The Public Procurement Framework Act 5 of 2000 determines and provides guidelines on how our Government and state-owned entities themselves should procure goods and services. Prior to January 2017, the tender process of Government and state-owned enterprises was based upon a points system and depending on the value proposition of the company tendering; it would be awarded a certain amount of points. The Framework Act provides inter alia that the preferential procurement policy developed by an organ of state must be based on a preference point system as follows:
• 80/20 preference point system for acquisition of goods or services for Rand value equal to or above R30 000 and up to R50 million, where 80 points are located for price and 20 points are allocated for contracting with historically disadvantaged persons or designated groups.
• 90/10 preference point system for acquisition of goods or services with Rand value above R50 million, where 90 points are located for price and 10 points are allocated for contracting with historically disadvantaged persons or designated groups.
• The contract must be awarded to the tenderer who scores the highest points unless objective criteria, in addition to contracting with historically disadvantaged persons or designated groups, justify the award to another tenderer.
In January 2017, the Preferential Procurement Regulations (2017 Regulations) was adopted, which changed the tender process to some extent. This provided that an organ of state may apply pre-qualifying criteria to advance certain designated groups and, if it does so, that organ of state must advertise the tender with a specific tendering condition that only one or more of the following tenderers may respond:
• A tenderer with a minimum B-BBEE status level
• An Exempt Micro Enterprise (EME) or Qualifying Small Enterprise (QSE)
• A tenderer subcontracting a minimum of 30% to:
o An EME or QSE which is at least 51% black-owned;
o An EME or QSE, which is at least 51% black youth-owned;
o An EME or QSE, which is at least 51% black women-owned;
o An EME or QSE, which is at least 51% black-owned by people with disabilities;
o An EME or QSE, which is at least 51% black-owned by people living in rural areas;
o An EME or QSE which is at least 51% black-owned by military veterans;
o A cooperative which is at least 51% black-owned;
o An EME or QSE.
Furthermore, the Regulations provide that a tender that fails to meet any pre-qualifying criteria stipulated in the tender documents is unacceptable. In the event of a deadlock, the tender must be awarded to the tenderer that scored the highest points for B-BBEE, unless functionality is part of the evaluation process and the tenderers score equally for B-BBEE. In such instances, the tenderer scoring the highest on functionality must be awarded the contract.
In the case of Afribusiness NPC v Minister of Finance (1050/2019) [2020] ZASCA 140; [2021], the Supreme Court of Appeal (SCA) was asked to determine if the discretionary application of the pre-qualification criteria by an organ of state was valid. In dealing with the question on the validity of the Procurement Regulations, the SCA stated that any pre-qualification criteria must advance section 217(1) of the Constitution, which enjoins organs of state to contract goods or services in accordance with a system that is fair, equitable, transparent and cost-effective. The SCA determined that the discretionary pre-qualification criteria in the 2017 Regulations constituted a deviation from such requirements. Moreover, the 2017 Regulations contained no framework which organs of state could use when applying the pre-qualification criteria and that the Framework Act under which the 2017 Regulations did not allow for the preliminary disqualification of tenders without any consideration of the tender itself.
The SCA ruled that the 2017 Regulations were subsequently invalid but suspended the order for 12 months from 2 November 2020.
This Ruling implies is that tenderers who do not meet B-BBEE requirements may not be automatically disqualified from tendering. B-BBEE and the advancement of historically disadvantaged persons or designated groups will still very much count towards the 10 and 20 points in the 80/20 and 90/10 point systems, respectively. In light of the above, compliance with B-BBEE provisions and legislation still applies to entities who wish to tender for government work.
References:
- Afribusiness NPC v Minister of Finance (1050/2019) [2020] ZASCA 140; [2021]
- Public Procurement Framework Act 5 of 2000
- Preferential Procurement Policy Framework Act 5 of 2000
Recognition for this article is given to the original author Esther Longwe (legal advisor) and Zahn Abreu (BEE Manager) from RSM Global in Johannesburg. (Published on their website 22 February 2021)
About The Author:
Martin Fick is a Senior Legal Advisor in Labour and B-BBEE at SEESA Klerksdorp. He obtained his LLB Degree at the Universality of South Africa in 2007 and has been working at SEESA since May 2010