TBP Building & Civils (Pty) Ltd vs East London Industrial Development Zone (Pty) Ltd and Others (230/09) [2009] ZAECGHC 7 (17 March 2009)

FORM A

FILING SHEET FOR EASTERN CAPE HIGH COURT, GRAHAMSTOWN JUDGMENT

PARTIES: TBP Building & Civils (Pty) Ltd vs East London Industrial Development Zone (Pty) Ltd & 5 others Case Number: 230/09 High Court: Eastern Cape Division DATE HEARD: 12/03/09 DATE DELIVERED: 17/03/2009 JUDGE(S): Froneman LEGAL REPRESENTATIVES – Appearances: for the Applicant(s): Gaunlet (SC) Patrick for the Respondent(s): Eksteen (SC) Gajja Instructing attorneys: for the Applicant(s): W R & C for the Respondent(s): Nettletons CASE INFORMATION – Nature of proceedings. Topic: Key Words:

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE – GRAHAMSTOWN

Case No. 230/09

In the matter between TBP BUILDINGS & CIVILS (PTY) LTD Applicant And THE EAST LONDON INDUSTRIAL DEVELOPMENT ZONE PROPRIETARY LIMITED First Respondent WBHO CONSTRUCTION PROPRIETARY LTD Second Respondent TRANSTRUCT PROPRIETARY LTD Third Respondent BILLION CONSTRUCTION PROPRIETARY LTD Fourth Respondent LM 3 BUILDING AND CONSTRUCTION PROPRIETARY LTD Fifth Respondent THE MINISTER OF FINANCE Sixth Respondent

JUDGMENT

Froneman J.

[1] The applicant (‘TBP’) is a disappointed tenderer who seeks an urgent order to prevent the first and second respondents

(‘ELDZ’ and ‘WBHO’) from proceeding with the implementation of the successful tender, pending the finalisation of a proposed application for review proper of the tender award. ELDZ is a private company wholly owned by the Government for the purpose of managing a development zone in East London. WBHO is the successful tenderer. The other unsuccessful tenderers have been joined as respondents. So has the Minister of Finance, because of a potential order sought declaring regulations issued by the department of finance to be invalid - something which in the end was not persisted with.

[2] Both factual and legal issues are at stake.

[3] The factual issue relates to the first of the two-stage process involved in the award of the tender. In the first stage the bidders are evaluated for quality, or functionality, and if they fail to make the grade their bids are disqualified at this threshold from any further consideration. It is common cause that the evaluation by the three experts appointed in terms of the tender conditions excluded TBP at the threshold stage. What complicates matters is that ELDZ then also obtained the views of an external consultant on whose score TBP passed the threshold test. TBP was, nevertheless, found to be unsuccessful in any event on the second stage of the process. The validity of the threshold test in terms of the tender prescripts is not attacked. The dispute centres on whether ELDZ adopted the external finding on the threshold test as its own, or whether it merely used the exercise to confirm the validity and fairness of its own overall assessment of the tender. If the former, TBP’s right or interest in the possible rerun of the tender process if the review application is successful is of a more immediate and private nature – it remains in the running as a potential successful tenderer. If the latter, however, its right or interest is of a more remote and public interest nature, in that it would no longer stand a chance of being awarded the tender itself, but would have to gain its satisfaction from having ensured a fair process to those who passed the threshold stage.

[4] The legal issues relate to what right, if any, the applicant needs to establish in order to justify the relief it seeks. A resolution of that legal issue is dependent, first, on the factual finding referred to in the previous paragraph, then on what the proper approach to the determination of rights in interim proceedings such as the present is, and lastly, to what extent the tender process conformed to the legal prescripts applicable to it.

The threshold issue

[5] On 14 November 2008 ELDZ invited tenders from suitably qualified contractors for the construction of an industrial warehouse/factory

structure. TBP, WBHO and the third, fourth and fifth respondents submitted tenders. In terms of the tender prescripts the tenders had to be evaluated by an evaluation panel of three persons. The evaluation panel found that TBP and the fourth and fifth respondents

failed to meet the required minimum threshold score in respect of quality or functionality and the evaluation panel accordingly did not consider their bids further. The bids of WBHO and the third respondent were then ranked further by the evaluation panel and WBHO scored the highest points. ELDZ’s internal procurement committee then sought independent verification of the process

undertaken by the evaluation panel from a firm of consulting engineers (‘Africon’) in order to alleviate any concern

that WBHO might have been favoured because of its past involvement in other projects. This independent process was not required by the tender prescripts.

