Court Derails Tainted Tender – 2018 Case of the Year

By Paul Emanuelli

The July 2017 decision of the High Court of South Africa in Passenger Rail Agency of South Africa v. Swifambo Rail Agency (Pty) Ltd. serves as a cautionary tale for all public officials about the risks of evaluation irregularities and biased specifications. This article will highlight the fatal defects contained in the tainted train tender and offer a series of guiding principles for implementing fair evaluations for your major projects.

Tainted Process Leads to Voided Contract

In its July 2017 decision in Passenger Rail Agency of South Africa v. Swifambo Rail Agency (Pty) Ltd., the High Court of South Africa struck down a contract award after determining that the multiple irregularities in the tendering process were a manifestation of corruption, collusion or fraud. The case dealt with a contract award for the sale of 70 train locomotives. The court found that the specifications were biased toward the winning bidder and that the contract terms were improperly changed from a lease to a purchase during the tendering process. The court also found that the winning bidder’s tender was non-compliant and was inappropriately rescored to enable the tainted award.

  1. Unclear Contract Scoping

The court found that the Passenger Rail Agency of South Africa (“PRASA”) failed to clearly communicate the contract options to bidders. More specifically, it found that the RFP only allowed for lease options for the train locomotives and failed to allow for the out-of-scope purchase option, which was ultimately awarded to the winning bidder.

  1. Irregular Communications

The court concluded that the winning bidder was unfairly provided information about the purchase option and that this gave that bidder an unfair advantage over other bidders. While some bidders were apparently notified of the purchase option during a pre-bid meeting, the court found that this information was not provided to all bidders. In fact, the court found no evidence that the terms of the RFP were formally amended to allow for the purchase option. It also found that existing PRASA staff only became aware of the purchase option discussions between select bidders and former PRASA staff during the subsequent legal proceedings.

  1. Inconsistent Application of Weightings

The court determined that the PRASA evaluators engaged in an inconsistent application of the scoring criteria. While the criteria were weighted in the RFP according to their relative importance, the court determined that the evaluators failed to follow these scoring rules in their actual evaluation process. Noting that “the weighting is critical to the proper assessment of bids”, the court concluded that the failure to properly apply the weighting as established in the RFP “resulted in an illogical evaluation”.

  1. Biased Specifications

The court found that the RFP specifications were unfairly tailored to benefit the winner. It cited numerous instances in which the specifications were narrowly defined in ways that were irrelevant to overall functionality, but were uncannily aligned to the winning bidder. These biased specifications included specific requirements for the number of engine cylinders, precise bore and spoke measurements, engine speed requirements set to specific rotations per minute, and specific weight requirements that were an exact match to the weight of the winning bidder’s locomotives. The other bidders were unfairly evaluated against these biased specifications and were then disqualified for failing to meet the minimum technical scoring threshold.

  1. Re-Scoring Irregularities and Non-Compliance

The court found that the winning bid was inappropriately rescored after it failed to meet the minimum technical scoring threshold. The court ruled that the re-scoring constituted an unfair manipulation of the evaluation process to the benefit of the winning bidder and to the prejudice of other bidders. The court also found that the winning bidder was non-compliant since it failed to submit the required tax compliance certification.

  1. Illegal Fronting

The court concluded that the winning bidding team was guilty of illegal fronting since it named a South African company as the lead bidder to gain evaluation points, but the South African company “was merely a token participant” that received monetary compensation in exchange for the use of its local business rating. The court ruled that the local company had no substantial involvement in the performance of the contract and that the resulting contract award undermined the local empowerment objectives contained in the relevant statutory provisions that encouraged local supplier participation.

  1. Material Deviations in Contract Award

The court found material deviations between the tender call and the awarded contract since the winning bidder’s locomotives  exceeded the maximum height requirements in the RFP and the contract was awarded based on a purchase option that was not contained in the RFP. The court stated that the terms of an awarded contract “must fall within the parameters of the specifications laid down” in the tender call. It concluded that the out-of-scope provisions rendered the contract award unlawful.

