H & I Civil & Building (Pty) Ltd and Another v City of Cape Town and Others (59/24) [2024] ZAWCHC 329 (18 October 2024)

IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN
In the matter between:
H & I CIVIL & BUILDING (PTY) LTD
H & I CONSTRUCTION (PTY) LTD
and
THE CITY OF CAPE TOWN
WILSON BAYLY HOLMES - OVCON
LIMITED
CVS CONSTRUCTION (PTY) LTD
ASLA CONSTRUCTION (PTY) LTD
BASELINE CIVIL CONTRACTORS
(PTY) LTD
MARTIN & EAST (PTY) LTD
POWER CONSTRUCTION (PTY) LTD
.
RUWACON (PTY) LTD
Case No.: 59/24
First Applicant
Second Applicant
First Respondent
Second Respondent
Third Respondent
Fourth Respondent
Fifth Respondent
Sixth Respondent
Seventh Respondent
Eighth Respondent
JUDGMENT DATED 18 OCTOBER 2024
Delivered Electronically
MAGARDIE, AJ
Introduction
[1] This application requires us to decide whether a new preferential
procurement scoring system introduced by the City of Cape Town {'the City')
in relation to bids for tenders in the construction sector and its application to
two construction tenders advertised by the City, is lawful and consistent with
the Constitution.
[2] The City's new scoring system allocates preference points to bidders based
on ownership of the bidding entity by women , Black people, disabled people
and the extent to which the bidding entity has promoted small and micro
enterprises.
[3] The Applicants have brought a wide-ranging substantive and procedural
challenge to the legality of the new scoring system. Their central complaint is
that it is not only irrational and unconstitutional but exclusionary in both its
form and effect. The Applicants contend that given what they say are the
already small margins in construction work, the City's new scoring system
establishes an insurmountable threshold to their participation in bids for
tenders to which the new scoring system applies.
(4] The relief sought by the Applicants is first and foremost for the City's decision
to introduce the new scoring system to be declared unlawful, invalid and
reviewed and set aside. In addition, the Applicants seek relief directing the
City to implement its previous scoring system, which allocated preference
points exclusively on the basis of a bidder's Broad-based Black Economic
Empowerment ('B-BBEE') contributor status level, in respect of all
construction work which the City has and will in future be putting out to tender.
2
[5] The evaluation of public tenders and implementation of procurement policies
by organs of state are exercises of public power constrained by the principle
of legality. Public procurement processes are also required to serve wider
societal and economic transformation goals. These goals include providing
economic redress for persons disadvantaged by unfair discrimination and
historically excluded from economic opportunities in the public procurement
sector. Legality and the promotion substantive equality through public
procurement are however not mutually exclusive. Our Constitution requires a
commitment to and compliance with both.
The parties
The applicants
[6] The First Applicant (H & I Civils') and the Second Applicant ('H & I
Construction') are private companies and contractors in the building and
construction industry. They are engaged in the construction of buildings,
public roads and bridges and large scale complex civil engineering projects
throughout the country, but primarily in Cape Town. The Applicants are level
1 Broad-Based Black Economic Empowerment ('B-BBEE ') contributors in
terms of the scorecard provided for by the Broad-based Black Economic
Empowerment Act 53 of 2003 ('B-BBEE Act') and registered members of the
Construction Industry Development Board ('CIDB'), which regulates and
promotes the South African construction industry.
[7] H & I Civils specializes in the the construction of commercial, industrial and
residential buildings, schools, hospitals and other large building
infrastructure. It often operates in joint ventures with the Second Applicant, H
& I Construction, which is a multi-disciplinary construction company operating
in the areas of transportation, energy, mining, marine and water infrastructure
construction.
3
(8] The Applicants are wholly owned subsidiaries of H&I Group (Pty) Ltd ('HIG'),
a privately owned engineering company engaged in the fields of engineering
and infrastructure development. The shareholding of HIG is held by three
shareholder groups. One of these is the H&I Broad Based Employee Trust
('HIBBET'). HIBBET is an employee share incentive trust formed in 2006
when a portion of HIG's shares were sold to HIBBET at par value for an
amount of R33 .9 million. The beneficiaries of HIBBET are permanent
employees of the Applicants and other subsidiaries in the HIG group with
more than two years' service.
(9] HIG is the sole shareholder of the Applicants. The total shareholding in H IG
held by Black people is 36.83%. Of this, the employee share incentive trust,
HIBBET, holds 25.29%. The remaining 11.54% shareholding is owned by
Black shareholders in their own capacity.
(1 O] According to the Applicants, they are largely dependent for their survival on
public procurement work derived from various government agencies,
including local government agencies such as the City. The Applicants have
in this regard been awarded several multi-million rand construction tenders
by the City between 2009 and 2023. The contract value of construction
tenders awarded by the City to H & I Civils amounts to approximately
R538 206 312. The combined contract value in respect of two construction
tenders which the City has awarded to H & I Construction, with contract start
dates of February 2022 and May 2023, is approximately R1 619 469 428.44
(approximately R1 .6 billion).
The Respondents
[11] The First Respondent is the City of Cape Town ("the City''). The City is an
organ of state in the local sphere of government and a metropolitan
municipality established in terms of section 12 of the Local Government:
Municipal Structures Act 117 of 1998.
4
[12] This application relates to two construction tenders which have been
advertised by the City.
[13] The first was tender no. 540/2023/24 ('Tender 540 ') published by the City
on 15 September 2023. Tender 540 is a tender for the redecoration,
alteration, construction of new buildings and maintenance of structures for
Safety & Security and other City facilities.
[14] The second tender at issue is Tender no. 910/2023/24 ('Tender 910')
advertised by the City on 27 October 2023. This tender is for the construction
of the City's Integrated Road Transport ("IRT") Metro South-East Corridor
(Phase 2A) Stations infrastructure. Both tenders are administered by the
City's Supply Chain Management ("SCM") Department.
[15) The Second to Eighth respondents are construction companies and bidders
for the two tenders. No relief is sought against these respondents.
Constitutional and legislative framework regulating public procurement
Section 217 of the Constitution
(16] What follows is a discussion of the framework in which, in my view, this
application should be considered. Public procurement by organs of state is
regulated by section 217 of the Constitution. Organs of state at all levels of
government are required to contract for goods and services in accordance
with a system which is fair, equitable, transparent, competitive and cost
effective.1
1 Section 217(1) of the Constitution: ' ... 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.'
5
(17] In terms of section 217(2), organs of state are entitled to implement a
procurement policy which provides for categories of preference in the
allocation of contracts and the protection or advancement of persons or
categories of persons who have been subjected to historical disadvantage
due to unfair discrimination.2 Preferential procurement is the implementation
of such procurement policies by organs of state. It is the mechanism utilised
by organs of state to advance the objectives set out in section 217(2) of the
Constitution.
[18] The purpose of section 217(2) of the Constitution is both remedial and
transformative. That purpose is the use of public procurement to promote
economic transformation, substantive equality and to address our country's
history of racially based economic exclusion. The legacy of colonialism,
apartheid and racial discrimination is the economic exclusion of many of
South Africa's people from ownership of productive assets and possession
of advanced skills.
[19) Section 217(2) therefore expressly permits the use of public procurement as
a transformational instrument which may not be prevented or stultified by
appeals to the guarantee of non-discrimination in section 9 of the
Constitution. 3 As the Constitutional Court held in Al/pay, providing economic
redress for previously disadvantaged people lies at the heart of our
constitutional and legislative procurement framework.4
2 Section 217(2): ' ... sub-section ( 1) does not prevent the organ 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 Airports Company South Africa SOC Ltd v Imperial Group Ltd and Others 2020 (4) SA 17 (SCA)
(ACSA) .
4 Al/pay Consolidated Investment Holdings (Pty) Ltd v Chief Executive Officer of the South African
Social Security Agency 2014 ( 1) SA 604 (CC) (A/lpay) at para 4.
6
[20] In Afribusiness, the Constitutional Court recognised that the implementation
of public procurement with no recognition of our country's history of economic
disadvantage experienced by the majority of its people, would mean not only
the perpetuation of this disadvantage but possibly the widening of its gap.5
Madlanga J observed that:
'What section 217(2) seeks to achieve is consonant with the
transformative nature of our Constitution. And its provisions dovetail
with those of section 9(2) of the Constitution. Without provisions of
this nature, true or substantive equality would forever be pie in the
sky for the vast majority of South Africans and the transformative
agenda of the Constitution would be unrealisable. ''1
[21} Substantive equality encompasses both equality of opportunity and equality
of results. In this way , it is a concept different to formal equality which
assumes that the playing field for all participants, is level to begin with. Our
Constitution therefore embraces the concept of substantive equality, which
includes restitution measures aimed at addressing existing inequality,
emphasizes a comm itment to eliminate barriers to equality and the taking of
positive steps to root out of systematic or institutionalised under-privilege. 7
The obligation of the state to take positive action to advance substantive
equality is in my view a relevant factor when assessing the lawfulness of
remedial measures which are implemented as a public procurement policy
objective. This applies with particular force in a case such as the present
where a procurement mechanism implemented by an organ of state to give
preference to categories of persons historically disadvantaged by unfair
discrimination, is challenged on the basis that it is irrational.
5 Minister of Finance v Afribusiness NPC [2022 (4) SA 362 (CC) (Afribusiness).
6 Afribusiness at para 99.
7 Minister of Finance and Other v Van Heerden (1 ZACC 3; 2004 (6) SA 121 (CC (Van Heerden} at
para 31 .
7
Procurement Act and Regulations
[22] Section 217(3) of the Constitution requires the enactment of legislation which
provides the framework within which a preferential procurement policy
envisaged by section 217(2) of the Constitution is to be implemented.
Parliament has enacted the Preferential Procurement Policy Framework Act
5 of 2000 ('Procurement Act') as the specific legislation designed to provide
this framework. The purpose of the Procurement Act is clear from its
preamble. It states that the purpose of the Act is to give effect to section
217(3) of the Constitution by providing a framework for the implementation of
the procurement policy contemplated in section 217(2) of the Constitution.'
[23] Section 2( 1) of the Procurement Act requires an organ of state to determine
its preferential procurement policy and to implement it within the framework
set out in the Act. Section 2( 1) of the Procurement Act is obligatory and does
not provide for organs of state a discretion to decide whether or not to develop
and implement a preferential procurement policy.
[24] The Procurement Act establishes a preference point system for the award of
contracts by an organ of state. The preference point system provides for the
award of points not only on the basis of the price tendered by bidders for a
public procurement contract but also for the achievement of specific goals
provided for in section 2(1 )(d) of the Act. In terms of section 2(1 )(d), these
specific goals may include contracting with persons or categories of persons
historically disadvantaged by unfair discrimination on the basis of race,
gender or disability. Section 2(1 )(d)(ii) provides for further specific goals for
which points may be awarded to contractors. The specific goals catered for
by the Procurement Act also include implementing programmes of the
Reconstruction and Development Programme ("RDPn) as published in
Government Gazette No. 16085 of 23 November 1994.
8
[25) In terms of section 2( 1 }( e) of the Procurement Act, any specific goal for which
a preference point can be awarded, must be clearly specified in the invitation
to submit a tender. Section 2(2) in turn provides that such specific goals must
be measurable, quantifiable and monitored for compliance.
[26] The preference point system created by the Procurement Act distinguishes
the allocation of preference points based on the value of a specific contract.
A maximum of 100 points may be awarded to contractors. The primacy of
obtaining the best price for goods and services subject to public procurement,
is recognized by the scheme established for the award of preference points.
That scheme in essence allocates more preference points for lower value
contracts below a prescribed Rand value ('the 80/20 preference point
system') and less preference points in respect of higher value contracts
above a prescribed amount ('the 90/10 preference point system'}.
[27] In terms of regulations gazetted by the Minister of Finance under section 5(1)
of the Procurement Act ('the 2022 Procurement Regulations'), the 80/20
preference point system applies in respect of tenders for the acquisition of
goods and services with a Rand value equal to or below RSO million. The
90/10 preference points system on the other hand, applies to tenders for the
acquisition of goods and services with a Rand value above R50 million. The
preference point system also applies to tenders for income generating
projects. This includes public procurement processes relating to concessions
and the leasing of government assets.
Broad-Based Black Empowerment Act and Codes
[28] The commitment embodied in the Procurement Act to address historic unfair
discrimination and economic exclusion through the use of preferential
measures in government procurement processes, finds similar expression in
the 8-BBEE Act.
9
[29] The preamble to the 8-BBEE Act states that the purpose of the BBBEE Act
is to ' ... promote the achievement of the constitutional right to equality,
increase broad-based and effective participation of black people in the
economy and promote a higher growth rate, increased employment and more
equitable income distribution.'
[30] Section 9 of the B-BBEEE Act empowers the Minister of Trade and Industry
('the Minister') to issue codes of good practice on Black economic
empowerment, which may, in terms of section 9(1 )(b), include qualification
criteria for preferential purposes for procurement and other economic
activities. In terms of section 10, every organ of state and public entity must
apply any relevant code of good practice issued in terms of the B-BBEE Act
in inter-alia, developing and implementing a preferential procurement policy.
Construction Sector Charter and Construction Sector 8 -BBEE Codes
[31] In terms of section 12 of the 8-BBEE Act, the Minister is empowered to
publish in the Gazette, transformation charters for particular sectors of the
economy. Such transformation charters must be developed by major
stakeholders in that sector and advance the objectives of the B-BBEE Act.
Pursuant to section 12 of the B-BBEE Act, the Minister issued the
Construction Sector Charter in Government Notice 11 Government Gazette
29616 of 19 February 2007. The Construction Sector Transformation Charter
('Construction Sectoral Charter' or 'the Charter'), in section 1.5 thereof,
committed the parties to the Charter to actively promote a vibrant,
transformed and competitive construction sector that would not only provide
adequate services to the domestic economy, but would also be reflective of
the South African nation as a whole and contribute to the establishment of an
equitable society.
10
[32] Section 2 of the Construction Sectoral Charter recognizes a number of
challenges facing the construction sector. These challenges are stated to
include the inadequate addressing of B-BBEE and a narrow focus on equity
ownership due to inconsistent interpretation of preferential procurement
policy. Additional challenges identified in section 2.4 of the Charter include
the sector reflecting 'vast inequalities in ownership, with little transformation
having taken place, little penetration of black enterprises in capital and
knowledge intensive components of the sector' and the ' ... absence of
adequate financial and other support mechanisms for SMMEs.' The
challenges noted in the Charter also include 'limited numbers of Black people,
especially Black women, in controlling positions, managerial positions and in
the specialized professions in the larger enterprises in the sector.'
[33] Section 3 of the Construction Sectoral Charter sets its objectives. Foremost
amongst these is to 'achieve a substantial change in the racial and gender
composition of ownership, control and management of the sector.' Given the
vast ownership inequalities in the construction sector, the parties to the
Construction Sectoral Charter committed themselves to making far reaching
and substantial changes in the racial and gender composition of ownership
and control in the construction sector.
