SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in
compliance with the law and SAFLII Policy
IN THE HIGH COURT OF SOUTH AFRICA
KWAZULU -NATAL LOCAL DIVISION, DURBAN

CASE NO: D 12061 /2024

In the matter between:

MAXIMUM PROFIT RECOVERY (PTY) LTD Applicant

and

UMKHAN YAKUDE DISTRICT MUNICIPALITY First Respondent

PK CONSULTING GROUP CC Second Respondent

________ ______________________________________________________________
ORDER


a) The decision of the first respondent to appoint the second respondent to provide
VAT review and recovery services in respect of Tender S[...] through the sourcing
of quotations for a period of 12 months at a rate of 14.25% is declared to be
constitutionally invalid and unlawful and is set aside;

b) Any agreement concluded between the respondents pursuant to the decision
described in paragraph 1 of this Order is set aside;

c) Insofar as the first respondent has made any payment to the second respondent
pursuant to the decision described in paragraph 1 of this Order, the second
respondent is ordered to repay all such amounts to the first respondent;

d) The first respondent is interdicted from utilising a quotation process to procure any
goods and services that fall within the ambit of Tender S[...];

e) The first respondent is ordered to perform a point scoring of each of the members
of the existing panel in respect of any goods and services that fall within the ambit
of Tender S[...], and to allocate work on the basis that preference is given to the
highest -soaring tenderer on the panel;

f) The first respondent is ordered to pay the applicants costs, including the costs
consequent upon the employment of Senior Counsel, on Scale C in respect of this
application and the matter under case number D9873/2024.



_____________________________________________________________________

JUDGMENT


SHAPIRO AJ

Overview
[1] In March 2024, the first respondent ("the Municipality") published an invitation to
tender, with the following description: “Bid Number: S[...] Panel of accounting support
services for a period of 36 months ”. The scope of work for which b idders were to tender
included financial statements, preparation and audit support, financial support and
business advisory, budget and reporting and " mSOCA" support, assets management,
VAT review and recovery (which included reconciliation, review, and recovery of
consolidated VAT) and actuarial services. Bidders were informed that the Municipality
intended to constitute a panel of service providers, but the bid document did not set out
expressly how work would be allocated to successful appointees to the panel. All
bidders were required to tender at an hourly rate for various levels of staff and were
required to indicate the rates per hour for each relevant rank for each of the three years
of the proposed contract term.

[2] The applicant ("MPR") submitted a bid in respect of the VAT services discipline
only. MPR and the second respondent were among 2 1 bidders who were appointed to
the contemplated panel by the Municipality. That decision is not under review.

[3] MPR's review relates to what happened next: despite both it and the second
respondent concluding Service Level Agreements with the Municipality, the Municipality
then elected to issue an " Invitation for quotations for the value added tax (VAT) review
for (the municipality) for a period of 12 months" under the same reference number as
the original tender . That invitation was apparently transmitted by email to three
members of the panel, including the second respondent. Only the second respondent
replied to the Request and provided a quotation .

[4] Notwithstanding this, the Municipality sent a letter to the second respondent on 1
August 2024, informing the second respondent that it had "resolved to appoint (it) for
the aforementioned project for the period of 12 months at the percentage of 14,25%
starting from the 12 of August 2024 ”. The Municipality recorded that a written Service
Level Agreement would have to be concluded between itself and the second
respondent.

[5] It is the Municipality's decision to appoint the second respondent as its service
provider for VAT services that is under review, together with consequential relief sought
by the applicant. The second respondent did not take part in the review, which was
opposed by the Municipality only.

[6] It remains unclear how the Municipality identified the three panellists from which
to request quotations for the provision of VAT services as no documents in this regard
were delivered as part of the Record of Decision. Similarly, it is not clear why the
second respondent successfully quoted to provide the services " at the percentage of
14,25%" instead of at the hourly rates required by and contained in the original tender.
The potential difference between the rate of remuneration tendered by the second
respondent and the percentage -based rate that was later quoted was not disclosed in
the Record either.

