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By Zimri Attorneys
2020-11-20

Public procurement - or “tendering” - is much-talked about but in many cases, not so well understood. One of the reasons for this is that the rules related to tendering are set out in a number of pieces of legislation that do not necessarily fit neatly together. The draft Public Procurement Bill, 2020 seeks to address and remedy the fragmented nature of the legislation governing the public procurement process by creating a single regulatory framework.

 

What follows is a snapshot of the framework governing public procurement, the remedies available to aggrieved parties and also a brief look at the latest proposed changes to the process, in the form of the draft Public Procurement Bill.

 

A. Legislative framework

 

Section 217 of the Constitution of the Republic of South Africa, 1996 (the Constitution) deals with procurement by an organ of state in the national, provincial or local sphere of government. In terms of section 217(1), the procurement process is required to be: (1) fair; (2) equitable; (3) transparent; (4) competitive; and (5) cost-effective, and these requirements are also expressly stated in various pieces of legislation giving effect to the provisions of this section. Section 217(2) makes allowance for the implementation of preferential procurement policies aimed to protect or advance those disadvantaged by unfair discrimination. Section 217(3) requires national legislation to formulate a framework governing the implementation of preferential procurement policies.

 

1) National and Provincial government level

Procurement occurs at national, provincial and local spheres of the government and thus there are separate pieces of legislation dealing with each of these spheres. The Public Finance Management Act 1 of 1999 (PFMA) applies to national and provincial state departments, constitutional institutions (set out in Schedule 1 to the PFMA), major public entities (set out in Schedule 2 to the PFMA) and other public entities (set out in Schedule 3 to the PFMA), as well as the provincial legislatures. The rules enforcing the provisions set out in the PFMA are contained in the National Treasury: Regulations for Departments, Trading Entities, Constitutional Institutions and Public Entities, 2005, and the Supply Chain Management Regulations. These are also known as the “Treasury Regulations”. The National Treasury also issues practice notes, circulars and guidelines on procurement-related matters in terms of section 76(4) of the PFMA. For example, Practice Note Number SCM 2 of 2005 sets out the threshold values for the procurement of goods and services.

 

2) Local government level

At local government level, the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA) seeks to ensure “sound and sustainable management of the fiscal and financial affairs”, which includes supply chain management of all municipalities and all municipal entities. Any dealings of national and provincial organs of state with municipalities or municipal entities are also subject to the MFMA. The regulations giving effect to the MFMA are the Municipal Supply Chain Management Regulations, 2005 and the Municipal Public Private Partnership Regulations, 2005.

 

 

3) Overarching legislation

The framework governing the implementation of preferential procurement policies, as required by section 217(3) of the Constitution, is known as the Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA). This piece of legislation is applicable to procurement processes at national, provincial and municipal levels, and applies to “organs of state”, as defined in section 239 of the Constitution. In keeping with the constitutional requirements relating to procurement, section 2(1)(d) of the PPPFA allows for additional points to be awarded to tenders submitted by persons historically disadvantaged by unfair discrimination on the basis of race, gender or disability. The Preferential Procurement Regulations, 2017, give effect to the provisions of the PPPFA and include the applicable technical criteria and preference point systems.

 

While the framework above includes the key pieces of legislation directly related to public procurement, the pre-Constitutional State Tender Board Act, 1968 and the National Supplies Procurement Act, 1970, also remain applicable, adding to the complexity.

 

In addition, there are a number of more general pieces of legislation that indirectly apply to the public procurement process and cover a broad range of areas which include black economic empowerment, litigation against public institutions, anti-corruption measures and state-owned enterprises.

 

4) Instances in which prescribed procurement procedures do not apply

 

Where it is “impractical to invite competitive bids for specific procurement”, such as: (1) urgent or emergency cases; or (2) in the case of a sole supplier, Practice Note Number SCM 2 of 2005 allows procuring entities at national and provincial government levels to deviate from this process. Instead, procurement may be done by obtaining price quotations, or by negotiation, with the proviso being that a record of reasons for deviation should be kept and approved by the accounting officer.

