Beware of a second bite at the cherry

October 24th, 2016
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Nexus Forensic Services (Pty) Ltd v Chief Executive Officer of the South African Social Security Agency and Others (GP) (unreported case no 14708/2015, 21-6-2016) (Van Niekerk AJ)

By Theo Steyn

The recent judgment of Nexus Forensic Services (Pty) Ltd v Chief Executive Officer of the South African Social Security Agency and Others (GP) (unreported case no 14708/2015, 21-6-2016) (Van Niekerk AJ) is another cautionary tale to administrators to ensure that they comply with procurement legislation and our Constitution when considering and awarding tenders.

The salient facts

During July 2013 the South African Social Security Agency (SASSA) invited bids from interested parties for the appointment of a forensic investigation services provider. After evaluating the bids, SASSA’s Bid Evaluation Committee (BEC) recommended that the second highest scoring bidder (third respondent) should be awarded the tender. In a further evaluation phase, the Bid Adjudication Committee (BAC) deemed the reasons and motivation provided by the BEC as unjustifiable to warrant the appointment of the third respondent (as second highest scoring bidder) as the award would be discretionary and fails to take into account the evaluation criteria of the bid. The BAC recommended to SASSA’s Chief Executive Offices (CEO) (first respondent) that the applicant, as the highest points scoring bidder be awarded the tender and that a contrary appointment would not be defendable in a court of law.

Despite this recommendation, the CEO awarded the tender to the second highest scoring bidder. In this regard the CEO remarked that she was entitled to reject the BAC’s recommendation and had done so based on functional criteria mainly involving the experience of the successful bidder.

With that factual background in mind and before having regard to two important issues that arose from this judgment, it is necessary to shortly identify the legal framework within which procurement by state organs operates.

The legal framework

The procurement process by state organs is achieved through a process of tender and acceptance, creating a contract. This process is strictly regulated by the Constitution, legislation envisaged by the Constitution and regulations and National Treasury guides.

A synopsis of the framework is as follows –

  • s 217 of the Constitution deals with ‘procurement’ and provides for the award of tenders in accordance with a system that is fair, equitable, transparent, competitive and cost effective;
  • the Constitution prescribes that national legislation must provide a framework within which to implement the policies. The legislation envisaged by the Constitution is the Preferential Procurement Policy Framework Act 5 of 2000 (the Act);
  • the Act mandates that an organ of state must determine its preferential procurement policy and implement it within a prescribed framework, containing goals which are measurable, quantifiable and monitored for compliance;
  • the 2011 Procurement Regulations prescribes what should be contained in the invitation to submit a tender and provides for the fact that evaluation criteria in respect of functionality must be clearly specified in the invitation to submit a tender (reg 4);
  • reg 7 provides that a contract may only be awarded to a tenderer that did not score the highest total number of points, ‘only in accordance with section 2(1)(f) of the Act’;
  • the National Treasury Implementation Guide: Preferential Procurement Regulation, 2011 Pertaining to the Preferential Procurement Policy Framework Act, Act no 5 of 2000, provides that –

‘16.1 A contract must be awarded to the bidder who scored the highest total number of points in terms of the preference point systems.

16.2 In exceptional circumstances a contract may, on reasonable and justifiable grounds, be awarded to a bidder that did not score the highest number of points. The reasons for such a decision must be approved and recorded for audit purposes and must be defendable in a court of law.’

It is clear that the framework was designed to ensure a process in terms of which competing bidders are evaluated by using objective criteria in a fair, reasonable and transparent manner where the highest scoring bidder in terms of a preferential points system should be awarded a tender. Only in exceptional circumstances can a lower scoring bidder be appointed, and then only in accordance with the provisions of s 2(1)(f) of the Act, which requires the objective criteria to justify the award to a lower scoring tenderer.

The use of functionality criteria

With the framework in mind, we once again return to the facts of our case under discussion. It was common cause that, in awarding the tender, the CEO relied on functionality criteria (functionality) for a second time during the award phase of the tender process, after functionality was already used initially during the qualification phase. The pertinent question was, therefore, whether functionality may be taken into consideration for a second time during the award phase?

The CEO relied on the provisions of s 2(1)(f) of the Act for the submission that she was entitled to consider functionality twice. The relevant section provides that –

‘(1) An organ of state must determine its preferential procurement policy and implement it within the following framework:

(d) the specific goals may include –

(i) contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability;

(ii) implementing the programmes of the Reconstruction and Development Programme as published in Government Gazette No 16085 dated 23 November 1994;

(e) any specific goal for which a point may be awarded, must be clearly specified in the invitation to submit a tender;

(f) the contract must be awarded to the tenderer who scores the highest points, unless objective criteria in addition to those contemplated in paragraphs (d) and (e) justify the award to another tenderer; and

… .’

In considering this section, the court made it clear that a decision maker is ‘enjoined not to reconsider those criteria which had already been considered, but additional objective factors, other than those already included in the terms of reference’.

On the facts of the case it was held that, unless the CEO could justify the award to another tenderer on objective criteria in addition to those contemplated in para (d) and (e) of s 2(1) of the Act, there were no grounds on which to justify the award. The CEO failed to prove objectivity relating to the decision insofar as she relied on the advice of an employee of SASSA for the appointment of the second highest bidder and this was not considered to be objective information and did not constitute measurable or quantifiable criteria.

Ultimately the court found that to empower a decision maker to utilise the functionality criteria for a second time during the award stage would be contrary to the provisions of the regulations promulgated in terms of s 5 of the Act, read in conjunction with s 2(1)(f) of the Act. The court remarked that a contrary finding would vitiate the provisions of s 217 of the Constitution and create an unfair, inequitable system that lacks transparency and undermines competition and cost effectiveness.

Functionality was, therefore, excluded as ‘objective criteria to justify the award to another tenderer’ as envisaged in s 2(1)(f) of the Act.

The CEO’s reliance on the wording in the terms of reference contained in the bid invitation

The clause on which the CEO relied as justification for the decision to award a tender to the second highest scoring bidder from a contractual point of view was contained in the invitation to bid and provided as follows:

‘The agency reserve the right not to accept the lowest price quotation, as other criteria, including the functionality and preferences will be taken into consideration, when bids are evaluated.’

The court held that a general ‘catch all’ clause such as the one in issue could not vitiate the legislative framework within which the procurement process operates. It was held that an organ of state is not entitled to enter into a contract of procurement contrary to the prescribed legislative framework.

Conclusion

The court ordered that the CEO’s award of the tender to the third respondent was inconsistent with the provisions of s 217(1) of the Constitution and consequently invalid in terms of s 172(1) of the Constitution.

This decision affirms the principle that a bidder cannot be scored on functionality during the qualification stage, and again during the award stage of the bidding process. It underscores an objective system, which aims to avoid arbitrary decision-making by functionaries without the bidder knowing what value will be placed on a reconsideration of criteria.

Theo Steyn BCom Law LLB (UP) LLM (Unisa) is an attorney at VZLR Inc in Pretoria.

This article was first published in De Rebus in 2016 (Nov) DR 50.