Total Computer Services (Pty) Limited v Municipal Manager Potchefstroom Local Municipality and Others (29416/07) [2007] ZAGPHC 239; 2008 (4) SA 346 (T) (19 October 2007)

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO:29416/07

NOT REPORTABLE DATE: 19/10/2007

In the matter between:

TOTAL COMPUTER SERVICES (PTY) LIMITED Applicant

and

MUNICIPAL MANAGER, POTCHEFSTROOM

LOCAL MUNICIPALITY First Respondent

THE POTCHEFSTROOM LOCAL MUNICIPALITY Second Respondent

INYANGA TRADING 145 (PTY) LIMITED Third Respondent

________________________________________________________________

JUDGMENT

MURPHY J

1. The applicant (“TCS”) seeks an order reviewing and setting aside the award of a tender made by the second respondent, the Potchefstroom Local Municipality (“the municipality”) to the third respondent (“Inyanga”) in May 2007.

2. The first respondent is the municipal manager of the municipality.

3. The application was initially set down on 5 July 2007 for an urgent interim order pending the final determination of the review. No interim order was granted and the matter was postponed to a fixed date for adjudication of the review. The parties are in agreement that the costs in respect of the interim proceedings should be costs in the cause and in the event of the applicant prevailing the respondents should bear the costs on a joint and several basis.

4. The tender in question relates to the provision and implementation of a system to process and enforce road traffic violations within the municipal area of Potchefstroom. Before May 2007 the traffic enforcement system was managed by Labat Traffic Solutions (Pty) Limited (“Labat”) in conjunction with the applicant, TCS. Labat provided, installed and maintained cameras and ancillary equipment within the municipality’s area. TCS provided the fine management system which effectively oversaw the back office administration as it related to traffic fines. The two companies worked hand in hand to ensure that road traffic violations in Potchefstroom were captured and processed efficiently for enforcement purposes.

5. The relationship between TCS and the municipality was conducted in terms of a written service agreement which commenced on 11 October 2001. The agreement was for an initial three year period and expired on 10 October 2004. Prior to the expiry of the service agreement, TCS was advised that the municipality intended calling for tenders for the back office operation and consequently TCS would only be required to continue after October 2004 on a month by month basis. This was seen as an interim measure pending the proper and fair award of a tender to a successful tenderer. Once the tender was awarded the intention was that the service agreement would be terminated upon written notice of one calendar month to TCS.

6. Labat commenced its operations with the municipality on or about 8 September 2003 in terms of a written service agreement for a period of 2 years expiring on 8 September 2005. This service agreement contained an option to renew for a further 3 years, up to 8 September 2008. A dispute has developed between Labat and the municipality as to whether or not the agreement was in fact extended.

7. It seems that Labat and TCS are associated companies with interlocking directors and shareholders.

8. In early 2007 the municipal manager issued notice number 12/2007 inviting tenders in terms of section 83 of the Local Government: Municipal Systems Act 2000 for a law enforcement administration support system. The invitation to tender reflected the closing time and date for the submission of the tenders to be at 12h00 on Friday 16 February 2007. Tender documents, containing details of the specifications and conditions for tender, were available at the department of public safety of the municipality. The notice stated that tenderers were required to supply the necessary information in order to comply with the requirements of section 83 of the Local Government: Municipal Systems Act 32 of 2000 and that the tender was subject to the conditions of the Preferential Procurement Policy Framework Act 5 of 2000 as well as the Preferential Procurement Regulations 2001. It was also stated that the Municipality’s Procurement Policy (“the Policy”) would also be applicable as well as the Supply Chain Regulations of the Local Government: Municipal Finance Management Act.

9. Five tenderers, including TCS and Inyanga, submitted tenders to the municipality. One of the five was eliminated because of a fatal non-compliance with the requirements. This left four tenderers to be considered for selection. The process of evaluation and adjudication of the tenders involved three steps. Firstly, tenders were evaluated by an evaluation committee, chaired by the municipality’s senior administrative officer. The report and recommendations of the evaluation committee were thereafter forwarded to a second committee, the adjudication committee, chaired by the chief financial officer of the municipality. The adjudication committee then submitted its report with recommendations to the first respondent, the municipal manager, who made a final decision on the award of the tender.

