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[2020] ZASCA 62
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Valor IT v Premier, North West Province and Others (322/19) [2020] ZASCA 62; [2020] 3 All SA 397 (SCA); 2021 (1) SA 42 (SCA) (9 June 2020)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 322/19
In
the matter between:
VALOR
IT
APPELLANT
and
PREMIER,
NORTH WEST PROVINCE                                             FIRST

RESPONDENT
MEMBER
OF THE EXECUTIVE COUNCIL, DEPARTMENT
OF
SPORTS, ARTS AND CULTURE, NORTH WEST
PROVINCE                                                                                   SECOND

RESPONDENT
DEPARTMENT
OF SPORTS, ARTS AND CULTURE,
NORTH
WEST
PROVINCE                                                               THIRD

RESPONDENT
Neutral
citation:
Valor IT v Premier, North West
Province and Others
(Case no 322/19)
[2020]
ZASCA 62
(9 June 2020)
Coram:
WALLIS, MOLEMELA, MOKGOHLOA and PLASKET JJA and KOEN AJA
Heard
:
No hearing. Disposed of in terms of
s 19
(a)
of the
Superior Courts Act 10 of 2013
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the
Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 09h45 on the 9
th
day of June 2020.
Summary:
Public procurement – contract awarded
for the provision of services to organ of state – no open
tender process followed,
as required – agreement unlawful for
want of compliance with legal prescripts – further contracts
for provision of
services also unlawful – effect of settlement
agreement – court cannot validly make settlement agreement an
order if
settlement agreement unlawful.
ORDER
On
appeal from:
North West Division of the High
Court, Mahikeng (Gura J sitting as court of first instance):
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Plasket
JA (Wallis, Molemela and Mokgohloa JJA and Koen AJA concurring)
[1]
This appeal concerns the strange tale of how a public procurement
contract awarded to the appellant, Valor IT CC (VIT), by the
third
respondent, the Department of Sports, Arts and Culture in the
government of the North West Province (the Department and the

provincial government respectively) escalated over about three years
from its tender value of R498 000, excluding VAT, to
R41 729 647
(including the payment of R22.8 million in ‘damages’),
the total amount that was paid to VIT
by the provincial government;
and how all of this occurred without any bona fide attempt to comply
with the public procurement
processes that have their origin in s 217
of the Constitution.
[1]
At the
heart of this matter lies the question of whether the contractual
relationship between VIT and the Department is lawful.
[2]
That question arises because, following the termination of the
contractual relationship by the provincial government, VIT applied

for a declaratory order that the termination was unlawful and that it
was entitled to payment of a further amount of R146 473 747.49

as damages. In the court below, the North West Division of the High
Court, Mahikeng, Gura J dismissed VIT’s application and
granted
the provincial government’s counter-application in which it
sought, inter alia, the setting aside of all contracts
between VIT
and the Department. Gura J refused VIT leave to appeal, but leave was
granted by this court on petition.
Background
[3]
VIT is engaged in the information technology industry. It was one of
a number of entities that were accredited by the State
Information
Technology Agency (SITA) as approved suppliers to organs of state of
information technology requirements.
[4]
In January 2011, VIT submitted an apparently unsolicited proposal to
the Department concerning an enterprise content management
– or
ECM – system, to manage its records. The Department considered
the proposal and had discussions with VIT. As a
result, in March
2011, VIT gave the Department another, more detailed and costed,
proposal.
[5]
The proposal was said to be specific to ‘the Department’s
Business requirements’, and was ‘geared to
analysing the
requisite infrastructure, business systems and IT systems required by
the Department to enable the Department to
successfully meet their
strategic aims and goals’. VIT stated that if it was successful
in being given the task, it would
‘obviously welcome the chance
to work together with other consultants of the Department’s
choice in subsequently implementing
fully working end-to-end business
and IT solutions that all integrate with each other’.
[6]
In its overview of what it offered the Department, VIT said that a
number of steps had to be taken to ‘ensure that the
records
management solution is successfully designed, controlled and
implemented’. It listed eight steps that started with
a
preliminary investigation and ended with a post implementation
review. It then said:
‘
The first of these steps will
be tackled in the first stage of the engagement namely the
preliminary investigation. This step will
provide an understanding of
the organisation, together with the administrative, legal, business
and social context in which it
operates. The investigation will
identify current record keeping strengths and weaknesses within the
department as well as building
a solid foundation on which the scope
of the record keeping program can be built. The information collected
in this step will be
crucially important as progress is made through
the project and decisions need to be made relating to record keeping
systems and
activities. The initial steps of the process are resource
intensive, it is therefore important to ensure that appropriate time
and resources are assigned to the tasks in these steps.’
[7]
Later in the document, the first step in the process was identified
as ‘Phase 0’. In a table, the key activities
involved in
Phase 0 were set out. They included: determining and defining the
scope of the investigation; collecting sources of
information that
needed to be analysed; interviewing ‘relevant stakeholders/
business units etc’; drafting a report
of the investigation
that would include the major findings of the investigation and
recommendations ‘related to the scope,
conduct and feasibility
of the proposed records management program’; and the drafting
of a ‘proper plan’ based
on the findings in the report.
The proposed price for this work was R498 000 excluding VAT.
(Certain other costs were also
excluded.)
[8]
In July 2011, the Department directed a request for quotations to
entities that were accredited by SITA. One of them was VIT.
The
Department requested quotations for the rendering of services on a
‘Records Management solution’ for the Department.
Under a
heading ‘
Task Directive/Terms of
Reference
’, the request for
quotations specified that the work would entail an assessment of the
Department’s records management
needs, an information audit,
the design of a records management system, the automation of manual
records management systems, the
implementation, monitoring and
evaluation of the proposed system and the training of personnel in
its use and feedback on ‘the
findings and strategic records
management implementation plan’.
[9]
By letter dated 4 August 2011 addressed to VIT, the Head of the
Department informed it of its successful bid. She stated:
‘
It is a great pleasure to
inform you that the North West Department of Sports, Arts &
Culture has pursuant to your presentation
to my office on 03 August
2011 resolved that your proposal for the assessment, development and
management of records, and information
system for the North West
Provincial Government be awarded to VALOR IT CC for an amount of
R498 000.00
– (Four hundred and ninety eight
thousand rand,
excluding VAT
).’
[10]
The head of the Department stipulated that the project was to
commence within 14 days of the date of her letter and that VIT’s