[5] Under the Africon assessment two of the three tenderers who were previously excluded on functionality became eligible for consideration in the second stage of the process. TPB was one of them. Using the same formula in the second stage as was done initially by the evaluation panel WBHO nevertheless still scored the most points.

[6] A tender adjudication report was submitted to the ELDZ board. This report contained, in paragraph 6, a “Summary of Submission

Evaluation”, setting out the tender details “as scored by [the] consultant panel”. This summary set out the points scored by the evaluation panel (not those of Africon), whereby TBP was disqualified at the first stage and not considered further. It next set out the points scored in the second stage where WBHO scored highest. The report then concluded (in paragraph 9):

“After a further independent functionality evaluation (Annexure E) to the best of our knowledge there is no valid reason why the contract should not be awarded to the tenderer with the highest points – WBHO Construction (Pty) Ltd. Accordingly we recommend that the contract be awarded to them.”

[7] Paragraph 10 then sets out the recommendation that the original tender submitted by WBHO be accepted and this was duly done.

[8] Mr. Gauntlett, who appeared with Mr. Patrick for TBP, submitted that the final acceptance of WBHO as the successful tenderer was done on the basis of an acceptance that TBP had not been filtered out on account of functionality. For this he relied heavily on the contents of annexure E to the tender adjudication report, especially paragraph 3 of that annexure where the results of the independent evaluation are set out. The relevant part of the paragraph reads:

“Two of the three tenderers, who were previously not considered for further evaluation as a result of having been allocated less than the 50% minimum requirement stipulated in the tender documents, now become eligible for further evaluation with respect to their BBBEE status.

The evaluation of the BBBEE status of Billion Construction and TBP Buildings and Civils was then undertaken by the ELIDZ’s

procurement department. The results of this evaluation are attached …”

[9] In my judgment the argument cannot succeed. The paragraph concerned (paragraph 3) does not purport to set out the conclusions and recommendations of the Technical Services department who compiled annexure E. It is headed, “Results of independent evaluation”.

The conclusions and recommendation are set out in the last two paragraphs which read as follows:

“5. Conclusions

The independent functionality evaluation of the tenders submitted for this project differs slightly in quantum from the original evaluation recorded by the project consulting team, but does not differ in the end result – in that the points ranking achieved by the various tenderers remain the same.

Accordingly, there does not appear reason to amend the recommendations contained in the original tender report submitted to the Procurement Committee on 19 January 2009, but there would appear to be risk inherent in not awarding the contract to the tenderer who achieved the highest points in this instance – ie WBHO Construction (Pty) Ltd

6. Recommendation

It is recommended that the tender recommendations contained in the original tender report, remain unaltered and that the tender submitted by WBHO Construction (Pty) Ltd for the construction of the BES/B6 factory and associated facilities, be accepted in the gross amount of R62,473,613.31 (inclusive of VAT).” (The italics are mine).

As noted in para. [6] above, the tender adjudication report submitted for approval, then refers in detail to the original scores of the evaluation panel, not to those of the Africon report. What was thus approved was the evaluation and points scored by the original evaluation panel and the tender was awarded on that basis.

[10] To have proceeded otherwise, namely to have accepted the Africon assessment instead of ELDZ’s own evaluation panel, would have exposed ELDZ to a greater legal risk, as its technical committee appeared to recognize in paragraph 5 of annexure E. There does not appear to me to be anything inherently suspect in ELDZ obtaining a further independent assessment of the tenders submitted to it. To the contrary, it appears to be a commendable cautionary procedure to ensure that it acted fairly in the award of the tender. The consequence of a possible finding by such an independent inquiry that ELDZ’s own assessment and procedures were wrongful and unfair may have justified a review application by ELDZ itself to set aside the award of the tender (Transair (Pty) Ltd v National Transport Commission and another 1977 (3) SA 784 (A) at 792H-793G; Pepcor Retirement Fund v Financial Services Board 2003 (6) SA 38 (SCA) at paras. [10] – [18]). But here the finding was not of such a nature. If ELDZ had simply jettisoned its own evaluation and accepted that of Africon instead, it would have acted irregularly outside the tender prescripts and would thereby have laid itself open to review for doing so.

