Civil and General Contractors CC v Chris Hani District Municipality and Others (CA8/2017) [2017] ZAECGHC 128 (14 December 2017)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION – GRAHAMSTOWN

Case No: CA 8/2017

In the matter between:

CIVIL & GENERAL CONTRACTORS CC

Appellant

and

CHRIS HANI DISTRICT MUNICIPALITY

First Respondent

THE CHAIRMAN OF THE BID ADJUDICIATION

COMMITTEE NOMINE OFFICIO

Second Respondent

COMMSHELF 55 TRADING AS URBAN AFRICA

SERVICES

Third Respondent

JUDGMENT

MALUSI J:

[1] The central issue in this appeal is compliance with the prescribed conditions for a valid tender process. The appellant (Civil & General contractors) approached the court a quo for an order reviewing and setting aside an award of a tender to the third respondent (Urban Africa Services) by the first respondent (the municipality). Smith J dismissed the application with costs. The appeal is with leave of the court a quo.

[2] During June 2015 the municipality invited tenders for the construction of bulk water supply at Hewu and the upgrade of the Sada water treatment works. A total of 13 tenders were received by the municipality on 31 July 2015 at 12h00 which was the stipulated deadline. Immediately thereafter, the tender amount of each tenderer was read out in public.

[3] The municipal supply chain policy provided for a two stage procedure in evaluating the tender. The pre-valuation encompassed the checking of documents contained within the tender against a checklist. Upon completion, the tender documents were forwarded

to a firm of consulting engineers appointed by the municipality to provide it with a technical evaluation of all the tenders received.

During August 2015 the consulting engineers prepared a tender adjudication report for consideration by the Bid Evaluation Committee

of the municipality. The pertinent point stated by the engineers was that Urban Africa Services was not tax compliant despite the latter having submitted a valid tax clearance certificate in the tender. They deemed Urban Africa Services tender non-responsive.

[4] The first stage involved the Bid Evaluation Committee evaluating the tenders. On 19 October 2015 the committee recommended that the tender be awarded to Civil and General Contractors as proposed in the engineers’ report. The committee determined that seven tenders were non-responsive to the tender invitation. Four other tenders, including Urban Africa Services, were deemed to have failed to comply with the conditions of tender because their tax affairs were not in order. These four were disqualified.

[5] The second stage was undertaken by the Bid Adjudication Committee to determine the successful tenderer. On 23 October 2016 the committee reinstated Urban Africa Services which had been disqualified in the first stage and recommended the award of the tender to it. The committee considered the disqualification as ‘palpably wrong’ due to the fact that a valid tax clearance certificate was submitted by the tenderer.

[6] On 9 November 2015 the municipal manager of the municipality accepted the recommendation of the Bid Adjudication Committee. He awarded the tender to Urban Africa Services and informed Civil and General Contractors that it was unsuccessful. After some exchange of correspondence with the municipality, Civil and General Contractors launched the application in the court a quo. It obtained an interim interdict prohibiting the municipality from concluding a written agreement with Urban African Services, pending review proceedings.

[7] Smith J held that the award of the tender was in accordance with the law and therefore valid. The learned judge reasoned that the tax clearance certificate submitted by Urban Africa Services was prima facie proof that its tax affairs were in order. He considered the basis for Urban Africa Services’ disqualification to be

‘unconvincing, flimsy and improper’.

[8] In the notice of appeal, it was asserted that the court a quo erred in finding that submitting an original tax clearance certificate was sufficient compliance with the peremptory requirements in the tender documents. It was contended that the municipality was obliged to make independent enquiries from SARS despite the original tax clearance certificate. The court a quo was assailed for evaluating the cogency of the reasons provided by the consulting engineers in recommending the disqualification of Urban Africa Services.

[9] The question to be determined in this appeal is whether or not the court a quo erred in finding that the municipality made a reasonable decision in awarding the tender to Urban Africa Services. It is necessary to consider the relevant statutes, regulations, policies and the tender conditions.

[10] Section 217(1) of the Constitution provides that when an organ of state contracts for goods and services ‘it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective’. Section 217(2) provides that a preferential procurement policy is allowed under sec 217(1). Section 217(3) states that national

legislation ‘must prescribe a framework within which the [preferential procurement] policy referred to in subsection (2) must be implemented’.

[11] The Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) is the national legislation envisaged in the Constitution. The PPPFA requires a municipality to implement a procurement policy by following a preference point system in respect of any ‘acceptable tender’. Section 1 defines this as ‘any tender which, in all respects, complies with specifications and conditions of tender as set out in the tender document’.

[12] Regulation 14 of the Preferential Procurement Regulations, 2011 prescribes that a municipal tender may not be awarded ‘to any person whose tax matters have not been declared by the South African Revenue Service to be in order’.