appointment was subject to a number of conditions. They were that: it
accept the appointment in writing; sign a contract with the

Department; provide a payment schedule in accordance with work done;
attend an ‘engagement meeting’ in order to be
introduced
to ‘management’ before the commencement of the project;
and that the ‘tendered amount will be considered
fixed for the
project’. The estimated delivery period for the project was six
weeks.
[11]
On 4 October 2011, VIT and the Department signed an agreement that
they called a service delivery agreement – an SDA
– in
respect of an ‘enterprise content management solution’
for the Department. Clause 1.1.27 defined the scope
of work envisaged
by the SDA to mean ‘the description of the Deliverables,
timeframes and Delivery Dates of the Services,
scope, plan and
payment schedule/s as set out in Schedule 1’. This schedule was
the only schedule that formed part of the
SDA. A reference to another
schedule was deleted and initialled by the parties. Clause 30 of the
SDA provides that ‘[t]his
Agreement constitutes the entire
Agreement between the Parties for the provision of Services by [VIT]’
and that ‘[a]ny
prior arrangements, agreements, representations
or undertakings are superseded’.
[12]
Schedule 1 refers, in its heading, to ‘
Scope
of Work Phase 0
’. Immediately below
the heading it is stated that the schedule and its annexures ‘
is
based on this Agreement agreed to between the parties
’.
Phase 0 is described as involving an information audit and scoping in
which the ‘deliverables’ are: the collection
of
information; the collation, evaluation and interpretation of the
information; the compilation of a ‘comprehensive report’

containing findings and recommendations; determining the strategic
objective of records management in the Department; the assessment
of
the availability of ‘sufficient human resources’ within
the Department; the assessment of ‘the availability
and use of
records classification systems’; the assessment of the
availability of ‘policies, procedures and processes’;
the
assessment of ‘MISS compliance and confidentiality of
classified records’; the assessment of the availability and
use
of registers and other record keeping systems; the assessment of the
systems and practices then in use for ‘storage,
maintenance and
transfer of electronic metadata, media and related technologies’
and whether these conform to the standards
set in the
National
Archives of South Africa Act 43 of 1996
; and the assessment of the
‘processes involved in the transfer of records to an archival
repository’. The fee that
VIT would be entitled to for this
work was ‘R498 000.00 (Four hundred and ninety eight
thousand rand) Excluding VAT’.
[13]
On 26 October 2011, the Department paid VIT the amount of R567 720,
made up of R498 000 plus VAT. Even though Phase
0 had now been
concluded, that did not end the relationship between the Department
and VIT. On 2 December 2011, they signed a document
titled ‘Schedule
2: Scope of Work – Phase 1’. In VIT’s founding
affidavit, it was claimed that, on that
date, the parties ‘signed
the schedule attached to the main agreement wherein they agreed on a
two phased approach namely
Phase 0 and Phase 1A for the
implementation of the ECM project with a total cost of R498 000.00
and R9 800 000.00
respectively’. As was pointed out
in the answering affidavit, however, this was not factually correct:
the SDA was signed
on 4 October 2011 and related only to Phase 0,
having a total value of R498 000 (excluding VAT), while Schedule
2, relating
to part of Phase 1, was signed on 2 December 2011, having
a total value of R9 800 000 (excluding VAT). Schedule 2 was

not part of the SDA, having been expressly excluded. It appears that
the head of the Department and VIT wanted to create the false

