Preferential procurement: urgent legislative reform required

By | 30th September 2010

The recent case of Sizabonke Civils CC t/a Pilcon Projects v the Zululand District Municipality and Others [case no. 10878/2009], handed down on May 12 2010 in the Kwazulu-Natal High Court, Pietermaritzburg] (the Sizabonke judgement) highlights the need for urgent legislative reform in the field of preferential procurement.

In this case the applicant (Sizabonke) sought, inter alia, a declaration that regulation 8 of the Preferential Procurement Regulations, 2001 (GN R725, GG 22549, August 10 2001, the Regulations) is invalid insofar as it is inconsistent with s2( l) of the Preferential Procurement Policy Framework Act, 5 of 2000 (the PPPFA).

Sizabonke argued that those parts of regulation 8 which mention functionality, and in particular regulation 8(3), are in conflict with the PPPFA since they envisage that points for functionality may be allocated within the 90 points required by the Act to be awarded, as a minimum, for price alone. Judge Gorven agreed with Sizabonke and noted that the PPPFA requires a minimum of 90 points to be allocated to price, while the Regulations purport to give a discretion to organs of state to allocate fewer than 90 points for price and instead allocate certain of those points for functionality. The judge held that the Act does not allow for such a discretion and, as such, regulation 8 was declared to be inconsistent with the PPPFA.

The judge was then faced with the question as to whether this inconsistency with the PPPFA warranted a declaration of invalidity in respect of the impugned Regulations. On this point judge Gorven reasoned as follows:-

  • the legislator saw fit to put in place as part of the legislative framework governing preferential procurement, a requirement that a minimum of 90 points for price must be allocated in contracts of a particular value;
  • therefore, the legislator must be taken to have intended to circumscribe the power of the third respondent (the Minister of Finance) to make regulations which conflict with this framework;
  • by making regulations which purport to give organs of state a discretion to allocate fewer than the prescribed minimum of 90 points for price, the Minister of Finance disregarded the framework put in place by the PPPFA
    and in so doing, he acted ultra vires the objects of the empowering Act and thus contrary to the principle of legality; and
  • on this basis, the judge declared the impugned Regulations to be invalid.

The fundamental problem with this finding is that Judge Gorven declares the Regulations to be invalid without more. The Judge does not really address the practicalities of this finding, which raises many fundamental questions, for example: What effect will the declaration of invalidity have on tenders that have already been sought and which are intended to be scored on price as well as functionality? What about contracts awarded pursuant to these tenders- will they be invalid? In his finding, Judge Gorven does not make provision for any transitional mechanisms to curtail the retrospective effect of his order on such tenders.

In fairness, this oversight stems from the fact that none of the parties made any meaningful representations on the effect of an unconditional declaration of invalidity, but does notwithstanding the order stands and we are left with a dilemma: does the Sizabonke judgement jeopardise all tenders that have already been sought, whether pre- or post-award, and which scored bidders for functionality at the expense of price?

In our view, it probably does although, as a judgement handed down by the Kwazulu-Natal High Court, Pietermaritzburg, it is authoritatively binding solely in that province, and strongly persuasive in other Provinces. We are respectfully of the view, however, that the finding in the judgement is binding and that courts in other provinces would, in all likelihood, follow Judge Gorven’s line of reasoning.

Thus, our advice to all organs of state, pending the requisite urgent legislative reform, would be not to award points for functionality, notwithstanding a Supply Chain Management Policy that allows as much. This would, at least temporarily, close the floodgates on a stream of potential reviews by disappointed tenderers on the basis that tenders were awarded pursuant to the framework contemplated in the invalid Regulations.

An alternative regime that could be followed is one which requires the adjudication of functionality as a separate gatekeeping exercise in order to ensure that tenderers have the required experience before points are allocated within the framework of the PPPFA. This is the regime contemplated in the Draft Preferential Procurement Regulations, 2009 and, in light of the glaring lacuna left in the wake of the Sizabonke judgement, the promulgation of these Draft Regulations cannot happen soon enough.

You can download a copy of the article as published in Without Prejudice here.