Race-based tender pre-disqualification should end immediately.
Sakeliga has today achieved the first significant roll-back of BEE through litigation. Organs of state should immediately cease the practise of applying BEE pre-disqualification to tenders. Failure to cease these and other practices that rely on unlawful procurement regulations would render any tender awarded by an organ of state open to judicial review and litigation.
This is the implication of a Constitutional Court judgement handed down today, in favour of Sakeliga and against the Minister of Finance, regarding the 2017 Preferential Procurement Policy Framework Act (PPPFA) Regulations. The Constitutional Court has found in favour of Sakeliga that the Minister of Finance at the time, Pravin Gordhan, acted ultra vires, by regulating as if he had legislative powers. This victory follows Sakeliga’s earlier success in the matter before the Supreme Court of Appeal.
The 2017 PPPFA regulations represented a sea-change in procurement and BEE in South Africa. Before 2017, companies tendering to organs of state could at most be penalised 10% to 20% for not meeting BEE-criteria. This was harmful enough. However, since the 2017 regulations, organs of state went far beyond penalisation: regulations started to pre-emptively disqualify companies from tendering based on BEE criteria, for example, if a company was not 100% black owned. The court has now rejected the Minister of Finance’s pre-disqualification regulations as invalid and unconstitutional.
Organs of state may no longer follow or give effect to the unlawful sections of the 2017 regulations in their procurement policies. It is invalid and unconstitutional for them to apply pre-disqualification criteria such as black economic empowerment to public procurement tenders.
BEE pre-disqualification under the 2017 regulations has cost the public dearly. It artificially and drastically limited the pool of service providers from which national and local governments and state-owned enterprises procured goods and services. By denying the public the benefit of the full range of competitive offers on the market, it contributed significantly to budget overruns, delays, and service delivery problems across the board, from mega state-owned enterprises like Eskom to the smallest of dilapidated municipalities.
The way forward
As much as Sakeliga welcomes the judgement, we wish to emphasise that far more needs to be done to end the policy of BEE. BEE presents itself as serving the purpose of redress and empowerment but is in fact the extensive capture of the economy by politicians, with predictably disastrous consequences for the public. It is a system of business directed by politicians instead of entrepreneurs. It adds layer upon layer of cost to doing business in South Africa and hampers real value creation between people of different race groups and communities. It is fundamentally disempowering and creates and sustains an artificial divide between otherwise mutually inclined entrepreneurs.
Sakeliga will expand its litigation and initiatives regarding BEE in the months and years ahead, in the interest of a flourishing economy and society.
Notice for purposes of clarity to readers of the judgement: The majority judgement, which found in Sakeliga’s favour, with costs, can be found from paragraph 96 onward, following the dissenting judgement, which appears before that.