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[2009] ZAGPPHC 169
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Cash Paymaster Services (Pty) Ltd v Chief Executive Officer of South African Social Security Agency NO and Others (53753/09) [2009] ZAGPPHC 169 (10 December 2009)
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT, PRETORIA)
CASE
NUMBER:
53753/09
DATE:
10/12/2009
In
matter between:
CASH
PAYMASTER SERVICES (PTY)
LTD
..........................................
Applicant
and
THE
CHIEF EXECUTIVE OFFICER OF THE
SOUTH
AFRICAN SOCIAL SECURITY AGENCY N.O
.
.......................
First
Respondent
THE
SOUTH AFRICAN SOCIAL SECURITY AGENCY
......................
Second
Respondent
THE
SOUTH AFRICAN POST OFFICE
LIMITED
.................................
Third
Respondent
THE
MINISTER OF SOCIAL
DEVELOPMENT
......................................
Fourth
Respondent
JUDGMENT
F
DU TOIT AJ
[1]
This matter originated as an urgent application to be heard in the
urgent court on 6 October 2009. After papers had been exchanged
the
parties agreed to approach the Deputy Judge President to seek a
special allocation in view of the length of the papers and
the
considerable importance of the matter. The Deputy Judge President
obliged and
allowed
the matter to be set down for 9 November 2009 as a special motion.
Hence, the matter was removed from the urgent roll for
6 October 2009
by agreement.
[2]
The Applicant is CASH PAYMASTER SERVICES (PTY) LTD (
"Paymaster”
)
,
a
privately owned company. The First Respondent is THE CHIEF EXECUTIVE
OFFICER of the SOUTH AFRICAN SOCIAL SECURITY AGENCY, the
Second
Respondent
("the
Agency”),
a
juristic person established in terms of
sec. 2(1)
of the
South
African Social Security Agency Act No. 9 of 2004
("the
SASSA
Act”).
The
Third Respondent is THE SOUTH AFRICAN POST OFFICE LIMITED,
("the
Post
Office'),
a
public company incorporated in terms of the Companies Act No. 61 of
1973, pursuant to sec. 3(1) of the Post Office Act No. 44
of 1958.
THE MINISTER OF SOCIAL DEVELOPMENT
("the
Minister
”
)
was
joined as the Fourth Respondent. The relief sought by Paymaster is
directed only against the Agency and the Post Office. It
is common
cause, correctly so, that both the Agency and the Post Office are
organs of state as defined in sec. 239 of the Constitution.
[3]
In Part A of the Notice of Motion Paymaster applies for interim
relief pending the finalisation of Part B of the Notice of Motion,
interdicting and/or restraining the Agency and the Post Office from
executing and/or fulfilling and/or giving effect to the Letter
Agreement purportedly concluded between the Agency and the Post
Office on 1 July 2009 and any further agreement which amends and/or
supersedes the Letter
Agreement.
The terminology of the Letter Agreement will be explained further
down below in this judgment. In prayer 1 of Part B
of the Notice of
Motion Paymaster applies for the reviewing and setting aside of the
decision of the Agency taken on or about 1
July 2009, to enter into
the Letter Agreement with the Post Office. In prayers 2 and 3 of Part
B application is made for two interdicts.
However, I only need to
concern myself with the first of these interdicts, namely to
interdict the Agency from contracting the
Post Office to render
banking or payment services, relating to grant beneficiaries, without
having followed a procurement process
which complies with sec, 217(1)
of the Constitution,
sec. 51(1)(a)(iii)
of the
Public Finance
Management Act No. 1 of 1999
and the Agency's Supply Chain Management
Policy.
[4]
When I was seized with the matter only Part A of the Notice of Motion
was on the table for adjudication. However, by that time
the papers
were complete and even the record had been filed in terms of
Rule
53(1
)(b) under Part B of the Notice of Motion. Having read the
papers and perusing counsels' most helpful heads of argument, for
which
I am grateful, I thought it appropriate that Part B should be
argued. It would serve no purpose to hear argument only on Part A
which necessarily would have to include considering, though maybe on
a different basis, also Part B, and then to make an order
on Part A
only. Such a procedure would necessarily lead thereto that, whatever
my decision on Part A, Part B would again have to
be set down per
special allocation for a repetition of all the arguments before
another Judge. Hence, I directed that counsel
had to be prepared
and ready to argue Part B. This met with the approval and consent of
the three legal teams involved, though
the Agency's counsel reserved
the right to address me also on Part A. This judgment will therefore
finally dispose, for present
purposes in any event, of Part B of the
Notice of Motion.
