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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE LOCAL DIVISION, BHISHO

                                                                   Case no. 463/13

In the matter between:

UMSO CONSTRUCTION (PTY) LTD                                                                         Applicant

and

THE MEC FOR ROADS AND TRANSPORT

IN THE EASTERN CAPE                                                                              First Respondent

THE HEAD OF THE DEPARTMENT

OF ROADS AND PUBLIC WORKS

IN THE EASTERN CAPE                                                                         Second Respondent

TAU PELE CONSTRUCTION (Pty) Ltd                                                      Third Respondent

RUMDEL CONSTRUCTION (Pty) Ltd                                                      Fourth Respondent

AMANDLA CTC (Pty) Ltd                                                                             Fifth Respondent

SIYA HLOBISA (Pty) Ltd                                                                             Sixth Respondent

JUDGMENT

STRETCH J:

1. During July 2012 the Eastern Cape Department of Roads and Public Works invited interested contractors meeting certain criteria to tender for the upgrading of a 13,4km stretch of road in the Chris Hani district (“the road”).

2. The applicant (“Umso), and the third (“Tau Pele”), fourth, fifth and sixth respondents submitted bid documents to the first and second respondents (hereinafter referred to as “the Department”).

3. Tau Pele and the fourth respondent were found to be responsive, to the exclusion of Umso and the fifth and sixth respondents.

4. According to a pre-check evaluation analysis compiled by one Swartz which was initially endorsed by the Department’s tender evaluation committee, Umso did not meet the tender criteria and its bid was found to be non- responsive in that its Construction Industry Development Board (“CIDB”) rating in terms of the CIDB Act, no 38 of 2000, was inadequate.

5. Subsequent to this endorsement it was noted that Umso’s rating was indeed adequate and its bid was elevated to a responsive one. Simultaneous to this however, the evaluation committee concluded that the bid was nevertheless unresponsive for lack of compliance with the experience criteria set out in the conditions of tender, in that Umso had not performed a similar project.  Umso was accordingly non-suited and the process continued with the contract ultimately being awarded to Tau Pele.

6. Umso, not being satisfied with this result, has launched an application for the following relief:

a.        The reviewing and setting aside of the decisions and/or recommendations of the Department’s bid evaluation and bid adjudication committees deciding and/or concluding that Umso’s bid in respect of tender SCMU5-12/13 – 0035 (“the tender”) was not responsive to the tender criteria.

b.        The reviewing and setting aside of the decision of the Department to award the tender to Tau Pele and/or to conclude a contract with Tau Pele in respect of the work envisaged in the tender.

c.        A declaration of invalidity in respect of the following rules/tender conditions in the tender notice:

i.          That only tenderers who comply with the requirements as specified in the conditions of tender will be considered;

ii.         That tenderers will be required to prove that they have undertaken at least one similar project in the past seven years, failing which the tender will be rejected, and that ‘a similar project’ is the upgrading of a gravel road to surface standards with at least ten kilometre length and a minimum construction value of R100 million.

d.        That the tender be awarded to Umso; alternatively, that the Department be directed to award the tender to Umso and in either case, that the Department be directed to conclude a contract for the execution of the work in question with Umso. Alternatively, that the Department be directed to consider, re evaluate and adjudicate upon all bids submitted in response to the bid invitation relating to the tender in the light of paragraph c above.

e.        That the Department, and any other opposing respondents be directed to jointly and severally pay the costs of the application.

7. Umso has launched the application in terms of section 6 of the Promotion of Administrative Justice Act (“PAJA”), read with section 217 of the 1996 Constitution dealing with public procurement, the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”), the Public Finance Management Act 1 of 1999 (“PFMA”) and the supply chain management policies of the Department.

8. In terms of section 6 of PAJA, the Department’s decisions concerning awards of tenders are administrative actions which are subject to review on the grounds set forth in section 6(2) of PAJA.  In terms of section 217 read with section 33 of the Constitution public procurement must be lawful, reasonable, competitive, fair, transparent, equitable and cost-effective.  Simultaneously, the organ of state is not prevented from implementing a procurement policy providing for categories of preference in the allocation of contracts. In terms of section 172 of the Constitution read with section 8 of PAJA, should this court find that the Department’s conduct is inconsistent with the Constitution, it must declare that conduct to be invalid to the extent of the inconsistency, and may make any just and equitable order thereafter which may include the setting aside of the administrative action, and, in exceptional cases, to substitute the administrative action.   

