South Africa Eskom successfully appeals judgment declaring tenders worth R16bn unlawful

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South Africa
Eskom successfully appeals judgment declaring tenders worth R16bn unlawfulSCA rules that Babcock’s disqualification from tenders was lawful.
By Roy Cokayne

Eskom has successfully appealed a high court judgment that set aside and declared unlawful tenders worth about R16 billion that were to provide maintenance and outage repair services at its 15 coal-fired power stations.

The tenders were awarded in October 2021 to Actom and Steinmüller Africa.

The Supreme Court of Appeal (SCA) on Monday dismissed with costs an application by Babcock Ntuthuko Engineering to review, set aside and declare unlawful the contracts awarded in October 2021 to Actom and Steinmüller Africa and to set aside the November 2022 judgment by Judge Anthony Millar in the High Court in Pretoria.

Background

The high court and SCA judgments followed Eskom on 6 August 2018 publishing a request for froposals (RFP) inviting tenders for maintenance and outage repair services for boiler pressure parts and high outage repair services for pressure pipework at its 15 coal-fired power stations.

Babcock submitted its proposal by the extended deadline of 24 October 2018 but was disqualified because it failed to submit a current ISO 3834 certificate that verifies that a company has the requisite resources, systems and personnel to weld to a required quality and standard.

The RFP listed ‘Certification to ISO 3834’ as a ‘mandatory returnable for evaluation’ and specified that failure to comply with that condition would result in disqualification at the tender evaluation stage.

Read: Eskom successfully defends challenge to Kusile tender award

Eskom on 7 October 2021 awarded the tender jointly to Actom and Steinmüller Africa, with Actom appointed to provide maintenance and outage services at seven of the 15 power stations and Steinmüller at eight.

Babcock was aggrieved by its disqualification and launched an application in the High Court in Pretoria seeking to review and set aside the tender awards, claiming the decisions to disqualify it at the evaluation stage and to split the tender award between Actom and Steinmüller were irrational, unlawful, and invalid.

The judgment by Judge Millar upholding Babcock’s contentions in respect of its disqualification found that Babcock’s interpretation of the tender condition was to be preferred, which was that the condition did not require the submission of an ISO certificate but merely a statement by a bidder that it had been certified.

The high court additionally found that the requirement regarding the ISO ‘certification’ was ambiguous, and Eskom was thus obligated to allow disqualified bidders to comply by submitting the certificate after the deadline.

Its failure to do so rendered Babcock’s disqualification procedurally unfair in terms of the Promotion of Administrative Justice Act.

The court consequently reviewed and set aside the tender awards, declared the contracts concluded related to the tender unlawful, and ordered Eskom to conduct a fresh tender process within stipulated time frames.

However, the court suspended the order declaring the contracts entered into between Eskom, Actom and Steinmüller invalid, subject to compliance with its directives regarding the finalisation of the fresh tender process.

RFP ‘unambiguous’

The SCA judgment written by acting judge John Smith, with judges Yvonne Mbatha, Nolwazi Mabindla-Boqwana, Sharise Weiner and acting judge Nobulawo Mbhele concurring, said the RFP was unambiguous regarding the requirements in respect of mandatory documents or ‘mandatory returnables’ and the fate of tenders that did not include them.

Judge Smith said the RFP specified that the ISO certification was a ‘mandatory returnable for evaluation’ and repeatedly cautioned bidders they would be disqualified ‘if mandatory returnables are not submitted on or before the stipulated deadlines’.

He said the Standard Conditions of Tender also specified that mandatory returnables must be submitted by the stipulated deadline, and failure to do so would render the tender ‘non-responsive’.

Smith added that the tender conditions explicitly stated that the ‘mandatory tender returnables will not be requested and may not be submitted after tender submission deadline’.

He said the RFP also stated that a ‘clarification meeting’ with Eskom representatives would take place on 20 August 2018. That meeting clarified what exactly was meant by the term ‘Certification to ISO 3834’ mentioned in the RFP, particularly whether bidders were required to submit a certificate or merely confirm that they had been duly certified.

He said the minutes of the meeting show that bidders were told they were required to submit an ISO 3834 certificate and were reminded that ‘[t]enderers who do not submit mandatory tender returnables as at stipulated deadlines will be disqualified’.

Smith said it is common cause that at least two other bidders were disqualified because they also failed to submit ISO 3834 certificates.

He said Babcock contends it should have been treated differently because it was an incumbent contractor and had previously submitted ISO 3834 certificates to Eskom.

However, Smith said such an approach would have resulted in unfair treatment of bidders, and there is little doubt that it would not withstand judicial scrutiny.

The ruling

Judge Smith found that:

The RFP required bidders to submit an ISO 3834 certificate instead of merely stating that they had ISO 3834 certification;
This was a compulsory and material term of the tender conditions;
Eskom did not have the discretion to condone non-compliance with the condition; and
Having regard to the purpose of the condition, the mere statement by a bidder that it had ISO 3834 certification did not constitute either actual or substantial compliance with the condition.
Smith said it then follows that Babcock’s disqualification was lawful.

Turning to the decision to split the tender between Actom and Steinmüller, Smith said the RFP and related documents contained various stipulations regarding Eskom’s intention to award contracts to more than one bidder.

Smith said it is also common cause that prospective bidders, including Babcock, were aware of Eskom’s intention to divide the contract between several bidders.

This was to mitigate the risk of entrusting all its power stations to one bidder.

Smith ruled that the decision to split the tender between Actom and Steinmüller was rational, lawful, and based on objective criteria stated in the RFP, namely Safety, Health, Environment and Quality (SHEQ), Supplier Development and Localisation (SD&L) and financial considerations.

He said the contracts were, therefore, properly awarded in compliance with the provisions of Section 217 of the Constitution and the principles underpinning the Preferential Procurement Policy Framework Act.

“This review ground must therefore also fail,” he said.

source:https://www.moneyweb.co.za/news/south-africa/eskom-successfully-appeals-judgment-declaring-tenders-worth-r16bn-unlawful/

Natalie