Kwadukuza Municipality v Skillful 1169 CC

• Jurisdiction: South Africa
• Judge: Madondo DJP
• Judgment Date: 06 July 2018
• Docket Number: 11060/2017
• Court: KwaZulu-Natal Division, Durban
• Hearing Date: 25 May 2018
• Citation: 2018 JDR 1001 (KZD)

Madondo DJP:

Introduction

[1]

The applicant seeks an order declaring and setting aside as null and void ab initio, alternatively reviewing, the agreements appointing the first and second respondents as the maintainer and supplier respectively of office automation equipment for the applicant.

[2]

The applicant is the KwaDukuza Municipality, a municipality as defined in terms of the Local Government Municipal Structures Act, 117 of 1998 and established in terms of such Act.

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[3]

The first respondent is Skillful 1169 CC, a close corporation with limited liability, duly incorporated in accordance with the Close Corporations Act, trading as Capital Office Automation at 24/26 Reynolds Street, Port Shepstone, KwaZulu-Natal.

[4]

The second respondent is Technologies Acceptances (Pty) Limited, a company with limited liability, duly incorporated in accordance with the company laws of South Africa of Fintech Building, Stone Ridge Office Park, 8 Greenstone Place, Greenstone Hill, Gauteng.

Factual Background

[5]

The applicant, in terms of the written agreements entered into between the parties on 5 December 2016, appointed the first respondent to service and maintain office automation equipment (being copiers, scanners, fax machines and the like) and the second respondent to supply such equipment to the applicant.

[6]

In concluding such contracts, the applicant purportedly relied on the provisions of s 110 of the Local Government: Municipal Finance Management Act 56 of 2003 (the LGMFMA) read with reg 32 of the Municipal Supply Chain Management Regulations. It is common cause between the parties that the contracts in question were concluded without there having been a competitive bidding process. There was therefore non-compliance with the provisions of s 217 of the Constitution read with s 112 of the LGMFMA.

[7]

Prior to the conclusion of the agreements between the parties, the practice at the applicant municipality had been that each and every department of the applicant was entitled to procure its own respective office automation equipment independently from one another. This exercise resulted in a multitude of rental and maintenance contracts being entered into between the various departments of the applicant and numerous suppliers of the required equipment. As a result of such

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multiply agreements, deadlines in respect of renewals were often missed and this resulted in termination of services. According to the applicant it was becoming a nightmare to keep a track of agreements.

[8]

As such, the applicant took the decision to investigate the possibility of concluding one agreement for the supply, service and maintenance of all its office automation equipment. The applicant thought that such an agreement would be more cost-effective than the current multitude of agreements, would allow better monitoring of the services rendered and, would also reduce the administrative costs involved in the processes of securing the services.

[9]

During its investigation, the applicant discovered that the Greater Kokstad Municipality had secured such a contemplated supply agreement, after a competitive bid process. The applicant took the decision to explore the possibility of utilising the mechanism of reg 32 of the Municipal Supply Chain Management Regulations read with s 112(1) (o) of the LGMFMA in an effort to satisfy its procurement needs for office automation equipment.

[10]

On 25 August 2016, the applicant, through its municipal manager, directed a letter to the municipal manager of the Greater Kokstad Municipality, requesting the latter's authorisation to utilise their competitive bidding procedure for the procurement of the applicant's office automation equipment. In reply thereto, the acting municipal manager of Greater Kokstad Municipality consented to the appointment of the service provider by the applicant under reg. 32 of the Municipal Supply Chain Management Regulations through the competitive bidding process of Greater Kokstad Municipality. The applicant also sought and obtained the consent of the service provider involved, who was the first respondent in this case.

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[11]

Following the obtaining of such consent, the applicant placed the matter before its Tender Evaluation Committee for its recommendation, which in turn recommended that the applicant proceed with concluding the agreement with the first respondent. The services to be procured from the first respondent was the supply and delivery of office machines on a full maintenance lease as per Greater Kokstad bid GKM 16-13/14, taking into consideration technology advancements and change of rates.

[12]

On 3 October 2016 the applicant's Tender Adjudication Committee met, considered the matter and unanimously resolved to appoint the first respondent utilising the mechanism of reg 32 of the Municipal Supply Chain Management Regulations.

[13]

On 4 October 2016 the applicant delivered a letter of appointment to the first respondent in terms of which the applicant's council procured the services of the first respondent in accordance with the specifications of Greater Kokstad Bid GKM 16-13/14. Such services were purported to be procured in accordance with s 110(2) (c) of the LGMFMA read with reg 32 of Supply Chain Management Regulations.

[14]

In such letter it was recorded that the first respondent had confirmed its willingness to contract with the applicant municipality at the same rates charged to Greater Kokstad Municipality. The applicant municipality and the first respondent thereby entered into a contract for the supply and delivery of office machinery on a full maintenance lease for a period of three years from the date of appointment.

[15]

It was further recorded in the letter of appointment that it was in the best interests of the applicant council to dispense with the calling of separate tenders but rather to exercise the then existing contract between the Greater Kokstad Municipality and the first respondent. The applicant municipality also entered into

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the agreement with the second respondent for the supply of automation equipment.

[16]

Both contracts concluded were subject to the provision of certain documents by the respondents and an audit by the applicant's Internal Audit Department. However, on receipt of the internal audit report, it became apparent to the applicant that the conclusion of the agreements referred to above was contrary to the approvals and the correct implementation of the reg 32 procedure.

[17]

The following aspects in the agreement entered into between the applicant and the first respondent were highlighted in the internal audit report as being in violation of the reg 32 procedure:

(a)

The agreement between the first respondent and the Greater Kokstad Municipality had already expired by the effluxion of time when the agreement between the applicant and the fist respondent was entered into. The contract between the first respondent and the Greater Kokstad Municipality expired on 30 September 2016 and the agreement between the applicant and the first respondent was concluded on 5 December 2016;

(b)

The price between the two agreements, ie, the agreements between the Greater Kokstad municipality and the first respondent and the agreement between the applicant and the first respondent was different. The projected cost of the agreement with the Greater Kokstad Municipality was R1 034 208 over a period of two years whereas with the applicant the projected cost was R15 251 892 over a three year period;

(c)

The nature of the two agreements differed in that the first respondent contracted with Greater Kokstad Municipality for the supply, service and maintenance of equipment whereas supply is not part of the agreement concluded with the applicant. The applicant entered into a rental agreement for the supply of office machinery with the first respondent whereas rental for

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supply of office machinery was not part of the agreement with the Greater Kokstad Municipality.

(d)

The type and nature of the office automation to be supplied differed; and

(e)

The second respondent did not form part of the agreement with Greater Kokstad Municipality and there was no basis, using the reg 32 procedure, that the agreement with the second respondent could be concluded.

[18]

The Internal Audit Committee concluded that the applicant did not derive any financial benefit from the transaction allegedly entered into in terms of reg 32 of the Municipal Supply Chain Management Regulations, instead, it was in a worse off financial position. Accordingly, the Committee recommended the immediate termination of the agreement in question in its internal audit report.

[19]

The applicant avers that it is therefore apparent that the procedure and its conduct in taking the decision to contract and the resultant agreements were irregular and illegal. According to the applicant it was on this basis that it requested the respondents to uplift their machines from its premises, but the respondents failed to do so. The respondents dispute that the applicant has at any time requested that they uplift the machines.

[20]

The respondents contend that the provision of services of Capital Office Automation's equipment was done in terms of reg 32 of the Municipal Supply Chain Management Regulations read with s...