[34] Section 5.1.3 of the Charter committed the parties to achieve a number of
ownership targets by December 2013. These included a target of 30%
economic interest held by Black people, 30% participation by Black people in
voting rights, 10% economic interest held by Back women and 10%
participation by black women in voting rights.
(35] The Charter recognizes that black people and black women in particular
continued to be under-represented at board level and executive management
level in the sector. Enterprises in the construction sector therefore committed
themselves to achieve, by December 2013, a target of 40% Black people at
board level and 20% Black women at board level.
11
(36] Additional commitments reflected in the Charter include those relating to
employment equity, skills development, procurement, enterprise
development of micro, small and medium enterprises and corporate social
investment. Following the publication of the Charter, the Minister issued in
terms of section 9(1) of the B-BBEE Act, codes of good practice for the
construction sector on 5 June 2009 in Government Notice Government
Gazette 3205 and on 1 December 2017 in Government Notice 931
Government Gazette 41287. The latter, being the Code of Good Practice on
Broad Based Black Economic Empowerment: Amended Construction Sector
Code ('the Construction Sectoral Code') is the currently applicable B-BBEE
sectoral code for the construction sector.
[37] As a point of departure, the Construction Sectoral Code notes in section 1.3.1
thereof, that the Construction Sector Transformation Charter is the basis for
the development of the Construction Sectoral Code. Section 1.4.2 of the
Construction Sectoral Code records the stated commitment in the Charter to
far reaching changes to the racial and gender inequalities in the construction
sector. Section 1.4.1 states that the Construction Sectoral Code in particular
aims to ' ... achieve a substantial, meaningful and accelerated change in the
racial and gender composition of ownership, control and management in the
sector' while section 1.4.2.6 records that a further objective of the Code is
'enhancing transformation by ensuring that the Construction Sector creates
productive assets in the hands (actual control and ownership) of black
people.'
[38] The Construction Sectoral Code sets out a detailed framework and
mechan isms for measuring B-BBEE initiatives under the code at all the levels
of the balanced scorecard for B-BBEE, these being management and
ownership control, skills development, enterprise and supplier development
and socio-economic development.
12
[39] Section 9.3 of the Code provides for enhanced recognition of certain
categories of Black people in the measurement of an entity's B-BBEE score
in terms of the code. These categories include Black people with disabilities,
Black youth, Black People living in rural areas and Black unemployed people.
The City's previous scoring system and subsequent regulatory developments
[40] Before concluding this overview of the various legislative instruments giving
effect to the econom ic transformation imperatives of section 217(2) of the
Constitution, it is necessary to outline certain regulatory developments in the
public procurement sector which impacted on the City's previous preferential
procurement scoring system.
[41] Prior to the gazetting of the 2022 Procurement Regulations, procurement by
organs of state was regulated by regulations under the Procurement Act
which came into effect on 1 April 2017 ('the 2017 Procurement Regulations'}.
In terms of Regulation 6 and Regulation 7 of the 2017 Procurement
Regulations, the 80/20 preference point system applied to tenders with a rand
value between R30 000.00 and R50 million. The 90/10 preference point
system applied to tenders with a Rand value above R50 million.
[42] The 2017 Procurement Regulations prescribed a mechanism for the
allocation of preference points to be awarded to a bidder based on their 8-
BBEE contributor status level. In short, the scheme designed by the 2017
Procurement Regulations provided that the higher that bidders B-BBEE
contributor status level, the higher the number of preference points awarded
to that bidder for preferential procurement. A bidder with a Level 1 B-BBEE
contributor status, i.e. the highest obtainable B-BBEE contributor status level
based on the balanced scorecard provided for in the 8-BBEE Codes , would
therefore be awarded a maximum 20 points in tenders to which the 80/20
preference point system applies and a maximum of 10 points in a tender to
which the 90/10 preference point system applies.
13
[43] The number of points awarded to a bidder would reduce in accordance with
the bidder's B-BBEE level contributor status, with a non-compliant contributor
being awarded zero points. The 2017 Procurement Regulations did not afford
organs of state a discretion to implement a preference point system
advancing specific goals other than those provided for in the regulations. A
bidder's B-BBEE contributor status level was the sole consideration to be
determined in the allocation of preference points in terms of the 2017
Procurement Regulations. The City's previous scoring system for the
determination and award of tenders was based on the scheme set out in the
2017 Procurement Regulations and allocated preference points on the basis
set out in the following table:
B-BBEE Level status Number of points for Number of points for
of contributor financial value up to financial value above
and including R50 R50 000 000
000 000
1 20 10
2 18 9
3 14 6
4 12 5
5 8 4
6 6 3
7 4 2
8 2 1
Non-compliant 0 0
contributor
The Afribusiness Judgment
[44] During 2017, an organization known as Afribusiness NPC ('Afribusiness'),
applied to the High Court, Gauteng Division, Pretoria for orders inter-alia
reviewing and setting aside the 2017 PPPFA Regulations on the basis that
the Minister had acted beyond the scope of the powers conferred on him by
the PPPFA when he made the regulations.
14
[45] The High Court dismissed the application with costs and concluded that the
promulgation of the 2017 Procurement Regulations was rational, reasonable,
and fair.
[46] A subsequent appeal by Afribusiness succeeded in the Supreme Court of
Appeal ('SCA')8. Aggrieved by the judgment of the Supreme Court of Appeal,
the Minister then appealed to the Constitutional Court.
[47] On 16 February 2022 the Constitutional Court handed down judgment, in
which the majority of the court concluded that the 2017 Procurement
Regulations were ultra vires the Procurement Act because they usurped a
power vested with organs of state to devise their own policy for preferential
procurement.
(48] The effect of the Constitutional Court's judgment in Afribusiness was to
uphold the order of the Supreme Court of Appeal's order declaring the 2017
Procurement Regulations unconstitutional and invalid. The declaration of
invalidity was suspended for 12 months, thus requiring the Minister to make
new regulations on or before January 2023 in order to avoid a situation where
no valid regulations governing public procurement were in effect.
The 2022 Procurement Regulations
[49] Following the Afribusiness judgment of the Constitutional Court and on 10
March 2022, the Minister published the draft Preferential Procurement
Framework Act regulations for public comment in Government Notice No.
R1581 Government Gazette 46026. The closing date for the submission of
comment on the draft regulations was stipulated to be 22 April 2022.
8 Afribusiness NPC v Minister of Finance [2020) ZASCA 140; 2021 (1) SA 325 (SCA).
15
[50] On 20 June 2022 the Acting Chief Procurement Officer of the National
Treasury issued PPPFA Circular 1 of 2022/23 regarding the implications of a
second judgment of the Constitutional Court handed down on 30 May 2022,
which dismissed with costs an application by the Minister for variation of its
previous order in Afribusiness.9 The circular recorded that the 2017 PPPFA
Regulations would remain in place until 26 January 2023 and that organs of
state should ensure that by 27 January 2023, procurement policies were in
in line with the Constitutional Court's judgment in Afribusiness.
[51] On 4 November 2022 the Minister of Finance gazetted the 2022 Procurement
Regulations, which were to take effect from 16 January 2023.
[52] The key difference between the 2022 and 2017 Procurement Regulations, is
that the 2022 regulations do not regulate how organs of state are required to
award the 10 or 20 preference points for specific goals. Regulation 3 of the
2022 Procurement Regulations records that it is for an organ of state to
stipulate in its tender documents the applicable preference point system as
envisaged in regulations, 4, 5, 6 or 7.
Development of the City's new scoring system
[53] After the judgment of the Constitutional Court in Afribusiness and the
publication of the new 2022 Procurement Regulations in November 2022, the
City embarked on a process to amend its SCM Policy in the light of these
developments in the public procurement sector. At this stage, the City's SCM
Policy reflected the scoring system and regulatory approach provided for by
the 2017 Procurement Regulations, which allocated preference points solely
and automatically on the basis of a bidders B-BBEE contributor status level.
9 Minister of Finance v Sakeliga NPC (previously known as Afribusiness NPC) and Others 2022 (4) SA 401
(CC)
16
[54] The City states that following the publication of the 2022 Procurement
Regulations in November 2022, its SCM Department convened immediately
to address the impact of the regulations on the City's SCM policy, which
required amendment to address the changes in the regulatory landscape.
The SCM Department commenced working on amendments to the SCM
Policy in November 2022 by considering the kinds of specific goals that it
intended advancing through the award of preference points. According to the
City, in the course of this process it consulted broadly and internally w ith other
City Departments in the consideration of the specific goals to be advanced.
The consultation process also included meetings with officials in the Mayor's
office.
(55] Towards the end of November 2022, the City's legal advisors briefed senior
and junior counsel to advise and provide legal opinion on a range of matters
relating to the impact of the 2022 Procurement Regulations on the City's SCM
policy. The legal advice and opinion were sought from counsel on an urgent
basis, given that time was of the essence in the light of the pending coming
into effect of the 2022 Procurement Regulations on 16 January 2023. To
illustrate the expedition with which it acted in this regard, the City in its
answering affidavit annexed the brief to counsel instructed by the City's
attorneys. It is apparent therefrom that counsel was briefed to urgently advise
on a comprehensive range of matters relevant to the implications of the 2022
Procurement Regu lations on the City's SCM policy.
(56] The matters on which counsel's advice were sought included the extent to
which the City's SCM Policy was consistent with the 2022 regulations,
specific clauses in the 2022 policy that may be regarded as inconsistent with
the 2022 regulations and the consequences of non - compliance with the
2022 regulations.
17
[57] On 1 December 2022 the City consulted with senior and junior counsel to
discuss the issues on which counsel had been briefed. Counsel thereafter
and on 14 December 2022 and 12 January 2023, provided the City with two
legal opinions on whether the City's SCM Policy was compliant with the new
2022 PPPFA Procurement Regulations. Further legal opinion was sought
from counsel on 18 January 2023 on the issue of functionality and the
interpretation of the specific goals' as defined in the PPPFA and the 2022
Procurement Regulations.
[58) On 17 January 2023 the City's Chief Financial Officer and Mayoral
Committee ('Mayco') member for Finance, signed a report to the City's Mayco
and Council submitting a revised SCM policy for their consideration. The 17
January 2023 report noted that the amendments to the City's SCM Policy
were necessary in order to ensure alignment of the City's SCM Policy with
the new 2022 PPPFA Regulations. The report recorded that the revisions to
the 2022 SCM policy mirror the prescripts of the 2022 PPPFA Regulations
and were in line with the judgment of the Constitutional Court in Afribusiness.
[59] On 26 January 2023 the City Council approved the amendments proposed in
the 17 January 2023 report and adopted the City Amended Supply Chain
Management Policy ('ASCMP'), which was to be implemented with effect
from 26 January 2023. The ASCMP at pages 94 to 97 sets out the City's
Preferential Procurement Policy. The policy largely incorporates the
provisions of the 2022 PPPF A Regulations. Paragraph 455 of the ASCMP
states that where the preferential procurement policy does not provide for a
matter regulated in the 2022 Procurement Regulations, the provisions of
those regulations will prevail in respect of a tender' as defined in the
regulations. Following the adoption of the ASCMP on 26 January 2023, the
City then continued with a process of developing a guideline to implement
preferential procurement in the City.
18
[60] The City states that where it was uncertain of any aspect and when it required
guidance on the legal landscape, it adopted a conservative and careful
approach and only made decisions after seeking legal advice. According to
the City, it appreciated the importance of developing a guideline that would
be both lawful and accessible and that an overly complicated system would
create greater room for tender irregularities and undermine the procurement
process. The aspects on which the City sought counsel's advice included the
interplay between the B-BBEE Act and the PPP FA as well as other legislation
relevant to the B-BBEE Codes . The City states that the process of obtaining
continuous legal input from counsel lasted for four months.
[61] The City's SCM Department then developed a binding implementation
guideline for preferential procurement in terms of the new 2022 Procurement
Regulations ('the Implementation Guideline'). The purpose of the
Implementation Guideline was to determine how preferential procurement
would work in the City. The Implementation Guideline became effective on 1
July 2023 and sets out the City's new scoring system. The new scoring
system and the manner in which it allocates preference points applies to all
preferential procurement by the City and competitive bids to which the 80/20
or 90/1 0 preference point system applies. The City states that the purpose of
the guideline is to ensure uniformity in procurement processes by the City.
According to the City, he preference points allocation system in the guideline
is binding on City officials and that they do not have the discretion to depart
from the new scoring system and the specific goals which the City has
identified for allocation of preference points.
[62] The full title of the Implementation Guideline is 'Preferential Procurement
Regulations, 2022: Implementation Guideline for Specific Goals.' Chapter 1
of the Implementation Guideline records that the guideline ' ... serves to
ensure that procurement processes comply with the changes to the
Preferential Procurement Regulations, 2022 (PPR), under the Preferential
Procurement Policy Framework Act, 2000 (PPPFA), and that such processes
19
are conducted in a simplified and controlled manner and in line w ith all
applicable prescripts including the SCM Policy.'
[63] Chapter 4 of the Implementation Guideline is titled 'Setting and Evaluating
Specific Goals.' Referring to the provisions of section 2(1)(d) of the PPPFA
which refers to specific goals including implementing the programmes of the
Reconstruction and Development Programme (RDP ') and contracting with
with persons, or categories of persons, historically disadvantaged by unfair
discrimination on the basis of race, gender or disability,the Implementation
Guideline states ' ... A goal that clearly stands out is the promotion of micro
and small enterprises, which the City adopted for implementation. HDI
[historically disadvantaged individuals] however, is clearly defined and
contains only three considerations, namely race, gender and disability.'
[64] The Implementation Guideline then sets out the City's new scoring system.
The guideline provides that in respect of tenders with a rand value above R50
million, these being tenders to which the 90/10 preference point system
applies, the 10 points for preferential procurement are awarded in
accordance with the following table:
# Specific goals allocated points Preference
Points
190/10)
Persons, or categories of persons, historically
disadvantaged-(HDI) by unfair discrimination on the
basis of
1 Gender are women (ownership)* 3
>75% -100% women ownership: 3 points
>50% -75% women ownership: 2 points
>25% -50% women ownership: 1 point
>0% -25% women ownership: 0. 5 point
0% women ownershio = 0 ooints
2 Race are black persons (ownership)* 3
>75% -100% black ownership: 3 points
>50% -75% black ownershiD: 2 Points
20
>25% -50% black ownership: 1 point
>0% -25% black ownership: 0.5 point
0% black ownershio = 0 oaints
3 Disability are disabled persons (ownership)* 1
WHO disability guideline
>2% ownership: 1 point
>0% -2% ownership: 0. 5 point
0% ownershiD = 0 Doints
Reconstruction and Development Programme
(RDP) as Published in Government Gazette
4. Promotion of Micro and Small Enterprises 3
Micro with a turnover up to R20million and Small
with a turnover up to R80 million as per National
Small Enterprise Act, 1996 (Act No . 102 of 1996)
SME partnership, sub-contracting, joint venture
or consortiums
Total ooints 10
"'Ownership: main tendering entity
[65] The Implementation Guideline records at page 12 that ' ... The City regards
the above activities as a contribution towards achieving the goals of the HDI
and RDP , and as such grant preference points in the adjudication of tenders.'