9. The application is opposed by the Department and by Tau Pele.

10. The upshot of the outcome sought by the parties is the following:

11. On behalf of Umso, it is contended that the award to Tau Pele  should be set aside, that the tender should be awarded to Umso instead, and that costs should be paid jointly and severally by the Department and by Tau Pele.

12. On behalf of the Department, it is argued that the award should indeed be set aside, but that all further relief sought by Umso should be refused with costs.

13. Tau Pele, having been advised that it is the successful tenderer, simply contends that the application should be dismissed with costs.

14. The Department in opposing papers, made it clear that it did not oppose the order sought by Umso reviewing and setting aside the award of the tender to Tau Pele.  In a nutshell, this concession has been made for the following reasons:

a.        Subsequent to the award it became apparent that Tau Pele had failed to disclose material facts.

b.        It emerged that Tau Pele was placed under business rescue while the evaluation process was still in progress.

c.        The Department is of the view that although this legal impediment had been removed before the award was granted, the circumstances surrounding Tau Pele’s financial difficulties, and in particular the fact of business rescue, was information which ought to have been disclosed to the Department.

d.        The Department avers that as a result of information reflected in Umso’s supplementary founding affidavit, it wrote to Tau Pele’s attorneys calling for an explanation as to why these relevant facts were not disclosed to the Department.  The reply received was not to the satisfaction of the Department.  The Department avers that had it been aware of the situation, it would have sought further clarification and detail from Tau Pele before making a final decision or recommendation, which decision may or may not, thereafter, have remained in Tau Pele’s favour.

15. However, the Department’s further contention is that it is now established that even in respect of an obvious and clear irregularity or illegality an organ of state may not simply withdraw its own approval or award but is required to approach a court in order for this to happen (see Oudekraal Estates (Pty) Ltd v City of Cape Town and Others 2004 (6) SA 222 (SCA); MEC for Health v Kirland Investments 2014 (3) SA 219 (SCA)).  I agree.

16. It is contended that this principle likewise extends to contractual breaches.  For this proposition the Department relies on the unreported full court judgment in this division of Griffiths J delivered on 29 May 2014 in MEC for Public Works: Eastern Cape v Highpana Project CC (Bhisho case no 694/2009).

17. The upshot then of the Department’s argument is that it only became aware of the non-disclosure of business rescue from the contents of Umso’s founding papers delivered in support of this application, and that it would have been absurd for it (applying the Oudekraal-principle) to launch a counter application for the same relief. This seems to me to be an imminently sensible approach.

18. As for the remainder of the relief sought by Umso, the Department contends in its heads of argument that even if I find that the award should be set aside, this is not an exceptional case where I should make an order for substitution as opposed to referring the matter back for reconsideration because Umso’s ability and experience remains a live issue.  I digress to mention that during argument before me it seemed to be common cause as between the Department and Umso that in the event of Umso not having been eliminated in the first round of the process, it would have been awarded much higher points than any of the other tenderers, including Tau Pele.

19. As for Tau Pele, the high-water mark of its opposition to this application is that it is not guilty of material non-disclosure with respect to the issue of business rescue, particularly in that the business rescue plan was implemented after the tender process had closed, and terminated before the tender contract was signed on 26 July 2013.

20. Tau Pele contends that it only elected to oppose this application because the Department had defended the tender process it had followed resulting in the declaration of Umso’s bid as non-responsive. In the premises then, it is argued on behalf of Tau Pele that in the event that I find that the tender process was procedurally correct, I should also find that the non-disclosure is not material, and dismiss the application in its entirety, notwithstanding the Department’s concession that I should set aside the award in favour of Tau Pele.

