Section 217(1) of the Constitution of the Republic of South Africa, 108  of 1996 ("the Constitution") accordingly provides that:

"When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective."

It is with this in mind that various bodies of legislation has been enacted, including the Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA) and Public Finance Management Act (PFMA) 1 of 1999, both as amended.

As a rule of thumb, Contracts with government are secured by successful tender and thereafter written Contract. However, in the Buffalo City Metropolitan Municipality v Megovis Pty Ltd CC78/18 this rule was challenged.

The following is a brief summary of the facts surrounding the matter:

“On Thursday, 28 February 2019 at 10h00, the Constitutional Court handed down judgment in an application for leave to appeal against a judgment of the High Court of South Africa, Eastern Cape Division, East London (High Court). The matter concerned the existence of a tacit extension of a software Licensing Contract (Contract) between Buffalo City Metropolitan Municipality (Municipality) and the Respondent, Metgovis (Pty) Limited (Metgovis), for a computerised property valuation management system (Metval System). The Municipality brought an application against Metgovis, the owner of the Metval system that was licensed to the Municipality in terms of a Contract concluded in 2008.

The Contract terminated on 30 June 2011, but provided for automatic renewal for a further period of three years on the same terms and conditions if the Contract was not expressly terminated on three months’ written notice. The Municipality did not expressly terminate the Contract and accordingly it was extended until 30 June 2013. At the end of the extended three-year period, the Municipality had no alternative system to replace the Metval System. Metgovis alleged that it was approached by various Municipal functionaries and was requested to continue providing services until a new Service Provider could be appointed, which it did until October 2013. It is this period of July to October 2013 that the Municipality disputes was covered by a Contract (the impugned period). During the impugned period the Municipality, however, continued to use the Metval System. Metgovis continued to occupy Municipal offices and provide technical support in the same way it had since 2008. The services terminated on 10 October 2013 when Metgovis’ technicians were instructed to vacate the Municipal premises.”

The High Court found that there was indeed a tacit Contract and granted Metgovis its relief. It also held that, even if its finding of the existence of a month-to-month Contract was wrong, Metgovis was still entitled to rely on its alternative claim of unjustified enrichment. Both the High Court and the Supreme Court of Appeal refused leave to appeal.

The Municipality persisted in disputing the existence of a tacit or verbal Contract (i.e. one not reduced to writing), it did so on the basis that such a Contract is unlawful and void from the outset because it is non-compliant with the PPPFA and Section 217 of the Constitution.

In a unanimous judgment the Constitutional Court found that it has no jurisdiction to entertain the matter. The matter therefore concerns factual findings, rather than any constitutional issue. The court further contended that this should not be construed as a case dictating precedent on tacit Contract with government. The application for leave to appeal was accordingly dismissed.

Conclusion:

Businesses contracting with government are accordingly advised to contract with them in writing. If however you find yourself in a situation where you are supplying without a written agreement, best to seek legal advice early. Resolving disputes or issues of this nature is not a simple matter as illustrated by the above case. So, contact an expert at SchoemanLaw to assist.        

Written by Nicolene Schoeman-Louw, Managing Director, Attorney, Conveyancer, Notary Public and Mediator, Schoeman LAw