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51% black equity tender pre-qualification criteria found to be invalid

“My business is 26% black owned but has been excluded from a number of tenders because of pre-qualification criteria for tenders being set at being at least 51% black owned. I’ve seen in the news though that this practice has been scratched by the courts. Is this true?”

You are correct in that our Supreme Court of Appeal (SCA) at the beginning of November 2020 ordered that the Preferential Procurement Regulations 2017 promulgated under the Preferential Procurement Policy Framework Act 5 of 2000 be set aside and declared invalid.

In doing so, the court held that the pre-qualification criteria in the Regulations was not in alignment with section 217 of the Constitution which expressly states that when an organ of state procures goods or services it must do so in a manner that is fair, transparent, equitable, competitive and cost-effective. Where for example pre-qualification criteria are set as being 51% black owned and a tenderer is then deemed to have submitted an unacceptable tender because it is not 51% black owned, this would breach the provisions of section 217.

The court surmised that organs of state should rather allow eligible tenderers and then follow bid evaluation processes to select tenderers based on price and their BEE compliance in accordance with the 80/20 or 90/10 system as the case may be.

The order of invalidity is suspended for a period of 12 months from the date of the order to afford government an opportunity to remedy the “defect”.

Following the judgment the B-BBEE Commission issued a media release indicating that in their view the SCA ruling declaring the PPPFA Regulations invalid had no effect on the Broad Based Black Economic Empowerment Act and that the B-BBEE Act allows organs of state to set qualification criteria (i.e 51% black ownership) for tenders that exceed the provisions contained in the B-BBEE Codes of Good Practice provided that the Minister of Trade, Industry and Competition has been consulted and such Minister deems it fit to set such qualification criteria. 

Accordingly, if one then reads the SCA judgment with the B-BBEE Commission statement, it appears that an organ of state must refrain from publishing any pre-qualification criteria for tenders without having obtained the permission of the Minister of Trade, Industry and Competition by notice in the Government Gazette. 

January 6, 2021
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