[11] To the extent that Africon’s assessment of the quality or functionality scores is sought to be used as evidence that ELDZ’s quality or functionality evaluation was wrong, I have some difficulty in seeing how that gives rise to a right under the provisions of the Promotion of Administrative Justice Act 3 of 2000 (‘PAJA’) to TBP. Africon’s assessment at best shows that there may be reasonable differences of opinion amongst experts, but it does not go as far as to show that the evaluation panel’s original score was unreasonable. In the absence of that a court should not be too eager to “attribute to itself superior wisdom in relation to matters entrusted to other branches of government. A court should thus give due weight to findings of fact and policy decisions made by those with special expertise and experience in the field.” (Bato Star Fishing (Pty) Ltd v The Minister of Environmental Affairs [2004] ZACC 15; 2004 (4) SA 490 (CC) at para. [48]).

Correct approach where interim relief is sought on the basis of a constitutional right

[12] I was treated to an interesting and erudite argument by Mr. Gauntlett in favour of adopting the ‘serious question to be tried’ approach of Heher J (as he then was) in Ferreira v Levin 1995 (SA) 813 (WLD) at 825A-C and 835I-836F, rather than the more conventional ‘establishment of a prima facie right approach’ (Hix Networking Technologies v System Publishers (Pty) Ltd and another [1996] ZASCA 107; 1997 (1) SA 391 (A) at 398I-399A), in deciding whether to grant interim relief where constitutional rights and interests are at stake. I do not think it is necessary or wise for me to attempt to assist in blazing a new trail in the law in an urgent application where I have not had time to reflect unhurriedly on the issue. It seems to me, though, that there will be little practical difference in the results arrived at by using either one of the approaches if the prima facie right approach is used in the flexible manner set out by Holmes J (as he then was) in Olympic Passenger Service (Pty) Ltd v Ramlagan 1957 (2) SA 382 (D) at 383 C-F (but compare Penfold and Du Plessis, “Interdicts Seeking to Preserve Constitutional Rights – of Losing Litigants, Interim Interdicts Pending Appeal, and Lessons from Canada, 2007 (124) South African Law Journal 557, at 568).

[13] I will adopt the prima facie right approach in this matter, hopefully in a flexible manner which will ensure a fair hearing to all concerned.

[14] On the facts I have found that the disqualification of TBP at the threshold stage cannot be faulted. No prima facie right flows to TBP from that disqualification. I accept, however, that TBP might still be able to show such a right if it establishes that the second stage of the process was nevertheless flawed and may be set aside on eventual review.

The second stage of the tender process

[15] ELDZ is a private company, wholly owned by the government. It is accepted by both sets of counsel (Mr. Eksteen appeared for ELDZ together with Mr. Gajoo) that it is an organ of state under the Constitution and PAJA. Initially there was some dispute about whether it was also an organ of state under the provisions of the Preferential Procurement Policy Framework Act 5 of 2000 (‘the

PPPFA’), but I think there was eventual agreement that it did not fall within the definition of ‘organ of state’ under the PPPFA.[1] This might appear to be confusing at first, but the significance of being an organ of state under PAJA, but not under the PPPFA, is this.

[16] It is accepted that as an organ of state under the provisions of PAJA, ELDZ has a general duty to treat TBP fairly in any public

administrative process. Section 217 of the Constitution, however, also specifically provides that when a constitutional 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” (s. 217(1)), but that a preferential procurement policy is not prevented by this requirement (s.217(2)). National legislation “must prescribe a framework within which the [preferential procurement] policy referred to in subsection (2) must be implemented” (s. 217 (3)). The preamble to the PPPFA records that it was promulgated “to give effect to section 217 (3) of the Constitution by providing a framework for the implementation of the procurement policy contemplated in section 217(2) of the Constitution…”.

