THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no.: 143/2017
In the matter between:
OVERSTRAND MUNICIPALITY                                                             APPELLANT
and
WATER AND SANITATION SERVICES
SOUTH AFRICA (PTY) LTD

RESPONDENT
Neutral citation:
Overstrand Municipality v Water and Sanitation Services South
Africa (Pty) Ltd (143/2017) [2018] ZASCA 50 (29 March 2018)
Coram:

Navsa, Leach and Mocumie JJA and Davis and Makgoka AJJA
Heard:

5 March 2018
Delivered:

29 March 2018
Summary:
Tender evaluation and adjudication : challenges based, inter alia, on
s 6(2)(b) of the Promotion of Administrative Justice Act 3 of 2000 : whether
acceptable tender in terms of s 7 of the Preferential Procurement Policy Framework
Act 5 of 2000 read with applicable regulation : whether regulation dealing with
minimum staffing of water works endures despite repeal of a number of statutes
regulating the provision of water to the public : savings provisions examined and
applied.

___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Western Cape Division of the High Court, Cape Town (Magona AJ
sitting as court of first instance):
1 The appeal is dismissed with costs, including the costs of two counsel. The order
of the court below is, however, amended to the limited extent reflected below.
2 Paras 3, 4 and 5 of the order of the court below are set aside and substituted as
follows
‘3 The decision is remitted to the first respondent for a full new tender process
commencing with an RFQ to be started and completed;
4 In consequence of the order in paragraph 1, the contract between the first
and second respondents is set aside; save that the setting aside of the
contract is suspended until the tender is re-awarded or on the lapse of a
period of six months, whichever is earlier.
5 The first respondent is ordered to bear the applicant’s costs including the
costs of two counsel.’
3 The six month period of suspension referred to in the substituted order is to
commence running from the date of this judgment.

___________________________________________________________________
JUDGMENT
___________________________________________________________________
Navsa JA (Leach and Mocumie JJA and Davis and Makgoka AJJA concurring):

[1] This is an appeal, with the leave of this court, against an order of the Western
Cape Division of the High Court, Cape Town, in terms of which a decision of the
appellant, the Overstrand Municipality (the Municipality), ‘to award Tender No SC
1508/2014 for the operation and maintenance of the [Municipality’s] bulk water and
sewerage infrastructure’ to the second respondent, Veolia Water Solutions and
Technologies South Africa (Pty) Ltd (Veolia), was reviewed and set aside. The court
below, having set aside the decision, remitted the matter to the Municipality for
reconsideration. In addition the court made the following consequential orders:

‘4. In consequence of the order in paragraph 1, the contract between the First and Second
Respondents is, as a matter of law, set aside; save that the setting aside of the contract is
suspended until the tender is re-awarded or on the lapse of a period of two months,
whichever is earlier.
5. The First Respondent is ordered to bear the Applicant’s costs including the costs of two
counsel.’
The background is set out hereafter.

[2] The Municipality’s area of jurisdiction includes the villages of Rooi-Els, Pringle
Bay, Betty’s Bay, Kleinmond, Hawston, Onrus, Sandbaai, Hermanus, De Kelders,
Gansbaai, Kleinbaai, Franskraal, Pearly Beach, Buffeljagsbaai, Preekstoel, Stanford
and Baardskeerdersbos. It is required to deliver bulk water services to residents of
these areas. To that end it established and conducted bulk water delivery and
treatment works. In 2014 the Municipality decided to outsource the operation and
maintenance of the works to the private sector.

[3] On 25 August 2014 the Municipality invited bidders, in a Request for
Qualification (RFQ), to express interest to be pre-qualified in order to compete for the
award of a tender in relation to bulk water service delivery and treatment. The RFQ
was designed to enable scrutiny of the skills, capacity, experience and credentials of
interested parties. Upon completion of that process, four interested parties, that
included the respondent, Water and Sanitation Services South Africa (Pty) Ltd
(WSSA), and Veolia, were shortlisted. Those who qualified were invited to submit
bids in response to a Request for Proposal (RFP), issued by the Municipality on
3 December 2014.

[4] Veolia, WSSA and one of the two remaining qualifying parties, submitted bids.
At this stage it is necessary to record some of the material requirements of the RFP.
Clause 2.11 of Annexure B of the RFP specifies:
‘2.11 STAFFING
The Operator shall at all times provide sufficient numbers of staff, with sufficient experience
and qualifications to meet or exceed all the requirements of the Contract. The minimum
requirements for the operation of the various classes of works are given in the table below
but this does not include laboratory personnel. The Operator needs to comply with the
current legislated Regulation 2834 requirements, or any new classification requirements

from the Department of Water & Sanitation, e.g. [Draft] Regulation 17, which is expected to
be promulgated soon.’

[5] Regulation 28341 was promulgated in terms of the Water Act 54 of 1956. It
sets out the minimum number of persons holding the operator classifications
prescribed in Schedule IV thereto, who must be employed within a specific class of
water works. This refers to what everyone now understands to be ‘process
controllers’. The RFP also required minimum levels of other key staff members with
attendant technical qualifications. The introductory sentence to clause 2.11.2 of the
RFP reads as follows:
‘In addition to the correct Class of Process Controller and Supervisor per Class of plant the
Operator shall also provide the following key staff as an absolute minimum:.’
It then goes on to set out the minimum staff requirements for those positions, such
as an overall manager, the head of maintenance, etc. I note that bidders were
required to assimilate existing municipal staff as part of its full staff complement.