impression that Schedule 2 had always been part of the SDA.
[14]
In terms of Schedule 2, VIT was engaged, over a period of four months
and for a fee of R9 800 000, excluding VAT,
to develop
‘provincial governance instruments’, which included,
inter alia, appointing records managers and creating
and implementing
‘records life-cycle processes’; putting in place
‘governance instruments’; and rolling
out a change
management plan. (VIT stated that the original budget for Phase 1 was
R20.1 million but ‘due to budgetary constraints’,
this
phase was divided in two: the agreed amount of R9 800 000
was payment for what VIT called Phase 1A.) While VIT claimed
to have
completed the work and to have been paid R9 800 000, the
provincial government disputes this on two scores. First,
it stated
that only R8 132 695.52 was paid to VIT, over the period between
January and July 2012. Secondly, it said:
‘
Despite this huge payment, no
evidence of outputs was attached nor could they be submitted in
electronic format and/or verified
in copies. To date, doubt exists
whether the outcome of the project produced tangible progress with
documents, record and archive
management for the province. The
applicant has failed to satisfy numerous requests for proof of
deliverables.’
[15]
In August 2012, as a result of a lack of funds to pay for the work
that VIT proposed to do, the head of the Department applied
for
funding from the premier’s discretionary fund. She sought a
total of R22 million for the completion of Phase 0, Phase
1B and
Phase 2. This amount was later reduced to R18.6 million in respect of
only Phase 0 and Phase 1B. The Premier granted R20
million. As a
result of these funds being made available, the Department and VIT
agreed to a schedule of activities that VIT would
perform in respect
of Phase 1B at a cost of R12 882 000.
[16]
When supply chain management problems began to arise, with the result
that payments of invoices were refused, the arrangement
was
‘formalised’. On 15 October 2012, the Department and VIT
entered into what they termed a service level agreement
in respect of
Phase 1B at a total cost (including VAT) of R12 882 000.
This appeared to open the money taps again, with
the result that the
Department paid VIT an amount of R3 472 200.
[17]
VIT then submitted a request to the Department that it purchase
software from it at a cost of R37 million, and pay it, in addition,

an annual maintenance fee of R6.7 million. A deputy director general
was given the task of formulating a view on this proposal.
He
concluded that it could not be accepted because it had to go out to
tender in order to comply with legal procurement requirements,
but
recommended that VIT be invited to ‘present detailed
specifications and requirements’, that the Premier’s

office and other departments be drawn into a consideration of the
need for the proposed solution, that VIT then be asked to prepare
a
presentation on the costs and benefits of the current system as
against what it proposed, and that a ‘final position regarding

a submission to Extech/Exco and a review of the present proposal
could be formulated thereafter’. The head of the Department

