The tender adjudication framework provided for in the Preferential Procurement Policy Framework Act[1] (PPPFA) and its Regulations[2] prescribe that functionality, where relied upon in a tender adjudication process, must be taken into account as a minimum threshold requirement in determining which tenders will proceed for further evaluation. The case of Rainbow Civils CC v Minister of Transport and Public Works, Western Cape and Others[3] appears to have taken this further, finding that functionality may also be taken into account as an objective criterion justifying the award of a tender to a tenderer other than the one that achieved the highest score under the PPPFA’s preferential points system. The effect of the judgement is that the tender evaluation process arguably now allows functionality to serve more than a mere gate-keeping function, and to be taken into account a second time around after a tender has been evaluated on price and preference. In essence, a contract may now be awarded to the tenderer who, despite not obtaining the highest score through the preferential points system, demonstrates a superior ability to provide the relevant goods or services.

The Constitution prescribes in section 217 that when an organ of state in the national, local or provincial sphere of government contracts for goods and services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.[4] The national legislation enacted in order to give effect to the above section is the PPPFA, in terms of which an organ of state must evaluate tenders on the basis of a preferential points system determined according to the value of the contract. Points must be awarded for price and specific goals (i.e. preference), such as contracting with historically disadvantaged persons.[5] Depending on the value of the contract, either 80 or 90 points out of 100 must be awarded for price and the remaining 20 or 10 for preference.

The Regulations to the PPPFA[6] deal specifically with the evaluation of tenders on functionality, prescribing that if functionality is to be used in evaluating tenders, it must be used as a minimum qualification for which tenderers must achieve an acceptable score before being evaluated on price and preference. Furthermore, in terms of the PPPFA, the contract must be awarded to the tenderer who scores the highest points for price and preference, unless there are objective criteria which warrant the award of the contract to another tenderer.[7] Traditionally, these “objective criteria” have been held to relate to, inter alia, development and restitution.

On a literal reading of the PPPFA and the Regulations, it would appear that functionality, if relied upon, may only be considered as a minimum threshold requirement which all tenders must meet before being evaluated any further. No specific provision is made in the PPPFA or the Regulations for the consideration of functionality as an objective criterion justifying the award of the tender to a tenderer who did not receive the highest score under the preferential points system.

It is in this legislative context that the case of Rainbow Civils CC and the Minister of Transport and Public Works, Western Cape[8] was decided. In this case the only bidders to make it past the functionality threshold, namely the applicant and the third respondent, scored almost exactly the same in terms of the preferential points framework, but despite the applicant having achieved a significantly better score for functionality, the tender was awarded to the third respondent on the basis of it having obtained the highest score for price and preference.

It was held that since the PPPFA has its genesis in section 217 of the Constitution, section 2(1)(f) of the PPPFA, which allows for the consideration of objective criteria, must be considered in light thereof.[9] Davis AJ held that functionality had a direct bearing on the question of whether a tender is cost-effective, as required by section 217 of the Constitution[10], and that it is “self-evident” that it is not cost effective to award a tender to a party which ticks the rights boxes as regards price and preference, but is unable to get the job done properly.[11] It was accordingly held that functionality must necessarily be taken into account in the adjudication of competing tenders and should not be relegated to a mere qualifying criterion.[12] Davis JA made the point, without pronouncing on the methods of tender evaluation prescribed in the PPPFA and the Regulations, that functionality should not be ignored in the final adjudication between competing tenders.[13] Functionality was therefore found to be a relevant consideration and objective criterion under section 2(1)(f) of the PPPFA to be taken into account in deciding whether a tender should be awarded to a tenderer other than the one with the highest score for price and preference.[14]

On the above reasoning it was decided in Rainbow Civils that the decision maker’s failure to take functionality into account rendered its decision to award the tender to the Third Respondent in the that case subject to review in terms of section 6(2)(e)(iii) of the Promotion of Administrative Justice Act[15] (PAJA) on the basis of a failure to take into account a relevant consideration.

There are many provisions in the Constitution that seemingly support the proposition that the cost-effectiveness of a tender is a relevant criterion which should be taken into account in the evaluation of tenders. Davis AJ’s concern that the tender process allows for the award of contracts to tenderers who tick a number of boxes but cannot get the job done properly is not without merit, and his proposed approach would certainly help curb abuse of the tender process. However, as has occurred in the development of the principle of legality to compensate for the perceived shortcomings of the PAJA, the approach of the court in the Rainbow Civils case threatens to create a body of conflating case law in parallel to the existing procurement legislation. A preferable alternative, which accords with the principle of subsidiarity, would be an enquiry into the constitutionality of the procurement legislation in question. In this regard the Constitutional Court has repeatedly held that where legislation has been enacted to give effect to a right, a litigant should rely on that legislation in order to give effect to the right or, alternatively, challenge the legislation as being inconsistent with the Constitution.[16]

It is, in any event, debatable as to whether or not there is even a need for such a Constitutional challenge in respect of the PPPFA, as it is precisely Davis AJ’s concerns which appear to be addressed through relying on functionality as a threshold requirement. The conundrum that presented itself in the Rainbow Civils case is thus not the result of any inadequacies in the formulation of the PPPFA, but rather a consequence of the functionality assessment in casu having let through an undeserving bid.

Moreover, the Regulations to the PPPFA clearly prescribe that where two or more tenderers score equal points, the contract must be awarded to the one scoring the highest number of preference points for B-BBEE and that functionality may only be used to decide the outcome of the tender where the tenderers were also equal on B-BBEE points.[17] The preferential procurement framework therefore caters for the scenario where bidders score not only close to each other, but exactly the same, and in this context functionality only comes back into play where B-BBEE cannot decide the outcome. The Regulations certainly do not recognise functionality as an objective criterion that may justify the award of a tender to someone other than the highest scoring bidder. On the converse, the applicable legislation is clearly designed at price and preference being the deciding factors once a minimum level of functionality has been established. If anything, the lesson from this case would lie in ensuring that the functionality assessment of any tender is suitably structured to ensure that no unsuitable tenderers are advanced for further evaluation. Of course, the question may still be raised as to whether, where the functionality threshold does not act as a suitable safeguard, functionality may then be relied upon as an objective criterion.

The finding in the Rainbow Civils case has resulted in a fresh interpretation of our procurement legislation and, in the absence of a Constitutional challenge to the PPPFA and its Regulations, our courts will be left to choose between contrasting procurement frameworks at either end of the rainbow.