The applicant's grounds of review
[7] The applicant has argued that the appointment of the second respondent based
on the quotation process adopted by the Municipality was expressly prohibited in its
own Supply Chain Management Policy and the Municipal Supply Chain Management
Regulations and further that the Municipality was obliged to come to utilise a
competitive tender process1. The failure to invite all of the members of the panel to
quote for the VAT services was procedurally unfair2. The quotation process was alleged
to be in breach of the constitutional imperatives contained in section 217 of the
Constitution3, and the decision randomly to select three members of the panel to submit
quotations was argued to be irrational4. Finally, the quotation process was alleged to be
in direct conflict with Regulation 19(a) of the Municipal Supply Chain Management
Regulations5.

The municipality's defence of its decision
[8] The Municipality's submitted that the contractual arrangement between itself and
the panel members for the award of work on an "as and when required" basis meant
that it had a discretion to award work to different bidders guided by its internal prescripts
and that it had followed its Standard Operating Procedures in exercising its discretion to
allocate work to the second respondent.

The statutory procurement scheme
[9] The law as it applies to public procurement and how the court should deal with

1 Section 6(2)(b) of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”)
2 Section 6(2)(c) of PAJA
3 Section 6(2)(i) of PAJA
4 Section 6(2)(f)(ii) of PAJA
5 Sections 6(2)(a)(i) and 6(2)(e)(i) of PAJA
alleged irregularities in that process is settled6.

[10] The alleged irregularity in the procurement process should be identified and if the
court evaluates that the alleged irregularity amounts to a cognizable ground of review,
the decision or award falls to be set aside.

[11] The Preferential Procurement Policy Framework Act7 was enacted to give effect
to the constitutional imperatives of fairness, equity, transparency, competition and cost
effectiveness contained in section 217 of the Constitution. The Municipality was obliged
to determine a preferential procurement policy in terms of which the contract was
awarded to the tenderer who score d the highest points in circumstances where
(depending on the value of the contract) either 80 or 90 points out of a possible 100
point s was awarded for price8.

[12] Price is effectively paramount, and cost effectiveness is conditional upon
competition. Competition, in turn, demands transparency and accountability - both for
the sake of the organ of state concerned and the bidders competing to procure work
from it.

[13] The integrity of the procurement process does not end with the awarding of a bid.

[14] Section 116 of the Municipal Finance Management Act9 deals with contracts and
contract management. Whilst it permits a contract procured through the SCM policy of a
municipality to be amended by the contracting parties, this may only occur after the
reasons for the proposed amendment have been tabled in the municipality's council and
the local community has not only been given reasonable notice of the intention to
amend the contract but has also been invited to submit representations to the
municipality.

6 Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer , South African
Social Security Agency and Others 2014 (1) SA 604 (CC) at paras [22], [27], [28] and [43]
7 Act 5 of 2000
8 Sections 2(1)(b) and 2(1)(f) of the PPPFA
9 Local Government: Municipal Finance Management Act 56 of 2003

[15] The Municipal Supp ly Chain Management Regulations10 set out minimum
requirements with which a municipality must comply when procuring goods and
services. Regulation 19 requires that a SCM policy must specify that goods or services
above a transaction value of (in this case) R200,000 inclusive of VAT may be procured
by the municipality only through a competitive bidding process and that no requirement
for goods or services above the estimated transaction value may deliberately be split
into parts or items of lesser value merely for the sake procuring the goods or services,
otherwise than through a competitive bidding process.

[16] It is beyond dispute that the contract value of the tender published by the
Municipality exceeded R200,000.

The Municipality's internal policies
[17] Given the nature of the Municipality ’s defence of its decision, it is necessary to
consider its internal Supply Chain Management policies.

[18] The Municipality adopted a Supply Chain Management policy in terms of section
111 of the Municipal Finance Management Act.

[19] In terms of clause 14, goods and services could only be procured by way of
formal written price quotations for procurement of a transaction value up to R200,000
including VAT and a competitive bidding process was required for procurement having a
transaction value above that threshold and for the procurement of long -term contracts.
The prohibition on splitting contemplated in Regulation 19 is repeated in clause 14(2).

