Constitutional court of south africa



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CONSTITUTIONAL COURT OF SOUTH AFRICA

Case CCT 48/13

[2013] ZACC 42

In the matter between:


ALLPAY CONSOLIDATED

INVESTMENT HOLDINGS (PTY) LTD First Applicant


ALLPAY FREE STATE (PTY) LTD Second Applicant
ALLPAY WESTERN CAPE (PTY) LTD Third Applicant
ALLPAY GAUTENG (PTY) LTD Fourth Applicant
ALLPAY EASTERN CAPE (PTY) LTD Fifth Applicant
ALLPAY KWA-ZULU NATAL (PTY) LTD Sixth Applicant
ALLPAY MPUMALANGA (PTY) LTD Seventh Applicant
ALLPAY LIMPOPO (PTY) LTD Eighth Applicant
ALLPAY NORTH WEST (PTY) LTD Ninth Applicant
ALLPAY NORTHERN CAPE (PTY) LTD Tenth Applicant
MICAWBER 851 (PTY) LTD Eleventh Applicant
MICAWBER 852 (PTY) LTD Twelfth Applicant
MICAWBER 853 (PTY) LTD Thirteenth Applicant
MICAWBER 854 (PTY) LTD Fourteenth Applicant
and
CHIEF EXECUTIVE OFFICER OF THE

SOUTH AFRICAN SOCIAL SECURITY AGENCY First Respondent


SOUTH AFRICAN SOCIAL SECURITY AGENCY Second Respondent
CASH PAYMASTER SERVICES (PTY) LTD Third Respondent
EZIDLUBHEDU INVESTMENT HOLDINGS (PTY) LTD Fourth Respondent
FLASH SAVINGS AND CREDIT COOPERATIVE Fifth Respondent
ENLIGHTENED SECURITY FORCE (PTY) LTD Sixth Respondent
MOBA COMM (PTY) LTD Seventh Respondent
EMPILWENI PAYOUT SERVICES (PTY) LTD Eighth Respondent
PENSION MANAGEMENT (PTY) LTD Ninth Respondent
MASINGITA FINANCIAL SERVICES (PTY) LTD Tenth Respondent
SOUTH AFRICAN POST OFFICE Eleventh Respondent
ROMAN PROTECTION SOLUTIONS CC Twelfth Respondent
UBANK LIMITED Thirteenth Respondent
AFRICAN RENAISSANCE INVESTMENT

MANAGEMENT (PTY) LTD Fourteenth Respondent


STANDARD BANK GROUP LTD Fifteenth Respondent
NEW SOLUTIONS (PTY) LTD Sixteenth Respondent
ITHALA LTD Seventeenth Respondent
KTS TECHNOLOGY SOLUTIONS CONSORTIUM Eighteenth Respondent
and
CORRUPTION WATCH First Amicus Curiae
CENTRE FOR CHILD LAW Second Amicus Curiae

Heard on : 10 September 2013


Decided on : 29 November 2013


JUDGMENT


FRONEMAN J (Mogoeng CJ, Moseneke DCJ, Cameron J, Jafta J, Madlanga J, Mhlantla AJ, Nkabinde J, Skweyiya J, Van der Westhuizen J and Zondo J concurring):

Introduction

  1. For many people in this country the payment of social grants by the state provides the only hope of ever living in the material conditions that the Constitution’s values of dignity, freedom and equality promise. About 15 million people depend on the payment of these social grants. They are vulnerable people, living at the margins of affluence in our society.




  1. The dispute in this case turns on whether the award of a tender by the South African Social Security Agency1 (SASSA) to Cash Paymaster Services (Pty) Ltd2 (Cash Paymaster), for the countrywide payment of social grants to beneficiaries, was constitutionally valid. An unsuccessful tenderer, AllPay Consolidated Investment Holdings (Pty) Ltd3 (AllPay), contends that it was not. It brought a review application in the North Gauteng High Court, Pretoria (High Court) for the setting aside of the tender award. The High Court declared the tender process invalid, but declined to set the award aside because of the practical upheaval this would have involved.




  1. AllPay appealed to the Supreme Court of Appeal against the refusal to set the award aside, while Cash Paymaster cross-appealed the declaratory order granted by the High Court. The Supreme Court of Appeal upheld the cross-appeal, and dismissed AllPay’s appeal. Aggrieved by this, AllPay now seeks leave to appeal to this Court against the adverse orders made by the Supreme Court of Appeal.


