(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.”
The national legislation prescribing the framework within which procurement policy must be implemented is the Preferential Procurement Policy Framework Act30 (Procurement Act). The Public Finance Management Act31 is also relevant.
An “acceptable tender” under the Procurement Act is any “tender which, in all respects, complies with the specifications and conditions of tender as set out in the tender document”.32 The Preferential Procurement Regulations33 (Procurement Regulations) define a tender as “a written offer in a prescribed or stipulated form in response to an invitation by an organ of state for the provision of services, works or goods, through price quotations, advertised competitive tendering processes or proposals”.34
An organ of state must indicate in the invitation to submit a tender:
if that tender will be evaluated on functionality;
that the evaluation criteria for measuring functionality are objective;
the evaluation criteria, weight of each criterion, applicable values and minimum qualifying score for functionality;
that no tender will be regarded as an acceptable tender if it fails to achieve the minimum qualifying score for functionality as indicated in the tender invitation; and
that tenders that have achieved the minimum qualification score for functionality must be evaluated further in terms of the applicable prescribed point systems.35
The object of the Public Finance Management Act is to “secure transparency, accountability and sound management of the revenue, expenditure, assets and liabilities of the institutions” to which it applies, SASSA being one of them. Section 51(1)(a)(iii) provides that an accounting authority for a public entity must ensure and maintain “an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective”.
The Treasury Regulations issued pursuant to section 76 of the Public Finance Management Act require the development and implementation of an effective and efficient supply chain management system for the acquisition of goods and services that must be fair, equitable, transparent, competitive and cost-effective.36 In the case of procurement through a bidding process the supply chain management system must provide for the adjudication of bids through a bid adjudication committee; the establishment, composition and functioning of bid specification, evaluation and adjudication committees; the selection of bid adjudication members; bidding procedures; and the approval of bid evaluation and/or adjudication committee recommendations.37 The accounting officer or accounting authority must ensure that the bid documentation and the general conditions of contract are in accordance with the instructions of the National Treasury,38 and that the bid documentation includes evaluation and adjudication criteria, including criteria prescribed by the Procurement Act and the Broad-Based Black Economic Empowerment Act39 (Empowerment Act).40
SASSA issued the Circular establishing a Bid Specification Committee, a Bid Evaluation Committee and a Bid Adjudication Committee and their competencies in terms of regulation 16A6.2. It also issued the Request for Proposals in compliance with its legal obligations under the constitutional and legislative procurement framework. There is no dispute that it did so in a legally proper manner. The Circular and the Request for Proposals, read together with the constitutional and legislative procurement provisions, thus constituted the legally binding and enforceable framework within which tenders had to be submitted, evaluated and awarded.41 This was made clear in the Request for Proposals. It expressly stated that the Constitution, the Procurement Act, the Social Assistance Act,42 the South African Social Security Agency Act43 and the Public Finance Management Act would apply during the adjudication of the bids. The Request for Proposals, all the appended documentation and the proposal in response thereto, read together, formed the basis for the formal contract “to be negotiated and finalised between SASSA and the Successful Bidder/s to whom SASSA awards the contract in whole or in part.”44
In Firechem45 Schutz JA, dealing with a situation where the award of a tender outside the applicable legal framework arose, stated:
“One of the requirements . . . is that the body adjudging tenders be presented with comparable offers in order that its members should be able to compare. Another is that a tender should speak for itself. Its real import may not be tucked away, apart from its terms. Yet another requirement is that competitors should be treated equally, in the sense that they should all be entitled to tender for the same thing. Competitiveness is not served by only one or some of the tenderers knowing what is the true subject of tender. . . . That would deprive the public of the benefit of an open competitive process.”46
In Steenkamp this Court stated that tender processes require “strict and equal compliance by all competing tenderers on the closing day for submission of tenders.”47
Compliance with the requirements for a valid tender process, issued in accordance with the constitutional and legislative procurement framework, is thus legally required. These requirements are not merely internal prescripts that SASSA may disregard at whim.48 To hold otherwise would undermine the demands of equal treatment, transparency and efficiency under the Constitution.49 Once a particular administrative process is prescribed by law, it is subject to the norms of procedural fairness codified in PAJA. Deviations from the procedure will be assessed in terms of those norms of procedural fairness. That does not mean that administrators may never depart from the system put into place or that deviations will necessarily result in procedural unfairness. But it does mean that, where administrators depart from procedures, the basis for doing so will have to be reasonable and justifiable, and the process of change must be procedurally fair.50
(d) Procurement framework and PAJA
This Court has stated that a cause of action for the judicial review of administrative action now ordinarily arises from the provisions of PAJA and not directly from the right to just administrative action in section 33 of the Constitution.51 The grounds for judicial review under PAJA are contained in section 6, which reads in relevant part:
“(1) Any person may institute proceedings in a court or a tribunal for the judicial review of an administrative action.