[20] Clause 16 sets out the requirements in respect of a list of accredited p rospective
providers of goods and services and how prospective providers can apply for evaluation
and listing. In terms of clause 18, quotations must then be obtained in writing from at
least three different accredited providers and if it is not possible to obtain at least three

10 Municipal Supply Chain Management Regulations, published under GenN 868 in GG 27636 of 30 May
2005
quotations, reasons for this must be recorded and approved by the supply chain
management manager or the chief financial officer of the municipality if the transaction
value exceeds R 30,000. Clause 20 makes clear that goods and services above the
threshold may only be procured through a competitive bidding process and splitting into
parts "for the sake of procuring the goods or services, otherwise than through a
competitive bidding process" is not permitted.

[21] Clause 25 permits negotiations with preferred bidders arising out of the
conclusion of a competitive tender process, providing that such negotiation neither
permits the preferred bidder a second or unfair opportunity, nor is to the detriment of
any other bidder nor lead s to a higher price than the b id originally submitted.

[22] The Municipality has also adopted a Supply Chain Management Standard
Operating Procedure.

[23] Clause 5. 1 of the policy is entitled "Sourcing of Quotations and clause 5.1.2
reads as follows:
‘5.1.2 From an appointed Panel
The nomination process has to follow a rotation method as per agreement.
Applicable preferential point system 80/ 20 or 90/10 should be stipulated and specific
goals…where applicable.
(i) Verify if the panel is still valid;
(ii) The invitation for Quotations (RFQ) form will be drafted by an SCM Official,
which must have a cover page with all the conditions of the quotation;
specifications/TOR s and a pricing schedule;
(iii) Invite quotations from the minimum number of service providers as per terms
of the Panel;
(iv) Once quotation has been received, pricing must be checked against the unit
price/rate as stipulated in the Panel …’.

[24] The Municipality argues that it complied with these provisions in awarding the
12-month VAT review contract to the second respondent and that its decisions to select
three of the panellists and then to award the contract to the second respondent were
lawful.

Could the municipality apply the quotations procedure?
[25] Both the statutory scheme and the Municipality's own SCM Policy and Standard
Operating Procedure distinguish between the process to be followed for the
procurement of goods and services under R200,000 and those that exceed this amount.

[26] In the tender under review, the Municipality initiated a competitive bidding
process. This was because the value of the services to be rendered over the contract
term11 exceeded the threshold. Logically , the quotation process could therefore not be
used to procure the accounting and VAT services that the Municipality required. The
Municipality was obliged to comply with the law and its own policies in evaluating the
bids, scoring them and so on.

[27] The Municipality has failed to provide real answer s to the following question s:

a) why did it decide to award a contract for 12 -months instead of the 36 -month
period that it, itself, had sought in the tender?

b) if the VAT services were going to be discharged completely in the first year,
why were those services included in the scope of work contained in the
tender to be rendered over 36 months ?

[28] The Municipality sought to justify its conduct by saying that the VAT services
required for the 12-month period (and that justified a request for quotations ) were
different to that contemplated in the tender. However, this is not the case. The tender
sought bids for services which included " VAT review and recovery: Reconciliation,
review, and recovery of consolidated VAT". The Request for Quotations was expressed
to be for " The Value Added Tax review " for the Municipality. While the required services
may have been itemised in more detail in the Request for Quotation, they remained
VAT review services.

[29] If new and previously uncontemplated services or needs arose in respect of VAT
between March 202412 and July 202413, the Municipality was obliged to say so and
explain what occurred. That it did not demonstrates that there was no difference in the
services contemplated.

[30] There is no indication in the Record from the Municipality about why it was
deemed necessary to seek a quotation for the provision of services for 12 months, when
a few months before it had sought bids for the provision of services for 36 months,
whilst requiring stipulated hourly rates for each year. Likewise, the Municipality did not
quantify the value of the services ostensibly to be rendered during the 12-month service
period a nd gave no information about how the accepted rate of 14.25% of recoveries
quoted by the second respondent was to be calculated to determine whether it fell
under the threshold or not.

[31] On the evidence before me, contained in the Record disclosed by the
Municipality, there is nothing that militates against the conclusion that the contract was
"deliberately split into parts … for the sake of procuring the services, otherwise than
through a competitive bidding process".