Leave to appeal

  1. It is as well to get the old chestnut of leave to appeal out of the way immediately. Procurement disputes about the proper interpretation and application of section 217 of the Constitution4 raise constitutional matters.5 The outcome of this case is a matter of national importance and public interest. It is because procurement so palpably implicates socio-economic rights that the public has an interest in its being conducted in a fair, equitable, transparent, competitive and cost-effective manner. Here the right of access to social security for people who are unable to support themselves,6 particularly children,7 is implicated. Procurement policy under section 217 also involves the protection and advancement of persons or categories of persons disadvantaged by past unfair discrimination. The public interest in the fairness of that vital aspect of the economic transformation of our country is also clear. There are reasonable prospects of success. Leave must be granted.


Issues

  1. AllPay relied on a number of alleged irregularities in the tender process. The Supreme Court of Appeal, in the end, found that there were no unlawful irregularities, but also commented in general terms on the proper approach to matters of this kind.8 Both its findings on the irregularities and its general approach were criticised in argument before us. AllPay also sought leave to introduce further evidence before us, which it attempted and failed to introduce before the Supreme Court of Appeal.




  1. Initially, it is necessary to examine the following:

  1. The alleged irregularities in the procurement process.

  2. The proper legal approach to the existence and legal effect of proven irregularities.

  3. The application of this approach to the facts.




  1. The remaining issues will be dealt with in the light of the conclusions reached on these three aspects.


Factual background

  1. SASSA was established to unify the fragmented provincial systems under a single, national authority for the payment of social grants.9 When SASSA inherited its responsibilities, there were serious flaws in the methods of payment. Many grants were paid in cash by contracted service providers who had to transport large sums to various payment points. This resulted in serious security risks. Deficiencies in the system caused duplication of payments. Fraudulent conduct was widespread, including claims being submitted by persons who were not entitled to grants or on behalf of beneficiaries who were deceased. The existing contracts with service providers were scheduled to come to an end on 31 March 2012. There was some time pressure to ensure that a national system could become operational.




  1. On 15 and 17 April 2011, SASSA published an invitation to tender (Request for Proposals), calling on bidders to present proposals to pay social grants on SASSA’s behalf. The Request for Proposals sought solutions to several issues, but it was directed primarily at finding a payment solution that was convenient for recipients and limited the risk of theft and fraud. At several points in the Request for Proposals, SASSA made it clear that a solution involving biometric10 verification – an effective means of avoiding fraud – would be given preference.




  1. The process for accepting bids was as follows:

  1. Bidders were invited to submit bids for any number of provinces.

  1. Once the bids had been submitted, there would be a compulsory briefing session, where questions of clarification or queries concerning the requirements of the Request for Proposals were to be addressed. The briefing procedure envisaged that bidders would submit written questions by a specified date and that clarifying responses would be provided at the briefing session.

  2. The bids were to be evaluated by a Bid Evaluation Committee and awarded by a Bid Adjudication Committee. A Supply Chain Management Circular11 (Circular) indicated how the committees were to be constituted, and how their functions were to be performed.

  3. The bids were to be evaluated in two stages. At the first stage, bids would be assessed on the merit of the technical solutions offered to fulfil the requirements of the tender. Solutions that crossed a substantial threshold - scoring a minimum of 70% – would be reconsidered after a further oral presentation on functionality.

  4. Bidders whose solutions maintained a minimum score of 70% after the oral presentation would proceed to the second stage, where they would be evaluated on financial and preference-point merit.




  1. Following the Request for Proposals, SASSA held a bid clarification meeting on 12 May 2011. On 19 May 2011 SASSA provided written responses to certain of the questions posed by bidders.




  1. On 10 June 2011, SASSA issued a document (Bidders Notice 2), which it said was a final clarification regarding frequently asked questions. On the same day AllPay wrote to SASSA requesting an extension of the closing date for bid submissions. On 13 June 2011, SASSA extended the closing date for bid submissions from 15 June 2011 to 27 June 2011.




  1. Out of 21 bids received, only AllPay and Cash Paymaster met the initial 70% scoring threshold. AllPay received a 70.42% score and Cash Paymaster 79.79%. On 7 October 2011 both parties made oral presentations. These presentations were still part of the first stage of the functionality assessment. After these presentations AllPay’s score fell to 58.68% and Cash Paymaster’s score rose to 82.44%. The effect of this was that AllPay did not qualify for the next round – the assessment on finances and preference points.




