12 February 2020 by and Dispute Resolution Alert

Organs of state, be careful of the label attached to your RFB – it’s a game of substance over form

John Stuart Mills said that “landlords grow rich in their sleep” but this was not the case for the Airports Company South Africa SOC Limited (ACSA) when it published a Request for Bids (RFB) inviting members of the public to submit tenders for the hiring of car rental kiosks and parking bays at nine airports operated by the ACSA.

Section 217 of the Constitution of the Republic of South Africa directs national, provincial or local spheres of government, or any other institution identified in national legislation to contract for goods or services in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

The ACSA’s RFB intentionally deviated from the principles laid down in section 217 of the Constitution, procurement legislation, and policies on the contention that it was not contracting for goods and services in accordance with section 217 of the Constitution.

Imperial Group Limited objected to the deviation. The applicability of section 217 of the Constitution was thus considered by the Supreme Court of Appeal (SCA) in Airports Company South Africa SOC Ltd v Imperial Group Ltd & Others (1306/18) [2020] ZASCA 02.

The applicability of section 217 of the Constitution hinged on the interpretation of “procurement”. The SCA held that the acquisition of goods and services is not limited to state expenditure. The definition of procurement “applies equally to obtaining goods and services for one’s own use or for the use of others”.

The SCA pointed out that the ACSA’s answering affidavit was very telling as to the commercial nature of the RFB and in particular the following averments contained therein: “There is no dispute that ACSA had a commercial need to ensure that it leases its premises to successful bidders in order to ensure revenue generation”. 

The SCA held that it was paramount when determining the applicability of section 217 of the Constitution to scrutinise the transaction in question to reveal the true nature of the entire transaction and not the “label attached thereto by the parties”.

In applying the substance over form principle, the SCA analysed the purpose of the RFB and held that “the essence of the transaction is that ACSA contracts with car-rental companies to complete and enhance the services available to customers at its airports in accordance with its own mandate contemplated in the ACSA Act”. Section 217 of the Constitution therefore applied.

Organs of state must be careful when drafting the parameters of their Request for Bids. The starting point is whether the true nature of the transaction is contracting for goods or services as provided for in section 217 of the Constitution. If the true nature of the transaction does fall within the purview of section 217 of the Constitution, then strict adherence to procurement legislation and policies must be followed. Otherwise, deviations will expose the procurement process to judicial review.

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