(2) A court or tribunal has the power to judicially review an administrative action if―
(a) the administrator who took it―
(i) was not authorised to do so by the empowering provision;
(ii) acted under a delegation of power which was not authorised by the empowering provision; or
(iii) was biased or reasonably suspected of bias;
(b) a mandatory and material procedure or condition prescribed by an empowering provision was not complied with;
(c) the action was procedurally unfair;
(d) the action was materially influenced by an error of law;
(e) the action was taken―
(i) for a reason not authorised by the empowering provision;
(ii) for an ulterior purpose or motive;
(iii) because irrelevant considerations were taken into account or relevant considerations were not considered;
(iv) because of the unauthorised or unwarranted dictates of another person or body;
(v) in bad faith; or
(vi) arbitrarily or capriciously;
(f) the action itself―
(i) contravenes a law or is not authorised by the empowering provision; or
(ii) is not rationally connected to―
(aa) the purpose for which it was taken;
(bb) the purpose of the empowering provision;
(cc) the information before the administrator; or
(dd) the reasons given for it by the administrator;
(g) the action concerned consists of a failure to take a decision;
(h) the exercise of the power or the performance of the function authorised by the empowering provision, in pursuance of which the administrative action was purportedly taken, is so unreasonable that no reasonable person could have so exercised the power or performed the function; or
(i) the action is otherwise unconstitutional or unlawful.”
It is apparent from section 6 that unfairness in the outcome or result of an administrative decision is not, apart from the unreasonableness ground,52 a ground for judicial review of administrative action. That is nothing new. The section gives legislative expression to the fundamental right to administrative action “that is lawful, reasonable and procedurally fair” under section 33 of the Constitution. It is a long-held principle of our administrative law that the primary focus in scrutinising administrative action is on the fairness of the process, not the substantive correctness of the outcome.
The legislative framework for procurement policy under section 217 of the Constitution does not seek to give exclusive content to that section, nor does it grant jurisdictional competence to decide matters under it to a specialist institution.53 The framework thus provides the context within which judicial review of state procurement decisions under PAJA review grounds must be assessed.54 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. The facts of each case will determine what any shortfall in the requirements of the procurement system – unfairness, inequity, lack of transparency, lack of competitiveness or cost-inefficiency – may lead to: procedural unfairness, irrationality, unreasonableness or any other review ground under PAJA.
Doing this kind of exercise is no different from any other assessment to determine whether administrative action is valid under PAJA. In challenging the validity of administrative action an aggrieved party may rely on any number of alleged irregularities in the administrative process. These alleged irregularities are presented as evidence to establish that any one or more of the grounds of review under PAJA may exist. The judicial task is to assess whether this evidence justifies the conclusion that any one or more of the review grounds do in fact exist.