[6] Subsequent to a briefing session with bidders, on 16 January 2015, the
Municipality dispatched an e-mail to bidders which indicated process controller
vacancies within the municipal staffing structure that would need to be filled to
ensure compliance with applicable legislation.

[7] The bidding period expired on 30 January 2015 by which time the three
bidders, including Veolia and WSSA, had all submitted their bids. The Municipality,
purportedly in accordance with the provisions of the Overstrand Municipality Supply
Chain Management Policy, adopted in terms of section 11 of The Local Government
Municipal Financial Management Act 56 of 2003, assisted by its technical advisor
WorleyParsons RSA (Pty) Ltd (WorleyParsons), proceeded to evaluate the bids.

[8] On 17 February 2015 the Municipality addressed certain written questions to
the three bidders, requesting clarification on certain issues. WSSA responded the
next day. I shall, in due course, set out the clarification sought and the relevant
responses.

1 GNR. 2834 of 27 December 1985: Regulations in terms of section 26 read in conjunction with
section 12A of the Water Act, 1956 (Act 54 of 1956), for the erection, enlargement, operation and
registration of water care works.

[9] On 16 March 2015 the Municipality advised WSSA that Veolia was the
preferred bidder. It also advised that the award of the tender to Veolia was subject to
the successful negotiation of the final terms of a contract. In the event of that being
unsuccessful WSSA would be invited to negotiate with the Municipality to conclude a
contract. On 31 July 2016 WSSA was informed by the Municipality that the tender
had been awarded to Veolia.

[10] WSSA resorted to the provisions of the Promotion of Access to Information
Act 2 of 2000 (PAIA) to obtain the evaluative and adjudicative material on which the
award of the tender had been based. The litigation that followed was based on the
information so received, as well as on parts of the record of decision supplied
pursuant to Uniform Rule 53.

[11] It was contended on behalf of WSSA that the material supplied by the
Municipality revealed that Veolia had not supplied its full costing of the necessary
personnel to ensure regulatory compliance. Thus, WSSA’s submission was that
there was no comparable pricing on which the competing bids could be evaluated.
That notwithstanding, the Municipality went on to score the competing bids, having
regard to the scoring system prescribed by way of The Preferential Procurement
Policy Framework Act 5 of 2000 (the Procurement Act) and the regulations
thereunder. In terms of the prescribed scoring system, maximum points are awarded
for the lowest comparable prices and the others are then scored proportionally.
Furthermore, Broad-Based Black Economic Empowerment (B-BBEE) credentials are
compared and scored.

[12] Veolia had offered a global price of about R22 million for the first year of the
contract and WSSA had offered a global price of approximately R26,3 million. Veolia
were thus awarded the maximum score of 90. WSSA was awarded a score of 72.36
and came in second place. The final component of the scoring and its details are
dealt with later in this judgment at para 30. In its founding affidavit WSSA
complained that the comparative scoring was unsustainable in the absence of proper
pricing of personnel by Veolia.

[13] It was asserted on behalf of WSSA that it was evident from the documentary
material supplied by the Municipality, pursuant to the request in term of the
provisions of PAIA, that a further amount of approximately R4 million had to be
added to Veolia’s price for the filling of posts to meet the minimum regulatory
requirements. That would approximate the amount bid by WSSA, albeit with a slight
marginal difference in favour of Veolia. The score awarded to WSSA in respect of its
B-BBEE credentials was higher and the end result, if WSSA is correct on this aspect,
would mean that the latter’s score could ultimately have been the higher.

[14] In a supplementary affidavit, filed pursuant to a record provided in terms of
Uniform Rule 53, WSSA raised further factual grounds of review, including
specifications relating to certain key personnel necessary for regulatory and
technical compliance that Veolia allegedly had not met. This additional ground of
complaint was, in essence, that Veolia’s bid was non-compliant with the RFP. WSSA
also complained that Veolia had been allowed to alter its rates subsequent to the bid
being awarded, as evidenced by the completed contract. This, it was contended, was
procedurally unfair. For all these reasons, WSSA submitted it was entitled to the
orders of the court below set out in para 1.

[15] I turn to deal with the Municipality’s case. The Municipality referred to WSSA’s
amended notice of motion, in which not only the decision to select Veolia as the
preferred bidder was attacked, but also the decision to award the tender. It regarded
the attack on the first decision as misconceived, in that it was merely preliminary to
the award of the tender subject to successful negotiations. It contended that the
decision was not administrative action and reviewable in terms of the Promotion of
Administrative Justice Act 3 of 2000 (PAJA). Even if it were administrative action,
there had been an undue delay in taking it on review, by which time the negotiations
had been concluded and been given effect.

[16] In any event, so the Municipality asserted, Veolia’s bid was properly assessed
and there had been no change in price or rates in the contract eventually concluded
with Veolia. The bid, so it said, was compliant with the RFP.