[66] In respect of tenders with a value between R200 000 and R50 million (VAT
inclusive) i.e. tenders subject to the 80/20 preference point system, the
Implementation Guideline provides that a maximum of 5 points are awarded
for women ownership, 5 points for ownership by Black persons, 3 points for
ownership by disabled persons and 7 points for the promotion of small,
medium and micro enterprises.
[67] Chapter 5 of the Implementation Guideline sets out the documents which the
City would require from bidders in order to confirm the specific goals claimed
by a bidder. In relation to the specific goals relating to gender, race, disability
and micro and small enterprises, these documents are listed to include
company registration certification, Central Supplier Database report, B-BBEE
21
certificate and in relation to micro and small enterprises, financial statements
and the B-BBEE contribution level status of the bidder.
[68) Chapter 4 of the Implementation Guideline sets out the roles and
responsibilities of the City's Bid Specification Committee (BSC ') and Bid
Evaluation Committee ("BEC"). The role of the BEC is stated to be to
'evaluate the tender in accordance with the HDI/Specific Goals outlined in the
tender document advertised.' The role of the BSC is recorded as being to
' ... determine which HDI or Specific Goal will be best suited for that specific
tender based on market research, analysis or historical data in the disposal
of the City and advertised accordingly for evaluation criteria to be fairly
applied.' The Applicants have latched on to this particular sentence of the
guideline, contending that it was not complied with by the City and that
consequently the new scoring system and its application to the two tenders
was unlawful and invalid. As stated earlier, the City contends however that
its SCM officials are not obliged to determine the allocation of preference
points other than in the manner set out in the implementation guideline.
[69] The final chapter of the Implementation Guideline, Chapter 7, deals with
monitoring and assessment. The Implementation Guideline records that the
City did not currently have oversight regarding the impact of the 2022 PPPFA
Regulations and the change in evaluating specific goals rather than B-BBBEE
contribution status. The guideline notes however that monitoring
mechan isms were currently being developed in collaboration with the City's
Enterprise Development department and it was aimed to develop a set of
such measures that would be used for future considerations and
amendments to the Implementation Guideline where feasible.
[70) As is evident from the description of the City's new scoring system set out
above, there is a significant difference between the City's new scoring system
and the old scoring system in relation to the calculation and allocation of
preference points.
22
[71] The previous scoring system allowed for a bidder with a Level 1 B-BBEE
contributor status to be automatically awarded the full 10 preference points.
The new scoring system on the other hand focuses on three categories of
specific goals and their weighting. Preference points under the City's new
scoring system are allocated on a reduced sliding scale should there be lower
degrees of ownership in these three categories, being ownership by women,
black persons, disabled persons and promotion of micro and small
enterprises.
[72] In terms of the City's new scoring system, bidders such as the Applicants
would no longer entitled to be automatically awarded the full 10 or 20
preference points based solely on their status as a level 1 B-BBEE
contributor. According to the Applicants, whereas under the City's old scoring
system they would stand to be awarded the full 10 preference points based
on their status as a level 1 8-BBEE contributor, under the new scoring system
they now stand to be awarded a m inimum of 3 points and a maximum of 6
out of the 10 preference points for tenders to which the 90/1 O preference
points system applies.
[73] Given the value of the construction tenders at issue and their previous
success in being awarded several major construction tenders by the City
under the old scoring system, the Applicants were unsurprisingly aggrieved
by the approach adopted by City's new scoring system. Litigation on the issue
was clearly going to be more than a mere possibility. It would be a certainty.
Litigation history
[74] On 15 September 2023 the City advertised Tender 540, the tender for the
redecoration, alteration, additions to and construction of new buildings and
structures and maintenance for Safety & Security and other City facilities. The
closing date for the submission of bids in respect of tender 54Q was 18
23
September 2023. This closing date was later extended to 27 October 2023.
The tender invitation to tender recorded that preferences would be offered to
tenderers who tendered in accordance with the PPPFA Regulations and the
City's SCM Policy. The invitation to tender also made it clear that in terms of
the PPFA Regulations and the City's SCM Policy, tenderers 'were required
to meet the HDI and/or RDP specific goals.'
[75] The Applicants say that they only became aware of the City's new scoring
system on or about 29 September 2023, after obtaining and considering the
tender document for tender 540. The Applicants state that the tender
document for tender no. SQ was ambiguous because at one place in the
document, it stated that preferential points would allocate based on the
tenderer's B-BBEE contributor level but at page 14 of the Tender Data, the
document recorded that preference points would be awarded based on
specific goals.
[76] The First Applicant's Mr Isaacs sought clarity on this aspect at a Tender
Clarification Meeting that was conducted online with representatives of the
City on 5 October 2023. The queries raised by Mr Isaacs regarding the
amb iguity in the tender docum entation concerning the preferential scoring
system to be used in Tender 540 we re addressed in Tender Notice 3, wh ich
was issued by the C ity on 13 O ctober 2023.
[77) Tender Notice 3 contained the minutes of the tender clarification meeting on
5 October 2023, which recorded that that the 90/10 preference points system
would be applied to Tender 540. The m inutes recorded that the 10
preference points for the tender would be allocated and based on the specific
goals for the tender. These specific goals were listed to be ownership of the
bidding entity by women (3 points), ownership by Black persons (3 points),
ownership by disabled persons (1 point) and promotion of micro and small
enterprises (3 points).
24
[78] This corresponds with the approach set out in the Implementation Guideline
for the determination of specific goals for a tender to which the 90/10
preference point system applies. The minutes of the 5 October 2023 meeting
attached to Tender Notice 3 also detailed the evidence to be provided in
respect of each specific goal for which preference points were claimed. The
evidence to be provided included a company's registration certification,
Central Supplier Database report and B-BBEE certificate. It is clear from this
that the Applicants were at that stage aware of how the City would be
allocating preference points for the tenders at issue and what evidence would
be required to substantiate a claim for preference points. The Applicants
would therefore be at liberty to provide any such evidence or additional
evidence to substantiate any claim which they would wish to make for
preference points in their tender submissions.
{79] After receiving Tender Notice 3, the Applicants instructed their attorneys to
address correspondence to the City. On 25 October 2023 the Applicants
attorneys directed a letter to the City's principal agent for tender 54Q
contending that the City's new scoring system was unlawful on the basis that
it did not comply with the provisions of the B-BBEE Act and the applicable
sectoral codes adopted for the construction sector.
[80) The letter invited the City to abandon its new scoring system and requested
that bid adjudication be based on the City's old scoring system and
scorecard. The letter and a subsequent letter from the Applicants' attorneys
on 26 October 2023, recorded that the Applicants would be submitting a bid
for tender no. 54Q on condition that it would be adjudicated by the City using
the previous scoring system for preferential points when evaluating and
adjudicating tenders.
25
[81] The Applicants' attorneys directed follow up correspondence to the City on
26 October 2023, 3 November 2023, 6 November 2023 and 15 November
2023. The City's Mr Eben Lewis replied to the correspondence on 15
November 2023. In his response, Mr Lewis inter-alia pointed out that the
tender document for Tender 54Q governed any queries or grievances and
that the City's SCM Department was not the delegated or appropriate
authority that deals with appeals, objections, complaints, queries and
disputes. The Applicants were requested to comply with Cl.6.5 of the tender
document, which deals with disputes, objections, complaints and appeals in
terms of section 52 of the Local Government Municipal Systems Act 32 of
2000 (Systems Act') against decisions taken by the City. Mr Lewis concluded
his response by stating that the B-BBBE Act and the PPPFA served different
purposes, that the City had to align its SCM Policy in accordance with
legislation governing procurement preferences and that to act outside of
these parameters, would have an adverse impact on the City maintaining its
clean audit status.
[82] At this stage and on 27 October 2023, the City had advertised tender no.
91 Q/2023/24 ('Tender 91 Q'), the tender for the construction of the City's IRT
Metro South-East Corridor (Phase 2A) Stations Infrastructure. The closing
date for Tender no.91Q was initially 8 December 2023 however it was later
extended to 26 January 2024 and thereafter further extended to 16 February
2024.
[83] On 24 November 2023 the Applicants lodged appeals in terms of section 62
of the Systems Act against the City decision to proceed with the evaluation
of the tenders under its new preferential procurement scoring system. The
appeals were lodged in respect of both Tender 54Q and Tender no.91Q.
26
[84] The case stated in the Applicants' appeals was that the the manner in which
the City had identified the 'specific goals' according to which it intends to
award points for preferential procurement, was unlawful and invalid and that
the City's refusal to reconsider and/or amend the identification and/or scoring
in respect of the chosen specific goal was unreasonable and unlawful. The
Applicants contended that the conduct of the City in this regard was in breach
of the Applicants rights under section 217 of the Constitution and their rights
under various pieces of legislation promulgated pursuant thereto. The case
advanced in the Applicants appeals was in essence the same grounds on
which they contend in this application that the new scoring system is unlawful
and irrational.
[85] On 21 December 2023 the City's Municipal Manager dismissed the
Applicants' appeals against the decision to implement the new scoring
system in respect of both tenders. The outcome of the appeals was
communicated to the Applicants' attorney that same afternoon. The appeals
were dismissed inter-alia on the basis that the communication by the City's
Mr Lewis on 15 November 2023 did not amount to a decision taken in terms
of a power or duty delegated or sub-delegated by a delegating authority, that
Tender no. 54Q was still at an evaluation stage and that the 'appeal' by the
Applicants was therefore premature and not a competent appeal.
[86] In respect of the appeal of the Second Applicant in relation to Tender no.
91 Q , the City's appeal body held that the Second Applicant had not submitted
a bid for that tender and therefore did not meet the threshold requirement of
section 61 (1) of the Systems Act as a party involved in the tender process
whose rights were affected thereby. This appeal was similarly dismissed on
the grounds that it was not a competent appeal as contemplated by section
62{ 1) of the Systems Act.
27
[87] On 9 January 2024 the Applicants launched an urgent two-pronged
application in the Western Cape High Court, Cape Town for an interim
interdict pending the determination of review proceedings to set aside the
City's decision to implement the new scoring system for the tenders and its
decision to dismiss their internal appeals. The City opposed the application
and filed answering affidavits. The application came before Cloete J on 18
January 2024.
[88] On 30 January 2024 Cloete J handed down judgment concluding that the
Applicants had established the requirements for interim relief pending the
final determination of the review proceedings. An order was granted
interdicting and restraining the City from proceeding with the adjudication and
award of the two tenders pending the determination of the part B review
proceedings.10
[89] The City duly filed its Rule 53 record in relation to the pending part B review
proceedings. The Applicants' attorneys complained that the record was
incomplete. Following a series of further skirmishes between the parties by
correspondence, additional Rule 53 documents were provided by the City on
16 February 2024.
[90] The Applicants' supplementary affidavit in terms of Rule 53(4) was then filed
on 27 February 2024. An amended notice of motion accompanied the
supplementary affidavit, in which the Applicants now sought significantly
wider relief than that set out in their original part B notice of motion. The
amended relief sought is extensive and is set out in full below:
10 H & I Civil & Building (Pty) Ltd and Another v City of Cape Town and Others {59/2024) [2024)
ZAWCHC 15 {30 January 2024).
28
'1. Reviewing and setting aside the decisions of the members of
the Bid Specifications Committee of the First Respondent, or
of any official employed in its Supply Chain Management
Department, or any other official employed by the First
Respondent, to introduce, determine, set, implement and I or
include the new preferential procurement points scoring
systems which were set during or about September and
October 2023 respectively (and clarified pursuant to its
clarification meeting in respect of Tender No. 540/2023/24 on
or about 13 October 2023) (as described in paragraph 61 of
the founding affidavit in support of the Part A relief in this
application) for and in the invitations to bid for the following
two tenders ("the new scoring system"):
1.1 Tender No . 54Q/2023/24 (for the redecoration, alteration,
additions to and construction of new buildings and structures
for the Maintenance, Safety & Security and other City of Cape
Town facilities); and
1.2 Tender No . 910/2023/24 (which is for the construction of the
IRT Metro south-east corridor (Phase 2A) stations
infrastructure) ("the tenders").
2. Reviewing and setting aside the decisions of the Appeal Authority of
the First Respondent, taken on or about 21 December 2023, in terms
of which the Applicants' appeals against the decisions referred to in
paragraph 1 above were dismissed.
3. Reviewing and setting aside any earlier decision of the First
Respondent and / or its Council and / or any official of the First
Respondent, taken on or about 26 January 2023 or at any date
thereafter, to introduce and I or sanction and / or approve and / or
direct the use of the new scoring system for the tenders (to the extent
that such a decision was indeed taken as part of the adoption and /
or implementation of the Amended Supply Chain Management Policy
("SCMP") of the First Respondent alternatively pursuant thereto
alternatively in terms thereof, and to the extent that that decision
prohibited officials of the CoCT from applying a bidder's B-BBEE
level status ( as certified under the Broad-Based Black Economic
Employment Equity Act, 53 of 2003 and the Sectoral Codes for the
29
Construction Industry promulgated in tenns of that Act) for purposes
of scoring preferential procurement points in general and for
construction work in particular.
4. Extending the time limits for the bringing of a review against the
decision of the First Respondent and / or its Council on or about 26
January 2023 and condoning the late bringing of such review and
such failure as there may have been for not complying with any
internal appeal remedy that there may have been against that
decision, insofar as this may be necessary.
5. Declaring that the new scoring system which was adopted for the
tenders as part of or pursuant to the Preferential Procurement Policy
of the First Respondent in its SCMP and / or in the implementation
of its SCMP is unlawful and invalid to the extent that it conflicts with
the Broad-Based Black Economic Emp loyment Equity Act, 53 of
2003 and the Sectoral Codes for the Construction Industry
promulgated in terms of that Act and does not recognise nor adopt
nor apply a bidder's B-BBEE level status for this part of the scoring
of the tenders.
6. Directing the First Respondent to not use the new scoring system for
the awarding of preferential procurement points for the tenders and
in respect of all other City of Cape Town tenders for its construction
work.
7. Directing the First Respondent to implement the previous scoring
system for the awarding of preferential procurement points for the
tenders and in respect of all other City of Cape Town tenders for the
construction industry (as described in paragraph 63 of the founding
affidavit in support of the Part A relief in this application) which
preferential procurement points scoring system recognises, complies
with and gives effect to the Broad Based Black Economic
Empowerment Act and the Sectoral Codes for the Construction
Industry promulgated in terms of that Act ("the previous scoring
system").
