The Supreme Court of Appeal (SCA) has struck down a controversial multimillion-rand tender to build offices and residences for SA’s diplomatic mission in New York.
The judgment opens the door for the Department of International Relations and Cooperation (Dirco) to recoup a $9m deposit with the joint venture awarded the contract eight years ago.
Dirco in 2016 issued a request for proposals (RFP) “for the appointment of a development partner for the design, construction and financing of suitable and sustainable office and residential accommodation for the South African diplomatic missions in the USA.”
Two bidders, a joint venture comprising Simeka Group and Regiments Capital, and a consortium comprising Lephuthing Investment and Menzibali Construction responded to the tender.
One of the requirements of the RFP was that the bidding companies must demonstrate their financial ability to carry out the project, including the submission of three years' audited financial statements. The RFP also stipulated the successful bidder would provide finance for the construction of the buildings and Dirco would be purely a lessee.
Lephuting and Menzibali consortium was disqualified after failing to provide financial statements, though the Simeka-Regiment joint venture was awarded the tender despite having also not having produced financial statements.
The business model proposed by the joint venture was the incorporation and use of Lemascene as a corporate vehicle in SA to execute the project on behalf of Dirco.
In the US, the joint venture incorporated Serendipity SA Investment as the special purpose vehicle that would execute the project there.
After the tender was awarded, Dirco relaxed the requirements of the RFP and took a role of financing the acquisition of the land and the construction of the offices and residential accommodation.
In March 2017 the project site was identified by Serendipity and approved by Dirco. The department then provided Lemascene with $9m, of which $5m was to be paid as a deposit for the purchase of the land and the balance for preparatory work.
Regiments withdrew from the joint venture in 2017 after its links to the Gupta family emerged. Around the same time National Treasury informed Dirco that the appointment of Simeka had been irregular.
The Treasury then gave Dirco an ultimatum to either continue with procuring the land through the appointed service provider “which is likely to entail irregular expenditure” or to cancel the transaction with the service provider.
Dirco sought legal advice and proceeded to cancel the contract. The department went on to approach the high court to set aside the contract — essentially asking the court to review and set aside its own decision and direct the joint venture to return the $9m deposit.
However, the high court didn’t go into the merits of the matter and dismissed it for not having been brought before it on time. The SCA on Wednesday said notwithstanding that the explanation for the delay was not entirely satisfactory in certain respects, the shortcoming was compensated by the strong prospects in favour of Dirco.
“In particular, the enormous financial burden that would be assumed by the department following the material deviations from the tender requirements as against the huge financial rewards that the Simeka Group stands to reap if the tender remains intact in its revised form,” the SCA judgment reads.
“As already indicated above, the tender envisaged that Simeka Group — and not the department — must alone provide the funding for the project and bear sole responsibility for the operational costs of the project. The cumulative effect of these factors and the high stakes, especially for the department, impels the conclusion that the delay ought to be overlooked and the substantive merits of the review be considered.”
The SCA set aside the tender but did not weigh in on whether the joint venture should returns the $9m it advanced to it as the parties had agreed “to separate and postpone the relief sought ... for later determination.”
Kgabo Mahoai was in 2021 fired as director-general of Dirco following a disciplinary hearing over the saga.
khumalok@businesslive.co.za
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