accepted these recommendations and communicated her view to VIT. This
drew a response from VIT.
[18]
In a letter to the head of Department dated 27 October 2011, VIT’s
chief executive officer set out VIT’s position.
He said:
‘
It has come as quite a surprise
to us that you indicate that the department now has to go out on
tender for the next phase/s of
the project. Our understanding of the
SDA that was signed between [the Department] and [VIT] It is as
follows:
1. The project was awarded by [the
Department] to [VIT] as an end to end ECM Solution.
2. That the Phase 0 was only for a
period of 6 weeks and that the full implementation of the ECM project
spans 3 years with an option
to renew if required as per the SDA.
3. That the project will be broken
down into a phased approach in terms of the deliverables (Phase 0
then Phase 1 and finally Phase
2)
4. That any other further
enhancements, developments, etc, for the ECM project will form Phase
3 as a deliverable/s.
5. That at the end of each Phase a
Schedule of Work, Payment Schedule and a Project Plan will be
developed for the following Phase
that needs to be delivered. . .
6. That the SDA signed between [the
Department] to [VIT] fully encompasses the total ECM Solution
Implementation, Phase 0 was purely
an assessment stage.
7. On the presentation on the 27
th
of September 2011 to DMC in Potchefstroom, a costing of R20,1 mil for
Phase 1 was presented.
8. On the meeting at the 05
th
of October 2011 at your office boardroom in which the signing of the
SDA took place, you indicated that we needed to provide a
project
plan, scope of work and payment schedule for Phase 1. You also
removed the Scope of Work Schedule from the SDA as it was
not
supported by the Project Plan and Payment Schedule. You also asked if
we could carry on with assisting with the development
of the
Government Instruments and asked us to review and use what [the
Department] already has in place if possible. You will no
doubt agree
that this forms part of Phase 1.
Please also find attachments with
various extracts that indicate clearly that the project was an end to
end solution broken down
into phases. It also clearly shows that
Phase 1 will follow Phase 0 and that Phase 1 must start immediately
over a period of 6
months. Please refer also to slide number 25 which
you yourself presented and indicated that Phase 1 is included.’
[19]
By this time, as a result of constant concerns being expressed by
supply chain management officials about irregular expenditure,
the
relationship between the Department and VIT appears to have attracted
the attention of, inter alia, the Auditor-General. On
1 October 2013,
the Department cancelled the agreement with VIT. It did so on a
number of bases including that the award of the
contract did not
comply with s 217 of the Constitution and the other procurement
related prescripts that give effect to it. In
response to the
cancellation, VIT instituted proceedings against the Department in
which it claimed damages of R152 073 768.
[20]
The matter was then settled on the advice of the Chief State Law
Advisor and, on 13 February 2014, the settlement agreement
was made
an order of the North-West Division of the High Court, Mahikeng. The
settlement agreement provided as follows:
‘
1. The termination of the
agreement between [the Department] and [VIT] was unlawful.
2. The status quo before the
termination of the contract as aforesaid is hereby restored with
immediate effect.
3. [VIT] and/or the personnel
belonging to [VIT]  will be allowed on site, government premises
to resume their contractual
obligations in terms of the agreement
with immediate effect.
4. The nature of the ECM solution
contract will be re-defined as a transversal term contract so as to
comply with Treasury Regulations
16A6.5.
5. The Office of the Premier together
with the Department of Finance will engage one another regarding the
roll-out of the project
to provincial departments.
6. The litigation matter between [the
Department] regarding the termination of the contract will be
withdrawn by [VIT], in its capacity
as the applicant.
7. The parties agree to substantiate
the main agreement on ECM solution with an addendum and plans for
deliverables to be rolled-out
to provincial departments.
8. The parties agree that compensation
to [VIT] is justified under the circumstances for loss of profit and
other damages.
9. The North West Provincial
Government hereby agrees to pay the settlement amount of R22.8
million to [VIT] in full and final settlement
of all costs related to
the unlawful termination of the contract including any monies that
might have been owing as at the time
of the termination of the
contract.
10. The settlement amount shall be
paid into the bank account of [VIT] within seven working days from
the 05
th
February 2014.
11. The parties agree that this
settlement agreement shall be made an order of court after all the
parties have signed.’
[21]
VIT was paid R22.8 million in terms of the order. Thereafter, VIT was
paid further amounts: it was paid R213 750 in respect
of Phase 1B,
R2 100 021.51 in respect of Phase 0 (for all of the
provincial government’s remaining departments)
and R1 750 000,
also for Phase 0. By this stage, the provincial government had paid
VIT a total of R41 729 647.
[22]
Advice was sought from legal practitioners external to the provincial
government. That advice was to the effect that the award
of the
‘contract’ to VIT was irregular and flew in the face of s
217 of the Constitution. On 9 January 2015, the provincial
government
again cancelled the contract. That resulted in the current
proceedings, in which VIT sought a declaratory order that
the
provincial government’s ‘unilateral termination’ of
the contract was unlawful and an order directing the
provincial
government to pay VIT R146 473 747.49 as damages. The
provincial government opposed that application and brought
a
counter-application for the setting aside of the SDA and ‘all
subsequent agreements’ entered into between the Department
and
VIT, and for the setting aside or rescission of the settlement
agreement.
The
issues
[23]
The case raises a number of issues. The first is a point taken by VIT
that the provincial government’s attorney has no
authority to
represent it in this appeal. The second is that condonation for the
late filing of the answering affidavit and of
the reply in the
counter-application should not have been granted by the court below.
If those issues are to be decided in favour
of the provincial
government, three issues remain to be decided. They are: whether the
provincial government’s delay in bringing
its
counter-application was unreasonable and, if so, whether condonation
should be granted; whether the award of the SDA to VIT
and the
subsequent extensions were lawful or not; and, if they were unlawful,
the effect of the settlement agreement that was made
a court order,
and whether it should have been rescinded.
The
preliminary points
[24]
The point that the provincial government’s attorney has no
authority has no merit. Attached to the provincial government’s

heads of argument is a power of attorney signed by one of the
provincial government’s administrators (appointed to administer

the province in terms of s 100 of the Constitution). In the power of
attorney, he confirmed the attorney’s mandate to represent
the
provincial government in this appeal.
[25]
The second preliminary point is that condonation should not have been
granted for the provincial government’s late filing
of its
answering affidavit and its replying affidavit in the
counter-application. The explanation given for the delay was, in
summary, that because of the long and complex history of the matter,
it had been necessary to appoint a senior bureaucrat to investigate

precisely what had transpired and to compile a report. It was only
when these tasks had been completed that counsel could be properly

briefed and consultations with potential deponents could take place
This was a complicated and time-consuming exercise. In addition,
in
respect of the late filing of the reply in the counter-application,
the provincial government had changed counsel and the newly
briefed
counsel required time to acquire an understanding of the matter and
draft the reply. It was submitted that the prospects
of success were
good, that VIT stood to suffer no prejudice, and that, by contrast,
the prejudice to the provincial government
if condonation was
refused, would be immense.
[26]
Gura J, in the court below, considered the explanation to be a
reasonable one; that VIT suffered no prejudice as a result of
the
delay; that the provincial government’s prospects of success
were good; and that, significant sums of public funds being
involved,
there was an overwhelming public interest in favour of the matter
being heard on a full set of papers. In the exercise
of his
discretion, he granted condonation. The exercise of that discretion
can only be set aside on appeal if it was not exercised
judicially –
if, in other words, the court below had exercised it on the basis of
incorrect facts or incorrect legal principles.
[2]
That cannot be said of Gura J’s exercise of discretion in this
case, with the result that the attack on the granting of condonation