8. Directing the First Respondent further, to, in the formulation of any
new preferential procurement scoring system and before reaching
any decision concerning such a scoring system to:
30
8.1 comply with the Constitution and the law (including but not
limited to the Preferential Procurement Policy Framework Act,
5 of 2000, the Broad-Based Black Economic Employment
Equity Act, 53 of 2003, the applicable Sectoral Codes adopted
and promulgated for the Construction Sector under that Act,
the Municipal Finance Management Act and all other relevant
legislation regulating public procurement) (and to the extent
that the Broad-Based Black Economic Employment Equity
Act, 53 of 2003, and the applicable Sectoral Codes adopted
and promulgated for the Construction Sector under that Act
may conflict with any earlier legislation, to give preference
thereto )("the law");
8.2 give notice to and allow for a reasonable opportunity for all
interested persons, including the Applicant and the remaining
Respondents herein, as well as the Ministers of Trade and
Industry and Finance, to make representations to it
concerning any proposed new policy and / or scoring system
for preferential procurement in respect of the tenders and all
other tenders of the City of Cape Town,
8.3 have proper regard to such representations and
8.4 formulate its proposed policy and / or determine a
replacement preferential procurement scoring system, which
complies with the Constitution and the law.
9. To the extent that the new scoring system has already been
introduced, implemented and / or applied for the tenders, or either
one of them, and to the extent that the tenders need to be re­
advertised with a scoring system which complies with paragraph 6
above, setting aside that tender or those tenders and directing the
First Respondent to re-advertise the tenders to include a scoring
system which complies with paragraph 6 above.
10. Insofar as any time limit set by the Promotion of Administrative
Justice Act in respect of the above claims for review relief, or any
part thereof, may need to be extended, and non-compliance with
these time limits may need to be condoned, extending such time limit
31
and condoning any non-compliance by the Applicant with such time
limit.
11. That the First Respondent pays the costs of this application on the
scale as between attorney and own client, which costs are to include
the costs in respect of both Part A and Part B, and to include the
costs of senior counsel.
12. That any other Respondents who may oppose this application, be
ordered to pay the costs of this application jointly and severally with
each other and the First Respondent, such costs to be paid on the
scale as between party and party."
[91] Following the filing of the Applicants' supplementary affidavit, on 1 March
2024, an order was taken by agreement before Goliath AJP in terms of which
the Applicants' part B review application was set down for hearing on 21 and
22 May 2024.
The Part C relief sought in relation to the Macassar tenders.
(92] A further dispute had in the meanwhile arisen between the parties regarding
two tenders which had been advertised by the City with, according to the
Applicants, the same new scoring system which was the subject of the
Applicant's Part B review proceedings. These tenders are tenders
191 Q/2023/24 and 2030/2023/24 for construction work in the Macassar area
('the Macassar tenders').
[93] Both tenders have a rand value in excess of R50 million and relate to design,
mechanical and electrical works for the upgrading and extension of the
Macassar wastewater treatment works. The Applicants had intended
submitting bids in respect of both tenders.
32
[94] Between 2 February 2024 and 3 April 2024, a flurry of correspondence
ensued between the Applicants' attorneys and the City's attorneys in relation
to the Macassar tenders. The Applicants attorneys sought undertakings from
the City that it would not adjudicate the Macassar tenders in accordance with
the new scoring system and would suspend the new scoring system pending
the determination of the review proceedings which had been set down for
hearing on 21 and 22 May 2024. The City declined to do so.
[95] Following several further exchanges of correspondence between the parties,
on 3 April 2024 the City's attorneys informed the Applicants' attorneys that
the City would not agree to a demand by the applicant's attorneys to suspend
the closing date for the Macassar tenders. This response by the City then
triggered a further application, by agreement described by the parties as 'Part
C', which was launched by the Applicants on 15 April 2024 and set down for
hearing in the urgent motion court on 13 May 2024. The Applicants' notice of
motion in the Part C application seeks the following relief:
"2. The First Respondent is directed to suspend the further
processing, consideration and awarding of tenders 191
Q/2023/24 and 2030/2023/24 under its new preferential
procurement scoring system as advertised by it for these
tenders City's new scoring system") pending the final
determination of Part B of the review application between the
Applicants and the First Respondent which is to be heard in
the above Honourable Court on 21 and 22 May 2024 under
case number 59/2024 ("Part B")
3. The First Respondent is directed to suspend the specification,
advertising, processing, consideration and awarding of all
other tenders for construction work in which its new scoring
system is to be employed pending the final determination of
Part B.
4. The First Respondent is to pay the costs of this application on
the scale as between attorney-and-client, including the costs
of two counsel."
33
[96] The City filed its answering affidavit in relation to the Part C application on 30
April 2024 and the Applicants filed their replying affidavit on 10 May 2024. A
document described as a 'further supplementary affidavit' was filed by the
Applicants on 10 May 2024. The latter elicited strong objection by the City
which contended that the affidavit has been filed without leave and should be
regarded as pro non scripto.
[97] The parties agreed to an order postponing the Part C application for hearing
simultaneously with the main review. The Part C relief sought by the
Applicants in relation to the Macassar tenders was addressed and argued at
the hearing on 21 and 22 May 2024.
The post hearing draft order submitted by the Applicants.
[98] Following the hearing of the application on 21 and 22 May 2024, the Court
granted the parties leave to file post hearing notes on issues arising during
oral argument and in respect of the Applicants in particular, on aspects which
they had been unable to canvass fully in their reply owing to time constraints.
The Applicants' post hearing note, some 56 pages in extent, was filed on 24
May 2024. The Applicants note had attached to it two draft orders. The
Applicants contended that the two draft orders simplified the relief sought in
the light of what they said to be a further refinement and narrowing of the
City's grounds of opposition to the Part B relief and the City's argument on
an appropriate remedy.
[99] The City objected to the Applicants' draft order attached to their post hearing
note and contended that the draft order impermissibly sought new relief
without formal amendment in terms of Rule 28 of the Unifonn Rules. In
addition, the City contended that the Applicant's draft order sought relief
which was not legally competent in that it not only simultaneously sought both
remittal and substitutionary relief but did so in circumstances where the
34
requirements for substitutionary relief had neither been made out nor pleaded
by the Applicants. The City submitted that the Applicants draft order should
not be considered by the Court as it amounted to relief being sought through
the back door and was an abuse of process.
[1 0O]The C ity points out that paragraph 1 of the Applicant's proposed draft order
differs from what was sought in paragraph 1 of the Applicant's amended
notice of motion. Paragraph 1 of the amended notice of motion sought the
review and setting aside of the decision of the SSC ' ... or any other official'
emp loyed by the City 'to introduce, determine, set, implement and/or include
the new preferential procurement points system ... '. Paragraph 1 of the
Applicants proposed draft order however sought the review and setting aside
of the decisions of the City to ' ... adopt and implement the new scoring
system' in relation to the two tenders. Paragraph 2 of the Applicants'
proposed draft order seeks the remittal of the matter to the City's BSC for the
determination of the preferential procurement points scoring system to be
used for the evaluation and adjudication of the tenders.
[1 0 1] At paragraph 3, the draft order sought a declarator that the new scoring
system is unlawful on the grounds that the City failed to comply with the
Amended Supply Chain Management Policy. Neither of these proposed
orders were sought in the Applicants amended notice of motion. The City
submits that it was not called upon on the papers to address either the
proposed remittal relief or the declarator in paragraph 3 of the proposed draft
order.
Discussion
[102] It is trite that fair civil proceedings require a party to be appraised of the case
they are required to meet, particularly in constitutional litigation which
requires precision in pleading. It is not permissible for a party to be directed
35
to one particular direction in pleadings only to then take a different direction
in arguments and submissions.11
[103] The relief sought by the Applicants in their draft order exceeds the permitted
boundaries of me re refinement and simplification. It introduces relief which
is different to the Applicants amended notice of motion and does so in
circumstances where the City has not fairly been afforded an opportunity to
answer thereto. Absent a formal amendment in terms of Rule 28 of the
Uniform Rules to authorise the relief sought in the Applicants post hearing
draft order, fairness in my view requires that the merits of the relief sought
by the Applicants, be determined on the basis of their pleaded case, that
being the relief set out in the Applicants amended notice of motion.
[104] Before dealing with the merits, it is to identify the nature of the decisions
and/or conduct impugned by the Applicants and assess whether they
constitute legislative, executive or administrative action. The exercise is
important because the executive or legislative powers or functions are only
susceptible to review under the principle of legality, which imposes less
stringent constraints than the level of scrutiny applicable to judicial review
of administrative action in terms of the Promotion of Administrative Justice
Act 3 of 2000 ('PAJA ').
The nature of the impugned decisions and decision-making process
[105] The City argued that there were three levels to the decision-making process
which forms the subject of this application.
[106] The first level of the decision-making process, the City contended, was the
decision of the City Council on 26 January 2023 to approve amendments to
and adopt ASCMP, in order for the City's procurement policy to reflect the
legal position contained in the 2022 Procurement Regulations.
11 Thulie W ater Forum and another v Bloemwater and Others 2021 JDR 3295 (FB) at para 15.
36
[107) The City submitted that this decision constituted legislative action as it was
a decision was taken by a Municipal Council acting in terms of section 160
of the Constitution.12
[108] In terms of section 1 (dd) of PAJA, the legislative functions of a Municipal
council are excluded from the definition of 'administrative action' in section
1 of PAJA. I agree with the City's contention that the City Council's decision
on 26 January 2023 to adopt the ASCMP amounts to legislative action. It
was a legislative decision taken by a deliberative legislative body whose
members are elected and politically accountable to the electorate.13 Such
a legislative decision by a Municipal Council is in my view not reviewable on
the grounds set out in PAJA, but remains an exercise of public power
susceptible to review under the principle of legality.
[109] The second level of decision-making, according to the C ity, was the decision
of the City's Supply Chain Management ('SCM') to devise the
Implementation Guideline which introduced the City's new scoring system
and determined how preferential procurement would work in the City. The
new scoring system set out in the Implementation Guideline became
effective on 1 July 2023. The City contended that this level of decision
making constituted executive action taken by the City to fulfil its own policy
objectives and was also not reviewable on the grounds set out in PAJA. In
terms of section 1(cc) of PAJA, the executive powers or functions of a
Municipal Council are excluded from the definition of 'administrative action'.
12 Section 160(1 )(a) of the Constitution: 'A Municipal Council makes decisions concerning the
exercise of all the powers and the performance of all the functions of the municipality.'
13 Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan
Council 1999 (1) SA 374 (CC) (Fedsure) at para 41 - 42.
37
[11 O] The City accepted however that even if its decision to introduce the new
scoring system was not administrative action as defined in PAJA, the
decision amounted to the exercise of a public power which was disciplined
by and reviewable under the principle of legality. The Applicants on the other
hand, argued that this the decision of the SCM Department to introduce the
new scoring system was administrative action as it was aimed at
implementing a policy and not setting or deciding on a policy.
[111] In Motau, the Constitutional Court explained the distinction between
administrative action and executive policy formulation powers, as follows:
'Executive powers are, in essence, high-policy or broad direction­
giving powers. The formulation of policy is a paradigm case of a
function that is executive in nature. The initiation of legislation is
another. By contrast, "[a]dministrative action is ... the conduct of the
bureaucracy (whoever the bureaucratic functionary might be) in
carrying out the daily functions of the state, which necessarily
involves the application of policy, usually after its translation into law,
with direct and immediate consequences for individuals or groups of
individuals." Administrative powers are in this sense generally lower­
level powers, occurring after the formulation of policy. The
implementation of legislation is a central example. The verb
"implement", which also appears in section 85(2)(a) of the
Constitution and distinguishes it from section 85(2)(e), may serve as
a useful guide: administrative powers usually entail the application of
formulated policy to particular factual circumstances. Put differently,
the exercise of administrative powers is policy brought into effect,
rather than its creation.'14
[112) In my view, the decision-making process which resulted in the development
of the City's Implementation Guideline, amounts to the creation or
formulation of policy relating to preferential procurement, not the
implementation of existing policy.
14 Minister of Defence and Military Veterans v Motau 2014 (8) BCLR 930 (CC) at para 37.
38
[113] The purpose of the City's Implementation Guideline was to set out the
framework for how preferential procurement would work in the City in the
light of the Council's adoption of the ASCMP reflecting the legal position in
the 2022 Procurement Regulations. The Implementation Guideline sets out
the City's new scoring system applicable to tenders and the specific goals
for which preference points would be awarded. The City states that before
formulating the Implementation Guideline, it had followed a careful process
of obtaining prior legal advice on a range of matters relevant to the
Implementation Guideline and had considered the points to be awarded for
specific goals in each category of the 20 or 10 preference points to be
allocated for tenders.
[114) The Implementation Guideline records that the City's ASCMP and the
Implementation Guideline support the City's strategic focus areas, which
included being an inclusive City • ... where people have equitable access to
economic opportunities and social amenities, and the barriers to inclusion
and well -being are reduced'.
[115) The City furthermore stated that in its consideration of the specific goals set
out in the Implementation Guideline, by promoting black and women owned
businesses as a specific goal for which preference points would be
awarded, the City sought to achieve meaningful transformation that allows
those who previously experienced barriers to economic participation, with
an opportunity of doing business with the City. All of this in my assessment
is consistent with the features of an executive process of high-level policy
formulation by an organ of state. As a decision taken in the exercise of
executive powers to formulate policy, the City's decision to devise the
Implementation Guideline which sets out the specific goals for which
preference points would be allocated to tenderers, is an executive decision
to formulate policy. Although it is not administrative action as defined in
PAJA, it is a decision however which amounts to the exercise of a public
power and remains reviewable under the principle of legality.
39
[116) The City submitted that third level of decision-making relates to the
implementation of the Implementation Guideline, wh ich the City maintains
is a binding guideline, to the two tenders. According to the City this decision
was taken by the City's Bid Specification Committee ('BSC'), which is
responsible for formulating tender invitations. The City accepts that this
decision-making process i.e. the implementation of the guideline and its
application to the two tenders, amounts to administrative action reviewable
in terms of PAJA. The Applicants do not only argue that the application of
the guideline to the two tenders is reviewable on a number of grounds, but
they also go further and submit that there is no evidence that the BSC took
a decision to apply the new scoring system to the tenders to begin with.
The Applicants' PAJA grounds of review
[117) It would be convenient at this stage to set out the grounds of review under
PAJA which are relied on by the Applicants. Ascertaining the specific review
causes of action advanced by the Applicants, it must be said, is not a simple
exercise. The Applicants grounds of review are overlapping, interlinked with
submissions regarding legality review, directed at different decisions and in
several instances unclear. For example, the Applicants contend on one
hand that the focus of their review is the application of the scoring system
to the tenders and not the Council's decision to adopt the ASCMP . But on
the other hand, at later parts of their supplementary affidavit and in heads
of argument, the decision to adopt the ASCMP is impugned on both PAJA
and legality grounds.
