Why did the Constitutional Court declare the 2017 Preferential Procurement Regulations enacted by the Finance Minister as invalid?

The procurement process is a critical part of a functional government service delivery mechanism. The South African Constitution explicitly mandates that this process takes on both the pragmatic purpose of attaining services or supplies, and the additional aim of achieving societal transformation.

Synopsis

In the case of Minister of Finance v Afribusiness NPC the Court had to determine whether in an effort to promote the latter, was the Finance Minister empowered to enact the Preferential Procurement Policy Framework Act (“the Procurement Act”) Regulations?

The Final Verdict

According to the Constitutional Court, the Finance Minister acted beyond his powers and as a result declared invalid the Preferential Procurement Regulations, 2017 (the “Procurement Regulations”) promulgated by the Minister on 20 January 2017 in terms of section 5 of the Preferential Procurement Policy Framework Act (Procurement Act).

Judgement

The appeal to the Constitutional Court had its origins in an application launched by Afribusiness in the High Court on the basis that the Minister acted beyond the scope of the powers conferred on him by the Preferential Procurement Policy Framework Act (the “Procurement Act”) and section 217 of the Constitution. It sought an order that the Procurement Regulations be reviewed and that their adoption be declared invalid and set aside, in such application the High Court found in favour of the Minister of Finance and held that the 2017 Procurement Regulations were valid.   

Aggrieved by the High Court’s decision Afribusiness appealed to the Supreme Court of Appeal. The Supreme Court of Appeal upheld the appeal and held that the Procurement Regulations promulgated by the Minister of Finance, were inconsistent with the Procurement Act and section 217 of the Constitution. Thus, making the Regulations invalid.

The Supreme Court of Appeal’s decision was then taken on Appeal to the Constitutional Court by the Minister of Finance. For the appeal the Court was tasked with determining whether the Procurement Regulations, in particular regulation 3(b)*, which provides that an organ of state must determine whether pre-qualification criteria are applicable to a tender.

Procurement Regulations 4* and 9*, which provide the pre-qualification criteria that tenderers must meet in order to be eligible to tender and subcontract respectively, were invalid for lack of consistency with the Procurement Act and the Constitution, 1996 (“the Constitution”).

In determining whether the regulations were invalid, the Court, in the majority judgement by Justice Madlanga, considered the constitutional provisions of section 217*, which states:

• When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contract for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
• Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy that provides for-
  1. categories of preference in the allocation of contracts; and
  2. the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
• National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.

It recognised that:

• section 217(1)* sets the guidelines for the procurement of goods and services by organs of state,
• section 217(2)* was enacted to guard against the continued exclusion of previously disadvantaged persons from tender awards by state organs, and
• the Procurement Act is the legislation that was enacted to give effect to section 217(2) of the Constitution outlined above.

In its determination of invalidity of the Procurement Regulations, the Court placed great emphasis on the question whether the Minister was empowered by the Procurement Act to make the Procurement Regulations. In answering the question the court considered the provisions of section 2(1)* which states:

“An organ of state must determine its preferential procurement policy and implement it within the following framework …”

 It further considered the provisions of section 5(1)* which states:

“The Minister may make regulations regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of this Act”

Having considered the above sections the Court held that the invalidity of the Procurement Regulations turns on the interpretation of the words “necessary or expedient” as these are the boundaries to the power vested in the Minister to put into effect the Procurement Regulations. The starting point is whether the Procurement Regulations being disputed meet the requirements of section 5*. Namely, are the Procurement Regulations “necessary or expedient” to achieve the objects of the Procurement Act?

The Court held that the Procurement Regulations are intended to operate as a policy for organs of state. It held that what is necessary for purposes of the Procurement Act and giving effect to section 217(2)* is provided in section 2(1)*, making the Procurement Regulations by the Minister unnecessary and thus invalid.

The Court further held that the word “expedient” in the Procurement Act still does not give the Minister wide powers to promulgate the Procurement Regulations as such word must also be interpreted in the context of the rest of the Procurement Act.

It would not be “suitable”, “convenient”, “practical” or “appropriate” for a power that already vests in each organ of state also to be exercised by the Minister. It can thus be neither necessary nor expedient for the Minister to make regulations that seek to achieve that which can already be achieved in terms of section 2(1)*.

Therefore, in terms of the judgement the Minister acted beyond his legal power or authority by exercising a power that was not conferred on him, the Procurement Regulations were thus found to be invalid and the Court dismissed the appeal with costs of two counsel.

Implications

The Minister will now, on an urgent basis, be seeking confirmation from the Constitutional Court that the invalidity of the Procurement Regulations has been and continues to be suspended. Confirmation will be sought by way of declaration, variation and/or clarification. In other words, guidance is required as to whether the Procurement Regulations remain valid until 15 March 2023, unless repealed sooner.

While awaiting the outcome of the above guidance from the Constitutional Court, organs of state are advised that:

• Tenders advertised before 16 February 2022 be finalised in terms of the Procurement Regulations
• Tenders advertised on or after 16 February 2022 be held in abeyance
• No new tenders be advertised

*Key:

1. Section 2(1) references Section 2(1) of the Procurement Act
2. Section 5(1) references section 5(1) of the Procurement Act
3. Section 217(1)(2)(3) references section in the Constitution
4. Regulation 3(b), 4 and 9 references the Preferential Procurement Regulations of 2017

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