  1. Satisfied with Cash Paymaster’s proposal on its financial and preference-point merits, the Bid Evaluation Committee recommended to the Bid Adjudication Committee that Cash Paymaster be awarded the contract for all nine provinces. The Bid Adjudication Committee accepted the recommendation and forwarded it to the Chief Executive Officer of SASSA,12 who awarded the tender to Cash Paymaster on 17 January 2012. On 3 February 2012 SASSA concluded the contract with Cash Paymaster to provide services for payment of social grants over a period of five years for all nine provinces. Cash Paymaster commenced its service on 1 April 2012. This litigation then ensued.


Consequences of alleged irregularities

  1. As in the Supreme Court of Appeal, the debate about the alleged irregularities centred on the following:

  1. The requirement of separate bids for the nine provinces.

  1. The composition of the Bid Evaluation Committee.

  2. The attendance of members when the Bid Adjudication Committee made its final decision.

  3. The assessment of the functionality of the black economic empowerment component of Cash Paymaster.

  4. The nature and effect of Bidders Notice 2.




  1. Although the Supreme Court of Appeal eventually decided the matter on the ground that there were no unlawful irregularities in the procurement process, AllPay and Corruption Watch13 contend that certain passages in its judgment lend themselves to an interpretation that impermissibly endorses a relaxed approach to the procedural requirements of public procurement tenders.




  1. The Supreme Court of Appeal stated that the public interest dictates that a procurement process should not be invalidated for minor, inconsequential flaws:

“There will be few cases of any moment in which flaws in the process of public procurement cannot be found, particularly where it is scrutinised intensely with the objective of doing so. But a fair process does not demand perfection and not every flaw is fatal. It was submitted that the process of procurement has a value in itself, which must lead to invalidity if the process is flawed irrespective of whether the flaw has consequences. . . . I have pointed out that the public interest has a role to play in cases of this kind. It would be gravely prejudicial to the public interest if the law was to invalidate public contracts for inconsequential irregularities.”14 (Emphasis added.)




  1. It also held that, in spite of the alleged procedural irregularities, the facts point to the inescapable conclusion that SASSA considered the technical solution offered by Cash Paymaster to be materially superior to that of AllPay according to a key criterion of the Request for Proposals:

“The [Cash Paymaster] solution was able to biometrically verify that every payment of a grant was made to an authentic beneficiary, at the time it was made, irrespective of the method of payment. The AllPay solution was not able to do that. AllPay was able to biometrically verify cash payments, but was able to verify the authenticity of beneficiaries paid electronically only once a year.”15


On this approach, regardless of whether the process was flawed, it is apparent that Cash Paymaster won the tender because its solution met all the requirements of the Request for Proposals and addressed all of SASSA’s concerns, whereas the AllPay solution did not.16


  1. AllPay argues that the Supreme Court of Appeal’s analysis was flawed. On the approach of the Supreme Court of Appeal, an inconsequential irregularity is an irregularity which, despite its existence, would not affect the final outcome of the award. On this approach, an irregularity is inconsequential when, on a hindsight assessment of the process, the successful bidder would likely still have been successful despite the presence of the irregularity. This focus on an inconsequential irregularity is a different enquiry from that commonly used where the courts look at immaterial irregularities.




  1. All the irregularities relied upon by AllPay relate to alleged non-compliance with the requirements SASSA itself set for the tender. The Supreme Court of Appeal rejected some of them on the basis that the requirements did not have the force of law and that, consequently, legal invalidity did not flow from non-compliance.17 This approach was supported by SASSA and Cash Paymaster in argument before us.




  1. The Supreme Court of Appeal also held that the procurement process did not require SASSA to investigate whether the assertion made by Cash Paymaster, that its black economic empowerment partners would manage approximately 75% of the projects, was correct.


Proper legal approach

  1. This judgment holds that:

  1. The suggestion that “inconsequential irregularities” are of no moment conflates the test for irregularities and their import; hence an assessment of the fairness and lawfulness of the procurement process must be independent of the outcome of the tender process.

  1. The materiality of compliance with legal requirements depends on the extent to which the purpose of the requirements is attained.

  2. The constitutional and legislative procurement framework entails supply chain management prescripts that are legally binding.

  3. The fairness and lawfulness of the procurement process must be assessed in terms of the provisions of the Promotion of Administrative Justice Act18 (PAJA).

  4. Black economic empowerment generally requires substantive participation in the management and running of any enterprise.

  5. The remedy stage is where appropriate consideration must be given to the public interest in the consequences of setting the procurement process aside.


