By Duncan Wild and Mzukisi Kota

AllPay Consolidated Investment Holdings (Pty) Ltd (“Allpay“) bid for a tender from the South African Social Security Agency (“SASSA“) to administer the national social grant system worth R10 billion, but the tender was awarded to Cash Paymaster Services (Pty) Ltd (“CPS“).  Allpay then challenged the decision in the North Gauteng High Court (“NGHC“) on the basis of alleged flaws in the tender process, including the composition of the Bid Evaluation Committee, the failure of CPS to submit separate provincial bids, and the failure to assess CPS’s BEE partners capacity to perform their obligations.  The NGHC accepted Allpay’s challenge, but the SASSA appealed to the Supreme Court of Appeal (“SCA“).

The Constitutional Court unanimously found the tender unlawful, but in view of the potential ramifications requested further submissions on an appropriate remedy.

In a second judgment on remedy the Court, an another unanimous decision authored by Justice Froneman, found that a new tender process should be carried out, but that in the mean itme Cash Paymaster was to continue providing the services in view of the constitutional and contractual obligations to maintain a workable payment system.

The SCA found that even were unlawful irregularities in the tender process (which the SCA found there had not been), the law did not require that the tender process be perfect or the award could be set aside for inconsequential irregularities. The SCA therefore upheld the appeal, and Allpay appealed to the Constitutional Court.

The Constitutional Court, in an unanimous decision authored by Justice Froneman (Mogoeng CJ, Moseneke DCJ, Cameron J, Jafta J, Madlanga J, Mhlantla AJ, Nkabinde J, Skweyiya J, Van der Westhuizen J and Zondo concurring) disagreed with the SCA and found that the decision to award the tender was Constitutionally invalid.  The Constitutional Court stated that the procurement procedure must be evaluated for compliance with the Promotion of Administrative Justice Act (“PAJA“) independently of the outcome of the tender process.

Undertaking this evaluation the Constitutional Court found that the SASSA had an obligation to investigate and confirm the bidders black economic empowerment credentials. The Constitutional Court found that SASSA did not call on CPS to substantiate its claimed credentials and that “[t]his effectively made the consideration of empowerment an empty shell, where preference points were calculated as a formality but where the true goal of empowerment requirements was never given effect to”.

In addition the Constitutional Court found that on of the Bidders’ Notices issued during the tender process was vague and uncertain and so procedurally unfair.

For these reasons the decision to award the tender was found to be procedurally unfair. However, the Constitutional Court noted that setting aside the tender could cause serious disruption to the payment of social grants. In order to determine what remedy would be “just and equitable” the Court has called for a hearing on 11 February 2014 for this issue to be argued by the parties.

The parties will be arguing the question of what is the just and equitable remedy for the court to order in view of its decision that the tender process was unlawful.  The court will accordingly be deciding the narrow issue of whether justice and equity demands that it sets aside the tender awarded to CPS and order a new tender process, or whether the cost to the fiscus and the disruption to the payment of social grants that would result from a new tender process is so great that it is more just and equitable for the tender award to CPS to stand notwithstanding its unlawfulness.

On the question of remedy the Court, in a judgment authored by Froneman J and concurred in by Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J,
Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J) suspended the declaration  of invalidity of the contract pending a new tender process. In the interim CPS would continue to provide the services in view of the constitutional and contractual obligations to do so. SASSA would have to report back to the court on the tender process to ensure it was effectively monitored.

Any new tender would have to be awarded for the same period as the original tender and if no new tender was awarded then the contract would be allowed to run until the completion of the initial period. CPS was also ordered to file audited statements of expenses and income, as well as net profit earned under the completed contract.

The court also held that the AllPay could pursue additional remedies in separate proceedings.

Download the judgment on the merits here.

Download judgment on remedy here.