The necessity of the application, the setting aside of the award and substitution

21. Both Umso and the Department agree that this court should set aside the award. Umso contends that this is so for the following reasons:

a.        The responsiveness criteria with respect to the tender were arbitrary, irrational, meaningless and unlawful and serve to non-suit otherwise suitable and qualified tenderers.

b.        Contradictory findings had been made by the Department regarding Umso’s suitability.

c.        Umso’s elimination, ostensibly based on a finding that it had not completed similar projects in line with the tender requirements, ignored evidence of previous experience compliant with the tender data, and was biased; alternatively, appeared to be biased.

d.        Tau Pele’s failure to disclose the business rescue is material to the extent that it ought to be excluded from the tender process.

22. The Department agrees with Umso’s contention regarding material non-disclosure and that the award should be set aside as a result thereof. What the Department does not admit, is:

a.         that it failed to comply with section 217 of the Constitution and with the PPPFA with respect to the procedure followed in the tender process;

b.        That this court should not only set aside the award but that it should substitute Tau Pele with Umso;

c.        That when the Department became aware of the material irregularity committed by Tau Pele it could and should have withdrawn the award.

23. Umso’s main attack on the Department is that the process which it followed in evaluating Umso as non-responsive is fatally flawed. In the premises, I am of the view that Umso would have approached this court to set aside the award and to make a substitution order even if there had not been material non-disclosure on Tau Pele’s part.

24. Indeed Umso had already launched these proceedings, and it is as a result of the launching of these proceedings that the Department became aware of the non-disclosure of business rescue.  Once it was aware, the Department immediately conceded that the award should be set aside. It seems however that that is easier said than done.  Umso and the Department may well agree that the award ought to be reversed.  However, they are not the only interested parties.  Tau Pele, having received the award, logically has a substantial interest in retaining it.

25. The question which arises is whether the Department could have mitigated legal costs and energy by unilaterally cancelling the award of the contract as soon as it became aware of what it concedes to be material non-disclosure on Tau Pele’s behalf.

26. The answer is no.  Once the contract has been awarded, and in the absence of consent from the successful party, the only way the Department can have the contract set aside is to approach this court. In the light of the fact that this court had already been approached by Umso, the Department in my view, did the only reasonable thing which it could have done in the circumstances, which was not to oppose Umso’s application to have the award set aside.

27. On the other hand the stance adopted by Tau Pele in defending its position nevertheless, has resulted in this opposed application unavoidably taking its full course.

28. This to me seems logical.  However, that is not the end of the matter.  Tau Pele has conceded that it is not really in a position to argue on the Department’s behalf that it did the correct thing when it evaluated Umso as non-responsive.  This being the position, if I find against the Department in this regard, I must set aside the award and any argument from Tau Pele regarding the non-disclosure of business rescue would serve no purpose.  On the other hand, if I find that the process was not flawed, Tau Pele is entitled to a hearing on the aspect of non-disclosure, even if Umso and the Department agree that it was material.  I say so because the mere fact that the Department and Umso are ad idem on this point does not mean that it is necessarily a point well made.  It is likely that had the Department mero motu approached this court to set aside the contract solely on the issue of non-disclosure, the application would have been met with the same opposition which Tau Pele is currently raising.

29. It also seems to me that it is necessary for this court to address the issue of non-disclosure, if for no other reason than the effect a finding in this regard may have on the issue of costs at the end of the day.

Tau Pele’s non-disclosure of business rescue

30. It is contended on Tau Pele’s behalf that there was no duty on it to disclose the facts and circumstances of its business rescue to the Department. To this end reliance is placed on Speight v Glass and Another 1961 (1) SA 778 (D) at 781H where it was stated that there is no general duty on contracting parties to disclose to each other any facts and circumstances known to them which may influence the mind of the other party in deciding to conclude a contract.

31. It is further contended that it is difficult, ex post facto, to envisage how the Department would, for the purposes of adjudicating the tender bid, have taken into account disclosure that Tau Pele had been placed under business rescue and had ultimately successfully concluded the process.  This is not however what happened in this case. It is common cause that:

a.        Bids closed on 8 August 2012;

b.         Tau Pele applied for business rescue on 17 September 2012;

c.        Tau Pele was placed under business rescue on 21 September 2012;

d.        Business rescue was successfully terminated on 21 May 2013;

e.        The tender contract was signed on 26 July 2013.