[17] Insofar as the costing of personnel was concerned, more specifically in
relation to the absorption of municipal staff, the Municipality referred to a tender
information meeting held on 10 December 2014, at which the following was
conveyed:
‘The Bidders must price as if all 53 employees will be taken over. There is a schedule of own
staff costs which the bidders must complete with the costs that they used in pricing the bid.
This may be used when the actual numbers change to adjust the price.’
At that meeting the Municipality stated, in response to a question, that a maximum of
three years would be allowed within which to have all staff fully skilled, but that a
skills development plan had to be submitted within the first 3 months. In a further
information session bidders were reminded that they were to assume that all 53
municipal posts were to be transferred and that the price for the 53 is to be excluded
from the bid price.

[18] Veolia and WSSA had each supplied a staffing schedule. Veolia’s amounted
to R85 300 whilst WSSA’s amounted to R241 730.00. The letter seeking clarification
from Veolia, foreshadowed in para 8 above, contained the following:
‘2. Staffing costs: Your suggestion that the full staff budget of Overstrand Municipality be
transferred to the Operator is not acceptable; the budget only for staff actually transferring
will be added to this contract. Any shortfall in staff will have to be supplied by the Operator,
and the cost adjustment for them will be based on the schedule of staff costs supplied by the
Operator. Also note that irrespective of staff organograms and other related submissions in
your bid, it will be and remain the responsibility of the Operator to supply all required staff as
will be legally and operationally required to operate the works at their tendered rates. The
staff complement provided must ensure that the DWS regulatory requirements per plans will
be attained including the impact of Regulation 17. It is also assumed that your pricing allows
for all additional staff required including all support staff. Please confirm your acceptance of
this interpretation.
3. Schedule of staff costs: It appears that the costs supplied by you in the schedule of staff
costs are very low compared to the market. Please confirm that you are aware of that fact.
4. Please indicate in detail in the table below the exact full-time Human Resources that are
included in your price that will be allocated to this contract on a full time basis.’

[19] Veolia responded as follows:

‘We remove our qualification that the full staff budget of the Municipality is transferred to
Veolia and accept that the Schedule of Employee costs will apply for the shortfall of staff that
does not transfer to Veolia.
That current staff complement of 53 is sufficient for Veolia to provide the service and this is
the basis of our offer. Our offer excludes the cost to employ more than 53 staff to meet the
impact of Regulation 17. The Veolia offered mechanism is that additional staff (more than
53) is employed over several years in accordance with the approved Annual Plan and
available municipal budget using the Schedule of Employee Costs to determine the
additional cost.’
In addition, Veolia provided the following information:
‘As per our qualification, the rates provided are the Total Cost to Company in our
employment contracts and travel and overtime costs are not included in the schedule of staff
costs. Please refer to below table for typical staff cost where travel and overtime are
included.’

[20] According to the Municipality, Veolia supplied full details of human resources
in its bid, indicating the precise number of part-time and full-time staff. They provided
for eleven full time employees and three part-time employees, in addition to the staff
to be taken over from the Municipality. They indicated that the staff costs were
included in the submitted bid price.

[21] Veolia had stated that, although they considered that full regulatory
compliance could be achieved with the 53 posts to be transferred from the
Municipality, it had, nevertheless, made provision for the aforementioned additional
14 staff members. WorleyParsons reported on Veolia’s staffing proposal as follows:
‘It appears that Veolia endeavoured in their submission to provide for the Function to be
performed with the smallest possible team of people, concentrating on improved efficiencies
and operational management. This approach is fully in line with the stated objective of the
municipality with this project namely to improve operational efficiencies at a lower cost. The
matter of if they will definitely obtain regulatory compliance within the stated time on this
basis will have to be confirmed during the contract negotiation stage should they be selected
as preferred bidder.’

[22] WSSA was afforded a similar opportunity to clarify its bid on these issues. The
Municipality stated, somewhat surprisingly, in its opposition to the relief claimed, that

the need for clarification arose because the RFP did not expressly request bidders to
specify the details of their staff compliment. For present purposes it is not necessary
to deal with its response. The competitive positions of WSSA and Veolia is
summarised as follows in para 37 of the Municipality’s answering affidavit:
‘The observation regarding WSSA that has been emphasised above was justified taking into
account that ultimately Veolia proposed to add only 11 full-time employees and 3 part-time
employees to the 53 municipal workers, whereas WSSA was proposing an additional 41
workers on top of the 53 municipal workers.’

[23] WorleyParsons in the Bid Evaluation Report considered whether the limited
staff that Veolia intended to provide would meet regulatory requirements and stated
the following:
‘Veolia stated that their aim would be to train the existing staff so as to ensure regulatory
compliance in the initial three year period but that they may need to negotiate in this period
for additional money to appoint more people should that be required. (The RFP required that
regulatory compliance can be achieved over a period of three years and that municipal staff
. . . must be trained to achieve regulatory compliance where possible[.]) It is difficult to
quantify any cost implications at this stage as it is not only a matter of allowing for the cost of
additional staff as some existing staff should have the potential to be trained up and then
some positions may become redundant as operational efficiency improves. It must however
be noted that this is an area of concern and will need special attention during the
negotiations with the preferred bidder, should that be Veolia.’

