Steenkamp NO v The Provincial Tender Board of the Eastern Cape

The national State Tender Board invited tenders in July 1995 for supply of services related to an automatic cash payment system for social pensions and welfare grants in the Eastern Cape. Balraz Technologies (Pty) Ltd submitted a tender on 8 September 1995, though it was only incorporated on 17 October 1995 (after the tender submission deadline). On 22 March 1996, the Provincial Tender Board of the Eastern Cape awarded the contract to Balraz despite reservations from technical committees about Balraz's expertise. Balraz accepted the award and the Department of Health placed an order. However, in March 1997, a dissatisfied tenderer (Cash Paymaster Services) successfully challenged the tender award on review. On 6 June 1997, the High Court set aside the tender awards to both Balraz and Pensecure (another successful tenderer) on grounds of administrative irregularity and unfairness. By then, Balraz had been placed under final liquidation. Balraz had incurred out-of-pocket expenses of R4.35 million in reliance on the tender award to position itself to fulfill the contract obligations. The liquidator claimed delictual damages from the tender board for these expenses, alleging negligent failure to properly perform statutory functions in evaluating and awarding tenders.

• Whether the Constitutional Court has jurisdiction to hear the matter as involving constitutional issues
• Whether it is in the interests of justice to grant leave to appeal
• Whether a successful tenderer whose award is subsequently set aside on review may claim delictual damages from a tender board for out-of-pocket expenses incurred in reliance on the award
• Whether the conduct of the tender board in negligently awarding a tender that was later set aside constitutes wrongfulness in delict
• Whether a tender board owes a legal duty of care to a successful tenderer in circumstances where the tender award is subsequently invalidated
• Whether the tender submitted by Balraz was valid given that it was submitted before the company was incorporated
• Whether negligence on the part of the tender board was established

Leave to appeal granted. Appeal dismissed. No order as to costs. The decision of the Supreme Court of Appeal dismissing the claim for delictual damages was upheld, albeit on different grounds focusing on wrongfulness rather than the validity of the tender.

A breach of administrative justice by a tender board does not per se constitute wrongfulness in delict. To establish wrongfulness and a legal duty of care in the tender context, courts must undertake a normative enquiry considering: (1) whether the empowering statute expressly or impliedly contemplates damages liability; (2) whether alternative remedies exist; (3) whether the statutory scheme aims to protect individuals or advance public good; (4) whether the public functionary has discretion; (5) whether liability would have a chilling effect on performance of administrative functions; (6) whether the claimant could have avoided the loss; (7) foreseeability of harm. Where governing legislation establishes an independent tender board with wide discretion to evaluate and award tenders in the public interest, and does not contemplate damages remedies, and where alternative remedies exist (judicial review, fresh tenders, contractual protection), policy considerations preclude recognition of a delictual duty of care owed by the tender board to a successful tenderer whose award is subsequently set aside, even where the tender board acted negligently but honestly. The purpose of public procurement legislation is primarily to ensure fair, transparent, competitive and cost-effective procurement in the public interest, not to create private law rights for individual tenderers.

The Court made several important observations: (1) Moseneke DCJ noted that if an administrative decision is made in bad faith, under corrupt circumstances, or completely outside the legitimate scope of the empowering provision, different policy considerations may apply and delictual liability might arise. (2) Where legislation has a manifest purpose to extend protection to individual members of the public, different considerations may apply regarding duty of care. (3) The Court observed that PAJA's remedial provisions (particularly section 8 allowing compensation in exceptional cases) primarily provide for public law remedies, not private law damages, though it did not need to determine when those exceptional cases might arise as PAJA was not applicable to this case. (4) The Court noted that prudent successful tenderers may negotiate contractual terms for restitution of out-of-pocket expenses if a tender is set aside, as parties become equal contractors after award. (5) Both majority and minority noted but did not decide the issue of whether the tender was void ab initio due to Balraz lacking legal personality when it submitted the tender, though both the High Court and Supreme Court of Appeal had found the tender invalid on this basis. (6) Sachs J in concurrence noted that constitutionally-based public law remedies (as later articulated in PAJA) should cover the field and it would be inappropriate to develop parallel common law delictual remedies in this administrative law context. (7) The minority judgment (Langa CJ and O'Regan J) observed that the distinction between out-of-pocket expenses and loss of profits is material, and that protecting successful tenderers' ability to recover actual expenses incurred in good faith performance of contractual obligations is important for government procurement efficiency and for protecting emerging businesses.

This is a landmark case defining the interface between public law and private law remedies in South Africa's constitutional dispensation. It establishes that administrative breaches do not automatically give rise to delictual liability and sets important limits on when tender boards may be held liable in delict to tenderers. The case clarifies that: (1) the exercise of public power is always a constitutional matter; (2) administrative justice is a constitutional imperative derived from the Constitution, not from common law; (3) breaches of administrative duties do not per se constitute wrongfulness in delict; (4) policy considerations must be assessed to determine if a legal duty of care exists; (5) public law remedies (review, appeals) are the primary mechanisms for vindicating administrative justice breaches; (6) delictual damages for pure economic loss in the tender context will rarely be available, particularly for honest but negligent administrative decisions. The case is significant in the public procurement context and has implications for government liability generally. It also provides guidance on when PAJA remedies (including the exceptional power to award compensation under section 8) may be appropriate. The dissenting judgment raises important considerations about protection of emerging businesses in government procurement and the distinction between claims for out-of-pocket expenses versus loss of profits.