A need for haste? The state’s self-review of the legality of its contracts

In the recent case of Govan Mbeki Municipality v New Integrated Credit Solutions (Pty) Ltd (121/2020) [2021] ZASCA 34 (7 April 2021), the SCA bemoaned the “ever-growing, and frankly disturbing long line of cases” wherein municipalities and organs of state seek to have the decisions underlying contracts with service providers set aside for want of legality when, more often than not, the contracts have run their course and services have been rendered.

20 Apr 2021 3 min read Dispute Resolution Alert Article

At a glance

  • The Constitutional Court's decision in State Information Technology Agency SOC Limited v Gijima Holdings has led to an increase in cases where municipalities and state entities seek to set aside contracts for want of legality after the services have been rendered.
  • The legality pathway for review, as opposed to the Promotion of Administrative Justice Act (PAJA), allows for broader reviews with no predetermined time limits, although an "unreasonable delay" may lead to dismissal.
  • The recent Govan Mbeki case highlights the discomfort of the courts in invalidating contracts due to undue and inexcusable delays by state entities, placing the burden on service providers and creating business risks for legitimate contracting with state institutions. Legislative intervention and a reconsideration of the Gijima decision may be necessary.

The growth in such cases one can say is attributable to the Constitutional Court’s decision in State Information Technology Agency SOC Limited v Gijima Holdings (Pty) Limited 2018 (2) SA 23 (CC) which held inter alia that the Promotion of Administrative Justice Act 3 of 2000 (PAJA) does not apply in self-review cases, and that such reviews should be performed under the broader principle of legality instead.

The legality pathway to review is not only broader than PAJA, but less constrained by time limits. Whereas a PAJA review needs to be brought within 180 days, legality reviews have no predetermined time-bar, but may be dismissed where brought after an “unreasonable delay”. Here too the impact of Gijima may be felt. Even if a delay is considered “sufficiently more inexcusable than the possible illegality is egregious” (i.e. an undue delay) Gijima enjoins courts to overlook such an unreasonable delay and declare a state’s conduct “constitutionally invalid”. This obligation is derived from section 172(1)(a) of the Constitution that requires courts to declare invalid any law or conduct it finds to be inconsistent with the Constitution.

In the Govan Mbeki case, the SCA was called upon by a municipality to review its own decision some 17 months after it should have reasonably been aware of the irrationality on which it relied as a ground of review (and in the instance where the municipality owed the NICS some R40 million in terms of the contract it sought to set aside).

The SCA held that such a delay was undue and inexcusable but nevertheless that it was enjoined by section 172(1)(a) of the Constitution and Gijima to invalidate the offending irrational component of the contract, which it found to be inconsistent with the Constitutional principles governing public procurement.

The SCA was self-evidently uncomfortable doing so. It decried the current legal regime as one within which the state entities turn to self-review as a corrective measure long after it’s possible to take disciplinary action against the offending individuals. After failing their constitutional duties, state entities litigate at large, at the public expense and free of sanctions against the functionaries involved.

The Govan Mbeki case and the cases before it have the effect of placing the brunt of the burden for irrationally entered contracts on the service providers themselves, rather than the state entity. Whilst this may be desirable if the service provider obtained a tender through illegitimate means, the uncertainty as to whether an institution might self-review before payment becomes due creates a business risk for those seeking to contract legitimately with state institutions.

One way this risk can be managed is for firms seeking to contract with the state pursuant to a tender process, to be wary of incorporating additional, perhaps ancillary, work into the final contract, especially where such did not form part of the scope of work initially put out to tender.

The SCA signalled to the legislature that intervention may be necessary to address the issue of delayed self-reviews, and to the Constitutional Court that Gijima may need to be revisited. Until then however, private firms contracting with the state will need to take extra care to ensure that the process in terms of which their contract was concluded could withstand judicial scrutiny.

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