Brief Summary

Preferential Procurement — Tender Review — Capacity of Tenderer — Urban Icon (Pty) Ltd challenged the South African National Roads Agency SOC Ltd's (SANRAL) decision to award four tenders to second-highest bidders despite Urban Icon being the highest scorer on price and functionality. SANRAL justified its decision based on concerns regarding Urban Icon's capacity to execute the projects without unacceptable commercial risk, as highlighted in a report by its Contracts Committee. The High Court dismissed Urban Icon's review application, leading to an appeal. The Supreme Court of Appeal held that SANRAL was competent to consider the capacity of Urban Icon and could lawfully award tenders to other bidders based on objective criteria, thus dismissing the appeal.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an appeal to the Supreme Court of Appeal arising from a public procurement review. The appeal concerned the lawfulness of decisions taken by an organ of state, the South African National Roads Agency SOC Ltd (SANRAL), in the adjudication and award of multiple tenders for civil engineering services.

The appellant was Urban Icon (Pty) Ltd, a tenderer that submitted bids for seven tenders and was the highest-scoring bidder on four tenders that it ultimately did not receive. The first respondent was SANRAL. The third respondent, Ilifa Africa Engineers, opposed the appeal; the second, fourth, fifth and sixth respondents did not participate in the appeal.

In the Gauteng Division of the High Court, Pretoria, Urban Icon brought an application to review and set aside SANRAL’s decision to award four of the seven tenders to other bidders (principally the second-highest scoring tenderers), and additionally sought to set aside a condition limiting further awards to Urban Icon for a period (the “stay condition”). The high court dismissed the review application with costs (including two counsel), but granted leave to appeal.

The general subject-matter of the dispute was whether SANRAL was entitled, within the procurement framework under s 217 of the Constitution and the Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) (and the tender conditions), to deviate from awarding contracts to the highest-scoring tenderer on the basis of an objective assessment of capacity and commercial risk, particularly where a single tenderer had bid successfully across multiple tenders simultaneously.

2. Material Facts

SANRAL issued seven requests for bids between March and July 2017 for civil engineering services relating to road infrastructure improvement projects. Urban Icon submitted bids for all seven tenders.

During evaluation, Urban Icon’s bids met the technical functionality requirements (the minimum quality threshold being 85 out of 100). Urban Icon’s bid prices were the lowest and, on the price-and-preference scoring, Urban Icon was the highest-scoring tenderer. Despite this, SANRAL ultimately awarded three tenders to Urban Icon and awarded the remaining four tenders to other bidders. In each of those four instances, the successful bidder was the second-highest scoring tenderer for that tender.

SANRAL’s internal process initially contemplated awarding two tenders to Urban Icon. However, SANRAL’s Contracts Committee expressed concern about Urban Icon’s capacity, given its recent incorporation and modest track record relative to the scale of the projects. SANRAL attached a condition that Urban Icon would be called in to confirm capacity to deliver.

A meeting took place on 7 September 2018 at which Urban Icon’s capacity was discussed with SANRAL officials. SANRAL’s Management Bid Adjudication Committee then mandated a member, Mr Essa, to conduct an investigation into Urban Icon’s capacity and make recommendations.

Mr Essa requested information from Urban Icon and compiled a memorandum. He found, on the materials he considered, that Urban Icon was relatively new, had a limited track record, had a modest staff complement, and would need to rely on external specialists who were also committed elsewhere, including on other work for SANRAL. In particular, one external specialist (Mr Piet Luus) was found to be overcommitted. Mr Essa concluded that awarding too much work to such an entity posed a high commercial risk and recommended that awarding all seven tenders to Urban Icon could “set up the entity for failure” and was an unacceptable commercial risk.

Mr Essa recommended that Urban Icon be awarded three tenders that were characterised as less risky (roads carrying lower traffic volumes and projects suited to new entrants). He also recommended that the remaining four tenders be awarded to the respective second-highest ranked bidders.

SANRAL’s Contracts Committee adopted these recommendations. It awarded three tenders to Urban Icon and four to the second-highest scoring bidders. It also resolved that Urban Icon would receive no further awards for an estimated period of 12 months, intended to monitor its performance on the three projects (the “stay condition”). Mr Essa additionally noted a risk of possible fronting, and the Contracts Committee recommended procuring an independent investigation into “possible fronting”.

The material disputes were not framed as disputes of primary fact in the appeal. The court’s decision turned on whether SANRAL was entitled to consider capacity and commercial risk across multiple simultaneous tenders, and whether SANRAL’s implementation of that assessment was lawful, rational, and fair within the procurement framework.

3. Legal Issues

The appeal raised two central legal questions.

The first was a question of law and interpretation, namely whether SANRAL was competent under the procurement framework (including s 217 of the Constitution, s 2(1)(f) of the PPPFA, the Preferential Procurement Regulations, 2017, and the tender conditions) to consider Urban Icon’s capacity and resulting commercial risk, not only tender-by-tender but collectively across all seven tenders for which Urban Icon was the highest-scoring tenderer. This included whether SANRAL could, on that basis, displace Urban Icon as the highest-scoring tenderer in four tenders and instead award those to the second-highest scoring tenderers.