[17] For a defined organ of state under the provisions of the PPPFA its procurement policy must comply with the provisions of section 2 of PPPFA, subject to certain exemptions (s. 3 of the PPPFA). The importance of the provisions of s. 2 of the PPPFA for present

purposes is that it prescribes (read with its regulations) for contracts with a Rand value above R500000.00, that a maximum of ten points may be allocated for empowerment purposes under s. 2(1)(d) of PPPFA and 90 points for price” (s. 2(1)(b)(i)).

[18] Public institutions that do not qualify as organs of state in terms of the PPPFA do not, however, escape the provisions of s. 217 of the Constitution. Section 51 (1)(a)(iii) of the Public Finance Management Act 1 of 1999 (‘the PFMA’) provides that an accounting authority for a public entity must ensure that such a public entity maintains an appropriate procurement and provisioning system which is “fair, equitable, transparent, competitive and cost effective”. In terms of section 76(4) of the PFMA the national treasury is empowered to issue instructions to all institutions to which the PFMA applies concerning the determination of an appropriate procurement and provisioning system. ELDZ is listed as a provincial government business enterprise in part D of schedule 3 to the PFMA as an entity to which the PFMA applies. The national treasury issued an instruction to PFMA public entities that “[t]he prescripts of the [PPPFA] … and its associated regulations should be adhered to”.

[19] Thus far there does not seem to be a problem. Even if the provisions of the PPPFA do not apply directly to the ELDZ’s procurement policy, the “prescripts” of the PPPFA “… and its associated regulations” should nevertheless be adhered to by ELDZ in terms of the provisions of the PFMA. The difficulty is that the provisions of s. 2 of the PPPFA and the regulations issued under it appear to be at odds with each other. The PPPFA allows 10 points for empowerment aspects and 90 points for price. Regulation 8(3) of the PPPFA regulations provides that “[t]he total combined points allowed for functionality and price may, in respect of a tender with an estimated Rand value above R500000.00, not exceed 90 points” (my italics). So, whilst the Act allows 90 points for price only, the regulations allow a combination of price and functionality that does not exceed 90 points.

[20] ELDZ invited tenders on the basis that

“PPPFA principles will apply, whereby a tender’s submission will be evaluated according to the sum of the Award of Points in respect of the tender value and the status of the enterprise

 Target Goals are as follows –

70 points for price

20 points for functionality

10 Points for BBBEE”.

[21] The Construction Industry Development Board Act 38 of 2000 provides for the establishment of the Construction and Development Board (CIDB), whose object is, amongst other things, to promote uniform standards that regulate the actions, practices and procedures of parties engaged in construction contracts (s.4 (f)). Clause 4.3.2 of the CIDB Standard for Uniformity in Construction Procurement, 2008 provides that quality criteria used in the evaluation of tender offers shall form an integral part of the tender offer and outcome of the procurement. Method 4 of the CIDB standard provides that the score for quality and financial offer is to be combined before the addition of the score for preference.

[22] In its evaluation process ELDZ first (as has been seen above), evaluated the bids for quality and functionality. That it could do so is not in dispute. It then moved to the second stage of evaluation where it determined the score for a maximum of ten points for empowerment aspects, as well as the score for the remaining 90 points. In determining the score out of 90 points it allowed for 20 points (again) for functionality and 70 for price. This was in accordance with what it stated at the outset in its invitation for tender bids[2], as well as with how the application of method 4 is described in the CIDB Standard.[3] It also accords with the provisions of regulation 8(3) of the PPPFA regulations.

[23] Mr. Gauntlett, for TBP, submitted that ELDZ erred in doing so, because the PPPFA makes no allowance for functionality to be

recognised in the determination of the score out of 90 points for price. He submitted that the provisions of PPPFA were incorporated

into the tender process either by the express reference thereto in the tender notice or by virtue of the Treasury determination under s. 76(4) of the PFMA. Mr. Eksteen, for ELDZ, countered that there is a difference in the application of the PPPFA where it is directly applicable to an institution on its own terms as legislation, compared to the situation where its principles and applicable regulations are incorporated into the procurement process by reference either to the tender notice or by Treasury instruction. In the application of the former it is open, and correct, to argue that

the provisions of the PPPFA take precedence over the (conflicting) regulations made under the PPPFA, and that as a matter of law that stands, no matter what the parties to the tender process might have thought the process would entail. But in the latter case (that of incorporation by reference) the inquiry is a different one, namely whether the parties to the tender process were treated in an administratively fair manner in accordance with the fundamental right to just administrative action as concretised in the provisions of PAJA.

