The Western Cape provincial government is challenging the legality of the recent decision by the National Treasury to ban the use of imported cement for state-awarded contracts, saying there was no consultation before the decision.
It argues that the decision will cause price hikes, making projects more expensive.
The DA-led provincial government says it wants to resolve the matter amicably and avoid declaring a dispute or taking legal action.
The move to prohibit the use of imported cement for state infrastructure projects came after local cement producers argued that cheap imports are hurting their businesses and job-creation efforts.
The ban, which was announced in October and scheduled to be implemented at the beginning of November, prompted the biggest surge in more than two months in the share price of local cement giant PPC. This comes as the government ramps up its localisation drive which, it says, is crucial to revive distressed sectors such as poultry, sugar and steel.
Western Cape finance and economic opportunities MEC David Maynier has called for the circular banning imported cement for state contracts to be withdrawn pending a full socioeconomic impact assessment, as well as the finalisation of a court matter related to the validity of a provision in procurement legislation that prioritises black-owned firms.
Tenders affected
Maynier said the national government failed to consult the province before the introduction of the circular.
The Western Cape’s department of human settlements, with municipalities across the province, issues tenders that will be affected by the ban on imported cement amounting to R1.8bn a year.
Maynier said the provincial department of transport and public works has issued about 9,000 contracts over the past three years, worth more than R10bn, all of which would be affected by the circular too, yet there is no record of any consultation on the matter before dissemination of the circular.
Maynier raised a concern about the capacity of the state to implement the directive, given that the SA Bureau of Standards (SABS) is the only accredited verification agent regarding the cement designation.
He said it is impossible for government procurement authorities to accurately verify locally manufactured products.
For this reason, the methodology that is applied that the relevant forms attached to the circulars requires a self-declaration by bidders and an audit by the SABS, is only done after the award.
This verification post-tender award could result in potential negative audit outcomes for the organ of state that procured the work from the contractor after all the regulations. This is largely because the organ of state has no way of verifying the correctness of the declaration on local content made by any bidder at the time of evaluation.
Only the SABS can do this, and it is done well after the contract is awarded, if at all. This could also result in increased risk of litigation, especially in circumstances in which the work has been completed and payment is due by the time the SABS verification and audit outcome is announced.
Maynier said the lack of meaningful consultation with affected organs of state and other third parties outside the cement industry itself before the release of the circular shows a lack of consideration for some of its possible long-term damaging effects on the state and broader construction industry.
These include the potential for increases in prices that will be passed on to the government, with an immediate spike in the cost of infrastructure.
In October, Western Cape property developers said the government directive limiting cement imports will in due course have a potentially huge inflationary effect on construction costs.
Pegged price
Deon van Zyl, chair of the Western Cape Property Development Forum, which represents the property development and construction industry in the province, said at the time that by supporting a locally priced product with inefficient input costs, the government will effectively be pegging the price higher than it should be.
Maynier said not only is the directive irrational as it will be hard to monitor and implement, but it could also be illegal.
He highlighted that the constitution allows for categories of preference in the allocation of contracts premised on the allocation of points being scoredby bids.
This requires tenders to be adjudicated in a fair, equitable, transparent, competitive and cost-effective manner.
Maynier said the effect of the circular is to radically alter the Preferential Procurement Policy Framework Act “by superimposing a local content threshold as a prequalification criteria, akin to those contemplated in regulation 4 of the act pertaining to designated groups, the legality of which has already been pronounced on by our Supreme Court of Appeal”.
Sakeliga, an independent business lobby group with a history of representing Afrikaner business in particular, had approached the courts challenging the regulations, arguing that they allowed organs of state to disqualify tenders in advance, because a company was not 51% black-owned.
In November 2020, the appellate court rejected the “predisqualification” as invalid and unconstitutional. It gave the state a year to rectify the regulations. However, the government approached the Constitutional Court to challenge the ruling.
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