Kunene Rampala Inc. v North West Province Department of Education and Sport Development

On 9 October 2015, KR Inc., a firm of attorneys, concluded a Service Level Agreement (SLA) with the North West Department of Education to provide evaluation, adjudication and supply chain management administrative services for the provision and delivery of Learner Teacher Support Material (LTSM) under tender EDU 04/15 NW, with a contracted price of R1,243,215.60 for 12 months. On 12 October 2015, just three days after the SLA was concluded and before KR Inc. conducted any work, the parties concluded an addendum to the SLA without any further procurement processes. The addendum changed the scope of work to the actual provision and delivery of stationery to distributors (rather than just evaluating and identifying providers), extended the duration to three years, and increased the fees to approximately R46,650,000 (representing 15% of the budget). On 22 March 2017, the Department cancelled the addendum, claiming it was invalid as it encompassed new scope of work and terms different from the original tender. KR Inc. treated this as repudiation and claimed damages for breach of contract.

• Whether the addendum to the SLA was concluded in contravention of section 217 of the Constitution, the Public Finance Management Act and the National Treasury Regulations
• Whether an organ of state may raise the invalidity of a contract by way of a collateral or reactive challenge in its pleadings without bringing a separate review application to set aside the contract
• Whether the facts of the case justified departing from the requirement of a formal review application
• Whether the addendum could be justified as a single source procurement arising from an emergency situation

The appeal was dismissed with costs.

A public procurement contract or addendum concluded in breach of section 217 of the Constitution and applicable procurement legislation (where the transaction value requires an open tender process but none is followed, and where there is a substantial change in scope of work, contract duration and fees) is invalid and unlawful and will not be enforced. An organ of state may raise the invalidity of a procurement contract by way of a collateral or reactive challenge in its pleadings without bringing a separate review application, where justice requires it based on the facts of the case. Justice will require entertaining a collateral challenge where: (a) the invalidity is clear and enforcement would result in fruitless and wasteful expenditure; (b) the invalidity is properly raised in pleadings so the other party knows the case to meet; and (c) the circumstances of the contract's conclusion are suspicious or suggest deliberate circumvention of procurement processes. The court retains discretion to determine whether a reactive challenge should be entertained based on whether justice requires it in the particular circumstances.

The Court observed that remedies under section 172(1)(b) of the Constitution (just and equitable remedies following a declaration of invalidity) must be sought in the court of first instance and cannot be raised for the first time on appeal, particularly where this would prejudice the other party and the necessary facts are not before the appellate court. The Court also noted approvingly the statement in Valor IT that compliance with the public procurement legal framework is required for a valid procurement process and its components are not mere 'internal prescripts' that can be disregarded at whim. The Court emphasized that section 217's purpose is to prevent patronage and corruption while promoting fairness and impartiality in public procurement contracts.

This case is significant in South African public procurement law for several reasons: (1) It reinforces the strict application of section 217 of the Constitution and related legislation to public procurement, emphasizing that substantial changes to contract scope, duration and value require fresh procurement processes. (2) It clarifies the application of the Oudekraal principle and collateral challenges in the context of public procurement contracts, confirming that while administrative decisions generally remain valid until set aside, courts have flexibility to entertain reactive challenges where justice requires it, particularly where invalidity is clear and would result in fruitless and wasteful expenditure. (3) It demonstrates that organs of state need not always bring separate review applications but may raise invalidity as a defense in proceedings, provided the challenge is properly pleaded and the other party has notice of the case to meet. (4) It serves as a warning against attempting to circumvent procurement processes through addenda concluded shortly after the original contract. (5) It emphasizes the importance of transparency and competition in public procurement, particularly where large sums of public money are involved. The case contributes to the ongoing development of administrative law principles balancing the Oudekraal principle with practical justice and the prevention of unlawful expenditure of public funds.