32.    It is accordingly reasonable to conclude that when the bids closed on 8 August 2012, Tau Pele was in the full throes of applying for business rescue, but was only able to vouch for the success of the rescue plan during or about the time that rescue was terminated eight months later.   

33. The relevant definitions pertaining to business rescue are set forth at section 128 of the Companies Act. They read as follows:

(b)     ‘business rescue’ means proceedings to facilitate the rehabilitation of  a company that is financially distressed by providing for –

(i) the temporary supervision of the company, and of the management of its affairs, business and property;

(ii) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and

(iii) the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis, or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company; …

(d)     ‘business rescue practitioner’ means a person appointed … to oversee a company during business rescue proceedings …

(f)      ‘financially distressed’  … means that –

(i)  it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months; or

(ii) it appears to be reasonably likely that the company will become insolvent within the immediately ensuing six months.’

34. The Department’s tender data provides that it will only consider tenders from tenderers who can satisfactorily prove that they have the necessary financial resources to undertake and complete the work. It goes without saying that in substantial state projects such as these, it is from time to time required of the successful tenderer, once the contract has been awarded, to make use of its own funds on an ad hoc basis for practical purposes and to ensure continuity.  I have no doubt that when Tau Pele tendered for the job, it was already financially distressed and following the prescribed steps to apply for business rescue.  There is nothing before me to suggest otherwise. In my view there exists a duty upon a financially distressed tenderer to disclose this information at the time of submitting its bid.  There are many reasons why this ought to be done. I will mention a few:

a.        Admitting financial distress is, for all intents and purposes, a declaration of an inability to pay or a declaration of impending insolvency. Any party intending to do any form of business with a financially distressed entity, is entitled to know this. It does not assist Tau Pele to contend that the Department is not an ‘affected person’ in terms of the Companies Act and for purposes of giving notice of intended rescue proceedings.  The purpose of giving notice to affected persons is to give them the opportunity to, for example, oppose or support rescue proceedings.  Giving notice to affected persons on the one hand, and disclosing material information in the process of ostensibly participating in a transparent process involving public funds on the other hand, is not the same thing.  Stated differently, it was incumbent on Tai Pele to disclose this either at the time of its commencement in participating in the bidding process, or at the very latest when it entered into business rescue.

b.          During the tender process, the tenderee is entitled for example to negotiate and to correspond directly with the business rescue practitioner who effectively steps into the shoes of the tenderer, supervises the tenderer and manages its affairs and its business.

c.        This is particularly so because, in terms of section 133 of the Companies Act no legal proceedings, including actions to enforce, may be commenced or proceeded with in any forum during rescue proceedings, except with the written consent of the business rescue practitioner or with the leave of the court.

d.         In my view, in a contract of this magnitude, where public funds to the extent of R220 million are about to be invested in a tendering company over a period of two years, the Department as the investor must be afforded the opportunity to consider the tenderer’s financial position together with other relevant considerations before finally awarding a contract to it.

e.        Section 133(2) of the Companies Act makes it clear that a guarantee of surety by a company in favour of any other person may not be enforced during business rescue proceedings except with the leave of the court and in accordance with terms the court considers just and equitable in the circumstances.

f.         Form N of the Department’s tender documents provides that the tenderer must provide, with its tender, a bank rating, certified by its banker, to the effect that it will be able to successfully complete the contract at the tendered amount within the specified time for completion, and that failure to furnish such a bank rating or the required bank details at the time of the tender will lead to the conclusion that the tenderer does not have the necessary financial resources at its disposal to complete the contract successfully within the specified time for completion.

g.        This in itself is indicative of the fact that the tenderer’s financial standing at the time of submitting the tender (my emphasis) is of crucial importance to its ultimate success or otherwise.

35.    In these particular circumstances I fail to see how Tau Pele can seriously contend that there was no duty upon it to disclose imminent business rescue (with all its associated encumbrances) to the Department at the commencement of its interaction with the Department; alternatively, to disclose the fact of business rescue to the Department after the bid process; alternatively, at the very least to disclose this when it enters into business rescue. 