[5]
The matter is obviously urgent. The main issue is, however, not that
easy to resolve. I would have done an injustice to the
parties if I
had given judgment forthwith. Unfortunately I did not have sufficient
days to spare during that last week when I was
called to assist the
overloaded Bench in this Division. My apologies to the parties,
especially Paymaster, that the judgment could
not be delivered
earlier but, understandably, so I hope, it could only receive my
attention on my return after I had attended to
the urgent briefs in
my own private practice. I would have preferred to deal more
extensively with the interesting and persuasive
arguments presented
by counsel. However, the urgency of the matter dictates otherwise.
[6]
In terms of sees. 3 and 4 (1) of the SASSA Act, the objects and
functions of the Agency are
inter
alia
to
act as the sole agent that will ensure the efficient and effective
management, administration and payment of social assistance
in terms
of Chapter 3 of the
Social Assistance Act No. 13 of 2004
and to
perform any function delegated to it under that Act. Sec. 4(2)(a) of
the SASSA Act further provides that the Agency may,
with the
concurrence of the Minister, enter into an agreement with any person
to ensure effective payments to beneficiaries.
[7]
The facts are largely common cause. Prior to the establishment of the
Agency, payment services in respect of social grant benefits
were
done by different cash payment contractors, including Paymaster.
These cash payment contractors had different service level
agreements
with the various provinces with a view to render the service of
payment of social grants to social beneficiaries residing
in such
provinces. During those years the tender board, established for each
province, would typically call for tenders to attend
to the payment
services relating to the administration of social assistance
payments. After its establishment the Agency inherited
the different
service level agreements entered into between the cash payment
contractors and the said provinces. On 25 March 2009
Paymaster and
the Agency concluded a service agreement in terms whereof Paymaster
was appointed to render grant payment services
in various provinces
in accordance with the various service level agreements in force in
the different provinces. These existing
agreements were clearly
entered into between Paymaster's subsidiaries and the various
provinces under the previous regime prior
to the establishment of the
Agency. This agreement of 25 March 2009 would serve as an interim
agreement binding between the parties
thereto up until such time as
they sign a consolidated agreement in respect of the various
provinces. It further stipulates that
the parties agreed to
negotiate in good faith and endeavour to conclude the consolidated
agreement by not later than 30 April 2009.
[8]
On 23 February 2007 the Agency published a Request for Proposals
("RFP”)
under
tender number 19/06/BS. The RFP requested proposals for the provision
of a social assistance grants payment service in one
or more of the
provinces of South Africa. Paymaster duly submitted a tender in terms
of the RFP in respect of all 9 provinces.
After having requested the
bidders to extend the validity of their bids no less than three
times, on 31 October 2009 the Agency
notified bidders of its decision
to cancel the tender. In its reasons given for the cancellation of
the tender process the Agency
contended that the tender process had
been flawed in a series of respects.
[9]
In the meantime, on 23 May 2007, the Agency and the Post Office
entered into a Memorandum of Understanding
("MOW).
The
main object of the MOU was to enable the Agency to enter into a
contractual relationship with the Post Office with the ultimate
goal
of the Post Office becoming the connector of the Agency's data and
enrolment system of distributing payment of social grants
to social
grants beneficiaries.
[10]
Pursuant to the MOU the Agency and the Post Office entered into an
interim agreement by means of a letter signed on behalf
of both
parties on 1 July 2009. This letter would serve as a binding interim
agreement until such time as a final agreement is
signed by these two
parties.
This
explains the terminology of the Letter Agreement. It only came to
Paymaster's attention on or about 1 August 2009. In clause
2 of the
Letter Agreement it is recorded that the MOU outlines the intent of
the Agency and the Post Office to collaborate to optimise
and improve
grant enrolment and payment services on a cost-effective basis.
Clause 3 records that the Agency has engaged the Post
Office for the
provision of banking services in all South African provinces. To
fulfil its obligations, the Post Office shall also
utilise the
banking infrastructure and services of the Postbank. (The Postbank is
a division of the Post Office in terms of sec.
51 of the Postal
Services Act No. 124 of 1998). In clause 5 it is recorded that the
parties have embarked on a programme to implement
the Post Office's
registration and payment processes for beneficiaries referred to the
Post Office by the Agency. In the same clause
the Post Office
undertakes to provide
inter
alia
the
following services:
[a]
design,
development and implementation of a web-based bank account solution
that simplifies the bank account application process
for applicants;
[b]
registration
of beneficiaries, i.e. opening, allocation and activation of Postbank
accounts for each potential grant recipient before
the Agency
approves the relevant grant;
[c]
the
issue of a Postbank card;
[d]
the single deposit of grant funds per month per beneficiary.
Clauses
14 and 15 deal with the service fees and the start-up costs
respectively of the Post Office.
[11]
In its Founding Affidavit Paymaster contends that the decision of the
Agency to enter into the Letter Agreement with the Post
Office
constitutes administrative action in terms of the provisions of The
Promotion of Administrative Justice Act No. 3 of 2000
(
"PA
J A').
