The Preferential Procurement Policy Framework Act vs The B-BBEE Act

The Preferential Procurement Policy Framework Act of 2000 (PPPFA) is

a system of preference in the context of procurement, whereby one bid

is preferred over others because it meets or exceeds specific criteria or

conditions. Section 217(2) of our Constitution recognises “categories

of preference in the allocation of contracts” based on the “protection or

advancement of persons, or categories of persons, disadvantaged by

unfair discrimination”. The PPPFA constitutes just that.

Regulations are supplementary to Acts. By design, the Regulations

link to existing Acts and aid in applying the principles of a primary

Act. The 2017 Regulations allow an organ of state or public entity to

determine whether a pre-qualification criterion applies to a tender. The

discretionary pre-qualification tender criterion aims to advance specific

Designated Groups like tenderers with a stipulated minimum B-BBEE

Status Level, Exempt Micro Enterprises (EMEs) and Qualifying Small

Enterprises (QSEs), as determined under the B-BBEE Act. Herein it

states that tenders must subcontract a minimum of 30% of the bid

to, inter alia, EMEs or QSEs that are at least 51% Black-owned. The

challenge to the discretionary pre-qualification tender criteria was on the

basis that:

> the PPPFA does not allow for qualifying criteria, which may

disqualify a potential tenderer based on race, gender or disability,

without or before applying the preference points system under

the Act; and

> pre-qualification criteria are contrary to the objective of competitive

bidding, inconsistent with the Constitution. The absence of a

legislative framework for implementing such criteria lends itself to

abuse and the manipulation of tenders

The Minister, however, was of the view that:

> the 2017 Regulations gave him broad discretionary powers

to legislate on what he considered to be necessary or expedient to

prescribe to achieve the objects of the PPPFA; and

> the framework for the procurement process was a two-stage

process, the first of which, the pre-qualification stage, required an

organ of state or public entity to evaluate any tender against the

requirements for an ‘acceptable tender’, where the requirements

for an ‘acceptable tender’, in the circumstances of a given tender

process, are to the discretion of the organ of state and not

prescribed in any way. The Minister, in essence, contended that the

discretionary pre-qualification tender criteria were in line with

the PPPFA.

On appeal from a judgement by the High Court, the Supreme Court

of Appeal (SCA) ruled that the 2017 Regulations were invalid and

suspended the invalidity for a period of 12 months to allow the Minister

to remedy the defects. The SCA found that:

> the discretionary pre-qualification criteria stipulated in regulation 4

of the 2017 Regulations is not authorised by either the Constitution

or PPPFA;

> The discretion which is conferred on organs of state to apply pre-

qualification criteria in tenders, without a legislative framework for

the application of the criteria, may lend itself to abuse and is

contrary to the PPPFA;

> The pre-qualification criteria do not meet the advancement of the

requirements of the Constitution;

> the pre-qualification criteria further do not meet the requirements of

the PPPFA, providing for points to be allocated to bidders based

on the goals set out in the Act;

> the Minister may not, in terms of the PPPFA, make regulations that

permit organs of state or public entities to incorporate in their

tender documents conditions which are inconsistent with the

Constitution and the PPPFA;

> the Minister had to comply with the Constitution and the PPPFA,

which provides firstly for the determination of the highest points

scorer and thereafter consideration of objective criteria which may

justify the awarding of a tender to a lower scorer;

> the PPPFA does not allow for preliminary disqualification of

tenderers without any consideration of the tender;

> the Minister may not, through Regulations, create a framework that

contradicts the PPPFA. The discretionary pre-qualification criteria

may well disqualify certain tenderers who do not otherwise qualify

from being disqualified by the Act

> in short, the Minister has exercised a power that is reserved for

the legislature.

The 2017 Regulations remain valid until the Minister remedies the

defects unless the 12-month suspension of the order expires prior to

remedying its defects. It remains to be seen whether the Minister will

appeal against the judgment to the Constitutional Court.

Based on the SCA’s judgment, do the 2017

Regulations to the PPPFA invalidate the B-BBEE

Act and its Regulations?

Section 9(6) of the B-BBEE Act states. “If requested to do so, the

Minister may, by notice in the Gazette, permit organs of state or public

entities to specify qualification criteria for procurement and other

economic activities which exceed those set by the Minister in terms

of subsection (1)”. In other words, the B-BBEE Act provides for the

issuing of the Codes of Good Practice (The Codes) for specific sectors

or industries; however, the 2017 Regulations to the PPPFA are not

provided for in the B-BBEE Act. Therefore, this invalidity does not have

any impact on the B-BBEE Act and its Regulations.

The B-BBEE Commission issued a media release on 4th November

2020, stating: “The declaration of the PPPFA Regulations of 2017

as invalid is not a blow to the B-BBEE requirements for tenders. The

invalidity of the 2017 Regulations does not invalidate the B-BBEE Act,

and the PPPFA Regulations were not issued under the ambit of the

B-BBEE Act. The B-BBEE Act framework and how it is applied is clear

and thus not affected by the ruling of the SCA.”

Furthermore, The B-BBEE Act’s section 10(1) makes provision for

organs of state and public entities to apply relevant Codes when, for

example, developing and implementing a Preferential Procurement

Policy. Therefore, such organs of state and public entities are legally

allowed, through the B-BBEE Act, to stipulate qualification criteria, such

as ‘Black’ Ownership of at least 51% or at least 30% ‘Black’ Woman

Ownership, with the approval from the Minister of Trade, Industry and

Competition published in the Government Gazette. Such criteria must

be met by those taking part in tenders hoping to become suppliers to

these organs of state and public entities. Section 10(1)(2) of the B-BBEE

Act refers to:

Section 10(1):

Every organ of state and public entity must

apply any relevant code of good practie issued

in terms of this Act in:

1 Determining qualification criteria for the

issuing of licences, concessions or other

authorisations in respect of economic

activity in terms of any law;

2 Developing and implementing a

preferential procurement policy;

3 Determining qualification criteria for the

sale of state-owned enterprises;

4 Developing criteria for entering into

partnerships with the private sector; and

5 Defining criteria for awarding incentives,

grants and investment schemes in

support of B-BBEE.

Section 10(2):

a The Minister may, after consultation with

the relevant organ of state or public entity,

exempt the organ of state or public entity

from a requirement contained in

subsection (1) or allow for deviation

if particular objective verifiable facts or

circumstances applicable to the organ of

state or public entity necessitate an

exemption or deviation.

b The Minister must publish the notice of

exemption or deviation in the Gazette.

To conclude, indeed, the Supreme Court

of Appeal’s judgment does not impact the

B-BBEE Act and its Regulations in any way.

However, this judgment proves that organs of

state and public entities may only introduce

qualifying criteria for potential suppliers

through the tendering process provided by the

B-BBEE Act and not the PPPFA.