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Adherence to Tender Requirements: Rodpaul Construction Cc T/A Rods Construction v Ethekwini Municipality and Others

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Adherence to Tender Requirements: Rodpaul Construction Cc T/A Rods Construction v Ethekwini Municipality and Others

Adherence to Tender Requirements: Rodpaul Construction Cc T/A Rods Construction v Ethekwini Municipality and Others 

In this case, the Applicant, Rodpaul Construction CC, which was trading as Rods Construction, submitted its B-BBEE Certificate, (hereafter referred to as the Certificate), after the expiry date for the submission of certain construction work, but prior to the considering of these bids had taken place by the Bid Evaluation Committee (BEC) and the Bid Adjudication Committee (BAC).

Consequently, Rodpaul then sought to have set aside, the tender award, which had been made to the Second Respondent, Liviero Building (Pty) Ltd.

Liviero abided by the decision of the court, while the First Respondent, Ethekwini Municipality opposed the Application.

Rodpaul sought no relief against the Third and Fourth Respondents namely, the Minister of Finance, and the National Treasury (collectively referred to as the Treasury) after they delivered Opposing Affidavits.

Facts of the Case:

On 9 November 2012 Ethekwini Municipality called for Tenderers to bid for the project: ‘Ward 26: Jeff Taylor Crescent: Phase 1: Additions to the Control Centre for Ethekwini Electricity’.  (Ethekwini will hereafter be referred to as the Municipality or Ethekwini, interchangeably throughout the rest of this article).

The Invitation to Tender stated that 11h00 on 7 December 2012 was the closing time for the submitting of bids. Further notes to Tenderers explained the various rules, requirements and conditions attaching to the tender.

On 13 November 2012, Rodpaul submitted its tender, albeit without its Certificate, which was required, according to the Notice to Tender. Instead, a letter was attached from DRG Siyaya; a B-BBEE verification service, advising that it was in the process of conducting an evaluation,

Between 24 and 28 January 2013, Ethekwini’s Department of Architecture prepared its report for the BEC.

On 28 January 2013 Rodpaul submitted a new B-BBEE Certificate, which was valid for one year from 28 January 2013. Amusingly, on the same day, the report to the BEC was received by the Tenders Audited Section. Naturally this meant that Rodpaul’s Certificate was excluded from the Report.

Without its Certificate, Rodpaul scored 90 points in the evaluation process, while Liviero scored 93.60, and another tenderer scored 93.25; each with a B-BBEE Certificate.

On 11 March 2013 Ethekwini’s BEC evaluated the tenders and approved the bid from Liviero; which was subsequently approved by the BAC on 18 March 2013.

Rodpaul then lodged an Appeal against the decision of the BAC.

A Hearing was held on 19 June 2013, and afterward, on 25 July 2013, Rodpaul delivered a written argument. These two requests for an Appeal proved futile.

On 5 September 2013, Rodpaul learnt that Liviero had been awarded the tender contract, Rodpaul enquired further, only to discover that the decision had been made in August 2013.

Clearly, Ethekwini had failed in their duty to accept the bid from Rodpaul.

Rodpaul then obtained a Stay of Execution of the contract.

Legal Issues

Rodpaul’s Submissions

The reasoning behind Rodpaul not being awarded the tender was that they had not met the requirements under Notes 7 and 9.

These specific Notes stated that the Tender would be awarded based on an evaluation made in terms of the Broad-Based Black Empowerment Act (Act 53 of 2003), alongside the Preferential Procurement Policy Framework Act (Act 5 of 2000) and the Preferential Procurement Regulations under Government Gazette of 8th June 2011.

This required that all tender bidders provide a B-BBEE Certificate and a Preference Points Claim Form.

As Rodpaul had not submitted a B-BBEE Certificate, but only a letter stating that they were being evaluated, it was held that they could not claim preference points at the time.

The Municipality argued that this B-BBEE Certificate was a fixed requirement. However, Rodpaul argued that the Municipality should have taken into account that an evaluation was being done at the time, with a resulting certificate.