10. Both the evaluation committee and the adjudication committee recommended the award of the tender to Inyanga.

11. There has been a measure of confusion as to when in fact the award was made with two different versions being presented by the municipality in that regard. I am satisfied from the evidence that the recommendation of the adjudication committee to award the tender to Inyanga was approved by the municipal manager and communicated to Inyanga on 18 May 2007. The municipality advised TCS in a letter dated 28 May 2007 that its tender had been unsuccessful on 29 May 2007. The confusion comes from the fact that on 30 May 2007 the municipality passed a resolution that the tender be awarded to Inyanga. The resolution reflects that it was passed on 30 May 2007, was typed on 4 June 2007 and was then archived on 6 June 2007. I incline to the view that what actually happened was that the resolution of 30 May 2007 was merely a ratification of what had gone before. The relevant date, for purposes which will appear presently, is 29 May 2007, being the day on which TCS acquired notice that the tender had been awarded to Inyanga. Besides that, nothing much turns on the question of the dates.

12. The applicant delivered a notice of appeal to the municipality on 18 June 2007. The municipality informed the applicant that its appeal was out of time in terms of the statutory time period prescribed for appeals and accordingly the appeal was rejected. Thereafter a contract was concluded between Inyanga and the municipality with effect from 1 July 2007, from which date Inyanga has been performing the relevant services for the municipality.

13. As I indicated earlier, the applicant launched urgent proceedings on 5 July 2007 and the matter was then postponed by agreement to 18 September 2007 when the application for review (as opposed to the application for interim relief) was heard before me.

14. In terms of the advertisement, tenderers were requested to supply the necessary information needed to comply with the various legislative requirements and that the Preferential Procurement Regulations as well as the municipality’s procurement policy would be applicable to the tender process.

15. The tender documentation furnished to tenderers for the purposes of supplying the necessary information, and informing the tenderers of the requirements and specifications of tender, consisted of a number of documents of obvious relevance. The document in terms of which each tenderer undertook to tender on the terms and conditions in accordance with the specifications stipulated was “the form of tender”. It was required to be signed by the individual representing the tenderer and authorised to make the necessary declarations. Each tenderer agreed, in terms of the document, that it had satisfied itself as to the correctness and validity of the tender and accepted that any mistakes regarding the price and calculations would be at its own risk.

16. The general tender conditions and directions were contained in form C of the documentation. It required tenderers to acquaint themselves and to comply in their tender with three policy documents of relevance: namely the Preferential Procurement Policy Framework Act 5 of 2000, the Preferential Procurement Regulations 2001 and the municipality’s Draft Procurement Policy (the Policy). Under the heading of “Evaluation of Tenders”, the form drew the attention of tenderers to the fact that evaluation would be based on annexure A - Procurement Form of Tender- included in the tender documentation. Annexure A in turn provided that the acceptable tenderer obtaining the highest number of points would be awarded the contract. It also contained the formula which would be used to calculate the number of points and stated that a maximum of 10 points would be allocated to functionality, being 5 points to company profile and 5 points to reference sites.

17. Form D, contained the specifications of tender. In terms thereof each tenderer was expected to provide for computer software compatible with the newest technology with suitable interface capabilities for the processing of the functions stipulated in the specifications. Each tenderer was required to tender a fixed service fee, excluding VAT, according to the guidelines for private sector involvement in providing administrative and logistical support to local authorities’ traffic departments issued by the National Prosecuting Authority.

18. Each tenderer had to sign a declaration acknowledging that the information furnished was true and correct.

19. Before embarking upon an analysis of the grounds of review and the issues in this case, it is necessary to set out the legal framework of relevance to the adjudication of tenders. It is common cause that the municipality is an organ of state and that any decision on its part to award or reject a tender constitutes administrative action in terms of the Constitution - see Logbro Properties CC v Bedderson N.O. and Others 2003 (2) SA 460 (SCA), para 5 -14.

20. Section 217 of the Constitution specifically deals with procurement by organs of state. It reads as follows:

(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.

(2) Subsection (1) does not prevent the organs of state or institutions referred to in that sub-section from implementing a procurement policy providing for -

(a) categories of preference in the allocation of contracts; and

(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) may be implemented.”

21. Public tendering is also subject to the principles in section 195(1) of the Constitution which provides generally that the public administration must be governed by the democratic values and principles enshrined in the Constitution, including the requirement that a high standard of professional ethics must be promoted and maintained as well as efficient, economic and effective use of resources must be promoted. The public administration is also required to be accountable.

