Navigating the Intersection of Public and Private Law in South African Public Procurement – Government Contracts, Public Procurement and PPP

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In the dynamic landscape of public procurement and tendering processes in South Africa, understanding the boundary between public and private law is crucial for both public entities and private bidders.

As the tender process progresses and a successful bidder is identified, the legal framework shifts from public to private law. This change means that no party can resort to review proceedings under the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”) once private law comes into play. Private law governs in ultimately the rights, obligations and remedies of the parties involved and provides a framework for the implementation and execution of the proposed project or service.

Public law

Section 217 of the Constitution of the Republic of South Africa sets out the general requirements for tender processes and resulting contracts to be valid. In Millennium Waste Management (Pty) Limited v Chairman of the Tender Committee: Limpopo Province and Others the court confirmed that:

“This article requires that the tender process, preceding the conclusion of contracts for the supply of goods and services, be fair, equitable, transparent, competitive and cost-effective.”

The regulatory legislation contemplated in Section 217 takes the form of the Public Financial Management Act No. 29 of 1999 (“PFMA”) and the Preferential Procurement Policy Framework Act No. 5 of 2000 ( “PPPFA”) and its regulations. The requirements set out in Article 2 of the PPPFA prescribe how the preferential purchasing policy of a state body must be implemented.

The Minister may make regulations in respect of any matter which it may be necessary or expedient to prescribe in order to achieve the objects of the PPPFA. The PPPFA and its regulations apply to all public entities listed in Schedules 2 and 3 of the PFMA, which include “major public entities” such as Eskom and “other public entities” such as the Board of Health and mine safety.

An unacceptable offer – an invalid contract?

Section 1(i) of the PPPFA defines an “acceptable offer” as “any offer which, in all respects, conforms to the specifications and conditions of bidding as set out in the tender document.” call for tenders”. Whether an offer is “acceptable” can only be determined after the offer as a whole has been evaluated taking into account, inter alia, competitiveness and cost-effectiveness, as provided for in the article 217 of the Constitution.

An assessment of compliance with the technical specifications of the offer is relevant in determining whether an offer is an acceptable offer within the meaning of the PPPFA. A non-compliant offer could lead to the award being canceled following a judicial review under PAJA.

A major public entity listed in Schedule 2 of the PFMA is not permitted to accept a tender (i.e. an offer) which is not an acceptable tender within the meaning of the PPPFA. A letter of intent does not create a contractual relationship. Depending on its wording and terms, an award letter may create a contractual relationship between the parties if it constitutes an unqualified acceptance of the contractor’s offer.

In terms of Allpay Consolidated Investment Holdings (Pty) Limited v Director General of the South African Social Security Agency and Sanral v Toll Collect Consortium it was held that it would be extremely prejudicial to the public interest if inconsequential irregularities were likely to invalidate a contract. In other words, some irregularities may be permitted if they are not crucial.

Contractual relationship between employer and bidder

In Command Protection Services (Gauteng) Pty Limited v South African Post Office Limited (2013) 1 All SA 266 (SCA), the court clarified the question of when the conditional award of a tender gives rise to a contractual relationship between the employer and the tenderer. The court held that when the award of the tender is subject to the conclusion of a contract, this means that until a contract has been concluded, no tender has been awarded. Such acceptance of the offer does not of itself create a binding contract between the parties in these latter circumstances.

The court in RSA Government v Thabiso Chemicalssummarized the situation by stating that after the award of the tender, the relations between the parties in this case were governed by the principles of contract law and that the contractual relationship between the parties had ceased to be affected by the principles of administrative law.

The legal position in South Africa is that parties will only be bound by contract law after a letter of award has been issued for the purpose of concluding the tender process. Parties must therefore be attentive to when the contract was concluded in order to be able to resort to the appropriate regulatory framework in the event of a problem between the start of the procurement process and the start of the contract.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your specific situation.

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