The case for a specialist public procurement court in South Africa

It has become relatively common for businesses that have been unsuccessful in bidding for public contracts in South Africa to lodge a legal challenge against the decision or the procurement process that was followed.  These challenges often call for the review and setting aside of tender awards or declarations of unlawfulness.

South Africa’s Constitution provides for fairness in procurement processes, but one of the primary issues with the legal challenges that are lodged is the duration of court proceedings – these can extend beyond or just before the end of the contract term in question.

The review process

In South African legal practice, time is crucial in review applications. Practical difficulties arise when decisions become available long after the contract term has expired. For instance, reviewing and setting aside a tender award when the successful tenderer has already fulfilled its obligations and received payment, or when the term is nearing its end, often lacks practical effect. In certain instances, implementing a court order long after performance has commenced is simply not feasible. 

South African courts often experience significant delays in delivering decisions, stemming from systemic issues, judicial incapacity, excessive caseloads and, at times, strategic delays by parties. Numerous cases have illustrated the impracticalities and delays associated with tender reviews.

The accepted approach 

The landmark judgment in the All Pay II case in 2014 dealt with a situation where the successful tenderer in an unlawfully awarded contract was instructed to continue providing services in the public interest. The court highlighted the “no loss but no gain” principle, meaning the tenderer should neither incur losses nor profit from the contract. Courts have since determined that beneficiaries of unlawfully awarded contracts should not gain from the contract, regardless of their complicity. 

In this judgment, a core consideration was the difficulty in replacing the existing tenderer, as this would have required a fresh procurement process. Until then, the tenderer was to continue providing services under the agreed terms. This case exemplifies the practical challenges inherent in tender reviews. 

The 2023 Phomella case involved the state leasing premises through a negotiated lease rather than an open bidding process. By the time the matter was resolved and the award declared unlawful, the rental term had ended, rendering the setting aside of the contract largely academic – except for the potential return of profits, based on the All Pay II ruling. The court took a different approach to the earlier decision, however, finding that while there is no automatic right to benefit from an unlawfully awarded tender, such benefits are not categorically excluded. Any derived benefit must remain subject to public scrutiny. 

In last year’s Mafoko case, the court addressed a misinterpretation of the All Pay II case law, known as the “two truths dictum”. Here, the court affirmed that an innocent tenderer should not be required to suffer a loss if required to continue performance under an invalid contract but also should not profit. However, it considered the correct interpretation is that if a provider is blameless, the duty to provide public goods or services should align with the standards applied to lawful tenders, such as competitive pricing. The court’s discretion, it held, does not necessarily preclude enjoyment of profits by an innocent tenderer that continues service provision, and nothing in the All Pay II case law precludes that, it said. 

The Mafoko case also involved an unlawfully awarded tender where, by the time of judgment, the contract term had expired. In that example, the tenderer continued service provision as a practical necessity. 

Across these cases, it is evident that delays in review proceedings, stemming from the initiation of applications to the delivery of judgments, are commonplace. 

The case for a specialised court 

There are already specialised courts operational in South Africa for certain matters, such as the commercial court, labour court, and various motion and family courts. More recently, special allocations have been made to handle Road Accident Fund cases, improving operational efficiency. Given the persistent issues in tender review cases, there is merit in considering the establishment of a specialised court to expedite the review of state tenders. 

A specialised court could enable tender reviews to be heard and resolved more quickly, thus reducing the burden on the judiciary. Unlawfully awarded tenders could be addressed promptly, leading to cost savings for the state and the public purse, as unnecessary continuation of invalid contracts could be curtailed. Expedited proceedings would also allow for timely re-issuance of tenders and enable courts to enforce just and equitable remedies before contract terms expire. 

While it is often said that “the wheels of justice turn slowly,” the establishment of a specialised court for tender reviews could accelerate the process, safeguard public funds, and ensure fair outcomes for tenderers disadvantaged by unlawful awards. 

Co-written by Siyabonga Machava of Pinsent Masons.