22. On account of tendering constituting administrative action, any award of a tender must therefore also comply with section 33 of the Constitution which guarantees the right to administrative justice. Section 33, it is well known, must be read with the provisions of the Promotion of Administrative Justice Act (“PAJA”), which gives practical effect and content to the constitutional rights to administrative justice. The relevant provisions of PAJA of significance in this matter are as follows. Section 3 provides that administrative action which materially and adversely affects the rights or legitimate expectations of any person must be procedurally fair. Section 3(2)(a) stipulates that a fair administrative procedure depends on the circumstances of each case. Section 6(1) allows any person to institute proceedings in a court or a tribunal for the judicial review of administrative action. Section 6(2)(b) provides for judicial review if a mandatory and material procedure or condition prescribed by an empowering provision was not complied with. Section 6(2)(e)(iii) provides for judicial review if the action was taken because irrelevant considerations were taken into account or relevant considerations were not considered. Likewise, section 6(2)(f)(i) provides for judicial review if the administrative action contravenes a law or is not authorised by the empowering provision. Section 6(2)(f)(ii)(cc) permits judicial review if the action is not rationally connected to the information before the administrator. Section 6(2)(i) confers the power to review administrative action if it is unconstitutional or unlawful.

23. In terms of section 168 of the Local Government: Municipal Finance Management Act 56 of 2003, the Minister of Finance, acting with the concurrence of the Minister for Provincial and Local Government, has made the regulations, referred to as the Municipal Supply Chain Management Regulations, published under GN868 in GG27636 of 30 May 2005. Regulation 2 provides that each municipality must implement a supply chain management policy that gives effect to section 217 of the Constitution which is fair, equitable, transparent, competitive and cost effective. Regulation 2(3) provides that no municipality may act otherwise than in accordance with its supply chain management policy when procuring goods or services. Regulation 26 provides that a supply chain management policy must provide for a committee system for competitive bids consisting of a bid specification committee, a bid evaluation committee and a bid adjudication committee. The bid specification committee has responsibility for compiling the specifications for each procurement of goods or services. The bid evaluation committee must evaluate bids in accordance with the specifications for a specific procurement and the points system as may be set out in the supply chain management policy of the municipality as prescribed in the specifications and in terms of the Preferential Procurement Policy Framework Act. It is also required to evaluate each tender to execute the contract. Thereafter the evaluation committee must submit their report to the adjudication committee including its recommendations regarding the award of the bid. The bid adjudication committee then must consider the report and recommendations of the bid evaluation committee and either make a final award or a recommendation to the accounting officer (in this case the municipal manager) to make the final award.

24. The Preferential Procurement Policy Framework Act 5 of 2000 is a short Act, consisting of only six sections. The pre-amble to the Act explicitly states that its purpose is 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; and to provide for matters connected therewith. The key provision is section 2 which reads as follows:

“2. Framework for implementation of preferential procurement policy. —(1) An organ of state must determine its preferential procurement policy and implement it within the following framework:

(a) A preference point system must be followed;

(b) (i) for contracts with a Rand value above a prescribed amount a maximum of 10 points may be allocated for specific goals as contemplated in paragraph (d) provided that the lowest acceptable tender scores 90 points for price;

(ii) for contracts with a Rand value equal to or below a prescribed amount a maximum of 20 points may be allocated for specific goals as contemplated in paragraph (d) provided that the lowest acceptable tender scores 80 points for price;

(c) any other acceptable tenders which are higher in price must score fewer points, on a pro rata basis, calculated on their tender prices in relation to the lowest acceptable tender, in accordance with a prescribed formula;

(d) the specific goals may include—

(i) contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability;

(ii) implementing the programmes of the Recontruction and Development Programme as published in Government Gazette No. 16085 dated 23 November 1994;

(e) any specific goal for which a point may be awarded, must be clearly specified in the invitation to submit a tender;

(f) the contract must be awarded to the tenderer who scores the highest points, unless objective criteria in addition to those contemplated in paragraphs (d) and (e) justify the award to another tenderer; and

(g) any contract awarded on account of false information furnished by the tenderer in order to secure preference in terms of this Act, may be cancelled at the sole discretion of the organ of state without prejudice to any other remedies the organ of state may have.

(2) Any goals contemplated in subsection 1(e) must be measurable, quantifiable and monitored for compliance.”

25. It is notable that section 2(1)(f) provides that the contract must be awarded to the tenderer who scores the highest points, unless objective criteria, in addition to those contemplated, justify the award to another tenderer.

26. The municipality’s procurement policy is contained in a document which has been referred to in the papers as the “Draft Procurement Policy”. There has been some suggestion that the document is not of application by virtue of its having been a draft. However, I accept the submission by TCS that this document sets out the policy that was intended to govern the tenders in this instance. Reference is made to the Policy in various documents issued for the purposes of soliciting the tender, such as the official notice inviting tenders, the invitation to tender and the general tender conditions and directions. Further reference was made to it in a recent invitation to tender which appeared in the local newspaper in Potchefstroom on 10 August 2007 in respect of certain consulting engineering services. It is clearly the document contemplated in the relevant legislation as being required by a municipality procuring goods or services.

