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State Organisations and Tenders Maximum Profit v Inxubu Yethemba Municipality

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State Organisations and Tenders Maximum Profit v Inxubu Yethemba Municipality

State Organisations and Tenders Maximum Profit v Inxubu Yethemba Municipality

State Organisations and Tenders Maximum Profit v Inxubu Yethemba Municipality

The case of Maximum Profit v Inxubu Yethemba Municipality [2021] involves critical issues related to state organisations and tenders. This dispute centres on contractual obligations and the adherence to procurement procedures by the Inxubu Yethemba Local Municipality. Maximum Profit Recovery (Pty) Ltd claims payment for services rendered, raising questions about the legality and fairness of the municipality’s tender process. 

In this case, a government institution needed services where they had to use VAT recovery services for a period of three years.

They sent out an invitation for tenderers to submit their bids to be considered. This resulted in the receipt of several responses from companies equipped to do VAT recovery services.

This case was heard in the Eastern Cape division of the High Court.

When a government institution, such as a Municipality, invites the public to bid, it is important that they follow the rules and legislation set out for them. Otherwise, it could lead, thereto, that the tender be set aside.

It is of utmost importance that not only the State Organisation, but also the public, know their rights and obligations, and also what remedies are available to the aggrieved party.

Key Facts in This Case

The tenderers were given a specific criterion that had to be followed in order to be eligible for the tender. This benchmark was in the form of a points system where tenderers were awarded points for everything that aligned with the conditions.

In order to be considered favourably for the tender, the tenderers had to accumulate a score of 70 points, otherwise they would be disqualified from the selection process. The companies ‘in the running’ for the bidding were:

Maximum Profit Recovery (Pty) Ltd: They accumulated 60 points for functionality from the required criterion.

PK Financial Consultants CC: also accepted the invitation to tender.

Eventually, Inxubu Yethembe Local Municipality awarded the tender to PK Financial Consultants CC.

After being disqualified from the tender for not achieving the required 70 points, MPR (Maximum Profit Recovery (Pty) Ltd) launched an Urgent Application to have the tender set aside.

At that point they were unaware of the fact that PK Financial Consultants had already been granted the tender. (There was supposition on their part – upon hearing that the PK had been the successful bidder – that as PK had previously done work for this Municipality they had received the award).

MPR brought the Urgent Application against the Municipality, the acting Municipal Manager, PK (Financial Consultants CC), and two other tenderers.

The Municipality, and PK, both opposed the Application and stated that it was brought prematurely because they felt that MPR had not exhausted the internal remedy system that had been put in place.

In their Notice of Motion MPR set out what they wanted to achieve with the Urgent Application. The conflict started here, as without the Notice of Motion, there would not have been any further action from the parties.

It was found here that MPR did, in fact, follow Uniform Rule 6(12), even after the Counsel for the Municipality and the Acting Municipal Manager stated that MPR did not clearly state their intention with the Urgent Application.

Unfortunately, the Municipality could not inform MPR of their intention to oppose the Application, as the application papers were served by MPR on the Municipality a day after the municipality was supposed to respond to MPR.

Up until the point where the Municipality had to give their Heads of Arguments, there were conflicting opinions between the Municipality and MPR, regarding the lateness of their respective Applications.

Legal Issues

Maximum Profit Recovery (Pty) Ltd (referred to as MPR) – being unaware that PK (Financial Consultants CC) were awarded the tender, (but fully cognisant of the fact that PK had already been doing work for the Municipality,) then applied for an Urgent Application to have the tender set aside.

MPR stated that the tender was, in fact, not open to the public. This, even though it had to be open to the public in terms of Section 217 of the Constitution of the Republic of South Africa.

The Municipality stated that due to the Covid-19 outbreak, ‘the tender could not be made open to the public’. However, the court held that the Covid-19 outbreak was not perceived as sufficient reason for Section 217 of the Constitution not being upheld.

As stated above, the tender had a criterion that needed to be followed in order for the companies to accumulate points. These accumulated points were to improve the tenderer’s chances of success.

Unfortunately for MPR records showed they had not received enough points to be consider eligible, and therefore they were disqualified from the tender.

However, upon deeper scrutiny, it was revealed that somehow, MPR had not been awarded all the points due to them, and therefore they did indeed qualify according to the criterion.

MPR were in fact the recipient of 75 accumulated points – not the 60 points that had earlier been recorded as being given to them.

The Municipality stated that at least one of the tenderer’s Board of Directors should be a Chartered Accountant in order for that tenderer to be successful in receiving the tender.

To meet this requirement, tenderers could accumulate 5 points.

The court, however, held that this would be an irrational requirement, as debt recovery services should know what they were doing, and that a qualified Chartered Accountant would simply be a redundant post.

When looking at Section 217(1) of the Constitution, it advises us that an Organ of the State (in our case, the Municipality), which contracts for goods and services, must be in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

PK’s cost for the tender would have been 15%, whereas MPR was the lowest in terms of cost and would have only charged 5%, which is a third of the cost charged by the party who was awarded the tender. This means that the Municipality did not choose the cost-effective option, and they also did not supply sufficient reasons as to why they had selected PK.

Clearly there was a lack of transparency, due to there not being sufficient or satisfactory communication regarding why PK was chosen. In addition to this selection process being unclear and imprecise, there was also an absence of competitiveness. Therefore, Section 217 of the Constitution had not been upheld.

It was obvious that on the side of MPR, the Uniform Rules of Court that were applicable, had been carefully applied, followed and upheld.

It is important to remember that conduct which does not uphold the Constitution is invalid. This is also the reason why the Court stated that the tender should be set aside, as the Court could not uphold any tender that was in contravention of our Constitution.

It was asked if the acting Municipal Manager had the authority to award the tender. This single question caused the Court to examine Section 62 of the Municipal Systems Act.

Judgment

The court found that with all the presented evidence, the tender should be set aside, and that Inxubu Yethembe Local Municipality be held responsible for the expenses of MPR’s cost of the Application.

These costs would include the employment of the two members of counsel. The court did not make provision for MPR to replace PK, as such replacements could only take place in exceptional circumstances.

MPR also wanted both the Municipality and PK to disclose to the court the invoices and payments that were made after PK’s appointment, so that MPR would have insight as to how they were awarded the tender.

However, this was rejected by the court, who stated that all the necessary information would be available in terms of the Promotion of Access to Information Act.

Summary

This case highlights how important it is to ensure that all the proper rules and regulations are followed when invitations to tenders are sent out.

It can now be used as a precedent when another case arises, dealing with an Organ of State and Tenders. We should always bear in mind that it is most important that tenders always enshrine fairness, competitiveness, cost-effectiveness and transparency.

Read More:

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

Tender Validity Period: Joubert Galpin Searle Inc and Others

Dr JS Moroka Municipality and Others v Betram (Pty) Limited and Another (937/2012) [2013] ZASCA 186; [2014] 1 All SA 545 (SCA) (29 November 2013)

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