36. Tau Pele has correctly contended that the issue before me is when this duty to disclose arises.  Regard being had to the nature and extent of this contract, the constitutional requirement for transparency, the Department’s own prerequisites with respect to financial stability, and the fact that the performance guarantee was only furnished on the day that the contract was awarded, I agree with Umso and the Department that Tau Pele’s conduct constituted material non-disclosure. Simply put, the duty to disclose arose as soon as Tai Pele was aware of its financial predicament. In my view that would have been at the time when Tai Pele submitted the tender.

37. Confidence in the successful implementation of the business rescue plan does not detract from the duty to disclose.  The Department was entitled from the outset to investigate this aspect of the tenderer’s profile before committing public funds and expectations to a long and expensive partnership.

38. Tau Pele contends that the crucial question in modern law is whether the test of materiality concerns the direct connection with the thing contracted for.  I am of the view that there is a direct connection between the financial status, the strength of its financial muscle and the liquidity of the bidding party and the work which it undertakes to perform when it submits a tender for the purposes of having the bid considered.  If this was not so the tender document itself would not have made direct reference to necessary financial resources to complete the job successfully during a specified period.

39. The Department’s tender made it clear that the tender would be evaluated according to its supply chain management policy.   In my view Tau Pele’s failure to disclose had the effect of abusing this policy and resulted in the Department not having been in the position to make an informed decision before it elected to award the tender to Tau Pele.  This on its own is sufficient for that award to be set aside.

Whether Umso was correctly found to be non-responsive

40. Umso challenges the validity of the Department’s tender conditions and the evaluation and adjudication processes which led to its exclusion at the early stages of the tender process.  The material contentions upon which it bases this challenge are the following:

a.        That the responsiveness criteria in the tender conditions are contrary to the criteria in the tender data, which do not stipulate a monetary threshold of R100-million, and which refer to one similar project in the past seven years, and not three as stipulated in the tender conditions.

b.        That the Department’s tender data record that the data shall have precedence in the interpretation of any ambiguity or inconsistency between it and the standard conditions of tender.

c.        That the Department has not motivated or explained the need to benchmark responsive tenderers with reference to a similar project meaning a 10km road with a minimum construction value of R100 million, and that these criteria are unlawful, arbitrary, irrational and meaningless and serve to non-suit otherwise suitable and qualified tenderers.

d.        That the tender data do not provide for escalation in value in respect of similar projects previously completed.

e.        That even if the responsiveness criteria applied, the Department committed a material irregularity in failing to take into account relevant available information to the effect that Umso had the necessary capacity, experience, infrastructure and financial resources to execute the tender.

f.         That the Department was biased in favour of Tau Pele.

g.        But for its unlawful exclusion from the competitive bid process, Umso would have been the successful tenderer.

41. The following material facts are common cause:

a.        Upon the opening of the bids on 8 August 2012, the Department recorded the bids of Umso and Tau Pele (correctly it seems) as follows:

·      UMSO            R200 567 052,33

·      TAU PELE     R220 350 000,01

b.        On 16 August 2012, subsequent to a pre-qualification evaluation, the purpose of which is to determine which bid responses comply with the Department’s tender specifications, Umso and the fifth and sixth respondents were found to be non-responsive. Umso was eliminated during phase one on commercial grounds because of a “lower CIDB grade”. It was however found that Umso had completed a similar project.

c.        In November 2012 the bid evaluation committee (“BEC”) reported the following to the bid adjudication committee (“BAC”):

·     That the total project value was R220 350 000,01 (Tau Pele’s bid);

·     That in terms of the tender data and the tender advert, in order for a tenderer to be considered, it must be able to demonstrate the completion of at least three similar projects (my emphasis) in the past seven years, otherwise a tenderer will be declared non-responsive (the tender advert of course, refers to at least one similar project) ;

·     That the bid document requires the bidder to perform a similar project (my emphasis)  of minimum length ten kilometres, together with other detailed activities before the bidder can move to phase two of the evaluation (this contradicts the previous statement in the same letter);