[118] To the extent that the key focus of the review can be ascertained, it is that
the Applicants ma intain that the City's decision to adopt, introduce and
implement the new scoring system was an administrative act which
impacted on them directly.
40
[119] They argue that it is a decision which constitutes administrative action
reviewable under PAJA, whether the City's SCM Department took the
decision in respect of all tenders or the BSC took the decision in relation to
the two specific tenders at issue.
[120] The Applicants rely on the following PAJA grounds of review in this regard:
[120.1]
[120.2]
[120.3]
[120.4]
the action was procedurally unfair as the Applicants were not
heard before the decisions were taken.15
the action was materially influenced by an error of law
because the City erroneously used the new scoring system to
put in place unlawful exclusionary provisions.16
The Applicants were not heard before the City's policy
changes came about and therefore the action was taken
because irrelevant considerations were taken into account or
relevant considerations were not considered.17
The Procurement Act requires m easurable criteria, and the
action therefore contravenes a law and is not authorised by
the empowering provision.18
15 Section 6(2)(c) of PAJ A: ' ... the action wa s procedurally unfair'.
16 Section 6(2)(d) of PAJA : ' ... the action was materially influenced by an error of law.'
17 Section 6(2Xe)(iii) of PA JA: ' ... because irrelevant considerations were taken into account or
relevant considerations were not considered.'
18 Section 6(2)(f)(ii) of PAJA: 'the action itself ... contravenes a law or is not authorised by the
empowering provision.'
41
[111.5]
[111.6)
Merits
The action itself is otherwise unconstitutional and unlawful.19
The action is not rationally connected to the purpose for which
it was taken; the purpose of the Procurement Act read with
the B-BBEE Act and the Construction Sectoral Code; the
information before the administrator or the reasons given for
it by the administrator.20
Judicial review of public procurement decisions
[121] Section 217 of the Constitution sets out the legislative framework for
procurement policy and is the context within which judicial review of state
procurement decisions under PAJA review grounds must be assessed. The
approach to be applied when assessing alleged irregularities in a public
procurement process was explained as follows in Al/pay:
" ... the requirements of a constitutionally fair, equitable, transparent,
competitive and cost-effective procurement system will thus inform,
enrich and give particular content to the applicable grounds of review
under PAJA in a given case. The facts of each case will determine
what any shortfall in the requirements of the procurement system -
unfairness, inequity, lack of transparency, lack of competitiveness or
cost inefficiency - may lead to: procedural unfairness, irrationality,
unreasonableness or any other review ground under PAJA.
Doing this kind of exercise is no different from any other assessment
to determine whether administrative action is valid under PAJA. In
challenging the validity of administrative action an aggrieved party
may rely on any number of alleged irregularities in the administrative
process. These alleged irregularities are presented as evidence to
establish that any one or more of the grounds of review under PAJA
may exist.
19 Section 6(2)(i) of PAJA: 'the action is otherwise unconstitutional or unlawful.'
20 Section 6(2)(f)(ii) of PAJA : • ... is not rationally connected to (aa) the purpose for wh ich it was
taken; (bb) the purpose of the empowering provision; (cc) the information before the administrator;
or (dd} the reasons given for it by the administrator.'
42
The judicial task is to assess whether this evidence justifies the
conclusion that any one or more of the review grounds do in fact
exist."21
[122] This approach applies here alleged irregularities in a procurement process
constitute administrative action. Where however the impugned action or
decision constitutes the exercise of an executive or legislative power or
function, different considerations apply. This is because the exercise of such
powers or functions are, as set out earlier, excluded from the definition of
administrative action in section 1 of PAJA . Having concluded earlier that the
City Council's decision to adopt the ASCMP constitutes legislative action
subject to legality review, that the decision to devise the Implementation
Guideline setting out the new scoring system constitutes executive action
also subject to legality review and that the implementation of the scoring
system amounts to reviewable administrative action, I now turn to an
evaluation of the Applicants various grounds of review
Review Ground 1: Procedural unfairness
Legitimate expectation
[123] The Applicants contend that they had a legitimate expectation that the City's
old scoring system would continue and at least would not be unilaterally
changed without affording them an opportunity to be heard. The City, so the
Applicants argued, acted in manner which was procedurally unfair when it
implemented its new scoring system without regard to their legitimate
expectation of being consulted before the new system was implemented.
The Applicants alleged that by changing the methodology of the old scoring
system to that focusing on the specific goals in the new scoring system, the
City has all but ' ... eviscerated the value of a BEE level ranking under the 8-
BBEE Act.'
21 Aflpay Consolidated Investment Holdings (Ply) Ltd and Others v Chief Executive Officer of the
South African Social Security Agency and Others 2014 (1) SA 604 (CC) (Al/pay) at para 43 - 44.
43
[124] This according to the Applicants, amounted to the City ' ... unilaterally
destroying the value of the BEE level ranking for its scoring purposes,
rendering that score negligible' and in a manner which occurred without any
consultation with affected parties in the construction sector. The first
difficulty I have with this argument is that the City's decision to devise and
introduce the new scoring system was not administrative action but
executive action formulating procurement policy. Procedural fairness is not
a requirement for the lawful, rational and constitutionally compliant exercise
of executive power. As Moseneke J explained in Masetlha:
"This does not, however, mean that there are no constitutional
constraints on the exercise of executive authority. The authority
conferred must be exercised lawfully, rationally and in a manner
consistent with the Constitution. Procedural fairness is not a
requirement. The authority in section 85(2)(e) of the Constitution is
conferred in order to provide room for the President to fulfil executive
functions and should not be constrained any more than through the
principle of legality and rationality."22
[125] There are important separation of powers and public policy considerations
as to why it is inappropriate to subject a process such as that followed by
the City in devising and formulating its preferential procurement policy, to
the exacting standards of review for procedural fairness under PAJA. In
Premier, Mpumalanga, where O'Regan J put it thus:
"In determining what constitutes procedural fairness in a given case,
a court should be slow to impose obligations upon government which
will inhibit its ability to make and implement policy effectively ( a
principle well recognised in our common law and that of other
countries). As a young democracy facing immense challenges of
transformation, we cannot deny the importance of the need to ensure
the ability of the Executive to act efficiently and promptly."23
22 Masetlha v President of the Republic of South Africa and Another 2008 (1) BCLR 1 (3 October
2007 at para 78.
23 Premier, Province of Mpumafanga and Another v Executive Committee of the Association of
Governing Bodies of State Aided Schools: Eastern Transvaal 1999 (2) BCLR 151 (2 December
1998) at para 41 .
44
[126] This reasoning has been consistently applied by the Constitutional Court,
which subsequently held in Law Society, that in the context of the exercise
of executive powers and functions, the question to be answered is not one
of procedural fairness but one of procedural irrationality. Procedural fairness
and procedural rationality are conceptually different. Procedural fairness is
about whether a party should have been consulted or given a hearing before
an adverse decision was taken. Procedural rationality is about whether
there is a rational connection between the exercise of power both in relation
to the process and the decision itself and the purpose sought to be achieved
by that exercise of power. It is not a question of ' ... whether anybody was
heard or not heard or dealt with in terms of a fair or arbitrary and oppressive
process.'24 I will deal later in this judgment with the Applicants arguments in
relation to process or procedural irrationality.
[127] The City's decision to devise and introduce a new preferential procurement
scoring system did not in my view impose an obligation on the City ensure
that the Applicants were heard before the new scoring system came into
effect. In this regard, it must be borne in mind that in order to avoid a
regulatory lacuna in its procurement system, the City was required to act
urgently and expeditiously to bring its' procurement framework in line with
the legal position provided for in the 2022 Procurement Regulations. Those
regulations were due to come into effect on 16 January 2023. The City did
so by taking urgent legal advice, conducting wide internal consultations and
considering what specific goals would be advanced in its procurement
policy. The process culminated in the legislative decision of its Municipal
Council on 26 January 2023 to amend its existing Supply Chain
Management Policy and the adoption of the 1 July 2023 Implementation
Guideline which introduced the new scoring system.
24 Law Society of South Africa and Others v President of the Republic of South Africa and Others
2019 (3) SA 30 (CC) at para 64 - 65.
45
[128] The City contended that it would be untenable to suggest that thousands of
organs of state across the country would be required to embark on a
process of public participation when devising or amending their preferential
procurement policies. I agree. One can readily imagine the adverse
consequences and delays which would result if on each occasion that an
organ of state devises or amends its preferential procurement policy, all
prospective bidder for tenders to be evaluated under such a policy were
entitled to insist on being heard, consulted and to be able to make
representations before such a policy is introduced or amended. Indeed, the
Applicants make it clear that the course of action which they would have
preferred would have been for the City to consult them, 'other stakeholders',
and other bidders for construction tenders in advance of the decision being
taken to change the previous scoring system. The Applicants say that this
consultation process should also have involved an opportunity for them to
make written representations in advance of the decision taken by the City.
[129} It is unclear whether the Applicants are going so far as to suggest that such
a pre-decisional and consultation process would apply to every tender
advertised by the City and would involve consultation on bid specifications
before they are even published. That seems to be the implications of the
argument advanced regarding the Applicants alleged entitlement to a pre­
decisional hearing and consultation before the City even decides to apply
specific goals for preference points and related bid specifications to tenders
it intends advertising. The argument in my view has no merit and its
consequences even if correct, will likely place an effective chokehold on the
expeditious conduct of government procurement.
[130] In any event and as pointed out by the City, the National Treasury had in
fact em barked on a process of public participation when the 2022
Procurement Regulations were promulgated.25
25 Publication of Draft Preferential Procurement Regu lations, 2022 for Public Comment GNR 1851
GG46026, 10 March 2022.
46
[131] The Applicants had a right to participate in the notice and comment
procedure for the draft regulations and to have a say in that process. This
would include being able to make representations on the manner in which
specific goals were to be determined by organs of state under the new
regulations and the elimination of the compulsory award of preference
points based solely on a bidders B-BBEE contribution level status. That right
to public participation in a regulation making process does not in my view
equally apply to a subsequent executive policy making decision of the City
to formulate and introduce a new preferential procurement scoring system,
based on regulations promulgated after that public consultation process has
been completed.
[132] This conclusion renders it strictly speaking unnecessary to evaluate the
Applicants' reliance on the principle of legitimate expectation as the basis of
their procedural fairness ground of review. I shall nonetheless briefly
consider the argument advanced on this aspect, which for the reasons set
out below, I conclude is also unsustainable and without merit.
[133) The main legal requirement to establish a legitimate expectation which
engages procedural fairness, is evidence of an express promise having
been made by a relevant authority or a regular and well- established
practice has arisen wh ich a claimant could reasonably expect to continue.
The test is objective, and it is applied on a case-by-case basis. 26 There must
be a reasonable, clear and unambiguous representation underlying the
alleged legitimate expectation. It is not good enough that subjectively
speaking, such an expectation exists in the mind of the litigant.27
2s National Student Financial Aid Scheme v Moloi and Others (574/2022) {2024] ZASCA 66 3 May
2024) at para 47 to 48.
27 South Africa Veterinary Council and Another Szymansk 2003 (4) SA 42 (SCA) at 49 E - H.
47
[134] The A pplicants allege that based on the past conduct and practices of the
City and the Applicants' and other bidders' involvement in such work for the
City over many years, the Applicants had a reasonable legitimate
expectation that they would be heard by the City before it would implement
a new scoring system that drastically affects them. The factual basis alleged
by the Applicants for their alleged legitimate expectation, is that they and
other bidders were scored on their BEE level rankings in the past and had
spent substantial sums to maintain their BEE level rankings for purposes of
being able to score preferential procurement points in tenders.
[135) That the Applicants previously participated in City tender processes under
the old scoring process, does not without more establish a regular process
which the Applicants could reasonably have expected to continue. The
Applicants participation in such tender processes would have been no
different to any other tenderer who had submitted a bid and was scored
based on their B-BBEE certificate. It can hardly be suggested that every
bidder who participates in a tender process thereby acquires a legitimate
expectation of being heard and consulted on every occasion when an organ
of state amends its preferential procurement policy. It is certainly not in my
view reasonable for the Applicants to have expected the position which
pertained under the City's old scoring system to continue in perpetuity
notwithstanding the promulgation of the 2022 Procurement Regulations.
[136] It was in response to changes in the regulatory environment that the City
embarked on the process of amending its supply chain management policy,
a process which culminated in the Council adopting the ASCMP and
developing the Implementation Guideline for public procurement in the City.
The City was required to amend its supply chain and preferential
procurement policy in response to the Afribusiness judgment and the
promulgation of the 2022 Procurement Regulations.
48
[137) Policy making in the executive sphere of government can reasonably be
expected to be a flexible, dynamic process that is responsive to changing
needs and circumstances. This would apply especially in the complex
regulatory environment of public procurement which is critical to effective
service delivery. Imposing a pre-amendment prior consultation requirement
on such a process in respect of bidders, whose very business involves
expending costs and resources to participate in and benefit from tender
processes, would in my view be impractical and stymie the effective
operation of government procurement. In any event, it has not in my view
been established on the facts that any express promise had been made by
the City to the Applicants which reasonably supports their claim of a
legitimate expectation to a prior hearing before the City decided to introduce
its new scoring system.
[138] In support of their procedural fairness ground of review, the Applicants
called in aid the judgment of the Supreme Court of Appeal in Bateluer
Book s28. The judgment does not in my opinion support the Applicants
procedural fairness argument. Firstly, the case is distinguishable because it
dealt with administrative action not the exercise of executive policy
formulation powers. Secondly, the facts do not demonstrate that the City
made the Applicants ' ... a close part of the procurement process' as was the
case in Bateleur Books. In that case, a provincial department of education
had intricately involved a group of publishers a book-ordering procurement
process only to summarily exclude them from it without warning. The facts
here do not establish that the City intricately involved the Applicants in its
procurement processes or that they were treated any differently or more
specially than any other bidders for tenders advertised by the City.
28 MEG for Education, Northern Cape v Bateleur Books (Ply) Ltd {298/08) [2009) ZASCA 33; 2009
{4) SA 639 {SCA); (2009] 3 All SA 127 (SCA) (31 March 2009).
49
[139] For these reasons, I am of the view that the Applicants procedural fairness
argument is without merit and that the review ground advanced on this basis
must fail.
Process irrationality
[140] In addition to their procedural fairness ground of review, the Applicants
contend that the process which preceded the issuing and subsequent
publication of the tenders with the new scoring system, was itself irrational.
Two are contentions are advanced in this regard. Firstly, the Applicants
argue that the City acted on the basis of errors of law which materially
tainted and rendered the entire process irrational. Secondly, the Applicants
allege that the new scoring system was produced by an irrational process
which was not underpinned by any research, consultation, advice or input
from experts or key stakeholders in the construction sector.
