High Court casts doubt on South Africa tender scoring system’s constitutionality

The decision follows two separate applications against the city of Cape Town, brought by H&I Civil & Building and H&I Constructions, subsidiaries of the H&I Group.

In the first application, the H&I entities brought an interdict on an urgent basis, which sought to compel the City to refrain from continuing with the adjudication and awarding of two tenders, pending the outcome of the review application.

In terms of the second application, the H&I entities sought to review two decisions that were made by the City. The first decision relates to the City's resolution to apply a new scoring system for the tenders, and the second decision relates to the outcome of the City's internal appeal process, wherein the City dismissed the appeal of the H&I entities. The court's decision in the second application is still pending and accordingly, this article only focuses on the outcome of the H&I entities first application.

Section 217 of South Africa’s constitution provides that state owned entities must contract for goods or services in a fair, equitable, transparent, competitive and cost-effective manner. The Preferential Procurement Policy Framework Act (PPPFA) and the 2022 Preferential Procurement Regulations were put into place to give effect to section 217 as well as to govern the implementation of state-owned entities’ procurement policies when tenders are awarded.

Under the PPPFA, public bodies such as the city of Cape Town are entitled to set their own preferential policies and have the discretion to make their own policy choices based on specific goals. In line with its goals, the city of Cape Town decided to implement a new scoring system awarding points based on a tender’s Broad Based Black Economic Empowerment (BBBEE) scorecard – a measurement in terms of the BBBEE Act (the Empowerment Act).

The Empowerment Act provides a legislative framework for the promotion of black economic empowerment with aims to advance the economic transformation and participation of black people in South Africa’s economy. However, the city failed to hold any public consultation before implementing the new systems.

Under the old scoring system, a maximum of 10 points out of an available 100 would be awarded based on the tender’s BBBEE status for tenders above R50 million (please convert to US dollars at first mention). Therefore, according to the old scoring system, the city would score a level one BBBEE contributor 10 out of 10 for the maximum empowerment score.

The H&I entities were able to present evidence to show that, over the years, the city had been satisfied they were level one BBBEE contributors for tenders valued both below and above R50 million. This meant that previously, both H&I entities were awarded the maximum empowerment score for tenders that were valued over R50 million.

However, based on the new scoring system, H&I argued that they would likely attain zero points, despite the fact they are a level one BBBEE contributor. To this point, the H&I entities claimed that obtaining zero points would render its BBBEE achievements negligible if not useless.

The H&I entities’ main argument centred on the relationship between the Empowerment Act and the PPPFA. Section 3 of the Empowerment Act stipulates that it will prevail in instances where there is a conflict between the Empowerment Act and any other law, provided that that law was in force prior to the Empowerment Act.

The court held that the PPPFA came into effect five and a half years earlier than the Empowerment Act and, based on the plain wording of section 3 of the Act, it will prevail when its provisions conflict with the PPPFA.

The H&I entities argued that the city of Cape Town’s new scoring system was unlawful when section 217 of the constitution, the Empowerment Act, and the PPPFA were taken into consideration. The entities argued that it was in their own interests, the public interest, and the city of Cape Town’s interest that its public procurement process is consistent with the constitution as this is the law from which both the Empowerment Act and PPPFA derive their authority.

Ultimately, the H&I entities aimed to protect their right to participate in a public procurement system that is constitutionally and legally compliant.

The court considered a legal test applied in a previous case, the Outa case. Using this test, the courts will grant a temporary restraining order against the exercise of a statutory power only in exceptional circumstances. Additionally, the courts are empowered to get involved in both executive and legislative branches of government, provided that the intrusion is backed by the constitution. The test must be applied in such a way to ensure any court actions promote the objectives, spirit, and purpose of the constitution.

The arguments put forward by the H&I entities were considered to satisfy this test. The court held that while granting an interim interdict would have an adverse effect on the city of Cape Town in the short term, the rights of the H&I entities, and others, to participate in a lawful procurement process must override any prejudice against the city.

The high court held that the H&I entities successfully cast doubt on whether the city of Cape Town complied with the constitution when introducing its new scoring system and determined that the submissions provided by the entities were sufficient to address the legal issues at hand.

The absence of a public consultation prior to the new scoring system being introduced begs the question of whether new scoring systems would be better received by the public should consultations with the impacted parties be held prior to implementation. This could help reduce the challenges advanced against new systems, especially in light of the fact the courts seem to be adopting a more hardline approach to the implementation of scoring systems in the absence of consultations, transparency and fairness.

The legal issues will be further examined during the second application before the High Court.

Co-written by Chantel Carreira, Nombasa Mazwai and Njabulo Gumede of Pinsent Masons.