·     That Umso’s tender was deemed to be non-responsive because it had not completed a similar project within the past seven years;

·     That three projects listed by Umso were further investigated for more detail to assist the evaluation.  The two projects with respect to the Gauteng Freeway Improvement Package were scrutinised and the SANRAL project manager had been requested to provide detailed information about the project. Umso was a minority party in a joint venture in both projects. Its financial portion in one was R60-million and in the other was R49,6-million. Taking into account that the Department’s contracts normally cost between R10- and R15-milliion per kilometre, this would show that the portion of the work performed by Umso did not qualify as a similar project.

d.        On 6 December 2012 it was tabled before the bid evaluation committee (“BEC”) that the finding that Umso did not have the required grading was a mistake because it was discovered that Umso did have the required grading (its grading being 8 CEPE which means that it has an ability to perform contracts of R130-million).  Thereafter the minute reads as follows:

‘Umso is now eliminated because they did not complete projects that are similar to this one as per the requirements for this project.’

e.        The same minutes confirm Tau Pele’s bid at R220 350 000,01, and its recommendation as the successful tenderer with a total of 90 points.

f.         On 13 March 2013 the Department’s chief financial officer wrote a letter to its interim bid advisory committee (“IBAC”) confirming the project cost at R200 567 052,33 “as per the recommended bidder”.  This figure in fact reflects Umso’s bid and not that of the recommended bidder, being Tau Pele.

g.        On 21 May 2013 this recommendation was approved and an appointment letter in Tau Pele’s favour was issued on 27 May 2013.

h.        The Department’s responsiveness criteria published in its tender notice state the following:

‘Tenderers will be required to prove that they have undertaken at least one similar project in the past seven years, failing which, the tender will be rejected.  A similar project is the upgrading of a gravel road to surfaced standards with at least 10km length and a minimum construction value of R100 million.’

42. It is contended on Umso’s behalf that:

a.        The Department disqualified it from the tender process by reference to conditions that were unlawful, arbitrary, irrational and capable of manipulation, in particular because the Department had found at the outset that Umso did have the relevant experience and that Umso had provided compelling and irrefutable evidence of previous experience compliant with the tender data viz. the completion of at least one similar project (minimum 10km of road construction) in the past seven years.

b.        The Department did not explain why it had initially found that Umso did not have the required grading (which was wrong), but that it did have the relevant experience (which was correct), and then changed this finding to say that Umso did have the required grading (which was correct) but not the necessary experience (which was incorrect).

c.        Umso’s involvement in the Gauteng freeway projects totalling R109 600 000,00 is in any event compliant with the Department’s criteria as approximately 36,8km of road construction was completed, and that the Department’s reasoning as set forth in para [40](c) above with respect to the average cost per kilometre is a mutation of the Department’s tender conditions to exclude Umso and is indicative of bias.

d.        This monetary responsiveness threshold is in any event arbitrary and irrational in the light of the fact that a CIDB rating of 8CEPE serves to establish a contractor’s ability to execute tenders of up to R130-million.

43. For the reasons which follow, I do not intend dealing with each of Umso’s contentions seriatim. Section 217 of the Constitution clearly states that public procurement must be performed in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. Having stated thus, the Constitution makes it clear that organs of state are not barred from implementing a procurement policy providing for categories of preference (my emphasis) in the allocation of contracts.

44. The Department’s prerequisites with respect to rating and previous experience are, in my view, those very categories of preference which the Constitution refers to.

45. I am accordingly not persuaded by Umso’s contention that the Department’s conditions are unlawful, arbitrary and irrational. Whether they are capable of manipulation is a hypothetical proposition in these circumstances. There is not much these days that is not capable of manipulation.  Whether they have been manipulated however, is another question altogether.  I have considered Umso’s table of previous experience and the submissions of counsel in this regard from all angles.  I find no difficulty in understanding and applying the Department’s reasoning set forth in para [40](c) above with respect to cost per kilometre.  Nor do I find it arbitrary or manipulative. On the contrary, I am of the view that it amounts to a simple and logical exercise in attempting to determine Umso’s contribution in previous joint ventures. The exercise was performed in what I deem to have been a genuine interest on the part of the Department in Umso’s work history. The finding of the BAC, that Umso was a minority joint venture in both projects is clearly intended to mean that Umso’s contribution in the joint ventures was small as can be gleaned from the response to the project manager’s enquiries.  With respect to both joint ventures the comment is not that the joint venture partners contributed equally, but that they contributed “proportionately”, meaning that their contribution equalled the proportionate value of their participation in the projects, being four per cent in the one case and ten per cent in the other.

