Government cannot reject tender applications purely on race: SCA

The Supreme Court of Appeal has invalidated the preferential procurement regulations that allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black-owned, for example.
The Supreme Court of Appeal has invalidated the preferential procurement regulations that allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black-owned, for example.
Image: 123RF/skycinema

State-owned companies cannot disqualify prospective contractors who are not majority black-owned without first considering the price and proposition of the tender.

This is the gist of the judgment of the Supreme Court of Appeal (SCA) on Monday.

The court declared that the preferential procurement regulations, promulgated by the minister of finance in 2017, were invalid. These regulations allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black-owned, for example. The court has rejected this pre-disqualification as invalid and unconstitutional.

AfriBusiness, now known as Sakeliga, had challenged the validity of the regulations and argued that the minister had exceeded his powers by promulgating regulations which provide for pre-qualification criteria for tenderers contracting for government tenders.

The high court in Pretoria held that the 2017 regulations were lawful and rational on the basis that they followed a preference point system and held that the regulations did not elevate race to a pre-qualification.

On appeal, AfriBusiness argued that the 2017 regulations provided for pre-qualification criteria which must be applied before determining the award of a tender on the preference point system.

AfriBusiness contended that the purposes of pre-qualifying and subcontracting criteria was to prefer “designated groups” above other tenderers.

It said the 2017 regulations put the cart before the horse by providing that the tenderers who qualify to tender may first be determined according to, among others, race, gender and disability, and only thereafter in terms of the preference points system.

AfriBusiness argued that the Framework Act did not allow for qualifying criteria, which might disqualify a potential tenderer from tendering for state contracts.

In its judgment, the SCA held that the pre-qualification criteria in the 2017 regulations constituted a deviation from the provision of section 217 of the constitution which enjoins organs of state — when contracting for goods or services — to do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

“Any pre-qualification criteria which is sought to be imposed must have as its objective the advancement of the requirements of section 217(1) of the constitution. The prequalification criteria stipulated in regulation 4 and other regulations do not meet this requirement,” the SCA said in its judgment penned by justice Dumisani Zondi.

The appellate court declared the regulations invalid, but suspended the declaration for 12 months to allow the minister to remedy the defects identified.

Sakeliga welcomed the judgment. Its CEO Piet le Roux said it was of foremost importance.

“It is an important step in the right direction, namely, to judge tenders based on business measures and value for the public, instead of race and other political considerations,” Le Roux said. He said the objectionable regulations constituted a small but unusually harmful extension of BEE legislation.

He said since 2017, regulations allowed organs of state a novel power: to set their own discretionary and arbitrary minimum BEE requirements a contractor must meet if it wants to be considered for doing business with an organ of state.

He said before these regulations, organs of state could take BEE into account, but only as part (about between 10% and 20%) of the total points based on which tenders were awarded.

“Ironically minister [Pravin] Gordhan, who implemented the PPPFA regulations in 2017, is now as minister of public enterprises reaping its fruits.

“Under his regulations, organs of state have in recent years frequently pre-emptively disqualified prospective contractors when they were not 51% black-owned. That is, disqualified them from the get-go based on race without even considering their price and value proposition.”  

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