RAYMOND ESAU

SCM REG 32

Piggyback Tenders

MFMA S110(2)(c)

Use of Regulation 32 “Piggyback Tenders”

• Many municipalities these days pro-cure goods and services through the use of reg.32

• Limited guidance through case law on the interpretation of how reg.32 is to be applied exist.

• Only few cases that deals with interpretation of reg.32

How some Muni’s currently use reg32

Piggyback

• Service provider (SP) get tender at Muni A ( or state);

• Your muni (B) intends to procure similar service or goods (Normally no limitation on type of goods or services as long as contract has not yet expired)

• B then does the following:1. Write to A and SP stating:

1. B’s intention to piggyback for same goods and services at same price;

2. Ask consent of both A and B3. A to confirm that proper tender process;

2. Contracts with SP

BLUE NIGHTINGALE TRADING 397 (PTY) LTD t/a SIYENZA GROUP v AMATHOLE DISTRICT MUNICIPALITY

• On 8 April 2014 ADM addressed correspondence to MISA advising it that “… Amathole District Municipality (ADM) is in the process of implementing a district wide sanitation back-log eradication programme to selected local municipalities within the district.”

• “It has come to our attention that MISA is also implementing a similar programme and has through a competitive bidding process appointed contractors to implement its programme”

• “Reg 32 ‘which allows for an accounting officer of a municip-ality to can (sic) procure goods or services using any con-tract arranged by means of a competitive bidding process by any other organ of state, subject to the written approval of such organ of state and the relevant contractor…”

BLUE NIGHTINGALE TRADING 397ADM LETTER TO MISA

“ADM would therefore like to request MISA’s permission to participate in the current contract between MISA and any of the Contractors implementing MISA sanitation programme; ADM would also request MISA to confirm in writing whether the recommended contract was procured through a competitive bidding process. The ADM would on receipt of MISA’s response engage di-rectly with the recommended contractor to negotiate the terms and conditions including discounts to the municipal-ity. Your responses and or approval in writing on the matter will be greatly appreciated.”

BLUE NIGHTINGALE TRADING (BNT)

MISA TO ADM

MISA advised the ADM that it has no objection to its request.

correspondence resulted in the conclusion of the Amathole Agreement of 12 September 2014 between the BNT & ADM

MFMA s110(2)(c)

“110 Application of this Part(2) This Part, except where specifically provided otherwise, does not apply if a municipality or municipal entity contracts with another organ of state for−

(c) the procurement of goods and ser-vices under a contract secured by that organ of state, provided that the relevant supplier agreed to such procurement.”

(parts bold and underlined my emphasis)

Reg 32“Procurement of Goods and Services under Contract Secured by other Organs of State

“A Supply Chain Management Policy may allow the account-ing officer to procure goods or services for the municipal-ity or municipal entity under a contract secured by an-other organ of state, but only if−

(a)The contract has been secured by that other organ of state by means of a competitive bidding process applic-able to that organ of state;

(b)The municipality or municipal entity has no reason to be-lieve that such contract was not validly procured;

(c) There are demonstrable discounts or benefits for the municipality or municipal entity to do so; and

(d) That that organ of state and the provider have consen-ted to such procurement in writing.”

BNT• June 2015 BNT and MISA by mutual agree-

ment terminated their agreement (SLA)

• ADM cancel the Amathole Agreement with BNT on the basis that by virtue of the cancel-lation of the SLA, the contractual basis of the Amathole Agreement no longer exists.

• BNT disputes the validity of the cancellation / “separate and independent contract, the existence and continuation of which is not dependent on the Amathole Agreement, but on its own terms and conditions.”

BNT

Later ADM instituted a counter application asking for the Amathole Agreement to be de-clared unlawful and void ab initio on the basis that Regulation 32 has not been complied with.

BNT: Has there been compliance with s110(2)(c) and with Reg 32?

“Kellaway: Principles of the Legal Interpretation of Statutes, Con-tracts and Wills,, P. 374-375In Moodley v Minister of Education and Culture, House of Delegates the appeal court stated very specifically that even where a statute provides that the regulations made under it are part of the en-actment, it must not be treated as a unitary piece of legislation and the regulations shall not be used as an aid to interpreting any of the statutory provisions, nor can the regulations be used to ex-tend the meaning of the enactment.

A provision in a statute must be interpreted before the regulation is considered, and if the regulation purports to vary the provision as so interpreted it is ultra vires and void. Also, the regulation cannot be used to cut down or enlarge the meaning of a statutory provision.

