That the period was anticipated to be a two plus two
year period but that the situation developed
into being a time frame
comprising a two plus three year period.
When
the respondent indicated that it would renew the contract, it wrote
in its letter of 3 March 2009:
"Please
be advised that on submitting information satisfying the conditions
of this approval, only then can the conditional
approval be fully
applicable. The programme management office requests this process is
done speedily and seamlessly so that cession
of contracts is not
ended in any way. While the process is being concluded the department
requests the work proceeds unhindered
in the interests of service
delivery."
The
submission was made that the extension is subject to a condition
which was not fulfilled. In my view there are two answers to
this
submission. (1) The condition is not suspensive. The respondent
required that the work proceed in the interim, and pending
the
fulfilment of the condition. It was at best a resolutive condition.
(2) The extension was unconditionally approved. The respondent's
letter dated 23 March 2009, unconditionally approves the extension.
The
submission was made that, the renewal was contractually unenforceable
for a variety of reasons. A submission was made that the
term of the
renewal is so vague as to be unenforceable. That may be so. There is
no need to investigate the history of the matter
however. The right
of renewal has been overtaken by events. There was an actual renewal
on actual terms which were agreed. It was
submitted that the renewal
provided for two years in the original contract yet the actual
renewal was for three years. The solution
to the problem is similar
in my view, history has overtaken events. Whatever the contract
provided was superseded by the later
contract (this is not in any way
intended to mean that there are separate contracts).
On
this point it is necessary to deal with a peripheral submission made,
which I understood to be that if the renewal was not competent
in
terms of the original contract, and/or exceeded the original right of
renewal, and/or contains terms other than those contemplated
by the
original renewal, then the first contract was a contract disconnected
from the renewal, and that accordingly the fresh tender
process would
be required. The simple solution is that the original contract
envisaged a project which would be completed an anticipated
time.
There was room for the time to change in my view if the project
required a longer period. This would not result in a new
contract but
merely an amended original contract in my view. The renewal was not
separate and divisible from the original contract.
The original
contract contemplated there would be a renewal. The original contract
determined the person who would perform the
works and the initial
phases of the works. The
subsequent
phases, as they were to take place, and various other matters within
the contract which required negotiation could be
negotiated, and
particularly costs and charges could be negotiated. The one thing
which could not be negotiated was the fact of
the extension. The
process, in my view did not remove the renewal subsequent the renewal
and the works to be performed pursuant
to it, from the ambit of the
original project.
It
is not necessary to deal with the issue whether or not the
terms agreed upon by
the parties were sufficient, and whether or not
they
were so vague as to be unenforceable. It is not necessarily so that
the if all terms are not agreed immediately, that there
is no
contract or that some invalid or vague and unenforceable contract has
come into being. Parties frequently agree terms and
leave other terms
to be decided later.
This
matter is however not one which I need to embark upon
investigating. It
appears to me accordingly that on a contractual level the original
contract and the extension thereof resulted
in binding contracts
coming into being. Insofar as the administrative law issue is
concerned, for the
reasons which I have set out earlier there is no
objection to the
conclusion of the contract.
It
was submitted to me by Mr Chaskalson that it was not necessary for me
to embark upon the facts and matters upon which I have
embarked as it
is a requirement that the decision made be reviewed prior to any
relief on the administrative level becoming relevant.
He relied upon
the
Oudekraal
case
(Oudekraal
Estates (Pty)
Limited
v City of Cape Town and others
2004
(6) SA 222
(SCA)).
A
submission was made to me on behalf of the respondent that if the
decision which had been taken did not comply with the procedures
with
which it was obliged to comply, that whatever came from that decision
was void, and reliance was placed upon the matter of
Qaukeni
Local Municipality v FW General Trading CC
[2009]
ZASCA 66.
Qaukeni's
case
held that administrative action which is reviewable need not
necessarily be reviewed if the public body seeks to avoid the
contract it has concluded in respect of which no other party has an
interest (paragraph 26). The underlying rational for the finding
is
that if a contract is concluded in breach of the provisions (in the
present case Section 217 of the Constitution and internal
rules and
regulations) so as to ensure a transparent cost effective and
competitive tendering process in the public interest, that
act would
be invalid and would not be enforced (see
Qaukeni
paragraph
16).
If
the public body has acted irregularly it should bring proceedings to
set aside the irregularity (
Qaukeni
paragraph
23). In
Qaukeni's
case
the public body was the respondent, and in its Affidavits it set out
its grounds of opposition, and indeed it launched a
counterapplication.
The court held that in those circumstances the
failure to formally seek a review could not deprive the respondent
from seeking
relief. This may explain the apparent tension between
Qaukeni's
case
and
OudekraaTs
case,
which held that administrative action remains valid until set aside
(paragraph 31). If
Qaukeni's
case
dealt only with the
way in which the review took place as opposed to the need for it to
take place then there would be consonance
in the decisions. It is not
necessary for me to decide this tension in light of the findings
which I have made above.
It
remains to consider the financial aspects of the claims. The
applicant sought a directive that the respondent pay certain amounts
which it claimed were due, owing and payable, and remained unpaid.
Those amounts form the subject matter of a variety of invoices
which
were listed together with an interest payment. In my view there are
disputes relating to
whether or not these amounts are payable, and I accordingly decline
to make any order in respect of this portion
of the applicant's
claim.
The
applicant naturally is free to pursue whatever rights it believes it
has in an appropriate forum. This judgment and order which
I make
pursuant to it, in no way precludes the applicant from taking those
steps. It is merely so that on the papers which are
before me the
relevant case is, in my view, not established, particularly in that
the variety of documents which may have been
required to accompany
invoices did not so accompany them.
It
follows that in my view the applicant is entitled to relief which it
claims in terms of paragraphs 1, 2 and 4 of the Notice of
Motion. I
accordingly make an order in terms of paragraphs 1, 2 and 4 of the
applicant's notice of motion.
IN
THE SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE NO: 2009/32100
P/HNO:
0
JOHANNESBURG, 10
December 2009
in
the matter between:-
3P
CONSULTING (PTY)
LIMITED Applicant
and
GAUTENG
MEC FOR
HEALTH Respondent
HAVING
read the documents filed of record and having considered the matter:-
THE
COURT GRANTS THE FOLLOWING ORDER:-
1.
It is
declared that the services agreement between the Applicant and the
Government of
Gauteng dated T A July 2007 was duly renewed by an agreement between
the parties on 23rd March 2009fo r a further
period of three years.
2.
The
Respondent is
to
implement
the renewed services agreement and to allow the Applicant to do so.
3.
The
Respondent is to pay the Applicant’s costs.
BY THE COURT
______________
REGISTRAR