[32] In any event, the Municipality did not obtain three quotations from accredited
suppliers – even if the second respondent was somehow accredited by being appointed
to the panel14, the Municipality obtained only one quotation. Compounding matters,
there was no evidence of the “minimum number of service providers as per terms of the
Panel ”15 and the price received from the second respondent (being a percentage -based
recovery fee) could not be “checked against the … rate as stipulated in the Panel ”.

11 According to the Municipality, a budget of R2 million had been allocated.
12 The closing date for the tender was 11 March 2024.
13 When the Municipality requested quotations from the three members of the panel, including the second
respondent
14 Which I do not accept, and in respect of which no evidence was tendered
15 There was no evidence of any stipulation or decision about how many members of the 21 -member
panel constituted a minimum number of service providers.

[33] The Municipality ignored the provisions of its own Policy and procedure.

[34] It follows that the Municipality was not permitted to make use of the quotation
process in respect of the provision of VAT services under the Tender and then to
appoint the second respondent16, and its decision to do so was unlawful.

Could the municipality allocate work to members of a panel at its own discretion?
[35] In principle, there is nothing objectionable about a municipality appointing a panel
of service providers in respect of goods to be supplied or services to be rendered. Doing
so may well increase efficiency and service delivery as a municipality will not be
required to go out to tender each time it requires a specific service to be rendered, or if
the successful bidder is unable to perform or the services exceed its capacity .

[36] There is also nothing objectionable about service providers being appointed on
an "as and when required" basis and if the bidders tender for work on that basis, they
can have no grounds to complain.

[37] However, a municipality cannot absolve itself of compliance with the statutory
public procurement scheme for reasons either of efficiency or because it determines
that its internal policies permitted to do so. If a practice is permitted where tenders are
awarded not on the basis of cost effectiveness, competition or transparency, but instead
on opaque, internal decisions, then a system designed for fairness and accountability
collapses . Organs of state will be able to pay lip service to section 217 of the
Constitution and the peremptory provisions of the procurement laws and nevertheless
award a tender to a bidder whose b id otherwise would have failed.

[38] Neither municipal policies nor standard operating procedures can expressly or by
implication condone non -compliance with the law. Cost effectiveness, transparency and
competition cannot be sacrificed on the altar of efficiency or convenience. These
imperatives can coexist, but this must occur lawfully. Otherwise, the door to corruption
is forced open .

[39] Therefore, and even if a panel of service providers is appointed by an organ of
state, that entity must nevertheless comply strictly with the provisions of the public
procurement laws when awarding b ids or allocating work. Even if bidders are appointed
to a panel, the respective bids must still be assessed in terms of the PPPFA and ranked
accordingly. Depending on the value of the contract, either 80 or 90 points must
continue to be allocated for price , and the remaining points must still be allocated in
accordance with statutory transformation and empowerment imperatives.

[40] It may occur that an organ of state reserves the right not to award a tender to the
cheapest bidder because of transformation and empowerment imperatives, but this
decision t oo must satisfy the lawfulness and rationality test if it is to survive a challenge.

[41] In the ordinary course however, an organ of state remains obliged to award a
tender to the bidder who achieves the highest score and, if that party cannot supply the
goods or render the services required in the time required, the organ of state then must
award the bid to the party with the next highest score, and so on. A rotation process
cannot be used mechanically and while ignoring these prescripts.

[42] Regulation 25 of the M unicipal Supply Chain Management Regulations does not
assist the Municipality either17. Regulation 25 permits supply chain management
policies to permit a two -stage bidding process in limited circumstances, which include
large complex projects, p rojects where it may be undesirable to prepare complete
detailed technical specifications or long-term projects with a duration period exceeding
three years . If such a process is permitted, technical proposals on conceptual design or
performance specifications are to be invited in the first stage, subject to technical as
well as commercial clarifications and adjustments and in the second stage final
technical proposals and priced bids are invited .