has no merit.
The
delay in bringing the counter-application
[27]
The counter-application seeks, in effect, the review and setting
aside of the award of the SDA to VIT (as well as all subsequent

agreements). The provincial government thus applied to set aside its
own decision. Its jurisdiction to do so emanates from the
principle
of legality that is sourced in the founding constitutional value of
the rule of law, and not from the Promotion of Administrative
Justice
Act 3 of 2000 (the PAJA).
[3]
[28]
That means that, in terms of the common law, it was required to apply
for the setting aside of the award of the SDA within
a reasonable
time.
[4]
The test entails a
two-stage enquiry. First, it must be determined whether any delay in
bringing the application was reasonable
or unreasonable. If it was
unreasonable, the second stage comes into play: the court must decide
whether the unreasonable delay
may be overlooked and condonation
granted.
[5]
[29]
According to
Khumalo
and Another v Member of the Executive Council for Education,
KwaZulu-Natal
,
[6]
no specific application is required in a legality review for the
condonation of an unreasonable delay in launching proceedings.
An
objection that the delay in so doing is unreasonable is
‘pre-eminently a point which the respondent or the Court should

raise because the respondent and the Court are best able to judge
whether, having regard to the respective spheres of influence
of
each, the lapse of time which has occurred merits the raising of an
objection’.
[7]
[30]
Whether a delay is unreasonable is a factual issue that involves the
making of a value judgment.
[8]
Whether, in the event of the delay being found to be unreasonable,
condonation should be granted involves a ‘factual, multi-factor

and context-sensitive’ enquiry
[9]
in which a range of factors – the length of the delay, the
reasons for it, the prejudice to the parties that it may cause,
the
fullness of the explanation, the prospects of success on the merits –
are all considered and weighed before a discretion
is exercised one
way or the other.
[10]
[31]
The decision to award the bid to VIT on the basis of its quotation,
and to conclude the SDA with it, was taken in early August
2011.
Thereafter, the scope of the work was steadily increased and
significant amounts of money were paid to VIT as a result. Despite

concerns being raised from time to time about the propriety of this
arrangement, it continued until early October 2013 when the

provincial government cancelled the SDA. That led to VIT’s
first application. A state law advisor gave patently poor advice
that
the provincial government should settle the dispute. The result was
the settlement agreement, which was made a court order
on 18 February
2014, and the continuation – and extension – of the
contract. It was only after independent legal advice
had been
obtained that the contract was cancelled again, on 23 January 2015.
VIT’s second application was launched on 21
May 2015 and the
counter-application was filed on 15 October 2015.
[32]
There can be no doubt that the delay in challenging the lawfulness of
the award of the SDA to VIT was unreasonable. As I have
shown, it
took more than two years for the provincial government to cancel the
contract for the first time, only to reverse its
decision. It took a
further 15 months before the provincial government cancelled the
contract again and another nine months before
it applied for the
setting aside of the contract and the rescission of the order of
court embodying the settlement agreement.
[33]
In these circumstances, one would have expected a full and thorough
explanation for the delay. That was not to be. Instead,
the
provincial government gave an explanation for its delay in filing its
answering affidavit, and later, for its delay in filing
its reply in
the counter-application. That only accounts for the period between
the service of the founding papers and the filing
of the answering
affidavit and reply in the counter-application respectively. In order
to understand why the provincial government
delayed for more than
four years before it challenged what was a patently unlawful
contract, one has to trawl through the papers
and draw inferences
from the facts found there. That is far from satisfactory, but is
necessary if the interests of justice are
to prevail.
[34]
It is clear that officials in the Department played a pivotal role in
the scheme, from the initial award of the SDA to VIT
to its
progressive extensions thereafter. This ongoing involvement explains
why the legality of the scheme was not challenged prior
to the first
cancellation. It was only after the provincial government had been
placed under administration, with new officials
looking afresh at the
relationship between the Department and VIT, that that was done.
[35]
Furthermore, when VIT went too far by claiming an entitlement to sell
software for a price of R37 million, and to an annual
maintenance fee
of R6.8 million, the head of the Department baulked. The result, when
taken together with ongoing concerns about
irregular expenditure in
relation to VIT, was that matters were taken out of her hands, and
the provincial government cancelled
the contract with VIT for the
first time. (It is noteworthy that, in the letter of cancellation, it
was stated that the head of
Department had not had the authority to
contract with VIT.)
[36]
One would have imagined that the first cancellation would have put an
end to the saga. That was not to be, because a state
law advisor gave
inexplicably wrong advice that VIT’s application to challenge
the cancellation should be settled on terms
favourable to VIT. The
provincial government, it would appear, had no way of knowing that
the advice it had been given was wrong,
and this problem was
compounded by an ill-conceived settlement agreement that was made a
court order.
[37]
Once the matter had been settled, the provincial government had
little choice but to comply with the order to which it had
agreed. It
was only when it obtained independent legal advice that it found out
that the state law advisor’s advice had been
wrong, and that it
should cancel the agreement again. In due course, the
counter-application was brought to set aside the SDA and
everything
that followed it. This accounts for the period between the first
cancellation and the second cancellation.
[38]
One of the factors that must be considered whenever condonation is
sought is the applicant’s prospects of success on
the merits.
It must be borne in mind that the grant or refusal of condonation is
not a mechanical process but one that involves
the balancing of often
competing factors. So, for instance, very weak prospects of success
may not off-set a full, complete and
satisfactory explanation for a
delay; while strong prospects of success may excuse an inadequate
explanation for the delay (to
a point).
[11]
[39]
As I shall demonstrate in the following paragraphs, the provincial
government’s prospects of success on the merits are
strong: the
scheme in terms of which VIT purported to provide services, and for
which it was handsomely remunerated, was unlawful
from start to
finish. As a result, even if it were to be found that the explanation
for the provincial government’s delay
was wanting, the
interests of justice, in the light of its strong prospects of
success, require condonation to be granted.
The
merits
[40]
Section 217 of the Constitution requires organs of state such as the
Department, when it procures goods and services, to do
so in terms of
a system that is ‘fair, equitable, transparent, competitive and
cost-effective’. Its purpose is to prevent
patronage and
corruption, on the one hand, and to promote fairness and impartiality
in the award of public procurement contracts,
on the other. In order
to do so, statutes, such as the Public Finance Management Act 1 of
1999 (the PFMA), subordinate legislation
made under the PFMA, such as
the Treasury Regulations, and supply chain management policies that
have to be applied by organs of
state, all give effect to s 217.
[41]
In
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency and

