6 September 2017 Dispute Resolution Alert

Key changes to Preferential Procurement Law: Part 2

The 2017 Preferential Procurement Regulations (Revised Regulations) also alter the pre-qualification criteria, functionality and the grounds for cancellation of a tender.

Pre-qualification criteria

The Revised Regulations have introduced the option for organs of state to apply certain pre-qualification criteria that are based on B-BBEE levels as a means to support designated groups even further. 

The pre-qualification criteria will stipulate minimum requirements that potential tenderers must meet, including that a tenderer must have a minimum B-BBEE level; be an exempted micro enterprise or qualifying small business enterprise; or be a tenderer subcontracting a minimum of 30% to designated groups. A tender that fails to meet the pre-qualification criteria stipulated in the tender documents is an unacceptable tender.


The Revised Regulations elaborate on how functionality, being the ability of a tenderer to provide goods or services in accordance with the specifications set out in the tender documents, should be assessed. They provide that organs of state may not set a generic minimum score for functionality which is used to assess every tender, as was previously the case.

Instead, the minimum score for functionality must be determined separately for each tender. Moreover, the minimum score for functionality may not be so low that it may jeopardise the quality of the goods or services, or so high as to be unreasonably restrictive. 

Additional ground for cancellation of a tender

The 2011 Preferential Procurement Regulations provided that a tender could be cancelled before it was awarded where – due to changed circumstances – there was no longer a need for the goods or services, funds were no longer available to cover the total envisaged expenditure or no acceptable tender was received. The Constitutional Court has settled that accounting authorities are constrained to these grounds for cancellation. 

In addition to the previous grounds of cancellation, the Revised Regulations now also provide that a tender may be cancelled if there is a material irregularity in the tender process. The Implementation Guide published by National Treasury clarifies that where the whole process is rendered unfair by the material irregularity, then the tender may be cancelled and the process started afresh. Given the conflicting judicial interpretation of what constitutes ‘material’, the additional ground could result in a further proliferation of litigation. 

The next alert in this series will deal with the final three significant changes under the Revised Regulations.


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