On 29 November 2013, the Constitutional Court (CC) delivered a landmark judgment in AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency and Others 2014 (1) SA 604 (CC) (AllPay 1). In this case, the CC declared that the award of a tender to Cash Paymaster Services (CPS) to provide services for the payment of social grants over a period of five years for all nine provinces was constitutionally invalid. The CC suspended the declaration of invalidity pending the determination of a just and equitable remedy. The CC ordered parties to furnish it with up-to-date factual information on affidavit before a further hearing was held, for the purposes of determining the appropriate remedy. The CC handed down a further judgment on 17 April 2014 (AllPay 2), which set out the remedy to follow on its findings in AllPay 1. This article is the third article in a three-part series of articles which considers the implications of the AllPay judgment on government procurement contracts.

The CC’s order in AllPay 2 breaks new ground in its crafting of an appropriate remedy following an invalid award of a tendered contract. The factual circumstances of the AllPay judgments created difficult conditions for laying down a just and equitable remedy, and the CC had to balance the interests of all affected parties, including the public interest, in a creative and effective manner by relying on its wide remedial powers in terms of s172(1)(b) of the Constitution. The CC's order creates a precedent for crafting a remedy to deal with the consequences of an invalid administrative action, within the confines of the separation of powers doctrine, and in circumstances where the public has an interest in the continued smooth running of the tendered contract.

In reaching its order, Froneman J writing for a unanimous CC reiterated the 'corrective principle' as the default position in administrative law. This meant that the consequences of invalid administrative action should be corrected or reversed where they can no longer be prevented. This approach is in accordance with the rule of law and the principle of legality. However, the CC submitted that other factors are also required to be taken into account when crafting an appropriate remedy.5

In considering whether the existing contract should be set aside, the CC found that the South African Social Security Agency (SASSA), and more importantly CPS, were organs of state in terms of s239 of the Constitution, in carrying out the obligations under the impugned contract. In fulfilling its contract with SASSA, CPS had been exercising a public power and performing a public function on behalf of SASSA in terms of the South African Social Security Agency Act, No. 9 of 2004. The CC's finding that CPS became accountable to the public in performing its functions under the contract with SASSA had a bearing on whether the contract should be set aside. Thus, notwithstanding the CC's finding that the award of the contract to CPS was invalid, CPS could not be permitted to simply walk away from the contract. The CC thus suspended its declaration of invalidity and ordered CPS to continue to discharge its obligations under its contract with SASSA pending the outcome of a new tender process by SASSA. In addition, CPS had no right to benefit from an unlawful contract and its commercial activities which were dependant on this power were therefore subject to public scrutiny. The CC therefore deemed it appropriate for CPS to be publicly accountable for the losses and gains in terms of the impugned contract.

In setting out its order, the CC declared the contract concluded between SASSA and CPS invalid, and suspended this order of invalidity pending “the decision of SASSA to award a new tender” after the re-running of the tender process. In the circumstances, the CC considered it appropriate to impose a structural interdict, requiring parties to report to it at crucial stages of the new tender process as follows:

  • SASSA was ordered to initiate a new tender process within 30 days of the order in AllPay 2;
  • New bids would be required to include measures for ensuring no loss of lawful existing grants, no interruption of lawful existing grant payments, and personal data remaining private (save for its use in paying social grants);
  • The new tender would be for a period of five years to allow the tenderer to recoup its capital costs;
  • A new Bid Evaluation Committee (BEC) and Bid Adjudication Committee (BAC) would need to be constituted in order to evaluate and adjudicate the tender;
  • The evaluations and adjudications of the BEC and BAC respectively would be required to be filed with the CC quarterly until the tender process was completed;
  • At the end of the new tender process, SASSA would have a choice to either award the tender, or not award it;
  • Should SASSA decide against awarding it, the declaration of invalidity would continue until completion of the five-year period of the original contract between SASSA and CPS;
  • Within 14 days of the decision not to award the tender, SASSA would be required to lodge a report with the CC, discussing whether and when it would be ready to assume the duty to pay the social grants itself;
  • Within 60 days of the completion of the five year period of the original tender, CPS would be required to file an audited statement of the expenses incurred, the income received and the net profit earned by it under the completed contract; and
  • Within 60 days of the filing of these statements, SASSA would be required to file with the CC audited verification of the financial details provided by CPS.

The order in AllPay 2 broadly has two possible outcomes: either the tender is re-awarded to a new bidder (in which case the contract runs afresh for another five year period), or the tender is not awarded to a new bidder (in which case CPS continues to provide the service – essentially to completion of the original contract, before SASSA takes over grant provision and reporting requirements kick in).

This order appears to be a balancing of a number of factual and legal interests: the need to apply the corrective principle and remedy the flawed tender process; the increased expense of running a tender of this magnitude for a period of time shorter than five years; the CC's aim to allow SASSA to take over grant-provision after five years as originally planned; the importance of uninterrupted social security grants; and the CC's intention to avoid imposing a final solution on SASSA.

The CC has taken significant steps in setting a precedent for far-reaching structural interdicts to remedy invalid administrative actions. How the CC's precedent will be applied to other administrative actions, and in lower courts facing large case loads, remains to be seen.

Samantha Brener