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CASE NO.548/98
IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
In the matter between
The Premier of the Free State Provincial
Government First Appellant
The Director-General of the Free State Provincial
Government Second Appellant
The Member of the Executive
Council for the
Department of Finance, Expenditure and
Economic
Affairs of the Free State Provincial
Government
Third Appellant
The Chairman of the Free State Provincial
Tender Board
Fourth Appellant
and
Firechem Free State (Pty) Limited
Respondent
BEFORE: HEFER, HARMS, SCHUTZ JJA, FARLAM and
MPATI AJJA
HEARD: 16 MAY 2000
DELIVERED: 29 MAY
2000
Tender boards - proper tender procedures - interpretation of contracts
- presumption of legality - agreements to agree - severance
- fictional
fulfilment - record - costs of disallowed - practice note - part of
counsel’s fees disallowed.
W P SCHUTZ
SCHUTZ JA:
[1] “As I said I was not trying to outwork the
Tender Board I was trying to do it through the Tender Board in a different
way.”
These words were spoken in evidence by Mr McNaught, the chairman of
the respondent, Firechem (Pty) Ltd (“Firechem”).
The question
arises whether there is room for the “different way” adopted, in the
light of the peremptory terms of
s 4 (1) of the Tender Board Act 2 of 1994 of
the Free State (“the Act”), which states that the Tender Board
“shall
have the sole power to procure supplies and services for the
Province.” Despite this provision, the Tender Board, so runs
Firechem’s argument, was permitted to and did allow others to conclude a
procurement contract which contradicted a contract
already established by the
Board’s acceptance of a tender. The sustainability of this argument is
the main question in the
appeal. The appellants are the Premier, the
Director-General, the MEC for Finance, Expenditure and Economic Affairs and the
chairman
of the Provincial Tender Board of the Free State. They were the
unsuccessful defendants in an action heard by Edeling J in the OPD.
Leave to
appeal was granted on petition to the Chief Justice.
[2] Mr McNaught was an
experienced marketer of cleaning materials. His sales were supported by the
training of staff in the use
of these materials. Late in 1994 he conceived a
plan to obtain a contract for the supply of all the Free State Province’s
cleaning material needs by negotiating a contract without going through tender
procedures. Having obtained an introduction to Dr
Setai, the Director General,
he was given permission to conduct a survey of the Province’s needs. This
entailed visiting numerous
hospitals, schools and the like, which, together with
preparing a detailed report, cost Firechem a large sum of money. When the
report was presented it was accompanied by a draft contract. The vicissitudes
of this contract form an important part of the story
as it unfolds. Attached to
the draft was an annexure C. This set out details of the proposed supplies of
particular items, department
by department, and month by month. The draft
proposed that the Province would be obliged to take those quantities. The term
was
to be seven years.
[3] Firechem’s proposal contained important
attractions. Instead of importing materials, it would set up a factory to make
them in the Free State, which would employ local staff for the great majority of
jobs. Firechem would also help to establish supporting
businesses for
previously disadvantaged entrepeneurs, in fields such as transport and palette
making. Moreover, provincial staff
would be regularly motivated and trained in
the use of cleaning materials.
[4] The presentation of Firechem’s
detailed proposals took place at a further meeting with Dr Setai in March 1995
at which Mr
Hendriks of the Department of Finance was present. The Tender
Board fell under the Finance Ministry and Mr McNaught gathered that
Mr Hendriks
had been asked to attend as he was the link between the Department and the
Board. Mr Hendriks made it quite clear that
there could be no contract without
the normal tender procedures being followed. This was a disappointment to Mr
McNaught, but he
did not give up. In May 1995 he requested a meeting with the
Premier, Mr Lekota, on the subject of “new investment and RDP
in the Free
State.” The Premier’s response was that this subject was the
responsibility of Mr Magashule, the MEC for
Economic Affairs. It was in this
way that a department other than the Finance Department became involved. Mr
McNaught had several
meetings with Mr Magashule and made a presentation to the
Tender Board. Eventually, on 15 August 1995, he met the Premier. The
latter
gave his support in principle to the award of a provincial contract to Firechem
along the lines of the proposal and the annexed
draft contract, but indicated
that the Executive Council would have to make the decision. Mr McNaught was to
be given the opportunity
to make a presentation to that body. A document headed
Motivation was submitted for the use of the Council. It concluded by saying
that “Firechem is however open to negotiation relating to the terms,
period and conditions of proposed contract.”
