Eskom Holdings SOC Limited v Babcock Ntuthuko Engineering (Pty) Ltd

Eskom issued a Request for Proposals (RFP) in August 2018 for maintenance and outage repair services for boiler pressure parts at fifteen coal-fired power stations. The RFP listed submission of an ISO 3834 certificate as a mandatory returnable for evaluation, with failure to comply resulting in disqualification. Babcock submitted its tender but failed to include a current ISO 3834 certificate, only stating that it had ISO 3834 certification. At a tender clarification meeting attended by Babcock, Eskom clarified that bidders were required to submit an actual ISO 3834 certificate by the deadline. Babcock was disqualified at the evaluation stage for failure to submit the certificate. Eskom subsequently awarded the tender jointly to Actom (seven power stations) and Steinmüller (eight power stations) on 7 October 2021, consistent with its upfront strategy to split the award among multiple bidders to mitigate risk. Babcock challenged its disqualification and the splitting of the tender award. The high court upheld Babcock's challenge, finding the RFP ambiguous and the disqualification procedurally unfair, and set aside the tender awards.

• Whether Babcock's failure to submit an ISO 3834 certificate constituted non-compliance with a mandatory tender requirement justifying disqualification
• Whether the term 'Certification to ISO 3834' in the RFP required submission of a certificate or merely a statement of certification
• Whether Eskom was obliged to condone non-compliance with the mandatory requirement based on the purpose of the requirement and principles of substantial compliance
• Whether Eskom's decision to split the tender award between multiple bidders complied with section 2(1)(f) of the Preferential Procurement Policy Framework Act (PPPFA) and section 217 of the Constitution
• Whether objective criteria were properly stipulated and applied in the splitting of the tender award

The appeal was upheld with costs, including costs of two counsel where employed. The high court order was set aside and substituted with an order dismissing Babcock's application and ordering Babcock to pay the respondents' costs in the high court, including costs of two counsel where employed.

Where a tender condition expressly designates a requirement as mandatory and stipulates that non-compliance will result in disqualification, and the organ of state has no discretion to condone non-compliance, failure to comply with such a material requirement (such as submission of a required certificate) justifies disqualification even where the bidder may in fact possess the qualification the certificate is meant to verify. The principles of substantial compliance do not extend to excusing complete failure to submit mandatory documents where those documents serve material purposes of verifying current qualifications and ensuring fair and consistent evaluation of all bidders. An organ of state may lawfully split a tender award among multiple bidders where: (1) this intention is clearly stated in the tender documents; (2) objective criteria for the split are stipulated upfront; and (3) those criteria are rationally applied in accordance with section 217 of the Constitution and the PPPFA, even where this results in awards to bidders other than the single highest-scoring bidder.

The Court commented that while it found it unnecessary to decide definitively on the proper interpretation of section 2(1)(f) of the PPPFA (whether it only permits awarding to a lower-scoring bidder or also permits splitting awards), the tender award in this case would be lawful under either interpretation. The Court noted that bidders cannot participate in a tender process knowing the tender will be split and then, after disqualification for other reasons, challenge the award on the basis that splitting was unlawful - echoing the high court's observation on this point. The Court emphasized that deviations from fair procurement processes may be symptoms of corruption or malfeasance, and that compliance with prescribed formalities serves three purposes: ensuring fairness to participants, enhancing efficiency and optimality of outcomes, and guarding against corrupt influences in the process.

This case provides important guidance on the interpretation and enforcement of mandatory tender requirements in South African procurement law. It clarifies that: (1) Peremptory and material tender conditions must be strictly complied with and organs of state have no discretion to condone non-compliance where the tender conditions so provide; (2) The principles of substantial compliance and materiality assessment established in Allpay apply only to non-compliance that is trivial or minor in nature, not to failure to submit mandatory documents entirely; (3) Clarifications provided at tender clarification meetings form part of the tender conditions and bind bidders who attend; (4) Fairness requires equal treatment of all bidders - incumbent contractors cannot be treated differently from new bidders; (5) Organs of state may lawfully split tender awards among multiple bidders where this is stipulated upfront and objective criteria are applied, in furtherance of constitutional procurement principles including risk mitigation and cost-effectiveness. The judgment reinforces the importance of strict compliance with procurement formalities as safeguards against corruption and to ensure fairness, transparency, competitiveness and optimal outcomes in public procurement.