South Africa: Tenders

Last Updated: 5 March 2012
Article by Alastair Hay


Usually tenders are attacked by an aggrieved tenderer who believes that the award made was wrong due to either procedural irregularities, corruption or otherwise.

What is the position if the organ of State who made the award itself recognises that it acted wrongly in making the award? Can it correct its mistake?

In December last year the Supreme Court of Appeal ("SCA") delivered a judgment1 which provides the answer to this question.


In November 2008 the North-West Department of Health and Social Development ("the Department"), represented by its then acting head, Ms Kgasi, entered into a five year lease with TEB Properties CC ("TEB"), represented by its managing member, Mr T E Bozwana, for office accommodation at a monthly rental of R3,2m excluding VAT.

Prior to the Department taking occupation of the leased premises, Ms Kgasi's successor as acting head of department, Mr Malaka, gave notice to TEB of the Department's summary termination of the lease agreement.

In his letter of termination Mr Malaka justified the termination on three grounds:

  • there had been no compliance with relevant statutory requirements;
  • TEB had knowingly participated in an irregular process; and
  • there had been no open bidding process.

TEB launched an application in the North-West High Court for an order declaring the Department's termination of the lease unlawful. The Department in turn filed a counter application in which it sought an order declaring the lease invalid.

The North-West High Court agreed with the Department and dismissed TEB's application and set the lease aside.

TEB appealed this decision to the SCA.

Legislative Backdrop

The SCA summarised the statutory matrix relevant to the issue and made reference to:

  • section 217(1) of the Constitution which requires organs of State contracting for goods or services to do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective;
  • section 4(1) of the North-West Tender Board Act which vests the power to procure supplies and services for government in the North-West Province in the Tender Board and stipulates that the Board must invite offers in connection with such procurement;
  • section 38(1)(a)(iii) of the Public Finance Management Act ("PFMA") which requires departments to have an appropriate procurement system which is fair, equitable, transparent, competitive and cost-effective;
  • Treasury Regulation 13.2 which grants to the accounting officer of a department the right to enter into operational lease transactions without limitations; and
  • Treasury Regulation 16A.6.4 which provides that if it is impractical to invite competitive bids, an accounting officer may procure goods or services by other means subject to the obligation to record the reasons for not following a competitive bidding process.

Although not specifically referred to by the Court as relevant in this particular case, the Preferential Procurement Policy Framework Act ("PPPFA") is an important piece of legislation pertinent in the determination of the validity of any procurement process followed by an organ of State.

In relation to Regulation 16A.6.4 the Court noted that there must be a rational reason for not following a competitive bidding process and that the reasons concerned must be recorded so that National Treasury can review any such decision and determine whether there has been any financial misconduct by an organ of State.

The Facts

In June 2008 the Department commenced looking for new office accommodation for its head office personnel as its existing lease agreement was due to expire at the end of August 2008. Kgasi approached Bozwana and invited him to submit a rental proposal on behalf of TEB.

After a period of negotiations between Bozwana and a department task team headed by Kgasi, a lease agreement was concluded between the Department and TEB in November 2008. In terms of this lease agreement the Department leased premises comprising 21 612m² for a period of some 10 years at a monthly rental of R3,2m excluding VAT.

It was common cause that the lease agreement had been entered into without there having been any open and competitive bidding process.

Bozwana stated that during the negotiations Kgasi had reassured him that the procedure being followed was above board and regular and that any lease concluded would be valid because the need to conclude a new lease agreement was urgent as the Department's current lease was about to expire.

The Parties' Cases

The Department contended that the North-West High Court had made the correct decision and that the lease agreement was invalid for want of the required statutory procedures having been observed and most importantly the lack of an open bidding process.

TEB argued that despite the lack of an open bidding process the lease was valid because of the urgency of the situation and the power conferred on the Department in terms of Treasury Regulation 16A.6.4.

The Court held that this argument was unsustainable because, although the lease agreement was concluded in November 2008, it was only scheduled to commence on 1 December 2009 to enable TEB to construct the premises. The matter was therefore not urgent. The Department also contended that a lack of proper planning on its part could not create urgency for the purposes of Treasury Regulation 16A.6.4.

TEB also argued that Treasury Regulation 13.2.4 gave an accounting officer an unfettered right to enter into a lease agreement of the type concerned and she was not obliged to follow an open bidding process.

The Court ruled that Treasury Regulation 13.2.4 cannot be interpreted to give carte blanche to accounting officers to enter into lease agreements without following a competitive bidding process.

TEB complained that it was incumbent upon the Department to comply with the lease agreement until it had been set aside by a court and the Department had failed to do this.

The Court confirmed that contracts concluded by an organ of State, even where the organ of State has acted wrongly, do in fact remain valid and binding until set aside. However, when a court sets the contract aside, as in this case, the setting aside is effective right from the outset. In other words, it is as if there was no contract concluded at all.

The Court pointed out that the Department had acted correctly in seeking a court order setting aside the wrongful tender award.

TEB also argued that neither the Constitution nor the PFMA expressly require procurement via a competitive bidding process and that in any event it was not incumbent upon it to enquire and establish that the Department had complied with any relevant internal procedural requirements for procuring the lease without following a competitive bidding process.

The SCA held that this argument was also unsustainable. It pointed out further that the North-West Tender Board Act gave exclusive jurisdiction to the Tender Board to conclude lease agreements and preparatory to doing so to invite offers from tenderers.

Although not invoked by the SCA, it is clear from the provisions of the PPPFA and the Regulations promulgated in terms of the Act that government procurement must take place by means of an open and competitive tendering process.

Lastly TEB contended that the Department should be estopped from denying the existence and validity of the lease agreement.

The doctrine of estoppel is to the effect that if a party represents to another party that a state of affairs exists, even if that state of affairs does not in fact exist, if the other party acts to its prejudice on that representation, the representing party is bound by its representation and cannot rely on the true state of affairs being different.

In this case TEB, relying on the existence of the lease agreement, had procured a large bank loan to fund the construction of the office building and presumably had entered into a construction contract for that purpose. As such it had acted to its prejudice based in effect on the representation by the Department that a valid lease agreement had been concluded with it.

Unfortunately for TEB the State is not bound by the doctrine of estoppel where something is prohibited in law in the public interest. In this case clearly the prohibition against the procurement of goods and services by the State without following the statutory processes is in the public interest and as such the SCA ruled that TEB could not rely on estoppel.


Parties who conclude contracts with organs of State in dubious circumstances do so at their own peril. They could find themselves in a position where the contract concerned is set aside and they are left with various contractual commitments to third parties.

An organ of State can, on seeing the error of its ways, refuse to continue with an invalid tender award. It should however apply to court for an order setting aside its own wrongful award unless the tenderer concerned agrees to the cancellation of the award.


1. TEB Properties CC v The MEC for Department of Health and Social Development, North West SCA Case No 792/10, date of judgment 1 December 2011, ZASCA 243.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Alastair Hay
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions