This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2020 decision in China State Engineering Construction Company v. Namibia Airports Company Ltd., the Supreme Court of Namibia upheld a contract cancellation decision notwithstanding the unreasonable delay that preceded that cancellation. The dispute involved the award of a contract by the Namibia Airports Company (NAC) for the third phase of a construction project for taxiways and a runway apron at the Ondangwa Airport. The China State Engineering Construction Company (China State) previously won a contract for the second phase of the project through a competitive bidding process and was then directly awarded a contract for the third phase of the project.
As the Court detailed, after the contract was awarded, a change in government resulted in the appointment of a new NAC board. The new board discovered a series of irregularities in connection with that contract award, including the absence of a proper open tendering process and conflicts of interest and misrepresentations involving the agency executives who recommended the award to the prior board for approvals:
The review grounds are supported by rather uncontroversial propositions: That no competitive tender took place; that Phase 2 was not a continuation of Phase 1; that the two executives manipulated the process to favour China State and made misrepresentations to the board and that the latter failed to apply its mind properly.
As the Court summarized, the contract in question was the largest of a series of contracts rushed through approvals by the outgoing board prior to the expiry of its mandate. This rushed award prompted the new board to request a review by external lawyers, which delayed the board’s ultimate cancellation decision:
According to Haifidi, upon assuming office, the new board started to review a number of awards, including the one to China State, ‘rushed through’ by the former board at its last meeting of 23 June 2016. Put together, these awards were in excess of N$400 million. The China State award was the single largest. The new board decided to engage the services of outside lawyers, their present legal practitioners of record, to advise on the ‘legality or otherwise’ of the several awards. To facilitate the work of the outside lawyers, Haifidi says that as in-house legal advisor he needed to have access to the relevant documents running into ‘hundreds of pages’ but he was obstructed by El-Kalawi and Silombela in accessing critical documents.
While the Court ruled that the time of the legal review did not explain the unreasonable delay in terminating the contract, the Court found that the new board was entitled to terminate the deal notwithstanding that delay due to the serious irregularities that surrounded the original award. More specifically, the Court found that the outgoing board approved the untendered award to China State based on briefings provided by two NAC executives who were in a conflict of interest and who misrepresented the new contract award as being an extension of the previously tendered second-phase work:
The manner in which the award was made does not meet the most basic tenets of transparency and accountability and judicious use of public funds. It is clear from the evidence of Haifidi that the board heard about the implementation of Phase 2 with China State for the first time on 23 June 2016. That is most concerning because it means that El-Kalawi and Silombela begun negotiations with China State concerning Phase 2, even before the board had the opportunity to consider whether deviation from the procurement policy was necessary or proper.
It is not hard to imagine what would have happened had the board rejected the proposal not to follow a competitive bidding process. The association that the two executives developed with China State would, in the event of a competitive tender, have raised serious conflict of interest for the two most senior individuals on whom the board would have had to rely for professional advice in the event that it chose to put Phase 2 out on competitive tender. The manner in which China State was selected demonstrates that an unhealthy relationship developed between China State and the two executives which undermines transparency. There could after that never be any arms-length relationship between the two executives and China State. That relationship, although not proved to be corrupt, raises serious concerns of corporate ethics as to merit censure by granting condonation for the unreasonable delay in seeking self-review.
Another important consideration which strengthens the case for condonation is the complete absence of reasons which would bring the chosen procurement method within the exceptions contemplated in the procurement policy: an imminent threat arising from a state of disrepair or an urgent directive by the DCA. An equally compelling consideration is the complete lack of scrutiny by the board of the proposals by El-Kalawi and Silombela to justify:
a) why the departure from the procurement policy was necessary; and
b) whether the escalation in price was reasonable in all the circumstances, including obtaining a second opinion from an external advisor.
The Court also determined that China State did not have clean hands in the process, which further justified the termination even after the unreasonable delay:
The above must be juxtaposed with the prejudice to China State. I have already referred to the unhealthy relationship that developed between China State and the two executives. Having been previously hired through a competitive bidding process, China State must have been aware that the way in which it was being engaged for Phase 2 was improper. It therefore knew that it was being improperly and unfairly preferred over other potential competitors. In that sense, China State is not entirely blameless.
The Court concluded that “the public interest is best served by reopening the entire process to competitive public bidding so that the assurance is had that public resources are expended in the most cost-effective way.”
As this case illustrates, where government contract awards are made based on inappropriate procedures, even after protracted post-award delays, those contracts remain subject to potential termination if those improprieties are discovered at a later point in time. Public institutions should establish internal governance procedures that prevent questionable contract awards from being rushed through in the first place since unsound awards can expose institutions to lengthy downstream legal entanglements.
