Navigating the intersection of public law and private law in South African public procurement

13 July 2023

In the dynamic landscape of public procurement and tender processes in South Africa, understanding the boundary between public and private law is crucial for both public entities and private bidders. 

As the tender process progresses and a successful bidder is identified, the legal framework shifts from public to private law. This shift means that no party may resort to review proceedings in terms of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”) once private law comes into play. Private law ultimately governs the rights, obligations and remedies of the parties involved and provides a framework for the implementation and execution of the tendered project or service.

Public Law

Section 217 of the Constitution of the Republic of South Africa sets out the overarching requirements for tender processes and their resultant contracts to be valid. In Millennium Waste Management (Pty) Limited v The Chairperson of the Tender Board: Limpopo Province and Others the court confirmed that:

“The section requires that the tender process, preceding the conclusion of contracts for the supply of goods and services, must be fair, equitable, transparent, competitive and cost-effective.”

The regulating legislation contemplated in section 217 takes the form of the Public Finance Management Act 29 of 1999 (“PFMA”) and the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”) and the Regulations thereto. The requirements as set out in section 2 of the PPPFA prescribe how an organ of state’s preferential procurement policy is to be implemented.

The Minister may make regulations regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of the PPPFA. The PPPFA and its regulations apply to all public entities listed in schedules 2 and 3 of the PFMA which include ‘major public entities’ such as Eskom and ‘other public entities’ such as the Mine Health and Safety Council.

An unacceptable tender- invalid contract?

Section 1(i) of the PPPFA defines an “acceptable tender” as “any tender which, in all respects, complies with the specifications and conditions of tender as set out in the tender document.” The question whether a tender is “acceptable” can only be determined after the entire tender has been evaluated considering, amongst others, competitiveness and cost-effectiveness as contemplated in section 217 of the Constitution.

An evaluation of compliance with the technical specifications of the tender is relevant in determining whether a tender is an acceptable tender as defined in the PPPFA. A non-compliant tender could lead to its award being set aside on judicial review in terms of PAJA.

A major public entity listed in schedule 2 of PFMA is not permitted to accept a tender (i.e. an offer) that is not an acceptable tender as defined in the PPPFA. A letter of intent does not create a contractual relationship. Depending on its wording and terms, a letter of award can create a contractual relationship between the parties if it constitutes an unqualified acceptance of the contractor’s tendered offer.

In the matters of Allpay Consolidated Investment Holdings (Pty) Limited v The Chief Executive Officer of the South African Social Security Agency and Sanral v The Toll Collect Consortium it was held that it would be most prejudicial to the public interest if inconsequential irregularities were to be capable of invalidating a contract. In other words, certain irregularities may be permitted if they are not crucial.

Contractual Relationship Between Employer & Tenderer

In Command Protection Services (Gauteng) Pty Limited v South African Post Office Limited [2013] 1 All SA 266 (SCA), the court clarified the question of when a conditional award of a tender gives rise to a contractual relationship between the employer and the tenderer. The court held that where the award of the tender is subject to the conclusion of a contract, this means that until such time that a contract has been concluded, no tender has been awarded. As such acceptance of the tender does not on its own create a binding contract between the parties in the latter circumstances.

The court in Government of the RSA v Thabiso Chemicals summarised the position by stating that after the tender had been awarded, the relationship between the parties in this case were governed by the principles of contract law and the contractual relationship between the parties ceased to be affected by the principles of administrative law.

The legal position in South Africa is that parties will be bound by the law of contract only after a letter of award is issued for purposes of concluding the bidding process. Parties should therefore be mindful about when the contract was concluded to enable them to resort to the correct regulatory framework in the event that a problem occurs between the commencement of the procurement process and the commencement of the contract.

By Deonn Fourie | Director

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