Government tenders and the “invalid” regulations

25 May 2022

In 2018 Afribusiness NPC (“Afribusiness”) launched an application in the High Court in an effort to have the Preferential Procurement Regulations issued by the Minister of Finance in 2017 (“2017 Regulations”) under the Preferential Procurement Policy Framework Act, 2000 (“PPPFA”), which provide that organs of state may elect to apply a specified list of pre-qualification and post-qualification criteria in respect of public sector tenders in order to advance certain groups, and only tenderers who meet such criteria would be eligible to tender, be declared invalid and set aside on the basis that the Minister had acted outside of their mandate. The application was dismissed by the High Court.

In 2020, Afribusiness approached the Supreme Court of Appeal (“SCA”), which found in favour of Afribusiness, and held that the 2017 Regulations were in conflict with the Constitution and therefore invalid. The SCA issued a declaration of invalidity, which was suspended for 12 months until 01 November 2021, to allow the Minister to rectify the 2017 Regulations.

The Minister approached the Constitutional Court to appeal the decision of the SCA (“ConCourt”). Although, the Minister’s appeal was dismissed on 16 February 2022, the ConCourt did not provide clarification as to whether, following the ConCourt’s decision, the SCA’s suspended declaration of invalidity had expired on 02 November 2021, or whether it would continue.

In light of the uncertainty arising from the ConCourt decision, the National Treasury advised organs of state that, for the time being, tenders which were: (i) advertised before 16 February 2022 should be finalised in terms of the 2017 Regulations; (ii) advertised on or after 16 February 2022 be held in abeyance, and no new tenders should be advertised.

On 10 March 2022 the National Treasury published draft Preferential Procurement Regulations, intended to replace the 2017 Regulations, for public comment (“draft 2022 Regulations”). In accordance with Section 2(1)(b) and (c) of the PPPFA, the draft 2022 Regulations contain regulations that must be prescribed by the Minister to provide for the threshold amounts in which the 80/20 and 90/10 preference point systems must be utilised, and the formula to be applied, as well those regulations which are necessary or expedient to achieve the objects of the PPPFA.

A significant change from the 2017 Regulations is the omission of certain matters regulated in the 2017 Regulations (some of which were declared invalid by the ConCourt, and some of which are to be contained in the procurement policies to be determined by the particular organs of state), such as the regulations relating to the pre-qualification criteria, the use of B-BBEE status as a specified goal when allocating preference points, specific local production and content requirements, and the regulations providing for subcontracting as a condition of tender (more specifically the minimum QSE and EME subcontracting requirements).

We hope that, once finalised, the draft 2022 Regulations, which do not include the overly prescriptive and “invalid” pre-qualification criteria, will simplify the tender and procurement process, thereby allowing organs of state to speed up the procurement process, while still ensuring that a fair, equitable, and transparent, process is followed.

If you require further information on the above or assistance with public sector tender responses or appeals, we have a team of experts who will gladly assist.

See also:

• Court overturns BBBEE pre-qualification
• Recent High Court case clarifies fronting practices
• South Africa: New procurement regulations promote Broad Based Black Economic Empowerment
• Registration of B-BBEE transactions
• Procurement and development in uncertain times

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)