[13] Section 111 of the Local Government: Municipal Finance Management Act 56 of 2003 (the MFMA) provides that each municipality must implement a procurement policy which gives effect to the provisions of the MFMA. Section 112 requires that a wide range of issues as a minimum must be covered by the policy. The most relevant for present purposes is sec 112(1)(i) which states:

“the barring of persons from participating in tendering or other bidding processes, including persons –

(i) . . .

(ii) . . .

(iii) whose tax matters are not cleared by the South African Revenue Service.”

[14] The Municipal Supply Chain Regulations which were promulgated on 30 May 2005 prescribe that:

“43. Prohibition on awards to persons whose tax matters are not in order –

(1) The supply chain management policy of a municipality or municipal entity must, irrespective of the procurement process followed, state that the municipality or municipal entity may not make any award above R15 000 to a person whose tax matters have not been declared by the South African Revenue Service to be in order.

(2) Before making an award to a person, a municipality or municipal entity must first check with SARS whether that person’s tax matters are in order.

(3) If SARS does not respond within seven days such person’s tax matters may for purposes of subregulation (1) be presumed to be in order.”

[15] In compliance with the legislation, the municipality enacted a Supply Chain Management Policy. Clause 15 of the policy provides:

“15. General preconditions for consideration of written quotations or bids

(1) A written quotation or bid may not be considered unless the bidder who submitted the quotation or bid concerned –

(a) Has furnished his –

(iii) tax reference number and VAT registration number, if any;

(b) Has provided the municipality with an original valid tax clearance certificate from the South African Revenue Services stating that his tax matters are in order’.

[16] Tax matters are further addressed in clause 54 of the policy which provides:

“54. Prohibition on awards to persons whose tax matters are not in order

(1) No award above R15 000 may be made in terms of this policy to a person whose tax matters have not been declared by the South African Revenue Service to be in order.

(2) Before making an award to a person, the accounting officer must first check with SARS whether that person’s tax matters are in order.

(3) If SARS does not respond within 7 days of a request for confirmation in terms of subparagraph (2), such person’s tax matters may for purposes of subparagraph (1) be presumed to be in order’.

[17] The tender conditions in the tender document provided that tenderers would only be regarded as acceptable if their tax affairs ‘had been declared by the South African Revenue Service to be in order’. The tender document further provided a practical guide on how tenderers must apply for a tax clearance certificate from SARS.

[18] It is necessary that an interpretation be provided to the relevant sections of the aforementioned legislation, policies and tender conditions.

[19] It has been held that the purpose of the enquiry in interpretation process is to ascertain the meaning of the language of the provision itself.[1] The process requires that the words used must be read in the context (internal or external) of the document as a whole and in light of all relevant circumstances.[2] The words are taken as a starting point in an integrated, unitary process.[3]

[20] The central issue for decision is whether the provision of a tax clearance certificate on its own is sufficient to satisfy the peremptory requirement that the tenderer’s taxes are in order or whether it is necessary for the municipal manager to request confirmation from SARS that the tenderer’s taxes are in order.

[21] Both regulation 43 to the MFMA and clause 54 of SCM policy of the municipality, in similar language, require that a request for confirmation of taxes being in order be made to SARS ‘before making an award to a person’. Read in the context of each document and the other legislation cited above, in my view, the clear intention is to ensure that at the time of award the tenderer’s taxes are in order. The necessity to confirm the tenderer’s compliance also arises from the reservation of rights by SARS in the tax clearance certificate itself. On the last paragraph of the certificate it is stated:

“SARS reserves the right to withdraw this certificate at any time should any taxes, levies or duties become due and outstanding by the above taxpayer during the one year period for which the certificate is valid’.

Clearly, the declaration by SARS is not immutable for the 1 year duration of the validity of the certificate. This is the reason the municipal manager is required, both in the regulation and the policy, to confirm with SARS the state of the tenderer’s taxes at the time of the award of the tender.

[22] In my view, the submission of a valid tax clearance certificate is a threshold requirement to ensure that only tenderers whose tax matters are prima facie in order are evaluated in the tender process. Upon conclusion of the evaluation process, the municipal manager is required before awarding the tender to the recommended bidder to confirm with SARS that such tenderer’s taxes are in order. This appears not only in clause 54 of the SCM policy but also in the tender conditions. Under the rubric ‘acceptance of tender offer’ it is requested of the municipality to award the tender only if the tenderer complies with the legal requirements stated in the tender data. As stated by Leach JA the requirement for taxes to be in order ‘echoes loudly throughout the statutes and regulations’.[4]

[23] Mr Beyleveld, who appeared on behalf of the municipality, implored us that there was no need for the municipality to check with SARS as the tax clearance certificate was proof that Urban African Services’ taxes were in order. He also relied on the provisions of section 256 of the Tax Administration Act 28 of 2011 which deals with procedure when a person to whom a taxpayer has presented a tax clearance certificate may confirm tax compliance status with SARS.

