ANDILE NTINGI: Billions at stake as Sanral dragged to court over tender-scoring system

A potentially bruising legal skirmish is brewing, pitting the SA National Roads Agency (Sanral) against Cape Town-based construction and engineering firm Haw & Inglis (H&I) over a proposed tender-scoring system for awarding road construction tenders.

The conflict is a sequel to a five-year legal battle that raged between the finance ministry and Afribusiness after the ministry promulgated preferential procurement regulations in 2017. The stakes are high because the outcome of this fight could set a precedent that decides which suppliers lose or win pieces of government’s R800bn annual procurement pie.

Sanral, one of the country’s biggest procurers, sourcing about R20bn worth of goods and services annually, has been hauled by H&I before the high court in Gqeberha to interdict it from proceeding with the adjudication and awarding of two road stabilisation tenders in the Eastern Cape. 

The tender-scoring system in question, introduced in May, requires bidders to have 51% black ownership and/or to subcontract 40%-50% of their work to black-owned companies if they want to have a chance of winning.

The move by Sanral has sent shock waves through the construction industry, to the extent that H&I’s litigation bid may be joined by 13 other construction firms whose business models are threatened by the new tender-scoring system.

In its application H&I has asked the court to set aside the decision by the state-owned roads agency to implement the new tender-scoring system on the grounds that it is “unconstitutional” and “irrational”.

The company is objecting to the inclusion of black ownership and subcontracting as criteria in the bidding process, arguing that this amounts to doubling up on criteria it already has to comply with as part of its broad-based BEE rating. It also objects to the decision to introduce the scoring system being taken without it and other bidders being consulted by Sanral.

Restricting BEE

Section 217(1) of the constitution, which H&I argues is being violated, provides basis for the redress of historical economic injustices through state procurement, but specifies that this must be done in a manner that is fair, equitable, transparent and competitive. The Preferential Procurement Policy Framework Act, which regulates state procurement, is a direct product of this constitutional provision.

Sanral’s proposed new scoring system deviates from the existing preference points system, which black business lobby groups have criticised for favouring established white-owned companies and restricting implementation of BEE policy. The current tender-scoring system uses a scorecard that adjudicates and awards tenders on the strength of bidders’ price competitiveness and BEE rating.

Tenders valued at less than R50m are awarded on the 80/20 preference points system, whereby 80 points are allocated for price competitiveness and 20 points for advancing BEE. Tenders valued at more than R50m are awarded on the 90/10 system, whereby 90 points are allocated for price and 10 points for advancing BEE. If a bidder thus beats the prices of its rivals and/or has the same or higher BEE rating, it should win the tender.

However, Sanral has amended the 10/20 side of these equations to allocate points based on a bidder’s BEE rating, black ownership and subcontracting, with the last two elements given a bigger weighting collectively than the BEE rating. The agency has left the 80/90 side of the equation dealing with price competitiveness as it is. The obvious implication is that companies that have low black ownership and are unable or unwilling to subcontract black SMMEs will struggle to win Sanral tenders, regardless of their BEE rating.

For many years black suppliers complained that the existing preferential scoring system placed a disproportionate emphasis on price competitiveness and not enough on BEE. In their view, BEE will have to be allocated more points in government tendering than price competitiveness if the existing wealth gap between whites and blacks is to ever be closed.

Controversial criteria

Sanral would probably not have introduced a new preferential procurement system had it not been for an avalanche of complaints from black businesses about the Preferential Procurement Policy Framework Act, which prompted the government to establish a review task team to investigate the complaints. 

The task team found that the preferential procurement regulations implemented in 2011 restricted BEE. This prompted then finance minister Pravin Gordhan to promulgate new regulations in 2017 that introduced controversial prequalification criteria, which required bidders to comply with strict BEE conditions before they could proceed to the next stage of bidding.

These prequalification criteria were intended to boost allocation of state work to black companies by forcing established white-owned companies to subcontract at least 30% of the work to black-owned SMMEs. However, business rights watchdog Afribusiness challenged the regulations in the high court in Pretoria, arguing that the minister had no powers to promulgate the 2017 regulations.

The high court ruled in the minister’s favour, finding that the prequalification criteria were compatible with the existing preference points system, and that the regulations were valid. Afribusiness appealed to the Supreme Court of Appeal in Bloemfontein, which overturned the high court ruling, agreeing that the minister had acted beyond his powers in issuing the regulations under the act.

The minister, who by this time was Gordhan’s successor and current minister, Enoch Godongwana, did not take the appeal court defeat lying down. He approached the Constitutional Court to appeal against the Supreme Court of Appeal judgment, but suffered another defeat to Afribusiness when the Constitutional Court dismissed his appeal by a slim majority in February 2022. Out of the nine judges who heard the matter, five ruled in favour of Afribusiness.

Dissenting view

Justice Mbuyiseli Madlanga, who handed down the majority judgment, said the minister had no powers in terms of the law to promulgate regulations that in effect amounted to determining procurement policy. He said the constitutional responsibility to determine procurement policy rested with “organs of state” such as Sanral, not the minister.

However, Justice Nonkosi Mhlantla took a dissenting view in the minority judgment, finding that section 5(1) of the act gave the minister powers to make regulations, as it stated that he “may make regulations regarding any matter that may be necessary or expedient” to achieve the goals of the act.

When Madlanga handed down his judgment he recommended two specific actions the minister could undertake to achieve his goals if he felt the organs of state were failing to implement the existing legislation. He could either engage politically with the organs of state to implement preferential procurement policies that reflected his wishes, or he could introduce a bill in parliament to amend the legislation to include his desired preferential procurement policy.

The defeat suffered by the finance minister at the Constitutional Court forced him to repeal the 2017 regulations and replace them with regulations in 2022 to allow state organs to determine their own preferential procurement policies pending the promulgation of the Public Procurement Bill.

Sanral is now exploiting the leeway created by the Constitutional Court judgment and 2022 regulations to develop and implement its own preferential procurement policy. Meanwhile, the minister is following the second of Madlanga’s recommendations and introducing legislation that advances his agenda. 

• Ntingi is founder of GetBiz.