Rodpaul challenged the time limit requirement for the B-BBEE Certificate further.

Regulation 10(2) of the Preferential Procurement Regulations, concerned with the submissions of a B-BBEE Certificate, did not impose a time limit for Certificate submissions. This meant that Organs of State had discretion on whether or not they would receive a Certificate after the stated closing time, if it were to achieve the purposes of Section 217 of the Constitution of the Republic of South Africa, 1996.

Rodpaul then argued that Regulation 10(3) was unconstitutional – in so far as it treated the Implementation Guide as an unyielding boundary. For explanation, Regulation 10(3) required that the Certificate be submitted in compliance with published instructions and guidelines; in this case, the Implementation Guide.

It was further argued that the bid was rejected based on an interpretation of Clause 4.1 of the Implementation Guide which required that the Certificate be submitted with the bid. Rodpaul argued that this made it invalid as Regulation 10(2) did not specify that the bid and Certificate had to be submitted together.

In short, the Implementation Guide put the deadline in place for the Certificate and tender submission, rather than Regulation 10(2). Thus, since the regulation had not specified a date, Rodpaul argued that the BAC Procuring Authority had discretion to allow for Rodpaul’s late certificate submission.

They argued that it was unconstitutional that Regulation 10(3) was viewed as compulsory in having the submissions, and consequently, the time limits, prescribed by the implementation guide.

Being a subordinate instrument, Rodpaul argued that the Implementation Guide could not prescribe a time limit for submitting the Certificate, as such would amount to usurpation of the Minister’s powers.

Rodpaul therefore alleged that Regulation 10(3) of the Preferential Procurement Regulations and clause 4.1 of the Implementation Guide were inconsistent with the Constitution and consequently invalid.

Rodpaul argued that EThekwini Municipality had a discretion to condone non-compliance with the regulations and any implementation guide if they infringed upon imperatives imposed by s217 of the Constitution.

Instead, however, they elected an interpretation of the regulations that conflicted with s217 being unfair, neither transparent nor cost-effective, and failing to advance the interests of the previously disadvantaged.

Rodpaul contended that without a time limit being required by statute, it was entitled to submit the Certificate at any point before the bids were considered, and their bid must still be considered.

The constitutional challenge would fall aside following the treasury presenting their interpretation of Clause 4.1 of the Implementing Guide, which described it as a practical non-binding guide that would assist the process and comply with the regulations. It was not designed to exclude all late submissions, without regard for circumstance.

The Guide was neither legislation, nor was it to be used for legal interpretation; and therefore, publication was unnecessary.

The court held however, that the text of the Notice to Tender, and the other instruments, was a matter for judicial interpretation, and it had to be decided whether or not the Notice to Tender’s requirements were unconditional in the given circumstances.

Rodpaul further submitted that the Municipality violated the Promotion of Administrative Justice Act 3 of 2000 (PAJA) in the following respects:

Under Section 6(2)(d), Ethekwini committed a material error of law in giving the reasons that it did for rejecting Rodpaul’s bid, misinterpreting the submission of a Certificate with the tender documents by the closing date as a prerequisite for a valid bid. The result, as seen above, was that Ethekwini assumed no discretion existed to allow the Certificate and bid after the tender closing date.

Additionally, Rodpaul contended that under Section 6(2)(e)(iii) EThekwini failed to consider facts relevant to the matter.

Under Section 6(2)(f)(ii)(cc) the BAC delivered a decision that was not rationally connected to the information before it.

Section 6(2)(f)(iii)(dd) the BAC’s decision is not rationally connected to the reasons given for it.

The last three submissions came from the fact that the report to the BEC and BAC excluded Rodpaul’s Certificate.

 

Submissions for Ethekwini

In contrast to Rodpaul which concentrated its challenge on the reasoning of the BAC, Ethekwini had an argument based on the process.

It argued that the stipulations regarding the Certificate in the Notes to Tenderers were of such importance, that no exception could be allowed.

