SOUTH AFRICA: PUBLIC PROCUREMENT CAST INTO UNCERTAINTY BY CONSTITUTIONAL COURT JUDGMENT
It is estimated that the South African Government spends almost ZAR 1 trillion per year through the public procurement system. This system was thrown into a state of uncertainty following a Constitutional Court judgment in late February 2022.
The judgment in Minister of Finance v Afribusiness NCP set aside the Preferential Procurement Regulations published under the Preferential Procurement Policy Framework Act (PPPFA), which is the main legislative guideline for the public procurement system. It has been mandatory for all public bodies, including government departments and state owned entities, to follow these Regulations since at least 2012.
In 2020, Afribusiness challenged the 2017 amended version of the Preferential Procurement Regulations on the basis that the introduction of ‘pre-qualification’ criteria to the public tendering process was beyond what is allowed by the PPPFA.
The pre-qualification criteria in the 2017 Regulations were designed to advance certain ‘designated groups’ and provided that only certain tenderers may respond, including: tenderers having a stipulated minimum Broad-Based Black Economic Empowerment (B-BBEE) status level, exempted micro enterprises (EMEs) or qualifying small enterprises (QSEs), and tenderers subcontracting a minimum of 30% of the work to EMEs and QSEs which are at least 51% black owned.
The matter finally came to the Constitutional Court in mid-2021 after conflicting judgments in the High Court and Supreme Court of Appeal (SCA). The SCA had held that the Preferential Procurement Regulations did not accord with the empowering provisions of the PPPFA and set them aside. However, it suspended this for a one year, as is customary when laws are set aside, to allow the Government to put an alternative scheme in place. The Minister of Finance launched an appeal to the Constitutional Court against the judgment and order of the SCA.
The Constitutional Court was divided in their 16 February 2022 judgment. The majority found that the pre-qualification provisions of the Preferential Procurement Regulations are neither necessary nor expedient to give effect to the scheme of the PPPFA and, because the impugned provisions are intertwined through the Preferential Procurement Regulations as a whole, the regulations as a whole stand to be set aside.
Turmoil in the public procurement system, however, arose subsequently. In handing down its judgment the Constitutional Court appears not to have considered the impact of the judgment on innumerable tenders which were in the system as it was handed down, nor that would need to continue within the existing system while a new system is developed to meet the requirements of the PPPFA.
The Constitutional Court did not make its own order but confirmed the SCA’s order of invalidity which was suspended for a year. The order of the SCA was itself suspended as a result of the lodging of an appeal against it to the Constitutional Court. Thus, the legal position was that the SCA’s declaration of invalidity was revived and was again suspended for a year from the date of the Constitutional Court decision to allow National Treasury the time needed to put in place a replacement system by February 2023.
Despite this, on Friday, 25 February 2022, National Treasury issued what was then understood to be an ‘instruction note’ to all organs of state that does not follow this approach.
National Treasury indicated that while the Minister of Finance was seeking urgent confirmation from the Constitutional Court that the approach set out in the paragraphs above is the correct approach, it ‘instructed’ organs of state to:
- finalise tenders that are subject to the Preferential Procurement Regulations before 16 February 2022;
- halt all such tenders issued on or after 16 February 2022; and
- not advertise any new tenders in terms of the Preferential Procurement Regulations.
- National Treasury has since clarified that its note was not an ‘instruction’ but an ‘advisory note’ in response to requests for guidance. National Treasury said that it will publish new regulations to the PPPFA for comment this week. It has further advised that organs of state may, in the interim, seek a 'public interest exemption' in terms of section 3(c) of the PPPFA from the provisions of the PPPFA for a specific procurement or category of procurement requirements.
- This is obviously a difficult position for organs of state which may have multiple tenders in the market at any stage, as well for companies participating in a public procurement process. Furthermore, although National Treasury may issue circulars or guidelines under the Preferential Procurement Regulations, it arguably has no power under the PPPFA nor the Preferential Procurement Regulations to issue ‘advice’ suggesting that organs of state should disregard the Preferential Procurement Regulations. Such 'advice' is clearly unlawful and acting on it would be unlawful for the organs of state concerned.
The Constitutional Court in its judgment of 30 May 2022 confirmed our view above that based on the clear statutory position governed by section 18(1) of the Superior Courts Act, the order of the SCA was suspended as a result of the lodging of an appeal against it to the Constitutional Court. Accordingly, the countdown of the 12-month period of suspension resumed on 16 February 2022 and the 2017 Regulations in their entirety remain valid until 26 January 2023.
National Treasury published draft Preferential Procurement Regulations, 2022 on 10 March 2022 for public comment. Matters, such as the pre-qualification criteria, objective criteria, local production and content, subcontracting and cancellation of tenders which were regulated in the Preferential Procurement Regulations, 2017 (2017 Regulations) have been omitted from the draft Regulations, 2022. Those matters are to be contained in the procurement policies determined by each organ of state in accordance with section 2(1) of the PPPFA. The draft Preferential Procurement Regulations, 2022 will serve as a lawful plan for how public procurement is to be undertaken in the period between the expiry of the suspension of the invalidity of the 2017 Regulations and the assenting of the Public Procurement Bill which is intended to replace the PPPFA and the Preferential Procurement Regulations. The Minister of Finance, Enoch Godongwana confirmed in his 2022 Budget Speech SONA that the Public Procurement Draft Bill, (published In Notice 94 of 2020 in Government Gazette 43030 of 19 February) will be tabled before Parliament in this Parliamentary year. This should provide the impetus necessary for this Bill to progress.