On the other hand, a regulation clearly stated and needing no interpretation and not ultra vires must be read without reference to the reason why it was drafted and effect must be given to its clear language.”

BNT: S110(2)(c) & reg32

• The point of departure is accordingly the compli-ance with s217 of the Constitution and with Chapter 11 of the MFMA.

• The exclusionary provisions of s110(2) of the MFMA and of Regulation 32 must not only be restrictively interpreted, but the exclusion of Part 1 un-der Chapter 11 of the MFMA may not detract from or erode the constitutional imperatives of fair-ness, equity, competiveness and cost-ef -fectiveness.

• “the exclusionary provision under section 110(2) has as its object and purpose, the prevention of unnecessary duplication of costly and time-con-suming tender procedures and processes.“

BNT 110(2) with reg32“[32] I find the following example of an exemp-tion under section 110(2) read with Regulation 32 and advanced by Mr Buchanan SC, for the respondent, to be helpful and apt, and I quote from his written heads of argument:

“The usual example would be where an organ of state contracts, in accordance with a Section 217 compliant process, with a supplier to supply say R5 Million Rand’s worth of A4 paper. If that organ of state thereafter does not intend to utilize the entire consignment, it is permissible for another organ of state to, as it were, ‘take up the slack’ in respect of the remaining portion of the same contract.”

BNT: reg32

“cannot conceive compliance with the consti-tutional imperatives unless the goods or ser-vices procured by the second organ of state are the same as that required by the first or-gan of state, and the contract price is the same.”

BNT: Contract ? “The words “… under a contract se-cured by another organ of state …” in the Regulation can only refer to the “… contract with another or-gan of state …”

Sub-section (2)(c) on its ordinary literal meaning relates to a contract by a municipality with another organ of state for the procurement of goods and services under a contract secured by that organ of state, provided that the relevant supplier agreed to such procurement.

BNT: Contract ?

“In my respectful view, this can only refer to the situation where the muni-cipality, with the consent of the sup-plier, either:1. becomes a party to the existing con-

tract between the other organ of state and the supplier; or

2. where the other organ of state concludes a contract with the sup-plier for the benefit of a third party, namely for the benefit of the muni-cipality, against payment by the municipality of the approved con-tract price.”

BNT: Non-compliance with 110(2)(c) & reg32

• No contract between organs of state ADM & MISA

• ADM contracted directly with BNT (own SLA / “the Amathole Agree-ment”)

• Goods were not the same – as well as additional goods were added;

• Duration of the two contracts differ

• Price not the same

BNT: Outcome

• neither s110(2) nor the Regulation apply to the facts of this case, and that the constitutional imperatives under s 217 of the Constitution read with the PPPFA and MFMA have not been met.

• agreement is declared unconstitu-tional, invalid and unlawful, and void ab initio;

“by means of a competitive bidding process applicable to that organ of state – and – has no reason to believe that such contract was not validly procured”

• “The municipality has a duty to establish that the contract was validly procured.

• The municipality therefore have to receive all the bid documents and review the entire bid process

Reg 32 / “Competitive bid”“(a) The contract has been secured by that other organ of state by means of a competitive bidding process applicable to that organ of state”

• Cannot use reg32 where the organ of state used any other procurement method other than a “competitive bid”.

• If organ of state is a Muni: The SCM regulations define a competitive bid as “a competitive bidding process” re-ferred to in regulation 12(1)(d).

• Regulation 12(1)(d) determines a competitive bid as pro-curement above a transaction value of R200,000 and the procurement of long term contracts.

• Therefore regulation 32, with this very restrictive interpreta-tion, cannot be used for contracts procured by an organ of state through written or formal written price quota-tions.

Conclusion • Irregular use of reg32 may result in

some contracts being declared void ab initio

• Contracts must be concluded with other organ of state and not the sup-pliers – Supplier only consent.

• Must be for the same goods, price, duration and quantity

• Must be for competitive bid

• Duty to ensure valid procurement

Reference:

• Blue Nightingale Trading 397 (Pty) Ltd t/a Si-yenza Group v Amathole District Municipality (EL881/15, ECD1681/15) [2015] ZAECELLC 16; [2016] 1 All SA 721 (ELC) (24 November 2015)

• Open Edge Technologies SA (Pty) Ltd v City of Tshwane Metropolitan Municipality and Others (53770/2015) [2015] ZAGPPHC 1087 (9 December 2015)