Regulation 32 exemption

In the unreported case of Blue Nightingale Trading 397 (Pty) Ltd t/a Siyenza Group v Amathole District Municipality (Case No. EL 881/15, ECD 1681/15, Eastern Cape Circuit Court, East London), the High Court was required to deal with the interpretation of regulation 32 of the Municipal Supply Chain Management Regulations. The provisions in question allow a municipality to procure goods and services under a contract secured by another organ of state, provided that certain requirements have been met. In such circumstances, the municipality will be exempt from having to comply with the supply chain management provisions of the MFMA.

The Siyenza Group had entered into a contract with the Municipal Infrastructure Support Agent (MISA) for the supply and installation of prefabricated toilets in the Northern Cape. This was done pursuant to a procurement process. Relying on regulation 32, the Amathole District Municipality (ADM) requested MISA’s permission to participate in the contract with the Siyenza Group, which was granted. This resulted in an agreement between the ADM and the Siyenza Group for the construction of VIP latrines in the Eastern Cape. Both the MISA contract and the agreement with the ADM were later terminated, leading to the Siyenza Group’s institution of legal proceedings.

The High Court held that regulation 32 must be interpreted restrictively. Any exemption from compliance with the supply chain management provisions of the MFMA must not detract from the constitutional requirements of fairness, equitability, transparency, competitiveness and cost-effectiveness.

Accordingly, the High Court stated that the goods or services to be required by a municipality must be the same as those procured by the other organ of state. In addition, the contract price must be the same. If procurement of the goods and services by the other organ of state had withstood the scrutiny of due process, then there was no need for duplication. Importantly, the terms and conditions of a contract between the other organ of state and the supplier may not be deleted or amended or compromised so that the agreement between the municipality and the supplier did not comply with the above constitutional requirements.

The High Court held that the agreement between the ADM and the Siyenza Group fell short of the constitutional requirements and was unlawful. The application was dismissed with costs.