Maximum Profit Recovery (Pty) Ltd v Naledi Local Municipality (M214/2022) [2023] ZANWHC 167 (15 September 2023)

IN THE HIGH COURT OF SOUTH AFRICA

NORTH WEST DIVISION – MAHIKENG

CASE NO: M214/2022

Reportable: YES / NO

Circulate to Judges: YES / NO

Circulate to Magistrates: YES / NO

Circulate to Regional Magistrates: YES / NO

In the matter between:

MAXIMUM PROFIT RECOVERY (PTY) LTD Applicant

(Registration No:2001/005576/07)

And

NALEDI LOCAL MUNICIPALITY

1st Respondent

TRIPPLEM ADVISORY (PTY) LTD

2nd Respondent

MODISENYANE SEGAPO

3rd Respondent

Heard: 08 JUNE 2022

Delivered: This judgment is handed down electronically by circulation to the parties through their legal representatives’ email addresses. The date for the hand-down is deemed to be 15 SEPTEMBER 2023.

ORDER

The following order is made:

1. Application is dismissed

2. The applicant is ordered to pay costs.

JUDGEMENT

DJAJE AJP

[1] The applicant seeks an order to declare a tender relating to the Provision of Panel for Financial Services to the first respondent constitutionally invalid, reviewed and set aside. The application is opposed by the first and third respondents only. The second respondent did not file any opposing papers.

[2] The first respondent advertised a tender for the appointment of a Panel of Financial Services. The advert was in the local newspaper on 23 June 2021. The applicant was among the fifteen companies that submitted its bid. The objective of the tender was as follows: ‘The objective is to have a readily available pool of financial service providers who can be invited to submit pricing proposals for the accounting work time to time once prequalified to be on the panel. The service is required to amongst others: Complement the existing capacity within the Budget and Treasury Office by closing the skills gaps identified in the Annual Financial Statements section and also to build capacity. To enhance reporting requirements in order to improve the audit outcome.’ The scope of work was stated as follows:

“(i) Review of the transactions in the general ledger and trial balance to ensure accuracy, relevancy, completeness and correct classification.

(ii) Review of:

· VAT monthly/ year end reconciliation

· Main bank account reconciliation

· Creditor’s reconciliation

· Investment reconciliation

· Payroll reconciliation

· Operating lease register

· Revenue from exchange transaction register

(iii) Assistance with preparation of interim financial statements and annual financial statements in terms of general recognised accounting practices and Municipal Finance Management Act and related disclosure and policies.

(iv) Review of annual financial statements together with audit working papers/audit file.

(v) Assistance with review and update of the relevant accounting policies and procedure manuals.

(vi) Support the Municipality to clear prior period errors raised on the audit report/management report.

(vii) Transfer of skills in relation to the above-mentioned and any relevant system utilised including case-ware training to municipal officials identified.

(viii) Provide audit support to management during the audit review process.”

[3] The applicant was informed on 13 September 2021 that it was appointed as part of the panel to render future financial services to the first respondent. The said letter read as follows:

“BID APPOINTMENT – NLM2021-009A: PROVISION OF PANEL FOR FINANCIAL SERVICES FOR THREE YEARS

The NALEDI LOCAL MUNICIPALITY would like to take this opportunity informing you that the Municipality approved that your company be awarded bid no NLM2021-009A for the PROVISION OF PANEL FOR FINANCIAL SERVICES FOR THREE YEARS

You are advised that the appointment is subject to the following:

· The requirements and conditions contained in the bid document.

· No variation orders are anticipated in this appointment. In the event of a variation, a written variation order signed by the Municipal Manager will be issued to your company before any variation costs can be incurred. The Municipality shall be held liable for any

costs on variations incurred not approved by the Municipal Manager in advance.

· The appointment letter, once accepted by your company, will together with the original bid document from a legal and binding agreement between the NALEDI LOCAL MUNICIPALITY and MAXIMUM PROFIT RECOVERY (PTY) LTD.

· The commencement date of the agreement shall be the date of acceptance of this appointment letter by your company and after the signing of a Service Level Agreement (SLA).

