Key considerations in the award of construction contracts to contractors in the public sector (South Africa) The Construction Industry

Development Board Act establishes the CIDB which, inter alia, establishes a national register of contractors to be used by the public sector in their procurement processes and regulates industry minimum standards and best practice. Section 16 of the CIDB Act regulates the registration of contractors and their categorisation in a manner that facilitates public sector procurement. Section 16(4) provides that, as from a date to be declared by the Minister every organ of state must, subject to the policy on procurement, apply the register of contractors to its procurement process. In addition, section 18(1) provides that unregistered contractors may not undertake, carry out or complete any construction works or portion of such works for projects of organs of state awarded in terms of competitive tender or quotation unless they are registered with the CIDB and hold the relevant valid registration certificate issued by the CIDB. The regulations under the CIDB Act were published on 9 June 2004, and provide for various aspects of procurement by organs of state where construction works or contractors in the construction industry are required. The CIDB Regulations provide, inter alia, for the grading of contractors by the CIDB on the basis of their financial capability, the number of persons employed by that contractor and their qualifications and the financial scale of the previous projects completed by the contractor. The calculation of the grading of a joint venture entity is based on the sum of the annual turnover of all of the joint venture members, the sum of the available capital of the members of the joint venture and the total number of equivalent full time qualified persons in the grading category in which the joint venture wishes to be registered. Given that a number of bidders in a project may submit a bid as a joint venture this consideration may be relevant in determining whether the joint venture complied with the CIBD grading requirements. The classification of contractors contemplated above is particularly important for the purposes of procurement by organs of state. Regulation 25(1) provides that in soliciting a tender offer for a construction works contract, an organ of state must stipulate that only tenders by contractors who are registered in a specific grading category (depending on the project and as determined in accordance with regulation 25(3)) or a category higher than that category may be evaluated in relation to that tender. Regulation 25(3) provides for the mechanism for calculating the required grading category of tender offers or submissions of interest which qualify to be evaluated for each project. Accordingly, any contractor who does not possess such a grade would prima facie be disqualified from tendering for the project. However, regulation 25(7A) provides that, subject to its procurement policy, an organ of state may evaluate and award a tender offer from a bidder who is registered with the CIDB but who tendered outside of his or her tender value range, provided that, inter alia, the margin by which the bidder exceeds their tender range is reasonable, the award will not pose undue risk to the organ of state and the CIDB is notified of such award and the circumstances of the acceptance.

Regulation 25(10) provides that a tender offer received from a contractor that does not meet the minimum grading criteria (save of course to the extent of an exemption contemplated in regulation (7A)) must be rejected. This constitutes a clear obligation on the part of the organ of state to disqualify any bidder that does not meet the minimum grading criteria. The CIDB Regulations oblige an organ of state, prior to awarding a construction works contract, to satisfy itself that the contractor is duly registered with the CIDB and has demonstrated that they have the resource capacity and capability to complete the project, and that such capacity will not be unduly compromised upon the award of the contract in question.