27. Reading the Policy as a whole, it is clear that it aims to set out ethical and sound supply chain management practices and to give effect to section 217 of the Constitution. The Policy applies to the acquisition of all goods and services, construction works and consultant services. In line with the requirements of the regulations it established three different tender committees relating to specification, evaluation and adjudication. Clause 17.2.1 of the Policy provides that the municipality may not consider a bid or a quote unless the tenderer has furnished proof of VAT registration or a tax clearance certificate. Clause 41.1.3 provides that a bid shall be considered invalid if the form of bid has not been signed.

28. Clause 49 of the Policy has assumed particular relevance in this case. It reads as follows:

“49. Notification of Decision and Award of Contract

49.1 If the Bid Adjudication Committee, Municipal Manager or other delegated official has resolved that a bid be accepted, the successful and unsuccessful bidders shall be notified in writing of this decision.

49.2 The written notification referred to in clause 49.1 shall inform the parties:

49.2.1 of their right to appeal such decision within 21 days of the written notification of that decision in terms of Section 62 of the Systems Act;

49.2.2 of their right to request reasons for the decision in terms of the Promotion of Administrative Justice Act, 3 of 2000;

49.2.3 that any appeal as envisaged by this clause must be submitted to the Municipal Manager at the address stated in the notification, and

49.2.4 that no award shall be made until either the successful expiry of the 21 day appeal period or confirmation in writing that none of the affected parties intend to appeal, or the satisfactory resolution of any appeals.

49.3 Any appeal must state the reasons for the appeal, the way in which the person’s rights are affected by the decision and the remedy sought.

49.4 The consideration of appeals and if necessary, the invalidation of any decision made, shall be dealt with in terms of the Council’s appeals process.

49.5 If, after the expiry of the prescribed 21 day appeal period there are no appeals, then a letter of acceptance/award shall be issued to the successful bidder.

49.6 Every notification of acceptance of a bid or award of a contract must be in writing and shall:

49.6.1 be delivered by hand on the day that it was signed and dated; or

49.6.2 be faxed and posted to the address chosen by the bidder on the day that it was signed and dated, with a copy of the transmission verification report kept for record purposes.”

29. Chapter 13 of the Policy deals with ethical standards. Clause 2 of chapter 13 provides for objections and complaints. It reads:

“Persons aggrieved by decisions or actions taken in the implementation of the Supply Chain Management System, may lodge within 21 days of the decision or action, a written objection or complaint against the decision or action.”

30. Clause 3 of chapter 13 requires the municipal manager to appoint an independent and impartial person not directly involved with the supply chain to assist in the resolution of disputes between the municipality and other persons regarding decisions or actions taken in the implementation of the supply chain management system or any matter arising from a contract awarded in the course of the supply chain management system or to deal with objections, complaints or queries regarding any such decisions or actions or any matters arising from such contract.

31. Clause 3.9 of chapter 13 deals with the Preference Point Systems Guidelines. Clauses 3.9.1 and 3.9.2 are of particular relevance in this matter. They read as follows:

“3.9 Preference Point System Guidelines

3.9.1 General Conditions

(a) The Preference Point System is applicable to all local South African manufactures/suppliers/service providers.

(b) Historically Disadvantaged Individuals (HDI).

An HDI is a South African Citizen who had no franchise in elections prior to the introduction of the Constitution of the Republic of South Africa 1983 (Act no. 110 of 1983) or the Constitution of the Republic of South Africa 1993 (Act no 200 of 1993).

(c) Responsive tenders will be adjudicated by the Tender Adjudication Committee using a system which awards points on the basis of the tendered price, equity ownership.

(d) The qualifying tenderer obtaining the highest number of points will be awarded.

(e) Points scored will be rounded off to 2 decimal places.

(f) In the event of equal points scored, the tender will be awarded to the tenderer scoring the highest number of points for equity owned by HDI.

3.9.2 Points Awarded for Price and Functionality

(1) The 80/20 Preference Point System

This formula must be used to calculate the points for price in respect of tenders with a Rand value equal to/or above R30 000 up to R500 000 or such amounts as are prescribed by legislature. This formula may be used for procurement with a value less than R30 000, if and when appropriate.

Formula is: Ps = 80 {1- (Pt – Pmin }

{ P min }

Where : Ps = Points scored for price of tender

under consideration

Pt = Rand value of tender under

consideration

Pmin = Rand value of lowest acceptable

tender

(2) The 90/10 Preference Point System

This formula must be used to calculate the points for price in respect of tenders/procurement with a Rand value above R500 000 or such amount as prescribed by legislature.

