MEB Energy (Pty) Limited v Ndlambe Local Municipality and Others

Ndlambe Local Municipality invited bids for the design, supply, and operation of a 2 mega litre (ML) reverse osmosis water plant on the banks of the Kowie River. The applicant (MEB Energy) and QFS (Quality Filtration Systems) were among the bidders. After the bid closing date, the Municipality received additional funding of R80 million and requested bids from only the applicant and QFS for a 5 ML plant. The Municipality then held private negotiations with QFS on 20 January 2020, discussing a blended water solution (mixing waste water with sea water) at a different location (Waste Water Treatment Works). This solution was not part of the original bid specifications. On 24 January 2020, the tender evaluation committee recommended QFS for the original 5 ML sea water plant, but on 11 February 2020, the Municipal Manager appointed QFS for the blended water solution using second-hand equipment at a different site. The Municipality paid QFS R20 million on 25 May 2020, before the contract was signed on 29 May 2020. The applicant brought an urgent review application challenging the award.

• Whether the applicant was entitled to bring the review application by way of urgency
• Whether the appointment of QFS by the Municipality was lawful
• Whether the Municipality properly identified QFS as a preferred bidder in terms of section 25 of its Supply Chain Management Policy
• Whether the tender process complied with section 217 of the Constitution, the Preferential Procurement Policy Framework Act, and the 2017 Procurement Regulations
• Whether the tender process was fair, transparent, competitive, and cost-effective
• What constitutes a just and equitable remedy under section 172(1)(b) of the Constitution and section 8 of PAJA

The court declared the decision to award the tender to QFS unlawful. The award was reviewed and set aside. Any agreement concluded between the Municipality and QFS in consequence of the award was set aside. The court ordered that QFS must refund the R20 million paid by the Municipality.

A tender process must comply with section 217 of the Constitution, the PPPFA, and applicable regulations to be lawful. Once a municipality decides to follow a competitive tender process, it cannot alter the specifications after advertisement unless specifically provided for in the bid or regulations. A tender that fails to meet the minimum qualifying score for functionality as indicated in the tender document is not an acceptable tender, and this is a mandatory statutory requirement that cannot be waived by a municipal official. Private negotiations with a preferred bidder before formal tender evaluation, and allowing one bidder to amend its bid after closure while not affording the same opportunity to others, strips the tender process of fairness and renders it unlawful. Where a municipality awards a contract for a fundamentally different solution than was the subject of competitive bidding, without allowing other potential bidders an opportunity to bid for that solution, the award is unlawful and must be set aside. The default position under section 172(1)(b) of the Constitution and section 8 of PAJA is that unlawful administrative action must be set aside unless exceptional circumstances justify allowing it to stand.

The court observed that the Municipality's conduct in paying R20 million to QFS on 25 May 2020 before the written contract was signed on 29 May 2020 was unusual and shocking, with no tangible explanation provided. The court also noted that it was difficult to understand why the Municipality concluded the contract with QFS while these proceedings had already commenced, rather than awaiting their finalization. The court commented that QFS's failure to participate in the proceedings or defend its position suggested acquiescence to the possible cancellation of the contract and obligation to refund the R20 million. The court indicated that exercising discretion to allow an unlawful tender to stand is done only in exceptional circumstances, citing examples where contracts were near completion, which was not the case here.

This case is significant for South African procurement law as it reinforces strict compliance with tender procedures and emphasizes that organs of state cannot deviate from advertised bid specifications after closure without following proper procedures. It establishes that: (1) amendments to bids after closure date, even for compliance issues, violate fair procurement principles; (2) failure to meet mandatory minimum functionality scores renders a bid unacceptable and cannot be unilaterally waived; (3) negotiating with a preferred bidder before formal evaluation is unlawful; (4) awarding a contract for a substantially different solution than advertised requires a new competitive bidding process; (5) the default remedy for unlawful procurement is to set aside the award, and courts will not easily deviate from this position; and (6) municipalities cannot rely on their own irregular conduct or alleged public interest to shield unlawful procurement decisions. The judgment strengthens accountability in municipal procurement and demonstrates the courts' commitment to enforcing constitutional principles of fairness, transparency, competitiveness, and cost-effectiveness in government procurement.