46. Again, although it is so that 36,81km of road was completed in these two projects the project information does not state that Umso’s contribution is indivisible from the contributions of the other partners or even that it is equal to the contribution of the others. Rather, it states that “it is assumed that all contributed proportionately”.  I do not intend to speculate on exactly what this means or is intended to mean.

47. It is contended on behalf of the Department, that although the total value of these two projects exceeded the relevant tender conditions in both length and value, Umso was not the lead contractor in such projects, and that its proportional contribution to these contracts was substantially below the specified standard.  The Department is entitled to take this type of information into account in deciding whether or not a tenderer should be successful.

48. It is further contended by the Department that Umso’s primary answer to the difficulty of minimal proportional contribution is Umso’ reliance on its CIDB grading. In this regard the Department argues that a CIDB grading does not confirm or record the expertise of a contractor in a particular field, nor does it record or confirm the contractor’s experience.  It is argued that CIDB ratings deal with the construction and engineering industry in general and that they do not relate to specific activities such as road building.  This too, in my view, seems to be a logical argument. As quoted by Moodley in Umso’s founding papers, in terms of section 6(1) of the CIDB Act, contractors are categorised “in a manner that facilitates public sector procurement and promotes contractor development”.  In terms of regulation 12 of the Act, CIDB gradings range from one to nine.  An 8CEPE grading (such as Umso’s) means that a civil engineering contractor is capable of performing general contracts up to R130-million in value.  Indeed, it is not disputed by the Department, upon correction of its initial error, that in terms of Umso’s CIBD grading it had the functionality and the legislated status capacity to perform a contract to the value of R130-million.

49. Reverting to section 217 of the Constitution however, there is nothing that precludes the Department from adding to the grading category a further category of preference with respect to experience and performance in the road building category specifically.  The section indeed refers to the organ of state not being prevented from providing for “categories of preference in the allocation of contracts” (see Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs [2004] ZACC 15; 2004 (4) SA 490 (CC) at 512ff; Manong & Associates (Pty) Ltd v Eastern Cape Department of Roads Transport & Others at paras [66] and [67] (unreported judgment of Schoeman J handed down in the Eastern Cape Equality Court (Bhisho) under case nos 928/2006 and 2/2008); President of the Republic of South Africa and Another v Hugo 1997 (4) SA 1 (CC) at 19).

50. In am accordingly not persuaded that Umso’s argument, that the Department erred in not accepting that its CIBD rating alone was sufficient for Umso to be promoted to the second level in the evaluation process is necessarily correct or persuasive enough for me to find that the tender conditions referred to in the notice of motion ought to be set aside.

51. This is still however, not the end of the matter.  The purpose of PAJA is to give effect to the right to administrative action that is lawful, reasonable and procedurally fair.  A party who has been adversely affected by administrative action has the right to be furnished with written reasons for such action as contemplated in section 33 of the Constitution.

52. It is common cause that:

a.        The Department is an organ of state and that its action in excluding Umso as a successful bidder constitutes administrative action.

b.         Umso has not been given written reasons for the aforesaid administrative action.

53. As I have said, Umso is entitled, in terms of section 217 of the Constitution to transparent procurement. A reasonable suspicion of bias is a sufficient ground on its own for administrative action to be taken on judicial review in terms of section 6(2)(a)(iii) of PAJA.