Formula is: Ps = 90 {1- (Pt – Pmin) }

{ P min }

Where: Ps = Points scored for price of tender

Example:

Tender 1 = Price R1 600 000

Tender 2 = Price R1 550 000

As Tender 2 is the lowest acceptable tender it earns the maximum points of 90

Tender 1 – Calculation of points

Ps = 90 {1- (Pt – Pmin) }

Pmin

= 90 {1-(1 600 000 – 1 550 000)}

1 550 000

= 90 {1-0,0323}

= 90 {0,9677}

= 87,093

The points earned by tender 1 on price is 87, 093.

(3) In the event of specialized goods or services or where it is in the best interest of Council, the Tender Specification Committee may stipulate that a maximum of ten points may be scored for functionality within the guideline set out on page 53 and it may further stipulate in the conditions of the tender that a specified minimum points must be scored for functionality in order to qualify for further adjudication.

(4) The total combined points allowed for functionality and price may however not exceed 80 points in respect of tenders with an estimated Rand value equal to or below R500 000 or 90 points in respect of tenders with an estimated Rand value in excess of R500 000.

32. The points formula accords with that reflected in the tender documents and in the Regulations.

33. Annexure A to the Policy reflects that the codes contained in the Policy came into operation on the date of publication namely 9 February 2007, that is about nine days before the closing date for the tenders in this case.

34. TCS has raised four specific grounds of review. The first is that the municipality erred in the allocation of points by not allocating them in accordance with the preference point system guidelines set out in the Policy and the tender documentation; and that it erred further in not awarding the contract to the tenderer who scored the highest points (namely TCS) and the action accordingly contravened section 2(1)(f) of the Preferential Procurement Policy Framework Act 5 of 2000. The second ground of review is that Inyanga’s tender was not acceptable and was invalid. The third ground was that the award was made prematurely, contrary to clause 49 of the Policy. The fourth ground was that the municipality acted improperly or unfairly by rejecting TCS’s appeal on the ground that it was lodged out of time. The parties are in dispute about whether a 21 day or 14 day appeal period applied.

35. I turn now to consider the allegation that the municipality erred in the allocation of points.

36. In terms of the specifications of tender (form “D”) the tenderer was obliged to tender a fixed service fee, excluding VAT. The fixed fee structure was required to be divided across three services related to fines under the Criminal Procedure Act. Clause 2.2 of the specifications of tender provided a guideline that there should be a fixed fee for section 56 notices paid in each calendar month and a fixed fee for each section 341 notice paid in each calendar month with a possible distinction between handwritten and camera related notices. In other words, the tenderers were required to specify a fixed fee in respect of the three services performed in the backroom operation.

37. TCS dealt in its tender with the service fee as follows:

“2 SERVICE FEE

The Municipality of Potchefstroom shall pay the Service Provider a monthly service fee which service fee shall be calculated per case successfully finalized, in accordance with the fees stated below, each INCLUSIVE of value-added tax.

2.1.1. Section 56 notices a fixed fee of R76.95 (SEVENTY SIX RAND AND NINETY FIVE CENTS);

2.1.2. Handwritten Section 341 notices a fixed fee of R71-25 (SEVENTY ONE RAND AND TWENTY FIVE CENTS);

2.1.3. Section 341 camera related notices a fixed fee of R61.88 (SIXTY ONE RAND AND EIGHTY EIGHT CENTS).

2.1.4. All camera, Section 56 and Section 341 notices rescinded (not finalized through payment) a fixed fee of R0.00. (NUL RAND).

2.2 The FIXED FEE above will be revised annually and escalated by a maximum percentage in accordance with the National Treasury prescriptions for municipalities.”

38. In its tender documentation Inyanga dealt with the service fee as follows:

“PROPOSED FIXED TARIFF FOR SERVICES RENDERED

The Council shall pay the SERVICE PROVIDER a monthly service fee which service fee shall be calculated to be equivalent to the amounts stated below, each exclusive of value-added tax.

A fixed fee of R45.00 (fourty five rand) for each fine paid in terms of all SERVICE PROVIDER camera offence fines processed in each calendar month.

a fixed fee of R65.00 (sixty five rand) for all Section 56 notices paid in each calendar month.

A fixed fee of R70.00 (seventy rand) for all handwritten Section 341 notices paid in each calendar month.

A fixed fee of R55.00 (fifty five rand) for all camera related fines processed by the SERVICE PROVIDER back-office.”

39. It will be seen immediately that Inyanga supplied four fixed fees while the tender specifications required only three, namely those for section 341 camera offences, section 341 handwritten, and section 56 notices. The evaluation committee decided to ignore the fourth amount on the grounds that the services contemplated there were for capturing, generating and printing which were part of the service that had to be provided in any event in relation to the other three items. It therefore focused only on the first three prices.