Others
,
[12]
Froneman J said of this legal framework that compliance with it was
required for a valid procurement process and its components
were not
mere ‘internal prescripts’ that could be disregarded at
whim. The consequence of non-compliance is clear:
in
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
,
[13]
Leach JA held that a public procurement contract concluded in breach
of the legal provisions ‘designed to ensure a transparent,

cost-effective and competitive tendering process in the public
interest, is invalid and will not be enforced’.
[42]
From the facts that I have set out above, it is apparent that no
public tendering process was ever held in respect of the SDA
or any
of the agreements that followed it. The SDA was awarded to VIT after
it and two other firms had responded to a closed request
for
quotations. VIT’s quotation was for an amount of R498 000,
excluding VAT. It would appear that the purpose of the
exclusion of
VAT was to ensure that the amount was lower than R500 000: VIT
and the Department thought that if the amount
was below this figure,
an open tendering process did not have to be embarked upon, and a
contract could be awarded on the basis
of a consideration of the
competing quotations.
[43]
On this score they were mistaken. Regulation 16A6.1 of the National
Treasury Regulations provides that the procurement of goods
and
services by organs of state, ‘either by way of quotations or
through bidding process, must be within the threshold values
as
determined by National Treasury’. National Treasury Practice
Note 8 of 2007/2008, made in terms of s 76(4)(
c
)
of the PFMA, is intended to ‘regulate the threshold values
within which accounting officers/authorities may procure goods,
works
and services by means of petty cash, verbal/written price quotations
or competitive bids’.
[14]
Section 3.4 deals with procurement above the transaction value of
R500 000, VAT included. In such instances, s 3.4.1 provides
that
‘[a]ccounting officers/authorities should invite competitive
bids’. (There was no suggestion that urgency or emergency

circumstances justified a departure from this prescript, and it is
not suggested that the procedure for such a deviation was
followed.)
[15]
As a result,
the awarding of the SDA on the basis of a request for quotations, as
opposed to an open tender process, was unlawful
and invalid.
[44]
Thereafter, VIT and the Department purported to enter into new
agreements on two further occasions before the first cancellation.

These related to what VIT and the Department referred to as phase 1A,
to the value of R9.8 million, and phase 1B, to the value
of
R12 888 000. The award of these contracts was unlawful and
invalid because their award had not been preceded by an
open
procurement process in accordance with the required constitutional
and legal prescripts. This was the state of affairs that
prevailed
when the provincial government cancelled the SDA and the agreements
that followed it for the first time. I turn now to
consider the
effect of the settlement agreement.
The
settlement agreement
[45]
It is necessary in the first place to detail precisely what the
settlement agreement purported to achieve in respect of the

contractual arrangement between VIT, the Department and the
provincial government. It is clear that it is a one-sided document
in
that all of the benefits that it bestows accrue to VIT, and all of
its obligations, including a payment of R22.8 million, fall
to the
provincial government to meet.
[46]
The core provisions of the settlement agreement provided that: (a)
the ‘status quo before the termination of the contract’

