Allpay v CEO of SASSA: Dealing with alleged irregularities in awarding tenders

On 29 November 2013, the Constitutional Court (CC) delivered a landmark judgment in AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency and Others 2014 (1) SA 604 (CC) (AllPay 1). In this case, the CC declared that the award of the tender to Cash Paymaster (successful bidder) to provide services for the payment of social grants over a period of five years for all nine provinces was constitutionally invalid. The CC suspended the declaration of invalidity pending the determination of a just and equitable remedy. Consequently the CC handed down a further judgement on 17 April 2014 (AllPay 2), which set out the remedy, based on the findings in AllPay 1.

The AllPay decision (being AllPay 1 and AllPay 2) is significant as it involves a review by the CC of one of the largest government tendered contracts awarded in South Africa and consequently has significant implications for future government tenders.

This article is the first in a three-part series which considers the implications of the AllPay judgments on public and private bodies participating in public procurement contracts. In this article we consider the CC's reasoning in arriving at its conclusion that the award of the tendered contract was constitutionally invalid. In article 2 - Allpay v CEO of SASSA: Greater scrutiny of economic empowerment in government tenders? - we consider the CC's findings in respect of black economic empowerment and whether the CC has confirmed that a more pro-active approach is required by public bodies in scrutinising bidders' empowerment credentials. In article 3 - Allpay v CEO of SASSA: the use of structural interdicts to remedy unlawful tender awards - we examine the CC's remedy of setting aside the tender award and how the court dealt with the potentially disastrous consequences for both the innocent bidder and grant recipients by crafting a far-reaching structural interdict.

The dispute in AllPay 1 turned on whether the award of a tender by the South African Social Security Agency (SASSA) to the successful bidder for the countrywide payment of social grants to beneficiaries was constitutionally valid. AllPay Consolidated Investments (unsuccessful bidder) relied on a number of alleged irregularities in the tender process to challenge the award of the tender to the successful bidder.

The alleged irregularities centred on the following:

a) the requirement for separate bids for the nine provinces;

b) the composition of the bid evaluation committee;

c) the attendance of members when the bid adjudication committee made its final decision;

d) the assessment of functionality of the black economic empowerment component of the successful bidder; and

e) the nature and effect of bidder's notice 2.

Approach and findings of the Supreme Court of Appeal (SCA)1

Central to the SCA's approach to procedural irregularities in the procurement process was the court's view that the public interest does not require minor and inconsequential flaws to invalidate a procurement process. For the SCA, a fair process does not mean a perfect process, absent of minor flaws. Thus, the SCA held that "it would be gravely prejudicial to the public interest if the law was to invalidate public contracts for inconsequential irregularities".2 For the SCA, the facts pointed to the inescapable conclusion that SASSA considered the technical solution offered by the successful bidder to be materially superior to what was offered by the unsuccessful bidder.3 On the SCA's approach, even if the procurement process was flawed, the procedural irregularity is not a ground for setting the contract aside if the irregularity is minor and does not have a bearing on the ultimate award of the tender. The SCA accordingly found that there were no unlawful irregularities.

In its appeal to the CC, the unsuccessful bidder submitted that the approach adopted by the SCA was flawed. According to the unsuccessful bidder, the SCA erred in considering whether the alleged irregularity had an impact on the final decision to award a tender in order to determine whether the irregularity was fatal to the procurement process.

The approach adopted by the CC

The CC differed with the SCA on the proper legal approach to the existence and legal effect of proven irregularities in the procurement process.

As a starting point, the CC held that the suggestion that 'inconsequential irregularities' are of no significance conflates the test for irregularities and their import. According to the CC, an assessment of the fairness and lawfulness of the procurement process must be independent of the outcome of the tender process. The fairness and lawfulness of the procurement process must be assessed in terms of the provisions of the Promotion of Administrative Justice Act, No. 3 of 2000 (PAJA). It is therefore only at the remedy stage in terms of s8 of PAJA that appropriate consideration be given to the public interest and the consequences of setting the procurement process aside.

The CC expressly rejected the notion that the public interest, in the context of procurement cases, requires greater caution in establishing grounds for judicial review in a particular instance. According to the CC, if proven irregularities exist, the inevitability of a certain outcome is not a factor that should be considered in assessing the validity of administrative action. The decision of the CC differs from that of the SCA in a fundamental way – for the CC procedural requirements must be considered on their merits and not by first assessing whether the irregularity had a bearing on the final outcome as a means to classifying the irregularity as consequential or inconsequential. According to the

CC, determining the significance of the irregularity by considering its impact on the final outcome is flawed because if the process leading to the election of the successful bidder was compromised, it cannot be known with certainty what course the process might have taken had the procedural requirements been properly observed.

The CC makes it clear that once a ground for review has been established, s172(1)(a) of the Constitution requires the decision to be declared unlawful. The consequences of the declaration of invalidity must then be dealt with in a just and equitable order in terms of s172(1)(b) of the Constitution, read with s8 of PAJA.

According to the CC, compliance with the requirements for a valid tender process as set out in the applicable constitutional and legislative procurement framework is legally required. Once a particular administrative process is prescribed by law, it is subject to the norms of procedural fairness codified in PAJA. In circumstances where administrators depart from legally binding procedures, the basis for doing so must be reasonable, justifiable and the process of change must be procedurally fair. The CC makes it clear that PAJA is the basis on which administrative action is scrutinised to establish whether alleged irregularities give rise to a ground for review under PAJA.

Lessons from AllPay 1

AllPay 1 clarifies that the proper approach to evaluate the validity of a tender process is first to establish, on the facts, whether an irregularity occurred. The next step is to consider the merits of the irregularity to determine whether it is material, and therefore amounts to a ground for review under PAJA. It is not correct to first consider whether the irregularity is of any consequence by considering whether it had any bearing on the final decision taken by an administrator. If a court finds that there are valid grounds for review, and declares an award invalid, it is obliged to enter into the further enquiry of what is a just and equitable remedy in the circumstances. It is only at the remedy stage where appropriate consideration must be given to the public interest in the consequences of setting the procurement process aside.