40. The other difficulty is that the Inyanga prices were quoted correctly exclusive of VAT, while the TCS prices were quoted incorrectly inclusive of VAT. However, the evaluation committee, presumably not wanting to be formalistic, did a comparison on the basis of a price inclusive of VAT except it erred in relation to the section 341 camera price. When evaluating that particular item it compared Inyanga’s VAT exclusive price with TCS’s VAT inclusive price. That is, it compared R45.00 to R61.88 instead of comparing R51.30 to R61.88. The consequence of the error was not that TCS should have scored the highest points in relation to section 341 camera offences, but rather it should have gained more points for itself through the application of the formula. The manner in which the evaluation committee arrived at the points allocation for the section 341 camera offences made to TCS in terms of the formula was as follows: 61.88 (TCS price) -R45.00 (lowest price) = R16.88 ÷ R45.00 = R0.38. 1 - 0.38. = 0.62 x 80 = 49.6.

41. Had the VAT inclusive prices been used the following would have resulted: 61.88 (TCS price) - R51.30 (lowest price) = R10.58 ÷ R51.30 = R0.21. 1 - 0.21 = 0.79 x 80 = 63.20.

42. It is common cause that the points were correctly allocated in respect of the other fixed fees for the section 341 handwritten notices and the section 56 notices. TCS’s bid on the section 341 handwritten notices, inclusive of VAT, was lower than Inyanga’s bid inclusive of VAT with the result that TCS scored 80 points in accordance with the formula while Inyanga scored 62.7. On the section 56 notices Inyanga’s bid was the lowest and therefore it obtained 80 points for its price while TCS obtained 76.96 points for its price.

43. The result is that Inyanga’s total points were correctly calculated as 222.70 (80 + 62.7 + 80). This figure was then averaged to be 74.24. TCS’s points were incorrectly recorded as 206.56 (49.6 + 80 + 76.96), averaged at 68.86. If TCS’s points were corrected to substitute 63.2 in place of 49.6 awarded for the section 341 camera offences, it would have scored 220.16 averaging at 73.39.

44. TCS contended further that there was no objective basis for the municipality choosing the figure of R45.00 rather than R55.00 (the fourth amount stipulated in the Inyanga bid) in respect of the camera related notices. Had the figure of R55.00 been used then TCS would be cheaper as its quoted price for that service was R61.88, which is less than R62.70 being R55.00 + VAT. This adjustment would then have taken the score of TCS further ahead of Inyanga. However, I am prepared to accept that it was within the discretion of the municipality to hold Inyanga to the lower price and to contract for that amount and accordingly to evaluate its tender on the basis of that price, namely R45.00 plus VAT.

45. Both Inyanga and TCS scored 10 points each for functionality. Functionality points are awarded on the basis of company profile (5 points) and references (5 points).

46. Inyanga scored 2.25 for preference points while TCS scored 7.53. Preference points relate to issues of equity and historical disadvantage.

47. The total points awarded then to TCS by the evaluation committee were 68.86(price) + 10(functionality) + 7.53(preference) = 86.39. The total points awarded to Inyanga were 74.24(price) + 10(functionality) + 2.25(preference) = 86.49. Had the correct number of points been awarded to TCS on price, namely 73.39, it would have scored 90.92 and thus would have been the bidder with the highest points, entitled to be awarded the tender.

48. TCS also contends that Inyanga should not have received any points for functionality because its tender documents were silent on its company profile and references and failed to make any submissions or to provide any information in that regard. Similarly, it submits that the municipality erred in awarding 2.25 points to Inyanga under the category of preference points, because in terms of regulation 12(2) of the Regulations to the Preferential Procurement Policy Framework Act, only a tenderer who has completed and signed the declaration of the tender documentation may be considered for preference points. Inyanga did not sign the declaration in its tender documentation and thus stood to forfeit these points as well.

49. The net result of all of this, in the submission of TCS, is that it stood far ahead of Inyanga and was the tenderer who scored the highest points and was thus entitled to be awarded the contract.

50. When the recommendation of the evaluation committee served before the adjudication committee, the latter realised the error with regard to the price of R45.00 made by the evaluation committee and corrected it by including VAT. The adjudication committee made three changes of significance. Firstly, in respect of Inyanga’s bid, it substituted the price of R45.00 with one of R51.00 (instead of R51.30) as constituting the quoted price inclusive of VAT for section 341 camera notices. Secondly, it altered the quoted price of TCS for the section 341 camera notices (as well as the other two quoted prices) and increased these prices in order to take into account the average price based on annual escalation over three years. This it did to give effect to paragraph 2.2 of the service fee quoted by TCS where it was stated that the fixed fee would be revised annually and escalated by a maximum percentage in accordance with the National Treasury prescriptions for municipalities. Thirdly, it allocated the maximum of 2 points under the category of preference points for business premises for Inyanga.