[24] The maximum scoring for B-BBEE was 10 and for pricing was 90. Veolia
scored 90 for pricing and 0 for B-BBEE contribution. WSSA scored 72.36 for pricing
and 5 points for B-BBEE contribution; hence Veolia was the successful bidder.

[25] Ultimately, the Municipality asserted, ‘WSSA was 20% more expensive than
Veolia’. The Municipality said that one explanation for the cost difference was the
fixed charge which was based on the clarification sought and provided. The
Municipality stated that both bids were, for the reasons set out above, treated as firm
bids.

[26] Thereafter Veolia was selected as the preferred bidder with which
negotiations were to be entered into for the conclusion of a contract. This was to be

conducted by the accounting officer in terms of prevailing legislation and policy on
behalf of the Municipality. In this regard s 24(1) of the Overstrand Municipality
Supply Chain Management Policy provides, inter alia:
‘Negotiations with preferred bidders and communication with prospective providers
and bidders
1) The Accounting Officer may negotiate the final terms of a contract with bidders identified
through a competitive bidding process as preferred bidders, provided that such negotiation –
a) does not allow any preferred bidder a second or unfair opportunity;
b) is not to the detriment of any other bidder; and
c) does not lead to a higher price than the bid as submitted;
d) does not lead to a lower price in respect of sale of land / goods.
2) Minutes of such negotiations must be kept for record purposes and as far as practical be
made part of the final contract.’

[27] The Municipality interpreted the Supply Chain Management Policy to mean
that until negotiations were successfully completed there could be no talk of the final
award of the tender. This explains the communications to WSSA, referred to in para
9 above.

[28] The Municipality was adamant that during the negotiations, care was taken
that technical specifications and pricing remained unaffected and that the
competitive nature of the bids was not impinged upon. The final cost of the municipal
staff to be absorbed, which was not included in the bid price, was negotiated after a
due diligence exercise. This was determined at about R13,2 million. That amount
applied to all bidders and was thus neutral. The Municipality insisted that Veolia’s
price was properly assessed against the other competing bids and was found to be
appropriate and relevant to the scope and purpose of the services to be rendered.
The Municipality was satisfied that the objectives of the tender would be met; namely
skills development and retention, assurance of water supply at the right quality and
quantity, operations optimisation and asset preservation.

[29] The Municipality noted that an internal appeal process had not been followed
by WSSA, which chose, instead, to launch the litigation culminating in the present
appeal. According to the Municipality, Veolia commenced with performance under

the contract on 1 November 2015, when it assumed full authority for the functioning
of the works.

[30] Veolia apparently added additional staff members, acquired assets and
procured the services of sub-contractors. It also constructed an office at Hermanus
to enable it to provide the services to the public within the Municipality’s area of
jurisdiction. It was submitted on behalf of the Municipality that the tender could not
now be set aside, without serious disruption to the services being provided.

[31] The court below (Magona AJ), held that there was no doubt that, insofar as
the evaluation of the bids and the award of the tender was concerned, the
Municipality engaged in administrative action as contemplated in PAJA. The court
below found that the Municipality deviated from the regulatory framework that
specified skills thresholds and that Veolia’s bid was not in compliance with the RFP.
It went on to conclude that the ‘Municipality’s action in this regard was procedurally
unfair as Veolia did not qualify as an acceptable tender as defined in the
Procurement Act, right from the start’. (Footnotes omitted.)

[32] More specifically the court below held that regulation 2834 provided for the
number of qualified process controllers to operate the works and that there had been
a shortfall in Veolia’s bid. It had regard to the submission on behalf of the
Municipality that compliance with the regulatory framework did not have to be met
immediately but could be achieved in 3 years. This did not find favour with the court
below. The court below considered the report by WorleyParsons that vacant
municipal posts had to be filled to ensure regulatory compliance. It also took into
account the explanation by the Municipality that WorleyParsons had overlooked the
additional staff for which Veolia had provided. The court concluded that the
additional staff did not fall within the personnel prescribed by the regulation, and
went on to hold that it this was procedurally unfair.

[33] The court below also held that, in the negotiating process Veolia had been
permitted to vary the terms of its bid, by adding an additional 14 posts and absorbing
the costs. It considered this unfair and further rendered the award of the tender liable
to be set aside.

[34] The court below did not consider that the implementation of the negotiated
contract between the Municipality and Veolia militated against remitting the matter
for consideration anew. It took the view that the contract was one that extended to
15 years and that remitting the matter for a re-run of the tender process was a just
and equitable remedy. It went on to make the orders set out at the commencement
of this judgment. It is against those orders and the conclusions on which they were
based that the present appeal is directed. Veolia did not participate in the
proceedings in the court below nor in the present appeal. The disputants were and
are the Municipality and WSSA.

[35] Despite the asserted intricacies of the present dispute and the various
grounds of review on which WSSA’s claim for relief in the court below was based,
the appeal turns on the primary question of whether the bid by Veolia in all respects
complied with the specifications of tender, the RFP. It has long been laid down and
accepted that the evaluation and award of a tender constitutes an administrative
action.2 The primary challenge by WSSA is based on s 6(2)(b) of PAJA, which
provides:
‘(2) A court or tribunal has the power to judicially review an administrative action if –
. . .
(b) a mandatory and material procedure or condition prescribed by an empowering provision
was not complied with’.