The second was a question of application of law to fact (review legality), namely whether SANRAL’s exercise of that competence was affected by reviewable irregularity, including allegations of irrationality, unreasonableness, unfairness, and discriminatory/inconsistent treatment in how SANRAL investigated and evaluated Urban Icon’s capacity and risk.

A further issue concerned the stay condition: whether it constituted reviewable administrative action and whether it remained a live issue, or whether it had become moot.

4. Court’s Reasoning

The court located the dispute within the constitutional and statutory procurement framework. It emphasised s 217 of the Constitution, which requires a procurement system that is fair, equitable, transparent, competitive, and cost-effective, and noted that the PPPFA and its regulations give effect to these requirements. The court referred to s 2(1)(f) of the PPPFA, which provides that the contract must be awarded to the tenderer who scores the highest points unless objective criteria justify the award to another tenderer. Regulation 11(1) reinforced that deviation from the highest-scoring tenderer may occur only in accordance with s 2(1)(f).

The court also examined the standard conditions of tender. Clause 5.11.4(d) under method 3 required recommendation of the highest-scoring tenderer unless there were compelling and justifiable reasons not to do so (a standard described as more stringent than the “objective criteria” language of s 2(1)(f)). Clause 5.13 permitted acceptance of a tender only if it presented no unacceptable commercial risk and if the tenderer could demonstrate the necessary qualifications, competence, resources, managerial capability, reliability, experience, reputation, expertise, and personnel to perform the contract.

On the competence issue, the court reasoned that although the statutory and tender provisions were phrased in the singular, they necessarily had to apply in context where an authority issues and adjudicates multiple tenders simultaneously. A restrictive interpretation that prohibited considering whether a tenderer could perform all the work it was poised to win would be unworkable and inconsistent with the purpose of assessing performance ability and avoiding unacceptable commercial risk. The court treated capacity as inherently dependent on how many contracts are awarded to a tenderer and what other commitments it has.

The court rejected Urban Icon’s argument that once it had passed the functionality/quality threshold, a capacity-based risk assessment was precluded. The court held that qualifying on technical functionality did not foreclose later consideration of objective criteria justifying deviation from the highest point score. It further rejected the submission that objective criteria in s 2(1)(f) could not include capacity. It endorsed the high court’s reliance on Simunye Developers CC v Lovedale Public FET College 2010 JDR 1568 (ECG) for the proposition that factors such as track record, experience, resources (personnel and finance), and existing/proposed commitments may constitute objective criteria. In the court’s reasoning, awarding a tender to a first-placed bidder who cannot perform the work would threaten the efficient and effective use of public resources, and the PPPFA was not indifferent to that harm.

The court then addressed Urban Icon’s contention that even if deviation was permitted, SANRAL could not simply award to the second-highest scoring tenderers, because s 2(1)(f) speaks of “another tenderer”. The court held that the phrase includes a second-highest tenderer, and nothing in s 2(1)(f) excludes SANRAL from selecting the second-highest scoring bidder, provided the deviation is justified by objective criteria. It similarly found that the tender-condition provisions relied upon by Urban Icon did not compel rescoring in the circumstances, noting that method 3 governed, and clause 5.11.4(d) did not itself mandate rescoring.

Turning to the irregularity issue, the court held that SANRAL’s investigation of capacity and risk was rational and warranted in circumstances where a new entrant, with a modest track record, was poised to win seven tenders simultaneously. The court treated the “collective risk” as an objectively apparent concern, making investigation reasonable.

The court rejected complaints about unfairness in the process. It found no basis for the claim that Urban Icon was not informed of the assessment’s purpose: Mr Essa explicitly stated in correspondence that the information was being sought because Urban Icon might be in the running for more than one tender, and the purpose was to assess experience, capacity, capability, and sustainability “as a whole”. The court also rejected the suggestion that Mr Essa sought documents in an undefined discretionary manner, characterising his approach as a thorough and rational attempt to make an informed recommendation and to allow Urban Icon to demonstrate capacity.

The court rejected as unsubstantiated the assertion that the risk assessment was a “ruse” to avoid awarding tenders to Urban Icon. It accepted that Mr Essa’s findings were based on objective considerations, including Urban Icon’s limited prior appointments, reliance on external specialists, and the risk posed by external specialists’ unavailability due to other commitments. The court reasoned that although the tender permitted use of external specialists, Urban Icon remained exposed to the commercial risk of its reliance on them.

The court considered Mr Essa’s recommendation (and SANRAL’s adoption) as balanced because Urban Icon was not excluded: it was awarded three less risky tenders to “prove their mettle” while SANRAL avoided undue risk on the full set of seven tenders. The court held that this satisfied the objective-criteria requirement of s 2(1)(f) and also met the tender’s more stringent “compelling and justifiable reasons” standard in clause 5.11.4(d), read with clause 5.13.

