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

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

Millennium Waste Management (Pty) Ltd. v Chairperson of the Tender Board

Tender Procedural Fairness – Millennium Waste Management (Pty) Ltd. v Chairperson of the Tender Board

LIMPOPO PROVINCE AND OTHERS (31/2007) [2007] ZASCA 165; [2007] SCA 165 (RSA); [2008] 2 ALL SA 145; 2008 (2) SA 481; 2008 (5) BCLR 508; 2008 (2) SA 481 (SCA) (29 NOVEMBER 2007)

This case was an appeal, after Prinsloo J dismissed the Appellant’s Application in the High Court. 

The Application set aside, was one that sought an order for the review and setting aside of the decision to award a tender to a Consortium called Thermopower Technology Processors/ Buhle Waste/ Afrimedicals JV.

For ease of reading, they will simply be referred to in this article, as the Consortium.

The tender in question was for the provision of the services related to the removal, treatment, and disposal of healthcare waste material from hospitals in the province of Limpopo. 

The Appellant argued that the Department of Health and Social Development had made the award after following an unfair process.

Background and History

At this point, it is important to note that legislation, dating back to the Interim Constitution, requires that independent Tender Boards be established by legislation. Itself made by the Provincial Legislatures.

In the matter at hand, the Limpopo legislature passed the Northern Transvaal Tender Board Act 2 of 1994.

This Act created the Tender Board, which naturally had the sole power to secure products and services for the province. The Board, can however, delegate any of it’s powers, to a number of persons and committees. 

The Act also empowered the MEC for Finance and Expenditure to make those regulations that would govern the Tender Process.

These regulations were to be published on 14th February 1997, and state, rather sensibly, that the procurement of goods and services for the province, can only be done through the Tender Board.

The Constitution of the Republic of South Africa, 1996, also had some requirements for tender processes. Section 217 requires that tender processes must be fair, equitable, transparent, competitive and cost-effective. 

Given that this is the Constitution; it can’t be overridden or ignored.

It should also be borne in mind that tenders and tender processes constitute administrative action, and thus, the Promotion of Administrative Justice Act 3 of 2000 (PAJA) is applicable. 

Administrative action, for those who are unfamiliar with the term, is a decision, made by an organ of state, or a natural or juristic person executing a public power, or performing a public function, in terms of an empowering provision.

This decision must have a direct, external effect, and adversely affect rights, and should not form part of the list of decisions that are specifically excluded from being considered administrative action.

With all this information carefully tucked away, we can look at the specific facts of the case.

Facts

Basically, the facts of the case were not in dispute.

The Auditor-General made an audit query, specifically concerning how the Department of Health and Social Development was failing to dispose medical waste in a manner that complied with the relevant legislation.

Naturally, the Department, (the second Respondent in this matter), acquired the necessary funds, and issued an invitation to tender for the removal, treatment and disposal of aforementioned medical waste. 

The deadline for tender proposals was 11h00 on 24th February 2005. 

The invitation contained further information, detailing, amongst others, the specifications and conditions applicable to the tender process.

Fourteen companies would timeously make their proposals to the Tender Board, at the appointed address. One of these companies would be the Appellant, another, the Consortium.

The Chairman of the Departmental Tender Committee explained that the tender proposals were evaluated in two phases:

  • Administrative Compliance, and 
  • Technical Compliance.

At the first evaluative phase of Administrative Compliance, half of the bidders were eliminated, including the Appellant, who was disqualified for not having signed a declaration of interest form.

An ad hoc technical evaluation committee was made, of two technical advisors, from the original Tender Committee, to oversee the second phase of Technical Compliance.

In this second phase, another six bidders were eliminated, leaving the Consortium alone. The technical evaluation committee recommended the Consortium’s bid be awarded the tender.

The Tender Committee would approve the recommendation of the tender to the Consortium, but would go on to require that all fourteen of the original bidders would also have their business premises inspected.

Between 8th and 10th March 2005, eleven of the fourteen bidders were to observe their businesses being inspected – including the Appellant and the Consortium.

The Appellant’s equipment was found to be outdated and unsuitable for the task at hand. 

The Award

At 18h10 on 10th March 2005, the Tender Committee held a meeting, and concluded that the Consortium was the only bidder who had made a proper Application, and was in line with legislative requirements. 

The Technical Committee resolved to make a report and the award would be granted to the Consortium, albeit with specific conditions.

Tender Committee

The Technical Committee Report

The Technical Committee report however, showed a stark contrast to the picture painted by the Tender Committee, showing that the Consortium did not meet the technical requirements with regards to “sharps” and anatomical waste. 

(Sharps, is a words used to describe waste such as needles, scalpels and other blades that can cut human skin.)

