South African Constitutional Court clarifies public procurement ruling

Out-Law Analysis | 09 Jun 2022 | 3:56 pm | 3 min. read

The decision of a South African court earlier this year declaring the country’s procurement regulations to be invalid continues to have a wide-ranging effect on public procurement.

The February 2022 Constitutional Court (CC) decision ruled the Preferential Procurement Regulations 2017 to be inconsistent with the Preferential Procurement Policy Framework Act (PPPFA), upholding by a majority a November 2020 decision of the Supreme Court of Appeal (SCA).

The CC failed to provide clarity on when the regulations became invalid from – whether this was from one year after the SCA judgment, or from one year after the CC’s judgment. In the former case, the regulations would have been invalid from November 2021; in the latter, they would still be in effect until 15 February 2023.

On 25 February 2022 the National Treasury, having identified that without valid regulations being in place there was no basis for organs of state to be able to apply a preference points system at the correct contract values, issued a notice to public bodies specifying that all tenders advertised after the date of the CC’s judgment should be suspended and that no further tenders should be advertised.

This has resulted in widespread consternation given the impracticality of the Treasury’s moratorium in the context of necessary goods and services. The Treasury clarified in March that its notice was only guidance directed at organs of state, and recommended that an exemption from the PPPFA should be sought if procurement could not wait.

The National Treasury has since issued draft Preferential Procurement Regulations in line with the CC’s judgment, pared down substantially from the 2017 regulations. These focus on the use of a preference points system and the usage of objective criteria to award contracts to a bidder who did not score the highest in preference points.

However, there is no clear timing on when the 2022 PPPFA Regulations will come into effect. With this uncertainty, there have been a number of applications recently by major public entities such as Transnet and SANRAL to apply for a full exemption from the application of the PPPFA, on the grounds that it is in the public interest to do so.

Major state-owned enterprises (SOEs) are key to South African infrastructure projects and the country’s economic recovery plans, and finance minister Enoch Godongwana has already granted an exemption to transport company Transnet from applying PPPFA provisions until there is clarity.

The exemption means Transnet, and other state-owned enterprises receiving similar exemptions, will be able to develop their own bid evaluation criteria and scoring systems without the constraints of the system contemplated in the new regulations.

This entire framework may again change once the long-awaited Public Procurement Bill is promulgated. This legislation has been in the making for almost a decade, and although a version of the bill was eventually published for public comment in February 2020, no further drafts have been forthcoming.

However, the status of public procurement following the February 2022 judgment has again been brought into discussion by another judgment handed down by the CC on 30 May 2022. The CC confirmed in this judgement that the 2017 regulations remain valid for the 12-month period as per the suspension of the declaration of the order of invalidity. The validity will remain until 15 February 2023 unless the new regulations are promulgated before this date. National Treasury has confirmed  that all exemptions granted to deal with the previous uncertainty, lapse. Further, all new quotations must be requested, and procurement must proceed in accordance with the 2017 regulations. Quotations and tenders advertised before the date of this judgment must be dealt with in terms of the exemption and internal procurement policy in place for the duration of the exemption, though an organ of state may decide to withdraw such, and issue same again, though subject to the 2017 regulations in the second instance.

This entire framework may again change once the long-awaited Public Procurement Bill is promulgated. This legislation has been in the making for almost a decade, and although a version of the bill was eventually published for public comment in February 2020, no further drafts have been forthcoming.

Godongwana Finance appeared before a joint meeting of the Standing Committee on Appropriation, the Standing Committee on Finance, the Select Committee on Appropriations and the Select Committee on Finance on 25 February 2022 where he stated that, due to both the findings of the Zondo Commission on state capture and the CC’s ruling in Afribusiness, the bill was being redrafted and may thus be further delayed.

Practical considerations of the CC's February 2022 judgment

The CC’s judgment has far-reaching practical consequences. It seems to ignore the implications of the ability of large parts of the public sector to “determine its own preferential procurement policy”. It is certainly not a level playing field when it comes to procurement in the public sector, with SOEs such as Transnet and SANRAL only too keen to be given the flexibility to develop their own preferential procurement policies.

However, that is the exception. For most government departments and public entities, the rug will have been pulled from underneath their feet and the National Treasury’s hands are tied. The majority of government institutions will simply continue to apply their supply chain management policies as they stand, aligned to PPPFA and 2017 PPPFA Regulations, claiming them as their own preferential procurement policies.

Other institutions may amend their supply chain management policy and develop a new, different policy to suit their requirements. The result will be varied preferential procurement approaches across and between government.

Procurement generally works better when it is codified into a consistent set of rules which are detailed enough to cater for a number of procurement frameworks. This is best illustrated in the plethora of EU directives issued for EU members relating to procurement, all to be applied consistently across a broad range of countries with different legal systems. What has not worked well is a ‘laissez faire’ approach to procurement regulation.

Although well intentioned, the CC’s February and May judgments have set the cat among the pigeons at a time when more than ever the country needs clarity around the processes for state contracting. In the period before the promulgation of the Public Procurement Bill, it is likely that public procurement will be varied and inconsistent.

This may be mitigated if the National Treasury can gazette the new 2022 PPPFA Regulations quickly, creating some sense of certainty for the public sector as well as those participating in public tenders.

Co-written by regulatory law experts Reuben Cronjé and Aliyah Ince of Pinsent Masons