Bohlokong Computers Solutions (Pty) Ltd v Maluti A Phofung Local Municipality (A131/2020) [2021] ZAFSHC 202 (26 August 2021)

IN

THE HIGH COURT OF SOUTH AFRICA

FREE STATE DIVISION, BLOEMFONTEIN

Reportable: YES/NO

Of Interest to other Judges: YES/NO

Circulate to Magistrates: YES/NO

Appeal Case no: A131/2020

In the matter between:

BOHLOKONG

COMPUTERS SOLUTIONS

Appellant

(PTY) LTD Registration number: 2012/205766/07

and

MALUTI

A PHOFUNG LOCAL MUNICIPALITY

Respondent

CORAM: MBHELE, J, REINDERS, J et DANISO J

HEARD ON: 17 MAY 2021

DELIVERED ON: 26 AUGUST 2021

JUDGMENT BY: MBHELE, J

[1] The appellant was an unsuccessful applicant in an application where the applicant sought an order against the respondent for payment of an amount of R6 811 406. 29 plus interest a tempore morae emanating from a written contract.

[2] The facts upon which the application in the court a quo was predicated are largely common cause.

[3] On 1 September 2015 the appellant was awarded a 3-year contract by Dihlabeng Municipality (Dihlabeng), pursuant to a tender process, to provide Information, Communication and Technology Services. The contract was to terminate on 31 August 2018.

[4] On 05 February 2016 the respondent ‘piggy backed’ on the Service Level agreement the applicant entered into with Dihlabeng and appointed the applicant as a service provider for Information, Communication and Technology services under Regulation 32 of the 2005 Municipal Supply Chain Regulations (Regulation 32). Subsequent to the appointment a Service Level Agreement was concluded on 15 February 2016.

[5] The period of the Service Level Agreement would be equivalent to the remaining period of the agreement which the applicant had with Dihlabeng.

[6] On 10 October 2018 the respondent wrote a letter to the applicant confirming that the Service Level Agreement between the applicant and the respondent came to an end on 31 August 2018 when the agreement between the applicant and Dihlabeng expired. On 13 June 2018 the respondent, through its Acting Municipal Manager, acknowledged its indebtedness to the applicant in the amount of R6 087 863.95. On 03 July 2019 the appellant responded to the respondent’s letter stating that the amount owing was R 4 247 660. 06.

[7] On 4 November 2018, two months after the contract had lapsed, the Municipal Manager at Dihlabeng wrote a letter to the applicant confirming that the contract expired on 31 August 2018. He, further, informed the appellant that the contract would be extended with effect from 4 November 2018 until 4 April 2019. The contract would now be limited to maintenance and troubleshooting. The contract was further extended until 31 October 2019.

[8] It is the appellant’s case that with the extension of the period of its contract with Dihlabeng, its contract period with the respondent was concomitantly extended.

[9] The respondent denies that it is indebted to the appellant in any amount at all. It is the respondent’s case that no contract existed between the appellant and the respondent post 31 August 2018 and that the appellant was paid in full and over compensated for the services it rendered in terms of the contract. The respondent supports this assertion in a supplementary affidavit dated 4 February 2020 with proof of electronic funds transfers amounting to R5 846 426.16 in favour of the appellant. In its view, this amount is in excess of its contractual obligation to the appellant.

[10] The respondent submits that upon proper scrutiny of its records it became apparent that the appellant was paid in full in terms of the contract. The Acting Municipal Manager attributes the acknowledgement of debt to the fact that at that time the respondent had just been placed under administration and he was mandated to act swiftly and initiate a process of entering into re- payment arrangements with all purported creditors.

[11] The court a quo found that the contract had expired and could not have been revived by a post facto unilateral notification of its extension by Dihlabeng to the appellant. The court a quo, further, found that the 10 October letter from the respondent should be viewed as a courteous notification rather than a notice of termination of the contract as the contract lapsed by effluxion of time on 31 August 2018. The court a quo did, however, not deal with the question whether the respondent was indebted to the appellant for the services rendered during the subsistence of the contract constituting the basis of the appellant’s claim.

[12] Mr. Grobler SC, on behalf of the appellant, submitted that the appellant provided services to the respondent beyond 31 August 2018 and that such services could only have been rendered after the contract was extended. He contended, further, that in determining the dispute in the current matter, the court a quo had to move to the secondary enquiry and ask why did the appellant continue to provide services to the respondent if there was no valid contract in existence. He invited us to infer that there was some form of administrative action by the appellant that sustained the contract beyond 31 August 2018.

