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24 September 2017 03:37 (South Africa)
Opinionista Pierre de Vos

Love me tender: Why ‘it’s complicated’ applies to corrupt private tender processes too

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

As the Nkandla scandal – and the various attempts to cover it up, twist the facts and discredit the messengers – demonstrates, public money (in other words, our tax money supposed to be used for the betterment of all South Africans) is often used and abused to enrich the well connected and the powerful. However, it is important to remember that it is not only politicians who benefit from this form of endemic corruption. Private companies play a large role in corrupting our system – often through the manipulation of tenders. A recent Constitutional Court judgment confirmed the importance of adhering to fair and equitable tender processes to avoid corruption or even the perception of corruption.

When the South African Social Security Agency (SASSA) decided to improve the efficiency and security of its system to pay social grants to more than 15 million South Africans who desperately need these grants, it issued a tender worth billions of Rand to select a service provider. Ultimately, it awarded the tender to Cash Paymaster Services. An unsuccessful tenderer, AllPay Consolidated Investment Holdings, eventually challenged the validity of the awarding of this tender all the way to the Constitutional Court.

In Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others the Constitutional Court (in unanimous judgment authored by justice Froneman) declared the awarding of the tender invalid. The Court did not find that any corruption was involved in the awarding of the tender. However, it did find that the awarding of the tender was invalid and has left open the possibility of nullifying Cash Paymaster’s contract to distribute social grants.

The case is important for two related reasons.

First, the Constitutional Court rejected the Supreme Court of Appeal’s (SCA’s) more permissive approach to reviewing the awarding of tenders. The SCA had declined to interfere with the awarding of the tender, holding that even if proven irregularities exist, the inevitability of a certain outcome is a factor that should be considered in determining the validity of administrative action. If the Constitutional Court had not rejected this approach of the SCA, it would have made it far more difficult for unsuccessful tender applicants to challenge the validity of the awarding of tenders.

According to the Constitutional Court the suggestion that “inconsequential irregularities” in a tender process are irrelevant when reviewing the awarding of a tender “conflates the test for irregularities and their import”. This would be problematic as it would minimise the role that procedural requirements play in ensuring equal and fair treatment of all bidders. It would also overlook the fact that the purpose of a fair process is to ensure the best outcome; the two cannot be severed.  Moreover, as the Court pointed out:

“deviations from fair process may themselves all too often be symptoms of corruption or malfeasance in the process. In other words, an unfair process may betoken a deliberately skewed process. Hence insistence on compliance with process formalities has a three-fold purpose: (a) it ensures fairness to participants in the bid process; (b) it enhances the likelihood of efficiency and optimality in the outcome; and (c) it serves as a guardian against a process skewed by corrupt influences.”

The second important principle confirmed by the Constitutional Court in this case is that the awarding of tenders must normally be reviewed by using the provisions of the Promotion of Administrative Justice Act (PAJA). It is true the starting point for an evaluation of the proper approach to an assessment of the constitutional validity of outcomes under the state procurement process is section 217 of the Constitution. After all section 217 lays down the requirement that the tendering system must be fair, equitable, transparent, competitive and cost-effective.

But the legislative framework for procurement policy under section 217 of the Constitution (and the appropriate legislation) does not seek to give exclusive content to that section, nor does it grant jurisdictional competence to decide matters under it to a court. The framework provided by section 217 provides the context within which judicial review of state procurement decisions under PAJA review grounds must be assessed.

“The requirements of a constitutionally fair, equitable, transparent, competitive and cost-effective procurement system will thus inform, enrich and give particular content to the applicable grounds of review under PAJA in a given case.”

This means that PAJA will usually be the first port of call but that PAJA will have to be interpreted in the light of the various provisions in the Constitution dealing with procurement and the administration of the state as well as the applicable legislation.

In this case there were serious irregularities with the tender process, which rendered it invalid. First, when making the initial assessment about the tender bids, the tender committee failed to ask probing questions about the Black Economic Empowerment (BEE) aspects of the bids.

The Constitutional Court confirmed for the umpteenth time that economic redress for previously disadvantaged people (which focuses in our law on disadvantage because of racism, sexism and discrimination on the basis of disability) “lies at the heart of our constitutional and legislative procurement framework”.  (This reminds us again that those who oppose fundamental race-based economic empowerment measures, oppose fundamental aspects of the Constitution and can rightly be termed anti-constitutionalists.) What is important is that when considering the BEE credentials of a company and its bid, the tender committee had to look past the possible BEE window dressing that the company put in place to pull the wool over the eyes of the members of the bid committee.

This is so, amongst other reasons, because the purpose of the Constitution – read with the relevant legislation – is not merely to afford inclusion or redistribution, but to involve black people in management and control of businesses, and to facilitate skills development. As the Court pointed out, there are grave dangers in focusing on form and not on the substance of BEE:

“Substantive empowerment, not mere formal compliance, is what matters. It makes a mockery of true empowerment if two opposite ends of the spectrum are allowed to be passed off as compliance with the substantive demands of empowerment. The one is a misrepresentation that historically disadvantaged people are in control and exercising managerial power even when that is not the case.  That amounts to exploitation. The other is to misrepresent that people who hold political power necessarily also possess managerial and business skills. Neither situation advances the kind of economic empowerment that the Procurement and Empowerment Acts envisage. Both employ charades.”

SASSA’s failure to ensure that the claimed empowerment credentials of those who tendered for this huge project were objectively confirmed when it looked into who should be on the shortlist for the awarding of this tender, was therefore fatally defective in terms of PAJA as it amounted to non-compliance with a mandatory and material condition of the tender. This also amounted to a failure to consider a relevant consideration for awarding the tender as required by PAJA.

The tender was also invalidated because of the vagueness of the tender specifications. Although vagueness is not specifically mentioned in PAJA as a ground for review, it falls within the ambit of administrative action that is otherwise “unconstitutional or unlawful”.  As the Constitutional Court has held in the past, the doctrine of vagueness is based on the rule of law which is a foundational value of the South African Constitution.

The scope of the tender was vague because SASSA did not at first specify that the successful tenderer would not only have to provide biometric verification of the identity of grant beneficiaries when they registered, but also every time they are paid a grant.

Given the confusion over the requirements of the tender on the part of both bidders and members of the Bid Evaluation Committee, the notice given by the tender documents in this case was inadequate.  It did not specify with sufficient clarity what was required of bidders. As the Constitutional Court pointed out, the “purpose of a tender is not to reward bidders who are clever enough to decipher unclear directions”.  It is in fact to elicit the best solution through a process that is fair, equitable, transparent, cost-effective and competitive.

This did not happen in the case under discussion.

Because difficult factual and legal issues arose from the invalidation of the tender, and because the information before the Court was outdated and inadequate, the Court felt that it was not be appropriate to make a decision on a just and equitable remedy in the absence of further information and argument on these issues. The Court therefore ordered the parties to tender further submissions with a view to holding another hearing on the issue of a just and equitable remedy. This will happen early next year. DM

  • Pierre de Vos
    Pierre de vos
    Pierre de Vos

    Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled 'Constitutionally Speaking', in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

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