51. TCS has submitted that the revision of the price to take account of the annual escalation only in respect of its price was unfair. It argued that such revisions take place as a matter of course at the instance of the National Treasury and therefore the committee did not compare apples with apples. If it is to revise the prices on the basis of the escalation then it needed to do so in respect of all the other tenders and it failed to do this. With regard to the awarding of an additional 2 points to Inyanga for business premises it pointed out that Inyanga in its documentation recorded that it had no physical address in Potchefstroom. The reply to that question in the tender documentation was: “to be established”. Accordingly, the adjudication committee, in the view of TCS, erred in allocating the maximum of 2 points under this category and acted unfairly and incorrectly in the computation of the points.

52. The adjudication committee’s decision to apply an escalation to the TCS quoted price had a significant impact on its points allocation, resulting in TCS scoring an average of 69.7, as opposed to the 73.39 it would otherwise have scored as calculated above. This once again brought it back into second place. The record does not show that the bid by Inyanga was intended to exclude escalation entirely. The adjudication committee needed to clarify this, perhaps by seeking additional information from both parties as to how the prices should be compared taking into account the possibility of escalation. Its failure to do so, to my mind, led to a flawed computation of prices.

53. There is also merit in the contention that Inyanga’s tender documents did not include sufficient information relating to company profile and reference sites. Inyanga did include a document which included a reference to at least one other municipality to which it had delivered similar services. However, it did not complete the relevant portions of the tender documentation dealing with this aspect and has justified its failure to do so as being a result of its confusion about certain instructions in the tender requirements. The municipality when challenged on this during the interim proceedings did not state that the document submitted by Inyanga had been taken into consideration. Rather it asserted in general that if a company’s profile could be gleaned from the tender documents, such tenderer was given the maximum of 5 points. This is unacceptable. The purpose of a preference point system is to award points on an objective basis in accordance with criteria and requirements objectively met and established. To allow an adjudication committee to award points from what it subjectively “gleans” from documents opens the process to abuse. From this assertion alone, considerable doubt arises as to whether the successful tenderer, Inyanga, should have been awarded the 5 points. Likewise, it is more than doubtful whether it should have been awarded the 2 additional points for business premises or any points for reference sites either.

54. In the premises, I am persuaded that the error of the evaluation committee was compounded by the errors of the adjudication committee. I do not consider that it helps the municipality to argue that the prices tendered by TCS were more expensive than those tendered by Inyanga in relation to the key services. The submission was made on its behalf that the section 341 camera notices (for which Inyanga tendered the lowest price) constitute more than 80% of the municipality’s processes and that the municipal manager was correct in holding price as the dominant factor. Such an argument misses the mark precisely because it ignores the points system and the purposes of it. It flies in the face not only of the Preferential Procurement Policy Framework Act but also the procurement form of tender issued by the municipality in which it is unequivocally stated that the acceptable tenderer obtaining the highest number of points will be awarded the contract. It does not say that the contract will be awarded to the tenderer who comes in with the lowest price in respect of some of the services. Indeed, to the contrary, in the introductory document in the tender documentation it is expressly stated that the lowest tender shall not necessarily be accepted.

55. The municipality’s miscalculation of the points and the questionable award which resulted is reviewable under PAJA on various grounds: Firstly, the administrative action was taken without considering the relevant considerations postulated by the points formula. Irrelevant considerations, such as those gleaned from the tender documentation, were also taken into account. Secondly, the action contravened the Preferential Procurement Policy Framework Act in that the contract was awarded to a tenderer who did not score the highest points. Thirdly, the action was not rationally connected to the information that was before the adjudication committee or the municipal manager. The information on price, company profile, preference and reference sites simply did not justify the award of the highest number of points to Inyanga. For these reasons the decision must be set aside. Objectively speaking there was no rational connection between the outcome of the decision and the facts upon which the decision was based.

56. The second ground of review is that the tender submitted by Inyanga was not a valid or acceptable tender. The Preferential Procurement Policy Framework Act 5 of 2000 defines an acceptable tender as a tender which in all respects complies with the specifications and conditions of tender as is set out in the tender document. TCS claims that because Inyanga tendered for four fixed amounts instead of three the tender was unacceptable.

It also reiterated the point about the failure to include documentation relating to company profile and reference sites. Moreover, in argument, it relied on the prohibition in the Policy that the municipality is proscribed from considering a bid or quote unless the tenderer has submitted proof of VAT registration. The tender documentation indeed does show that Inyanga had not complied with VAT registration. It stated merely that it was in the process for registering for VAT at the time it completed its tender documents. Finally, it is common cause that Inyanga’s tender document was not signed and the submission was made that the bid was invalid on that ground.

