H & I Civil & Building (Pty) Ltd and Another v City of Cape Town and Others

The applicants, H & I Civil & Building (Pty) Ltd and H & I Construction (Pty) Ltd, are building and construction companies largely dependent on government contracts, with the City of Cape Town being one of their biggest clients. The City amended its Supply Chain Management Policy (SCMP) in January 2023, introducing a new Preferential Procurement Policy with a new scoring system for tenders. Under the previous system, 10% of tender points for contracts over R50 million were allocated based on B-BBEE scorecard status (under the Empowerment Act), under which both applicants qualified as level one contributors, earning the full 10 points for empowerment. The new scoring system replaced the B-BBEE scorecard approach with a system awarding points for specific goals: 3 points for sole women ownership, 3 points for sole black ownership, 1 point for sole disabled person ownership, and 3 points for promotion of micro and small enterprises, with lower scores on a sliding scale for lesser degrees of ownership. The applicants' holding company has 32.7% ownership by an employee trust (HIBBET) benefiting predominantly black employees who have received over R132 million in dividends, but the applicants are not 100% black-owned businesses and would not score well under the new system despite their strong empowerment track record. The first applicant submitted a conditional tender for Tender 54Q (redecorating and constructing buildings for City facilities), while the second applicant wished to tender for Tender 91Q (construction of IRT Metro stations). The applicants exhausted the internal appeal mechanism, which was dismissed on 21 December 2023, and then launched an urgent application comprising two parts: Part A sought interim interdictory relief preventing adjudication and award of the tenders under the new scoring system; Part B sought review of the City's decisions to implement the new system and to dismiss the internal appeals.

• Whether the applicants established sufficient urgency for Part A relief, or whether the urgency was self-created.
• Whether the applicants challenged the correct decisions for Part B review relief, specifically whether challenging the implementation of the new scoring system was competent without directly challenging the underlying SCMP policy and the tender invitations.
• Whether the applicants established a prima facie right to interim interdictory relief under the OUTA test requiring exceptional circumstances in clearest cases where an organ of state exercises public functions.
• Whether the new scoring system introduced by the City is lawful, particularly in light of the interplay between the Broad-Based Black Economic Empowerment Act and the Preferential Procurement Policy Framework Act, including the effect of section 3(2) of the Empowerment Act providing that it prevails over other laws in case of conflict.

The court granted the interim interdict in Part A, interdicting the City from proceeding with the adjudication and award of Tender 54Q/2023/24 and Tender 91Q/2023/24 in accordance with the new scoring system, pending the determination of Part B. Costs of Part A were stood over for determination in Part B.

In accordance with the OUTA test, a court may grant an interim interdict restraining the exercise of statutory power by an organ of state where the applicant demonstrates a prima facie right, particularly a right sourced from the Constitution to participate in a lawful procurement process, and where exceptional circumstances are established. In applying the test, the court must be cognisant of the normative scheme and democratic principles underpinning the Constitution, but where a serious question of law exists and there is enough pointing to the determination of the legal question in the applicant's favour, interim relief may be appropriate even if some doubt exists, especially where there is a risk that the Part B relief will be rendered nugatory if interim protection is not granted. The right to participate in a constitutionally compliant and lawful procurement system may outweigh short-term financial and other prejudice to an organ of state.

The court observed that without the benefit of the rule 53 record, the applicants were constrained to target decisions of which they were aware, and this situation would likely be clarified once the record was provided and the applicants could supplement their papers. The court also noted the City could not argue both that the challenge was not ripe for hearing because the tender process was incomplete, and simultaneously that failure to attack the tenders themselves was fatal.

This case is significant for its application of the OUTA test for interim interdicts against organs of state in public procurement disputes. It demonstrates how courts will balance the right to participate in a lawful procurement process under section 217 of the Constitution against potential prejudice to municipal service delivery. The case also raises important unresolved questions about the relationship between the Broad-Based Black Economic Empowerment Act and the Preferential Procurement Policy Framework Act, specifically whether the Empowerment Act (section 3(2)) prevails over the Procurement Act in the development of preferential procurement scoring systems by organs of state. The judgment highlights that the formulation of specific goals under a preferential procurement policy may constitute administrative action reviewable under PAJA where policy is implemented through narrower exercises of statutory power.