The HC ordered a number of individual municipal employees to pay some legal costs in their personal capacities.
“A recurring theme of this judgment is the non-disclosure of relevant information. Whether this is deliberate or not is not always impossible [sic] to tell. Irrespective, when determining liability for costs, the fact of the non-disclosure alone counts. It must be measured against the constitutional obligation of all persons performing public services to be accountable and transparent. Disclosure is also important for individuals to avoid or mitigate their liability for costs. If all those involved are exposed then the burden on each individual would be mitigated if an order for joint and equal liability is imposed. Also, if those who had a greater hand in awarding an unlawful tender are exposed then the liability for costs of those who played a less significant role would be commensurately minimised. This approach commends itself for the greater cause of inculcating accountability and transparency in every sphere of public procurement, including enforcement”. [para 88]
Westwood Insurance Brokers (Pty) Ltd v Ethekwini Municipality (8221/16) [2017] ZAKZDHC 15 (5 April 2017) per Dhaya Pillay J.
Excerpts without footnotes
Introduction
[1] I heard the application to interdict the awarding of the tender for underwriting insurance services for water leaks for individual dwelling units on 30 September, 7 October and 15 November and I granted judgment on 8 December 2016.[1] I found the eighth respondent’s decision to award the tender to the fourth respondent, NC South West Brokers CC (South West) to be irrational, for amongst other reasons that he failed to give reasons for preferring South West. [Westwood Insurance Brokers (Pty) Ltd v Ethekwini Municipality (8221/16) [2016] ZAKZDHC 46 (8 December 2016)]. I also found the opinion of the insurance and the treasury departments upon which the eighth respondent relied to prefer South West to be mysterious in the absence of any explanation.[3]
. . . . .
[5] The crux of the irrationality of the decision by all role players to award the tender to South West turned on a singular undisputed fact: South West purported to comply with clause 3 of the Conditions of Tender by submitting professional indemnity insurance (referred to here as PII1-3) when the tender called for provision of insurance for water loss through underground leaks for individual dwelling units.
Clause 3 stipulated that a letter of undertaking from an insurance company licensed to operate in South Africa must accompany the offer. Furthermore the underwriter must be registered with the Financial Services Board (FSB). South West submitted a quotation for professional indemnity from Marsh (Pty) Ltd whose registration with the FSB as an insurer had also not been established.
[6] The difference between the two types of insurances is obvious and should have been especially so to South West and those employees of eThekwini involved in specifying the condition, to the insurance and finance departments who should have been knowledgeable about insurance and to the professionals who participated in awarding the tender. Substituting one for the other calls into question not only the competence but possibly also the integrity of those who accepted the quotation for professional indemnity insurance instead of underwriting insurance for water leaks.
. . . . .
[9] As I have already analyzed the eighth respondent’s decision in my previous judgment, this judgment will focus on the other role-players whose participation resulted in the awarding of the tender to South West. I intend to deal with the three tiers of decision-making preceding the final decision by the eighth respondent. They are the assessment of South West’s bid by the line department and other officials, the line department’s report back to the BEC, the BEC meetings of 26 October 2015 and 2 November 2015, and the decision of the BAC at their meeting on 16 November 2015.
. . . . .
The Puzzling Question
[40] How did the entire procurement team of eThekwini comprising of officials from the line department, bid specifications committee, the BEC, the BAC, the compliance officer, SCM practitioners, financial officials and professionals like legal advisors and engineers, unanimously decide that firstly, a quotation is the equivalent of a letter of undertaking and secondly, the provision of professional indemnity insurance qualifies as underwriting insurance for underground water leaks for individual dwelling units, which was the specified condition of tender? Metaphorically speaking they decided that chalk is cheese.
. . . . .
[42] In the circumstances the evidence above fortifies my finding that the decision is not merely irrational but bizarre. An irrational decision might still have an explanation albeit one that is not acceptable or is weak in logic. But a bizarre decision is manifestly inexplicable. The decision in this instance is so bizarre that unsurprisingly even those who participated in making it cannot explain it.
. . . . .
[45] All the deponents deny liability for costs claiming variously that they did not act dishonestly, in bad faith or negligently. It is difficult and therefore unusual for a court to make findings on credibility, intention or motive in motion proceedings, which are confined to evidence on affidavit and the court does not have the opportunity of examining the witnesses. Hence my analysis will steer a course through facts not in dispute. I preface my analysis with a brief outline of the regulatory framework for procurement as a benchmark to assess the steps through which the tender was processed in this instance.
Supply Chain Management Law
[46] How does the process implemented in the tender in this case square with the norms set for transparent and accountable public procurement under the Constitution?
