Afribusiness NPC v The Minister of Finance

On 20 January 2017, the Minister of Finance promulgated the Preferential Procurement Regulations, 2017 under section 5 of the Preferential Procurement Policy Framework Act 5 of 2000 (Framework Act). These regulations replaced the 2011 Regulations and introduced pre-qualification criteria (regulation 4), subcontracting requirements (regulation 9), and criteria for breaking deadlocks in scoring (regulation 10). Afribusiness NPC, a non-profit organisation representing about 10,500 members in the business community, challenged the validity of these regulations before the Gauteng Division of the High Court, Pretoria. Afribusiness argued that the Minister exceeded his powers under the Framework Act and that the regulations were inconsistent with section 217 of the Constitution. The high court dismissed the application, finding the regulations lawful and rational. Afribusiness appealed to the Supreme Court of Appeal with leave of that Court. The South African Property Owners' Association NPC (SAPOA) applied to be admitted as amicus curiae.

• Whether the Minister exceeded his powers under section 5 of the Preferential Procurement Policy Framework Act 5 of 2000 in promulgating the Preferential Procurement Regulations, 2017
• Whether regulations 3(b), 4, 9 and 10 of the 2017 Regulations are ultra vires the Framework Act
• Whether the 2017 Regulations are consistent with section 217 of the Constitution
• Whether the pre-qualification criteria in regulation 4 constitute an unauthorised departure from the framework prescribed in section 2 of the Framework Act
• Whether the Minister provided an adequate framework for the implementation of preferential procurement policy as required by section 217(3) of the Constitution
• What is the appropriate remedy if the regulations are found to be invalid

The appeal was upheld with costs. The order of the high court was set aside and replaced with the following: (a) The application succeeds with costs; (b) It is declared that the Preferential Procurement Regulations, 2017 are inconsistent with the Preferential Procurement Policy Framework Act 5 of 2000 and are invalid; (c) The declaration of invalidity is suspended for a period of 12 months from the date of the order.

The binding legal principles established are: (1) The Minister's power under section 5 of the Preferential Procurement Policy Framework Act to make regulations is constrained by the requirement that such regulations must be "necessary or expedient to prescribe in order to achieve the objects of the Act"; (2) The Minister cannot, through regulations, create a framework which contradicts the mandated framework of the Framework Act itself; (3) The Framework Act prescribes a two-stage evaluation process: first, determining which tenderer scored the highest points under the 90/10 or 80/20 points system; second, determining whether objective criteria exist (in addition to those in sections 2(1)(d) and (e)) which justify awarding to a lower scorer; (4) Regulations that permit preliminary disqualification of tenderers through pre-qualification criteria without providing a framework for the application of such criteria, and without consideration of tenders as such, are ultra vires the Framework Act; (5) Any pre-qualification requirement must have as its objective the advancement of the requirements of section 217(1) of the Constitution (fair, equitable, transparent, competitive and cost-effective procurement); (6) The doctrine of legality requires that the exercise of public power comply with the Constitution and that functionaries may exercise no power beyond that conferred upon them by law; (7) A finding that a Minister acted ultra vires is in effect a finding that the Minister acted inconsistently with the Constitution and the conduct is invalid.

The Court made several non-binding observations: (1) The Court assumed without deciding that sufficient time had been provided for comments on the Draft Regulations and that the Minister's failure to comply with SEIAS Guidelines did not render the 2017 Regulations unlawful (though the Court was not persuaded on these points); (2) The Court noted that whether this was a PAJA or legality review ultimately made no difference as no procedural differences arise and the grounds of review derive from the same source - the common law (though in PAJA these grounds have been codified); (3) The Court observed that regulation 10 (dealing with breaking deadlocks in scoring) was unobjectionable as it addresses a later stage of evaluation when tenderers are equally ranked, and using B-BBEE to break the deadlock at that stage (when all tenderers have already met functionality requirements) is appropriate; (4) The Court noted that the power to admit evidence on appeal under section 19(b) of the Superior Courts Act should be exercised sparingly and that an amicus curiae is ordinarily limited to the record on appeal under rule 16(8) and may not add thereto; (5) The Court commented that admitting new "practical examples" evidence from the amicus would be prejudicial to the Minister without opportunity to respond, particularly where such evidence is not common cause or incontrovertible.

This case is significant in South African procurement law as it clarifies the limits of the Minister of Finance's regulation-making powers under the Preferential Procurement Policy Framework Act. It affirms that the Minister cannot, through regulations, create a framework that contradicts the mandated framework in the Framework Act itself. The judgment reinforces the principle that any preferential procurement policy must be implemented within the framework prescribed by national legislation as required by section 217(3) of the Constitution. It emphasizes that the five constitutional principles of public procurement (fair, equitable, transparent, competitive and cost-effective) remain paramount and that pre-qualification criteria cannot be used to circumvent the prescribed evaluation framework. The case also affirms the doctrine of legality and the principle that public functionaries may exercise no power beyond that conferred upon them by law. The judgment provides important guidance on the proper approach to evaluating tenders under the Framework Act and confirms that the two-stage enquiry (first determining highest points scorer, then considering objective criteria) is the correct framework. It establishes that organs of state cannot be given unfettered discretion to apply pre-qualification criteria without a proper framework to guide such discretion.