Empowerment: Race alone cannot decide tenders – SCA ruling
State-owned companies cannot disqualify prospective contractors who are not majority black-owned without first considering the price and proposition of the tender. This, says a TimesLIVE report, is the gist of a judgment by the SCA yesterday when the court declared the preferential procurement regulations, promulgated by the Minister of Finance in 2017, invalid. These regulations allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black-owned, for example. The SCA found this pre-disqualification invalid and unconstitutional. AfriBusiness, now known as Sakeliga, had challenged the validity of the regulations and argued that the Minister had exceeded his powers by promulgating regulations which provide for pre-qualification criteria for tenderers bidding for government tenders. The Gauteng High Court (Pretoria) had held that the 2017 regulations were lawful and rational on the basis that they followed a preference point system and held that the regulations did not elevate race to a pre-qualification. AfriBusiness contended the regulations put the cart before the horse by providing that the tenderers who qualify to tender may first be determined according to, among other criteria, race, gender and disability, and only thereafter in terms of the preference points system.
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, notes Business Day. 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 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 SCA said then-Finance Minister Pravin Gordhan had introduced measures through regulations that should have been introduced in law. The court has given Finance Minister Tito Mboweni a year to rectify the regulations. However, notes Business Day, 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. Piet le Roux, CEO of Sakeliga, said whether or not the state appealed against the SCA 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.
Procurement: Pre-qualification criteria still an option – commission
The BEE Commission says that pre-qualification criteria for government tenders can still be set by the Minister of Trade, Industry & Competition even though a court has struck down a Treasury regulation that enables this, according to BusinessLIVE. As reported in Legalbrief Today, the SCA struck down a regulation made under the Preferential Public Procurement Framework Act (PPPFA), which allowed state entities to set pre-qualification criteria for tenders. The regulation has been used to disqualify companies that are not 51% black-owned from entering the bidding process. The court said that the regulation was unconstitutional. However, according to BusinessLIVE, the commission issued a statement yesterday to advise that despite the court ruling on the PPPFA, it remained possible to set pre-qualification criteria for public procurement by using the Broad-Based BEE (B-BBEE) Act.‘Section 9 (6) of the B-BBEE Act provides that: “If requested to do so, the Minister may by notice in the gazette permit organs of state or public entities to specify qualification criteria for procurement and other economic activities which exceed those set by the Minister in terms of subsection (1)”.’ So, according to the commission, ‘any organ of state or public entity may therefore set the 51% qualification criteria for tenders with the permission of the Minister of Trade, Industry & Competition, and the ruling has no implications for this process under the B-BBEE Act’. The Treasury, which is the custodian of the PPPFA, is, however, engaged in a complete overhaul of public procurement legislation that will see the PPPFA repealed and replaced.
The Black Business Council (BBC) has called on the National Treasury to appeal the SCA ruling, says a report in The Mercury. BBC chief executive Kganki Matabane said: ‘The regulations were trying to put a bandage on an Act that is not enabling socio-economic empowerment through state procurement. The challenge lies in the primary Act (PPPFA). The BBC has been calling for the repeal of the Act for more than 10 years. Now that the Public Procurement Bill to repeal the PPPFA is being processed, we are calling on National Treasury to expedite the Bill into an Act and ensure that the problems that were being addressed by the regulations are attended to in the Public Procurement Act,’ he said. ‘We also encourage National Treasury to appeal the judgment in the Constitutional Court and we will join them as the friends of the court,’ he said. Meanwhile, according to a report in The Star, the EFF has already vowed to challenge the ruling. The party rejected the ruling as reactionary and anti-transformation, adding that the regulations were aimed at reversing the lion’s share which had been historically secured by white companies from the state’s R1trn procurement spend. ‘It means that white-owned companies do not have to meet BEE requirements to participate in public procurement and will now be evaluated based on other considerations, such as business experience,’ the EFF said. The party said it would approach the Constitutional Court to have the SCA ruling overturned. The DA’s spokesperson on finance, Geordin Hill-Lewis, however, welcomed the SCA ruling. ‘Business owners with competitively priced high-quality products have repeatedly been denied the opportunity to do business with the government because of the exclusionary requirement to meet a predetermined threshold of B-BBEE scores,’ Hill-Lewis said.