The onus lies upon you to liaise with the Municipality and in the event that you have any query to contact K Maruping 053 928 2209.

Kindly sign the sign the space provided below as proof of your acceptance of the terms and conditions of the appointment and return the signed document to the Municipality Manager within five working days.

We trust that this appointment will be successful and to the benefit of the community that we serve.”

[4] Subsequent to the said appointment letter and the acceptance by the applicant, there were repeated enquiries by the applicant to the first respondent regarding a request for quotations for the allocation of work. On 1 December 2021 there was a meeting between the third respondent as the Municipal Manager of the first respondent and the applicant’s director, Mr J Xulu. According to the applicant the third respondent assured Mr Xulu that no further appointment from the panel or allocation of work to the panel was made. There was a similar meeting again on 15 December 2021 with the first respondent’s Chief Financial Officer and it was again confirmed that there was no allocation of work to the panel yet. On 6 April 2022 the applicant made enquiries again and was informed that an appointment was made to the second respondent. The applicant was never invited to submit any pricing proposals.

[5] The appointment letter to the second respondent was as follows:

“BID APPOINTMENT – NLM2021- 009A: BID PROPOSALS FOR VAT RECOVERY

The NALEDI LOCAL MUNICIPALITY would like to take this opportunity of informing you that the Municipality approved that your company be awarded bid no NLM2021-009A for the BID PROPOSALS FOR VAT RECOVERY

· The requirements and conditions contained in the proposal submitted.

· Your remuneration will be a commission based remuneration limited to 15% of the total VAT amount recovered as per your proposal.

· .The duration of this contract is for THREE (3) YEARS.

· The appointment letter, once accepted by your company, will together with the original bid document from a legal and binding agreement between the NALEDI LOCAL MUNICIPALITY and TRIPPLE M ADVISORY (PTY) LTD.

· The commencement date of the agreement shall be the date of acceptance of this appointment letter by your company.

The onus lies upon you to liaise with the Municipality and in the event that you have any query to contact Kagisho Maruping 053 928 2209.

[6] The applicant argued that the appointment of the second respondent was not done in line with the fundamental requirements relating to the prescribed procurement process for municipalities. That it was done in breach of section 217 of the Constitution of the Republic of South Africa Act 108 of 1996 (“the Constitution”), the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”), the Preferential Procurements Regulations 2017 (“the Procurement Regulations”) and the Municipal Supply Chain Management Regulations (“the Supply Chain Regulations”). It was argued for the applicant that the tender advertisement was just a window dressing to create an opportunity for the first respondent to unilaterally appoint the second respondent without following a tender process.

[7] The applicant submitted that the validity of the tender was 90 days and expired on 15 October 2021 as the closing date was 7 July 2021. The second respondent was appointed on 30 March 2022 and concluded a service level agreement on 5 April 2022. It is the applicant’s case that this was outside the validity of the tender period and the tender should be set aside.

[8] In contention the respondents argued that the applicant is not entitled to the relief sought. It was submitted on behalf of the respondents that after the panel was confirmed, the first respondent invited a certain number of panellists to submit a request for quotation on 23 March 2022. The second respondent was amongst the four panellists that submitted quotations for VAT Recovery services. The second respondent was subsequently appointed on 30 March 2022 at that second stage of bidding. The respondents argued that the applicant was aware that the tender was a two stage process and is only being disingenuous by bringing this application.

[9] The issue of the expiry of the tender was explained by the respondents. According to the respondents, the tender for the panel was closed on 7 July 2021 and the appointments for the panel were concluded and effected on 6 September 2021. The next stage was the request for quotations on 23 March 2022 and the appointment was done on 30 March 2022. It was submitted that the applicant in its version visited the offices of the first respondent in December 2021 and on 6 April 2022 enquiring about quotations. This is proof that the applicant was aware of the second stage of the tender being the request for

quotations.

[10] The respondents’ case is that the bidding process was competitive and in compliance with section 12(1)(d) of the Municipal Supply Chain Management Regulations: GN 868, Gazette No. 27636-30 May 2005. In that there were 15 bidders who tendered at the first stage and four of the panellists competed during the request for quotation stage which was the second stage. It was submitted that the applicant remains a member of the panel with potential for further participation depending on the circumstances and needs of the first respondent. The respondents in addition argued that the setting aside of the tender will disrupt services to the public as they will be affected by lack of revenue.

