Moseme Road Construction CC et al. V King Civil Engineering Contractors Pty Ltd et al. [2010] 3 All SA 549 (SCA)

The Gauteng Department of Public Transport, Roads and Works (“the Department”) had issued a tender for the construction of a section of road into a two-lane carriageway.

The call for tenders specified the classification / category of entities that could tender, i.e. civil engineering contractors considered capable of performing contracts worth more than R100 million (i.e. the estimated value of the offer). These specifications were drawn up in accordance with the preferential procurement system introduced by regulation under the Construction Industry Development Board Act, a system applicable to this form of government tendering.

Under the terms of this Act, in soliciting a tender, the employer must provide that only the tenders of contractors registered in the required registration category may be evaluated.

The mandatory site meeting preceding the award of the call for tenders took place in the presence of the respondent (“King”) and the appellant (“Moseme”). At that meeting, King asked whether parties with a lower classification, i.e. for contracts worth less than R100 million, could also bid. This was confirmed by the Ministry and an addendum to the tender documents to the same effect was issued. However, the Department failed to re-advertise by government notice that contractors with a lower classification could also bid (this being a requirement).

King was in the lower category and bid. Moseme fell to the next higher category and also bid.

Regarding the evaluation of the bids, King’s bid obtained the highest points and King was recommended by the engineer of the department. In the final evaluation, however, King’s bid was disqualified (notwithstanding the publication of the addendum to the tender documents) because it did not conform to the advertisement (the basis underlying being that it would have been unfair to other contractors of a lower classification who were not aware of the change, which would then have allowed them to bid). As a result, King’s offer was rejected due to an imperfection in the administration of the tendering process.

The tender was awarded to Moseme.

King then applied to the court for a review under the Promotion of Administrative Justice Act (“PAJA”) of the department’s award and an order setting it aside. King also sought an order awarding him the contract since his bid was lowest priced, scored highest, and recommended by the departmental engineer.

The High Court ruled that the Department had made its decision arbitrarily and that it was fair and equitable to quash the award. The High Court also awarded the contract to King, finding that King had obtained the highest points, had submitted the lowest offer and that it was not impossible to overturn the Department’s decision, as the contract was a “re-measurable” contract so that King would not be paid for something he had not done and Moseme would be paid for the work he had done.

Moseme appealed to the Supreme Court of Appeal (“the Court of Appeal”), bringing the appeal to stay the order of the High Court.

It should be noted that a court is in judicial review under the PAJA empowered to make “any just and equitable order”, thus having discretion. In addition, the validity or invalidity of an administrative act (in this case the award of a contract) must necessarily be assessed in relation to the consequences which have resulted from it, thus “for this reason it will generally be inappropriate that ‘a court decides by declaration on the validity or invalidity of such an act regardless of the particular consequences which would have been produced ”.

The question before the Court of Appeal was whether the Department was obligated to award the contract to King and, if not, whether it was appropriate for the High Court to do so, in other words , the consequences of the administrative act also had to be examined. .

The Court of Appeal concluded that although King was entitled to participate in a fair, equitable, transparent, competitive and profitable procurement process, and that although the administrative process followed by the Department had been flawed, King did not was not entitled to the contract, for the reason that he was not eligible. The High Court therefore erred in concluding that the Department’s decision had been rendered arbitrarily.

Was it then appropriate that the High Court awarded the contract to King? The Court of Appeal held that the High Court had not fully considered the implications of the order in the context of a contract that needed to be reassessed. These considerations were:

• The offers are naturally made up differently. Each bidder will weight and price different items differently.
• The quantified elements will differ from one offer to another.
• Preliminaries and generals, for example, which add no value to an employer and to which a contractor is entitled, can differ significantly as a percentage of the contract price.
• Cancellation of a contract has a number of consequences. The first entrepreneur, for example, may not be able to assert what becomes a revoked contract and have a claim for enrichment at best. Likewise, the employer cannot claim manufacturing defects by virtue of the cancellation of the initial contract. The second contractor can also claim damages from the employer for loss of earnings because he has acquired a contractual right to the entire contract.

Taking these considerations into account, the Supreme Court of Appeal ruled that the High Court had underestimated the harmful consequences of its order and had “disregarded the position of the innocent Moseme”. Thus, despite the imperfections of the administrative process and the injustice suffered by King, the Court of Appeal could not, in the exercise of its discretion, confirm the award of the contract to King.

Moseme’s appeal was therefore allowed (with costs). As a result, the ministry’s sentence remained in effect.

Comment

• The decision highlights the following principles with regard to the award of public contracts:
  • Considerations of pragmatism and practicality must be applied to rule on the validity or invalidity of an administrative act.
  • Even when an award is made invalid, it will not necessarily be set aside if the consequences of that decision produce adverse consequences.

Consequently, the Court commented “any error in the administration of the tenders is not necessarily sanctioned by a judicial sanction”.

• The situation may however be different when there has been corruption or fraud or when the successful tenderer has been complicit in the irregularity.
• The Court skillfully summed up the dilemma our courts face in awarding government contracts as follows:

“These awards are often a source of public concern – and they are a fruitful source of litigation. Courts (including this Court) are inundated with unsuccessful bidders seeking to overturn the contract award and have contracts awarded to them. There are many reasons for these candidacies. Sometimes the award has been tainted with fraud or corruption, but more often than not it is the result of negligence or incompetence or failure to comply with one of the myriad of rules and regulations applicable to appeals. bids Sometimes the successful bidder is to blame for the problem, but there are times when he is innocent. Many cases are plagued by the delay, whether in launching the application (and also because the facts were not readily available or easily verifiable) or due to the delays and suspensions inherent in the appeal process. . If the claimant is successful, the contract may have to be halted with potentially devastating consequences for the government or the successful bidder or both. Conversely, if the works were allowed to be completed, the tenderer who should have been awarded the tender would be unfairly deprived of the benefit of the contract. There are also cases where the final judgment is not pronounced until after the contract has been completed. It is not necessary to sketch further. Tendering has become a risky business and courts are often placed at a disadvantage in the exercise of their administrative law discretion – a discretion that can be academic in a particular case, leaving a aggrieved bidder without any effective remedy. “

• The decision will be of particular interest to bidders of construction projects. The premise, which follows from this decision, is that in the context of construction contracts, a court may not be required to cancel the award of an invalidated tender.