(a) Fairness and lawfulness independent of result

  1. To the extent that the judgment of the Supreme of Court of Appeal may be interpreted as suggesting that the public interest in procurement matters requires greater caution in finding that grounds for judicial review exist in a given matter, that misapprehension must be dispelled. So too the notion 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.




  1. This approach to irregularities seems detrimental to important aspects of the procurement process. First, it undermines the role procedural requirements play in ensuring even treatment of all bidders. Second, it overlooks that the purpose of a fair process is to ensure the best outcome; the two cannot be severed. On the approach of the Supreme Court of Appeal, procedural requirements are not considered on their own merits, but instead through the lens of the final outcome. This conflates the different and separate questions of unlawfulness and remedy. If the process leading to the bid’s success was compromised, it cannot be known with certainty what course the process might have taken had procedural requirements been properly observed.




  1. Once a ground of review under PAJA has been established there is no room for shying away from it. Section 172(1)(a) of the Constitution requires the decision to be declared unlawful. The consequences of the declaration of unlawfulness must then be dealt with in a just and equitable order under section 172(1)(b).19 Section 8 of PAJA gives detailed legislative content to the Constitution’s “just and equitable” remedy.20




  1. This clear distinction, between the constitutional invalidity of administrative action and the just and equitable remedy that may follow from it, was not part of our pre-constitutional common-law review. The result was that procedure and merit were sometimes intertwined, especially in cases where the irregularity flowed from an error of law.21 This was not, however, a general rule and did not necessarily apply where procedural fairness was compromised.22 Even under the common law the possible blurring of the distinction between procedure and merit raised concerns that the two should be not be confused:

“Procedural objections are often raised by unmeritorious parties. Judges may then be tempted to refuse relief on the ground that a fair hearing could have made no difference to the result. But in principle it is vital that the procedure and the merit should be kept strictly apart, since otherwise the merits may be prejudged unfairly.”23




  1. There is a further consideration. As Corruption Watch explained, with reference to international authority and experience,24 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.


(b) Materiality

  1. Under the Constitution there is no reason to conflate procedure and merit. The proper approach is to establish, factually, whether an irregularity occurred. Then the irregularity must be legally evaluated to determine whether it amounts to a ground of review under PAJA. This legal evaluation must, where appropriate, take into account the materiality of any deviance from legal requirements, by linking the question of compliance to the purpose of the provision, before concluding that a review ground under PAJA has been established.




  1. Once that is done, the potential practical difficulties that may flow from declaring the administrative action constitutionally invalid must be dealt with under the just and equitable remedies provided for by the Constitution and PAJA. Indeed, it may often be inequitable to require the re-running of the flawed tender process if it can be confidently predicted that the result will be the same.25




  1. Assessing the materiality of compliance with legal requirements in our administrative law is, fortunately, an exercise unencumbered by excessive formality. It was not always so. Formal distinctions were drawn between “mandatory” or “peremptory” provisions on the one hand and “directory” ones on the other, the former needing strict compliance on pain of non-validity, and the latter only substantial compliance or even non-compliance.26 That strict mechanical approach has been discarded.27 Although a number of factors need to be considered in this kind of enquiry, the central element is to link the question of compliance to the purpose of the provision. In this Court O’Regan J succinctly put the question in ACDP v Electoral Commission as being “whether what the applicant did constituted compliance with the statutory provisions viewed in the light of their purpose”.28 This is not the same as asking whether compliance with the provisions will lead to a different result.


(c) Procurement framework legality

  1. In Steenkamp, Moseneke DCJ stated:

“Section 217 of the Constitution is the source of the powers and function of a government tender board. It lays down that an organ of State in any of the three spheres of government, if authorised by law may contract for goods and services on behalf of government. However, the tendering system it devises must be fair, equitable, transparent, competitive and cost-effective. This requirement must be understood together with the constitutional precepts on administrative justice in section 33 and the basic values governing public administration in section 195(1).”29 (Footnotes omitted.)


In Millennium Waste the Supreme Court of Appeal (per Jafta JA) elaborated:
“The . . . Constitution lays down minimum requirements for a valid tender process and contracts entered into following an award of tender to a successful tenderer (section 217). The section requires that the tender process, preceding the conclusion of contracts for the supply of goods and services, must be ‘fair, equitable, transparent, competitive and cost-effective’. Finally, as the decision to award a tender constitutes administrative action, it follows that that the provisions of [PAJA] apply to the process.” (Footnotes omitted.)


  1. 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 thus section 217 of the Constitution:

“(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for―

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