[141] It is clear that that the requirement for the exercise of public power to be
rational includes the procedure followed in reaching a decision. The
procedure followed must be rationally connected to the purpose for which
the power was conferred.29 Rationality whether under PAJA or the principle
of legality relates to both the decision made and the procedure followed in
reaching that decision.30 In short, the test for process rationality requires
that the procedure followed be such that it results in the achievement of the
purpose for which the power was conferred.31
29 Minister of Water and Sanitation v Sembcorp Siza Water (Pty) Ltd and Another (CCT 300/19)
[2021] ZACC 21; 2021 (10) BCLR 1152 (CC); 2023 (1) SA 1 (CC) (23 July 2021) at para 45.
30 National Energy Regulator of South Africa v PG Group (Pty) Ltd (2019] ZACC 28; 2020 (1) SA
450 (CC); 2019 (10) BCLR 1185 (CC) (NERSA) at para 48-50.
31 Democratic Alliance v President of South Africa [2012] ZACC 24; 2013 (1) SA 248 (CC); 2012
(12) BCLR 1297 (CC), A/butt v Centre for the Study of Violence and Reconciliation [2010) ZACC
4; 2010 (3) SA 293 (CC); 2010 (5) BCLR 391 (CC).
50
[142) Procedural rationality does not mean relate to the fairness of the process
and the absence of a hearing does not in itself amount to procedural
irrationality. The requirement that the exercise of public powers be
procedurally rational is only breached where the purpose for which the
power was exercised, could not be achieved without a pre-decision
hearing.32
[143] Section 217(2) of the Constitution empowers the City to implement a
procurement policy which provides for categories of preference in the
allocation of contracts and the protection or advancement of persons or
categories of persons, disadvantaged by unfair discrimination. The City is
also empowered by section 2( 1) and section 2( 1 )( d) of the Procurement Act
to determine and implement its preferential procurement policy which
provides for the specific goals listed in section 2(1 )(d)(i) and (ii) of the
Procurement Act. Madlanga J explained the purpose for which these
powers are to be exercised as follows in Afribusiness:
'As I indicated earlier, from the long title of the Procurement Act, it is
plain that this Act is the national legislation envisaged in section
217(3) of the Constitution and - as provided for in that section - the
object of the Act is to achieve what is contained in section 217(2) of
the Constitution. So, what is necessary for purposes of the
Procurement Act and, by extension, for purposes of section 217(2)
of the Constitution, is provided for in section 2(1) of the Procurement
Act: in terms of section 2(1) a preferential procurement policy must
be determined by each individual organ of state; and it must be
implemented within the framework set out in the same section133 (my
emphasis).
32 M inister of Water and Sanitation v Sembcorp Siza Water (Ply) Ltd and Another (CCT 300/19)
[2021] ZACC 21; 2021 (10) BCLR 1152 (CC ); 2023 (1) SA 1 (CC) (23 July 2021 ).
33 Afribusiness at para 113
51
[144] The question then is whether the purpose for which this power was
conferred on the City, that purpose being the determination of a preferential
procurement policy to be implemented within the framework set out in
section 2( 1) of the Procurement Act, could not be achieved without affording
the Applicants a pre-<.fecision hearing.
[145] I have earlier in this judgment set out and evaluated the process followed
by the City in formulating the amendments to its Supply Chain Manageme nt
Policy and reaching its decision to implement the new scoring system in the
Implementation Guideline. The main purpose of that process was to ensure
that the City formulated and had in place a preferential procurement policy
which was consistent with the 2022 Procurement Regulations. The City's
preferential procurement policy at that stage reflected the position provided
for in the 2017 Procurement Regulations, which had been declared invalid
in Afribusiness.
[146] The process followed by the City to address this, was in my view a careful,
considered and rational process. It was a process which commenced
immediately after the promulgation of the 2022 Procurement Regulations,
involved extensive and wide internal consultation within the City's various
departments and the mayor's office, consideration of the views of National
Treasury and the BEE Commission and consideration of detailed external
legal advice from senior and junior counsel. Importantly, it was also a
process wh ich had to be conducted and completed by the City under
significant time constraints in view of the looming deadline of 16 January
2023 when the new 2022 Procurement Regulations were scheduled to
come into effect.
52
[147) The power conferred on the City by section 2(1 )(d) of the Procurement Act
required the City to engage in a polycentric assessment of its own policy
objectives and how these would be advanced in the determination of
specific goals for which preference points would be awarded. It is precisely
for this reason that the discretion to create such a system of preference in
its procurement policy is one that vests in an organ of state, as the
Constitutional Court held in Afribusiness. The Applicants have not
demonstrated why such a policy formulation process by the City could not
be rationally advanced without input from and prior consultation with the
Applicants and other bidders.
[148] The Applicants real complaint in this case is the effect of the 2022
Procurement Regulations, which removed the provisions of the 2017
Procurement Regulations which automatically awarded of preference points
based solely on a bidders B-BBEE contributor status. The Applicants are
aggrieved with this effect of the new regulations, and it is their complaints
about its alleged detrimental consequences for the Applicants, which in my
view is the theme underlying each of their ma in review grounds.
[149] The 2022 Procurement Regulations were however subject to a notice and
comment public consultation process when they were published in draft
form as early as 10 March 2022. The Applicants were entitled to be
consulted and have a say in that process. The City was in my view not
obliged to consult with and obtain input from the Applicants and all other
bidders for City procurement work, when it subsequently amended its SCM
policy and formulated a new scoring system to prevent any inconsistency
with the new 2022 Procurement Regulations.
[150) For these reasons, I am of the view that the absence of a pre-decision
hearing being afforded to the Applicants in the process which the City
followed in introducing its new scoring system, does not establish a review
ground on the basis of process irrationality.
53
[151] The Applicants also argue that process irrationality has been established
because the City acted on the basis of errors of law which materially tainted
the entire process. The errors of law are contended to be that the City's new
scoring system was introduced in breach of the B-BBEE Act and Codes and
that it puts in place exclusionary provisions declared unlawful by the SCA
and the Constitutional Court in Afribusiness.
[152] It is so that where the correct legal basis on which to arrive at a decision
has been misconstrued, the decision cannot be rationally connected to the
purpose for which the power to decide is granted and such a decision is
vitiated by irrationality.34 However, for the reasons set out later in this
judgment, the Applicants argument that the City acted on the basis of
material errors of law in construing the import of the B-BBEE Act and Codes
on its new scoring system, is without merit. I have also earlier explained
earlier that there is no factual evidence, apart from speculation, that the
City's new scoring system establishes exclusionary thresholds as alleged
by the Applicants.
(153) As to the contention that the process followed by the City was irrational due
to the alleged absence of 'research, consultation, advice or input from
experts or key stakeholders in the construction sector', the argument is not
sustainable. I have already set out and evaluated the process followed by
the City in the formulation of the ASCMP and new scoring system. The
alleged absence of consultation with un-named 'key stakeholders in. the
construction sector' does not render the process irrational and incapable of
achieving the purpose for which powers were conferred on the City to
determine and implement its own procurement policy.
34 African Transformation Movement v Speaker of the National Assembly and Others (643/2021)
(2021] ZASCA 164; [2022] 1 All SA 615 (SCA); 2022 (4) SA 409 (SCA) (2 December 2021) at
para 13.
54
[154] In assessing the rationality of the process adopted by the City in introducing
the new scoring system, the concerns which had to be addressed and the
policy imperatives which the City considered, a court should in my view be
cautious not to substitute its own view of what may have been more rational
and better choices, for those which the City in fact made.
[155] An analogy of policy choices made by Parliament in the legislative process
is in my view apposite here. In the context of such legislative choices, the
Constitutional Court observed in NIGRO that these choices are not always
subject to courtroom fact-finding and may be based on reasonable
inferences unsupported by empirical data. It may not be possible to provide
that a particular policy will be effective however it does not necessarily follow
from this, that the policy is not reasonable and justifiable. If the concerns
are accorded sufficient importance and there is sufficient connection
between means and ends, that may be enough to justify action taken to
address them.35
[156] The Applicants process rationality argument is for these reasons without
merit and fails on each of the grounds on which it has been advanced.
Review Ground 2: Illegality: non-compliance with the B-BBEE Act and Codes
[157] The Applicants allege that the City's decision to introduce the new scoring
system as replacement for the old scoring system , is unlawful and invalid
because it does not comply with section 10 of the B-BBEE Act and the
Construction Se ctoral Code.
35 Minister of Home Affairs v National Institute for Crime Prevention and the Re-Integration of
Offenders (NICRO) and Others (CCT 03/04) [2004) ZACC 10; 2005 (3) SA 280 (CC); 2004 (5)
BCLR 445 (CC) (3 March 2004) at para 35.
55
[158] Section 10(1 )(b) of the B-BBEE Act requires every organ of state and public
entity to apply any relevant code of good practice issued in terms of the Act
in inter alia determining qualification criteria for the issuing of licences,
concessions or other authorisations in respect of economic activity in terms
of any law and developing and implementing a preferential procurement
policy. In terms of section 10(3) and subject to section 9(6), an enterprise in
a sector in respect of which the Minister has issued a sector code of good
practice in terms of section 9, may only be measured for compliance with
the requirements of broad-based black economic empowerment in
accordance with that Code. Section 3(2) of the B-BBEE Act states that " ... in
the event of any conflict between this Act and any other law in force
immediately prior to the date of commencement of the Broad -Based Black
Economic Empowerment Amendment Act, 2013, this Act prevails if the
conflict specifically relates to a matter dealt with in this Act''
[159] The Applicants contended, in reliance on ACSA, that in deciding on a
preferential procurement policy, primary consideration is given to the
applicable sector code. The City's failure to apply the the scoring system set
for the construction industry in terms of the Construction Sectoral Code, so
the argument went, rendered the City's decision to implement the new
scoring system unlawful and invalid. The argument is unpersuasive.
[160) Firstly, the Applicants contentions are based on a misapprehension of the
import of the applicable statutory provisions. Section 10( 1 )(b) of the B-BBEE
Act requires organs of state to apply the B-BBEE Codes when developing
and implementing a preferential procurement policy. The section does not
however prescribe to an organ of state how the B-BEE Codes are to be so
applied in the development and implementation of a procurement policy by
an organ of state.
56
[161] The reason for this is to my mind plain and consistent with the overall
constitutional scheme for public procurement and Black economic
empowerment. The two legislative instruments to give effect to that scheme,
i.e. the Procurement Act and the B-BBEE Act, are meant to operate
harmoniously, consistently and in a manne r which gives effect to the
objectives of both. The law requires that complementary statutes be
construed as such and in a manner which respects the comity, and the
autonomous powers of functionaries established for the spheres in which
each respective statute operates. 36
[162) Section 10( 1 )(b) of the B-BBEE Act recognises, it is for an organ of state to
determine how the B-BBEE Codes are to be applied in the development and
implementation of its procurement policy. As was held in Afribusiness, it is
however for the organ of state and that organ of state alone, to create a
system of preference in terms of a preferential procurement policy which
section 2( 1) of the Procurement Act obliges that organ of state to determine
and implement. Similarly, the competence to prescribe industry specific B­
BBEE Codes and the factors to be determined in the evaluation of a
measured entity's B-BBEE score, lies with the Minister, not an organ of
state. The scope of operation of the powers and functions conferred by the
Procurement Act and the B-BBEE Act are in my view conceptually distinct
by deliberate design.
[163) Secondly, it is difficult to understand on what basis and in wha t precise
respect it is contended by the Applicants that the Procurement Act conflicts
with the B-BBEE Act, such a conflict being a pre-condition for the
engagement of the trumping provision provided for in section 3(2). The
App licants must demonstrate such a conflict and that it is a conflict between
the B-BBEE Act and ' ... any other law in force immediately prior to the date
of commen cement of the [B-BBEE Act]'.
36 Ruta v Minister of Home Affairs 2019 (2) SA 329 (CC) at para 43.
57
[164] The Applicants' reliance on section 3(2) of the B-BBEE Act appears to be
the springboard for their m ain argum ent. That is the contention that the B­
BBEE Act and the Construction Sectoral Code "require" that a bidder's BEE
level ranking under that Act and Code be used by an organ of state / public
entity " .. .for purposes of scoring preferential procurement as part of its
public procurement processes."
[165] The difficulty though is that the B-BBEE Act and the Construction Sectoral
Code do not so require. The two instruments do not provide for any
mandatory obligation or requirement for organs of state to the use of 8-
BBEE scorecard contributor level ranking for the purposes of scoring
preference points in a public procurement process. As the City pointed out,
unlike the 2017 PPPFA Regulations, the B-BBEE Act and its codes do not
set out the manner in which preference points are to be awarded at all.
[166) Nor for that matter do the B-BBEE measurement principles specified in the
Construction Sectoral Code prescribe any binding scoring system which
organs of state are required to use for preferential procurement in the
construction sector. The scope of application of the Construction Sectoral
Code , by virtue of section 3.1 thereof, is to B-BBEE compliance
measurement of entities that fall within the construction sector.
[167] In terms of section 11.1 of the Construction Sectoral Code , such verification
is performed by 8-BBEE verification professionals or rating agencies
accredited by SANAS or when applicable a B-BBEE Verification
Professional Regu lator appointed by the Minister for the accreditation of
verification agencies or the authorisation of B-BBEE verification
professionals. The Code is directed at verification of B-BBEE compliance
by inter-alia B-BBEE rating agencies, not prescription of preferential
procurement scoring systems to be applied by organs of state.
58
[168] Had it been the intent of the Construction Sectoral Code to prescribe and
set a preferential procurement scoring system to be applied by organs of
state for the construction sector, the obvious place for it to do so would be
in Amended Code Series CSC400, which deals with the measurement of
the preferential procurement and supplier development element of B-BBEE
in the construction sector.
[169] The provisions of this element of the Constructional Sectoral Code, deal
however with the standardization of industry wide procurement
methodologies i.e. procurement of goods and services by the construction
sector from suppliers. They do not regulate procurement by organs of state
at all.
[170) In relation to large enterprises for example, section 7.4 of the Construction
Sectoral Code records that the preferential procurement element measures
the extent to which entities buy goods and services from empowering
suppliers with minimum B-BBEE recognition levels. The key measurement
principles provided for in the Construction Sectoral Code and Amended
Code Series CSC400 do not include any reference to the setting of
requirements binding on an organ of state, to use a bidders B-BBEE level
ranking for the purposes of scoring preference points in public sector
construction procurement.
(171] The Applicants relied extensively on the judgment of the Supreme Court of
Appeal in ACSA in support of their argument that in relation to the
procurement of construction works, the Construction Sectoral Code enjoys
primacy over earlier legislation such as the PPPFA. In my view, ACSA is
not authority for this proposition.