[24] In my view, the submission conflates two distinct requirements. The tenderer submits the tax clearance certificate for its tender to be responsive to the conditions of tender. The municipal manager verifies the compliance status with SARS as part of his duties required by the SCM policy mentioned above. Whether it is really necessary to verify a certificate is not for us to decide as the municipal manager is required by SCM policy to verify. As it was stated in Moroka, that is the prerogative of the municipality.[5] There is no challenge on the lawfulness of the policy which would allow us to examine the issue whether it was necessary or reasonable to verify the certificate.

[25] The consulting engineers in their report made negative remarks about the tax compliance status of Urban Africa Services and their recommendation for it to be disqualified from the tender due to that reason. It is not necessary for us to comment on the merits or probative value of the engineers’ report regarding tax compliance as it was obtained contrary to the provisions of the municipality’s SCM policy. Suffice to note that its assertions were placed before the municipal manager.

[26] In my view, a reasonable decision maker in the municipal manager’s position would have certainly verified the tax compliance status of Urban Africa Services due to the assertions in the engineers’ report and per his duty as provided in the SCM policy. The municipal manager has not provided any reason for not verifying the tax compliance status of Urban Africa Services. I am satisfied that a reasonable municipal manager could not simply have awarded the tender in these circumstances. The court a quo erred when it found that the municipal manager exercised his powers properly and reasonably. The decision is reviewable as it is one that a reasonable decision maker could not reach.[6]

[27] Ms Beard, who appeared on behalf of Civil and General Contractors, submitted that the tender ought to be awarded to the latter as the court is in as good a position as the municipal manager to make the award. She further contended that the decision of the municipal manager is a foregone conclusion. The factors to be taken into account whether or not this power ought to be exercised have been set out by the Constitutional Court.[7]

[28] The SCM policy in clause 49(1)(c) places a duty on the municipal manager to check on the National Treasury’s database prior to awarding a contract to ensure that no recommended bidder or any of its directors, is listed as a person prohibited from doing business with the public sector. As mentioned above, clause 54(2) of the same policy requires that the tax compliance status of the recommended tenderer be checked. Both these duties are mentioned in the tender document as requirements to be considered before ‘acceptance of tender offer’. Clause 4(3) of the SCM policy provides that the municipal manager may not sub-delegate any supply chain management duties to a person who is not an official of the municipality. There is no evidence that the municipal manager or a delegated municipal official carried out the duties in clauses 49(1)(c) and 54(2). This court cannot award the tender as not all the pertinent information is before us.

[29] I propose that the following order will issue:

29.1 The appeal is upheld with costs.

29.2 The order of the court a quo is set aside and replaced with the following:

29.2.1 The decision of the first and/or second respondents to award tender 24/2015/MD(MS) to the third respondent is hereby reviewed and set aside.

29.2.2 The matter be and is hereby referred back to the first and the second respondents to start afresh the procurement of services for the construction of bulk water supply at Hewu and the upgrade of the Sada water treatment works.

29.2.3 The first and second respondents are ordered to pay the costs of the application, jointly and severally, the one paying, the other to be absolved.

_________________

T MALUSI

Judge of the High Court

Bloem J: I agree and it is so ordered.

________________

G H BLOEM

Kahla AJ: I agree.

M KAHLA

Acting Judge of the High Court

Counsel for the appellant, Ms Beard instructed by Wheeldon Rushmere & Cole Inc, 119 High Street, Grahamstown.

Counsel for the first and second respondents, Mr Beyleveld instructed by Messrs Whitesides, 53 African Street, Grahamstown.

Date Heard: 16 October 2017

Date Delivered: 14 December 2017

[1] Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 20-24

[2] Endumeni para 24; Norvatis SA (Pty) Ltd v Maphil Trading (Pty) Ltd 2016 (1) SA 518 (SCA) para 27

[3] Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) para 12; Endumeni para 19

[4] Dr J S Moroka Municipality v Betram (Pty) Ltd [2014] 1 All SA 545 (SCA) para 11

[5] Moroka supra, para 10

[6] Bato Star Fisheries (Pty) Ltd v Minister of Environmental Affairs & Others [2004] ZACC 15; 2004 (4) SA 490 (CC) para 45

[7] Trencon Construction v Industrial Development Corporation 2015 (5) SA 245 (CC) paras 47 and 48