[36] Procurement of goods and services by an organ of state must be carried out
in terms of the principles set out in s 217(1) of the Constitution, which reads:
‘(1) When an organ of state in the national, provincial or local sphere of government, or any
other institution identified in national legislation, contracts for goods or services, it must do so
in accordance with a system which is fair, equitable, transparent, competitive and cost-
effective.’
Section 217(3) of the Constitution reads:
‘(3) National legislation must prescribe a framework within which the policy referred to in
subsection (2) must be implemented.’

2 See Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) para 21 and
the authorities there cited.

The Procurement Act is legislation pursuant to s 217(3). It sets out a framework for
the implementation of a procurement policy. Section 1 thereof defines ‘acceptable
tender’ as follows:
‘“acceptable tender” means any tender which, in all respects, complies with the
specifications and conditions of tender set out in the tender document . . .’

[37] It will be recalled that the RFP, in clause 2.11, set out in para 4 above,
specified the minimum staffing requirements particularly as relates to process
controllers for the operation of the various classes of the works. Regulation 2834
specifies in table form the minimum staffing requirements (particularly as relates to
process controllers) across various classes of works. At this stage it is necessary to
have regard to section 7 of Regulation 2834, which provides:
‘7. Employment of persons. – The owner of a water care work shall, as from the date fixed in
terms of section 12A (2) of the Act, employ for the operation of such work the minimum
number of persons of the classes prescribed in Schedule IV in respect of the work
concerned: Provided that the Director-General may allow fewer persons or persons with
lower educational qualifications to be employed for the operation of any particular water care
work for the period and subject to the conditions determined by him, if he is of opinion that,
in the particular circumstances, the attainment of the objectives of these regulations will not
be frustrated by such employment.’

[38] In oral argument before us, counsel on behalf of both parties, were uncertain
about the legislative thread pertaining to the continued existence or otherwise of
Regulation 2834.3 Since Regulation 2834 is central to the bid specification and is
relied on by WSSA, as prescribing the minimum number of process controllers, it is
necessary to start with a consideration of whether it continued in existence despite
the repeal of related legislative enactments.

[39] As stated earlier, Regulation 2834 was promulgated in terms of s 26, read
with s 12A of the WA.4 The Water Services Act 108 of 1997 (the WSA) repealed a

3 Counsel were invited to make written submissions on this question, which we received.
4 Section 26 of the WA enabled the Minister to make regulations relating to the prevention of the
pollution of water. The Minister was generally empowered to make regulations on any matter which, in
the Minister’s opinion, was necessary or expedient for the attainment of the objects of the Act. Section
12A dealt with ‘Water care works’. Section 12A(2), which is pertinent, reads as follows:
‘No person shall after a date fixe by the Minister by notice in the Gazette in general or in respect of an
area defined in the notice, use a water care work unless the minimum number of persons with the

number of provisions of the WA, but not ss 26 and 12A. This must mean that
Regulation 2834 continued in existence as the statutory provisions in terms of which
it was promulgated remained intact. Section 84 of the WSA, which is a savings
provision, did not at that stage, in my view, intrude upon the question of the validity
of Regulation 2834. Section 84(6) reads as follows:
‘Anything done before the commencement of this Act by an organisation contemplated in
subsection (2) and any regulation made or condition set under or in terms of any law
repealed by subsection (1) remains valid and is deemed to have been done, made or set
under or in terms of the corresponding provision of this Act if –
(a) it is capable of being done, made or set under or in terms of this Act; and
(b) it is not in conflict with the main objects of this Act as set out in section 2.’
Simply put, sections 26 and 12A of the WA, under which Regulation 2834 was
promulgated, remained in force and continued to be its statutory support.

[40] The National Water Act 36 of 1998 (NWA), however, repealed the remaining
provisions of the WA, including sections 26 and 12A. Section 163(4) of the NWA,
which is a savings provision, provides:
‘(4) Any regulation made under a law repealed by this Act remains in force and is considered
to have been made under this Act –
(a) to the extent that it is not inconsistent with this Act; and
(b) until it is repealed by the Minister under this Act.’
Sections 2(d) and (h) of the NWA set out, inter alia, the purposes of the NWA as
follows:
‘(d) promoting the efficient, sustainable and beneficial use of water in the public interest;
. . .
(h) reducing and preventing pollution and degradation of water resources’.

[41] Section 26 of the NWA enables the Minister to make regulations in relation to
a host of matters, including the following:
‘26(1)(e) regulating the design, construction, installation, operation and maintenance of any
waterwork, where it is necessary or desirable to monitor any water use or to protect a water
resource;

minimum qualifications and experience prescribed by regulation under section 26 is employed for the
operating thereof and that work and those persons have been registered in the manner prescribed by
the said regulation with the department, or otherwise than in accordance with any condition subject to
which that work or those persons are so registered.’

(f) requiring qualifications for and registration of persons authorised to design, construct,
install, operate and maintain any waterwork, in order to protect the public and to safeguard
human life and property’.
Regulation 2834 was not specifically repealed by the Minister under the NWA and,
from what is set out above, is not inconsistent therewith.