According
to Paymaster particularly sees. 6(2)(d), 6(2)(f)(i) and 6(2)(i)
thereof make it clear that an unlawful administrative
decision falls
to be reviewed and set aside. The question of the reviewability as
such of the decision to enter into the Letter
Agreement was not an
issue before me. I need therefore not consider the provisions of PAJA
relied on by Paymaster. Although a number
of grounds of review are
relied upon in the founding papers of Paymaster, only two of those
were addressed in counsels' heads of
argument and in their addresses
before me. Firstly, that the Agency failed to follow any form of
competitive procurement process.
Secondly, that the Agency failed to
obtain the concurrence of the Minister to enter into the Letter
Agreement as is required by
sec. 4(2)(a) of the SASSA Act. In my view
I only need to consider this second ground of review argued should I
find on the first
ground of review against Paymaster.
[12]
It is common cause that the Agency did not follow any form of
competitive procurement process. According to Paymaster that
is the
end of the matter. Counsel who appeared for it even contended that he
could not understand that there was any opposition
to the
application. I would not go that far because, say the Agency and the
Post Office defiantly, we are both organs of state
contracting with
each other and therefore sec. 217(1) of the Constitution does not
apply.
[13]
Sec. 217 of the Constitution provides for the procurement of goods
and services by an organ of state. It reads:
"When
an organ of state in the national, provincial or local sphere of
government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost-effective."
It
may now be regarded as settled law that whenever an organ of state
contracts with an external supplier of goods or services,
adherence
to a system which is fair, equitable, transparent, competitive and
cost-effective, as required by sec. 217(1), is peremptory.
The Court
is not possessed of a discretion to decide that in a particular
instance issues such as fairness or prejudice may dictate
that such a
process need not have been followed. In
Eastern
Cape
Provincial
Government
&
Others
v
Contractprops
25
(Pty)
Ltd
2001(4)
SA 142 (SCA) Marais JA articulated the unanimous decision of the
Court as follows in par. [9]at148A/B-C/D:
"As
to the consequences of visiting such a transaction with invalidity,
they will not always be harsh and the potential countervailing
harshness of holding the province to a contract which burdens the
taxpayer to an extent which could have been avoided if the tender
board had not been ignored, cannot be disregarded. In short, the
consequences of visiting invalidity upon non-compliance are not
so
uniformly and one-sidedly harsh that the legislature cannot be
supposed to have intended invalidity to be the consequence. What
is
certain is that the consequence cannot vary from case to case. Such
transactions are either all invalid or all valid. Their
validity
cannot depend upon whether or nor harshness is discernible in the
particular case."
This
view was again endorsed in a recent as yet unreported judgment of the
Supreme Court of Appeal. In
Qaukeni
Local Municipality v FV General Trading
(324/08)
[2009] ZASCA 66
(29 May 2009) paragraphs [14] and [15]:
"It
was suggested by the respondent both in the court below and in the
heads of argument filed in this court that a failure
to comply with
these statutory precepts did not automatically visit a contract with
an external service supplier with nullity,
and that the court had a
discretion to enforce such a contract if the supplier would otherwise
be prejudiced. However counsel who
appeared for the respondent in the
appeal... was unable to advance this argument with any enthusiasm.
His diffidence is understandable.
It is not a question of a court
being entitled to exercise a discretion having regard to the issues
of fairness and prejudice.
Rather, the question is one of legality.
Consequently,
in a number of decisions this court has held contracts concluded in
similar circumstances without complying with prescribed
competitive
processes are invalid. In
Premier,
Free State and Others v Firechem Free State (Pty)
Ltd
2000(4) SA 413 (SCA) this court set aside a contract concluded in
secret in breach of provincial procurement procedures, holding
that
such a contract was 'entirely subversive of a credible tender
procedure' and that it would 'deprive the public of the benefit
of an
open competitive process'."
[14]
Can the position be different where the State contracts with an
internal supplier and not with an external supplier? Counsel
were
unable to refer me to any decided cases on this point. According to
them guidance can also not be sought in foreign case law.
The reason
therefore is that it is only in South Africa that procurement by the
State has been elevated to a constitutional issue
by sec. 217 of our
Constitution, This assurance coming from such eminent senior counsel
as those who appeared before me, I accept
their assurance without
hesitation. Hence, I did not research the validity of their assurance
myself.
[15]
In her book
The
Law of Government Procurement in South Africa
the
learned author
Bolton
mentions
three ways in which a government may acquire goods and services to
function. At 1 she says:
"All
governments need goods and services in order to function. Goods and
services may range from office equipment (such as
paper-clips,
office furniture and paper products) to computer systems,
advertising and construction services, to mention a
few. These needs
can be met in a number of ways. Firstly, a government can set up its
own internal supply chain, for example factories
to provide it with
office equipment or computer needs. A government can also have its
own internal team of advertising or construction
specialists to see
to its advertising and construction needs. This method of meeting
government needs is commonly referred to as
'in-house' provision.