was ‘restored’; (b) VIT’s staff would be permitted
to ‘resume’ their ‘contractual obligations
in terms
of the agreement’; (c) the ‘nature’ of the contract
would be ‘re-defined as a transversal term
contract’ in
order for it to comply with the Treasury Regulations; (d) and the
contract would be extended by being ‘rolled-out
to provincial
departments’.
[47]
The effect of the settlement agreement was that the unlawful
contractual arrangements between VIT and the Department would
remain
in force, with two important qualifications. First, in an apparent
acknowledgement that the arrangement in place was indeed
unlawful,
the parties agreed to call it something else in order to create the
impression that it was compliant with the requirements
of the
Treasury Regulations. Secondly, the parties agreed, not only to the
restoration of the status quo ante, but to the further
extension of
the already extended unlawful contractual arrangement. They applied
to have this arrangement made a court order.
[48]
Two issues arise for determination. The first is the effect of the
attempt to ‘repackage’ the arrangement in order
to comply
with the Treasury Regulations. The second is the effect of having
made the settlement agreement a court order and, more
particularly,
if the settlement agreement was unlawful, whether a court could have
made it an order.
[49]
In
Gibson
v Van der Walt
,
[16]
Van der Walt had placed bets on credit with Gibson, a bookmaker. Van
der Walt lost and owed Gibson money as a result. He undertook
to pay
by a future date, and Gibson agreed to the proposal. When no payment
materialised – and Gibson had rejected the offer
of a race
horse in payment of the debt – he sued Van der Walt on the
undertaking to pay, rather than on the underlying gambling
agreement
which, being contrary to public policy, was unenforceable. Fagan JA
held that the undertaking was also unenforceable,
setting out the
test as follows:
[17]
‘
The test in such a case, to my
mind, should be whether the Court is asked, in effect, to enforce the
unenforceable claim; in other
words, is the later transaction on
which the plaintiff relies merely a device for enforcing his original
claim, is it merely his
original claim clothed in another form or
with some term or condition added to it, or a ratification or even
novation of the original
claim which leaves its essential character
unchanged; if so, the plaintiff must fail.’
[50]
I do not believe that calling the contractual arrangement between VIT
and the Department a ‘transversal term contract’
altered
the fact that it is unlawful and invalid because of non-compliance
with procurement prescripts required by the law.
Gibson
v Van der Walt
is authority for the
proposition that if the underlying contract suffers from a defect,
such as unenforceability, dressing it in
different garb will not
alter that fact. In other words, the settlement agreement has had no
effect on the unlawfulness of the
contractual arrangement between VIT
and the Department: it remained an unlawful agreement whatever the
parties chose to call it.
[51]
I turn now to the second issue – the effect of the settlement
agreement having been made a court order. The first point
that must
be made is an obvious, but necessary, one: the parties asked the
court to make their settlement, that purported to confirm
the
continuation and extension of their unlawful agreements, an order
that could, presumably, be enforced by execution or contempt

proceedings – to give it the court’s stamp of authority.
[52]
In
Eke v
Parsons
,
[18]
a contractual dispute between two private individuals, the
Constitutional Court considered the nature and effect of settlements

being made court orders. Madlanga J held that first, it is not
anything agreed to by the parties that can be made an order: the

order must be ‘competent and proper’ in the sense that it
relates to the dispute with which the court was seized.
[19]
Secondly, it may not be objectionable from either a legal or a
practical perspective: its terms, in other words, must ‘accord

both with the Constitution and the law’ and they may not be ‘at
odds with public policy’.
[20]
[53]
A similar issue arose, but in a public law context involving public
procurement by an organ of state, in
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
.
[21]
The municipality awarded a contract to Asla Construction without
having complied with the required procurement processes. It later

applied to set aside its own decision, but did so only after having
delayed unreasonably. It failed to set aside the award on this
basis
in the Supreme Court of Appeal but, after its appeal had been argued
in the Constitutional Court, the parties settled their
dispute. The
municipality brought an application for leave to withdraw its appeal
and to have the settlement agreement made an
order. That settlement
confirmed that Asla Construction would continue with the disputed
contract, and also included in it other
contracts unrelated to the
dispute before the court.
[54]
In these circumstances, the court refused to make the settlement
agreement an order. The contract awarded to Asla Construction

remained unlawful and, the court held, that ‘inconsistency with
the Constitution cannot be cured by a settlement agreement’.
If
such an order was made, it would be inconsistent with the
Constitution.
[22]
[55]
So too in this case. For the reasons I have given above, the
contractual arrangement between VIT and the Department was unlawful.