[42] I disagree, for the reasons set out above, with the submission on behalf of the
Municipality, that the savings provision in the NWA applied before the WSA repealed
the remaining provisions of the WA. I also disagree with the further submission that,
since the WSA has processes for the making of regulations that differ from the
manner in which regulations were made under the WA, Regulation 2834 would be
inconsistent therewith and that the savings provision as per s 163(4) of that Act does
not apply. These submissions on behalf of the Municipality were intended to support
the argument that there was no existing binding provision in terms of Regulation
2834 in relation to minimum staffing of water works and their qualifications. Section
69 of the NWA provides for public participation in relation to regulations
contemplated under the Act. That does not detract from the fact that Regulation 2834
is not inconsistent with the objects of the NWA. Even if the savings provision in the
NWA had applied before the remaining sections of the WA were repealed by the
WSA. Regulation 2834 would be consistent with the objectives of the NWA and
would thus have continued in existence.

[43] A further submission on behalf of the Municipality, in relation to the continuing
validity of Regulation 2834, was that the NWA does not confer on the Minister the
power to prescribe national standards for process controllers and water service
works. In this regard, it was submitted that s 9 of the WSA is applicable and dictates
how standards ought to be dealt with rather than through Regulation 2834. Section 9
of the WSA provides, inter alia:
‘(1) The Minister may, from time to time, prescribe compulsory national standards relating
to–
(a) the provision of water services;
. . .
(d) the nature, operation, sustainability, operational efficiency and economic viability of water
services;

(e) requirements for persons who install and operate water services works;
(f) the construction and functioning of water services works and consumer installations.’
I fail to understand how, in the absence of a repeal of Regulation 2834, the Minister’s
power to make other regulations, which has not yet been finally employed, detracts
from the continuing validity of Regulation 2834 on the basis set out above. In my
view, this is a strained and desperate attempt to avoid the consequences of the bid
by Veolia being declared invalid.

[44] I now turn to deal with the bid specification. The staffing requirements of the
RFP are set out in mandatory terms. The ‘minimum [staffing] requirements for the
operation of the various classes of works’ are set out in the RFP, which must be read
with Regulation 2834, specifying the minimum number of process controllers across
various classes of works. The bid specification goes on to state that the ‘operator’
(the successful tenderer), ‘needs to comply with the current legislated Regulation
2834 requirements, or any new classification requirements from the Department of
Water and Sanitation, e.g. [Draft] Regulation 17, which is expected to be
promulgated soon’.

[45] It is true that the Municipality assured bidders that the required skills could be
developed over a three-year period. That could only relate to ‘Draft’ Regulation 17, in
respect of which compliance could rightly be thought to be prospective. The same
does not apply in relation to Regulation 2834. The purpose of Regulation 2834, in
relation to water works, in line with the empowering statutes, was aimed at
assurance of water supply at the right quality and quantity as well as operations
optimisation and asset preservation. The RFP, in terms, sought to achieve the same.

[46] For reasons that will become apparent, it is not necessary to resolve the
apparent differences in the decisions of this court in Millennium Waste Management
(Pty) Ltd v Chairperson, Tender Board: Limpopo Province & others 2008 (2) SA 481
(SCA) and Dr J S Moroka Municipality v Betram (Pty) Ltd & another 2014 (1) SA 545
(SCA). This court, in Millennium, said at para 17:
‘[O]ur law permits condonation of non-compliance with peremptory requirements in cases
where condonation is not incompatible with public interest and if such condonation is granted
by the body in whose benefit the provision was enacted.’ (Citation omitted.)

Under the heading ‘A flexible approach’, P Volmink described the effect of the
decision in Moroka Municipality, as follows:
‘[A]dministrative bodies do not enjoy a blanket discretion to condone non-compliance with
mandatory bid requirements in all instances. Rather, they have the power to condone non-
compliance with mandatory provisions only when they have been afforded the discretion to
do so in the RFP document or some other enabling provision.’5

[47] Veolia’s bid did not make provision for the minimum number of process
controllers across all classes of works – there was a substantial shortfall. It was
never the Municipality’s case that the additional 14 members of staff Veolia intended
to employ included the process controllers in question. It will be recalled that the
Municipality, advised by WorleyParsons, adopted the attitude that regulatory
compliance could be achieved in the initial three-year period. In this regard it might
well have had draft regulation 17 in mind, but this caused it to be less mindful of
compliance with its own stated minimum staffing requirements, more particularly, in
relation to process controllers and the provisions of Regulation 2834.

[48] WSSA accepted that, in terms of Regulation 2834, the Director-General in the
Department of Water and Sanitation could allow fewer persons or persons with lower
educational qualifications to be employed for the operation of any particular water
care work, subject to conditions, if he/she is of the opinion that, in the particular
circumstances, the attainment of the objectives of these regulations would not be
frustrated by such employment.6 However, WSSA contended, taking into account
that the Director-General might be inclined to relax the numbers and qualification
requirements, in that three of the water works were automated and not likely to
require full-time process controllers, it would still leave a shortfall of 12 process
controllers. There was a measure of disagreement concerning the actual shortfall of
process controllers, with the Municipality criticising WSSA for changing its initial
assertion that Veolia’s bid had a shortfall of 11 process controllers, to later stating
that there was a shortfall of 12 process controllers and further for not discounting
three process controllers due to automated works. Whatever the difference, the
ineluctable conclusion is that there was a shortfall of approximately 10 process

5 P Volmink, ‘Legal Consequences of Non Compliance with Bid Requirements’ (2014) 1 African Public
Procurement Law Journal 41, 49. See also paras 16 and 18 of Moroka Municipality.
6 See section 7 set out in para 44 above.

controllers. The Municipality accepted that, in the event that Regulation 2834 was to
be strictly applied, WSSA’s own bid would fall short in relation to process controllers.
There appears to be some substance to that contention, but it is not an issue we
have been called upon the address. It does, however, underscore the need for the
remittal for a bid process to be started afresh with the issue by the Municipality of an
RFQ.

