South Africa

amaBhungane: Rand Water’s fuzzy tender math exposed in court

By amaBhungane 1 February 2017

The procurement practices of Rand Water have come under a harsh spotlight after the Gauteng High Court interdicted a R168-million tender for steel pipes. The judgment found that Rand Water brushed aside a lower bid that would have saved the parastatal millions of rand. By Amil Umraw for AMABHUNGANE.

The excuse used by Rand Water was a policy called the “financial tolerance principle” (FTP), which the utility claimed entitled it automatically to disqualify bids of more than 25% below its own estimate of the contract price.

Based on the FTP, it awarded the tender to Africa Pipe Industries (API) – whose bid was R14-million higher than that of a rival supplier that met the tender specifications, Hall Longmore.

The court found irregularities in Rand Water’s handling of the bids and in the utility’s bid to block Hall Longmore’s efforts to challenge its disqualification.

They included:

  • Rand Water’s estimate of a reasonable bid cost was based on an unjustifiably high steel price, in excess of any steel price over the past years;
  • Rand Water’s own tender documents did not provide for such automatic exclusion;
  • That API’s tender had also fallen outside the 25% mark, meaning API should have been excluded on the same basis;
  • That after Hall Longmore went to court, Rand Water appeared to embark on a “clear stratagem” to oppose the interdict by arguing that the contract was already too far advanced to stop, despite facts indicating this was not the case.

AmaBhungane has since established that even after the tender was set aside by the court in October last year, API and Hall Longmore reached a deal to split the work at the higher price of R168-million.

Both companies failed to respond to amaBhungane’s questions over a two-week period.

The saga began in October 2015 when Rand Water put out a tender for the supply, delivery and storage of 16km of steel pipes to augment its S1 pipeline route, which feeds water from the Vlakfontein reservoir to Midrand, the eastern suburbs of Pretoria, Mamelodi and the Thembisile Hani Municipality.

With Rand Water’s estimate for the tender at R225-million, Hall Longmore put in a bid of R154-million and API R168-million.

The court documents reveal a curious pattern of delays and lack of information in regard to the award of the tender, which was advertised in October 2015 and slated for award in December that year:

  • Rand Water asked for a 60-day extension in January 2016, and another extension the following month. Responding to questions, it said this was because of the “complexity” of the evaluation.
  • Hall Longmore was only notified that it had lost the tender in May 2016. When the company asked for reasons, it was told to apply for the information under the Promotion of Access to Information Act (PAIA) – often a lengthy process.

Rand Water spokesperson Justice Mohale said that as a public entity, Rand Water “cannot automatically disclose information and a PAIA process must be followed to protect third party information”.

In May last year Hall Longmore lodged an urgent application in the Gauteng High Court to have the tender set aside. This was ultimately granted in October.

In her judgment, the Judge Sharise Weiner found:

  • That Rand Water’s own procurement policies, its tender documents and the relevant legislation did not provide for automatic exclusion of a bidder that failed to meet the financial tolerance principle. “It clearly states that these estimates will be used to assist in the assessment of tenders,” the judgment says.
  • That API’s bid, which was 25.24% lower than Rand Water’s estimate, also fell foul of the FTP. If Hall Longmore was automatically excluded because its bid was too low, API should have been excluded on the same basis. In answer to AmaBhungane’s questions, Rand Water argued that it had “rounded off” API’s bid to the 25% threshold.
  • That Rand Water’s estimate was based on an inflated steel price. “Instead of assessing the price as against the prevailing price, [it] looked only to its estimate which was based on a price for steel which had never been the market price,” Judge Weiner concluded.
  • Rand Water was “compelling” API to continue with the order for the pipes, despite an offer by the steel supplier to both bidders, ArcelorMittal, to hold off delivery until the court proceedings were completed.

Hall Longmore told the court that an interdict was needed because a review tribunal was unlikely to cancel the tender even if it was unlawfully awarded, because the contract would have been completed by that stage.

In its response, Rand Water pleaded that any further delays would adversely affect water supply to communities.

API argued that it would suffer “catastrophic losses” because steel supplier AcelorMittal would hold it accountable for the full cost of the order.

Judge Weiner rejected these arguments, noting: “Having regard to the information now obtained from ArcelorMittal, it appears that Rand Water is compelling API to continue with the order despite ArcelorMittal’s offer to suspend same.

This seems to be a clear stratagem on Rand Water’s part to oppose the review on the basis that the contract has already been carried out, despite the lack of urgency in the implementation of this particular tender.”

She found that no one would be irreparably prejudiced by an interdict.

Despite the court ruling, amaBhungane has learnt that the parastatal – and ultimately consumers – will still pay the higher price for the work in question.

Rand Water confirmed that subsequent to the judgment it had accepted an agreement under which API and Hall Longmore would split the work.

It did not directly answer a question about the final contract price, saying only that it had awarded the contract to API. However, amaBhungane understands it will be done at the higher price.

Rand Water would also not discuss details of how the proceeds and the workload will be distributed, suggesting that amaBhungane should seek such information from the companies themselves.

Defending the FTP policy, Mohale said it was a “widely acceptable practice in the supply-chain environment … It is not contrary to either the Public Finance Management Act, the Constitution … nor the Preferential Procurement Policy Framework Act.”

He said the policy assists Rand Water “in determining the reasonableness of tendered prices at which tenders must be considered, and bidders are made aware of this principle on the outset.

Tenders that are under-priced for what is required pose a significant risk to Rand Water of contracts not being completed at all or requiring price increases and adjustments in order to complete the scope of work”.

Mohale said the exclusion of Hall Longmore was not only based on the FTP.

Rand Water is not obliged to assess the price of steel against that of any service provider. The rate applied in this instance was obtained from the Rand Water estimation database which is updated on a yearly basis and monitored by Rand Water Quantity Surveyors.

Rand Water was also not advised by Hall Longmore of the alleged discounts and rebates. rendering it impossible to determine the actual market price of the steel.”

Numerous e-mails and phone calls from amaBhungane to API and Hall Longmore went unanswered. DM

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Photo by Tim Chen via Flickr.

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