WK Construction (Pty) Limited v Trustees for the time being of the Mzingisi Development Trust and Others (CA2244/2015) [2016] ZAECGHC 145 (6 December 2016)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: CA 2244/2015

Date Heard: 28 November 2016

Date Delivered: 06 December 2016

In the matter between:

WK CONSTRUCTION (PTY) LIMITED

Appellant

(Applicant a quo)

and

THE TRUSTEES FOR THE TIME BEING OF THE

MZINGISI DEVELOPMENT TRUST

First Respondent

THE MEC: EASTERN CAPE DEPARTMENT OF

HUMAN SETTLEMENTS

Second Respondent

WHITE HAZY BUILDING CONSTRUCTION (PTY)

LIMITED

Third Respondent

NELSON MANDELA BAY MUNICIPALITY

Fourth Respondent

ROBS INVESTMENT HOLDINGS (PTY) LIMITED

Fifth Respondent

APPEAL JUDGMENT

LOWE, J:

Introduction:

[1] This is an appeal in a tender matter in which Alkema J granted the following order in the Appellant’s favour on 17 December 2015:

“1. The decision of the First Respondent to award the tender: “Construction of Civil Engineering Services in BETHELSDORP NORTH AREA C: Phases 1 and 2, Portion 2: CONTRACT NO: 1100353/2’ (the tender) to the Third Respondent, and the subsequent implementation of that award by the Third Respondent, is hereby reviewed and set aside.

2. Subject to paragraphs 3, 4 and 5 hereunder; the decision of the First Respondent is hereby substituted with an order that the tender referred to in paragraph 1 above be and is hereby awarded to the Applicant.

3. The Applicant is ordered to consider reducing its tender offer of R58.488.397.273,00, by R5.751.124,41 to R52.737.273,00 and to advise First Respondent within 60 days of the date of this order whether or not it is prepared to reduce its tender offer as aforesaid.

4. If Applicant advises First Respondent that it has reduced its tender offer as aforesaid, then First Respondent is ordered, within 30 days of being so advised, to accept the Applicant’s reduced tender

offer and award the tender to Applicant in such reduced amount.

5. If Applicant advises First Respondent that it is not prepared to reduce its tender offer as aforesaid, then First Respondent may in its discretion call for fresh tenders for the award of the contract and commence the tender process afresh.

6. The First Respondent and Second Respondents, jointly and severally, the one paying the other to be absolved, are ordered to pay the Applicant’s costs of suit, including the costs relating to Part A of the Notice of Motion, such costs to include the costs consequent upon the employment of two counsel.”

[2] Alkema J granted leave to the Appellant to appeal against paragraphs 3, 4 and 5 of his order to this Court.

[3] The portions of the order appealed against relate to the instruction to the Appellant to consider reducing its tender offer of R58 488 397 273,00, by R5 751 124,41 to R52 737 273,00, and the further relief related to such a reduction.

[4] The appeal was unopposed.

The approach on appeal:

[5] Whilst an Appeal Court is in general reluctant to disturb the findings of a Trial Court, particularly on questions of fact, Mr Huisamen SC submitted that the Judge a quo, plainly overlooked certain material facts and probabilities and that the conclusion to which he came in relation to the direction that Appellant consider reducing its tender, was wrong.

[6] In the circumstances, he argued, that this court was entitled to come to its own conclusion on the matter.

The relevant facts:

[7] As part of the tender process, the First Respondent’s consulting engineers, Iliso Consulting, prepared a technical report in which it, inter alia, noted:

7.1 that the Third Respondent had submitted unrealistically low rates and that “the risk of poor performance and not being able to complete the project is high”, signifying an unacceptable commercial risk; and

7.2 that the Fifth Respondent had proposed an inadequate labour force for the size of the tender and that “the risk of poor performance and not being able to complete the project is high due to the unrealistically low rates and large fiscal

difference caused by arithmetic errors”, signified an unacceptable commercial risk.

[8] The Supply Chain Management Policy of the First Respondent:

8.1 required the Bid Evaluation Committee of the First Respondent to identify and evaluate commercial risks, and prepare a tender report guided by the findings of a built environment technical report;

8.2 required both the Bid Evaluation Committee and the Bid Adjudication Committee of the First Respondent to perform a risk analysis on the preferred tenderer to ascertain if any unduly low rates or amounts in the tender offer might present an unacceptable commercial risk to the First Respondent.

[9] No such risk analysis was performed in respect of the successful tenderer (the Third Respondent).

The question is whether the court a quo erred in inviting the Appellant to reduce its tender to the sum which Iliso Consulting advised (in respect of the Third Respondent) would result in a risk of poor performance and not being able to complete the project. Such a reduction would expose, so it was argued, the Appellant to the very same risks alluded to by Iliso Consulting, which would be an untenable situation for both the Appellant and the First Respondent. I agree.

[10] In arriving at his conclusion, I am persuaded that the learned Judge erred in attaching too much weight to the submission (on behalf of the First Respondent), that the First Respondent did not have additional funding above the sum of the total amount awarded for the project, and if it were compelled to contract on the terms sought by the Appellant, the contractual sum would exceed the amount allocated for the project and that the First Respondent would be unable to contract on such terms.

