This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2020 decision in Airports Company South Africa Soc Ltd. v. Imperial Group Ltd. & Others, South Africa’s Supreme Court of Appeal ruled that concession contracts need to be awarded in accordance with public procurement legislation and rejected the government’s argument that those contracts fall outside of the legislation since they do not involve the expenditure of public funds.
The dispute dealt with a tendering process run by the Airports Company of South Africa (ACSA), a statutorily created public company, for the award of car rental concession contracts at nine airports across South Africa. One of the bidders challenged the evaluation criteria applicable to the ownership structure in the ACSA solicitation, arguing that these criteria were inconsistent with the applicable statutory rules. ACSA took the position that the statutory procurement rules did not apply to the concession contracts. Since car rental customers would be paying for the rentals directly, ACSA argued that the contracts did not involve the expenditure of government funds and therefore did not fall within the scope of the procurement rules. ACSA argued that it was therefore free to set its own evaluation criteria relating to the ownership structure of competing bidders in its solicitation documents.
The Court disagreed, finding that the procurement rules did apply and regulated concessions contracts and that ACSA’s arguments regarding the method of payment for those services elevated form over substance:
The Constitution is the supreme law of South Africa and all other law is subject to it. Thus, its interpretation cannot depend on the legislation enacted under it. One can accordingly not invoke the PFMA as a guide to the interpretation of the Constitution. The language used in s 217 of the Constitution is clear and unambiguous. It is now settled that when interpreting legislation, the point of departure is the provision itself, read in context and having regard to the purpose of the provision. The ordinary meaning of ‘procure’ is ‘obtain’. Notably, Article 2(j) of the UNCITRAL Model Law on Public Procurement defines ‘procurement’ as ‘the acquisition of goods, construction or services by a procuring entity’. It does not limit procurement to state expenditure. Section 217(1) spells out what ‘procurement’ means, which is ‘to contract for goods or services’. Section 217 does not restrict the means by which goods and services are acquired.
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ACSA cannot, therefore, rely on the provisions of the PFMA as support for its contention that ‘procurement’ is confined to instances where the state is incurring an expenditure. ACSA’s restrictive reading of s 217 simply finds no support in the plain language of that section. It is in any event difficult to think of a reason why ‘procurement’ would relate only to when government is expending money.
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ACSA’s contention that it was effectively leasing its property to successful bidders so that those bidders could engage in a direct relationship with members of the public fails to take into account the assertions set out in the extracts above. Bearing those assertions and ACSA’s strategy in mind, as well as the presentation ACSA made to prospective bidders as part of the pre-tender roadshow, it cannot be gainsaid that the essence of the transaction is that ACSA contracts with car-rental companies to complete and enhance the services available to its customers at its airports in accordance with its own mandate as contemplated in the ACSA Act. In this case the focus falls on what constitutes services in s 217 of the Constitution. The successful operation of a modern airport is heavily dependent upon passengers on arrival being able to secure transport to their ultimate destination and the ability to hire a car for onward travel is essential. In order to ensure the availability of that service for its passengers ACSA had to contract with car hire firms to provide it. The RFB proposes to do that by leasing facilities at airports to car rental firms. ACSA’s suggestion that the granting of concessions to car-rental as envisaged in the RFB did not equate to it contracting for services with those bidders within the meaning of s 217 of the Constitution thus amounts to the elevation of form over substance.
After finding that ACSA’s concession tenders were subject to the government procurement rules, the Court determined that ACSA was not permitted from deviating from the prescribed statutory framework for evaluating the ownership structures of competing bidders without first obtaining Ministerial approval. The Court therefore ruled that ACSA’s alternative evaluation criteria were void and granted the complainant’s application to set aside the solicitation process.
As this case illustrates, in jurisdictions where concession contracts are regulated as a type of procurement contract, the processes and criteria used to award those concessions should be compliant with generally applicable procurement rules or risk being invalidated by the courts. In those jurisdictions where concession contracts, as well as the purchase and sale of government assets, fall outside of the procurement rules, institutions should establish separate tendering protocols to ensure that those contract opportunities are also competed in a transparent manner.
