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In Sizanani Mazulu Transport (Pty) Ltd and Others v Member for the Executive Council for Transport, KwaZulu-Natal and Others, the KwaZulu-Natal Division of the High Court was called upon to determine the validity of public transport contracts that had been extended repeatedly without a competitive bidding process.
Background
The dispute has its origins in the period between 1997 and 2001, when the KZN Department of Transport (“the Department”) concluded contracts with various bus operators, referred to as the "old order contracts", following a tender process for public transport services. These contracts expired between 2005 and 2007 and were thereafter extended on a month-to-month basis. In 2017, the parties concluded addendums extending the contracts for an interim period of one year, with a view to transitioning to new negotiated contracts or the implementation of the Integrated Public Transport Network.
When negotiations failed to produce new contracts, the agreements were extended repeatedly from 2017 to 2020, until the Department refused further extensions. In 2019, the Auditor-General found both the old order contract extensions and the negotiated contracts to be irregular and contrary to the Public Finance Management Act, 1999 (“PFMA”) and Treasury Instruction Note 3 of 2016/2/17.
The Applicants, fifteen bus operators, launched an urgent application in June 2020 seeking court-ordered extensions of their 2017 contracts, as well as a declaratory order affirming the lawfulness of their agreements. The MEC for Transport, KZN opposed the application and brought a counterapplication, seeking a declaration of invalidity and directing that the services be put out to tender.
Issues in dispute
The central question before the court was whether the addendums were valid and lawful or whether they contravened the procurement provisions of section 217 of the Constitution, section 38(1)(a)(iii) of the PFMA and the National Land Transport Act, 2009 (“NLTA”).
The bus operators contended that sections 41 and 46 of the NLTA authorise provincial departments of transport to conclude negotiated contracts with bus operators without going to tender, that the NLTA is industry-specific legislation which takes precedence over the generally applicable PFMA and that the agreements were therefore lawful. It was further argued that Treasury Regulation 16A.6.4 permits deviation from competitive bidding in specific circumstances.
On the other hand, it was argued that the indefinite extension of the contracts was unconstitutional, as section 217 of the Constitution requires procurement to be fair, equitable, transparent, competitive and cost-effective. It was further contended that the PFMA supersedes the NLTA and that the addendums, having been concluded without Treasury approval and without a competitive process, were irregular and invalid.
Court’s findings
It was held that while sections 41 and 46 of the NLTA do permit negotiated contracts without tender in certain limited circumstances, a blanket declaratory order to that effect could not be granted. The court found that the addendums were not negotiated contracts but were merely extensions of contracts that had already lapsed by effluxion of time. They therefore fell outside the protective ambit of section 41.
Critically, the court held that the repeated yearly extensions of contracts with the same service providers could not be considered competitive or fair, as they excluded unknown operators who might qualify and wish to participate in a tender process. This was found to be contrary to section 217(1) of the Constitution. The court further noted that Treasury approval for the deviation from competitive bidding had not been obtained. In fact, it had been declined and therefore the requirements for an emergency procurement deviation were not met.
Conclusion
The court dismissed the application with costs and granted the counterapplication, declaring the addendums inconsistent with the Constitution and invalid. The declaration of invalidity was suspended for one year, during which the bus operators were authorised to continue providing services and the Department was directed to initiate a new tender process for public transport services in the province.
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