[13] The appellant’s claim was based purely on its rights emanating from the contract. It is apposite to deal with the contract itself and the parties’ rights and obligations in terms of the said contract. The laws governing procurement by organs of state are governed by Section 217 (1) of the Constitution of 1996 (the constitution). It provides that 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 and cost effective. Ordinarily, the foundational principles set out in Section 217(1) require of the procuring authority to hold competitive bidding processes.

[14] The Constitution provides for the enactment of the national legislation that stipulates a framework within which preferential procurement must be implemented. The Preferential Procurement Policy Framework Act (PPPFA) was enacted in compliance with the aforementioned constitutional requirement. The PPPFA prescribes that an organ of state must determine its preferential procurement policy and implement it within the confines of the Act. The legislation does allow deviation from the normal processes where valid reason have been clearly set out.

[15] The Procurement in Municipalities is governed by the Local Government: Municipal Finance Management Act 5 of 2003 (The Act). The Act underpins the principles prescribed by section 217 of the Constitution. Its regulations provide for deviation from the normal processes of procurement where necessary. Regulation 32 of Municipal Supply Chain Management Regulations (Regulation 32) provides as follows:

“A supply chain management policy may allow the accounting officer to procure goods or services for the municipality or municipal entity under a contract secured by another organ of state, but only if-

a) the contract has been secured by that other organ of state by means of a competitive bidding process applicable to that organ of state;

b) the municipality or entity has no reason to believe that such contract was not validly procured;

c) there are demonstrable discounts or benefits for the municipality or entity to do so; and

d) that other organ of state and the service provider have consented to such procurement in writing.

Sub regulation (1) (c) and (d) do not apply if-

a) a municipal entity procures goods or services through a contract secured by its parent municipality; or

b) a municipality procures goods or services through a contract secured by a municipal entity of which it is the parent municipality”

[16] Regulation 32 allows a municipality or a municipal entity to dispense with the competitive bidding process provided that such municipality or municipal entity complies with the requirements stated above. The fundamental requirements set out in section 217 of the Constitution are of cardinal importance when the contracting authority elects to procure goods in terms of regulation 32. This process serves as a cost saving measure and a tool to discourage a duplication of processes for procurement of the same goods or services by organs of state. It, therefore, makes business sense that the services procured by the requesting municipality and the price thereof must be exactly the same as those procured by the originating municipality.

[17] In Blue Nightingale Trading 397 (Pty) v Amathole District Municipality 2017 (1) SA 172 (ECG) at par. 34 the court interpreted the requirements of regulation 32 as follows:

‘‘The constitutionality of the exemption will always depend on the facts of the particular case. For the exemption to operate under section 110(2) of LGMFMA, I cannot conceive compliance with the constitutional imperatives unless the goods or services procured by the second organ of state are the same as that required by the first organ of state, and the contract price is the same. If the procurement by the second organ of state had withstood the scrutiny of due process, there is no need to duplicate the same process provided the goods or services and the contract price remain the same. If not, the procurement by the first organ of state was not subjected to the due procurement processes and supply management policy, and the constitutional imperatives are not met.’

[18] It follows that the terms of the contract between the appellant and the respondent had to mirror those between the appellant and Dihlabeng. The available evidence which was admitted by the appellant in its replying affidavit is that the value of the contract between the appellant and Dihlabeng was R5 328 298.

64. The Service Level Agreement was entered into based on the amount as stated in the bid document. According to the principle set out in Blue Nightingale a service provider in a contract similar to the one between the appellant and the respondent cannot claim the amount in excess of the contract value provided for in its original contract.

[19] Of importance is that it must be clear that the municipality will earn a discount or some benefit out of electing the regulation 32 process. Paying an amount in excess of the value of the original contract is not in conformity with the purpose of Regulation 32 being to avoid excess costs. The respondent filed a supplementary answering affidavit in which it attached proof that it paid the appellant an amount of R5 846 426.16 which proof was not disputed on the papers. I have no doubt that the respondent discharged its obligations in terms of the contract.

[20] I now turn to deal with the appellant’s claim emanating from the services rendered after 31 August 2018. The appellant pursues this claim solely in terms of the written contract it entered into with the respondent. As stated above, the contract between the appellant and the respondent came to an end on 31 August 2018. The court a quo was correct in its finding that the letter written to the appellant by Dihlabeng on 04 November 2018, extending its contract, could not have revived a contract that had already lapsed by effluxion of time. Even if it is found that the Dihlabeng contract was lawfully resuscitated, its resuscitation would not have automatically revived the contract between the respondent and the appellant. Its resuscitation would have violated the requirements laid down in Regulation 32. The 10 October letter by the respondent to the appellant is an indication that the respondent had no intention to extend the contract beyond its date of termination and it served as a mere confirmation that the contract had already lapsed. The appellant disputes receipt of the 10 October letter stating that the fascimile to which the letter was sent is unknown to him even though it is the same fax number appearing on the Service Level Agreement it entered into with the respondent. On application of Plascon Evans, the appellant’s version in this regard is rejected. There was no contractual relationship existing between the appellant and the respondent post 31 August 2018.

