Out-Law Analysis 4 min. read
16 Nov 2023, 3:28 pm
A ruling from the High Court in South Africa has cast doubt on whether a new tender scoring system developed by the South African National Road Agency (SANRAL) adheres to public procurement rules in the country’s constitution.
The decision comes after SANRAL advertised tenders for road development and decided to implement a new scoring system contained in its 2022 Preferential Procurement Policy. In response, various bidders filed a review application seeking to review and set aside the new scoring system on the basis that it was unconstitutional. With judgment of the review application still pending, one of the bidders – SMEC – applied for an interim interdict ordering SANRAL to preserve the current scoring system for tenders.
Section 217 of South Africa’s constitution provides that state owned entities like SANRAL must contract for goods or services in a fair, equitable, transparent, competitive and cost-effective manner. In the South African market, legislation such as the Preferential Procurement Policy Framework Act (PPPFA) and the 2022 Preferential Procurement Regulations were put in place to give effect to Section 217 of the constitution and to govern the implementation of state-owned entities’ procurement policies which are implemented when tenders are awarded.
In line with the PPPFA, tenders in South Africa are evaluated based on a preference points system whereby a maximum of 100 points can be allocated using two alternate scoring systems:
The PPPFA defines “specific goals” as “contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender and disability including the implementation of programs of the Reconstruction and Development Programme”.
The purpose of SMEC’s interdict application was to prevent SANRAL from possibly adjudicating and awarding the tenders using the new scoring system, in order to prevent SMEC from losing out on the tenders because it did not participate in the bidding process. SMEC argued that, as a prospective tenderer, it enjoyed the right to be subjected to a constitutional procurement process. SMEC contended that if it were to submit a bid under SANRAL’s challenged new scoring system, there is a possibility that it would have subjected itself to an unlawful process, if the court ruled that SANRAL’s new scoring system was unconstitutional.
SMEC argued that, in terms of SANRAL’s old scoring system, a tenderer could acquire 0-10 or 0-20 points for its Broad-Based Black Economic Empowerment (BBBEE) level. However, SANRAL’s proposed new scoring system can only award a maximum of one or two points for a tenderer’s BBBEE level, based on the size of the contract. A further five points – assuming the maximum is 10 – could be added if a bidder is completely black-owned and four points – presuming the maximum is 10 – for subcontracting targeted enterprises.
Ultimately, in this case, the court granted the interdict on the grounds that SMEC has clear rights to participate in a constitutional procurement process and to attain just and equitable relief. Additionally, the court argued that SMEC could suffer irreparable harm because its constitutional rights would be violated if it was subjected to a potentially unconstitutional scoring system.
The 2022 Regulations make provision for the allocation of preferential points for specific goals, however there is no explicit reference to preference points being awarded based on BBBEE level only. Therefore, the scoring system relevant to specific goals provides procuring institutions some discretion when allocating preference points. This means that state-owned enterprises may continue allocating points for BBBEE level only – alternatively, they may allocate points for other goals such as whether the tenderer has increased job creation locally or will employ more women or disabled people.
While SANRAL is the first state-owned entity to attempt to implement a scoring system that does not automatically award the maximum preference points for a tenderer’s BBBEE level, it has received criticism not only from SMEC, but from another company, Haw & Inglis (H&I). H&I also launched a legal challenge of its own against SANRAL’s new scoring system and filed for an interdict on grounds which are identical to the ones that SMEC relied upon. Similarly to the SMEC case, the H&I interdict application was granted in favour of H&I pending the outcome of the H&I review application on the grounds that the new scoring system is potentially unconstitutional.
Following numerous legal challenges which SANRAL has been subjected to on account of the new scoring system, the agency has decided to withdraw its new scoring system and revert back to using the old one. However, it will be applying the old scoring system on an interim basis, whilst preparing to formulate a new preferential procurement policy. When crafting its new procurement policy, SANRAL is prepared to consult with and obtain input from the construction industry and other relevant stakeholders.
SANRAL's withdrawal of its legally challenged Preferential Procurement Policy has been publicly welcomed and its intention to consult with interested parties in the construction industry has been widely supported. H&I has defended the construction industry’s transformation achievements thus far and stressed that it is critical for the country to work together in order to continue the transformation drive within the industry.
To assist with the continued efforts for transformation, South Africa’s National Treasury has confirmed that state-owned entities should not to use the BBBEE status of a bidder as a specific goal because, should they do so, their tenders could be declared irregular and aggrieved bidders will have the right to approach the courts to have the tender declared as such. With these particular developments in mind, it now looks increasingly likely that the court may uphold the H&I review application, but it remains to be seen if indeed that will be the case.
The implementation of a new scoring system has led to critical discussions amongst companies in the construction industry, as evidenced by SANRAL and key parties in the industry expressing their intention to collaborate to ensure compliance with the legal framework in which transformation has been implemented and continue the transformation drive within the industry. It will be interesting to see how the outcome of the review application will shape how companies frame their preferential procurement policies and the allocation of points based on the BBBEEE level of bidding companies.
Co-written by Chantel Carreira, Nombasa Mazwai and Njabulo Gumede of Pinsent Masons