SCA finds Defence department’s R60 million tender invalid and unlawful

The Supreme Court of Appeal (SCA) has upheld, in part, an appeal against the ruling of the Gauteng High Court in Pretoria regarding a tender awarded by the Department of Defence and Military Veterans.

On 30 January 2015, the department advertised tenders for service providers to assist in the provision of healthcare and wellness services to 16,000 military veterans.

On 20 May 2015, the department’s bid adjudication committee (BAC) convened and approved the award of the tender to Zeal Health Innovations (Pty) Ltd.

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The following day, the chairperson of the BAC, the Chief Director of the department’s supply chain management unit, informed Zeal Health that it was the successful bidder.

On 27 May 2015, Zeal Health and the department, represented by the Acting Director-General, concluded a three-year contract for the provision of the services.

The department, represented by the Deputy Director-General of Socio-Economic Support Services, entered into a memorandum of understanding with Zeal Health on 19 June 2015.

Payment failures

On 31 July 2015, the Acting Director-General issued a supplier’s advice (Government Order), signed by him, to facilitate payment, by the department to Zeal Health, of R60 million, for the provision of the services from 1 June 2015 to 30 April 2016.

Zeal Health began providing the services on 1 June 2015. The department failed to pay for the services.

In September 2015, Zeal Health launched an urgent application in the High Court for an order compelling the department to pay it for the services rendered under the contract.

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The department instituted a counter-application for the judicial review and setting aside of various decisions made by the department’s officials during the procurement process leading to the award of the tender to Zeal Health; the award of the tender to Zeal Health; the conclusion of the contract; the conclusion of the memorandum of understanding; and the issuance of the Government Order.

On 7 October 2022, the high court dismissed Zeal Health’s application and granted the department’s counter-application.

Defence department’s tender unlawful

In its judgment on Friday, the SCA found that the tender was awarded unlawfully on the basis that the contract price did not fall within the budget of the department.

The Acting Director-General had committed the department to a liability, being the difference between what was left in the budget (R34.2 million) and the portion of the contract price that was allocated to the 2015/2016 financial year (either R70.1 million or R52.4 million).

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The SCA further ruled that the Acting Director-General was prohibited from committing the department to a liability for which money had not been appropriated in terms of s 38(2) of the Public Finance Management Act 1 of 1999.

“The Acting Director-General had the responsibility of ensuring that the Department did not overspend its budget. He acted unlawfully when he breached the provisions of s 38(2). The awarding of the tender to Zeal Health, in circumstances where the provisions of s 38(2) were breached, was clearly unlawful and invalid,” reads the judgment.

“That finding means that there was no lawful basis for the Department to conclude the contract with Zeal Health; the memorandum could not have lawfully been entered into with Zeal Health; and the Acting Director-General could not have lawfully issued the Government Order in Zeal Health’s favour.”

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However, the SCA said the high court erred in not considering a just remedy for the situation.

It found that Zeal Health was entitled to payment “of any amount it is able to establish.”

Financial woes

The Defence department has been in the news for poor financial management systems.

In March, Auditor-General Tsakani Maluleke, in a briefing to the standing committee of the auditor-general on material irregularities in national and provincial government, revealed that the Defence department had purchased medical equipment it could not use.

The auditor-general initially flagged the irregularity in April 2023 after medical equipment was purchased when the department did not have qualified medical staff to operate it.

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The following month, the Defence department revealed in a parliamentary response that it was spending about R9,000 on electricity, water, and waste removal on a property that had been unoccupied since December 2021.

According to the department, the official residence of the SA National Defence Force chief in Waterkloof had not been occupied since General Solly Shoke vacated it on 30 November 2021.

The property was also being guarded by military personnel.