[11] The respondents argued that the tender was based on a two-stage bidding process in terms of section 25 of the Municipal Supply Chain Management Regulations and there was compliance thereto. Further that the first respondent in compliance with section 111 of the Municipal Finance Management Act 56 of 2003, adopted a Supply Chain Management policy. The applicant therefore tendered with 15 other bidders at the first stage and four panellists competed during the request for quotation stage which was the second stage. As such there was no irregularity in the award of the tender to the second respondent.

[12] In the notice of motion the applicant seek an order to declare the award of the tender to the second respondent constitutionally invalid and set aside. In addition, that any agreement entered into between the first and second respondent be set aside.

[13] Section 217(1) of the Constitution of the Republic of South Africa Act 108 of 1996 regulates the procurement of services by an organ of state and provides that:

“217(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.”

[14] The Court in Pharmaceutical Manufacturers in Association of South Africa v Re Ex Parte President of the Republic of South Africa and others [2000] ZACC 1; 2000 (2) SA 674 (CC) at para 85 held as follows in relation to the exercise of public power by an organ of state:

“It is a requirement of the rule of law that the exercise of public power by the executive and other functionaries should not be arbitrary. Decisions must be rationally related to the purpose for which the power was given, otherwise they are in effect arbitrary and inconsistent with this requirement. it follows that in order to pass constitutional scrutiny the exercise of public power by the executive and other functionaries must, at least, comply with this requirement if it does not, it fall short of the standards demanded by our Constitution for such action.”

[15] The Constitutional Court in AllPay Consolidated Investments Holdings (Pty) Ltd & others v Chief Executive Officer, South African Social Agency & others 2014 (1) SA 604 (CC) held:

“[40] 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 [the tender awarding body] may disregard at whim. To hold otherwise would undermine the demands of equal treatment, transparency and efficiency under the Constitution. 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 in 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.”

[16] In South African National Roads Agency Ltd v Toll Collect Consortium 2013 (6) SA 356 (SCA) it was stated that:

“[18] Transparency in a tender process requires that the tender take place in an environment where it is subject to public scrutiny. In other words the tender must be advertised publicly and its terms be available for public inspection. Those terms must set out clearly what must be submitted by those competing for the award of the contract. The adjudication of the tender must take place in an impartial manner and the results made publicly available. If there is a challenge to the outcome of the tender there must be a record that discloses how the process of adjudication was conducted. In that way the tender process is transparent and the public can see that it was conducted fairly. When the Constitution in s 217, requires that the procurement of goods and services by organs of state shall be transparent, its purpose is to ensure that the tender process is not abused to favour those who have influence within the institutions of the state or those whose interests the relevant officials and office bearers in organs of state wish to advance. It requires that public procurement take place in public view and not by way of back door deals, the peddling of influence or other forms of corruption. But, once a tender is issued and evaluated and a contract awarded in an open and public fashion, that discharges the constitutional requirement of transparency. It is not there to be used by a disappointed tenderer to find some ground for reversing the outcome or commencing the process anew, by claiming that there should have been greater disclosure of the methodology to be adopted in evaluating the tenders.

[19] An attempt was made to draw a parallel between a student writing an examination and needing to know how many marks are to be allocated to each answer and the position of the tenderer needing to know where to concentrate in furnishing the information required by the party issuing the tender. But the two are not parallel situations. An examinee is subject to the pressures of time and must complete a prescribed number of questions within a limited period. Part of the skill in writing exams is therefore to know what must be included and what can safely be omitted in answering a particular question. Tenders are not prepared under time constraints and the tenderer is free to put every possible scrap of potentially useful information into the tender. The tender can be as detailed as the tenderer wishes to make it. If there is a parallel to the academic situation it is rather with an essay or dissertation where the subject matter is identified in advance and the broad parameters outlined, but the examinee is free to respond as they see fit and in as much or as little detail as they choose.