[24] I consider there to be merit in Mr. Eksteen’s argument. The effect of the incorporation of the ‘principles’ or ‘prescripts’ of the PPPFA and its regulations are not to be determined, in this context, by an argument based on the alleged invalidity of the regulations because they are ultra vires the provisions of PPPFA, but rather by enquiring whether the parties to the tender process were treated fairly, firstly in the sense whether they knew what the ‘rules of the game’ were going to be, and, secondly, whether those rules were fair in the particular circumstances of the case. Fairness, not ultra vires, should determine the issue. And the result of these enquiries appears to me that there has been no material unfairness in the ELDZ’s approach to and application of the tender process.

[25] The first page of the tender notice[4] makes it abundantly clear to prospective tenderers that the target goals for the PPPFA ‘principles’ were 70 points for price, 20 points for functionality and 10 points for BBBEE, and not simply 90 points for price and 10 for BBBEE. If the bidders for the tender delved deeper into the Standard Conditions of Tender, the Tender Data, the CIDB uniform standards and the regulations under the PPPFA they would have found nothing to contradict that clear assertion. There is no indication in the papers that TBP was under any factual misapprehension as to how points were to be allocated when it made its bid and that it relied only on the actual provisions of the PPPFA when it made its bid. The basis for the present application is clearly one which it only became aware of after consulting with its lawyers after the disappointment of not winning the tender. There was no earlier protest.

[26] The provisions of the PPPFA must be construed against the background of the system envisaged by section 217 (1) of the Constitution,

namely one which is ‘fair, equitable, transparent, competitive and effective’ (Chairperson, Standing Tender Committee and others v JFE Safela Electronics (Pty) Ltd and others 2008 (2) SA 638 (SCA) at para. [14]; Millenium Waste Management(Pty) Ltd v Chairperson, Tender Board: Limpopo Province and others 2008 (2) SA 481 (SCA) at para. [18]). So must any preferential procurement policy that is not subject to the provisions of the PPPFA, be construed against the standards and values set out in s. 217 (1) of the Constitution. There are many ways in which those broad goals of fairness, equity, transparency, competitiveness and effectiveness may be achieved (compare Bato Star Fishing, above, at para. [35]). The PPPFA formula is one way. The CIDB standards and methods may be other ways. I fail to see why functionality or quality assessments, provided they are fair and objective, would not advance these constitutional objectives. And there is in my judgment nothing offensive either in using quality or functional assessments as an initial threshold requirement, as well as then using them again as part of a second assessment amongst those who passed the initial threshold. The repetition is not unfair (the same scores are used); it does not affect equity requirements (those are met in the BBBEE points allocation); the process remains competitive (not only in relation to price), and effectiveness is enhanced (price and functionality counts).

[27] The conclusion that I have thus arrived at is that on its own terms the provisions of the PPPFA do not apply to ELDZ’s procurement policy by virtue of its status as legislation, because by its own definition of an ‘organ of state’ ELDZ is excluded from its operation. The status of the regulations promulgated under the PPPFA insofar as their applicability to ELDZ’s procurement’s policy is concerned, is thus not to be determined by the test applicable to determine the validity of regulations that may exceed the powers of its enabling legislation. It is determined rather by, first, asking the question whether their content was incorporated into ELDZ’s procurement policy as a matter of fact. If they were, the next question to determine is whether their incorporation created confusion or ambiguity about the standards by which the tender process would be awarded and thereby made the process administratively unfair. If not, the last question to be determined is whether these standards are fair, equitable, competitive and effective as required by the provisions of s 217(1) of the Constitution. On all these issues I have found that ELDZ’s procurement policy was proper, as was its application of the policy to the tenders submitted to it in the present matter.

[28] It follows that in my view TBP has failed to establish a prima facie right in respect of the second part of the evaluation process too.

