1 February 2016 by Cliffe Dekker Hofmeyr Dispute Resolution Matters

The Constitutional Court restricts an organ of state’s power not to award a tender

This note concerns the Constitutional Court’s decision in Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and Another 2015 (5) SA 245 (CC).

The Industrial Development Corporation (IDC) issued a tender to procure building services. The ultimate decision regarding the award of the tender was taken on review. The three courts that adjudicated the dispute had to decide whether the IDC had the power to decline to award the tender to any of the bidders.

Relying on the following clause in its standard conditions of tender, the IDC argued that it had a discretion not to award the tender at all (irrespective of the bids received):

“[The IDC] may cancel the tender process and reject all tender offers at any time before the formation of the contract.”

The High Court rejected the IDC’s argument, finding that there was no evidence supporting a need to withdraw the tender. The Supreme Court of Appeal disagreed, finding that the IDC “was not obliged to award the tender to the lowest bidder or at all”

While the Constitutional Court acknowledged that the IDC had a discretion not to award the tender, it found that “[the] IDC could only cancel the tender if one of the grounds stipulated in regulation 8(4) [of the Preferential Procurement Regulations] existed.” In terms of regulation 8(4), an “organ of state may, prior to the award of a tender, cancel a tender” if:

  • there is no longer a need for the services requested;

  • funds are no longer available; or

  • no acceptable tenders are received.

The Constitutional Court concluded that the IDC could not, through a stipulation in the tender documents, confer on itself a power not to award a tender that is broader than the power contained in regulation 8(4). This interpretation of regulation 8(4) is, however, rather curious. The Preferential Procurement Regulations do not expressly state that the regulation-8(4) circumstances are the only circumstances in which a tender may be withdrawn. The Preferential Procurement Policy Framework Act, by way of contrast, uses much clearer language when indicating that discretionary powers may only be exercised in particular circumstances.

Furthermore, the Preferential Procurement Regulations themselves set out circumstances other than those contemplated in regulation 8(4) when a tender may be withdrawn. For example, if the tender document in question stipulated that bids would be evaluated based on the 80/20 preference point system, but all bids received exceed R1,000,000, regulation 8(1)(a) of the Preferential Procurement Regulations stipulates that the tender must be withdrawn.

In addition, the courts have recognised circumstances other than those contained in regulation 8(4) in which it would be eminently sensible to withdraw a tender and commence the procurement process afresh. Thus, for example, the courts have accepted that an organ of state may withdraw a tender when there has been a material change in circumstances following the publication of the tender (Logbro Properties CC v Bedderson NO and Others 2003 (2) SA 460 (SCA) at paras 19 – 22) and where the integrity of the tender process has been compromised by political interference (Thabo Mogudi Security Services CC v Randfontein Local Municipality and Another [2010] 4 All SA 314 (GSJ) at paras 31 – 34).

These considerations notwithstanding, the Constitutional Court has greatly restricted the ambit of an organ of state’s discretion not to award a tender, which discretion may seemingly no longer be employed to correct irregularities or address defects in the procurement process.

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