59
[172] In ACSA, it was the minority judgment, per Molamela JA (Tshiqi JA
concurring, which held that it was impermissible for an organs of state to be
allowed to, without the Minister's input, design its own unique criteria that
deviate from those laid down in the sector codes, as to do would render the
uniformity sought to be achieved by the strategies envisaged in the B-BBEE
Act, nugatory.37 The majority judgment per Ponnan JA (Cachalia and Wallis
JJA concurring), expressly did not reach this conclusion. The majority held
that it was unnecessary to consider the other grounds that had been held
by the High Court to be decisive against ACSA, one of which was that the
impugne d Request for Bids ("R FB") was in breach of B-BBEE Act and the
Tourism Sector Code of Good Practice.38
[173) For these reasons, I conclude that the Applicant's argument that the City's
decision to introduce the new scoring system was unlawful and in breach of
the B-BBEE Act and the Construction Sectoral Code , is without merit.
[17 4] My conclusion in this regard is dispositive of the Applicants second ground
of review. I therefore consider it unnecessary to address the City's
alternative argument that in any event, the B-BBEE Act does not prevail
over the PPPFA by virtue of the principle generalia specialibus non derogat
/ex.
Rev iew ground 3: Irrationality
[175] The Applicants third major ground of review relates to the rationality of the
City's new scoring system. The Applicants base their rationality attack on
two main grounds. Firstly, they contend that the weighting of the specific
goals identified in the new scoring system for the allocation of preference
points, is irrational and arbitrary.
37 ACSA at paragraph 38.
38 ACSA at para 73.
60
[176] Secondly, the Applicants contend that the new scoring system is irrational
because it fails to achieve the City's own transformation objectives. To
assess these arguments, which are in large measure the main plank of the
Applicants entire challenge to the rationality of the new scoring system, it is
necessary to set out the contentions advanced in some detail.
Irrational weighting of the specific goals
[177] The Applicants allege that the new scoring system selectively accords a
privileged and skewed weighting to ownership by women , Black people and
disabled people and sub-contracting to Black owned entities. According to
the Applicants, the new scoring system irrationally re-scores elements
which have already been accorded certain weightings in the Construction
Sectoral Code . In addition, it is contended that this irrational re-scoring
mechanism was the result of a process which was itself irrational as it was
conducted by the City without any market research or investigations by the
City. The Applicants submit that there is no rational reason for the
we ightings assigned by the City's new scoring system to different levels and
categories of ow nership and that the weightings so adopted by the City are
therefore arbitrary and capricious.
Irrational failure to achieve transformation objectives.
[178] The A pplicants contend that by "singling out" wome n ow ned, Black-owned
and disabled ow ned business for 30%, 30% and 10% respectively of the
preference points, the C ity's new scoring system fails to achieve its ow n
stated transformation objectives. The Applicants argue that the new scoring
system irrationally disadvantages entities such as the Applicants w hose
"black-owned" shares are owned by beneficiaries of a wo rkers trust and
does so w ithout providing a mecha nism to determ ine how points are to be
allocated to such a w orker's trust.
61
[179] The Applicants contend that the disadvantage suffered by the Applicants is
that they are therefore unable to compete on price because they start with
a points deficit, simply because the extent to which their equity is owned by
women , Black and disabled persons cannot be measured under the new
scoring system. According to the Applicants, under the new scoring system
they will both only get 2 out of 6 points for ownership by women and Black
people. The Applicants allege that this means that for price, they would need
to get 6 points out of a 100 to be level and compete with a 100% female
black owned company. The disadvantage of this, so the Applicants argue,
is that they would have to incur a substantially reduced margin just to be
able to compete on price and in an industry where they say the margins are
already slim. The Applicants allege that if they were compelled to cut their
profit margins to so compete, they would not be able to present a viable bid.
Their situation, the Applicants say," ... is even more dire when one adds the
scoring of the subcontracting component." I interpose at this juncture to note
that no factual details are provided of the alleged low margins or financial
basis on which any bid by the Applicants for the tenders would not be viable
because of the new scoring system.
[180) Returning to the Applicants contentions on irrationality, a further aspect
relied on by the Applicants, which they claim is evidence of the new scoring
system irrationally failing to achieve transformation objectives, is the
application of the new scoring system to public companies. The Applicants
allege that although the actual ownership of a public company by Black
people may in fact be lower than that of a private company, the application
of the new scoring system will irrationally and misleadingly result in the
ownership of that public company by Black people, appearing to be higher.
62
[181] This, according to the Applicants, is because the institutional shareholding
of a listed company is not measured under the Construction Sectoral Code
when determining the Black ownership element of B-BBEE . The Applicants
claim that the new scoring system would thus irrationally result in a situation
where a public company with what appears to be a high level of Black
ownership, would be preferred above a private company which has a larger
percentage of Black South African worker ownership through an employee
trust, such as the HIBBET .
The principles relating to rationality review.
[182] Before evaluating the grounds advanced by the Applicants in support of
their rationality challenge, I shall outline and restate the key principles
applicable to the review of exercises of public power on the grounds of
irrationality.
[183] The rule of law is a foundational value of our Constitution, and the principle
of legality lies at its centre. As explained tin the well-known statement by
Chaskalson CJ in Fedsure, the principle of legality expresses the
fundamental rule of our constitutional order that the 'exercise of public
power is only legitimate when it is lawful.'39 The exercise of public power in
a manner which is irrational, arbitrary or capricious, is inconsistent with the
rule of law and the principle of legality which is at its centre. The content of
rationality as a minimum threshold requirement for the constitutional validity
of the exercise of public power was expressed as follows in Pharmaceutical
Manufacturers Association40:
39 Fedsure at para 38.
40 Pharmaceutical Manufacturers Association of South Africa and Another: In re Ex Parle President
of the Republic of South Africa and Others 2000 (3) at paras 88 to 90.
63
'It is a requirement of the rule of law that the exercise of public power
by the Executive and other functionaries should not be arbitrary.
Decisions must be rationally related to the purpose for which the
power was given, otherwise they are in effect arbitrary and
inconsistent with this requirement. It follows that in order to pass
constitutional scrutiny the exercise of public power by the Executive
and other functionaries must, at least, comply with this requirement.
If it does not, it falls short of the standards demanded by our
Constitution for such action.
[89] ... What the Constitution requires is that public power vested
in the Executive and other functionaries be exercised in an
objectively rational manner.
[90] Rationality in this sense is a minimum threshold requirement
applicable to the exercise of all public power by members of the
Executive and other functionaries. Action that fails to pass this
threshold is inconsistent with the requirements of our Constitution
and therefore unlawful. The setting of this standard does not mean
that the Courts can or should substitute their opinions as to what is
appropriate for the opinions of those in whom the power has been
vested. As long as the purpose sought to be achieved by the exercise
of public power is within the authority of the functionary, and as long
as the functionary's decision, viewed objectively, is rational, a Court
cannot interfere with the decision simply because it disagrees with it
or considers that th'e power was exercised inappropriately.
A decision that is objectively irrational is likely to be made only rarely
but, if this does occur, a Court has the power to intervene and set
aside the irrational decision."
[184] The test in rationality review is directed at assessing the relationship
between the means chosen and the ends sought to be achieved by the
decision-maker. The test is whether there is a rational relationship between
the decision and the purpose for which the power was conferred. Objective
irrationality is required, a finding which is likely to be rare and out of the
ordinary.
64
[185) And in applying this test to the facts of a given case, it is not open to Courts
to interfere with the means selected by the decision maker simply because
they do not like them or consider that there are better means that could have
been utilised. As Ngcobo J explained in Albutt41:
"The executive has a wide discretion in selecting the means to
achieve its constitutionally permissible objectives. Courts may not
interfere w ith the means selected simply because they do not like
them, or because there are other more appropriate means that could
have been selected. But, where the decision is challenged on the
grounds of rationality, courts are obliged to examine the means
selected to determine whether they are rationally related to the
objective sought to be achieved.
What must be stressed is that the purpose of the enquiry is to
determine not whether there are other means that could have been
used, but whether the means selected are rationally related to the
objective sought to be achieved."
[186] Rationality review affords a high degree of deference to the decision­
maker, the question to be asked being merely whether there is a rational
connection between the decision and the process followed in reaching it and
a legitimate purpose. Rationality is thus not about justification nor the
cogency of reasons.42
[187] Rationality review, however, has its limits. It is not a mechanism which
litigants may permissibly deploy to second-guess, by way of judicial review,
decisions and exercises of public power which they do not like, decisions
which they think could have been made better or decisions wh ich they
consider to be irrational because a different option ought to have been
chosen by the decision-maker.
4 1 Afbutt v Centre for the Study of Violence and Reconciliation and Others (CC T 54/09) (2010)
ZACC 4; 2010 (3) SA 293 (CC ); 2010 (2) SACR 101 (CC ); 2010 (5) BCLR 391 (CC ) (23 February
2010) at para 51
42 Nu -Africa Duty Free Shops {Pty) Ltd v Minister of Finance and Others (CCT 29/22; CCT 57/22;
CCT 58/22) [2023) ZACC 31 ; 2023 (12) BCLR 1419 (CC); 2024 (1) SA 567 (CC) (3 O ctober 2023)
at para 114
65
[188] The Constitutional Court cautioned against this in the following tenTis in
Electronic Media Network43:
"It needs to be said that rationality is not some supra-constitutional
entity or principle that is uncontrollable and that respects or knows
no constitutional bounds. It is not a uniquely designed master key
that opens any and every door, any time, anyhow. Like all other
constitutional principles, it too is subject to constitutional constraints
and must fit seamlessly into our constitutional order, with due regard
to the imperatives of separation of powers. It is a good governance­
facilitating, arbitrariness and abuse of power-negating weapon in our
constitutional armoury to be employed sensitively and cautiously."
[189] A court is also well-advised to carefully avoid the 'slippery path' that can
easily take one inadvertently from an enquiry into rationality into the realm
of reasonableness. As stated earlier in relation to process irrationality and
the Applicants failure to establish such, the factual enquiry in rationality
review as to whether a decision is rationally related to its purpose. This
enquiry requires the court to be cautious not to stray into executive
territory.44 To re-iterate again, decisional rationality is only directed at the
link between means and purpose and whether the means chosen to achieve
the purpose are reasonably capable of achieving that purpose. It is not an
enquiry concerned with whether the best or only means was chosen through
which the purpose may be attained. 45
Evaluation of the Applicants decisional rationality challenge
43 Electronic Med ia Network Limited v e.tv (Pfy) Limited [2017] ZACC 17; 2017 (9) BCLR
1108 (CC) at para 89.
44 M inister of H ome Affairs and Others v Scalabrini Centre, Cape Town and Others 2013 All SA
571 (SCA) at para 65 to 66.
45 Minister of Constitutional Development and Another v South African Restructuring and
Insolvency Practitioners Association and Others (CC T13117) [2018] ZACC 20; 2018 (5) SA 349
(CC); 2018 (9) BCLR 1099 (CC) (5 July 2018) at para 55.
66
[190] The City submitted that the Applicants' decisional rationality challenge is not
pleaded with sufficient precision. The submission does carry some force. In
one instance, the Applicants decisional rationality challenge is directed at
the specific goals chosen by the City, in another it is directed at the overall
new scoring system and then in another is directed at the application of the
new scoring system to the specific tenders. In addition, the decisional
rationality challenge is brought on grounds which overlap between legality
review and PAJA.
[191] Insofar as reliance on PAJA is concerned, the Applicants' irrationality
challenge, as set out in their heads of argument, is said to be that the City's
decision to adopt the new scoring system for construction tenders is 'not
rationally connected to the purpose for which it was taken; the purpose of
the empowering provision (in this case the PPPF A read with the B-BBEE
Act and the Sector Code); the information before the administrator; or the
reasons given for it by the administrator ( see the reasons given at the time
by Mr Lewis).'
[192) This, at least on the face of it, appears to be a reliance on section 6(2)(f)(ii)
of PAJA .46 While it is so that where PAJA applies a review applicant may
not sidestep PAJA by relying directly on the principle of legality, in this case
there are components of the impugned decisions which, for the reasons set
out earlier, do not constitute administrative action. These include the City's
decision to adopt the ASCMP and the decision to introduce the new scoring
system in the City's Implementation Guideline.
46 Section 6(2)(f)(ii): 'A court or tribunal has the power to judicially review an administrative action
if-... the action itself... is not rationally connected to (aa) the purpose for which it was taken; (bb)the
purpose of the empowering provision; (cc) the information before the administrator; or (dd) the
reasons given for it by the administrator'.
67
[193] The main thrust of the Applicants decisional rationality challenge is directed
at the weighting which the new scoring system accords to ownership by
women , Black people and disabled people and the alleged irrationality of
the manner in which the new scoring system deals with sub-contracting to
Black owned micro and small enterprises. A further contention advanced is
that these weightings irrationally re-score elements which have already
been accorded certain weightings in the Construction Sectoral Code and
that the weightings themselves are bereft of rational reason.
[194] For the reasons set out below, I fail to see how the way in which the City's
new scoring system has chosen specific goals relating to and assigned
weighting of ownership of tendering entities by Black people, women and
disabled people, can objectively speaking, be said to be irrational.
[195] Section 2(1 )(d) of the PPPFA is the empowering provision for the City's new
scoring system and preferential procurement policy. The provision
expressly permits the City to determine and implement a procurement policy
which creates a system of preference for advancing individuals who have
suffered from past patterns of discrimination on the basis of race, gender
and disability. It can hardly be suggested that Black people and women do
not fall within the categories of persons directly subjected to unfair historic
discrimination, the elimination of which is the central tenet underlying
section 217(2) of the Constitution.
[196] I must in this regard immediately dispose of a contention by the Applicant
that the City's new scoring system is irrational because it "[sets] black
female ownership of the bidding entity as a threshold requirement allocating
some 6/1 O of the score to these two criteria."
68
[197) Firstly, the evidence does not establish that the City has set such a
threshold. No facts are advanced to support this contention by the
Applicants.
[198] Secondly, it is difficult to understand how the City's creation of a system of
preference in its public procurement policy for Black people, women and the
disabled, is either objectively irrational or results in a failure of the City to
meet its transformation objectives. Notably and following the introduction of
the City's new scoring system, the City has already concluded numerous
contracts based on the new scoting system and paid many contractors for
their goods and services. The City's demand plan as of 20 March 2024
indicates that 27 tenders have been awarded for the period 2023 to 2026,
to the value of approximately R1 618 303 217.54.
[199] The Applicants contend that by "singling out" women owned, Black-owned
and disabled owned business for 30%, 30% and 10% respectively of the
preference points, the City's new scoring system irrationally fails to achieve
its own stated transformation objectives. The argument is without merit. The
rationality of remedial measures to develop and implement specific goals
for preferential procurement from individuals falling within the categories of
persons set out in section 2(1 )(d)(i) of the Procurement Act, cannot in my
view be assessed without regard to the historical and social context in which
the Act operates. This applies more so when remedial measures adopted
by an organ of state as specific goals to promote economic transformation
and address the present-day consequences of historical unfair
discrimination based on gender and race, are impugned as being irrational.