The report showed concern over the ability of the Consortium to manage the treatment of sharps and anatomical waste, and the transport of waste was also shown to not meet legal requirements.

A meeting between the tender committee and the Consortium was therefore scheduled, to make an explanation for the issues, but the award had already been made by that point.

The Application Made by the Appellant

Following this, the Appellant wrote to the Head of the Department, asking which bidder had won. 

The Department Head responded that the Consortium had won, and the Appellant had lost due to their having failed to sign a Declaration of Interest. 

The Declaration of Interest was duly completed and initialled, despite being unsigned. This would prove important further along in the proceedings.

On 25th May 2005, the Appellant launched an urgent Application, in two parts.

The first part sought an interdict that would prevent the Department from concluding a contract with the Consortium. This was to be in force, pending the outcome of the second part of the Application, which required the review and setting aside of the tender award.

However, by that time, a Service Level Agreement had already been made, and implemented between the Department and the Consortium, although unknown to the Appellant.

It is considered that these facts influenced the decision not to grant the Interdict, and despite the Application being an urgent one, it took a week before the matter was considered, at which point, it was dismissed with costs.

In the Appeal Court

The appeal saw two issues raised:

  • The first issue was whether or not, the disqualification of the Appellant’s tender constituted a violation of their right to procedural fairness.
  • The second issue considered what would be an appropriate remedy if the first issue was found in the Appellant’s favour.

Clearly, the first issue had to be the initial concern.

The First Issue

The Respondent’s counsel argued that the Appellant had been properly, and lawfully disqualified in the tender evaluation process. They argued that the language in the forms stated that non-compliance would automatically lead to disqualification. 

Also adding, that this warning made the Appellant’s disqualification procedurally fair, since they had been warned of the outcome if the forms were incorrectly signed. 

Counsel closed by stating that due to the failure to sign the Declaration of Interest, the Appellant’s tender did not meet the requirements of a valid tender, based on the definition of an acceptable tender in the Preferential Procurement Policy Framework Act 5 of 2000.

The Court did not feel this was suitable however.

Using the case of Minister of Environmental Affairs and Tourism v Pepper Bay Fishing, the previous court stated that the Tender Committee lacked the necessary authority to condone the Appellant’s failure to comply with the peremptory requirements of the tender. 

However, the Appeal Court felt that assuming a proper delegation of authority had been made by the Tender Board, Regulation 5(c) would allow the Tender Board (and thus the Tender Committee) to allow and accept a Tender Application – even where it did not meet with tender requirements – as was the case with the Appellant.

The Court 

  • went on to explain that the law did allow for the acceptance of non-compliance, where it was in the public interest, referencing the case of SA Eagle Co Ltd v Bavuma.
  • condoning the Appellant’s failure to sign, would have promoted competition among tenderers, aligning with values of competitiveness, fairness, and cost-effectiveness. These are outlined in Section 217 of the Constitution, serving the public interest. 

Additionally, the Appellant’s bid was significantly lower than the Consortium’s bid, meaning that condoning the Appellant’s bid would have been beneficial, with a cheaper result.

In determining whether or not the Appellant’s Tender met the criteria of an acceptable tender as defined in the Preferential Procurement Act, an acceptable tender is one that fully aligns with the specifications and conditions outlined in the tender document. 

  • held that when Parliament enacted the Preferential Procurement Act, it aimed to fulfil the requirements of Section 217(3) of the Constitution, which requires legislation to implement those procurement policies outlined in Section 217(2). 

As a result, the definition in the Act must be interpreted in the context of Section 217 as a whole, with a focus on promoting the spirit and objectives of the Bill of Rights, as mandated by section 39(2) of the Constitution. 

  • used the case of Chairperson: Standing Tender Committee and Others v JFE Sapela Electronics (Pty) Ltd and Others, to emphasise that the definition of “acceptable tender” it should be viewed in light of the principles of fairness, equity, transparency, competitiveness, and cost-effectiveness defined in Section 217(1) of the Constitution. 

Therefore, whether or not a tender meets the specified conditions, must be evaluated against these values.

  • thus held that when interpreting the definition of a tender, it should not be interpreted to require compliance with conditions that are irrelevant, unreasonable, or unconstitutional. 

In this case, the tender committee had rejected the Appellant’s tender due to the failure to sign a completed and initialled form, which was clearly an oversight. 

To determine if this non-compliance made the tender unacceptable, it was essential to consider the purpose of declaring interest in relation to the specific tender process.

The Respondent’s counsel had argued that the purpose of the declaration of interest was to prevent corruption, suggesting that failing to sign could suggest some intentional wrongdoing.

However, following a quick examination of the Declaration of Interest, the Court held that the failure to sign was unintentional. 

The Court further held that the tender committee did not claim that the Appellant had provided false regarding its lack of relationship with Department employees involved in tender evaluation. 

