The concept of procurement can be described as the contracting for the supply of goods and services with national, provincial or local government. In a private sector context this usually indicates contracting with a corporate entity. Commonly, these contracts originate from a Request for Quotation (“RFQ”) or Tender. This article aims to explore whether public procurement contracts (“procurement contracts”) are capable of being cancelled and if so, under which circumstances.

Section 217 of the Constitution of the Republic of South Africa, Act 108 of 1996 (the “Constitution”) guides procurement and stipulates that when contracting for the supply of goods and services - national, provincial and local government must do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

The Public Finance Management Act 1 of 1999 (the “PFMA”) gives effect to section 217 of the Constitution as it seeks to prescribe measures to ensure transparency and expenditure control in all spheres of government and sets the operational procedures for procurement.

Cancellation of a Procurement Contract

The Preferential Procurement Policy Framework Act, No. 5 of 2000 (the “PPPFA”) as amended and its Regulations as enacted in 2017 (the “Regulations”) regulates the cancellation of procurement contracts. From the Regulations, it is apparent that a procurement contract may be cancelled at any time before it is awarded, in certain circumstances. The circumstances are as follows:

1. If there is no longer a need for the goods and services specified in the tender invitation;
2. If funds are no longer available to cover the total envisaged expenditure;
3. If no acceptable tender is received; or
4. If there is material irregularity in the tender process.

However, and furthermore, the Regulations regulate the cancellation of procurements contracts in instances where a tender has and has not been awarded. In the event that a contract has not been awarded, the tenderer will be disqualified from tendering. If the procurement contract has been awarded, the procurement contract may be cancelled in part or in full. Herein, a process is stipulated for which a procurement contract may be cancelled in the event that false information is provided which will affect or has affected the evaluation of a tender. Examples of the information that is considered in relation to the above include the Broad Based Black Economic Empowerment (BBBEE) status level and local production and content of a company.

Repercussions of providing false information

A tenderer could potentially be restricted by the National Treasury from contracting with / conducting business with any organ of state for a period not exceeding 10 years. Should a tenderer have subcontracted a portion of the tender without having disclosed it, the tenderer may be penalized up to 10% of value of the contract.

Mechanisms to review cancellation – are there any?

Internal remedies exist as point of departure when wishing to review a decision that has been taken. Should the internal remedies bear no fruit, the next resort would be seeking remedies within the framework of the Promotion of Access to Justice Act 3 of 2000 (“PAJA”) for an administrative action taken.

Conclusion

Procurement contracts may be cancelled in certain circumstances. In the event that a procurement contract has been advertised and awarded and subsequently cancelled, a tenderer would have recourse. The point of departure would be to follow internal procedures in an attempt to provide representations or receive reasons as to the decision behind the cancellation of the procurement contract. Should the internal remedies bear no fruit, the cancellation can be taken on review within the framework of PAJA as it would constitute an administrative action.

Contact an expert at SchoemanLaw for any tender or RFQ related questions or matters.

Written by Ade Nyongo, Professional Assistant, Attorney, Schoeman Law