Westinghouse Electric Belgium v Eskom Holdings

JurisdictionSouth Africa
JudgeCarelse J
Judgment Date02 April 2015
Docket Number2014/35650
CourtGauteng Local Division, Johannesburg
Hearing Date17 February 2015
Citation2015 JDR 0779 (GJ)

Carelse J:

[1]

On 27 March 2015 I gave my order in this matter and told the parties that my reasons would follow within 10 days of the order. These are my reasons:

Introduction

[2]

In 2010 the First Respondent Eskom ("Eskom") knew that it would have to replace six steam generators that power its Koeberg nuclear power station. Effect was given to this need in June 2012 when Eskom called for expressions of interest in a tender process to replace the generators. Applicant ("Westinghouse") and Second Respondent ("Areva") submitted tenders. Eskom had to decide on 12 August 2014 whether to award the contract to Westinghouse or Areva. It decided to award the contract worth approximately R 5 billion to Areva. Dissatisfied with the decision Westinghouse has brought this review by way of an urgent application in which it attacks the tender process and seeks an order setting aside the award to Areva and in the event of this order being granted, that the tender be awarded to it.

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Background Facts

[3]

The replacement generators can only be installed during a scheduled shut down in the course of routine maintenance that is held every eighteen months. A non-negotiable requirement of the tender was that Westinghouse and Areva be able to meet the 2018 shutdowns (referred to as the X23 deadline).

[4]

The tender initially was divided into three lots. Lot 1 was for the manufacture and delivery of the replacement generators. Lot 2 was for the installation of the generators and associated tasks. Lot 3 was for the engineering and safety analyses following the replacements.

[5]

Eskom's final decision as to who would get the contract would be made by its Board Tender Committee ("BTC") whose members are mainly non-executive directors with limited nuclear experience. The initial evaluation of the tenders was referred to an in house technical committee sometimes referred to as the Koeberg team.

[6]

The technical committee scored the tenders based on criteria identified in the tender documents. Westinghouse obtained the highest scores for Lot 1 and Lot 3. This included price. The technical committee recommended that Westinghouse be awarded the contract for these Lots. With reference to Lot 2 it recommended that the

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tender be awarded to Areva. These recommendations were then considered by Eskom's Executive Procurement Sub Committee ("Excops"), a subcommittee of the BTC. On 14 January 2013 Excops accepted the technical committee's findings and recommended to the BTC that it act in terms thereof. At a BTC meeting held on 6 February 2013, the BTC decided that it did not have the technical expertise to decide between Westinghouse's and Areva's tender, both of whom had the technical expertise to perform the contract work. The BTC accordingly decided to obtain the advice of an independent technical expert.

[7]

Effect was given to this decision in March 2013 when the BTC appointed AF Consult ("AFC") to assist it in evaluating the tenders. AFC'S terms of reference, which were wide inter alia included assessing the need for the replacement of the steam generators, a reconsideration of the technical specifications in the tender process, and a reconsideration of the evaluation process that involved the exclusion of certain options.

[8]

On 12 August 2013 the BTC considered AFC's report. This report confirmed that both Westinghouse and Areva were technically able to perform the contract. AFC went on to recommend that:

1.

options that had been excluded by Eskom's technical committee should be re-evaluated. Of particular importance is that this included the re consideration of Shanghai Electric Nuclear Power Equipment Company

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("SENPEC") as a subcontractor to Areva, whose use had been rejected by the technical committee.

2.

instead of awarding the contract in separate lots consideration should be given to making a single award to either Westinghouse or Areva.

3.

the method of evaluation be reconsidered. This included the introduction of "strategic criteria" for example: "Eskom's experience with past projects with the proposed suppliers; Building relations with countries that may provide services (equipment, expertise, financial support) for new nuclear build" and that bidders should be given an opportunity to improve their Supplier Development & Localisation (SD&L) benefits." [1]

[9]

After referring the report to the technical committee for comment, the BTC decided at a meeting held on 24 October 2013 to act on the AFC report. It inter alia decided that the technical bids should be reopened; that Westinghouse and Areva should give an indicative composite price for all the work and that they should indicate any additional value in terms of SD & L. In clarification of this decision the BTC stated that existing bids would stand and that excluded options would be evaluated. Pursuant to this decision and on 13 December 2013 Eskom requested Westinghouse and Areva to submit a composite offer.

