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Another Blow to BEE?

The recent Constitutional Court judgement in Minister of Finance vs Afribusiness (Minister of Finance vs Afribusiness NPC 2022 JDR 0405 CC) has brought to finality the question on the validity of the 2017 Preferential Procurement Regulations, and clarified the extent of the powers of the Minister to enact regulations in terms of section 2(1) of the Preferential Procurement Policy Framework Act, 5 of 2000 (“PPPFA”).

In 2017, the Minister issued the Preferential Procurement Regulations (“Regulations”) as permitted by section 5(1) of the PPPFA. Afribusiness lodged a High Court application to challenge the validity of the Regulations on account that, in enacting the Regulations, the Minister acted beyond the scope of powers conferred on him by section 5(1) of the PPPFA. The High Court dismissed the application by Afribusiness on the ground that the promulgation of the Regulations by the Minister was reasonable and fair.

Aggrieved by the High Court decision, Afribusiness approached the Supreme Court of Appeal to overturn the decision of the High Court. The Supreme Court of Appeal found in favour of Afribusiness and held that the Minister could not, by way of regulations, create a framework that is contradictory to the framework mandated in the PPPFA and declared the Regulations to be invalid, subject to a 12 months suspension expiring on 2 November 2021, to enable the Minister to take corrective action.

In turn, the Minister appealed to the Constitutional Court and the issues before the court were:

• whether the Regulations are inconsistent with the PPPFA;
• what is the scope of the Minister’s regulatory powers in terms of the PPPFA; and
• whether the Regulations are inconsistent with section 217(1) of the Constitution such that they are invalid.
In coming to a decision, the Constitutional Court provided minority and majority judgements. The minority judgement reasoned that the Minister took active steps to implement the Task Team’s report for the creation of a preferential procurement policy that is flexible but standardised. It held that the Minister did not act beyond his powers when he promulgated the Regulations as the regulations were aimed at achieving the purpose of the PPPFA and section 217(1) of the Constitution and that on a proper reading of the Regulations, it is evident that organs of state have a discretion to implement the pre-qualification criteria set out in Regulations 3(b),4 and 9.

The majority dismissed the appeal by the Minister to the judgement of the Supreme Court of Appeal and held that the impugned Regulations were not necessary as they were meant to serve as a preferential procurement policy although section 2(1) of the PPPFA provides that an organ of state must “determine its preferential procurement policy” and implement it within the framework laid down in the section. The power to create a system of preference only vests in organs of state and may not vest in the Minister, concurrently. However, in dismissing the appeal lodged by the Minister, the Constitutional Court did not make a finding on the invalidity of the Regulations as provided in the judgment of the Supreme Court of Appeal.

The effect of this judgement is that, in implementing their procurement policies, organs of state can no longer set pre-qualification criteria and subcontracting requirements as it was prescribed by Regulations 4 and 9, such as, only accepting tenders from tenderers with a minimum of 30% subcontracting to EMEs or QSEs which are at least 51% owned by black people or in respect of contracts above R30 million, require tenderers to subcontract a minimum of 30% of the value of the contract to EMEs or QSEs that are at least 51% owned by black people.

On 10 March 2022, the Minister issued for public comment draft Preferential Procurement Regulations which will replace the 2017 Preferential Procurement Regulations and public comments are to be submitted by 11 April 2022.