Eskom can appeal ‘R16bn in unlawful tenders’ judgment

Eskom has been granted leave to appeal the high court judgment that set aside and declared unlawful tenders worth about R16 billion, to provide maintenance and outage repair services at its 15 coal-fired power stations.

The tenders were awarded to Actom and Steinmuller Africa in October 2021 (for seven and eight power stations respectively).

Judge Anthony Millar issued an order on Monday granting Eskom leave to appeal in the Supreme Court of Appeal the judgment he handed down in November 2022 to Babcock Ntuthuko Engineering’s application to review, set aside and declare unlawful the contract awards to Actom and Steinmuller Africa.

In the November 2022 judgment, Millar ordered Eskom to conduct a fresh tender process and complete it within six months, and suspended the setting aside of the contracts until its finalisation.

Babcock disqualified 

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

It 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.

Prior to the tender award, Babcock provided specialised engineering services to four 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, with the last extension lapsing on 31 December 2021.

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

Appeal application

In its application for leave to appeal, Eskom said the court found the mandatory returnables of “certification to ISO 3834” – the ISO precondition in the RFP – did not refer to a certificate but “to the body that has the authority to issue a certificate”.

Eskom said the court held that to read this as requiring the submission of a certificate would be “redundant, irrational and out of place” with the formulation and purpose of the RFP, because other mandatory returnables (such as those relating to black economic empowerment) specifically required the submission of a certificate.

The court held that the interpretation of the ISO precondition adopted by Babcock – that it required a mere statement by the bidder that it was certified – was thus “to be preferred”.

Eskom argued that the court erred in making this finding, claiming that the text, purpose and context of the precondition dictate that an ISO 3834 certificate was required to be submitted by the bidders.

It said the court held that “certification” meant “the action of an instance of certifying the truth” or “referred to a body that has the authority to issue a certificate”.

But Eskom said neither interpretation of “certification” fits comfortably in the framing of the ISO precondition in a way that renders its meaning sensible.

Even if the court’s interpretation was adopted, the ISO precondition still required the submission of an ISO 3834 certificate, it said.

Eskom said a certificate is the means through which a certification agency or “body” certifies that a person meets a quality standard.

It said nothing in the court’s judgment supports the interpretation of the ISO precondition adopted by Babcock that “certification” means a mere statement by a bidder that it holds a certificate.

“Only the certification agency, and not a bidder, can certify a person’s ability to weld to the ISO 3834 standard,” said Eskom.

It added that on Babcock’s own version, the purpose of the ISO precondition was “to ensure that a bidder is qualified to ensure that welded products meet customer needs within statutory and regulatory requirements related to a particular weld”.

It said it was also not disputed that the precondition was “crucial to the tender”, which was for boiler maintenance – which “predominantly entails complex and specialised welding”.

Read: Eskom’s maintenance work not yielding results: Oberholzer

“It was therefore necessary for Eskom to verify beforehand that all of the bidders were qualified to weld to the appropriate quality standard.

“An interpretation of the ISO precondition that something less than an ISO 3834 certificate was required to be submitted by bidders – such as a mere statement by a bidder that it was certified – defeats the purpose of the precondition.

“If the ISO precondition is read in this way, even an uncertified bidder who was not qualified to weld to the appropriate standard could pass the mandatory requirements evaluation stage and be awarded the tender based on a (false) statement that it is certified,” it said.

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Eskom said contrary to the court’s finding, if the ISO precondition was properly interpreted, it required bidders to submit an ISO 3834 certificate – not merely state that that they had a certificate.

Requirements ‘not ambiguous’

It said the court also erred in its finding that the mandatory requirements “were ambiguous” and that Eskom should have recognised this and given bidders, including Babcock, an opportunity to comply with the intended requirements – and that its failure to do so rendered Babcock’s disqualification procedurally unfair in terms of the Promotion of Administrative Justice Act.

Eskom said no party, including Babcock, contended that the ISO precondition was ambiguous.

It said Actom and Steinmuller understood that an ISO 3834 certificate was required and complied with this, and that Babcock itself understood the requirement in this way.

“Babcock admitted in its letter to Eskom of 19 November 2018 ‘that copies of its current ISO 3834 certificates may have been excluded in error from the bid documents to Eskom’ and it repeatedly submitted ISO 3834 certificates after the tender closing date in an attempt to cure the defect,” it said.

Opportunity for clarification

Eskom added that even if the ISO precondition was ambiguous, the ambiguity was removed by the tender clarification meeting held by Eskom before bids were submitted, which was attended by bidders including Babcock, with the minutes of the meeting recording that bidders were required to provide a “Valid certificate of ISO 3834”.

“The court therefore erred in concluding the ISO precondition was ambiguous and the tender process was procedurally unfair,” it said.

Actom and Steinmuller Africa were both parties to the application for leave to appeal.

Actom said the ISO precondition was not unfair and argued that the remedy was “inappropriate”.