[49] Regulation 2834 was in place and it required, in peremptory terms, as did the
RFP, a minimum required number of process controllers. Thus, Veolia’s bid did not
meet this requirement. Nothing in the bid specifications or the regulations nor in any
other legislation that I am aware of affords the Municipality the power to condone
non-compliance with the mandatory and material requirements set out in the RFP,
based as it is on Regulation 2834. Furthermore, as explored and explained above,
Regulation 2834 in setting the minimum requirements was aimed at protecting the
public interest. Condoning the material non-compliance in the present case would be
inimical to that interest. The Municipality, in my view, was not as attentive, as it
should have been, to bid specifications because it was impressed by Veolia’s lower
bid.

[50] I am alert to the debate concerning the possible sufficiency of substantial or
adequate compliance with what, in conventional terms, is described as mandatory
requirements. One should also guard against invalidating a tender that contains
minor deviations that do not materially alter or depart from the characteristics, terms,
conditions and other requirements set out in tender documents.7 In the present case
the non-compliance is not of a trivial or minor nature. The tender by Veolia was not
an ‘acceptable’ one in terms of the Procurement Act, in that it did not ‘in all respects’
comply with the specifications and conditions set out in the RFP. Thus, the challenge
in terms of s 6(2)(b) of PAJA, namely that a ‘mandatory and material procedure or
condition prescribed by an empowering provision, was not complied with’. In my
view, for all the reasons set out above, WSSA has made out a case for setting aside

7 In this regard see C Hoexter Administrative Law in South Africa 2 ed (2012) at 292-295 and P Bolton
‘Disqualification for non-compliance with public tender conditions’ (2014) 17(6) Potchefstroom
Electronic Law Journal 2313, 2344.

the decision by the Municipality to award the tender to Veolia and the consequent
contract.

[51] The bid was for a lengthy period of 15 years. It is in the public interest, as well
as in the interest of persons interested in providing the services required by the
Municipality, as well as in the interest of both Veolia and WSSA that the tender
process be started anew, in line with the principles set out in s 217 of the
Constitution and in line with the provisions of the Procurement Act.8 The best course
to follow is the setting aside of the award of the tender to Veolia coupled with a
remittal for a full bid process to be started anew with an RFQ, without interrupting the
operations at the works, resulting in prejudice to the residents of the areas referred
to in para 2 above. The Municipality is urged to finalise and not subvert a full tender
process within the time limit attached to the order of suspension made. In the event
of further litigation, the Municipality and its officials are forewarned of likely costs and
other implications. The appeal is liable to be dismissed, save that the order made by
the court below, because of the time-lapse and because of considerations of fairness
to bidders, the Municipality and the public, is amended to the extent reflected in the
substituted order that follows.

[52] The following order is made:
1 The appeal is dismissed with costs, including the costs of two counsel. The order
of the court below is, however, amended to the limited extent reflected below.
2 Paras 3, 4 and 5 of the order of the court below are set aside and substituted as
follows
‘3 The decision is remitted to the first respondent for a full new tender process
commencing with an RFQ to be started and completed;
4 In consequence of the order in paragraph 1, the contract between the first
and second respondents is set aside; save that the setting aside of the
contract is suspended until the tender is re-awarded or on the lapse of a
period of six months, whichever is earlier.
5 The first respondent is ordered to bear the applicant’s costs including the
costs of two counsel.’

8 See Allpay Consolidated Investment Holdings (Pty) Ltd & others v Chief Executive Officer, South
African Social Security Agency & others 2014 (4) SA 179 (CC) at 32-33.

3 The six month period of suspension referred to in the substituted order is to
commence running from the date of this judgment.

_____________________________
M S Navsa
Judge of Appeal

Appearances:

For the Appellant:

P Farlam SC (with him N Mangcu-Lockwood)

Instructed by:
Fairbridges Wertheim Becker Attorneys, Cape
Town

McIntyre & Van der Post Attorneys, Bloemfontein

For the Respondent:

A P Joubert SC (with him D Gintner)

Instructed by:

Werksmans Attorneys, Cape Town

Honey Attorneys, Bloemfontein
SUPREME COURT OF APPEAL SOUTH AFRICA

MEDIA SUMMARY - JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

FROM
The Registrar, Supreme Court of Appeal

DATE
29 March 2018

STATUS
Immediate

Overstrand Municipality v Water and Sanitation Services South Africa (Pty) Ltd
(143/2017) [2018] ZASCA 50 (29 March 2018)

Please note that the media summary is for the benefit of the media and does not form part of
the judgment of the Supreme Court of Appeal.