54. After a detailed conspectus of the history of this matter, I am of the view that Umso has succeeded in showing that there are  flaws in the Department’s procurement process which in my view tend to suggest  that the responsible officials of the Department either at some stage held the view that Umso was indeed the successful tenderer and/or at some stage during the process Umso’s input had been confused with that of Tau Pele, and that Umso (for reasons of bias or perceived bias) ended up drawing the short straw.  I say this for the following reasons:

a.        The Department’s own records and recommendations are confusing and contradictory.

b.        Umso is initially found to be non-responsive seemingly only on one ground, being its low grading. It is common cause that that finding was wrong.

c.        Umso is thereafter elevated to a responsive status, only to be shot down again for a different reason (lack of experience) which appeared not to have troubled the Department at the outset. This was on 6 December 2012.

d.        Three months later (on 13 March 2013) the chief financial officer, in a letter to IBAC confirms that the project cost would be R200 567 052 “as per the recommended bidder”.  This amount is identical to Umso’s bid which had remained consistent throughout.  Tau Pele’s bid on the other hand exceeded that of Umso in the region of R20-million.  This, in my view, is a significant difference and one in respect of which I would not expect a chief financial officer to err.

e.        Two months later IBAC issues a support certificate, supporting the Department’s recommendation to award the contract to Tau Pele to the value of Tau Pele’s bid in the sum of R220 350 000,01.

f.         This discrepancy is significant in that the Department had only budgeted for the expenditure of R135 894 000 but subsequently confirmed that the required funding as per Umso’s bid (R200 567 052) would be made available for the successful completion of the project as follows:

·      2013/14 financial year    R70 000 000

·      2014/15 financial year     110 000 000

·      2015/16 financial year       17 500 000

·      2016/17 financial year         2 567 052

g. I am alive to the fact that the Department stated in its tender notice that the lowest tender would not necessarily be accepted. However, this discrepancy of some R20-million which resulted in the contract being awarded to Tau Pele at a price of R220 350 000,01 and not in line with the chief financial officer’s confirmed project cost conclusion which was signed off by the Department’s head (the second respondent), is at the very least a challenge to cost-effective procurement envisaged in section 217 of the Constitution.

55. For all these reasons I am of the view that the Department’s conduct in declaring Umso to be non-responsive does not pass Constitutional muster and an order setting it aside in terms of section 172 would be just and equitable in the circumstances.

56. I do not however, view this to be an exceptional case which would warrant substitution. During argument before me Umso’s counsel and the Department’s counsel submitted a joint calculation reflecting that had Umso been considered responsive, it would have been the successful tenderer.  That may well be the case, in which event it should not be difficult for the Department to make such a finding expeditiously.

Costs

57. I have already alluded to the fact that the Department conceded that the award to Tau Pele should be set aside at its first reasonable opportunity. In my view, that was a concession prudently and wisely made.  Tau Pele however, has unsuccessfully resisted this finding.

58. Despite the Department’s concession, Umso have persisted with their further relief, which relief the Department has opposed. Because I intend setting aside the finding that Umso was a non-responsive bidder, Umso has been substantially successful with respect to the further relief. In the circumstances I am of the view that it would accordingly be in the interests of justice for the Department and Tau Pele to share the costs of this application.

59. The order I accordingly make is as follows:

ORDER:

1.        The findings of the first and second respondents to the effect that the applicant’s bid in respect of tender SCMU5-12/13 – 0035 was non-responsive is set aside.

2.        The contract, awarding the aforesaid tender to the third respondent is set aside.

3.        The first and the second respondents are directed to pay the costs of this application jointly and severally with the third respondent, the one paying the other to be absolved.

 

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I.T. STRETCH                                                               7 October 2014

JUDGE OF THE HIGH COURT, BHISHO

 

APPEARANCES:

Counsel for the applicant:

R. Quinn SC with N. Schultz

Instructed by:

Smith Tabata Inc.

King Williams Town

Ref.: Mr A. Conroy

 

Counsel for the first and second respondents:

R.G. Buchanan SC

Instructed by:

The State Attorney

East London

Tel 043 706 5100

Ref.: Mr D. Ngwenya

 

Counsel for the third respondent:

P.E. Jooste

Instructed by:

Honey Attorneys

Locally represented by:

Niehaus McMahon Attorneys

East London

Tel.: 043 743 3680

Ref.: Mr B. Niehaus 

Matter heard:                             19 June 2014

Judgment delivered:                  7 October 2014

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