It was therefore unclear as to how signing the form would prevent corruption, as the crucial factor is the accuracy of the information provided, not the signature. The declaration clearly identified the Appellant, as would not have been done had there been deceptive intent.

The adjudication of tenders constitutes administrative action, and as a result, must follow administrative justice principles, as well as the requirements of PAJA.

The Court:

  • held that conditions, such as those used by the tender committee, should only be applied after considering tenderers’ constitutional rights. 
  • stated that the committee’s decision to eliminate the Appellant’s tender for an innocent lack of signature was unreasonable; even if based on the mistaken belief that the lack of signature violated a condition in the Preferential Procurement Act. 
  • specified that this constituted a material error of law under PAJA, resulting in one of the Appellant’s grounds for review. 
  • declared that with this in mind, further examination of the other grounds raised by the Appellant was unnecessary, although it was not just possible, but likely that they could have succeeded on multiple grounds under PAJA.

The Second Issue

The Court:

  • was of the opinion that the trial Court, in dismissing the Appellant’s Application for review, had failed to consider the provisions of Section 8 of PAJA, which require that any order granted be just and equitable. 

(To be just and equitable, an order must balance the interests of both the Applicant and the Respondents).

  • decision to focus solely on the interests of only one side, could not be allowed. 
  • with that born in mind, section 8 of PAJA provides a range of remedies, and after considering all relevant facts, the Court should have chosen an appropriate remedy.
  • held that dismissing the Application did not constitute suitable relief as envisioned in section 38 of the Constitution. 
  • or rather, the Supreme Court of Appeal was justified in intervening to correct the High Court’s error.
  • stated that invalid administrative acts often pose challenges because they are frequently acted upon before being reviewed. 

This is especially problematic in matters regarding tenders, as such decisions often result in immediate contracts followed by actions done by the tenderer to fulfil said contract. 

Setting aside the decision to accept the tender, and thereby nullifying the contract, can result in severe consequences. 

  • stated once more, that the interests of the disappointed tenderer must be carefully balanced against the broader public interest when determining a just and equitable remedy. 

It was therefore emphasised that the interests of all parties should be weighed against one another, in finding an appropriate remedy.

In this case, there were multiple interests that required balancing with one another.

The First Interest

In this case, the unfairness in procedure came from the disqualification of the Appellant’s tender during evaluation. 

The Court:

  • noted that it was acknowledged in argument, that if the decision was reviewed, the appropriate action would be for the tender board to thoroughly evaluate both tenders and determine which, if any, to accept, rather than initiating a new tender invitation process.
  • held that the Appellant’s loss was the missed opportunity for their tender to be considered. 

It was difficult to ascertain if their tender would have been accepted initially or upon a fresh evaluation, but even if their tender should have been accepted initially, their loss was potential profit from the contract, once again, would be difficult to ascertain. 

  • held that this potential loss had to be weighed against the potential harm they might suffer if their tender was not accepted upon reconsideration.

The Second Interest

The Court:

  • held that on the other hand, there was no suggestion that the Consortium was complicit in bringing about the exclusion of the tender and it must be accepted that it is an innocent party.
  • Since said since 1st May, 2005, the Consortium has fulfilled the service it tendered for. In fulfilling this contract, the Consortium made several purchases and employed several people, as well as leased premises in Polokwane to construct a waste treatment plant, likely fulfilling their contractual obligation. 

However, the cost of constructing the plant is not provided. It’s unclear how much of the capital costs would be recovered if the contract were terminated prematurely.

  • further held that terminating the tender contract could raise serious concerns from the public. Limpopo, as a province lacks the capacity to intervene directly if the contract is terminated. 

While interim measures may be possible, the specifics and associated costs are uncertain.

The Third Interest

The Court:

  • then held that another significant interest to consider was the financial impact on the public. While the price difference between the two tenders appeared substantial, it was unclear why such a gap exists.
  • could suggest either excessive profiteering by the Consortium or a significant underpricing by the Appellant. The Consortium argues that its pricing aligns with estimates for similar services in Gauteng and notes the lack of responses to previous tender calls.
  • stated that differences in tender elements such as material volume and waste disposal facilities could also contribute to the price gap. 

If the Appellant could indeed provide the service at the offered price, allowing the Consortium to continue the contract, with 29 months remaining, would result in considerable unwarranted costs to the public purse, which could be avoided by setting aside the decision.

  • was of the opinion that the potential cost to the public purse was speculative at this stage. 

If the Appellant’s tender was evaluated and found acceptable while the decision to accept the Consortium’s tender stood, a loss could occur. 

However, if the Appellant’s tender was rejected, and the decision to appoint the Consortium is overturned, there was a risk of loss and disruption. 

