This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
As evidenced by recent legal rulings, the South African courts are becoming increasingly active in regulating improper sole-source decisions and in striking down improperly awarded contracts. These decisions serve as useful case studies for public institutions across all jurisdictions in highlighting the perils of unlawful sole-source awards.
For example, in its November 2021 decision in Eastern Cape Rural Development Agency v. Agribee Beef Fund (Pty) Ltd, the Supreme Court of Appeal of South Africa overturned a lower court decision that upheld a direct contract award after the lower court found that the open procurement rules did not apply to the contract in question. The case dealt with the direct contract award for the provision of beef products. In overruling the lower court, the Court of Appeal determined that the contract was subject to public sector open tendering rules and that bypassing the tendering process rendered the direct award legally invalid.
Further, in its August 2021 decision in Bushbuckridge Local Municipality v. Mylocel (Pty) Ltd, the High Court of South Africa ruled that a direct award based on an unsolicited proposal was unlawful. The case dealt with a contract awarded by a local municipality for the supply and installation of 20 digital advertising screens. As the Court summarized, the award was preceded by a “pitch and proposal” by the awardee, who offered the municipality a bundle of free on-screen ads as a loss leader before charging the municipality for additional advertising. The Court found that the municipality’s acting manager failed to follow the applicable purchasing policy since there was no competitive bidding process and there was no documented justification for failing to follow an open bidding process before awarding the contract. In fact, the municipality was unable to show that the supplier was the sole provider of the goods and was unable to justify its direct award based on an emergency. The Court determined that the award was invalid and set the contract aside.
Finally, in its August 2022 decision in Mathata General Trading v. Mpumalanga Department of Education, the High Court of South Africa ruled that the direct award of a food concession contract was invalid. The case involved an ongoing legal dispute over the services in question. The Department agreed to suspend its tendering process pending the results of the litigation. In the interim, the Department attempted to insource the services by amending the scope of another existing food supply contract. The Court ruled that this interim arrangement constituted a new procurement that was subject to open tendering requirements. The Court determined that compliance with those open tendering rules was not discretionary, and that the new sole-source contract should be set aside as an improper award.
These recent decisions serve as a useful reminder to public institutions across all jurisdictions that the failure to follow open tendering rules remains subject to potential legal challenge and can result in the invalidation of improper sole-source awards.