The settlement agreement sought to give effect to that unlawful
arrangement and should, as a result, not have been made an order.
It
was correctly rescinded by the court below.
The
order
[56]
I make the following order:
The
appeal is dismissed with costs, including the costs of two counsel.
_________________________
C
Plasket
Judge
of Appeal
APPEARANCES
For
the appellant: P W Makhambeni
Instructed
by:
Makhubela
Attorneys, c/o Kgomo Attorneys, Mahikeng
Symington
De Kock, Bloemfontein
For
the respondents: V Soni SC and H Cassim
Instructed
by:
M
E Tlou Attorneys, Mahikeng
Moroka
Attorneys, Bloemfontein
[1]
Section 217 of the Constitution provides:
‘
(1) 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.
(2) Subsection (1) does not prevent
the organs of state or institutions referred to in that subsection
from implementing a procurement
policy providing for-
(a) categories of preference in the
allocation of contracts; and
(b)
the protection or
advancement of persons, or categories of persons, disadvantaged by
unfair discrimination.
(3) National legislation must
prescribe a framework within which the policy referred to in
subsection (2) must be implemented.’
[2]
Notyawa v Makana
Municipality and Others
[2019] ZACC 43
;
2020 (2) BCLR 136
(CC) para 41.
[3]
State Information
Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd
[2017] ZACC 40
;
2018 (2) SA 23
(CC);
2018 (2) BCLR 240
(CC) para 37;
Buffalo City Metropolitan
Municipality v Asla Construction (Pty) Ltd
[2019] ZACC 15
;
2019 (4) SA 331
(CC);
2019 (6) BCLR 661
(CC) para
45.
[4]
Harnaker v Minister of the
Interior
1965 (1) SA 372
(C) at 380C-E.
[5]
Wolgroeiers Afslaers (Edms)
Bpk v Munisipaliteit van Kaapstad
1978 (1) SA 13
(A) at 39C-D;
Gqwetha
v Transkei Development Corporation Ltd and Others
[2005]
ZASCA 51
;
2006 (2) SA 603
(SCA) para 33;
Camps
Bay Ratepayers and Residents Association and Others v Minister of
Planning, Culture and Administration, Western Cape and
Others
2001 (4) SA 294
(C) at 306H-307G;
Beweging
vir Christelik-Volkseie Onderwys and Others v Minister of Education
and Others
[2012] ZASCA
45
;
[2012] 2 All SA 462
(SCA) para 46;
Notyawa
v Makana Municipality and Others
(note 2) para 46.
[6]
Khumalo and Another v
Member of the Executive Council for Education, KwaZulu-Natal
[2013] ZACC 49
;
2014 (5) SA 579
(CC);
2014 (3) BCLR 33
(CC) para 44.
[7]
Scott and Others v Hanekom
and Others
1980 (3) SA
1182
(C) at 1193B-C.
[8]
Gqwetha v Transkei
Development Corporation Ltd and Others
(note 5) para 24;
Camps Bay
Ratepayers and Residents Association and Others v Minister of
Planning, Culture and Administration, Western Cape and
Others
(note 5) at 307E-F.
[9]
Department of Transport and
Others v Tasima (Pty) Ltd
[2016] ZACC 39
;
2017 (2) SA 622
(CC);
2017 (1) BCLR 1
(CC) para 144.
[10]
Gqwetha v Transkei
Development Corporation Ltd and Others
(note 5) paras 31-35;
Camps
Bay Ratepayers and Residents Association and Others v Minister of
Planning, Culture and Administration, Western Cape and
Others
(note 5) at 307G.
[11]
United Plant Hire (Pty) Ltd
v Hills and Others
1976
(1) SA 717
(A) at 720E-G;
Darries
v Sheriff, Magistrate’s Court, Wynberg and Another
1998 (3) SA 34
(SCA) at 40H-41E.
[12]
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency and
Others
[2013]
ZACC 42
;
2014 (1) SA 604
(CC);
2014 (1) BCLR 1
(CC) para 40.
[13]
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
[2009]
ZASCA 66
;
2010 (1) SA 356
(SCA) para 16. See too
Premier,
Free State and Others v Firechem Free State (Pty) Ltd
2000 (4) SA 413
(SCA) para 30;
Eastern
Cape Provincial Government and Others v Contractprops 25 (Pty) Ltd
2001 (4) SA 142
(SCA) paras 8-9.
[14]
Section 1.
[15]
See too
Joubert
Galpin Searle Inc and Others v Road Accident Fund and Others
2014 (4) SA 148
(ECP) para 79: ‘What emerges from the
instruments that I have discussed is that, generally speaking, when
the value of
the tender exceeds R500 000 a competitive, open
procurement process must be followed. It is only in exceptional
circumstances
that deviation from this norm will be justified.’
[16]
Gibson v
Van der Walt
1952
(1) SA 262 (A).
[17]
At 270A-B.
[18]
Eke v
Parsons
[2015]
ZACC 30; 2016 (3) SA 37 (CC); 2015 (11) BCLR 1319 (CC).
[19]
Para 25.
[20]
Para 26.
[21]
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
(note 3).
[22]
Para 30.
See too
Shabangu
v Land and Agricultural Development Bank of South Africa and Others
[2019] ZACC 42
;
2020 (1) SA 305
(CC);
2020 (1) BCLR 110
(CC) para
33;
Airports
Company South Africa v Big Five Duty Free (Pty) Ltd and Others
[2018] ZACC 33
;
2019 (5) SA 1
(CC);
2019 (2) BCLR 165
(CC) para 13.