Rodpaul did not submit its bid with its tender, and the certificate that Rodpaul supplied on 28 January 2013 was neither original nor valid at the time, instead only being effective from that date forward. In the Municipality’s eyes, this failure to submit an original, valid Certificate with the tender documents rendered Rodpaul’s bid, non-compliant with the bid requirements.

The Municipality contended that it would be unprincipled and unfair to permit such a non-compliant bid.

Analysis 

Rodpaul bore the onus to prove its entitlement for their bid to be heard. This meant showing full compliance with the Tender Notice. Additionally, if they were seeking preferential procurement points, Rodpaul must prove it submitted a compliant Certificate alongside its tender application.

The BEC and BAC had evaluated Rodpaul’s bid, with the obvious exception of its Certificate.

Naturally, the question arose as to whether or not Rodpaul’s submission of the Certificate, after the closing date but before evaluation, constituted compliance with the Certificate requirement.

Three questions emerged: Whether or not –

The legislation required the filing of an original Certificate with the tender.

The BAC had a constitutional duty, under sections 33 and 217 of the Constitution, to accept Rodpaul’s Certificate, as they contended.

The reasons provided by the BAC and the appeal chairman justified their decisions to reject Rodpaul’s bid.

Legal Principles

Analysis commenced by analysing the basis of procurement law as through section 217 of the Constitution.

It was emphasised by the court, that five statutes, three regulations, Thekwini’s Targeted Procurement Policy, and Implementing Guides and Notes to Tender formed the framework that supported the Section 217 constitutional requirements for tenders to be fair, equitable, transparent, competitive, and cost-effective.

The court held that these criteria were to be considered cumulatively, with the first three criteria of fairness, equity and transparency being absolute safeguards against corruption.

Rodpaul’s bid, was considered to be the most competitive and cost-effective due to its lower price – compared to Liverio’s bid – however, Rodpaul still needed to demonstrate that their bid would comply with the remaining criteria, and that their inclusion would not harm these criteria in the process overall.

The court noted that fairness and equity were highlighted as fundamental principles in international law, due to public procurement being so prone and susceptible to corruption worldwide.

With regard to Section 39(1)(b) of the Constitution, and an eye on International Law, it was recommended that the standardisation of bidding and procurement in rules, procedures and documents was necessary to ensure consistency and fair treatment in bidding.

It was also understood by the court that both non-standard documents, and bids submitted after the deadline, were flagged as signs of possible manipulation.

Non-discriminatory standards and equal treatment regarding deadlines and confidentiality were also emphasised by the court. This suggested that bids submitted after the deadline, or which were irregular in some way, were against the principle of equality.

The court noted that the UNICITRAL Model Law on Procurement provided guidance in tender processes requiring that processes adhere to the specified manner, place, and deadline outlined in the tender invitations.

Similarly, any response to requests for clarification of tender requirements had to be communicated to all suppliers or contractors who received the solicitation documents, a mark against the Municipality, who if we remember correctly, had failed to inform Rodpaul of the successful bid, and the subsequent tender being awarded to Liviero.

The court noted that in the European Union, the Protocol Amending the Agreement on Government Procurement acknowledged that the integrity and predictability in government procurement was necessary for proper management of public resources and enhancing the performance of the Parties’ economies.

It also acknowledged the significance of transparent measures in procurement processes, avoiding conflicts of interest and corrupt practices, as well as being in line with applicable instruments such as the United Nations Convention Against Corruption.

Taking direction from Section 39(1)(c) of the Constitution, foreign law was examined, highlighting the distinction between Administrative Law governing public procurement in South Africa, and Contract Law in Canada.

Two contracts were identified in tender, in this article, named Contract A and Contract B.

Contract A governed the tendering process and was established between the bidder and the offering party. If the offeror deviated from the evaluation criteria, the bidder could challenge the offeror on the grounds of breach of contract. Contract A only became effective if the bid was compliant.

Contract B, on the other hand, was the final contract resulting from the tender award, outlining the terms and conditions for supplying goods and services. It was concluded upon acceptance of a compliant bid.

Once a bid was submitted, both express and implied obligations arose.

