Public entities can no longer demand that companies be 51% black-owned to get tenders!
The Supreme Court of Appeal on Monday declared that the Preferential Procurement regulations, implemented by the minister of finance in 2017, were invalid.
This means that public entities can no longer disqualify prospective bidders who are not 51% black-owned to get tenders in advance. Eskom, for instance, set a requirement that all coal vendors be 51% black-owned, a move that distorted coal prices and led Anglo American to sell its undeveloped Key Largo mine in 2018.
AfriBusiness, now known as Sakeliga, had challenged the validity of the regulations and argued that the minister had exceeded his powers by promulgating regulations which provide for pre-qualification criteria for tenderers contracting for government tenders.
Sakeliga welcomed the judgment. Its CEO, Piet le Roux, says the ruling is of foremost importance: “The Preferential Procurement Regulations of 2017 allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black owned, for example. The court has now rejected this pre-disqualification as invalid and unconstitutional. It is an important step in the right direction, namely, to judge tenders based on business measures and value for the public, instead of race and other political considerations.”
The objectionable regulations constitute a small, but unusually harmful extension of black economic empowerment (BEE) legislation. Since 2017, it allowed organs of state a novel power: to set their own discretionary and arbitrary minimum BEE requirements a contractor must meet if it wants to be considered for doing business with an organ of state. Prior to these regulations, organs of state could take BEE into account, but only as part (approximately between 10% and 20%) of the total points based on which tenders were awarded.
“Ironically,” says Le Roux, “Minister Gordhan, who implemented the PPPFA regulations in 2017, is now as Minister of Public Enterprises reaping its fruits. Under his regulations organs of state have in recent years frequently pre-emptively disqualified prospective contractors when they were not 51% black owned. That is, disqualified them from the get-go based on race without even considering their price and value proposition.
The finding that the regulations are invalid has been suspended for 12 months, to give the current Minister of Finances, Tito Mboweni, time to rectify them.
“In the meantime, however, we point out to organs of state the clear finding against pre-disqualification on the basis of BEE and similar criteria,” says Le Roux. “The appropriate and morally correct step for all organs of state would be to waive pre-requisites until the Minister has promulgated new regulations.”
Sakeliga expresses its gratitude for the valuable contributions made in the case by the South African Property Owners Association (SAPOA), which joined the case as amicus curiae.