Sakeliga to contest regulations allowing race-based disqualification of contractors at SOEs

27 June 2019

The business organisation Sakeliga has given its legal team instruction to prepare an application to the Supreme Court of Appeal (SCA) in its case against pre-emptive race-based exclusion of contractors to the state and state-owned enterprises such as Eskom.

The decision to apply for leave to appeal from the SCA comes after leave to appeal was denied yesterday in the South Gauteng High Court. The case concerns regulations introduced in 2017 under the Preferential Procurement Policy Framework Act, No 5 of 2000 (PPPFA) by the Department of Finance under the then Minister of Finance, Pravin Gordhan. Sakeliga sought to appeal an unfavourable judgment handed down in December 2018, in which the regulations were upheld.

The objectionable regulations allow state-owned entities such as Eskom a novel power: to set their own discretionary and arbitrary minimum BEE requirements a contractor must meet if it wants to do business with an SOE.

“Ironically,” says Piet le Roux, CEO of Sakeliga, “Minister Gordhan, who implemented the PPPFA regulations in 2017, is now as Minister of Public Enterprises reaping its fruits. Under his regulations, SOEs like Eskom have in recent years frequently pre-emptively disqualified prospective contractors when they were not 51% black-owned. That is, disqualified them based on race without even considering their price and value proposition.”

Whereas, before the regulations, SOEs would simply deduct some points for tenders not meeting certain BEE criteria, SOEs are now empowered to apply pre-disqualification to tenders not meeting arbitrary BEE-thresholds. Eventually a tender is supposedly still awarded to the service provider with the highest score, but now only as chosen from among those service providers who were not pre-emptively disqualified based on race.

Le Roux continues: “In other words: companies and people who could have helped to make Eskom or any other organ of state actually work and save money, were turned away at the door because of considerations of race. This is no small matter. By disqualifying contractors based on race, Eskom precludes – at a critical time for the economy and society – electricity consumers in South Africa from the full range of cost-effective expertise available on the market. In the end, consumers and taxpayers lose because the wrong benchmark is applied. Tenders should be about value for money for consumers (or taxpayers), not about the race of a contractor’s shareholders or the ability of a contractor to get special treatment.” 

Le Roux concludes: “Sakeliga remains convinced that the regulations conflict with the PPPFA itself and that the promulgation and adoption of the regulations of 2017 ought to be declared invalid and set aside. Moreover, Sakeliga considers it unacceptable for the state and SOEs to create absolute barriers based on race for companies wishing to do business with it. We look forward to stating our case in court and serving the public interest.”

Issued by Piet le Roux, CEO, Sakeliga, 27 June 2019