[29] But it must be said that the issues raised are fairly complex and that it may be more prudent to accept that TBP has shown a prima facie right, perhaps open to some considerable doubt, or, in the words of Holmes J in Eriksen Motors Ltd v Protea Motors and another 1973 (3) SA 685 (A), with ‘fragile qualifications for qualification as “prima facie established, though open to some doubt” ’ (at 696C-D). With this in my mind I therefore turn to the question of the balance of convenience.

Balance of convenience

[30] Under the ‘balance of convenience’ I will include too, consideration of the other requirements for temporary relief, namely that of a prima facie right; a well-grounded apprehension of irreparable harm if the interim relief is not granted and the ultimate relief is eventually granted; and the absence of an alternative remedy. These requirements are interrelated and interact with each other, hence they should not be viewed in isolation (Eriksen’s case, above, at 691E-G).

[31] In attacking the alleged sparseness of ELDZ’s statements on affidavit in relation to the inconvenience or damage that will be caused by the granting of interim relief, it was submitted that ELDZ’s own case revealed that the main reason for potential prejudice lay in the possible loss of a prospective tenant for an already vacant factory site by 1 May 2009. It was contended that occupation of this property could easily be secured by fire-proofing the wall next to this site, something which does not form part of the tender works. If expedited time limits are imposed for the proposed review application the review application may be completed before any serious work on the tender works need to be completed. This argument is somewhat double-edged: if the review application can be completed relatively quickly, then TBP’s assertion that without temporary relief practical implementation of relief on review may not be possible, becomes less compelling.

[34] TBP’s argument on the balance of convenience was to a large extent premised on the assertion or assumption that it had

considerable prospects of success in the review application. In this judgment my findings are to the contrary, namely that the prospects of success in the review application are not good. I have found that the process followed by ELDZ was transparent and fair, and that it allowed for competition and effectiveness. In those circumstances I consider it proper also to take into the account the public interest in exercising my discretion in deciding whether to grant a temporary interdict or not. In my judgment this case shows none of the objectionable features often involved in the application of procurement policy – favouritism, the whiff of corruption and the like. If ELDZ erred in the first part of the process – quality or functionality assessment – by obtaining independent verification of its own process from an independent outsider, it would have erred on the side of caution and propriety. If it erred in the second stage by not adhering strictly to one of the reasonable ways to give effect to the provisions of s.217(1) of the Constitution, namely the PPPFA way, it still would not have erred in the sense of applying an unreasonable and unfair procurement policy, only a different one. I conclude that TBP has not shown that the balance of convenience is in its favour. It could have instituted review proceedings on an urgent basis at a much earlier stage. On its own argument it could still proceed with review proceedings on an urgent basis in time to obtain the effective relief it claims it is entitled to. The lapse of time will not necessarily debar it from obtaining effective relief (Eskom Holdings Ltd v The New Reclamation Group (358/08) [2009] ZASCA 8 (13 March 2009), at paras. [11] – [18]).

[35] The application is accordingly dismissed with costs, such costs to include the costs of two counsel.

J.C.Froneman

Judge of the High Court.

[1] An organ of state is defined as follows in s. 1 of PPPFA: “ ’organ’ of state means- (a) a national or provincial government as defined in the Public Finance Management Act, 1999 (Act 1 of 1999); (b) a municipality as contemplated in the Constitution; (c) a constitutional institution defined in the Public Finance Management Act, 1999 (Act 1 of 1999); (d) Parliament; (e) a provincial legislature; (f) any other institution or category of institutions included in the definition of ‘organ of state’ in section 239 of the Constitution and recognised by the Minister by notice in the Government Gazette as an institution or category of institutions to which this act applies;”.

[1] An organ of state is defined as follows in s. 1 of PPPFA:

“ ’organ’ of state means-

(a) a national or provincial government as defined in the Public Finance Management Act, 1999 (Act 1 of 1999);

(b) a municipality as contemplated in the Constitution;

(c) a constitutional institution defined in the Public Finance Management Act, 1999 (Act 1 of 1999);

(d) Parliament;

(e) a provincial legislature;

(f) any other institution or category of institutions included in the definition of ‘organ of state’ in section 239 of the Constitution and recognised by the Minister by notice in the Government Gazette as an institution or category of institutions to which this act applies;”.

[2] Page 47 of the papers.

[3] Pages 62, 129 and 171 of the papers.

[4] Page 47 of the papers.