Secondly, a government can decide to obtain goods and services from
an outside entity. This method is commonly
referred to as 'private
sector' provision, 'contracting out' or 'outsourcing'. It is, in
other words, the opposite of In-house'
provision; the entity
providing the goods or services needed does not form part of the
organisation of the government Contracts
entered into between the
government and outside entities are generally referred to as
contracts of procurement or more accurately,
public sector
procurement contracts. Procurement, in turn, is generally described
as the function of purchasing goods and services
from an outside
body. Thirdly, a government can, usually only in exceptional
circumstances, use its legislative powers to expropriate
goods from
private entities."
And
at 3:
"The
South African government uses all the methods outlined above for
meeting its needs, i.e. by having its own internal supply
chain, in
exceptional circumstances using its powers of expropriation, and
making use of outside (private) entities to meet its
needs. It is the
third method, however, that is primarily employed by the government,
in other words, private sector provision."
[16]
Counsel for the Post Office relied on this passage from
Bolton
for
his submission that it would place an enormous administrative and
financial burden on departments and organs of state at the
expense of
the taxpayer if they were required to follow a public tender process
where the State, through a government department
or an organ of
state, can itself provide the goods or services required. In their
opposing papers the Agency and the Post Office
advanced the reasons
why the Agency eventually decided to contract the Post Office to
undertake the payment of grants through the
provision of its banking
services. According to them cash payments of grants are not affected
and will in future still be done
by the cash payment contractors like
Paymaster. That is why the existing contract with Paymaster will in
all probability be extended
to allow for a proper tender process for
cash payments to be put in place. According to them it is therefore
important to distinguish
between cash payments and payments via the
banking system provided by the Post Office through its Postbank
division.
[17]
According to the Agency it entered into the MOU with the Post Office
on 23 May 2007 with the main objective to enable the Agency
to enter
into a contractual relationship with the Post Office with the
ultimate goal of the Post Office becoming the connector
of the
Agency's data and enrolment system of distributing payment of social
grants to social grant beneficiaries. It envisaged
that the data
would now remain with the Agency and the cash payment contractors
would only effectuate the payment of social grants
to social grant
beneficiaries. When the tender was cancelled on 31 October 2008 on
the basis that it was flawed it coincided with
the fact that during
that period the Agency was also experiencing financial difficulties.
It had also come to the Agency's realisation
that the average
handling costs paid to the cash payment contractors where exorbitant.
According to the deponent to the Agency's
Answering Affidavit, the
cancellation of the tender brought a gust of fresh approach as the
ultimate process of addressing the
MOU between the Agency and the
Post Office warranted the provisioning and hosting of a back end
payment system solution to be provided
by the Post Office, It is
further contended that the Agency is obliged to seek the assistance
of the Post Office as an organ of
state having regard to the
provisions of sec. 195 of the Constitution. The contention is that
this configurates with the provisions
of sec. 217 of the Constitution
as conflated with the Supply Chain Management Policy of the Agency.
The main object of the Agency
contracting the Post Office to provide
the banking services for the payment of grants to beneficiaries must
therefore be seen as
to promote an efficient, economic and effective
use of resources.
[18]
Needless to say, much of what is advanced by the Agency and the Post
Office to justify their actions, is disputed by Paymaster.
However,
no matter how noble and honest the motives of the Agency might have
been for entering into the MOU and the Letter Agreement
with the Post
Office, if they fall foul of the provisions of sec. 217(1) of the
Constitution they are irrelevant considerations.
[19]
Reliance was also placed on two further provisions of the
Constitution. Chapter 3 thereof deals with co-operative government.
In this regard reliance was placed on the relevant part of Section
41(1 )(h) which reads:
"All
spheres of government and all organs of state within each sphere must
-
(h)
co-operate with one another in mutual trust and good faith by -
(I)...
(ii)
assisting and supporting one another;
(iii)
...
(iv)
co-ordinating their actions and legislation with one another;
(v)...
(vi)...”
The
second provision is in Chapter 10 dealing with public administration.
The relevant part of sec. 195 in this Chapter provides
the following:
"(1)
Public administration must be governed by the democratic values and
principles enshrined in the Constitution, including
the following
principles:
(a)
....
(b)
Efficient,
economic and effective use of resources must be promoted.
(2)
The above principles apply to -
(a)
administration in every sphere of government;
(b)
organs
of state; and
(c)
public
enterprises."
The
argument is that no organ of state is separate from the State. The
State, through its organs, at all times functions as a unit.
