While public entities may negotiate and conclude contracts lawfully pursuant to competitive tender processes, the Gauteng Division of the High Court has now reaffirmed that public entities cannot, by contractual design, fetter their future procurement powers by restraining themselves from approaching the open market once a contract term has expired. In Sekela Xabiso CA Incorporated v Transnet SOC Limited and Others [2026] JOL 74084 (GJ), the court held that a contractual clause which bound Transnet SOC Limited (Transnet) to procure auditing services only from a single provider beyond the contract period, unless those services were insourced, was unconstitutional and invalid. The clause was severed, and Transnet’s decision to incorporate it was reviewed and set aside.

The dispute

Transnet issued a request for proposals for auditing services, envisaging a five‑year appointment. Sekela Xabiso CA Incorporated (Sekela) was appointed as a preferred bidder.

During negotiations, Transnet disclosed its intention to insource the audit function and was unwilling to commit to a five‑year outsourcing arrangement. The parties ultimately concluded a contract for an initial 30 months. However, the contract included a restrictive clause, clause 6, which prevented Transnet, for a total period of 60 months, from procuring audit services from any provider other than Sekela unless Transnet decided to insource such services.

Despite the restriction in clause 6, Transnet issued a new tender for an appointment of an audit firm, which was awarded to Deloitte & Touche for five years. Sekela’s contract was extended briefly to facilitate the handover. Sekela thereafter declared a dispute under the arbitration clause for a damages claim based on the alleged breach of the exclusivity restriction. In response, Transnet challenged the constitutional validity of clause 6, an issue that was beyond the arbitrator’s jurisdiction. This resulted in Sekela approaching the High Court seeking a declaration that clause 6 was constitutionally valid and enforceable. Transnet opposed that relief and instituted a counter application to review and set aside its own decision to include clause 6 in the contract, contending that the clause unlawfully infringed section 217 of the Constitution.

It was common cause between the parties that clause 6 was severable from the remainder of the contract. The central issue for determination was the proper interpretation of the clause and whether, properly construed, it could withstand constitutional scrutiny.

Contractual interpretation in the procurement context

The High Court approached the matter by applying established principles of contractual interpretation and analysing clause 6 in the context of the contract as a whole, including the duration and renewal provisions. The court held that the contract did not provide for automatic renewal on fixed terms. On the contrary, the contract expressly reserved Transnet’s discretion on whether to extend the contract at all, subject to terms and conditions to be agreed and applicable procurement and National Treasury requirements. Read together, the clauses made it clear that clause 6 operated independently of the contract’s duration. Its effect was not to extend the contract but to restrain Transnet, even after expiry of the contractual term, from procuring similar services from any other provider.

The court concluded that clause 6 amounted to a restrictive covenant that bound Transnet to a single service provider for a fixed period, regardless of whether a contractual relationship on agreed terms remained in place. Crucially, the court emphasised that because no contractual terms governed the restricted post‑expiry period, clause 6 effectively permitted Sekela to dictate pricing and conditions during that period. This reinforced the conclusion that the arrangement was neither competitive nor transparent, as Transnet was disabled from testing the market or securing improved value once the agreed contractual term had ended.

Constitutional invalidity of clause 6

Once interpreted in that manner, the constitutional consequences were decisive. The court held that:

“[S]ection 217 of the Constitution forecloses the possibility of one company cornering the market for the provision of services to a particular state entity, even for a limited period – especially if the effect of it doing so would be that it could name its own price.”

The court further held that “the very purpose of section 217 is to prevent private entities from monopolising state resources” and clarified that clause 6 had the effect of wholly extinguishing Transnet’s procurement powers for the duration of the restriction and preventing it from testing the market or securing better value, albeit for a limited period and regardless of how commercially advantageous such an arrangement may have appeared at the time of contracting.

While Transnet could lawfully have concluded a five year contract through an open tender process, it could not lawfully agree to restrain itself from future procurement beyond the life of a concluded contract.

The court held that the effect of the clause was to capture the state’s purchasing power for a period exceeding the term of the contract. That sort of arrangement cannot lawfully be executed, not least because it will inevitably lend a legal veneer to corrupt control of state resources. The restrictive clause 6 of the contract was accordingly declared unconstitutional and invalid.

Conclusion

This judgment draws a clear and important boundary in public procurement.  post award negotiations are a legitimate and often necessary feature of public procurement, aimed at refining contractual terms and improving value for money. However, such negotiations cannot be used to entrench exclusivity or restrain an organ of state from returning to the market, even for a limited period, where the effect is to eliminate competition and transparency in public contracting.