[21] Mr. Grobler SC, relying on MEC for Health, Eastern Cape and Another v Kirkland Investments (Pty) Ltd 2014 (3) SA 481 (CC), submitted that the respondent should have brought a formal application to set aside transactions concluded after the expiry of the regulation 32 appointment on 31 August 2018. He, further, argued that procurement by an Organ of State amounts to an administrative decision which ought to be treated as though it is valid until a Court pronounces on its validity.

[22] Government procurement was entrenched in the constitution to ensure transparency, fairness and competitiveness. With no contract existing between the appellant and the respondent and notice to the appellant that its services were terminated with immediate effect, the services it rendered post 31 August 2018 were in direct violation of procurement prescripts inclusive of the Regulation 32 which founded the relationship between the parties. In Gobela Consulting v Makhado Municipality (Case no 910 /19 [2020] ZASCA 180 22 December 2020) Molemela JA remarked as follows when dealing with unsolicited services from service providers:

‘[15] Section 113 of the Municipal Finance Management Act provides that a municipal entity is not obliged to consider an unsolicited bid received outside its normal bidding process; it may do so only in accordance with a prescribed framework. Regulation 2(3) of Municipal Supply Chain Management Policy Regulations provides that no municipality or municipal entity may act otherwise than in accordance with its supply chain management policy when procuring goods or services. Regulation 12 of the same Regulations stipulates that subject to Regulation 11 (2), a competitive bidding process must be followed for procurements above the transaction value of R 200 000 and in respect of long-term contracts (ie contracts with a duration period exceeding one year). The municipality, as an organ of state, was duty-bound to discharge all its duties and functions in accordance with those procurement prescripts.

[16] The transaction value in this matter was far above the R200 000 threshold. Gobela’s own admission that its proposal was unsolicited loudly attested to the fact that no public tendering process preceded Gobela’s appointment. The fact that the municipality invited public tenders for the same service a mere three months after precluding Gobela from commencing with the training suggests that the municipality had no justification for deviating from the competitive bidding process contemplated in Regulation 12 of the applicable Supply Management Policy when it accepted Gobela’s proposal. No evidence was adduced to show otherwise. It therefore cannot be gainsaid that the municipality’s acceptance of Gobela’s proposal flouted procurement prescripts and was plainly at variance with the principle of legality. Manifestly, the Municipal Manager had no authority to do this.’

[23] In the current matter there was no administrative decision taken by the respondent, if there was any it was the one terminating the contract on 10 October 2018. It is clear that the services rendered by the appellant post 31 August 2018 were unsolicited and its claim cannot be enforced in terms of any contract. The appellant’s founding affidavit failed to lay a basis and sustain its claim emanating from non-payment of invoices which fell due and payable in terms of a written contract. It remained on site under a mistaken belief that the extension of its contract with Dihlabeng extended its contract with the respondent. Enforcement of contractual rights was a wrong vehicle for the appellant to ride in supporting its claim.

[24] It is apposite to mention that the appellant admits in paragraph 9.1 of the founding affidavit that it was paid for the services it rendered. Paragraph 9. 1 reads as follows:

‘Subsequent to the conclusion of the agreement the Applicant duly performed in terms of its scope of services. It rendered services and duly complied with the requirement of submitting invoices and received payment therefor from the Municipality.’

[25] Although there appears to be an error in the aforementioned paragraph, when the appellant’s case is contextualised and considered in its totality, the paragraph does support the respondent’s assertion that it paid the appellant in full and exceeded its obligations in terms of the contract.

[26] The appeal ought to fail. As regards to costs, there is no reason to depart from the general rule that the costs must follow the result.

[27] In the result the following order is made:

ORDER

The appeal is dismissed with costs.

N.M.MBHELE, J

I concur.

C.REINDERS, J

N.S. DANISO, J

Appearances:

For the Applicant: Adv S. Grobler SC

Instructed by

PEYPER

ATTORNEYS

BLOEMFONTEIN

For the Respondent: Adv. AE. AYAYEE

NOGE

ATTORNEYS

C/O

MODISE ATTORNEYS