03 Nov 2020

PPPFA Regulations Declared Invalid

by Erika Holmes, Partner, Durban,
Practice Area(s): B-BBEE |

In a judgment delivered by the Supreme Court of Appeal (“SCA”) on 2 November 2020, the 2017 regulations (“Regulations”) to the Preferential Procurement Policy Framework Act, 2000 (“PPPFA”), have been declared invalid, with the invalidity suspended for a period of 12 months to enable the Minister of Finance to correct them.

The basis for the invalidity is that the Minister exceeded his powers in making the Regulations as they are inconsistent with the PPPFA.  The PPPFA provides that the evaluation of tenders must be made firstly by determining the highest points scored (using either the 80/20 system or the 90/10 system depending on the value of the tender) and thereafter for consideration of objective criteria which may justify the award of a tender to a lower scorer.  The SCA held that the PPPFA does not allow for the preliminary disqualification of tenderers based on a failure to achieve a particular BBBEE score or black ownership percentage or other criterion.

Section 217 of the Constitution provides that all public procurement must be affected in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. The only exception to this is section 217(2) which allows organs of state to implement procurement policies that provide for categories of preference for the protection and advancement of people disadvantaged by unfair discrimination.  However, these procurement policies may only be implemented within a framework prescribed by national legislation, i.e. the PPPFA.  The SCA held that the discretion which is conferred on organs of state under Regulation 4 to apply pre-qualification criteria in certain tenders, without creating a framework for the application of the criteria, may lend itself to abuse and is contrary to PPPFA and the Constitution.  The Court stated that “On a proper reading of the regulations the Minister has failed to create a framework as contemplated in s 2. It is correct that the application of the pre-qualification requirements is largely discretionary. But the regulations do not provide organs of state with a framework which will guide them in the exercise of their discretion should they decide to apply the pre-qualification requirements.”

The BBBEE Commission has responded to this judgment as follows: Media-release on PPPFA Regualtions and B-BBEEE Act