Thus, so
the argument proceeds, when one organ of state contracts with another
organ of state for the delivery of a service, the
service will still
be provided by the State, It is the State dealing with itself. The
argument concludes that there is accordingly
no need for th
e
application
of
the principles in sec. 217(1) of the Constitution, On the view I
hold, these provisions cannot impliedly override the unqualified
provisions of sec. 217(1) requiring that contracts of this nature
must be in accordance with a system which is fair, equitable,
transparent, competitive and cost-effective. (Compare
Rennie
N.O. v Gordon and Another N.N.O.
1988(1)
SA 1 (A) at 22 E-H).
[20]
I am strengthened in my view when scrutinising sees. 195 and 41 more
carefully. The introductory sentence in sec. 195(1) states
it as
peremptory
that
"(p)ublic
administration must be governed by the democratic values and
principles enshrined in the Constitution".
The
principles set out in paragraphs (a) to (i) of sub-sec. (1) apply
specifically only to public administration conducted by the
entities
of governance listed in sub-sec. (2). The other democratic values and
principles enshrined in the Constitution remain
binding in relation
to public administration. Those values and principles include sec.
217(1). Paragraph (d) of sub-sec. (1) provides
that services must be
provided impartially, fairly, equitably and without bias.
Paragraph
(e)
requires that people's needs must be responded to, and the public
must be encouraged to participate in policy-making. Paragraph
(g)
provides that transparency must be fostered by providing the public
with timely, accessible and accurate information. These
three
principles configure to sec. 217(1). This
reasoning
may
also be applied when regard is had to the provisions of paragraphs
(c), (d) and (e) of sub-sec. (1) of sec. 41.
[21]
In support for his argument that, despite the Agency and the Post
Office being separate juristic persons, it remains the State
contracting with itself and that sec. 217(1) can therefore not apply,
counsel for the Post
Office
referred
to
Transnet
Ltd v Goodman Brothers (Pty) Ltd
2001(1)
SA 853 (SCA) paragraph [8] at 870 F - G where the following is said:
"/
do not think that anything can be made of the fact that Transnet is
now a limited company. The government still owns all
the shares in it
and thus has ultimate control. It stilt provides a general service to
the public, even though it is now competition
- and profit -
orientated. It still has a near -monopoly over rail and transport."
In
my view this passage does not support counsel's argument. It is
nothing new that disunity may arise within the State itself between
two different public authorities. (See
Baxter
Administrative Law
(1984
and 1989) at 95 and 649 - 650). This reality of governance is
recognised in sees. 41(1)(h)(vi), (2)(b), (3) and (4) of the
Constitution. Therein the framework for domestic rules is provided to
promote unity in the household of the State, to resolve disunity
which has arisen but leaving it open that resolution may eventually
only be achieved in a Court of law. No matter that the Agency
and the
Post Office are both organs of state, the fact remains that they are
two separate juristic persons each created by its
own statute. As
such their minds met and they decided to enter into a contractual
relationship in terms whereof the Post Office
is supplying services
to the Agency at agreed fees and costs. It can further not be
overlooked that the Post Office, through its
division of the
Postbank, is competing in the open market with other financial
institutions. In terms of
sec. 51(2)
of the
Postal Services Act, 1998
the Post Office
"must
undertake such activities as are customary for a financial
institution carrying on the business of accepting deposits".
I
have already alluded to the stance adopted by the Agency and the Post
Office that they were merely striving to achieve cost-effectiveness
by entering into the MOU and the Letter Agreement, However,
cost-effectiveness is not the only requirement of
Section 217(1).
The
process or system must further also be transparent and competitive.
In relation to transparency of government procurement
Bolton
op, cit.
says
the following at 54:
"in
the government procurement context, a transparent system can be said
to refer to a system that is 'open'. As provided for
in section
187(2) of the 1993 Constitution, it must be 'public'. This means,
inter alia, that when an organ of state 'contracts',
whether
with a private entity or another organ of state, this should not be
done behind closed doors."
And
on competition in government procurement at 42:
"In
the government procurement context a 'competitive' system would refer
to a system that involves the process of 'shopping
around' for the
best possible deal. The word 'competitive' in section 217(1) of the
Constitution therefore means that government
contracts should be
awarded only after a number of entities (the number will depend on
the circumstances of each case) have been
afforded an opportunity to
compete for a particular contract."
The
facts of the present matter show that the Agency and the Post Office
were virtually deciding behind closed doors on the best
way forward
for the Agency. No process whatsoever was followed to allow other
entities to put a better deal on the table or to
make any alternative
suggestions which could prove to be more cost-effective. The course
adopted by the Agency clearly therefore
disregarded the peremptory
requirements of sec. 217(1) of the Constitution.
I
must also briefly deal with the relevant provisions of the Public
Finance Management Act No. 1 of 1999 (the
"PFMA').
