Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency and Others

• Jurisdiction: South Africa
• Judge: Moseneke ACJ, Cameron J, Dambuza AJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van Der Westhuizen J and Zondo J
• Judgment Date: 17 April 2014
• Citation: 2014 (4) SA 179 (CC)
• Docket Number: 48/13 [2014] ZACC 12
• Hearing Date: 11 February 2014
• Counsel: G Marcus SC (with D Unterhalter SC, M du Plessis, C Steinberg and A Coutsoudis) for the applicants. S Cilliers SC (with M Mostert) for the first and second respondents. T Beckerling SC (with R Strydom SC, N Ferreira and J Bleazard) for the third respondent. S Budlender (with M Townsend and L Kelly) for the first amicus curiae. T Ngcukaitobi (with M Bishop) for the second amicus curiae.
• Court: Constitutional Court

Froneman J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring):

Introduction D

[1] This judgment deals with the remedy that should follow upon the judgment on the merits. [1] This court declared the award of the tender by the South African Social Security Agency (SASSA) to the third respondent, Cash Paymaster Services (Pty) Ltd (Cash Paymaster), constitutionally invalid. [2] The declaration of invalidity was based on two grounds. E

Froneman J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring)

A The first was that SASSA failed to ensure that the empowerment credentials claimed by Cash Paymaster were objectively confirmed. [3] The second was that bidders notice 2 did not specify with sufficient clarity what was required of bidders in relation to biometric verification, [4] with the result that only one bidder was considered in the second stage of the B process. This rendered the process uncompetitive and made any comparative consideration of cost-effectiveness impossible. [5]

[2] Section 172(1)(b) of the Constitution provides that, following upon a declaration of constitutional invalidity, a court —

'may make any order that is just and equitable, including —

(i)

an order limiting the retrospective effect of the declaration of C invalidity; and

(ii)

an order suspending the declaration of invalidity for any period and on any conditions, to allow the competent authority to correct the defect'.

[3] Paragraph 4 of the order suspended the declaration of invalidity D pending the determination of a just and equitable remedy. In para 5 the parties were directed to provide factual information and written submissions for the purpose of determining a just and equitable remedy. A further oral hearing took place on 11 February 2014.

Froneman J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring)

[4] The structure of this judgment is as follows. First, I set out a A summary of the factual information provided by the parties and their submissions about the appropriate remedy. I then consider the proper legal approach to determining a just and equitable remedy in the procurement context. I will deal with each of the relevant aspects relating to that before coming to a final conclusion on the appropriate remedy. At B the outset it is necessary to say that the remedy will not disrupt the payment of existing grants.

Factual information and submissions

[5] The information provided by the parties and their submissions are C helpful. There are, however, disputes about the relevance and correctness of certain facts. The provisions allowing the receipt of factual information in this court [6] do not cater for the resolution of disputed evidence. The order we make is not dependent on any factual finding in relation to disputed facts. Nevertheless, the uncontested information provides a useful background for determining a just and equitable remedy. D

[6] AllPay Consolidated Investment Holdings (Pty) Ltd (AllPay) recognised that SASSA and Cash Paymaster were best positioned to assess the time, necessary steps and cost implications of a new tender process. It did, however, commission reports from various experts to gather factual E information in support of what it envisages should take place in the event that a fresh tender is ordered. [7] The best indication of the time and steps required for a new tender process to take place is to consider what was required in the previous tender. On that basis, AllPay contended that an entirely new tender process, from the amendment of the request for proposals to the handover to the successful tenderer, could be concluded F in no more than nine and a half months.

[7] The key question is whether the implementation of a new system would cost SASSA more than it is currently paying for the service. Because the cost of ordering a fresh tender is the normal consequence of an unlawful tender process, any expense considerations must be viewed in G the light of the benefits of a more competitive tender. This underlies the principle in s 217 of the Constitution that fair public tendering leads to more cost-effective solutions.