57. On the surface these challenges seem technical and formalistic. Moreover, the tender specifications are permissive and discretionary rather than mandatory terms. Thus paragraph 7 of the General Tender Conditions and Directions (form C) reads:

“Failure on the part of the tenderer to sign this tender for and thus to acknowledge and accept the conditions in writing or to complete the attached forms and annexures in all respects may in the sole discretion of the Potchefstroom City Council invalidate the tender.”

58. Accordingly, the municipality had a discretion to accept the tender, in the exercise of its discretion, even if it was not signed. A failure to sign did not automatically invalidate the tender. The municipality is similarly entitled to accept a tender, in terms of paragraph 7, even where the attached forms and annexures are not completed. Likewise, I do not consider clause 41 of the Policy, entitling the municipality to consider invalid a bid which has not been signed, as taking the matter much further. The fact of the matter is that the municipality has reserved to itself a discretion in that regard and it would be unduly formalistic to require the municipality to reject all bids, no matter how sound in other respects, on the grounds that through oversight they had not been signed.

59. The question of VAT registration is however a different matter. Normally, for obvious public policy reasons, a bidder should not be granted a public contract unless its tax affairs are in order. Clause 17.2 of the Policy makes it plain that such is indeed a requirement. For reasons not explained, the question of VAT compliance was not pleaded by TCS in its founding papers and hence the respondents have been caught by surprise. I agree with Mr Kennedy, who appeared for the respondents, that there may indeed be facts that could have been raised had the matter been properly pleaded which would cast a different light on the averment made in Inyanga’s tender documentation to the effect that it was in the process of seeking registration. It may be that the process of registration was so advanced that the adjudication committee or the municipal manager might have regarded such as being sufficient compliance with clause 17.2 of the Policy. Accordingly, I am unable to reach a conclusion that the tender was unacceptable on that basis.

60. Finally, it is correct that Inyanga did submit four fees for four different services. However, the municipality was justified, as I have said, in accepting the prices for the three specified forms of service and ignoring that put forward for the fourth. To have disqualified Inyanga’s tender because it contained a superfluous item would have been unduly formalistic and contrary to the overall objective of considering all tenders on a competitive basis, in the interest of ensuring cost effectiveness.

61. Accordingly, on the evidence before me, I am not prepared to find that the tender was invalid or unacceptable.

62. The claim of procedural unfairness on the grounds of being premature is predicated upon the provisions of clause 49.5 of the Policy. In terms of clause 49.1 the municipal manager is obliged to notify the successful and unsuccessful bidders in writing of his decision to award the tender. The written notification must inform the parties of their rights to appeal against the decision and to follow the procedure on appeal. The effect of clause 49.5 is that a letter of acceptance or the award may be issued to the successful bidder only after the expiry of the prescribed appeal period if there are no appeals. The implication of this is that a provisional award should normally be made first and the award should be held in abeyance for the duration of the appeal period and a final award made only once the appeal period has lapsed and no appeals have been made, or where appeals have been lodged once they have been finalised.

63. In the present case the municipality told Inyanga of its success on 18 May 2007 but only informed TCS in writing of its unsuccessful tender application on 29 May 2007. In terms of the Policy therefore the municipality was precluded from making the award to Inyanga at the very earliest before 19 June 2007 (if a 21 day appeal period is provided for) or 12 June 2007 (if a 14 day appeal period is provided for).

64. I agree with TCS that when the prescriptions of clause 49 are kept in mind the decision was indeed premature. The purpose of the provision is to protect all parties’s interests by ensuring that an award is not made final until such time as the appeal process has been exhausted. The procedure protects both the tenderers and the municipality. By acting in the way that it did, the municipality deprived TCS and the other tenderers of their rights to persuade it to reconsider its decision. Considering the flaws in the calculation of the points, following the process properly could have made a material difference and the procedure could have been deployed by the other unsuccessful bidders at minimal expense, avoiding the litigation that followed. By acting prematurely, the municipality committed a procedural irregularity of significant material consequence. The action was thus procedurally unfair and reviewable in terms of section 6(2)(c) of PAJA. My finding in this regard is influenced by my finding that the municipality’s rejection of TCS’s appeal was also wrong for reasons which follow immediately hereafter.

65. Clause 49.2 of the Policy states that the written notification informing the unsuccessful bidders of the failure of their bids is required to inform the parties of their right to appeal such decision within 21 days of the written notification of that decision in terms of section 62 of the Local Government: Municipal Systems Act.