Section 217 of the Constitution, the Procurement Act and the Public Finance Management Act55 provide the constitutional and legislative framework within which administrative action may be taken in the procurement process. The lens for judicial review of these actions, as with other administrative action, is found in PAJA. The central focus of this enquiry is not whether the decision was correct, but whether the process is reviewable on the grounds set out in PAJA. There is no magic in the procurement process that requires a different approach. Alleged irregularities may differ from case to case, but they will still be assessed under the same grounds of review in PAJA. If a court finds that there are valid grounds for review, it is obliged to enter into an enquiry with a view to formulating a just and equitable remedy. That enquiry must entail weighing all relevant factors, after the objective grounds for review have been established.
(e) Black economic empowerment
The transformation that our Constitution requires includes economic redress. In the context of the past exclusion of black people from access to mineral resources Mogoeng CJ stated in Agri SA:56
“[B]y design, the MPRDA is meant to broaden access to business opportunities in the mining industry for all, especially previously disadvantaged people. It is not only about the promotion of equitable access, but also about job creation, the advancement of the social and economic welfare of all our people, the promotion of economic growth and the development of our mineral and petroleum resources for the common good of all South Africans.”57
Economic redress for previously disadvantaged people also lies at the heart of our constitutional and legislative procurement framework. Section 217(2) provides for categories of preference in the allocation of contracts and the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination. Section 217(3) provides for the means to effect this, in the form of national legislation that must prescribe a framework within which the policy must be implemented.
The Procurement Act provides that an organ of state must determine its preferential procurement policy within a preference-point system for specific goals, which may include “contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability”.58 The Procurement Regulations provide more detail on the evaluation for functionality59 and the price-preference system.60 In relation to the latter it sets out how points should be awarded to a tenderer for attaining a Broad-Based Black Economic Empowerment (B BBEE) status level of contributor.61 B-BBEE status level means the status level acquired in terms of the provisions of the Empowerment Act.
The definition of broad-based black economic empowerment under the Empowerment Act indicates an intention not merely to afford inclusion or redistribution, but to involve black people in management and control of businesses, and to facilitate skills development. “Broad-based black economic empowerment” means―
“the economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socio-economic strategies that include, but are not limited to: increasing the number of black people that manage, own and control enterprises and productive assets; facilitating ownership and management of enterprises and productive assets by communities, workers, cooperatives and other collective enterprises; human resource and skills development; achieving equitable representation in all occupational categories and levels in the workforce; preferential procurement; and investment in enterprises that are owned or managed by black people”.62 (Emphasis added.)
The objectives of the Empowerment Act similarly place an emphasis on management, control and skills development. They state:
“The objectives of this Act are to facilitate broad-based black economic empowerment by―
(a) promoting economic transformation in order to enable meaningful participation of black people in the economy;
(b) achieving a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new enterprises;
(c) increasing the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training;
(d) increasing the extent to which black women own and manage existing and new enterprises, and increasing their access to economic activities, infrastructure and skills training;
(e) promoting investment programmes that lead to broad-based and meaningful participation in the economy by black people in order to achieve sustainable development and general prosperity;
(f) empowering rural and local communities by enabling access to economic activities, land, infrastructure, ownership and skills; and
(g) promoting access to finance for black economic empowerment.”63 (Emphasis added.)
Various Codes of Good Practice have also been issued under the Empowerment Act. These include measures and scores of management control and of skills development.64 The Empowerment Act and the regulations make it clear that broad and sustainable involvement by black people is required, and that the development and transfer of the necessary skills are an integral part of such transformation.65
The Request for Proposals echoed this emphasis on substantive participation by historically disadvantaged people in the management and control of the successful tenderer. It provided that preference points for historically disadvantaged individuals “are calculated on their percentage shareholding in a business, provided that they are actively involved in and exercise control over the enterprise”.66 Equity ownership was defined as “the percentage ownership and control, exercised by individuals in an enterprise”67 and is equated to the percentage of an enterprise which is owned by historically disadvantaged individuals “who are actively involved in the management and daily business operations of the enterprise and exercise control over the enterprise, commensurate with their degree of ownership”.68 Where individuals “are not actively involved in the management and daily business operations and do not exercise control over the enterprise commensurate with their degree of ownership, equity ownership may not be claimed”.69
In Viking Pony70 this Court, in relation to a specific complaint, held:
“The complaint is that the historically disadvantaged individuals neither exercised control over the tendering enterprise nor were they actively involved in its management, to the extent commensurate with their degree of ownership. The converse is the requirement for awarding preference points in terms of regulation 13. It follows from this regulation that it is not enough merely to have the historically disadvantaged individuals holding the majority shares in a tendering enterprise. The exercise of control and the managerial power actually wielded by the historically disadvantaged individuals, in proportion to their shareholding, are what matter.” (Emphasis added.)
