Overstrand Municipality v Water and Sanitation Services South Africa (Pty) Ltd

The Overstrand Municipality issued a Request for Qualification (RFQ) in August 2014 to outsource the operation and maintenance of its bulk water and sewerage infrastructure. Four parties were shortlisted, including the respondent (WSSA) and Veolia. A Request for Proposal (RFP) was issued in December 2014, which specified mandatory minimum staffing requirements, including compliance with Regulation 2834 regarding the minimum number of qualified process controllers for water works. Three parties submitted bids. Veolia offered a global price of R22 million for the first year, while WSSA offered approximately R26.3 million. Based on the prescribed scoring system (90 points for pricing, 10 for B-BBEE), Veolia scored 90 for price and 0 for B-BBEE, while WSSA scored 72.36 for price and 5 for B-BBEE. On 31 July 2016, the Municipality awarded the tender to Veolia. WSSA used the Promotion of Access to Information Act to obtain evaluation documents and discovered that Veolia's bid did not include full costing for personnel required to meet regulatory compliance with Regulation 2834, specifically a shortfall of approximately 10-12 process controllers. The Western Cape High Court reviewed and set aside the decision to award the tender to Veolia, suspended the setting aside of the contract for two months, and remitted the matter to the Municipality for reconsideration. The Municipality appealed.

• Whether Veolia's bid was an 'acceptable tender' as defined in section 1 of the Preferential Procurement Policy Framework Act 5 of 2000, requiring compliance 'in all respects' with tender specifications
• Whether the Municipality's award of the tender to Veolia constituted administrative action reviewable under section 6(2)(b) of the Promotion of Administrative Justice Act 3 of 2000 for non-compliance with mandatory and material procedures or conditions
• Whether Regulation 2834 (prescribing minimum staffing requirements for water works) remained valid despite the repeal of the Water Act 54 of 1956 under which it was promulgated, considering the savings provisions in the Water Services Act 108 of 1997 and the National Water Act 36 of 1998
• Whether the Municipality had power to condone Veolia's non-compliance with mandatory bid requirements, specifically the minimum number of qualified process controllers
• Whether the negotiation process between the Municipality and Veolia after bid submission altered the terms of the bid in a manner that was procedurally unfair to other bidders
• What is the appropriate remedy where a tender is awarded in breach of mandatory requirements, particularly where the contract has been implemented for a substantial period

The appeal was dismissed with costs, including costs of two counsel. The order of the Western Cape High Court was amended: the decision to award the tender was remitted to the Municipality for a full new tender process commencing with a Request for Qualification (RFQ); the contract between the Municipality and Veolia was set aside, but the setting aside was suspended until the tender is re-awarded or on the lapse of six months from the date of judgment, whichever is earlier (extended from the two months ordered by the high court); the Municipality was ordered to pay WSSA's costs including the costs of two counsel. The six-month suspension period commenced running from 29 March 2018 (the date of the Supreme Court of Appeal judgment).

A bid that does not comply in all respects with the mandatory and material specifications set out in tender documents is not an 'acceptable tender' as defined in section 1 of the Preferential Procurement Policy Framework Act 5 of 2000. Where tender specifications incorporate mandatory regulatory requirements (such as Regulation 2834's minimum staffing requirements for water works process controllers), expressed in peremptory terms, substantial non-compliance with those requirements renders the bid unacceptable. An administrative body conducting a tender process does not have inherent power to condone non-compliance with mandatory bid requirements unless such discretion is expressly provided in the RFP document or enabling legislation. The award of a tender in breach of mandatory and material requirements constitutes reviewable administrative action under section 6(2)(b) of PAJA on the basis that 'a mandatory and material procedure or condition prescribed by an empowering provision was not complied with'. Regulation 2834, promulgated under the Water Act 54 of 1956, remained valid despite the repeal of that Act because: (a) it was saved by section 163(4) of the National Water Act 36 of 1998, which preserved regulations made under repealed laws to the extent they are not inconsistent with the National Water Act and until repealed by the Minister; (b) it was not inconsistent with the objects of the National Water Act; and (c) it had not been specifically repealed by the Minister. When determining whether non-compliance with bid requirements can be condoned, courts must consider whether condonation would be compatible with the public interest. Where mandatory requirements are aimed at protecting public safety and service delivery (such as minimum qualified staffing for water works), condonation of non-compliance would be inimical to the public interest.

The court noted but did not need to resolve the apparent differences between the approaches in Millennium Waste Management (Pty) Ltd v Chairperson, Tender Board: Limpopo Province 2008 (2) SA 481 (SCA) and Dr J S Moroka Municipality v Betram (Pty) Ltd 2014 (1) SA 545 (SCA) regarding condonation of non-compliance with peremptory tender requirements. The court observed that in Millennium, it was stated that condonation of non-compliance with peremptory requirements is permitted where it is not incompatible with public interest and is granted by the body in whose benefit the provision was enacted. In contrast, Moroka Municipality held that administrative bodies only have power to condone non-compliance when they have been afforded discretion to do so in the RFP or some other enabling provision. The court emphasized the need to guard against invalidating tenders for minor deviations that do not materially alter or depart from tender requirements, but stressed that the non-compliance in this case was not trivial or minor. The court warned the Municipality and its officials that in the event of further litigation arising from the new tender process, there would be likely costs and other implications, urging the Municipality to finalize and not subvert the full tender process within the time limit. The court noted that there appeared to be some substance to the Municipality's contention that WSSA's own bid might also have fallen short in relation to process controllers if Regulation 2834 were strictly applied, but this was not an issue the court was called upon to address. This observation underscored the need for remittal for a bid process to be started afresh with an RFQ.

This case is significant in South African public procurement law for several reasons: (1) It clarifies the strict application of the definition of 'acceptable tender' in section 1 of the Preferential Procurement Policy Framework Act 5 of 2000, which requires compliance 'in all respects' with tender specifications. (2) It establishes that administrative bodies do not have inherent discretion to condone non-compliance with mandatory bid requirements unless such discretion is expressly provided in the RFP document or enabling legislation. (3) It demonstrates the application of section 6(2)(b) of PAJA in the tender context, confirming that failure to comply with mandatory and material procedures or conditions is a ground for judicial review. (4) It provides important guidance on the interpretation of savings provisions in legislation, particularly in the water services regulatory context, confirming that Regulation 2834 remained valid through successive legislative changes. (5) It reinforces the constitutional imperative in section 217(1) of the Constitution that procurement by organs of state must be conducted through a system that is fair, equitable, transparent, competitive and cost-effective. (6) It demonstrates that substantial non-compliance with mandatory requirements cannot be overlooked even where the non-compliant bid offers a lower price. (7) It provides guidance on appropriate remedies in tender cases, balancing the need to vindicate procedural fairness and legality against practical considerations such as continuity of essential public services. The case serves as a warning to municipalities and other procuring entities to ensure strict compliance with tender specifications and not to prioritize price considerations over mandatory regulatory and safety requirements.