  1. Flawed Approval Process

The court determined that the contract was awarded pursuant to a flawed approval process. The governing statute required the PRASA board to make a written submission to the National Treasury and obtain the approval of the Minister of Transport prior to awarding the contract. However, the court found no evidence that the PRASA board met either statutory requirement before it awarded the contract.

The Verdict: Corruption Calls for Serious Sanctions

The court concluded that “the irregularities raised in this case have unearthed manifestations of corruption, collusion or fraud” and that “corruption, if allowed to go unchecked and unpunished, will pose a serious threat to our democratic community”. In deciding to strike down the contract, the court stated that “there is simply no reason why the respondent should benefit from an unlawful award that was peppered with so many irregularities” and that “corruption will triumph if this court does not set aside this tender.”

Guiding Principles for Fair Evaluations

Whether it’s a formal bid protest, a public audit review or a newsreel report, government evaluators often find themselves under a spotlight of scrutiny over their evaluation and award decisions. Given the glare of second-guessing that follows the public tendering process, this discussion offers six guiding principles for lowering the temperature in evaluation rooms.

  1. No Volunteers

In almost all cases, evaluation groups are made up of individuals who are moonlighted from their day jobs and assigned to evaluation teams; however, notwithstanding this double duty, evaluators don’t get a free pass on meeting fairness standards. Claiming “We did our best with limited resources,” is not an adequate defense for failing to meet your due process duties. Evaluators need to set aside sufficient time to independently review, evaluate and score each proposal.  They also need to prioritize their participation in group evaluation sessions since “no-shows” are a no-go that cause rescheduling delays or trigger the need to remove evaluators.

  1. No Freestyling

Defending a legal challenge is no substitute for doing things properly the first time. The evaluation process is not a freestyle competition or an opportunity to second-guess established evaluation rules and criteria. Embarking on procedural deviations and employing hidden criteria can result in re-evaluation orders or the nullification of a contract award. Evaluators should therefore take the time to properly review the evaluation rules and criteria and then stick to the script.

  1. No Conflicts or Bias

Conflicts of interest and bias are bad news for the defensibility of an evaluation. Evaluators should have no personal or financial interest in the result. Furthermore, while expert evaluators may come to the table with past knowledge of the various suppliers vying for the contract award, they should also come to the evaluation process with an open mind regarding the merits of each competing proposal. Potential evaluators who are unable to meet these impartiality standards should remove themselves from an evaluation to avoid tainting the integrity of the process.

  1. No Records Means No Defence

Keeping inadequate records can result in re-evaluation orders and voided contracts. The days of jotting down cryptic shorthand on sticky notes or showing up to evaluation meetings with incomplete work and hoping that someone else will prepare a consolidated evaluation record are over. Evaluators are not anonymous in the public procurement process. Team members are accountable for maintaining their own notes and scores and responsible for recording why they made any changes to their scores during group scoring sessions.

  1. Peer Review, Not Peer Pressure

Group scoring sessions should not be a forum for fudging results or pressuring evaluators into changing their scores. In fact, emerging enhanced consensus scoring procedures now typically include detailed protocols for ensuring that each group member exercises independent judgment as part of the evaluation. While group scoring sessions should enable peer review and discussion, each evaluator is a potential witness in a legal challenge and should therefore exercise unfettered judgment and be ready to stand behind his or her individual score, even under cross-examination.

  1. No Executive Privilege

No-one involved in a government evaluation decision is above the law. When it comes to protecting the integrity of the tendering process, there is no executive privilege. This means that senior officials cannot simultaneously delegate responsibility for the evaluation process and then reserve the right to arbitrarily second-guess and override an outcome they disagree with. Senior officials should therefore either formally delegate the power to make evaluation and award decisions or they should be prepared to actively participate according to the same due process standards that apply to everyone else.

Future Considerations

While your institution may have a long track record of taking liberties with the due process of its evaluation decisions and not being challenged, you should never confuse poor but untested past practice with proper practice. In the face of a legal challenge, denial of the rules is not a winning defense. When it comes to protecting the integrity of the evaluation process, it’s never too late to rectify your procedures to establish defensible practices.