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Permissible Deviations from the Tender Process: When must ‘must’ be read as must? Or has language lost all meaning?

10th April 2013

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Accountability, responsibility, liability. These are more than polysyllabic words to be used to window-dress governance with legitimacy. They are fundamental values that must be given effect to for any society to obtain true democracy. Society has evolved over millennia, morphing through many forms. Only in the Post WWII era have we begun to come close to some morally defensible conception of how such a society should be shaped. We have moved from a concentration of power in a king, queen or chief to a diffusion of power amongst “We, the people…” So begins our Constitution.

However, a diffusion of power, a shattering and scattering of the crown, requires a carefully constructed system of checks and balances so as to ensure the powers are used in good faith for a proper purpose. Enter accountability. If you have been given a power to exercise, you must be able to account for your use and be held responsible for your abuse of that power.

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Money is power and when it is not your own it is bound to be used and abused. This is played out no more dramatically than in the tender process. Every year, millions upon millions of Rands collected from the pockets of citizens are spent in the acquisition of services and facilities for the benefit and betterment of the State. This process requires strict regulation and numerous pieces of legislation have been promulgated in this vain. Most pertinently, section 217 of the Constitution provides the core values that must be given effect to, the so-called “Pillars of Public Procurement” as colourfully titled in the Treasury Regulations of 2013. These five pillars of fairness, equality, transparency, competitiveness and cost-effectiveness must inform all procurement procedures.

To have practical effect, abstract concepts such as these must be given concrete form. The Public Finance Management Act 1 of 1999 (“PFMA”) which regulates financial management in the national and provincial governments was promulgated with such a concretizing function in mind. This may just be one of the most important and most disregarded pieces of legislation in this country's young democratic life. The PFMA establishes mechanisms of accountability by firstly, providing a long list of duties owed by the ‘accounting officer’ and the ‘accounting authority’ and secondly by stating the consequences of breaching such duties. Therefore, it states what must be done and how to punish the failure to do. In this way, theoretically at least, the PFMA establishes a well-balanced mechanism to achieve its purposes.

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To give further form to substance, the PFMA must be read with the Treasury Regulations made by the National Treasury as per section 76 of the Act. The Treasury Regulations of 2005 have been repealed and replaced by a more comprehensive set of Treasury Regulations as of 1 April 2013. These were published for public comment on 30 November 2012. The commencement provision on the draft Regulations was strongly worded with the effect that the whole of the 2005 Regulations have been repealed save for those Regulations determined by the Minister to have effect from a date determined in a Notice but no later than 1 April 2014.  As of writing, it is not apparent which Regulations have been stalled. However, in an examination of the regulation of the tender process, we can glean something of the future only by examining that which has come before.

One area of concern is when deviation from the tender process is permissible. To deviate is to stray from a carefully constructed system. How to ensure this does not result in a straying from and falling off of the “Pillars of Procurement”? The Treasury Regulations of 2005 contained Regulation 16A6.4 to govern such a situation. This Regulation stated:

“if in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods or services by other means, provided that the reasons for deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority.”

This is very loosely worded. When is it impractical to invite competitive bids? Is this in the discretion of the accounting officer/authority? Must it be objectively impractical or is the subjective belief of the accounting officer/authority sufficient? Surprisingly, there is a dearth of case law on this point. There is one noteworthy case which begins to give us some inkling.

That is the case of Chief Executive Officer, Southern African Social Securities Agency and Others v Cash Paymaster Services (Pty) Ltd 2012 (1) SA 216 (SCA) [“Cash Paymaster”]. The Supreme Court of Appeal had to decide whether the entering into an agreement between Southern African Social Securities Agency and the South African Post Office for the provision of banking services with indigent citizens to facilitate the payment of social grants, was invalid for deviation from the normal process. No competitive process was followed and thus the Court turned to Regulation 16A6.4 to answer the question.

Thisqi JA wrote the unanimous judgment which dissected and interpreted this Regulation. The Judge found the Regulation to contain two elements: one material and the other formal. Firstly, there must be rational reasons for such deviation (material). Secondly, the reasons for deviating must be recorded (formal). In an instance such as the one before the Court, where there are rational reasons for deviation, it was held that the non-compliance with the formal element will not be fatal to the decision. In this way, the Supreme Court of Appeal took a substance over form approach so as not to commit an injustice by setting aside a valid tender process for lack of compliance with a merely formal element. The judgment quoted at paragraph 29, that ‘not every slip in the administration of tenders is necessarily to be visited by judicial sanction’ as per Moseme Road Construction CC and Others v King Civil Engineering Contractors (Pty) Ltd and Another 2010 (4) Sa 359 (SCA).

I respectfully disagree. Although, the conclusion reached in this instance appears just, the way it was arrived at may have unintentionally undermined the carefully constructed system of checks and balances necessary to combat the corruption that is rife in the tender process. Regulation 16A6.4 is worded in the strictest peremptory language. Where there has been deviation the reason for such must be recorded. The judgment states at paragraph 28 that:

[t]here is no indication that the regulations contemplated that the requirement of recording was mandatory or material or was introduced for the sake of the public and not only for the sake of good financial governance…

What more indication can the regulations give than the word “must”? Furthermore the importance of recording the reasons is stated in this very judgment at paragraph 21 and I can do no better than to quote it:

The provision of reasons in writing ensures that Treasury is informed of whatever considerations were taken into account in choosing a particular source and of dispensing with a competitive process. This enables the Treasury to determine if there has been any financial misconduct and, if so, to take the necessary [disciplinary] steps…

When it comes to the tender process, the procurement of goods and services using State funds, the value of, inter alia, transparency must be given effect to and strict adherence must be enforced. If the reasons for deviation are not in writing how are we to determine that they are rational? Must they be extracted from the dark corners of the administrator’s brain only through the rigours of the litigious process or should we rather consider the formal element of recording those reasons mandatory?

The Treasury Regulations of 2013 are overflowing with the same peremptory language of ‘must be recorded’ as per Regulation 22 entitled Acquisition Management. This Regulation goes into elaborate detail on the range of procurement processes, the procedures that must be followed as well as what must be done when procuring goods or services through a ‘limited bidding process’ as per Regulation 22.2.1(e)(ii).  What is pertinent is that Regulation 22.2.1(e)(ii)(hh) provides that when deviating the “reasons for the decision are documented and readily available to give effect to the Promotion of Administrative Justice Act, 2000 (Act 3 of 2000)”.

There can be no lenience when it comes to the tender process. The Supreme Court of Appeal was correct in its decision but should have laid down more stringent obiter dicta limiting the application of the rule that it enunciated and ensuring that regulations drafted in peremptory language are obeyed as mandatory prescripts. Only in exceptional circumstances should the failure to record the reasons not invalidate the tender process.

Written and prepared by:
Patrick Wainwright, BKM Attorneys

Please do not hesitate to contact us on +27 11 788-0083 should you have any further enquiries or email enquiries@bkm.co.za

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