[10]

Westinghouse and Areva submitted composite offers. Over the period 12 February 2014 to 19 May 2014, there were many meetings of various bodies within Eskom that attempted to reach a consensus on the issues raised by AFC. The

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technical committee, Excops and a subcommittee of Eskom's executive committee called the Exco Task Team ("Exco TT) were the bodies involved. No consensus appears to have been reached. On 2 June 2014 after due consideration the BTC decided to press ahead with the award of a composite contract. It also decided to appoint a team that would hold parallel negotiations with Westinghouse and Areva but not conclude a contract with either on the basis that when all tenders have been evaluated 'there is no tender/offer which stands as the most advantageous in terms of the evaluation criteria detailed in the enquiry/ tender documentation' [2] . Time wise the BTC required that the negotiations be concluded so as not to delay Eskom's readiness for the 2018 outage and enable it to adhere to the Outage 23 Project Schedule. [3]

[11]

On 13 June 2014 Westinghouse and Areva were invited to participate in negotiations with Eskom's team. Eskom had appointed Mr Koenig as an independent external negotiator of considerable experience to facilitate the process. The process was overseen by independent professional auditors and consultants, namely Sekela Xabiso and Pegasus. Negotiations took place over the period 24 June - 4 July 2014.

[12]

On 11 July 2014 Westinghouse and Areva submitted their final offers. Eskom then required an unconditional acceptance of its key commercial terms by 22 July 2014. On 22 July 2014 Areva submitted a schedule indicating a three month float (buffer period), i.e. it would meet the schedule deadline, 3 months ahead of time.

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[13]

The entire tender process was vetted by independent consultants who have confirmed that the tender process was fair, transparent, unbiased, competitive and free of any conflicts. [4] There is nothing to suggest that any stage during the process Areva or Westinghouse were unhappy with the process or that they did not understand the requirements of the bid, in particular the parallel negotiations.

[14]

Over the period 19 July 2014 to 7 August 2014, various bodies within Eskom considered the merits of the two offers. On 12 August 2014, the BTC held a meeting. By way of a secret ballot it decided that the contract would be awarded to Areva. Its reasons are set out in a letter to the Minister dated 13 August 2014 in which the following is said:

14.1

On 13 August 2014 the BTC wrote to the Minister saying that:

'The Board's overall objective was to secure the Steam Generators required by Eskom in the most efficient and effective manner at the optimal value for Eskom.

Having due consideration of all the facts presented to the BTC, it became apparent that the management of Eskom's risk was the primary driver of decisions to be made. Key considerations then became certainty on the ability of the preferred supplier to manage adherence to the critical path of Eskom's project schedule and the ability to offer benefits for South Africa to meet its strategic supplier development and localization imperatives….

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Based on the information evaluated by the BTC, it is hereby confirmed that the results of the negotiations are within the ambit of the approved mandate and that both suppliers have demonstrated compliance to Eskom's technical, commercial and SD&L requirements.

In arriving at its decision, the BTC considered inter alia the following:

both bidders are technically capable of performing the composite scope of work required for the SGR project;

both bidders have submitted comparable bids;

both bidders have submitted SD&L offers that meet the targets set by Eskom; …

Notwithstanding the fact that Westinghouse has emerged as the lowest bidder with an NPV price difference of 0.99% (equivalent to R 36 808 992) the following strategic considerations were made by the BTC:

Areva (then Framatome) was involved as the nuclear constructor as part of a consortium and became the OEM for the plant since the start of operations in 1985;

while the original design for plants of this age is owned by Westinghouse , Areva is the original equipment manufacturer (OEM) for Koeberg and on- going support from it throughout the life of the plant would be beneficial to safe reliable operations;

Areva was the main engineering organisation and therefore has the in depth information on the design and safety assumptions. These factors are relevant considerations for keeping the plant safe through technical problems and plant upgrade

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over the last 15 or so years, Areva generally...

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