The story of the unlawfully awarded tender and billions lost to tender fraud is all too common in South Africa. Innocent contractors may find themselves on the receiving end of an unlawfully awarded tender, but they are not without remedies. South Africa’s apex Court aptly encapsulated this phenomenon in Greater Tzaneen Municipality v Bravospan 252 CC [2024] ZACC 20; 2025 (1) BCLR 1 (CC); 2025 (1) SA 557 (CC) at para 60:
“There are additional reasons why the interests of justice support the dismissal of the application for leave to appeal on this narrow basis. First, such an approach will send a clear message to the Municipality and other organs of state that they must pay for services that are provided to them by an innocent contractor. This is not a case where there is any pleaded allegation, still less evidence, of corruption or other wrongdoing on the part of Bravospan that would justify the Municipality’s refusal to pay it. Instead, the Municipality is opportunistically raising its own irregular conduct to avoid paying Bravospan. As is clear from [49] of the first judgment, the Municipality’s unconscionable conduct in the present case is part of a broader phenomenon of organs of state seeking to rely on their own unlawful conduct to avoid compensating innocent contractors for services that those contractors have provided to them. This Court must make clear that conduct of this sort will not be tolerated.”
Law on Tenders
Section 217(1) of South Africa’s Constitution provides that organs of state must contract for goods or services in a manner which is fair, equitable, transparent, competitive and cost-effective. Such principles are the basis on which tenders must be awarded. However, when organs of state seek to avoid their contractual obligations to innocent contractors, they often bring a self-review application on the basis that the tender was unlawfully awarded. Innocent contractors faced with such application may have three bases on which to rely to contest such application. For one, they could argue that the applicant’s delay in instituting the review action is unreasonable, unexplained and so prodigiously and lamentably inexcusable that there is no public interest or constitutional necessity to pronounce on the legality of the tender and concomitant contracts. Secondly, an innocent contractor can argue that the amount awarded was within the budget or that the amount awarded that is over budget should be treated as unauthorised expenditure as per section 34 of the Public Finance Management Act 1 of 1999 (PFMA). As an alternative, an innocent contractor can argue that it could have met its obligations through section 43 of the PFMA. Thirdly, if a court finds that the award of the tender and concomitant contracts is unconstitutional and invalid, an innocent contractor can argue that its rights must be preserved as part of a just and equitable order following such declaration of unconstitutionality.
Delay in Instituting a Review Application
The time for an organ of state to bring a self-review application is promptly after discovering that an unlawful tender was awarded. The apex Court has confirmed this time and time again, particularly more recently in the case of Black Sash Trust v Minister of Social Development [2026] ZACC 12 (Black Sash) at paras 38-39. The test, as per Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd [2019] ZACC 15; 2019 (4) SA 331 (CC); 2019 (6) BCLR 661 (CC) (Buffalo City) at paras 119 and 124, is whether the delay in instituting the self-review application is reasonable to ensure that organs of state do not evade the consequences of their decisions. A reasonable period within which to launch a self-review application could, for example, be when the organ of state first becomes aware of funding constraints. However, where the delay is so prodigiously and lamentably inexcusable (Buffalo City at paras 110 and 117), a court is unlikely to entertain such application, and it would stand to be dismissed. If a court finds that the delay in instituting the self-review application was reasonable, the organ of state would need to show the court that the tender was unlawfully awarded.
Lawfulness of the Tender
When an organ of state seeks to challenge the lawfulness of the tender on the basis that it was not within budget, an innocent contractor’s most obvious and first port of call is to show the court that the tender was within budget. However, if it transpires that the tender was not within budget, the amount awarded that is over budget stands to be treated as unauthorised expenditure and not irregular expenditure. This is as per section 34 of the PFMA, which provides that:
“(1) Unauthorised expenditure does not become a charge against a Revenue Fund except when—
(a) the expenditure is an overspending of a vote and Parliament or a provincial legislature, as may be appropriate, approves, as a direct charge against the relevant Revenue Fund, an additional amount for that vote which covers the overspending; or
(b) the expenditure is unauthorised for another reason and Parliament or a provincial legislature, as may be appropriate, authorises the expenditure as a direct charge against the relevant Revenue Fund.
(2) If Parliament or a provincial legislature does not approve in terms of subsection 1(a) an additional amount for the amount of any overspending, that amount becomes a charge against the funds allocated for the next or future financial years under the relevant vote.”
The effect of section 34(2) of the PFMA is that, as held in MEC: Department of Police, Roads and Transport, Free State Provincial Government v Terra Graphics (Pty) Ltd t/a Terra Works [2015] ZASCA 116; [2015] 4 All SA 255 (SCA); 2016 (3) SA 130 (SCA) at para 20, the national or provincial treasury would need to meet the organ of state’s contractual obligation, and such obligation would become a first charge upon the Treasury in the next financial cycle.
As an alternative to section 34(2) of the PFMA, it could be argued that the organ of state could have met its obligations through section 43 of the PFMA, which allows for amounts from another sub-programme to be transferred via virement to meet the shortfall in the same budget year, provided the overall budget of the department is not exceeded. However, if all else fails, the court must make a just and equitable order in the innocent contractor’s favour.
Just and Equitable Order
Section 172(1) of South Africa’s constitution provides that the court must make a just and equitable order. What this looks like for an innocent contractor was best encapsulated in the more recent Black Sash judgment at paras 38-39, wherein it was held that:
“Consequently … An innocent contractor should not be deprived of its contractual rights for work already performed, as that would benefit a party that failed to act swiftly to rectify unlawfulness while disadvantaging an innocent firm that performed services to the benefit of a party with unclean hands. In summary then, what emerges from Gijima and Buffalo City is that this Court has disapproved of supine attitudes adopted by organs of state who bring delayed review proceedings as avenues to escape financial obligations under unlawful contracts. The purpose is to invalidate unlawful contracts but not to prejudice service providers who innocently performed under these contracts. A state organ must act with promptness when unlawfulness is discovered. It cannot fold its arms, enjoy the benefits of services rendered and give no value in return.”
What a just and equitable order presupposes for an innocent contractor is that, while the unlawfully awarded tender may be declared invalid, the innocent contractor’s rights will be preserved. This could be where the court decides not to set aside the agreement to preserve the contractor’s rights (Buffalo City at para 105). Alternatively, a just and equitable order would be to allow the innocent contractor to claim for all it has already performed in terms of the contract as well as to potentially retain profits (Black Sash at paras 25 and 40).
Conclusion
Innocent contractors are not without recourse in the wake of an unlawfully awarded tender. The organ of state’s delay in instituting the self-review application, budgetary considerations as well as a just and equitable order all serve as grounds for an innocent contractor to contest self-serving organs of state who seek to avoid their contractual obligations. With Tiefenthaler Legal’s expertise in tenders, we can best serve you.