Authors: Nick Ferreira and Katherine Harding (pupil)

 

Life has become more difficult for litigants who want to challenge state decisions to cancel tender processes.

According to two recent SCA judgments, the cancellation of a tender prior to adjudication does not amount to administrative action within the meaning of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”), and is therefore not susceptible to PAJA review.[1]

In Nambiti, Tshwane published an invitation to tender for services. Tshwane then cancelled and re-advertised the tender because the published tender sought services inconsistent with Tshwane’s needs and for a longer period than Tshwane’s policy permitted. Nambiti launched an application to review and set aside the decision to cancel the tender. The SCA found that the decision to cancel the tender was not administrative action and therefore not susceptible to review in terms of PAJA.

The SCA’s decision was based on two premises.

First, the SCA found that the cancellation was not administrative in nature. Wallis JA characterised a decision to cancel a tender as the exercise of a wide discretion afforded to public authorities to decide that they no longer wish to procure goods or services, either at all or on in terms of a particular tender.

Second, Wallis JA found that the cancellation did not have a direct, external legal effect because no rights are infringed by the cancellation of a tender.

Wallis JA suggests that the decision of an organ of state to cancel a tender is akin to that of a private person who decides that it no longer wishes to procure goods or services.

The Constitutional Court dismissed an application for leave to appeal without hearing argument.

In Saab, the SCA again held that a decision by an organ of state to cancel a tender does not amount to administrative action, and is therefore not reviewable in terms of PAJA. An application for leave to appeal is pending in the Constitutional Court.

In our view, the SCA’s finding that the cancellation of a tender does not constitute administrative action within the meaning of PAJA is incorrect.

First, if decisions to cancel tenders may only be reviewed on narrow legality grounds, there is increased scope for malfeasance and corruption. The cancellation of a tender can easily be used to favour a preferred bidder and disadvantage others. If it becomes clear to a corrupt administrator that their favoured bidder is unlikely to win the tender, cancelling the tender and re-advertising it is an easy way to give the favoured bidder a second chance.

The rulings are inconsistent with the recent tendency of the courts to use PAJA review to oversee the exercise of public powers in the tender environment. The law reports contain ample evidence of the need for such oversight – they are replete with cases about the abuse of tender processes to obtain access to public funds.

Second, a decision to cancel a tender does affect legal rights or have a direct external legal effect. Although it is often the case that no tenderer has the right to be awarded any particular tender, every tenderer who submits a bid has the legal right to a fair and proper process, which includes the decision to terminate a process.

In Allpay,[2] the Constitutional Court held that insistence on compliance with procedural formalities ensures fairness to participants in the bid process. Even if Nambiti had no right to a contract with the City, it had a right to a procedurally fair tender process by virtue of its participation in that process. The cancellation of a tender may be procedurally unfair or unreasonable, particularly where the cancellation is used as a mechanism to advance improper purposes.

In our view, the SCA was wrong to find that a decision to cancel a tender does not amount to administrative action. If we are correct, the effect is not that organs of state are precluded from cancelling tenders. It is merely that they are required to comply with PAJA when they do so.

[1] Tshwane City and Others v Nambiti Technologies (Pty) Ltd 2016 (2) SA 494 (SCA) (“Nambiti”); SAAB Grintek Defence (Pty) Ltd v South African Police Service and Others (316/2015) [2016] ZASCA 104 (5 July 2016) (“SAAB”).

[2] Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency and Others 2014 (1) SA 604 (CC)