[47] eThekwini’s Supply Chain Management Regulations,[1] based on National Treasury Regulations,[2] is designed on the committee system.[3] The bid specification committees, BECs and the BACs[4] are carefully populated and structured to inculcate competent, independent and impartial tender specification, evaluation and adjudication. The accounting officer, who in the case of a municipality is the municipal or city manager,[5] and all officials involved in the implementation of supply chain management policy ‘must meet the prescribed competency levels’, for which resources, opportunities and training would be provided.[6] The accounting officer is responsible for implementing the supply chain management policy.[7] She or he:
‘must … take all reasonable steps to ensure that proper mechanisms and separation of duties in the supply chain management system are in place to minimise the likelihood of fraud, corruption, favouritism and unfair and irregular practices’. [8] (my emphasis)
[48] Each committee has members appointed by the accounting officer. The policy must provide for:
‘an attendance or oversight process by a neutral or independent observer appointed by the accounting officer when this is appropriate for ensuring fairness and promoting transparency’. [9] (my emphasis)
[49] Absolutely no councillor may serve on any bid committee.[10] The BEC must as far as possible be composed of officials from departments requiring the goods or services and at least one SCM practitioner of the municipality.[11] The BAC ‘must consist of at least four senior managers of the municipality’ which must include the chief financial officer or another manager in the budget and treasury office reporting directly to the chief financial officer and designated by the chief financial officer, at least one senior supply chain management practitioner who is an official of the municipality, and a technical expert in the relevant field who is an official of the municipality.[12] To reinforce its independence and impartiality a member of the BEC may not serve on the BAC. [13]
[50] The committees are assigned specific functions. For instance the BEC must ‘evaluate bids in accordance with the specifications for a specific procurement; and evaluate each bidder’s ability to execute the contract.[14] The BAC ‘must consider the report and recommendations’ of the BEC before making a final award or recommendation, including one that deviates from the BEC’s recommendation.[15]
[51] Given these prescripts each individual and committee acting independently and impartially is meant to exercise effective checks and balances on the others. Additionally no person may interfere with the SCM process of a municipality or amend or tamper with ‘tenders, quotations, contracts or bids after their submission.[16]
Analysis
. . . . .
[54] Insurance for water leaks was unmistakeably central not peripheral to the contract, as it might be for example in a building contract in which insurance against loss during construction would be incidental to the primary construction contract. Tenderers had to comply with it strictly. For non-compliance meant that the very service for which the tender was issued would not be delivered.
. . . . .
[65] Ms Rajoo as the Chief Legal advisor does not offer any evidence that she distinguished between underwriting insurance for water loss and professional indemnity insurance either at the meeting at 26 October 2015 or subsequently when she prepared her affidavit for this enquiry into costs. She had Mr Shezi’s opinion, which she correctly refused to accept without seeing all three pages of PII1-3. Even after perusing PII1-3 she needed an insurance expert. A law graduate does not need an insurance expert to distinguish between these two types of insurances let alone someone holding the position of Chief Legal Advisor in a large city. Her advice should have been to disqualify South West’s bid without further ado.
. . . . .
[72] It should have been clear from my judgment that they were required to explain how they approved a tender for the provision of water loss insurance without seeing any proof of underwriting insurance as stipulated in the conditions of tender. If they did not appreciate the differences when they considered the BEC report they should have seen the light after my judgment. However, they say nothing, not even about the near-travesty for which they would have been co-responsible.
[73] Regulation 29(1) requires the BAC to:
‘consider the report and recommendations of the bid evaluation committee; and … either- … make a final award or a recommendation to the accounting officer to make the final award’.
[74] The online thesaurus gives the following meanings for ‘consider’:
‘reflect, think, deliberate, ponder, study, cogitate, ruminate, mull over, weigh up, judge something, weigh possibilities before deciding, examine and discuss problem, look carefully at something.’
[75] ‘Consider’ means much more than the BAC simply endorsing the decision of the BEC without interrogating the correctness of it. They could not have considered it because if they had then these senior officers who include a professional engineer, the Head of Supply Chain Management and the Head of Expenditure would have applied their collective general knowledge and experience to realise that a quotation for professional indemnity insurance is not underwriting insurance for water leaks.
[76] Ms Bartholomew holds a highly responsible position as manager effectively in charge of corporate governance in the Water and Sanitation Department to ensure compliance with the constitutional aims for procurement free of corruption and collusion. In this instance she failed to perform her functions independently and consistently with her duties to uphold and enforce s 217 of the Constitution. Her evidence amounts to an admission that she fettered her discretion in favour of the opinion of another, notably the BEC.
