A recent matter decided by the Constitutional Court between AllPay Consolidated Investment Holdings (Pty) Ltd and Cash Paymaster Services (Pty) Ltd (CPS) addressed the public tender process within the ambit of social grant payments as well as the constitutional guidelines interwoven in that process.
In this specific instance, the dispute revolved around a tender for the payment of social grants and the question of whether the award of a tender by the South African Social Security Agency (SASSA) to CPS, for the countrywide payment of social grants to beneficiaries, was constitutionally valid.
The body that invited the tenders was SASSA, established under the South African Social Security Agency Act 9 of 2004. After the initial invitation to tender, the contract was awarded to CPS – one of the parties in the matter. AllPay Consolidated Investment Holdings (Pty) Ltd – another party to the proceedings – also tendered, but was unsuccessful.
As one of the unsuccessful tenderers in the process, AllPay Consolidated Investment Holdings (Pty) Ltd (AllPay) argued that the tender process followed was not constitutionally valid and brought a review application in the North Gauteng High Court to set it aside. The High Court declared the tender process invalid, but declined to set the award aside because of the practical upheaval this would have involved. Subsequently, AllPay appealed to the Supreme Court of Appeal (SCA) but the SCA dismissed the appeal. Aggrieved by this, AllPay approached the Constitutional Court for further relief.
The SCA found that even though the tender process in this particular matter had irregularities, these were inconsequential irregularities, which – despite their existence – would not have affected the final outcome of the award. The SCA reasoned that an irregularity is inconsequential when, on a hindsight assessment of the process, the successful bidder would likely still have been successful despite the presence of the irregularity. According to the approach of the SCA, procedural requirements are not considered on their own merits, but instead through the lens of the final outcome.
The Constitutional Court took a different view and, crucially, ruled that the fairness and lawfulness of the procurement process must be independent of the outcome of the tender process. The Court furthermore held that the materiality of compliance with legal requirements depends on the extent to which the purpose of the requirements is attained. This means that the two are interrelated and cannot be severed and that even if an acceptable outcome is achieved, it is unacceptable if an improper process was followed to get there. The Constitutional Court took issue with the reasoning of the SCA regarding its approach to irregularities and found it detrimental to important aspects of the procurement process. Firstly, it found that the SCA’s approach undermines the role that procedural requirements play in ensuring fair treatment of all bidders; and secondly, it found that the SCA’s approach ignores the fact that the purpose of a fair process is to ensure the best outcome for all parties.
Given the impact which corruption relating to the awarding of tenders (in this case, to provide social grants to the poorest of the poor) may have on service delivery – and thus the achievement and fulfilment of fundamental rights – it is prudent to look at the legal framework constituting the tender process involving government and other public entities in South Africa.
The procurement of goods and services by the state and other public entities is subject to various legal constraints. Section 217(1) of the Constitution requires all organs of state, when they contract for goods or services, to do so “in accordance with a system which is fair, equitable, transparent, competitive and cost effective.”
This is also taken further in the Public Finance Management Act 1 of 1999 which provides that the accounting authority of a public entity (which includes SASSA) “must ensure that the public entity … has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective.”
In this regard, the Court emphasised that the public interest must be given appropriate consideration in the remedy stage regarding the consequences of setting aside procurement processes. The Court also asserted the importance of proper compliance with procurement procedures with respect to public tenders and urged vigilance in an arena involving billions of Rands of South African taxpayers’ money. Finally, the Court reiterated that the fairness and lawfulness of the procurement process must be assessed in terms of the provisions of the Promotion of Administrative Justice Act 3 of 2000. The Constitutional Court’s ruling in this matter yet again emphasises the importance that the Court attaches to the fundamental values of accountability and transparency as underlying values of governance and public administration. The Constitution requires executive action, policies and procedures to result in accountability and transparency: being open about how and why certain decisions and actions are taken.
By Adv Jacques du Preez, Centre for Constitutional Rights