[5] In the meantime Mr
Hendriks reported to Mr Magashule that to comply with the Interim Constitution
(requiring fairness, publicity
and competitive procedures) any proposed contract
should be put out to tender and would have to be approved by the Tender Board,
which had the sole power to procure supplies and services. A suitable contract
could be formulated with the assistance of Firechem
and other interested
parties. The contract would make provision for building a factory in the Free
State, employing a certain minimum
of local workers and so on. Tenderers would
be requested to tender on the basis that they would comply with these
conditions. If
matters were ordered in this way no one would have reason to be
dissatisfied. Mr Hendriks commented critically on Firechem’s
existing
draft contract saying i a that a term of seven years was abnormally long for a
contract of exclusive supply. The contents
of this memo were not known to Mr
McNaught at the time. However, Mr Hendriks’s points had gone home and on
20 September 1995
the Executive Council passed a resolution to the effect that
legislative requirements with regard to tenders must be followed. Further,
the
Tender Board was to review, and if necessary revise the tender documents in
relation to cleaning materials.
[6] In consequence, on 22 September 1995 the
Executive Council instructed the Tender Board that an existing invitation to
tender should
be cancelled. Before a new advertisement was published a new set
of tender documents was to be prepared and considered by the Departments
of
Finance and Economic Affairs.
[7] On 3 October 1995 the MEC for Finance, Mr Makgoe, communicated the
Council’s decision in the following recorded terms:
“1 That the project was accepted in principle;
2 But that it had to go out on general tender to ensure ‘transparency and not to contravene the law (Interim Constitution)’
3 . . .
4 That existing tender contracts be extended for three months;
5 That specifications along the lines of Firechem’s proposal be drawn up by Tender Board, and
6 Be advertised within . . .
three months . . .
7 Any company in the field could tender . . .
8 Terms like duration of the contract, SMME [Small Micro Medium Enterprises] Development, Social Responsibility, Affirmative Action, actual investment, cost incurred by Government, etc to be negotiated with tenderers in the final stages of the decision - making process before contract is awarded (was not very clear on this).
9 No preferences granted to Firechem on the following grounds:
* Firechem is not a ‘Free State
Company’;
* ‘Playing field to be levelled’;
. .
.”
[8] In his evidence in chief Mr McNaught said with reference to par
8 just quoted:
“My understanding of that was that once the successful tenderer or tenderers had been given their tender award that they would be able to make additions or to put other inputs into the contract that were not necessarily specified in the tender document, the reason for that being that the tender document although it was more comprehensive than the previous tender that had been withdrawn, it still was lacking in certain points that it could have had in.”
[9] As will become apparent as the story unfolds,
this proposition is vital to Firechem’s case. I shall come back to it, so
will confine myself to two comments at this stage. First, par 8 speaks of
negotiations before contract award. McNaught contemplates
negotiations after
award. As will become apparent there were negotiations both before and after
award. Secondly, McNaught speaks
of additions where something was “not
necessarily specified in the tender document.” As will further become
apparent
he has to face difficulties arising out of making additions where
something was so specified.