[20] As to objectivity, which is an aspect of the constitutional requirement that the public procurement process be fair, it requires that the evaluation of the tender be undertaken by means that are explicable and clear and by standards that do not permit individual bias and preference to intrude. It does not, and cannot, mean that in every case the process is purely mechanical. There will be tenders where the process is relatively mechanical, for example, where the price tendered is the only relevant factor and the competing prices are capable of ready comparison. The application of the formula for adjudicating preferences under the PPPFA may provide another example. However, the evaluation of many tenders is a complex process involving the consideration and weighing of a number of diverse factors. The assessment of the relative importance of these requires skill, expertise and the exercise of judgment on the part of the person or body undertaking the evaluation. That cannot be a mechanical process. The evaluator must decide how to weigh each factor and determine its significance in arriving at an appropriate decision.7Where that occurs it does not mean that the evaluation is not objective. Provided the evaluator can identify the relevant criteria by which the evaluation was undertaken and the judgment that was made on the relative importance and weight attached to each, the process is objective and the procurement process is fair”.

[17] Tender process should be fair, equitable, transparent and cost effective. It is important that it is clear and complies with the prescripts of section 217 of the Constitution.

[18] The respondents’ case is that the tender was based on a two stage bidding process as provided for in section 25 of Municipal Supply Chain Regulation which provides as follows:

“25 Two-stage bidding process

(1) A supply chain management policy may allow a two-stage bidding process for—

(a) large complex projects;

(b) projects where it may be undesirable to prepare complete detailed technical specifications; or

(c) long-term projects with a duration period exceeding three years.

(2) In the first stage technical proposals on conceptual design or performance specifications should be invited, subject to technical as well as commercial clarifications and adjustments.

(3) In the second stage final technical proposals and priced bids should be invited.”

[19] In AllPay the Constitutional Court gave guidance for review applications as follows:

“[44] 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.”

[20] According to the applicant, the appointment of the second respondent was irregular and not done in compliance with section 217 of the Constitution. The respondents’ contention is that the applicant was aware that the tender was based on a two stage process, because the applicant kept on requesting quotations after being appointed to the panel. However, only four companies were requested to submit quotations and the applicant was not amongst those companies.

[21] It is important to look at what the tender and importantly the scope of services required. As stated above the purpose of the tender was to have “a pool of financial service providers who can be invited to submit pricing proposals for the accounting work from time to time”. The applicant was appointed as part of the pool of financial service providers. The next phase was for the applicant to be invited to submit pricing. This did not take place. Instead, four other companies competed in the second phase of request for quotations.

[22] In light of the above, the determination to be made is whether there was any irregularity by the respondents in the award of the tender to the second respondent. The applicant’s case is that it was not invited to submit quotations and thus the award to the second respondent was irregular. There is no case made out that the process of the tender was not fair, equitable, transparent and cost effective. If there is no irregularity proven by the applicant a review is not justified.

[23] The relief sought herein by the applicant is to have the tender award set aside. In the absence of irregularity, would this be a just and equitable order. It was submitted by the respondents that the appointment of the second respondent resulted in contracts concluded and the implementation of the services for the benefit of the community. The setting aside of the tender would result in halt of the VAT recovery process, disruption of services and the community negatively affected by lack of revenue. However, the applicant as stated above has not met the threshold for reviewing the award of the tender to the second respondent. No case has been made out that there was any irregularity by the first or third respondent in the award of the render.

[24] The applicant herein has failed to make out a case for the relief sought against the respondents and the application stands to be dismissed.

Costs

[25] The respondents are successful and there is no reason why the applicant should not be ordered to pay the costs of this application.

Order

[26] Consequently, the following order is made:

J.T. DJAJE

ACTING JUDGE PRESIDENT OF THE HIGH COURT

NORTH WEST DIVISION, MAHIKENG

APPEARANCES

DATE OF HEARING : 08 JUNE 2023

DATE OF JUDGMENT :

15 SEPTEMBER 2023

COUNSEL FOR THE APPELLANT : ADV APJ ELS

COUNSEL FOR THE RESPONDENT : ADV M MOTLOGELWA