Appeal courts had implied a contractual term into Contract A, to ensure fair and equal treatment of all bidders, unless otherwise expressly agreed in the tender invitation for tenders or through a privilege clause. This principle aimed to safeguard the integrity of the bidding process.

The Supreme Court of Canada noted that bidders wouldn’t submit bids unless it was understood that all bidders would be treated fairly and equally.

The court noted that implying such an obligation to treat all bidders fairly and equally was consistent with protecting and promoting bidding process integrity, benefiting all participants.

Without this implied term, tenderers might face significant expenses in preparing futile bids or might choose to avoid participating in the tender process altogether.

In Canadian law, only compliant tenders had legal recourse for breach of the process by the offeror. The compliance test was either strict or substantial.

Strict compliance applied when tender language explicitly commanded it, while imprecise language invoked the substantial compliance test.

In instances of non-compliance, the courts distinguished between matters of mere formality and issues of contractual capacity.

English law introduced the principle of proportionality, where the exercise of discretionary powers had to be proportionate to the objective. Application of this principle to cases, such as J B Leadbitter & Co Limited v Devon County Council, emphasised fairness, equality, and transparency.

The courts refused to impose a duty to investigate exceptional circumstances leading to late submissions, maintaining the importance of treating all tenderers equally.

Academics emphasised the importance of rejecting bids that did not meet specifications or did not comply with other mandatory requirements of the tender invitation. Failure to do so could unfairly prejudice other bidders who relied on the original terms as set out.

South African Case Law

Rodpaul further argued that its bid would have been more competitive and cost-effective, and that Ethekwini should have evaluated its Certificate.

The case of Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer South African Social Society 2014 (1) SA 604 (CC) clarified that the test for irregularities was independent of the tender process outcome.

This case further emphasised the importance of adhering to legal requirements to ensure fairness, transparency, and efficiency. Administrators could depart from procedures if reasonable and justifiable, but any process change must be procedurally fair.

It was noted by the court that irregularities affecting the outcome could impact legal rights. The principles outlined in Allpay were endorsed in international and foreign law and academic opinion.

The court further noted that while differences existed between applications, fairness required equal evaluation of all tenders and consistent treatment of contractors. Adjusting tenders during the process, resulting in acceptance of a bid different from the initial one, undermined fairness.

The Supreme Court of Appeal (SCA) aimed for consistency by bolstering the position of administrative authorities who adhered to the principle of legality.

In Dr JS Moroka Municipality and Others v Betram (Pty) Limited [2014] JOL 31209 (SCA), the appellant municipality disqualified a tender for not providing an original tax clearance certificate as was required by the invitation to tender.

The SCA reiterated that administrative authorities generally lacked the power to waive non-compliance with peremptory requirements.

The argument that non-compliant tenders should not be disqualified for public policy reasons was rejected as it contradicted the principle of legality.

This case overruled the Millennium case to the extent that the latter suggested municipal functionaries could waive peremptory requirements in the public interest.

However, Millennium remained valid for devising remedies, as applied in Allpay.

South African National Roads Agency v Toll Collect Consortium 2013 (6) SA 356 (SCA) (Sanral) highlighted the importance of transparency in tender processes, emphasising that procurement should occur in public view.

Additionally, Metro Projects CC and Another v Klerksdorp Local Municipality and Others 2004 (1) SA 16 (SCA) acknowledged that while it might be fair to seek clarification or correction from tenderers, any action taken should not compromise the fairness, transparency, competitiveness, or cost-effectiveness of the process.

Turning to The Cases Specifically Relied on By Rodpaul:

The Supreme Court of Appeal (SCA) in Minister of Social Development and Others v Phoenix Cash & Carry – PMB CC [2007] All SA 115 (SCA) urged that public tender processes be interpreted and applied without undue reliance on form, recognising the susceptibility of tender awards to influence and manipulation.

However, unlike in Phoenix Cash & Carry, where tender requirements were found too vague, in this case, the court found that the stipulation regarding the Certificate submission was clear.

Rodpaul also relied on Azcon Projects CC v National Minister Department of Public Works, Mthatha and Another [2011] JOL 27630 (ECM) to argue against the peremptory nature of the Certificate submission timing.

