2017 Preferential Procurement Regulations declared invalid by Supreme Court of Appeal

​​​A recent Supreme Court of Appeal (SCA) matter concerned the validity of the 2017 Preferential Procurement Regulations promulgated under s 5 of the Preferential Procurement Policy Framework Act.  The SCA ultimately declared the 2017 Regulations inconsistent with the Framework Act and thus invalid, suspending the declaration of invalidity for 12 months from the date of the order.

(see Afribusiness NPC v The Minister of Finance).

The appellant in this matter, Afribusiness NPC (Afribusiness), unsuccessfully challenged the 2017 Regulations before the Gauteng Division of the High Court, Pretoria (the High Court) and thereafter appealed against the judgment of the High Court with leave of the SCA.

Preceding this application, on 14 June 2016, the Minister published the Draft Procurement Regulations, 2016 for public comment. After the period for comments had lapsed Afribusiness raised concerns that the initial period for comment was inadequate and requested an extension of 60 - 90 days. Shortly after the Minister granted the extension, the 2017 Regulations were adopted. Aggrieved by this decision, Afribusiness brought an application seeking that the regulations be declared invalid and set aside. The Minister opposed the application, principally, on the basis that the decision to promulgate the 2017 Regulations was not administrative action which was reviewable under the Promotion of Administrative Justice Act 3 of 2000 (PAJA). On the merits he further contended that the application of the pre-qualification criteria in terms of the 2017 Regulations was discretionary, that the procedure followed in the promulgation of the 2017 Regulations exceeded the requirements of PAJA, that the Socio-Economic Impact Assessment System Guidelines are not a legal prerequisite to the validity of the 2017 Regulations and lastly, that the 2017 Regulations are based on sound constitutional principles. These contentions were upheld by the High Court and Afribusiness' application was dismissed by the High Court.

The main issue before the SCA was whether or not the Minister exceeded his powers in promulgating the 2017 Regulations, and whether such decision was subject to review under PAJA.

The SCA held that such action was indeed subject to review.  The SCA held further that section 5 of the Framework Act makes it clear that the Minister's powers are not unconstrained and that he may only make regulations ‘regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of the [Framework] Act'. Further, that it is correct that the application of the pre-qualification requirements is discretionary. The SCA found that any pre-qualification requirement which sought to be imposed must have, as its objective, the advancements of the requirements of section 217 (1) of the Constitution and as such, the pre-qualification criteria in regulation 4 and other related regulations do not meet this requirement.

Section 217(1) of the Constitution provides that the procurement process must comply with the key principles, i.e. that it must be equitable, transparent, fair, competitive and cost-effective. Based on these principles, the SCA held that the promulgation of regulations 3(b), 4 and 9 was unlawful in that the Minister acted outside the ambit of his powers in terms of section 5 of the Framework Act. Further that in exercising the powers to promulgate the 2017 Regulations, the Minister had to comply with the Constitution and the Framework Act and therefore, his decision is ultra vires the powers conferred in terms of section 5 of the Framework Act.

The SCA ultimately declared the 2017 Regulations inconsistent with the Framework Act and thus invalid, suspending the declaration of invalidity for 12 months from the date of the order.