The
Agency is listed as a national public entity in Part A of Schedule 3
to the PFMA. In terms of sec. 46 the provisions of Chapter
6, which
applies to public entities, are applicable to it. As far as
procurement is concerned the PFMA echoes the requirements
of sec.
217(1) of the Constitution. In sec. 51(1)(a)(iii) it provides that
the accounting authority for the Agency is obliged to
ensure that it
has and maintains
"an
appropriate procurement and provisioning system which is fair,
equitable, transparent, competitive and cost-effective."
In
terms of sec. 76(4)(c) the National Treasury must make regulations or
issue instructions concerning
"the
determination of a framework for an appropriate procurement and
provisioning system which is fair, equitable, transparent,
competitive and cost-effective."
The
Treasury regulations were published under Government Notice R225 in
Government Gazette 27388 of 15 March 2005 as amended by
Government
Notice R146 in Government
Gazette
29644
of 20 February 2007. Treasury regulation 16A 3.1 requires the
accounting officer or accounting authority of a public entity
to
"develop
and implement an effective and efficient supply chain management
system in his/her institution for the acquisition
of goods and
services".
Regulation
16A 3.2 states that:
"A
supply chain management system referred to in paragraph 16A 3.1 must
be fair, equitable, transparent, competitive and cost
effective."
It
is therefore clear that the PFMA and the Treasury regulations made
thereunder follow the wording of sec. 217(1) of the Constitution.
[23]
If we turn to the Supply Chain Management
Policy
of
the Agency issued under Treasury regulation 16A 3.1, the position is
not different. This is already made clear in the Preamble
thereto.
Paragraph 1.1 of the Guiding Principles specifically refers to sec.
217(1) of the Constitution and then follows the wording
of that
section repetitively. In paragraph 2 thereof the Code of Conduct
states inter alia to
"(e)nsure
that value for money Is obtained by promoting fair, open and
accessible competition when seeking or renewing contracts
and
ensuring continuous and effective contract management."
[24]
Counsel appearing for the Post Office sought to find support in
paragraph 4.3 of the Agency's Supply Chain Management Policy
dealing
with methods of acquisitions. It
inter
alia
states
that acquisition of goods and services should not be from outside
sources only, but that all possible methods of fulfilling
the
requirements should be investigated. It further states that these
methods may include, but are not limited to,
inter
alia,
other
government institutions and transversal term contracts. However, one
of the methods mentioned is also inviting competitive
bids. Further,
the selfsame paragraph again specifically refers to sec. 217(1) of
the Constitution and then echoes the wording
of that provision. The
part of this paragraph relied on by counsel therefore cannot override
sec. 217(1) of the Constitution. What
it clearly means is that other
government institutions and transversal term contracts should not
necessarily be excluded. If they
can provide a better solution than
an outside source, then surely the better equipped government
institution must be selected.
That, however, cannot occur to the
exclusion of outside sources participating in the investigation
process, as happened in the
present instance.
[25]
A further argument advanced on behalf of the Post Office was that it
could never have been the intention of the legislature
by enacting
sec.217(1) of the Constitution and the PFMA that state departments
and organs of state have to follow a public tender
process in cases
where the required goods or services can be provided by another state
department or organ of state. If this was
so, the argument proceeds,
it would mean that a public tender process would have to be followed
in e.g: (a) the transporting by
the South African Airways (SAA) of
government employees across the country; (b) the provision of legal
services by the Department
of Justice (State Attorney) to other
government departments; (c) the provision and maintenance by the
Department of Transport (Government
Garage) of motor vehicles to
Ministers, Judges and other officials of government departments; (d)
the provision of accommodation
and of maintenance services by the
Department of Public Works to other government departments, (e) the
supply by Denel (Pty) Ltd,
a statutory company of which the
government is the sole shareholder, of military equipment to the
South African Defence Force;
and (f) the provision of scientific
research services by the CSIR, an organ of state, to the public
sector. I do not agree. These
examples relate to cases where, as
Bolton
op. cit.
at
1 puts it, the government has
"set
up its own internal supply chain",
already
referred to and quoted in paragraph 15 above. The Post Office through
its Postbank division does not form part of the government's
internal
supply chain. It is providing banking services like any other private
banking institution to the public at large. As far
as the SAA is
concerned, I believe that as a rule, government officials are openly
booked on those flights on a spontaneous basis
as those services are
required. In any event, this is a thought out ingenious
argument
of
counsel not based on any evidence placed before the Court. My remarks
above are based on my own
general
knowledge
of such services. I therefore do not consider it necessary to expound
further on my general knowledge. Suffice to say,
counsel's examples
clearly fall in categories with which we are not cornered here.