The Court further held that an investigation into “[w]hat happens behind the scenes matters the most when the shareholding is said to be a façade”.71 Does this mean that an investigation into the propriety of empowerment credentials becomes necessary only after a complaint has been lodged, and that there was no obligation on SASSA to ensure that the empowerment credentials of the prospective tenderers were investigated and confirmed before the award was finally made? I think not, for the reasons that follow.
Substantive empowerment, not mere formal compliance, is what matters.72 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.
(f) Approach to remedy
Once a finding of invalidity under PAJA review grounds is made, the affected decision or conduct must be declared unlawful and a just and equitable order must be made. It is at this stage that the possible inevitability of a similar outcome, if the decision is retaken, may be one of the factors that will have to be considered. Any contract that flows from the constitutional and statutory procurement framework is concluded not on the state entity’s behalf, but on the public’s behalf. The interests of those most closely associated with the benefits of that contract must be given due weight. Here it will be the imperative interests of grant beneficiaries and particularly child grant recipients in an uninterrupted grant system that will play a major role. The rights or expectations of an unsuccessful bidder will have to be assessed in that context.
Application of law to the facts
In accordance with the approach set out above it is now necessary to consider whether the evidence on record establishes the factual existence of any irregularities and, if so, whether the materiality of the irregularities justifies the legal conclusion that any of the grounds for review under PAJA exist.
The materiality of irregularities is determined primarily by assessing whether the purposes the tender requirements serve have been substantively achieved. One of the main objects of SASSA, in establishing a new system for the payment of social grants, was to ensure proof of life of beneficiaries as an integral part of the payment process and to reduce fraud, corruption and leakage at the point of payment. The verification requirements, whether preferential or mandatory, were thus an important part of the Request for Proposals. This important overall purpose of the Request for Proposals must be kept in mind when assessing whether any non-compliance with its particular provisions was material. It is also necessary, however, to emphasise the particular nature of the process. The first stage, that of functionality, determined who would be able to proceed to the second stage, that of assessment on price. Disqualification at the first stage meant that there was no possibility for a bidder who may have scored better on price in the second stage to be considered at all.
Before moving on it is necessary, briefly, to refer to an argument raised by SASSA, namely that PAJA’s procedural fairness provisions are not implicated because it has not been shown that AllPay’s rights or legitimate expectations have been materially and adversely affected by the conduct in relation to each of the irregularities.73 That assertion is not correct.
First, tenderers have a right to a fair tender process, irrespective of whether they are ultimately awarded the tender.74 Second, the subject matter of the review is the decision to award the contract to Cash Paymaster, not each decision along the way in the process. Third, the “no effect” argument wrongly seeks to splinter the process in asserting that AllPay’s rights were not affected. The decision to exclude AllPay from the second, pricing stage certainly affected its rights and legitimate expectations. Because of its exclusion we are not in a position to know what the outcome of the pricing stage would have been; it is mere speculation. Fourth, in Grey’s Marine75 it was stated, with reference to the phrase “adversely affect the rights of any person” in section 1 of PAJA,76 that what “was probably intended [was] rather to convey that administrative action is action that has the capacity to affect legal rights.” 77 Irregularities in the process, which may also affect the fairness of the outcome, certainly have the capacity to affect legal rights.78