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Deviations in terms of Regulation 16A6 of Treasury Regulations to the PFMA

25th July 2016

Section 217 of the Constitution defines the manner in which organs of state must secure goods and services and it provides as follows:

 “217 Procurement

(1) When an organ of state in the national, provincial or local sphere of government, or any other Institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”

In order to give effect to section 217, legislation such as the Public Finance Management Act (PFMA), the Municipal Finance Management Act (MFMA) and Preferential Procurement Policy Framework Act (PPPFA) as well as various regulations and Supply Chain Management Guidelines were enacted.

Every business attempting to secure work in the public sector from organs of state or parastatals is on the lookout for Request for Proposals (RFPs) and devoting time to attending tender briefings, preparing bids and securing resources in the hope of submitting a successful bid. That is the nature of engaging in what has become known as an open competitive bidding process.

However the relevant legislation and regulations provides for circumstances in which a service provider may be appointed by means other than by an open tender public procurement processes. These instances are commonly referred to as deviations and are provided for in section 16A6.4 to 16A6.6 the Treasury Regulations to the PFMA.

Treasury Regulation 16A6.4 provides as follows:

“If in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods or services by other means, provided that the reasons for deviating from competitive bids must be recorded and approved by the accounting officer or accounting authority.”

Regulation 16A.6.4 allows an organ of state to deviate in circumstances when it is impractical to invite competitive bids.

Guidance as to what can be considered impractical can be found in the National Treasury practice Note No 8 of 2007/2008 which provides that circumstances involving urgent or emergency cases or a sole supplier of particular goods or services, may be impractical and warrant a deviation. Furthermore impracticality may be result of a best value, national security, unknown specifications and/or circumstances requiring timeous delivery, amongst other things.

Whatever the reason for impracticality the accounting officer or accounting authority must report to the relevant treasury and the Auditor-General all cases where goods and services above the value or R1 million (VAT inclusive) were procured in terms of Treasury Regulation 16A6.4 within ten (10) working days.  The report must include the description of the goods or services, the name/s of the supplier/s, (sic) the amount/s involved and the reasons for dispensing with the prescribed competitive bidding process.

Treasury Regulation 16A6.5 provides as follows:

“The accounting officer or accounting authority may opt to participate in transversal term contracts facilitated by the relevant treasury. Should the accounting officer or accounting authority opt to participate in a transversal contract facilitated by the relevant treasury, the accounting officer or accounting authority may not solicit bids for the same or similar product or service during the tenure of the transversal term contract.”

Regulation 16A6.5 provides for transversal appointments or transversal contracting where by an accounting officer or authority can appoint a service provider already appointed in terms of a contract facilitated by relevant treasury (National or Provincial). The condition being that the accounting authority cannot call for bids for the same or similar goods or services for the tenure of the transversal contract.

Treasury Regulation 16A6.6 provides as follows:

“The accounting officer or accounting authority may, on behalf of the department, constitutional institution or public entity, participate in any contract arranged by means of a competitive bidding process by any other organ of state, subject to the written approval of such organ of state and the relevant contractors.”

Regulation 16A6.6 provides that an accounting officer may appoint a service provider who has been appointed by an organ state, through a competitive bidding process provided that both the service provider and the organ of state consent.

Effectively the situation would be as follows: If the needs of an organ of state (X) are similar to the needs of another organ of state (Y), and Y has already arranged to meet its needs by means of tender procedures, X can simply arrange with Y to make use of the same contractor that Y selected to satisfy its needs subject to the requisite consent.

However it must be noted that it is necessary for the goods or services to be same and not merely interrelated. Further the courts have stated that the contract price must be same and that the relationship will be governed by material terms of the first appointment.

Why Services Providers should be wary

If a service provider is approached by an organ of sate or accounting authority to take an appointment in terms of a deviation as provided for in the regulations it may seem to be an opportunity to secure work without the rigmarole of an open tender process and that may be so.

Service providers, however, should note that our courts have stated that contracts concluded contrary to procurement legislation and regulations are wholly invalid and cannot be allowed to stand [see TEB Properties CC v MEC, Department of Health and Social Development, North West[2012] 1 All SA 479 (SCA), Eastern Cape Provincial Government v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA) and  In Premier, Free State and Others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA)].

Further, the courts have stated that holding an organ of state to a contract concluded contrary to procurement legislation and regulations would be to place a too harsh burden on the tax payer and would be against the spirit and purpose of the legislation. Put differently allowing such contracts to stand would be to allow the conduct (patronage, collusion, nepotism etc) which the legislation seeks to prevent.

Effectively, if a service provider is appointed, the procurement process reviewed and found wanting the contract will be set aside as invalid.

Why then should service providers be more wary of appointment by deviation than by competitive bidding processes.

The competitive bidding process, with its call for proposals, evaluation committees, scoring procedures and adjudication processes, is a key tool in achieving the openness and competitiveness required by section 217, the PFMA and the MFMA. Further it is tool that both an appointed service provider and organ of state can rely upon in the event of a challenge to any appointment.

This process and any protection it affords is absent from an appointment by deviation in terms of Regulation 16A6.

A service provider appointed by deviation is reliant on the facts presented to it by the entity approaching it.

Therefore before accepting an appointment contemplated in terms of Regulation 16A6 a service provider must to take steps, depending on the applicable regulation, to:

1. Determine and assess the existence and cause of any urgency or emergency or other impracticality;
2. Ascertain the full details of the services requested to determine whether they are indeed the same;
3. Obtain confirmation that its current appointment complied with relevant procurement legislation and regulations;
4. Obtain copies of requests and consents exchanged between organs of state;
5. Review contracts to ensure that the material terms are substantially the same across appointments as required; and/or
6. Obtain a copy of any submissions to the relevant treasury and Auditor General as may have been required.

If an appointment by deviation is reviewed, a service provider could potentially rely on the information and documents acquired through the steps referred to above to challenge any such review and/or to support any contractual or unjustified enrichment claims it may have against an organ of state.

Disclaimer:This article is not intended to provide legal advice and does not intend to address any specific or existing circumstances.

For assistance or advice on tenders, deviations and procurement law please contact our nearest office on the details provided on our website.