However, Azcon’s situation differed as the tender notice did not specify the timing of tax certificate submission. In the current case, the Notice to Tender clearly mandated Certificate submission with the tender bid document.

The failure to submit a valid Certificate by the closing date resulted in a reduction of scoring by ten points, not disqualification of the entire bid. Rodpaul failed to provide evidence of manipulation in the process.

The importance of issuing clear deadlines for the submission of all requirements for an acceptable bid was apparent in Azcon.

An administrative authority’s decision is typically challenged based on the information available to it. If crucial information is absent, the decision cannot be faulted.

Azcon’s explanation for the delay was not presented to the department initially, emerging only during the review process.

The lack of specification regarding the tax certificate submission date placed the onus on the department to ensure all documents were submitted before bid evaluation. However, Azcon’s case did not discuss whether an internal appeal existed, which could have rectified the procedural flaw.

In contrast, Rodpaul had the opportunity to appeal, and the decision of the appeal authority is discussed below. Despite Azcon’s precedent, it did not assist Rodpaul’s case.

In Imvusa Trading 134 CC and Another v Dr Ruth Mompathi District Municipality & Others, the court permitted the submission of a fresh tax clearance certificate after the tender had closed due to the expiration of the initial certificate.

However, this case did not support Rodpaul’s argument, particularly as the validity of the judgment was questionable in light of Supreme Court of Appeal authority stating that Bid Adjudication Committees lack authority to condone non-compliance.

Regarding cases relied upon by EThekwini, Vodacom (Pty) Ltd and Another v Nelson Mandela Bay Municipality and Others, saw the court refuse to sanction a tender that allowed bidders to challenge the tender process after the closing date.

To challenge an administrative decision substantively, a complainant must demonstrate that no reasonable decision-maker could reach the decision, which sets the test for evaluation.

In Rainbow Civils CC v Minister of Transport and Public Works, the failure to submit a correct Certificate was also highlighted. The Western Cape High Court found the Certificate submission to be peremptory, and the decision maker was not aware of the defect, precluding any discussion of condonation.

The court doubted that the decision maker had discretion to condone non-compliance, and such action could raise concerns about equal treatment of tenders.

Summary of Principles

The principles gleaned from the above authorities underscored the universal importance of fairness, equity, and transparency in public procurement. This emphasis arises from the understanding that the procurement process is a competition aimed at securing the most cost-effective bid in the public interest.

Whether strict or substantial compliance is required, hinges on the interpretation of tender requirements.

As a result, procuring authorities bear a public duty to ensure clarity and precision in their tender invitations, expressly indicating whether requirements are peremptory or directory.

Standardisation of documentation and processes is advocated to foster procedural certainty and reduce reliance on the discretion of administrative authorities.

Ultimately, it falls within the discretion of the authority, not the court, to determine the prerequisites for a valid tender. Clear tender invitations enhance the fairness and adherence to the process, thereby minimising challenges from losing and non-compliant bidders, and reducing the likelihood of court intervention.

Moreover, only compliant tenderers have the right to challenge an award, while non-compliant tenderers may, at best, appeal to the authority for a waiver of strict compliance before the tender notice expires.

However, the Tender authority has discretion but no obligation, to be exercised reasonably, to grant such waivers while upholding core constitutional principles for public procurement. A waiver is not automatically granted and is contingent upon good cause being demonstrated.

Non-compliance cannot be rectified solely because the bid may be the most competitive and cost-effective.

Ultimately, decisions regarding bid awards must be reasonable, justifiable, and proportionate, meeting the standards set forth in Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Others.

Preserving the integrity of public procurement is crucial to incentivize bidders to participate despite the associated costs and inconveniences.

Application of The Law to The Facts

The Notice to Tender outlined specific requirements for the submission of documents, emphasising that failure to comply would have varying consequences.

Non-compliance with the B-BBEE Verification Certificate would result in no preference points being awarded, contrasting with non-compliance with other documents which would not disqualify the bid.