Today, the Supreme Court of Appeal (SCA) dismissed an appeal brought by the appellant,
Overstrand Municipality, against a judgment of the Western Cape Division of the High Court, Cape
Town (the court below). The issue at the heart of this appeal was whether the award of a tender by
the appellant is reviewable under s 6(2)(b) of the Promotion of Administrative Justice Act 3 of 2000
(PAJA). The question is whether a mandatory and material procedure or condition prescribed by an
empowering provision was not complied with in the awarding of that tender.

In 2014 the Overstrand Municipality (the Municipality), which is located along the Atlantic coast
between Cape Town and Cape Agulhas including, inter alia, the towns of Hermanus, Gansbaai and
Kleinmond, determined to outsource the operation and maintenance of the Municipality’s bulk water
and sewerage infrastructure to the private sector. The Request for Proposal (RFP) issued in
December 2014 contained provisions regarding the staffing requirements for operation of each of the
water works located within the Municipality’s jurisdiction. Bidders were required to bid on the basis
that the existing municipal staff complement would transfer with the contract, but that any shortfall
between the existing staff complement and regulatory requirements for the staffing of the water works
must be provided for in the bid. A document provided to bidders during the tender process indicated
that there were a number of positions for ‘process controllers’, required by Regulation 2834, at the
various water works that were currently vacant.

The respondent, Water and Sanitation Services South Africa (Pty) Ltd (WSSA), Veolia Water
Solutions and Technologies South Africa (Pty) Ltd (Veolia) and one other company submitted bids in
early 2015. WSSA and Veolia were the two lowest bidders. WSSA offered a global price that was
around 20% higher than that of Veolia. WSSA’s bid included costing for a large number of additional

staff, partially in recognition of the shortfall in process controllers. Veolia stated that their aim would be
to train staff so as to achieve regulatory compliance within three years.

The Municipality, advised by WorleyParsons RSA (Pty) Ltd, evaluated the bids and ultimately
identified Veolia as the preferred bidder; WSSA as reserve second preference. The bidders were
advised and negotiations were entered and a contract was concluded with Veolia.

WSSA instituted action against the Municipality for judicial review of the decision to award the tender.
Multiple grounds of review under PAJA were raised. The court below held that the Municipality
deviated from the regulatory framework that specified skills thresholds, so Veolia’s bid did not comply
with the RFP. The court concluded that the Municipality’s actions were procedurally unfair because
the bid did not qualify as ‘acceptable tender’ under the Preferential Procurement Policy Framework
Act 5 of 2000 (the Procurement Act). In addition, the court found that Veolia was permitted to vary the
terms of their bid by adding the additional 14 posts and absorbing the costs. Accordingly the decision
was liable to be set aside.

The SCA held as follows. The award of a tender is administrative action; accordingly it is subject to
the grounds of review in s 6 of PAJA. Section 6(2)(b) of PAJA provides that the court has the power to
judicially review administrative action if ‘a mandatory and material procedure or condition prescribed
by an empowering provision was not complied with’. The definition of ‘acceptable tender’ contained in
the Procurement Act, which is legislation pursuant to s 217 of the Constitution, is the relevant
‘empowering provision’. Accordingly, the appeal turns on whether the bid by Veolia was an
‘acceptable tender’ in that it ‘in all respects … compli[ed] with the specifications and conditions of
tender set out in the tender document.’

The RFP, read with Regulation 2834, specified the minimum staffing requirements, particularly as
relates to process controllers, for the operation of various classes of water works. Communications
with bidders clearly indicated that the Municipality’s existing staff complement fell short of those
minimum regulatory requirements, and that any shortfall must be met by bidders in order to achieve
compliance. While the Municipality assured bidders that required staffing skills could be developed
over a three-year period, on the proper construction of the document this could only have related to
another anticipated ‘Draft’ Regulation and not the existing Regulation 2834. Accordingly, in order to
comply with the specifications of the tender, bidders ought to have made provision for that shortfall. In
failing to do so, Veolia’s bid was not an ‘acceptable tender’.

A question raised by the SCA was whether Regulation 2834 was actually in force when the RFP was
issued. Submissions from the parties were invited and received. It was concluded that by following the
legislative thread is apparent that despite the repeal of the legislation on which the Regulation was
promulgated, the effect of the savings provision of the subsequent legislation is that the Regulation
remained in force at the relevant time.

The SCA confirmed the setting aside of the decision. It considered that it is in the public interest for
the decision be remitted to the Municipality for a full new tender process.

It made the following order:

1 The appeal is dismissed with costs, including the costs of two counsel. The order of the court below
is, however, amended to the limited extent reflected below.

2 Paras 3, 4 and 5 of the order of the court below are set aside and substituted as follows
‘3 The decision is remitted to the first respondent for a full new tender process commencing with an
RFQ to be started and completed;

4 In consequence of the order in paragraph 1, the contract between the first and second respondents
is set aside; save that the setting aside of the contract is suspended until the tender is re-awarded or
on the lapse of a period of six months, whichever is earlier.

5 The first respondent is ordered to bear the applicant’s costs including the costs of two counsel.’

3 The six month period of suspension referred to in the substituted order is to commence running
from the date of this judgment.