Maintenance contracts worth R16bn at 15 Eskom power stations declared unlawful

Tenders worth about R16 billion awarded by Eskom in October 2021 to Actom and Steinmuller Africa to provide maintenance and outage repair services at its 15 coal-fired power stations have been set aside and declared unlawful by the High Court in Pretoria.

In a judgment handed down on Thursday, Judge J Millar ordered Eskom to conduct a fresh tender process and suspended the setting aside of the contracts between Eskom and Actom and Steinmuller Africa until the finalisation of the fresh tender process.

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Millar said that in the interests of all parties, the fresh tender process should be expedited and be completed within a period of six months.

Eskom given a timetable

The judge said the fresh tender process must be conducted and finalised in line with the following timetable:

  • Eskom is to formulate the terms of the fresh tender and publish it within two months of the court order.

  • The closing date for the tenders should be no more than two months from the date on which it is published.

  • The tender is to be evaluated within two months of the closing date of the tender.

  • Negotiations with [those who submit] successful tenders shall be conducted and concluded within one month of the identification of the successful tenderers.

  • The award of the contract to successful tenderers shall be made within one month of the conclusion of the negotiations with the successful tenderers.

  • These time periods shall not be capable of being extended unless any party approaches the court for an amendment to the timetable and shows good cause why it should be amended.

The judgment follows Babcock Ntuthuko Engineering lodging an application for the court to review, set aside and declare unlawful the contract awards to Actom and Steinmuller Africa.

Babcock lodged the application after it was disqualified from the tender process for failing to comply with a requirement in the request for proposals (RFP) that it provide an ISO 3834 certificate issued by the South African Institute of Welding.

In terms of the tender award, Steinmuller was awarded eight power stations and Actom seven.

Prior to the award, Babcock provided specialised engineering services to Eskom at four of its coal-fired power stations – Hendrina, Kendal, Lethabo and Matla – in terms of a contract concluded with Eskom on 3 June 2016.

The contract was renewed several times and the last extension lapsed on 31 December 2021.

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During this period, Actom and Steinmuller performed similar services at Eskom’s other coal-fired power stations.

Discussing an appropriate order, Judge Millar said the role played by Eskom in sustaining the very fabric and life of South Africa could not be overstated and it is a matter of public record that the provision of electricity is constrained.

He said the purpose for the present tender award was to ensure the continued and uninterrupted operation of Eskom’s fleet of coal-fired power stations, and Babcock, Actom and Steinmuller have and will no doubt continue to play a pivotal role in Eskom’s delivery of electricity.

Millar said for this reason, it would be imprudent to simply set aside the tender and interrupt the essential services being currently provided by Actom and Steinmuller.

Babcock argued that if the tender was to be set aside, but Actom and Steinmuller were to remain in place pending a new tender process, they should forfeit any profit they would have earned as a consequence.

However, Millar said both Actom and Steinmuller are commercial enterprises, the viability and profitability of which are essential to their provision of maintenance and other services at the 15 power stations that are serviced between them.

No impropriety

“For this reason, it is similarly my view [that it would be] imprudent to interfere with the contracts in terms of which those services are currently rendered.

“In the present matter, the setting aside of the award of the tender is not in consequence of any impropriety in the ordinary sense by either Eskom, Actom or Steinmuller,” said the judge.

“This tender is to be set aside in consequence of the disqualification of a tenderer because of an ambiguity in the tender document,” he added.

“It was never suggested by any of the parties that the award of the tender was tainted in any way with regards to the price ultimately agreed between Eskom, Actom and Steinmuller and, for this reason, it can be accepted that the price (and whatever profit margin it includes) is not in and of itself impeachable such that it would warrant the forfeiture of any profit there may be [made] by either Actom or Steinmuller.”

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In regard to the disqualification of Babcock from the tender, Millar said Eskom argued that “certification” meant “certificate” and the failure of Babcock to submit an ISO 3834 certificate was a failure to submit a mandatory returnable for evaluation.

Millar said the words “certificate” and “certification” both appear on the list of Commercial Tender Returnables (CTRs) in the tender document and, on a plain reading of the use of these terms, it is clear that they were not intended to be used as synonyms.

Babcock argued that Eskom was aware it had both certification and the relevant certificates because these were requirements it had to fulfil in its successful award of prior tenders.

However, Millar said to permit such an approach to the submission of a valid tender would offend “the demands of equal treatment, transparency and efficiency” in that tenderers who had a prior relationship with Eskom would have an advantage over those who did not.

But he said the argument by Eskom – that “certificate” and “certification” are to be read as synonyms and interchangeably in the context of the CTR list – is without merit.

To do so would render the requirements set out in a specific paragraph of the CTR list “redundant, irrational and out of place in keeping with the formulation of the RFP and its purpose”.

Millar said the mandatory returnable tender requirements were ambiguous.

Eskom was required at the very least to have recognised the ambiguity, and given Babcock and every other tenderer who was disqualified as a consequence of this ambiguity an opportunity to comply with what it had intended the requirements to be.

“Its failure to do so was procedurally unfair as provided for in … PAJA [Promotion of Administrative Justice Act] and in consequence, the disqualification of Babcock from consideration in the award of the tender was both unlawful and irrational.”