16 cf Sections 6(2)(b), (d) and (f)( i) of PAJA
17 Regulation 25 has been reproduced in the Municipality’s SCM policy as clause 26
[43] There is nothing in either the tender or the Record that would indicate that a
two-stage process was contemplated or required. To the contrary, priced bids were
sourced in a standard form tender (at the first phase) and the contract period did not
exceed three years . Requiring bidders to tender on price for the provision of identified
services and thereafter seeking quotations from certain identified bidders to the
exclusion of the rest , does not constitute the two -stage bidding process contemplated in
Regulation 25.

[44] I accept that a contrary conclusion was reached by Djaje AJP in Maximum Profit
Recovery (Pty) Ltd v Naledi Local Municipality18. I respectfully differ with the conclusions
reached in that case and decline to follow them. The Municipality did not call for
technical proposals in the first stage and pricing at the second stage of the process,
even if the sourcing of accounting services identified in the tender fell within the ambit of
Regulation 25 – which, to my mind, it did not. Pricing was required in the tender and
bids were required to be firm for 90 days because SLA’s were to be (and were)
concluded based on those prices.

[45] Further, and if the two -stage process was properly to be invoked, priced bids
would still have to be evaluated in terms of the scheme set out in the PPPFA and other
statutory instruments.

[46] Organs of state cannot craft a separate system of awarding contracts that runs
contrary to the law, and which is open to abuse. Quotations cannot be sourced if the
value of the service to be rendered exceeds the stipulated threshold, and the threshold
is to be determined by reference to the total transaction value that informs which
procedure (quotation or competitive bid) is invoked at the commencement of the
process.

[47] In these circumstances, it is appropriate that orders be granted which prohibit the
Municipality from using the quotation process to procure any goods and services falling
within the tender and directing it to comply with the statutorily required scoring of the
panel members and the concomitant allocation of work to the appropriate members of
the panel.

Conclusion
[48] The applicant has therefore successfully established that the decisions taken by
the Municipality were unlawful and constitutionally invalid and fall to be set aside.

[49] There is no reason why costs should not follow the result. I am not persuaded
that a punitive costs order is merited especially as there was a previous judgement that
endorsed the Municipality’s actions.

[50] I am satisfied also that the urgent application that was launched by the applicant
under case number D9873/2024 and which interdicted the Municipality and the second
respondent from implementing their agreement was necessary and that the applicant
should be entitled to its costs in that respect as well.

Orders
[51] I make the following orders:

(a) The decision of the first respondent to appoint the second respondent to
provide VAT review and recovery services in respect of Tender S[...] through
the sourcing of quotations for a period of 12 months at a rate of 14.25% is
declared to be constitutionally invalid and unlawful and is set aside;

(b) Any agreement concluded between the respondents pursuant to the decision
described in paragraph 1 of this Order is set aside;

(c) Insofar as the first respondent has made any payment to the second
respondent pursuant to the decision described in paragraph 1 of this Order,
the second respondent is ordered to repay all such amounts to the first
respondent;

18 (M214/2022) [2023] ZANWHC 167 (15 September 2023) at paras [18] to [23]

(d) The first respondent is interdicted from utilising a quotation process to
procure any goods and services that fall within the ambit of Tender S[...];

(e) The first respondent is ordered to perform a point scoring of each of the
members of the existing panel in respect of any goods and services that fall
within the ambit of Tender S[...], and to allocate work on the basis that
preference is given to the highest -soaring tenderer on the panel;

(f) The first respondent is ordered to pay the applicants costs, including the
costs consequent upon the employment of Senior Counsel, on Scale C in
respect of this application and the matter under case number D9873/2024.



SHAPIRO AJ


Appearances

Counsel for Applicant s: Advocate APJ Els SC

Instructed by: Albert Hibbert Attorneys
231 Lange Street
Nieuw Muckleneuk
Pretoria
Tel: 012 346 4633
Email: aha3@hibbertlaw.co.za

Counsel for First Respondents : Advocate S Kuboni

Instructed by: Nompumelelo Hadebe Inc
Suite 1202, 12th Floor
Metlife Building
391 Anton Lembede Street
Durban
Tel: 031 304 3655
Email: litigation@nhadebeattorneys.co.za

Date Judgment Reserved: 29 April 2025

Date Judgment Delivered: 23 May 2025