‘Sanity will prevail’ in preferential procurement rules dispute – WBHO

JSE-listed construction and engineering group WBHO believes sanity will prevail in the dispute between major construction groups and the South African National Roads Agency (Sanral) over the road agency’s new preferential procurement rules for its tenders.

WBHO CEO Wolfgang Neff said this week that sense must prevail in the dispute with Sanral.

“To allocate five points for 100% black ownership, in percentage terms, that is 5% government would be paying more for using 100% black-owned business,” he said.

Neff stressed, for instance, that WBHO’s management does not own the company.

“I think exco [executive] ownership is less than 1%. WBHO is owned by its staff members through Akani with 20%, the PIC [Public Investment Corporation] owns a chunk of us, and then pension funds.

“I just think it makes no sense what the guys [Sanral] are doing,” he said.

Neff added that another criteria of Sanral’s new preferential procurement policy is for main contractors to subcontract more than 35% of the project, which is currently the case.

However, Neff said a Sanral project is extremely complex, and the main contractor is taking on all the risk and providing the guarantees.

“So to start farming out the critical work to contractors who don’t have the experience or skill set becomes just too risky. It makes no sense,” he said.

Court challenge

Sanral is facing a high court challenge after allegedly unilaterally introducing the new preferential procurement scoring system for its tenders earlier this year.

The new scoring system significantly downgrades the importance of the broad-based black economic empowerment (B-BBEE) Act ratings of most bidders.

An urgent application by Cape Town registered H&I Construction to interdict Sanral from implementing the new scoring system when adjudicating two specific tenders, pending an application to review and set aside this new scoring system, was heard in the High Court in Gqeberha in July.

Read: Sanral’s new preferential procurement scoring system challenged

Judgment was reserved and has not yet been handed down.

WBHO has applied to join Part B of H&I Construction’s application to review and set aside the new scoring system.

H&I Construction challenged the decision by Sanral to change its scoring system for the award of the tenders on the grounds that:

• It does not comply with the requirements set out by Section 2 of the Preferential Procurement Policy Framework Act 5 of 2000; and
• It was introduced without H&I Construction being consulted.

Francis Chemaly, commercial manager at H&I Construction, said the new scoring system Sanral now seeks to employ “is unconstitutional and irrational and therefore reviewable both on grounds of legality and under the Promotion of Administrative Justice Act”.

“Sanral introduced these changes to its tendering system without consulting those directly affected by it, including the applicant [H&I Construction].

“The proposed new scoring system is so unfair, so irrational, uncompetitive and cost averse, that potential bidders such as the applicant [H&I Construction] will simply not be able to present a bid on a viable, cost-effective basis, and have any hope of scoring sufficient points in a fair process to have the bid awarded to it, should Sanral be permitted to proceed with its new scoring system for these tenders,” he said.

ConCourt ruling

The new scoring system introduced by Sanral follows the February 2022 Constitutional Court judgment that ruled that then minister of finance Pravin Gordhan had acted beyond his powers in promulgating new regulations in 2017 that introduced pre-qualification B-BBEE criteria that bidders had to comply with before they would be permitted to proceed to the next stage of the bidding process.

This Constitutional Court defeat led to current Minister of Finance Enoch Godongwana repealing the 2017 regulations and replacing them in 2022 with new regulations that allow organs of state to determine their own preferential procurement policies pending the promulgation of the Public Procurement Bill.

Read:
SA’s procurement regulatory regime finds itself in muddy waters
ConCourt confirms validity of 2017 Preferential Procurement Regulations

WBHO and other major construction groups have a lot to lose because of the new scoring system.

Neff said a significant uptick in activity from Sanral resulted in a 43% increase in activity from the local roadwork sector in WBHO’s financial year to end-June 2023.

He said the high levels of roadworks on hand at the beginning of the period were further supplemented by the award of:

• The R3.5 billion Keyridge project along the N3;
• A R1.2 billion improvement project along the R63 to the intersection of the N6 near Bhisho;
• A R2.9 billion project in a joint venture for the construction of the N2 Wild Coast Highway Section 20 between the Msikaba Bridge and the Mtentu Bridge; and
• Four additional mid-sized projects with a combined value of R1.4 billion.

Neff added that post the group’s year-end, the roads and earthworks division had conditionally been awarded an additional R1.3 billion project to be executed in a joint venture.

WBHO’s road and earthworks increased its order book by 131% to R14.78 billion at end-June 2023 from R6.4 billion in the prior year.

By sector, roadworks comprise 62% of WBHO’s enlarged order book compared to 26% in the prior year.

WBHO’s consolidated order book grew by 43% to R32.5 billion at end-June 2023 from R22.2 billion the previous year.

Neff said Sanral still has a lot of projects that are out to tender and a lot of projects that are still pending.

“It’s just the whole procurement issue [that needs] to be sorted out for them to award those things [contracts],” he said.

“I think reason should prevail, and then there’s a whole heap of work for everyone in this country.”

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