All tenders halted!

Minister of Finance v Afribusiness NPC [2022] ZACC 4

Background

On 16 February 2022, a Constitutional Court decision effectively halted public procurement for the foreseeable future – further hampering infrastructure-driven economic recovery plans (as outlined in the SONA and the Budget).   

The 2017 preferential procurement  (regulations) promulgated in terms of S5 of the Preferential Procurement Policy Framework Act (Procurement Act) introduced pre-qualification criteria relating to the advancement of designated groups. In terms of the regulations, organs of state may elect to apply a specified list of pre-qualification criteria to such groups, and only tenderers who comply with such criteria would be eligible to tender.  The tenderers must either: 

  • have a stipulated minimum B-BBEE status level; 
  • be an exempted micro enterprises (EMEs) or qualifying small enterprises (QSEs), 

Or if they don’t meet the above criteria 

  • must subcontract a minimum of 30% to the designated groups

Afribusiness applied to the High Court for an order to review and set aside the regulations arguing that the Minister acted beyond the scope of his powers in promulgating the regulations. The High Court found that the Minister did not act beyond his powers as conferred on him in terms of the Procurement Act and that the promulgation of the regulations was rational, reasonable, and fair. 

On appeal to the SCA, Afribusiness, in addition to contending that the Minister acted ultra vires in promulgating the regulations, contended that pre-qualifying criteria are contrary to the Constitution’s requirement on competitive bidding, and that the Procurement Act requires tender evaluations to, firstly, determine the highest points scorer, and then, if there are objective criteria that justify the award to the tenderer with the lowest score, organs of state may do so. 

The Minister argued that the application of pre-qualification criteria was indeed allowed under the Procurement Act inasmuch as an organ of state enjoyed a discretion to determine what qualified as an acceptable tender.

The SCA upheld the appeal and declared the Regulations invalid but suspended such declaration for 12 months, initially expiring on 2 November 2021, to enable the Minister to take corrective action.  The Minister appealed to the Constitutional Court which immediately suspended the SCA order including the 12 month suspension period. The Constitutional Court was unanimous on granting leave to appeal, given that the matter concerned a judicial review of an exercise of public power.

The minority and majority judgments diverged, however, on the reasoning and outcome of the main application and on whether the Minister acted outside his powers. This divergence arose from the reading of the words “necessary or expedient” as contained in section 5 of the Procurement Act.

According to the minority, the Minster acted within the scope of the powers conferred on him by the Procurement Act when he promulgated the regulations as he has the power to make any regulations regarding any matter that may be “necessary or expedient” to achieve the objects of the Procurement Act. 

The minority also found that the regulations were aimed at achieving the purpose of the Procurement Act and S217 of the Constitution, and that a proper reading of the regulations would demonstrate that an organ of state has discretion to implement the pre-qualification criteria. Accordingly, the minority would have upheld the appeal.

The Court’s reasoning in the majority judgment essentially held:

  • Section 217(1) of the Constitution provides that when an organ of state “contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective” and 217(2) provides that subsection (1) does not prevent organs of state “from implementing a procurement policy providing 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) of the Constitution then provides that national legislation “must prescribe a framework within which the policy referred to in [section 217(2)] must be implemented”.
  • The long title of the Procurement Act states that the Act is meant to give effect to the above Constitutional provisions.
  • Section 2(1) of the Procurement Act provides that an organ of state “must determine its preferential procurement policy”, which it must implement within the framework set out in this section. Section 5(1) of the Act –which Is central to this matter – provides that the Minister “may make regulations regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of this Act”.
  • The minority judgment stated that regulations can be made that are necessary or expedient to achieve the purpose of the Procurement Act and that that is the “only restriction” placed on the Minister’s power to promulgate regulations whereas the majority held that the words “necessary and expedient” far from being the “only restriction” actually limited the Minister’s powers and that any regulation not meeting the threshold of necessity or expedience is invalid for being beyond the scope of the empowering section.
  • What is necessary for the purpose of the Procurement Act and, by extension, for the purpose of section 217(2) of the Constitution, is provided for in section 2(1) of the Procurement Act: in terms of section 2(1), a preferential procurement policy must be determined by each individual organ of state; and it must be implemented within the framework set out in the same section.
  • The court held that: “If there already is provision in the Procurement Act for each organ of state to determine and implement its preferential procurement policy, how can it ever be necessary for the Minister to make provision by regulation for the same thing?”’ and that it “can neither be necessary nor expedient for the Minister to make regulations that seek to achieve that which can already be achieved in terms of section 2(1) of the Procurement Act.”

With respect to the majority, I agree with the minority decision and its reasoning.

Analysis

Procurement by all organs of state is at a standstill pending the outcome of an urgent application to the Constitutional Court by the Minister for clarity regarding the suspension of the Regulations.

In the interim, Treasury advised organs of state that tenders advertised before 16 February 2022 be finalised in terms of the 2017 regulations; tenders advertised on or after 16 February 2022 be held in abeyance; and that no new tenders should be advertised. This is devastating to our hopes for economic recovery.  

LNP agrees that an urgent application is required or that the Treasury directive is necessary.  The Minister has 12 months from 16 February 2022 to comply with the SCA order and until then the Regulations are valid but this makes no difference to the current status – all tenders are suspended unless issued without pre qualifying criteria.

This case underscores the overwhelming need to create a single, overarching framework governing public procurement and to give better effect to the constitutional procurement principles. Lamentably, the Public Procurement Bill is still a long way off.