[26]
A further argument advanced on behalf of both the Agency and the Post
Office
was
that Paymaster does not provide banking services whereas the Letter
Agreement deals only with such services. It was submitted
that
Paymaster therefore does not have
locus
standi to
lodge
the review application. However, the
fad
remains
that Paymaster does have an existing contractual relationship with
the Agency pertaining to the payment of social grants
to
beneficiaries. If there was indeed
"a
gust of fresh approach"
to
a new methodology as alleged by the Agency, then surely Paymaster was
entitled to be apprised thereof and to put its proposals
on the
table. In fact, Paymaster says in
paragraph
53
of its Founding Affidavit that if the Agency has issued a tender in
respect of the services that are the subject-matter of the
Letter
Agreement with the Post Office, it would certainly have made a tender
in that regard, either alone or together with a registered
bank.
[27]
Counsel for the Agency referred me to a number of decided cases,
mainly in the Constitutional Court, expounding the principle
that a
Court
cannot
interfere
with
a decision simply because it disagrees with it.
These
cases, e.g.
Bato
Star Fishing (Pty) Ltd v Minister of Environmental Affairs &
Others
2004(4)
SA 490 (CC), are not relevant here. This is not a case of a
disgruntled tenderer asking the Court to replace a rational
decision
of the administrative body with its own. I reiterate that, no matter
how noble, honest and
rational
the
Agency's decision might have been by entering into the Letter
Agreement with the Post Office, the fact remains that in doing
so it
failed
to
follow the peremptory procurement system required by sec. 217(1) of
the Constitution, the PFMA and the Treasury regulations promulgated
thereunder. On that score alone the Agency's decision to enter into
the Letter Agreement stands to be reviewed and set aside.
[28]
Having arrived at this conclusion it is unnecessary to deal with the
second ground of review argued before me, namely that
the Agency
failed
to
obtain the concurrence of the Minister when entering into the Letter
Agreement. I therefore express no opinion on this ground.
[29]
That brings me to the
final
argument
advanced on behalf of the Post Office. That is
that
the
Letter Agreement, though only signed on 1 July 2009, has been
implemented since 5
January
2009
and that the implementation thereof cannot be reversed.
[30]
The argument is that the horse has gone too far along the line to
return
it
now to the stable. In this regard I was referred to
Chairperson,
Standing Tender
Committee
and
Others v JFE Sapela Electronics
(Pty)
Ltd and Others
2008(2)
SA 639 (SCA) par. 28 at 649J to 650E. As in the present matter, in
that matter there was also no culpable delay on the part
of the party
instituting the review proceedings. With reference to the facts of
that matter Scott JA says the following in paragraphs
[27] and [28]
as 649H to 650B:
"However,
the appellants' stance on the impracticability of attempting to start
a tender process over again for the completion
of the remaining work
strikes me as correct. As observed by Erasmus J, the repair and
maintenance components of the contracts are
interrelated. The order
of the court a quo, if implemented, is likely not only to be
disruptive but also to give rise to a host
of problems not only in
relation to a new tender process but also in relation to the work to
be performed.
In
appropriate circumstances a court will decline, in the exercise of
its discretion, to set aside an invalid administrative act.
As was
observed in Oudekraal Estates (Pty) Ltd v City of Cape Town 2004(6)
SA 222 (SCA) para. 36 at 246D:
It
is that discretion that accords to judicial review its essential and
pivotal role in administrative law, for it constitutes the
indispensable moderating tool for avoiding or minimising injustice
when legality and certainty collide."
The
facts of the present matter do not persuade me to exercise this
discretion in favour of the Agency and the Post Office. In par.
55 of
its Answering Affidavit the Post Office complains that it has, as at
31 August 2009, enrolled 460 377 new beneficiaries since
inception of
the Letter Agreement and that it is continuing to enrol new
beneficiaries. It says that if the interim order sought
by Paymaster
were to be granted, it would have to close the Postbank accounts of
those beneficiaries. This, it says, will obviously
be to the great
prejudice of those beneficiaries, each of whom will have to make new
arrangements to be able to receive their grants.
In a further
affidavit
filed
on behalf of the Post
Office,
particulars
are
given regarding an improved massive infrastructure running into
millions of Rand and which is presently in various stages of
being
installed and to be completed over the next three years. All of this,
so the Post Office says, is aimed at serving the entire
South African
population, including beneficiaries. The Post Office is therefore not
upgrading its infrastructure only to meet the
requirements of the
Agency, but to promote its general role as a financial institution as
envisaged by
sec. 51(2)
of the
Postal Services Act, 1998
. These costs
will therefore not be wasted. In my view no insurmountable problems
will arise if the horse is returned to the stable
where it may be
judged on a fair, equitable, transparent, competitive and
cost-effective basis with any other willing and able
horses prepared
to run the course for the
Agency.
