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8 March 2022

The recent Constitutional Court judgment in Minister of Finance v Afribusiness NCP has put an abrupt halt to public sector procurement with National Treasury publishing a notice on 25 February 2022 to the effect that it is seeking clarity on the suspension of the preferential procurement regulations and advising that whilst it does so, tenders advertised after 16 February 2022 (being the date of the judgment) should be held in abeyance and that no new tenders should be advertised.

So, what is the effect of the judgment and how long is the situation likely to last?

The Supreme Court of Appeal (SCA)  found the Preferential Procurement Regulations of 2017 to be invalid as they are inconsistent with the Preferential Procurement Policy Framework Act (the Act) and declared a suspension on the effect of the invalidity for a period of 12 months from the date of the order (Decision delivered 2 November 2020).

The reasoning for such invalidity is that the 2017 Regulations were found to be inconsistent with the approach envisaged in s217(1) of the Constitution, which provides:

When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”

The SCA held that the pre-qualification criteria allowed for in regulations 3(b), 4 and 9 constitute an overstepping by the Minister in that the Regulations go beyond giving effect to the Act and extend to broadening the legislative mechanisms within the Act.

Regulation 3(b) provides that an organ of state must determine whether pre-qualification criteria are applicable to the tender as envisaged in Regulation 4.

Regulation 4 provides that if an organ of state decides to apply pre-qualifying criteria to advance certain designated groups, that organ of state must advertise the tender with a specific tendering condition that only one or more of a defined list of tenderers may respond. The defined list deals inter alia with minimum B-BBEE status level of contributor, minimum ownership by black people or black people who are youth, women, people with disabilities or living in rural or underdeveloped areas or townships. A tender that fails to meet any pre-qualifying criteria stipulated in the tender documents is an unacceptable tender.

Regulation 9 deals with targets for subcontracting to advance designated groups.

The Constitutional Court confirmed the decision of the SCA to declare the 2017 Regulations invalid but by the reasoning that a reading in of s2(1) of the Act reveals that the authority lies with individual organs of state to regulate its preferential procurement policy and that as such, the regulations promulgated by the Minister are in conflict with such authority granted to organs of state.

In terms of s18 of the Superior Courts Act, an order will be temporarily suspended for the duration of appeal proceedings unless the appeal court makes an order to the contrary. The proceedings in the Constitutional Court thus postponed the 12 month suspension on the invalidity of the regulations decided by the SCA.

The position as provided in the letter addressed to all organs of state by the Director General of National Treasury on 25 February 2022 is a cautious approach which states that tenders advertised before 16 February 2022 will be finalised in accordance with the 2017 regulations and other tenders will be addressed once guidance has been obtained from the Constitutional Court.

In our view the finding of the Courts does not require clarification. The handing down of judgment by the Constitutional Court on 16 February 2022 meant that the suspension period determined by the SCA now starts running. This time period is to allow for 2017 Regulations to be addressed.  

It is important to note that only the 2017 Regulations are invalidated, all other regulations (2011 and before) remain in effect and the preferential procurement policy prescribed by various organs of state must be strictly complied with. National Treasury’s suggested suspension of all public procurement is unnecessary and if it is prolonged will have a severely negative impact on the South African economy. This has been recently conceded by the Treasury DG, Dondo Mogajane, in a circular, which confirms that the letter is non-binding.

Article by Euan Massey, Zodwa Malinga and Alex Goddard