[8] The expert evidence proffered by AllPay [8] suggests that, had it been awarded the tender instead of Cash Paymaster, SASSA would have saved H

Froneman J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring)

A approximately R926 million over five years. AllPay contends that the price discrepancy between Cash Paymaster's and AllPay's original offerings makes it clear that there may be significant financial benefits to running a fresh tender. On this basis the cost of redoing the tender may well be recouped by the state receiving a more cost-effective solution. B The expert contends that, even on conservative assumptions, Cash Paymaster has, after just two years, already covered all its costs in implementing the tender and is actually making a profit. By the time a new tender process is implemented, Cash Paymaster would have earned a reasonable internal rate of return on its investment.

C [9] AllPay also argued that the current system is far from perfect. As a result, it contends that Cash Paymaster is not providing the best service and that beneficiaries are forced to endure a sub-optimal system for which SASSA is paying more than it should. Because Cash Paymaster has already embarked on a bulk enrolment process, including the collection D of biometric data, which is now owned by SASSA, there is no reason why a new, successful bidder could not take this over. The new tenderer could thus make use of that information to allow for a seamless takeover of the current payment of beneficiaries without the need for a large-scale re-enrolment of all beneficiaries.

E [10] AllPay submitted that, in the ordinary course, effective remedial relief must follow a declaration of unlawfulness. If the rule of law is to be vindicated, the starting point must be the rerunning of the tender process. Given the nature and materiality of the irregularities, the only just and equitable remedy is one that suspends the declaration of F invalidity and allows for a fresh tender process to run, with a revised request for proposals and with prospective bidders being allowed to submit fresh bids. Cash Paymaster's contract with SASSA should be kept in place until the successful bidder is able to take over. This will ensure the uninterrupted payment of social grants to beneficiaries and also provide Cash Paymaster with the chance to mitigate any prejudice that G would arise if the award to it were invalidated with immediate effect.

[11] AllPay contended that, pending the outcome of the new tender process, Cash Paymaster would not be entitled to 'walk away' from the existing contract — it is effectively the government's agent for the provision of social grants and therefore has a constitutional obligation to H protect the interests of the beneficiaries by continuing to perform under its existing contract with SASSA. It would also be unlawful for Cash Paymaster to resile from the contract. This is because the effect of the interim suspension of the declaration of invalidity would be that the parties remain bound by the existing contract until the new contract becomes operational. However, if Cash Paymaster were to refuse to I perform under its current contract, emergency arrangements could be put in place to ensure that beneficiaries are paid. In particular, SASSA

Froneman J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring)

would be entitled to enter into an emergency contract in terms of the A relevant treasury regulations. [9]

[12] SASSA's starting premise, like AllPay's, was that a new tender would need to follow largely the same process as the first tender. This process took nearly three years with an overall cost of approximately R6 million. [10] Based on the previous process, SASSA estimated that the total time B for implementing a new system would be not less than 24 months and would cost between R5 million and R10 million.

[13] SASSA pointed out that its contract with Cash Paymaster was intended to be the last time that it outsourced its obligation to pay social grants, since it intends to take over the system by April 2017. An C advisory committee is currently analysing the possible ways that SASSA may take over the payment system by that time. If a new tender were to be awarded it would therefore have to be for a much shorter period than five years. [11] Moreover, for any tenderer to recoup the pre-implementation costs, the price of a shorter tender would have to be significantly higher. Any delays attributed to a new service provider would also D hamper SASSA's own target of being self-sufficient by 2017.

[14] SASSA maintained that the current services are being provided in an efficient and uninterrupted way. Nearly 21 million people (99,76% of beneficiaries) have been re-enrolled under the new system. The registration E process has resulted in the Department of Social Development declaring unspent funds of R2 billion, and the service fees have been reduced from R32 per person to R16,44 per person. This will result in a saving of R800 million per year.

[15] SASSA argued that, because of the practical implications, the tender F should not be set aside. The court has an obligation to declare the award of the tender constitutionally invalid, but that does not necessarily require that the contract with Cash Paymaster be set aside.

[16] The public has an interest in having a procedurally correct...