69
(200) In considering this context, the Constitutional Court has in emphasised the
need to understand the historical and intersectional nature of race and
gender discrimination. In Mahlangu47, Victor AJ said the following:
[96] It is often said that Black women suffer under a triple yoke of
oppression based on their race, gender and class. The racial
hierarchy established by apartheid placed Black women at the
bottom of the social hierarchy. During apartheid, Black women were
oppressed both by codified apartheid laws and a patriarchal fonn of
customary laws and norms, which rendered them perpetual minors
who were at the mercy of White men and women as well as Black
men.
[97] This Court has on a number of occasions stressed the
importance of "the need to make a decisive break from the ills of the
past". This constitutional imperative stems from the Constitution's
commitment to establishing a non-racist and non-sexist society
based on human dignity, equality and freedom. At the heart of the
constitutional project is an aspiration to achieve substantive equality
and undo the burdens of our past.
[98] But ensuring that the vestiges of our racist past are eradicated,
also requires an exploration of the lingering gendered implications of
apartheid's racist system. The combination of influx control laws and
the migrant labour system also had a particularly onerous effect on
Black women. Taken together, they restricted the ability of
Black women to seek and obtain employment opportunities, thus
rendering them dependent on absent husbands or sons. Essentially,
this all sedimented a gendered and racialised system of poverty, that
was particularly burdensome for Black women. "
[201] The decisional rationality challenge directed by the Applicants at what they
allege is an irrational, skewed and privileged re-scoring of ownership by
women , Black people and disabled people, is misplaced for two additional
reasons.
47 Mah /angu and Another v Minister of Labour and Others (CCT306 /19) [2020] ZACC 24; 2021 ( 1)
BCLR 1 (CC) ; [2021] 2 BLLR 123 (CC ); (2021) 42 ILJ 269 (CC ); 2021 (2) SA 54 (CC ) (19 November
2020) at para 95 to 98.
70
[202] Firstly, for the reasons set out earlier, I have concluded that the City was
not legally obliged in its discretionary determination of the specific goals of
its procurement policy, to apply and include the weighting and elements
provided for in the B-BBEE Act and the Construction Sectoral Code.
[203] The City was empowered to determine and implement its own procurement
policy and specific goals for a system of preference. That the City decided
not to incorporate wholesale the approach and framework of the
Construction Sectoral Code in its new scoring system, does not render its
decision irrational. Secondly, the argument postulated by the Applicants
amounts in effect to a contention that the weightings provided for in the new
scoring policy, are not rational because they do not correspond with what
the Applicants consider to be the better and more desirable weightings set
out in the Construction Sectoral Code.
[204] The contention cannot be sustained. It is not for the court to second guess
and set aside the scoring and weighting of the specific goals chosen by the
City unless it can be demonstrated that they are objectively irrational and
not rationally related to the purpose of the power to determine specific goals
conferred on the City by section 2(1 )(d) of the PPPFA.
[205] It is well-established that where a functionary is entrusted with discretion
powers, the weight to be attached to particular factors, or how far a
particular factor affects the eventual determination of the issue, is a matter
for the functionary to decide and provided that she acts in good faith,
reasonably and rationally, a court will not interfere.48
<1a MEG for Environmental Affairs and Development Planning v Clairisons CC ( 408/2012) [2013)
ZASCA 82; (2013) 3 All SA 491 (SCA); 2013 (6) SA 235 (SCA) (3ay 2013) at para 22.
71
[206] The Applicants further contend that the new scoring system is irrational
because it results in the Applicants being unable to compete on price with a
100% Black female owned company in circumstances where profit margins
in the construction sector are already slim.
[207] I do not see how this apparent effect of the new scoring system even if it
were established on the papers, which is far from clear, is either unlawful or
that it renders the City's new system irrational. It is an obvious feature of the
tender process that bidders compete in the submission of bids and in their
pricing offering for the goods and services which form the subject of the
tender.
[208] Some bidders may anticipate obtaining lower points for preference and
adjust their tenders to be more competitive on the 90 or 80 points allocated
for price. Other tenderers, such as the 100% Black women owned company
postulated by the Applicants as an example, may obtain higher points for
preference but be either unable to win on price or compelled to accept very
low margins precisely because of the competitive advantage enjoyed by
entities whose owners had the benefit of past economic privilege and were
not subjected to historical gender and racially based discrimination. The
different permutations which may arise are ultimately matters of business
and commercial risk assessment and choices faced when a bidder
participates in a government procurement process.
[209] The possibly adverse economic consequence of such choices for any
particular bidder, arises from the competitive nature of the tender process
itself. They are not consequences which render the procurement process
irrational or unlawful.
72
(21 OJ The Applicants appear to buttress this argument with the contention that
their price disadvantage and preference points deficit arises from the failure
of the new scoring system to provide for, unlike the position in the B-BBEE
Act and the Constructional Sectoral Code, a mechanism to measure their
ownership equity which is held by a workers trust. I have difficulty accepting
the contention that this alleged consequence of the new scoring system,
renders the system irrational.
(211) It is so that the Sectoral Code provides for a measurement mechanism in
respect of the economic interest of Black participants in employee share
ownership programmes. But it is also clear from Statement CSC100 of the
Code, that in addition to economic interest, the ownership element is also
indicated by evaluating direct equity ownership through exercisable voting
rights in the hands of Black people. The Implementation Guideline, in
relation to the evidence required for the claiming of preference points for
specific goals relating to ownership by women and Black people, permits
bidders to provide not only a B-BBEE certificate but company registration
certificates and their CSD reports.
(212] The question for decisional rationality is not whether a better or more
desirable preference points assessment mechanism should have been
chosen by the City in its new scoring system.
(213) The question is whether the means so chosen is rationally related to the
purpose for which the City was conferred powers to determine and
implement a preferential procurement policy. The new scoring system
provides for specific goals relating to direct equity ownership of the bidding
entity by women, Black people and disabled people. That it does not make
express provision for a measurement mechanism for a worker's trust, a
mechanism which the Applicants consider desirable, does not in my view
render the City's new scoring system irrational.
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[214] There is final aspect of the Applicants rationality challenge which I shall
consider briefly.
[215] This is the argument regarding what was asserted to be an unfair and
irrational advantage to public companies flowing from the application of the
ownership element calculation provided for in City's new scoring system.
The argument advanced in this regard was that because of the method
which the City uses in the new scoring system to calculate Black ownership,
a situation could result where the actual ownership of a public company held
by Black people, may be lower than that of a private company, yet, because
institutional shareholders are excluded, it may appear to be higher.
[216] This, according to the Applicants, is because the institutional shareholding
of a listed company is not measured under the Construction Sectoral Code
when determining the Black ownership element of B-BBEE. The Applicants
claim that the new scoring system wo uld thus irrationally result in a situation
where a public company with what appears to be a high level of Black
ownership, may be preferred above a private company which has a larger
percentage of Black South African worker ownership through an employee
trust, such as the HIBBET .
[217] The main bases of this argument were advanced by the Applicants for the
first time in reply and referred to various public companies in the
construction sector, none of which have sought to challenge the City's new
scoring system. It was on this somewhat tenuous basis that the Court is
invited to to infer prejudice, irrationality and unfairness from examples
postulated by the Applicant, including that of a British institutional investor
owning 0.3581% of a listed construction company , who it is alleged could
be favoured over the Applicants broad based black shareholders because
of the City's new scoring system. The contention on which the whole
argument is based is entirely hypothetical.
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[218} in the absence of evidence of such prejudice or irrationality in the actual
application of the new scoring system, there are in my judgment no grounds
to impugn the new scoring system as being irrational based on the abstract
and hypothetical grounds relied on by the Applicants in relation to listed
companies.
[219] In relation to the specific goal identified in the new scoring system relating
to promotion of small and micro-enterprises, it is clear that the promotion of
small and micro-enterprises is an objective of the RDP . The RDP in general
terms and similarly to the 8-BBEEE Act and the Construction Sectoral
Code, seeks to promote economic inclusion by addressing historical
barriers of entry and ownership of productive economic assets.
[220] Chapter 3 of the RDP records that insofar as the objectives of the RDP are
concerned, • ... greater participation in the economy and less concentrated,
more racially and gender inclusive ownership patterns are essential. Small,
medium, and micro enterprises need to play substantially larger part in
economic activity. The RDP must ensure that the legacy of inequality is
addressed.' In this regard, I agree with the submission advanced by the City
that the achievement of this objective by way of its inclusion as a specific
and weighted goal in the City's new scoring system, is an objective which is
rationally connected to the purpose of section 2(1 )(dXii) of the PPPFA.
[221] For these reasons, the Applicants decisional rationality challenge is in my view
without merit and fails on each of the individual grounds on which it has been
advanced.
The Applicants further review grounds and challenges to the new scoring system
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(222] For the reasons set out above, I conclude that the ma in contentions and
challenges by the Applicants to the City's new scoring system on the basis that
it is irrational and in breach of the B-BBEE Act and Codes, are without merit
and fail on each of the bases on which they have been advanced. These
contentions by the underpinned each of their main grounds of review. Their
failure is largely dispositive of the Applicants challenge as a whole. I will
nonetheless briefly deal with the additional grounds of review, each of which
we have considered and find both cumulatively and individually, to be without
merit.
Non-compliance with the Implementation Guideline
[223] The Applicants contention that the new scoring system is unlawful and in
breach of the Imp lementation Guideline is based on two propositions. Firstly,
the absence from the Rule 53 review record of evidence that the City conducted
prior research and investigations for the specific tenders before determining the
specific goals listed in the tender specifications. Secondly, it is argued that no
actual decision was taken by the BSC to determine the specific goals for the
tenders concerned. As stated earlier, the main basis for the argument is the
Applicants seizing on a sentence in the Implementation Gu ideline wh ich states
that the role of the BSC is to ' ... determine which HDI or Sp ecific Goal will be
best suited for that specific tender based on ma rket research, analysis or
historical data in the disposal of the City and advertised accordingly for
evaluation criteria to be fairly applied.'
[224) I am in agreement with the argument advanced by the City that given the need
for the guideline to establish uniformity in procurement processes, the guideline
was binding and was accepted by the City officials implementing it, to be
binding. The Implementation Guideline must also be interpreted practically and
in line with its purpose.
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[225] It can hardly in my view be sustainably argued that having determined specific
goals and a weight allocation for preferential procurement, it would nonetheless
then be open to the C ity to determine different goals and points and weight
allocations depending on the identity of the tenders and nature of the tender. It
may be open to the BSC to determine what specific goals would be 'best suited'
for a particular tender, but it was not a mandatory requirement of the
Implementation Guideline that the BSC consider deviation of point values and
different specific goals when it applied the new scoring system.
[226] The City was required to implement the new scoring system within the
framework of the Procurement Act, the guideline and the ASCMP . Where a
decision-maker such as the City has devised policies, directives or guidelines,
it was recognized by the Constitutional Court in Ahmed that such policies,
directives or guidelines which determines how administrative officials are
required to act, those policies and guidelines are binding and disciplined by the
principle of legality.49 In the absence of a challenge to the legality of the
guideline itself, of which there is none, the Implementation Guideline must be
accepted as being a lawful and valid policy instrument of the City.
[227] Insofar as the contentions for this argument based on the content of the Rule
53 record is concerned, it does not necessarily follow that the absence of
evidence of deliberations of the BSC on the specific goals for the tenders,
demonstrates that no decision was. taken by the BSC or that the new scoring
system falls to be set aside on this basis. The City issued Tender Notice No . 3
setting out the specific goals that would apply to the first tender. It is clear from
this that consideration was given to the specific goals and that the provisions
of the imp lementation guideline were being applied.
[228) The challenge based on alleged non-compliance with the Implementation
Guideline is for these reasons unfounded and without merit.
49 Ahmed and Others v M inister of Home Affairs and Another 2019 (1) SA 1 (CC) at para 37 to 45.
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Slavish adherence to the position of National Treasury
[229] The Applicants contended that the City 'holus boluses' adopted the position on
specific goals articulated by National Treasury and slavishly adhered to the
Treasury's interpretation of the specific goals to be included in the City's
procurement policy. There is no factual evidence that reasonably establishes
that the City rubber stamped the views of Treasury on the application of the B­
BBEE Act and the manner in which organs of state were to determine their
procurement policies in light of the Afribusiness judgment. The contention by
the Applicants that the City 'kowtowed' to the 'dictates of National Treasury'
and that it did so under threat of a qualified audit, is a speculative allegation
and is advanced bereft of any factual basis. The challenge based on capricious
decision-making in the formulation of the new scoring system is in my view
wholly without merit.
Specific goals not measurable
[230] The Applicants contended that the new scoring system is irrational and unlawful
in that it awards points awarded for gender and micro and small enterprises,
which are not measurable. It is clear from the evidence required for the claiming
of preference points that the City is able to determine the percentage of female
ownership of a company from a Company Registration Certificate or Central
Supplier Database report. These documents provide objective evidence about
the percentage of female ownership in a company. The evidence also show
that the City will be able to determine the micro or small enterprise specific
goals from the financial statements of the micro and small enterprise, or its B -
BBEE status level.
[231] Regulation 9 of the 2022 Regulations provides a mechanism to address false
information in bids and deters the possibility of fronting. In addition, paragraph
450 of the SCM Policy provides for penalties for where sub-contracting
subcontracting takes place without the knowledge of the City. There is no
substance to this challenge, and it is without merit.
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Conclusion and costs
[232) For the reasons set out above, the grounds advanced by the Applicant in
support of their amended relief are without merit. No basis has in my view been
established by the Applicants to set aside the new scoring system nor for the
extraordinary proposition that it is open to this Court to grant relief directing the
C ity to return to and implement its previous scoring system.
[233] The Applicants did not seek to claim the protection of Biowatch in their
challenge and indeed sought a punitive costs order against the City in the event
they succeeded. Biowatch does not countenance risk free constitutional
litigation aimed at protection of commercial interests. In my view, costs must
follow the result. It was not suggested that the scale of costs should be other
than on scale C.
Order
[234) The application is dismissed with costs.
[235) The application in case no. 59/24 in relation to the Macassar interdicts ('Part
C '} is dismissed with costs.
[236) The Applicants are ordered to pay the costs of the applications on scale C
jointly and severally including the costs of two counsel where so employed.
~MAGARDIE, AJ
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I agree and it is so ordered
APPEARANCES
Date of Hearing
For Applicants:
For The First Respondent:
ERASMUS , J
21-22 May 2024
R Stelzner SC, P Mackenzie, M Smit
Instructed by:
Von Lieres, Cooper & Barlow
A Katz SC, K Permalsamy
Instructed by:
D M 5 Inc
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