Rodpaul did not dispute the reasonableness of the tender conditions but argued that the requirement for an original Certificate was more of a formality than anything of substance.

Rodpaul contended that Ethekwini’s setting of a submission deadline lacked legislative prescription, thus not requiring strict compliance. While legislation and guidelines didn’t mandate a submission time, specifying one was deemed necessary for fair competition.

Rodpaul’s attempt to unilaterally alter the competition rules without notifying other bidders or seeking clarification on the consequences of non-compliance was deemed unreasonable.

It was revealed that Rodpaul’s Certificate was issued a month later than the submission date, raising questions about the timing of its submission in relation to the bid assessment. Rodpaul’s updated Certificate significantly improved its score, achieved through increased social and civil donations, reorganisation, and focus on higher-rated suppliers and subcontractors.

However, Rodpaul failed to clarify whether these steps were taken after the tender’s closing date, crucial for demonstrating fairness to other bidders.

Despite no prescribed time for Certificate submission, strict compliance was deemed necessary to uphold constitutional requirements. Ethekwini was not obligated to exercise discretion in accepting Rodpaul’s late Certificate.

The BAC and appeal decisions were found reasonable, with Ethekwini’s rejection of Rodpaul’s bid being consistent with legislative requirements and not a result of misinterpretation of the law.

Judgment:

The court disagreed with Rodpaul’s assertion that the initial reasons (due to the omission of Rodpaul’s letter regarding its B-BBEE analysis provided by the BAC) were factually incorrect; and Ethekwini was deemed entitled to include only relevant facts in its decision-making process.

The court held that the understanding of the risks associated with allowing late submissions of B-BBEE certificates, held by the chairman of the BAC, was deemed reasonable – particularly given Rodpaul’s expired certificate, and its possible risk to the fairness, transparency and equality of the procurement process.

The court did not need to consider the hypothetical scenario of Rodpaul seeking condonation, as it was not part of Rodpaul’s argument. The decisions of the BEC and BAC were considered reasonable and justified, and Ethekwini’s rejection of Rodpaul’s bid was upheld.

In conclusion, the case demonstrated an effort by the authority to standardise processes for efficient public procurement, ensuring fairness, equity, and transparency.

The Application was dismissed with costs.

Implications:

The implications of this judgement seem mostly like common sense, however, in a world of fallible people, they are a necessary reminder for both Public Powers and tender bidders.

To Public Powers, where one is performing public procurement, one has to ensure one meets the Constitutional imperatives of Section 217 of the Constitution, and ensures that the process is done in a way that is fair, transparent, equitable, competitive and cost-effective.

When setting out the tender invitation and any supporting documents or guidelines, it is highly important to make sure that the language is specific and clear, stating whether matters are compulsory or not.

Additionally, while the public power has the discretion to permit a non-compliant bid or associated document, there is no obligation to do so, especially given that the chief aim must be to benefit all valid bidders through ensuring the process meets those requirements of fairness, transparency and equitability.

In line with these self-same requirements, the public power should inform all bidders of all details to the procedure, including the final successful bid.

For all those tender bidders, it is worth remembering that your bid itself must meet the requirements of the tender invitation, alongside those of its supporting documents.

It is once again worth mentioning that while the procurement authorities do have discretion to permit a non-compliant bid, no obligation exists to do so. With that in mind, it would be best to ensure that deadlines are met, before trying to appeal the decision.

Remember, the fair and equal procedure is set to formalise things for the benefit of all tenderers, and not one sole bid. This would not be the case where one suspects there was some form of foul play in the procedure, but in the above case, that was clearly, not the issue at hand.

Read More:

Tender Oversight & Fairness: Dr JS Moroka v Tender Chair

Tender Validity Period: Joubert Galpin Searle Inc and Others

Tender Procedural Fairness – Millennium Waste Mgmt. v Chair. Tender Board

Adherence to Tender Requirements: Rodpaul Construction Cc T/A Rods Construction v Ethekwini Municipality and Others

Municipal Tender Processes: Deviations, Criminal Liability, and The Strength of The Municipal Finance Management Act

 

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