20 September 2017 Dispute Resolution Alert

Recent judicial developments in Preferential Procurement Law

Prior to the inception of the 2017 Preferential Procurement Regulations (Revised Regulations), our courts were recently confronted with the question of the extent of an organ of state’s powers to cancel a tender where there is a material irregularity. Specifically, on 29 March 2017, the Supreme Court of Appeal (SCA) addressed this issue in Head of Department, Mpumalanga Department of Education v Valozone 268 CC [2017] ZASCA 30 in light of the 2011 Preferential Procurement Regulations (2011 Regulations). 

In Valozone, the Head of the Department of Education, Mpumalanga (Department) had invited service providers to submit bids for a tender aimed at procuring services to “implement and manage the National School Programme”. The tender closed on 11 September 2013 and was subsequently awarded. The unsuccessful bidders took the decision to award the tender on review to the High Court, on account of irregularities which existed in the tender process and award.

The High Court set aside the award of the tender and ordered that the bid be reconsidered and re-adjudicated, following which the Department appointed a Bid Evaluation Committee (BEC) and Bid Adjudication Committee (BAC) to assist for this purpose. The BEC found irregularities in the tender process and resolved not to continue as it could lead to further unnecessary litigation. The BEC recommended that the BAC consider re-advertising the tender. The BAC agreed with the recommendation on 23 June 2016, and the Department accepted the recommendations and resolved to cancel and re-advertise the tender. 

Unsatisfied with the Department’s decision, the dissatisfied bidders instituted proceedings to have the 2016 decision reviewed and set aside. The High Court found in favour of the bidders. 

On appeal, the SCA found that the High Court correctly placed an obligation on the Department to reconsider the bids submitted. However, the decision to cancel and re-advertise the tender was irrational and unjustified in terms of regulation 8(4) of the 2011 Regulations as none of the listed grounds for cancellation was factually present, thus the Department was not empowered to cancel (and re-advertise) the tender.

In coming to this finding, the SCA relied on the Constitutional Court’s decision in Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Ltd and Another 2015 (5) SA 245 (CC) which set the precedent that an organ of state cannot confer upon itself more powers than those to which it is entitled in terms of regulation 8(4). The Constitutional Court effectively restricted the extent to which an organ of state could employ its discretion not to award a tender to the grounds listed in regulation 8(4). 

The third alert in this series previously discussed the new, additional ground on which a tender may be cancelled in the Revised Regulations which specifically provides for a tender to be cancelled if there is a material irregularity in the tender process. Thus, where the tender process is rendered unfair by a material irregularity, the tender may be cancelled and the process started afresh. This is vastly different to the position under the 2011 Regulations, in terms of which Valozone was decided.

Therefore, under the Revised Regulations, it is now permissible to cancel a tender and commence the tender process anew in the event of material irregularities in the tender process, contrary to the position in Valozone. However, due to the conflicting judicial interpretation of what constitutes ‘material’, the additional ground could result in a further litigation and this avenue for cancellation should be approached with caution.

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