[10] To revert to the narrative, the invitation
to tender was published on 29 December 1995. The document commences:
“Tender VT 20132/96 For Disinfectants and Cleansing Agents: Province Free State: Bloemfontein
1 In terms of a notice published in the Provincial Gazette of 1995/12/29 and in accordance with the Provincial Tender Board Regulations promulgated under Provincial Notice no 12 of 14 September 1994 tenders are invited for the supply of the above for the period 1996/03/01 till 2000/02/28 [ie a period of four years].”
Further relevant terms are:
“4 Prices must hold good for 90 days and will thereafter be binding on the successful tenderer.
5 . . .
6 The following documents are attached hereto and tenderers must assure [sic] that all the relevant documents are returned.
(i) Tender forms
(ii) Conditions of Contract
(iii) Specifications (Quantity lists).
7 . . .
8 The conditions contained in the VST 36 (General Conditions and Procedures) and the attached VST 6 and VST 8 [the tender form], as well as any other conditions accompanying this request, are applicable.”
Certain “Important
Conditions” which were attached require mention:
“1 Tenders are scheduled mechanically in this Office of the Tender Board. The tender forms have consequently been drawn up so that certain essential information is to be furnished in a specific manner. Any additional particulars shall be furnished in the enclosed questionaire or in a separate annexure.
2 The tender forms should not be retyped or redrafted . . .
11 Orders shall be placed directly by the Provincial Departments and other approved instances
15 These conditions form part of the tender and failure to comply therewith may invalidate the tender.”
Certain
“Additional Important Conditions” also require mention:
“1 Background
1.1 The tender will be divided into five regions as indicated on attached map.
. . .
1.6 The tenderer intends to manufacture, market and distribute its products to the Purchaser.
1.7 The tenderer will
provide Training officers in the selection, use and application of the products
as described in the above-mentioned
clause.
. . .
1.9 The tenderer will promote hygiene and cleanliness through direct training methods, and supply products on order to the Purchaser.
2 Successful Tenderer’s Obligations.
2.1 The tenderer agrees that it will during the term hereof
2.2 receive orders from the purchaser for products as listed in the tender documents.
2.3 deliver such products . . .
2.4 provide at no additional cost to the Purchaser, Training Officers, for:
2.4.1 training of new personnel as Training Officers;
2.4.2 training designated staff . . . in the choice, use, demonstration and application of the products; and
2.4.3 assisting staff . . . in use and application of the products.
2.5 employ a minimum of 95% . . . of its staff for administration, training, transport, factory operations, managers and storemen from Free State residents.
2.6 furthermore, will also whenever practicable, assist emerging business by offering contracts to them in support of the principles of Reconstruction and Development Program to, for example supply of transport, paper products, other goods and services.
4 Price
4.1 The price of the product/s will be as tendered.
5 Duration
5.1 This contract shall endure for the initial term, as stated in the tender documents;
5.2 Thereafter, this contract may be extended for periods of 3 . . . months at a time when the need therefor arises.
6 Purchase Orders
6.1 The Purchaser will ensure that proper order are furnished for products to be supplied by the Tenderer.
7 Delivery
7.1 The tenderer will deliver the products ordered in terms as tendered
. . .
7.3 The tenderer will deliver the goods, ordered by the departments . . .”
(Own emphasis.)
[11] It
will be observed that these “Additional Important Conditions”
introduce into the conditions of tender the kind
of special inducements that
Firechem had offered initially and which the Executive Council had decided
other applicants should be
given the opportunity to
match.
[12] Firechem’s tender, which was signed on 22 January 1996, was
on the prescribed form, which reads in part:
1 “I/We hereby tender to supply all or any of the supplies as and/or to render all or any of the services described in the attached documents to the Provincial Legislature on the terms and conditions and in accordance with the specification stipulated in the tender documents (and which shall be taken as part of, and incorporated into, this tender) at the prices and on the terms regarding time for delivery and/or execution inserted therein.
2 I/We agree that -
(a) . . .
(b) this tender and its acceptance shall be subject to the terms and conditions contained in the General Conditions and Procedures (VST 36) . . .
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