[11] I am persuaded by the argument that the learned judge erred in accepting the said submission, and in failing to attach any or sufficient weight to the other relevant evidence contained in the application papers, which evidence can be summarized as follows:

11.1 In paragraph 48.4 of the opposing affidavit of Mr Nkanunu (on behalf of the First Respondent) the following allegation was made:

“It must be borne in mind that the Trust as agent of the Second Respondent, was appointed as project manager to manage the installation of the civil infrastructure in respect of this portion of the project and the total amount allocated for the project was the sum of R120 845 302.05, as set out in annexure “MDT4” annexed to my main Opposing Affidavit. The Trust does not have access to additional funding and simply cannot contract on the terms of the offer of the Applicant. If the contracts with Robs Investments (R51 319 694.84) and Rand Civils (R25 736 190.86) are added to the amount tendered by the Applicant, the total exceeds the budgetary amount by considerable amount. The Trust is a non-profit organisation and it is unable to contract on these terms.”

11.2 In paragraph 29.2 of the replying affidavit Meyer (on behalf of the Appellant) responded to Mr Nkanunu’s said statement as follows:

“29.2 Trust not possessed of funds to award tender to Applicant at its tendered price:

(a) The Trust contends that it cannot contract with the Applicant at its tendered price because it does not have the funds to do so.

(b) In support of this contention it says at paragraph 48.4 of its second opposing affidavit (record pages 574-575) that:

(i) The total funding allocation by the Department is R120 845 302.05

(“MDT4”, record page 304);

(ii) ‘If the contracts with Robs Investments… and Rand Civils… are added to the amount tendered by the Applicant, the total exceeds the budgetary amount by a considerable amount. The Trust is a non-profit organization and it is unable to contract on these terms’.

(c) The Trusts contentions are misleading, and do, to its knowledge, not compare apples with apples. I say so for the following reasons:

(i) The total funding budget is expressly recorded as being subject to

‘VAT, zero rated’ (record page 304);

(ii) The tendered prices are all quoted inclusive of VAT at the rate of 14%, as is borne out by the report of Iliso at page 360 of the record;

(iii) The Trust is accordingly comparing a funding budget at ‘VAT, zero rated’ with tendered prices inclusive of VAT at 14%;

(iv) If VAT at 14% is deducted from the tendered prices, then there can be no dispute that an award of the Tender to the Applicant at its tendered price would fall within the funding budget of the Trust, as demonstrated below:

Portion and successful tenderer Tendered price including VAT at 14% Tendered price including VAT, zero rated Total funding budget including VAT, zero rated Portion 1 – Fifth Respondent R51 319 694.87 R45 017 276.20 Portion 2 – Applicant R58 488 397.41 R51 305 611.76 Portion 3 – Rand Civils R25 736 190.86 R22 575 606.02 Total R135 544 283.14 R118 898 493.98 R120 845 302.05

“

[12] It was argued that the learned judge had further erred in failing to find that the funding argument on the part of the First Respondent

was without merit, particularly if regard were had to the fact that if the various contracts that were awarded by the First Respondent

were added together (inclusive of their VAT components), they total R123 049 270,43. The funding budget of R120 845 302,05

was therefore, on the First Respondent’s own version, in any event exceeded by the awards of the various portions of the project. Again I agree.

[13] It would seem that the learned judge attached too much weight to the estimated sum of R40 000 000,00 for this particular portion of the project, in circumstances where this estimate was wholly inaccurate and in any event exceeded by some R12 000 000,00

the tender of the Third Respondent, who was awarded the tender by the First Respondent.

Conclusion:

[14] It was argued correctly in my view that the learned judge should, in the circumstances, not have invited the Appellant to reduce its tender price and in further directing that should the Appellant not do so, the First Respondent was entitled, in its discretion, to call for fresh tenders for the award of the contract and commence the tender process afresh.

[15] I am persuaded that the learned trial judge erred in the respects set out above and that accordingly the appeal must be upheld and an order issue as set out below:

1. The appeal is upheld, with costs;

2. The order of the court a quo is amended as appears below:

2.1 By the deletion of paragraphs 3, 4 and 5 from the order;

2.2 By the deletion of the words “Subject to paragraphs 3, 4 and 5 hereunder” from paragraph 2 of the order;

3. The order is to read as follows:

“1. The decision of the First Respondent to award the tender: “Construction of Civil Engineering Services in BETHELSDORP

NORTH AREA C: Phases 1 and 2, Portion 2: CONTRACT NO: 1100353/2’ (the tender) to the Third Respondent, and the subsequent implementation of that award by the Third Respondent, is hereby reviewed and set aside.

2. The decision of the First Respondent is hereby substituted with an order that the tender referred to in paragraph 1 above be and is hereby awarded to the Applicant.”

_________________________

M.J LOWE

JUDGE OF THE HIGH COURT

EKSTEEN J:

I concur.

J.W EKSTEEN

MAKAULA J:

M MAKAULA

Obo the Appellant: Adv. J.D Huisamen SC

Instructed by:

Huxtable Attorneys

22 Somerset Street

Grahamstown

Obo the Respondent: No Appearance

Instructed by:

McCallum Attorneys

10 Fidelity Building

87 High Street