 

At municipal level, regulation 36(1)(a) of the Municipal Supply Chain Management Regulations allows for the deviation from official procurement processes through “any convenient process”, including direct negotiations. The permissible grounds for deviation are very similar to those applicable at national and provincial government level.

 

B. Remedies for aggrieved parties

 

In understanding what legal avenues are available to those wishing to dispute an aspect related to a public procurement process, it is important to note that while process leading up to the award of a tender is an administrative process, the relationship between the party to whom the tender was awarded and the procuring entity, is governed by the law of contract.

 

It is also worth noting that there is no one administrative regulatory entity responsible for enforcing public procurement rules. Rather, a party aggrieved by a procuring entity’s decision has a number of options, which may include bringing an application for review before the High Court. In most cases, decisions relating to public procurement fall within the meaning of “administrative action”, as set out in the Promotion of Administrative Justice Act 3 of 2000 (PAJA), and section 6(2) of PAJA sets out the grounds on which a procurement process constituting administrative action may be challenged. However, before the matter proceeds to court on any of these grounds, principles of administrative law require that all internal remedies must be exhausted. This may include exercising the right to lodge a complaint with the procuring entity in terms of the PFMA or MFMA (as applicable) or utilising the procuring entity’s internal appeal procedure, if available. Where an action falls outside PAJA’s definition of “administrative action”, an application for review may be brought using the principle of legality (which includes general grounds of review such as lawfulness and rationality).

 

An aggrieved party may also want to stop a successful bidder from concluding a tender contract with the procuring entity, and executing in terms thereof, if the aggrieved party has applied for review of the decision. To do this, the aggrieved party must be able to show that the requirements for an interim interdict are satisfied. This includes that “irreparable harm” may result if the relief is not granted, and that this form of relief is the only one available. The primary purpose of such interim relief is to avoid loss that cannot be recouped in subsequent proceedings.

 

One of the requirements required for an application such as this to succeed, is that based on the facts before the court, it may be concluded that the aggrieved party will, on the face of it, succeed in its review application. Professor Geo Quinot, Director of the African Public Procurement Regulation Research Unit, states that the courts have previously awarded this form of relief where it serves to protect “the viability of later review remedies”, in instances where the procuring entity failed to meaningfully engage with the aggrieved bidders following the decision to award the tender. If an aggrieved party wishes to pursue this route, they should not delay in doing so, as it is time sensitive.

 

Where a bidder breaches public procurement rules by submitting false information or failing to disclose subcontracting information, the procuring entity (organ of state) may disqualify that bidder or terminate the contract, if already in place. In cases where bidders commit fraud, misrepresent facts, breach procurement rules or fail to deliver on what was promised, they may be added to the National Treasure’s Database of Restricted Suppliers.

 

C. Proposed changes to legislative framework

 

The draft Public Procurement Bill, 2020 (the Bill), was published for public comment on 19 February 2020 and ended on 30 June 2020. The steps proposed by the Bill to address the fragmented nature of the legislation governing the public procurement process include among other things, the repeal of the PPPFA and the Treasury Regulations, as well as the establishment of a Public Procurement Regulator within the National Treasury.

 

Another proposed change is the creation of an enabling framework for public procurement. In terms of the current legislation, there is a preference point system in place to award tenders. The Bill does not contain any guiding criteria in this regard and gives the Minister of Finance wide discretion to determine a preference point system. Further provisions included in Bill are, among other things, a supply chain management framework, measures ensuring the integrity of the procurement process and dispute resolution mechanisms.

 

While the range of responses to the Bill suggests that it may be a while before it is assented to, the move towards synchronizing an unwieldy body of legislation, is welcomed.

 

This article is intended to give general information. It is not intended to constitute legal advice or replace the need to seek legal advice. It also does not contain all the information relevant to the subject matter. Each situation is different and must be evaluated on its own merits. For advice on public procurement-related matters, you may contact us.