Court blow for City of Cape Town over new tender scoring system

The City of Cape Town has been stopped from adjudicating and awarding two tenders because of objections by a construction group to a new tender scoring system for the award of preferential procurement points it introduced in September 2023.

In a judgment handed down in the Western Cape High Court on Tuesday, Judge Judith Cloete interdicted and restrained the city from proceeding with the adjudication and award of two tenders.

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The interdict was granted pending the determination of Part B of the application brought by H&I Civil Building (Pty) Ltd and H&I Construction (Pty) Ltd in which it seeks to review the decision taken by the city:

• In September 2023 to implement the new scoring system for tenders; and
• In December 2023 dismissing H&I Civil Building and H&I Construction’s internal appeals against the decision to implement the new scoring system.

The city opposed the application.

Seven other respondents were cited, including JSE-listed Wilson Bayly Holmes-Ovcon Limited, CVS Construction (Pty) Ltd, Asla Construction (Pty) Ltd, Baseline Civil Contractors (Pty) Ltd, Martin & East (Pty) Ltd, Power Construction (Pty) Ltd and Ruwacon (Pty) Ltd but did not participate in the hearing.

The tenders impacted by the interdict were for:

• The redecoration, alteration, additions to and construction of new buildings and structures for maintenance, safety, and security and other city facilities; and
• The construction of the Integrated Rapid Transit (IRT) System Metro South-East corridor (Phase 2A) stations infrastructure.

The value of each of these tenders exceeds R50 million.

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Sanral interdict

H&I Construction, in September last year, also obtained an interdict in the High Court in Gqeberha that stopped the SA National Roads Agency (Sanral) from proceeding with the adjudication and award of two specific tenders in accordance with its controversial amended tender scoring system.

Sanral subsequently withdrew its new preferential procurement policy (PPP), including its new controversial tender scoring system, to avoid lengthy court battles associated with implementing the new policy.

This resulted in the cancellation of the affected tenders by Sanral and engagement with stakeholders to agree on a new interim PPP before expediting the re-advertisement, adjudication, and award of the cancelled tenders using the interim PPP.

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H&I stated in its founding affidavit that its complaint stems from the amendment to the city’s Supply Chain Management Policy, which led to the formulation and implementation of a new PPP in terms of which “specific goals” may be identified for tenders and preference points are awarded in respect of such goals.

It considers the new scoring system unlawful, with H&I Civil Building and H&I Construction submitting a conditional bid for the tenders.

Prior to the amendment of the city’s tender scoring system, points were awarded based on a tenderer’s B-BBEE scorecard measured in terms of the Broad-Based Black Economic Empowerment Act.

Of the 100% scorecard points for tenders with a value of more than R50 million, 10% related to B-BBEE status and the balance of 90% to other requirements.

The highest empowerment score would be a level one contributor, which would get 10 out of 10 for that 10%.

H&I Civil Building and H&I Construction both qualified as level one contributors.

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The new scoring system introduced a different method to achieve that 10%, which H&I said is a fundamental departure from the measuring in terms of the act.

To achieve that 10%, the city awarded:

• Three points for sole women ownership;
• Three points for sole black ownership;
• One point for sole disabled person ownership; and
• Three points for promotion of micro and small enterprises.

H&I said despite it having the highest possible rating, which would have secured it 10 points in the past on the preferential procurement scoring system for the award of tenders under the 90/10 system, in terms of the city’s new scoring system, they would get no score for its Level 1 B-BBEE ranking.

It said this would render its B-BBEE achievement under the Construction Sector Code, for which it has worked so hard in the past, negligible if not nugatory.

H&I claimed the new scoring system is not only fundamentally flawed but also unlawful in terms of Section 217 of the Constitution, Empowerment, and Procurement Acts.

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In addition, H&I said the city had breached their right under the Constitution to fair administrative action and also failed to consider their legitimate expectation that the new scoring system would not be unilaterally adopted without at least first consulting with and giving them a hearing.

At loggerheads

Judge Cloete said Part A of H&I’s application seeks to protect their right, and those of others, to participate in a constitutionally compliant and lawful public procurement tender system to prevent the Part B relief from being rendered meaningless.

She said H&I and the city are at loggerheads about whether or not the Procurement Act or the Empowerment Act should take preference in the new scoring system.

Cloete said this is not a simple legal issue, as amply demonstrated by their respective arguments.

She said there is, in her view, presently enough pointing to the determination of the legal question in H&I’s favour in Part B of its application, and whether the city has complied with Section 217 of the Constitution in introducing its new scoring system will be determined in Part B, and “and it is in this respect that ‘some doubt’ may lie”.

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The city argued, among other things, that H&I Civil Building and H&I Construction have approached the court purely in their own commercial interest and will suffer no harm at all if Part A of their application is refused because they are entitled to approach the court in due course to set aside the tenders and any award made following their evaluation and adjudication.

It further claimed that serious consequences would arise from the grant of an interim interdict because:

• It will prevent the city from conducting repairs and maintenance projects that are planned for the next three years, directly affecting service delivery; and
• An interdict against the evaluation and adjudication of the first tender will likely result in its cancellation, with the result that it is “unlikely” to obtain the grant funding that currently exists for this tender in excess of R7 billion.

Judge Cloete said the city relies on a letter from the National Treasury dated 11 December 2020, stating that should the city underspend on its allocation in any given year, there is no guarantee that the funds will continue to be available.

Employees’ livelihoods will be ‘adversely affected’

However, Judge Cloete said this does not equate to automatic forfeiture, while the undisputed evidence of H&I is that between 450 and 500 black employees benefit from the dividends the H&I Group is able to declare as a consequence of profits generated by work.

Judge Cloete said these employees’ livelihoods will be directly adversely affected if H&I Civil Building and H&I Construction are not granted interim protection, and the court hearing of Part B finds that they have been correct all along.

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She said H&I’s undertaking to have the relief sought in Part B determined on a semi-urgent basis is clearly in the interests of all parties.

She said the letter from the National Treasury relied on by the city does not state, as it contends, that it will definitely lose the grant funding if the tenders do not proceed as currently scheduled.

“I accept that the effect of an interim interdict may have serious consequences for the city in the short term, but the right to participate in a lawful procurement process, enshrined in our Constitution, must surely trump potential financial and other prejudice to the city on an interim basis,” she said.

This article was republished from Moneyweb. Read the original here