The Supreme Court of Appeal on Monday struck down a provision in the regulations of the preferential procurement legislation that has allowed government entities to set prequalifying criteria for the consideration of tenders.
The regulations of the Preferential Procurement Framework Act were widely used by state-owned companies Transnet and Eskom during the state capture period to skew the award of tenders by imposing prequalification rules, such as the requirement for bidders to be 51% black-owned. Eskom, for instance, set a requirement that all coal vendors be 51% black-owned, a move that distorted coal prices and led Anglo American to sell its undeveloped Key Largo mine in 2018.
The case was brought by Sakeliga, an independent business lobby group with a history of representing Afrikaner business in particular.
The Preferential Procurement Framework Act is a law that seeks to give black-owned and BEE-compliant companies a leg up in winning government tenders in the interests of economic transformation. The act makes it possible for black-owned companies to score additional points when tenders are evaluated on the points system. However, as the constitution requires public procurement to provide value for money, the act set limitations, allowing no more than a 10% or 20% point advantage, depending on the size of the bid. In 2017 new regulations were promulgated to put the prequalification measures in place.
The appeal court said the regulation is in conflict with the constitution and that then-finance minister Pravin Gordhan had introduced measures through regulations that should have been introduced in law.
Piet le Roux, CEO of Sakeliga, said that “the regulations of 2017 allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black-owned, for example. The court has now rejected this predisqualification as invalid and unconstitutional. It is an important step in the right direction to judge tenders based on business measures and value for the public, instead of race and other political considerations.”
The court has given finance minister Tito Mboweni a year to rectify the regulations. However, the Treasury is engaged in drafting an entirely new Public Procurement Bill, which will repeal the Preferential Procurement Framework Act and introduce new provisions to advance transformation, such as the ability to impose an obligation on primary contractors to set aside a portion of the contract for special groups, such as black-, women- and youth-owned businesses.
A new bill will be ready to submit to parliament only by 2022, acting chief procurement officer Estelle Setan told parliament last week.
Le Roux said whether or not the state appealed against the supreme court ruling at the Constitutional Court, the debate has now been moved to a more appropriate level.
“BEE is government policy so it is natural that government will make laws and regulations. But some of this has to be an act of parliament [rather than a regulation] because it is so egregious. This is a step in limiting ministerial discretion,” he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.