[31]
In any event, to cater for any inconvenience
or
prejudice
which may be caused to a beneficiary already enrolled by the Post
Office, counsel for Paymaster consented that a rider
be added to a
review and setting aside order that it shall not affect an affected
beneficiary for a period of six months to
enable any
necessary transfer or transitional arrangements to be made. 1
agree with counsel's objection for the Agency,
namely that it will
leave uncertainty as to what will happen after expiry of the six
months. However, that problem can be addressed
by making it dependant
on the outcome of the interdict which Paymaster also seeks and to
which I will now turn.
[32]
Paymaster also seeks an order interdicting the Agency from
contracting the Post Office to render banking or payment services
without having followed a procurement process which complies with
sec. 217(1) of the Constitution, sec. 51(1)(a)(ii) of the PFMA
and
the Agency's Supply Chain Management Policy. The reason therefore is
that, pursuant to the Letter Agreement, the Agency and
the Post
Office are on the verge of signing a final agreement. I am satisfied
that if the Letter Agreement is set aside such an
interdict must be
granted. I agree with Paymaster's counsel that it is not necessary
that a definitive guide of a tender process
be stipulated in such an
order. Sec. 217(1) of the Constitution, the PFMA and the regulations
promulgated thereunder require a
system and not specifically that a
tender process must be followed on each occasion. A tender process is
only required by the Agency's
Supply Chain Management Policy. In this
regard I believe that
Bolton
op. cit,
is
correct where the following is stated at 42 and 43:
"Based
on the wording of section 217, however, competition can take a
variety of forms - no specific reference is made to 'tendering'
as a
procurement method. In other words,
competition
can take the form of, inter alia, the solicitation or calling for
tenders, getting quotations, competitive negotiation
or other types
of competition. This change is to be welcomed since tendering is
clearly not the only way in which an organ of state
can ensure
compliance with the principle of competitiveness. There can, however,
only be competition or rather, genuine competition,
if, as noted
above, all interested parties are afforded an opportunity to
participate. Competition should, in other words, be sufficiently
wide: a sufficient or adequate number of contractors should be
allowed to participate.
The
use of competitive procedures for the procurement of goods and
services is not without exception. Often, the principle of
'cost-effectiveness'
may limit or qualify the use of competitive
procedures."
I
therefore do not propose to include reference to the Agency's Supply
Chain Management Policy in the order I am going to make.
[33]
The question of costs does not pose any problem. All the parties were
in agreement that the employment of two counsel was justified.
Same
counsel represented both the Agency and its Chief Executive Officer
(the First Respondent). In relation to the question whether
the
Letter Agreement had been entered into with the concurrence of the
Minister, the Director General of the Department filed a
belated
affidavit to inform the Court that the Minister was not in the
country to confirm such concurrence personally in an affidavit.
On
her return the Minister filed an affidavit to this effect shortly
before the date of hearing. A separate senior counsel was
then
instructed by the State Attorney to represent the Minister and the
Director General. Although I allowed counsel to address
the Court
briefly, he actually only held a
"watching
brief.
1
did not decide this issue but 1 wish to express my appreciation to
the Minister for the courtesy she had shown to the Court. The
order
will only be directed against the Agency and the Post Office.
Paymaster only seeks costs against the Agency and the Post
Office.
The other Respondents will therefore not be included in the costs
order.
[34]
I make the following order:
1.
The
decision of the Second Respondent taken on or about 1 July 2009 to
enter into the Letter Agreement with the Third Respondent
is reviewed
and set aside, save that the accounts of any affected beneficiary
shall not be closed pending finalisation of the procurement
process
referred
to
in paragraph 2 hereunder, to enable any necessary transfer or
transitional arrangements to be made.
2.
The
Second Respondent is interdicted from contracting with the Third
Respondent to render banking or payment services relating to
grant
beneficiaries, without having followed a procurement process which
complies with sec. 217 of the Constitution,
sec. 51(1)(a)(iii)
of the
Public Finance Management Act No. 1 of 1999
and the Treasury
regulations promulgated thereunder.
3.
The Second and Third Respondents are ordered to pay the Applicant's
costs, jointly and severally, such costs to include the costs
of two
counsel.
F
DU TOIT AJ
Acting
Judge of the North Gauteng High Court, Pretoria
Date
of hearing:
9
November 2009
For
the Applicant:
.............................................
J.
J. Gauntlett SC
…
......................................................................
S.
Bultander
Instructed
by:
....................................................
Smit
Sewgoolam Inc.
…
......................................................................
c/o
Vezi & De Beer inc.
For
the First and Second Respondents:
…..
S.
M. Lebala SC
…
.......................................................................
T.
A. N. Makhubele
Instructed
by:
....................................................
The
State Attorney
For
the Third Respondent:
..............................
J.
W. Louw SC
…
......................................................................
H.
F. Jacobs
Instructed
by:
....................................................
Mahlangu
Inc.
For
the Fourth Respondent:
...........................
S.
P. Mothle SC
Instructed
by:
...................................................
The
State Attorney