The Gauteng Department of Public Transport, Roads and Works ("the Department") had invited tenders for the construction of a section of a road into a dual carriageway.

The tender invitation specified the classification/category of entities who could tender, being civil engineering contractors considered capable of performing contracts having a value in excess of R100 million (that being the estimated tender value). This specification was made pursuant to the preferential procurement system introduced by the regulations under the Construction Industry Development Board Act, this being the system applicable to this form of government tender.

In terms of this Act, in soliciting a tender, the employer must stipulate that only tender offers by contractors who are registered in the category of registration required, may be evaluated.

The obligatory site meeting preceding the tender award was attended by the Respondent ("King") and the Appellant ("Moseme"). At this meeting King enquired whether parties with a lower classification, that is for contracts with a tender value of less than R100 million, could also tender. This was confirmed by the Department and an addendum to the tender documents to the same effect was issued. The Department however failed to re-advertise by government notice that contractors of a lesser classification could also tender (this being a requirement).

King fell within the lower category and tendered. Moseme fell in the higher category and also tendered.

In terms of the tender evaluation King’s tender scored the highest points and King was recommended by the Department’s engineer. In the final evaluation, however, King’s tender was disqualified (notwithstanding the issue of the addendum to the tender documents) because it was not in accordance with the advertisement (the underlying basis being that it would have been unfair to other contractors of a lesser classification who were unaware of the change, which would then have permitted them to tender). Therefore King’s tender was disqualified because of an imperfection in the administration of the tender process.

The tender was awarded to Moseme.

King then applied to court seeking a review in terms of the Promotion of Administrative Justice Act ("PAJA") of the Department’s award and an order setting it aside. King also sought an order awarding the contract to it since its tender was for the lowest price, had scored the highest points and had been recommended by the Department’s engineer.

The High Court found that the Department had taken its decision arbitrarily and that it was just and equitable to set the award aside. The High Court also awarded the contract to King, finding that King had scored the highest points, had submitted the lowest tender and that it was not impracticable to set aside the decision of the Department, as the contract was a "re-measurable" contract such that King would not be paid for something it had not done and Moseme would be paid for the work it had completed.

Moseme appealed to the Supreme Court of Appeal ("the Appeal Court"), the lodging of the appeal having the effect of suspending the order of the High Court.

It should be noted that a court is in matters under judicial review pursuant to PAJA empowered to grant "any order that is just and equitable", thus having a discretionary power. Furthermore, the validity or invalidity of an administrative act (in this case the award of a tender) must necessarily be considered in relation to the consequences that have resulted, thus "for that reason it will generally be inappropriate for a court to pronounce by way of declaration upon the validity or invalidity of such an act in isolation of particular consequences that are said to have been produced".

The question before the Appeal Court was whether the Department was obliged to award the contract to King, and if not, whether it was appropriate for the High Court to have done so, in other words the consequences of the administrative act also had to be considered.

The Appeal Court found that while King was entitled to participate in a procurement process that was fair, equitable, transparent, competitive and cost effective, and that while the administrative process followed by the Department had been imperfect, that King was not entitled to the contract, for the reason that it did not qualify. The High Court had accordingly erred in finding that the Department’s decision had been arbitrarily made.

Was it then appropriate for the High Court to have awarded the contract to King? The Appeal Court was of the view that the High Court had not fully considered the implications of the order in the context of a contract that had to be re-measured. These considerations were:

  • Tenders as a matter of course are differently constituted Each tenderer will weight and price different items differently.
  • Costed items will differ from tender to tender.
  • Preliminaries and generals for instance, which provide no value for an employer and to which a contractor is entitled, may differ significantly as a percentage of contract price.
  • There are a number of consequences arising out of the setting aside of a contract. The first contractor for instance may not be able to claim under what becomes a revoked contract, and have at best an enrichment claim. Likewise the employer may not have a claim for defective workmanship, by virtue of the setting aside of the original contract. Also the second contractor may have a claim for damages against the employer for loss of profit because it has become contractually entitled to the whole contract.

Taking these considerations into account, the Supreme Court of Appeal was of the view that the High Court had underestimated the adverse consequences of its order and had "failed to have any regard to the position of the innocent Moseme". Thus, notwithstanding the imperfections in the administrative process and the injustice suffered by King, the Appeal Court could not in the exercise of its discretion endorse the award of the tender to King.

Moseme’s appeal was therefore upheld (with costs). Accordingly the Department’s award remained extant.

Comment

  • The decision highlights the following principles in relation to awards of government tenders:
    • Considerations of pragmatism and practicality are to be applied in adjudicating upon the validity or invalidity of an administrative act.
    • Even where an award is invalidly made it will not necessarily be undone if the consequences of doing so will produce adverse consequences.

Accordingly, the Court commented "Not every slip in the administration of tenders is necessarily to be visited by judicial sanction".

  • The position however may be different where there has been corruption of fraud, or where the successful tenderer was complicit in the irregularity.
  • The Court ably summed up the dilemma that our courts face in relation to awards of government tenders as follows:

"These awards often give rise to public concern – and they are a fruitful source of litigation. Courts (including this Court) are swamped with unsuccessful tenderers that seek to have the award of contract set aside and for the contracts to be awarded to them. The grounds on which these applications are based are many. Sometimes the award has been tainted with fraud or corruption, but more often it is the result of negligence or incompetence or the failure to comply with one of the myriad rules and regulations that apply to tenders. Sometimes the successful tenderer is to be blamed for the problem but then there are cases where he is innocent. Many cases are bedevilled by the delay, whether in launching the application (and also because the facts were not readily available or easily ascertainable) or because of delays and suspensions inherent in the appeal procedure. If the applicant succeeds the contract may have to be stopped in its tracks with possibly devastating consequences for Government or the successful tenderer or both. Conversely, if the works are allowed to be completed, the tenderer that should have been awarded the tender would unjustly be deprived of the benefits of the contract. There are also cases where the final judgment issues only after completion of the contract. It is not necessary to adumbrate further. Tendering has become a risky business and courts are often placed in an invidious situation in exercising their administrative law discretion – a discretion that may be academic in a particular case, leaving a wronged tenderer without any effective remedy."

  • The decision will be of particular interest to those submitting tenders for construction projects. The premise, arising out of this decision, is that in the context of construction contracts, a court may be swayed not to set aside the award of a tender invalidly made.