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LETTING OUT A STATE PROPERTY - DOES SECTION 217 OF THE CONSTITUTION APPLY?

LETTING OUT A STATE PROPERTY - DOES SECTION 217 OF THE CONSTITUTION APPLY?

(Are you negotiating or about to sign that lease agreement with an organ of state? Make sure there is proper compliance with the law.)

Section 217(1) of the Constitution provides that “When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.” Section 217(2) allows a preferential procurement system, and Section 217(3) empowers and compels the parliament to enact a national legislation that must prescribe a framework within which a preferential procurement system must be implemented. The PPPFA and Regulations under it, and B-BBEE Act are the National legislation envisaged by section 217(3). All organs of state, as defined in 239 of the Constitution, must comply with Section 217.

But what if an organ of state wants to let out its property? Is letting of property the same as buying goods or services? The organ of state, when letting out its property, is, on the face value, not contracting for goods or services as contemplated in the section. The million dollar question is: “is Section 217 of the Constitution applicable?”

In the judgement of Imperial Group Limited v Airports Company South Africa SOC Limited and Others (2967/2018) [2018] ZAGPJHC 411; [2018] 3 All SA 751 (GJ) (3 July 2018), the court was faced with and had to decide on the above-mentioned “million dollar question”. ACSA’s contention (the First Respondent’s) was that section 217 was not applicable. The Applicant (Imperial Group Ltd, which is currently providing car-rental services to almost all South African Airports managed by ACSA) disagreed. Briefly: ACSA issued RFB inviting prospective bidders to bid for the hiring of ACSA’s properties (parking bays and offices space at major SA Airports). The prospective bidders were car-rental companies who would provide car-rental services to people using the airports. The compilation of their (ACSA’s) RFB document was not in keeping with the procurement legislation and section 217, and there was no dispute on this. Imperial lodged a complaint about this, but this complaint was ignored by ASCA who went on with the invitation of tenders. They (Imperial) approached the court with a review application seeking the order to review and set aside the RFB document and the decision, by ACSA, to advertise the tender. They based their application on the provisions of section 6 of PAJA and, alternatively, on the principle of legality.

The court, when considering the matter, adopted a purposive approach when interpreting Section 217. It held that when an organ of state is letting out a state property to a person who is going to use it for provision of services that are supposed to be provided by that organ of state, that transaction (lease agreement or concession) must be regarded (for purposes of interpretation) as a contract for provision of services by the state, thereby attracting the application of Section 217. The court was correctly of the view that the provision of transport services at the airports was part and parcel of ACSA’s obligations. Had they had capacity, they would have provided this service by themselves. The court concluded that the facts and circumstances of this case indicate that Section 217 was applicable.

But what if the property is to be used for something different, not related to provision of services? In the absence of any regulatory legal instrument, applicable to a particular organ of state, providing that section 217 must be applicable when that organ of state lets out its properties, the inference that can be drawn from the judgement is that section 217 would not be applicable. However, the court emphasised that each case must be dealt with in light of its facts and circumstances. There is no one size fits all approach.

The judgement also deals with other very important aspects of the administrative and procurement law, like:

Whether the preparation of RFP document and a decision to invite bidders do amount to “administrative action”;
Lawfulness of setting pre-qualification criteria falling outside the perimeters set by the provisions of Reg 4 read with 3(b) of Procurement Regulations 2017;
Section 2 of the PPPFA and the methodology of assessment of tenders; etc.

Doing business with government/public institutions is tricky and requires you to be very careful. You don’t want to be kicked out of that contract just because there was no property compliance with the law when it was concluded. And remember, compliance with the law is not a choice, but it’s a must.

Talk to us.

Author: Agrippa Mpungose

Email: agrippam@tmj.co.za

Tel: 033 341 9107