On alleged inconsistent treatment, the court found the complaint unproven. Urban Icon had not established that other bidders (including Cinfratec and Wamil, mentioned in Mr Essa’s memorandum) were similarly situated or that they competed on the same tenders in issue, nor had it shown that second-placed bidders who received awards were similarly situated to Urban Icon as a relatively new entity with modest internal capacity. The court reasoned that additional scrutiny was warranted precisely because Urban Icon raised distinctive risk concerns.

On the argument that SANRAL was required to rescore and re-rank tenders after deciding not to award to Urban Icon, the court held that a rescoring would have been redundant: Urban Icon’s displacement on capacity/risk grounds meant it could no longer be in contention for those awards, and SANRAL already knew the second-ranked bidder from the competitive process. The court held there was no constitutional requirement to undertake a redundant exercise, and clause 5.11.5(d) (invoked by Urban Icon) was inapplicable because method 4 did not apply; even if it did, the clause appeared to permit not rescoring where compelling and justifiable reasons existed, and redundancy could constitute such a reason.

The court treated correspondence between SANRAL and National Treasury questioning the awards as irrelevant to the legality analysis in the review, stating that legality is determined by the courts, and compliance issues between SANRAL and Treasury did not vitiate the awards.

Regarding the stay condition, the court held it was unnecessary to decide whether it constituted administrative action. It agreed with the high court that the challenge had become moot because the presumed 12-month period had expired by the time the matter was decided, and no party suggested it persisted or that there was a live issue of principle requiring determination.

Finally, the court noted applications to adduce new evidence on appeal, but declined to determine them because they related to remedy and the appeal failed on the merits.

5. Outcome and Relief

The Supreme Court of Appeal dismissed the appeal.

The court upheld SANRAL’s awards of four tenders to the second-highest scoring bidders and rejected the challenge to the capacity-based risk assessment and related process. The court also confirmed that the challenge to the stay condition was moot and did not require determination.

The appellant was ordered to pay the costs of the appeal, including the costs of two counsel where employed.

Cases Cited

Afribusiness NPC v The Minister of Finance [2020] ZASCA 140.

Minister of Finance v Afribusiness NPC [2022] ZACC 4; 2022 (4) SA 362 (CC); 2022 (9) BCLR 1108 (CC).

Simunye Developers CC v Lovedale Public FET College 2010 JDR 1568 (ECG).

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 217.

Preferential Procurement Policy Framework Act 5 of 2000, section 2(1)(f).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that SANRAL was legally competent, under section 217 of the Constitution, section 2(1)(f) of the Preferential Procurement Policy Framework Act 5 of 2000, the applicable procurement regulations, and the tender conditions, to consider objective criteria relating to a tenderer’s capacity and the resulting commercial risk, including in a collective sense where the tenderer sought to be awarded multiple tenders simultaneously.

The court further held that SANRAL’s decision to award only three tenders to Urban Icon and to award the remaining four tenders to the second-highest scoring tenderers was not affected by reviewable irregularity. SANRAL’s investigation and reliance on capacity-related risk factors were rational, reasonable, and fair on the record, and the alleged inconsistent treatment of bidders was not established.

The court held that the challenge to SANRAL’s “stay condition” had become moot and did not warrant determination.

LEGAL PRINCIPLES

The procurement framework requires that, while the highest points scorer is ordinarily entitled to the award, section 2(1)(f) of the PPPFA permits deviation where objective criteria justify awarding the contract to another tenderer. Under the tender conditions in issue, deviation from the highest-scoring tenderer also required compelling and justifiable reasons, and acceptance of a tender was tied to the absence of unacceptable commercial risk and the tenderer’s demonstrated capability and resources to perform.

A tenderer’s capacity to perform and associated commercial risk may constitute objective criteria for purposes of section 2(1)(f), including factors such as track record, experience, staffing/resources, reliance on external specialists, and the extent of concurrent commitments. These criteria may be assessed not only per individual tender but also collectively where multiple tenders are adjudicated and a tenderer stands to receive multiple awards.

Where the procuring authority lawfully determines that a highest-scoring bidder should be displaced on objective capacity/risk grounds, awarding to the second-highest scoring bidder is not per se incompetent under section 2(1)(f), provided the deviation is justified on the applicable standard. A rescoring exercise is not required where it would be redundant and incapable of producing a different ranking or enhancing competition or transparency in the circumstances described in the judgment.

A claim of unfair or inconsistent treatment in procurement requires, at minimum, proof that other bidders were similarly situated and were treated differently on materially comparable facts; absent such proof, the allegation cannot succeed.

A challenge to a procurement-related condition may be declined where the issue has become moot, and no live controversy or issue of principle requires determination.

Urban Icon (Pty) Ltd v South African National Roads Agency SOC Ltd and Others (679/2024) [2025] ZASCA 141 (1 October 2025)