  • noted that while the province may hope for the Consortium to resume or renegotiate the contract, but there was no obligation for them to do so, and commercial reasons could have led them to decline. 

The province might have needed to restart the tender process, possibly resulting in higher costs. 

Meanwhile, there was a risk of interruption to medical waste collection and disposal across the province.

Considering An Appropriate Order

With all that speculation, the Court:

  • did not think an Order that creates uncertainty should be made, where there was no promise of gain but for loss and chaotic disruption when it could be avoided.
  • noted that these possible effects could have been avoided by an order that required the re-evaluation of the tenders, and setting aside the decision to accept the Consortium’s tender only if the Appellant’s tender was found to be accepted. 
  • held that such an order would have vindicated the Appellant’s rights while preventing potential disruption to the service and avoiding unwarranted loss to the public purse. 

While such an order might have resulted in loss for the Consortium if the Appellant’s tender was accepted, commercial considerations could have minimised this loss. 

  • also stated that accommodating the potential loss to the public purse was necessary. 

Such an order would have guaranteed minimal loss to the public purse and an uninterrupted service. 

If the Consortium had indeed been making heavy profits and lost the contract, any resulting loss wouldn’t have been significant. This order would have maintained a balance between the parties’ conflicting interests while considering the public interest.

  • decided that the reconsideration of the tenders should have been conducted by the tender board itself rather than the Department tender committee and the Department head.
  • was also of the opinion that although the Act allows the board to delegate its powers, it is preferable that such a critical task is handled by an independent and impartial body. 

This is supported by both the Act and regulations aim to promote values of independence and impartiality by granting the sole power to the board for procuring goods and services for the provincial government.

Further Remarks

The process followed by the tender committee in this case demonstrated a lack of expertise in tender adjudication and a misunderstanding of legislative requirements. 

Additionally, the chairman of the tender committee incorrectly reported to the Departmental head that the Consortium’s tender met all requirements, which was not the case.

This discrepancy led to a meeting with the Consortium to discuss the defects, highlighting a process that is not “fair, equitable, transparent, competitive, and cost-effective.” 

The Departmental tender committee had overlooked various legislative provisions, including Section 217 of the Constitution.

In conclusion, the Court noted that in some cases, Applicants for review promptly sought relief from the High Court, but their cases were not expediently heard. As a result, practical issues arose by the time the matter was finally decided, limiting the scope of effectively remedying the infringed rights. 

It was suggested that giving priority to these matters in the High Court, to the extent feasible, could alleviate such challenges.

Order

The Appeal was upheld with costs, including costs of two counsel, to be paid jointly and severally by the First and Second Respondents. 

The Court set aside the High Court’s Order and substituted it with the following:

(a) Declaring the exclusion of Millennium Waste Management’s tender and the acceptance of the Consortium’s tender as invalid.

(b) Directing the Tender Board to evaluate both Millennium Waste Management’s and the Consortium’s tenders and decide which should have been accepted by a specified date.

(c) Requiring the Tender Board to communicate its decision to the respective attorneys of both parties.

(d) If conditions are imposed on Millennium Waste Management’s tender, acceptance is contingent upon the company’s written acceptance of these conditions.

(e) If Millennium Waste Management’s tender is deemed acceptable, further Orders will be issued, including setting aside the previous decision and allowing the Consortium to claim due payments, while not prejudicing any legal claims the Consortium may have for losses incurred.

(f) If Millennium Waste Management’s tender is deemed unacceptable, the acceptance of the Consortium’s tender remains.

(g) If no decision is made by the Tender Board by the specified date, certain Orders will automatically come into effect.

(h) The First and Second Respondents are ordered to pay Millennium Waste Management’s costs, including those of two counsel.

Lessons That Can Be Learned From This Matter.

The lessons to be learned from this case are mostly for Tender Boards to fulfil their role appropriately, and ensure that they promote the values espoused in Section 217 of the Constitution in their Tender Processes.

In this, they must show they do not apply conditions mechanically, and do allow condonation when it would be suitable. 

It should also be mentioned that reports on the bidders should be done before the awards are granted, to ensure the successful bidder will meet all necessary requirements.

For the future bidders, and (if necessary), applicants in such a scenario, the sooner the Application is made, the better. If the tender contract is entered into between the successful bidder and the Tender Board, the ongoing operations with the related costs and services, can lead to practical difficulties in setting the award and subsequent contracts aside.

It is also worth mentioning, that though the Courts and Tender Board can condone a bid where a form was not signed, it is for your own benefit to ensure your documentation is properly completed.

Read More:

Navigating the Legal Terrain of Tenders in South Africa

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Elevated Commercial Legal Solutions by choosing Martin Vermaak Attorneys

Tender Validity Period: Joubert Galpin Searle Inc and Others

 

 

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