[77] To summarise: contrary to eThekwini’s Supply Chain Management Regulations, none of the committees and officials exercised their independent, impartial discretion. The line department or specification committee submitted a bid despite being advised by Mr Shezi that they should disqualify it. They then capitulated and cow-towed to the BEC’s alleged instruction to equate a quotation to an undertaking. Members of the BEC who attended the first meeting irrationally accepted that professional indemnity insurance was underwriting insurance for water loss and that a quotation is an undertaking. Those members of the BEC who attended the second meeting mindlessly rubber-stamped a recommendation of the line department. It was this ill-considered recommendation that surfaced before the BAC, a committee of senior officials prevailing at the apex of the committee structure. The BAC also abdicated its responsibilities by simply endorsing the BEC’s recommendation without making the most elementary checks to ensure that the bid met the tender specifications.
. . . . .
[80] However, the withdrawal came after the court insisted on seeing compliance with clause 3, which was the obvious starting point of the enquiry. Moreover in her affidavit opposing the interdict she dismissed the non-compliance with clause 3 flippantly saying:
‘The underwriting is just a fancy word for a quotation’.
As a lawyer her reaction was irresponsible.
[81] As for South West, my enquiry is not into costs due to Westwood. I resolved that issue in my previous judgment. This enquiry, I emphasise, is about recovering costs incurred at the expense of the tax paying public in a procurement process that was seriously flawed.
. . . . .
[84] The party to gain most from allowing the award to stand was South West. The wrongfulness of its conduct is its misrepresentation that professional indemnity insurance was in fact underwriting of insurance for water leaks. Its misinterpretation was not naïve or innocent; no one tendering to provide underwriting insurance for water leaks can genuinely mistake professional indemnity insurance as compliance, not when insurance for water leaks is the core service for which the tender was issued, not when the potential reward is as high as R80 million, and definitely not when the risks of non-delivery for the residents of eThekwini would be catastrophic.
. . . . .
Costs
[86] A tender of R80 million was large enough to be taken very seriously. Importantly, if South West got away with its misrepresentation, vulnerable people occupying, for instance, municipal and other sub-economic housing schemes would have had no insurance for water leaks. The cost of the water leaks would have had to be borne by eThekwini and by extension all its tax paying residents. Coinciding with a devastating drought, the lack of insurance for water leaks would have been catastrophic for water supplies if the leaking pipes were not repaired quickly. Why South West’s bid was not rejected at the outset for non-compliance adds to the mystery as to how it passed the scrutiny of so many officials charged with the responsibility of safeguarding public procurement against illegalities.
[87] A recurring theme of this judgment is the non-disclosure of relevant information. Whether this is deliberate or not is not always impossible to tell. Irrespective, when determining liability for costs, the fact of the non-disclosure alone counts. It must be measured against the constitutional obligation of all persons performing public services to be accountable and transparent. Disclosure is also important for individuals to avoid or mitigate their liability for costs. If all those involved are exposed then the burden on each individual would be mitigated if an order for joint and equal liability is imposed. Also, if those who had a greater hand in awarding an unlawful tender are exposed then the liability for costs of those who played a less significant role would be commensurately minimised. This approach commends itself for the greater cause of inculcating accountability and transparency in every sphere of public procurement, including enforcement.
[88] I analysed the evidence in some detail to assess where in the range from ignorance, incompetence, negligence, corruption or something else the conduct of the decision-makers fall in order to determine whether some should be held more or less liable than others in order to apportion costs appropriately. I cannot single out individuals as having committed acts of corruption because the evidence does not go that far. However, given how bizarre the decision is I cannot exclude that possibility but that is for some other process to uncover. Ostensibly, all the participants were negligent, inattentive to their responsibilities and unaccountable. I have not been able to uncover why this was so.
[89] I considered distinguishing the role played by the various persons in the decision to award the tender to South West. All who participated, including South West, are liable for costs because of their on-going refusal to explain, account, accept responsibility, and recognise that but for the interdict their decision would have resulted in a calamity of intolerable proportions. None show remorse. All the participants failed in their duty to check and recheck that the contract that they approved was capable of delivering the services that eThekwini and its residents would pay for. The compliance officer, the line department officials and all the members of the BEC are particularly liable because they engaged with PII1-3. The seniority of the members of the BAC and the fact that they preside at the apex of the committee system is an aggravating factor. They should have engaged with PII1-3.
[90] However, I do distinguished South West from the rest. No tenderer should be allowed to escape with impunity for deliberate misrepresentations in public procurement processes. South West created the situation that compelled this litigation. Walking away unscathed from the debacle is not an option.
[91] Legal Advisor Ms Blose acted under the pressure of an urgent interdict and played no role in the decision to award the tender. She is absolved from liability for costs.