A recently reported court judgement in the Western Cape High Court, H & I Civil & Building (Pty) Ltd v The City of Cape Town Case No 59/24, has a potentially chilling impact on the broad-based application of BEE by Organs of State and Public Entities. The judgment represents a missed opportunity to meaningfully advance the potential of public procurement in South Africa in broadening the reach of B-BBEE. While the court upheld the City’s right to implement a preferential procurement policy, it ultimately failed to adequately scrutinize the policy itself, effectively shielding it from meaningful judicial oversight. The case challenges a new preferential procurement scoring system introduced by the City of Cape Town, which allocates preference points based on factors like women, Black, and disabled ownership, and support for small and micro-enterprises. The applicants, construction companies, argue the new system is unlawful, irrational, and excludes them from competing fairly. They claim it disregards their existing B-BBEE status and unfairly favors other companies. The City defends the new system, arguing it’s necessary to address historical disadvantages and promote economic transformation in line with constitutional principles. They maintain the system is lawful and rationally designed. The court dismissed the application, finding the applicants’ arguments to be without merit. Key Findings: The court upheld the City’s right to determine its own preferential procurement policy within the framework of the law. The court rejected the applicants’ argument that the new system unfairly disadvantages them and that the City was obliged to prioritize their existing B-BBEE status. In essence, the court upheld the City’s right to implement a preferential procurement policy that prioritizes specific goals, such as supporting women-, Black-, and disabled-owned businesses, even if it may impact the competitive advantage of some existing contractors finding it to give sufficient effect to Section 10 of the B-BBEE Act.

This critique will delve into the shortcomings of the judgment, focusing on its narrow interpretation of the law as it relates to the B-BBEE Act.

1. A Narrow Interpretation of the Law:
The judgment demonstrates a narrow interpretation of the interplay between the Preferential Procurement Policy Framework Act (PPPFA) and the Broad-Based Black Economic Empowerment (B-BBEE) Act. The court emphasized the City’s autonomy in determining its own procurement policy, effectively minimizing the role of the B-BBEE Act and its sectoral codes in guiding this process. This interpretation undermines the very purpose of the B-BBEE Act, which seeks to promote broad-based black economic empowerment across all sectors of the economy, including public procurement. The judgment states that the B-BBEE Act “does not prescribe to an organ of state how the B-BBEE Codes are to be applied in the development and implementation of a procurement policy.” This interpretation overlooks the fact that the B-BBEE Act and its sectoral codes provide a crucial framework for understanding and addressing historical disadvantage and promoting equitable participation in the economy. While the PPPFA grants organs of state discretion in designing their procurement policies, this discretion cannot be exercised in a manner that undermines the objectives of the B-BBEE Act. The court should have more rigorously examined whether the City’s new scoring system adequately considered the principles and objectives enshrined in the Construction Sectoral Code. For instance, the judgment could have inquired more deeply into whether the City’s chosen “specific goals” adequately reflected the broader objectives of the Code, such as promoting meaningful black ownership, control, and management in the construction sector.

Furthermore, the judgement places significant reliance on Section 10(1)(b) of the B-BBEE Act, read with Section 2 of the PPPFA, justifying it by referencing the Afribusiness-judgement:

[162] Section 10(1)(b) of the B-BBEE Act recognises, it is for an organ of state to determine how the B-BBEE Codes are to be applied in the development and implementation of its procurement policy. As was held in Afribusiness, it is however for the organ of state and that organ of state alone, to create a system of preference in terms of a preferential procurement policy which section 2(1) of the Procurement Act obliges that organ of state to determine and implement. Similarly, the competence to prescribe industry specific B-BBEE Codes and the factors to be determined in the evaluation of a measured entity’s B-BBEE score, lies with the Minister, not an organ of state. The scope of operation of the powers and functions conferred by the Procurement Act and the B-BBEE Act are in my view conceptually distinct by deliberate design.

The Court also dismissed the applicant’s reliance on the ACSA-judgement:

[171] The Applicants relied extensively on the judgment of the Supreme Court of Appeal in ACSA in support of their argument that in relation to the procurement of construction works, the Construction Sectoral Code enjoys primacy over earlier legislation such as the PPPFA. In my view, ACSA is not authority for this proposition.

[172] In ACSA, it was the minority judgment, per Molamela JA (Tshiqi JA concurring, which held that it was impermissible for an organs of state to be allowed to, without the Minister’s input, design its own unique criteria that deviate from those laid down in the sector codes, as to do would render the uniformity sought to be achieved by the strategies envisaged in the B-BBEE Act, nugatory. The majority judgment per Ponnan JA (Cachalia and Wallis JJA concurring), expressly did not reach this conclusion. The majority held that it was unnecessary to consider the other grounds that had been held by the High Court to be decisive against ACSA, one of which was that the impugned Request for Bids (“RFB”) was in breach of B-BBEE Act and the Tourism Sector Code of Good Practice

In doing so, the court ignored the interplay between the ACSA and Afribusiness-judgements, with the later quoting the former approvingly:

‘As discussed above, the Minister’s motivation to promulgate the 2017 Procurement Regulations emanates from Cabinet’s decision that the public sector preferential procurement system needed to be aligned with the objects of the B-BBEE Act. The Supreme Court of Appeal held in ACSA, that it is undisputed that the Procurement Act and the B-BBEE Act constitutes the legislative scheme envisaged in section 217(3), giving effect to section 217(2). Accordingly, the 2017 Procurement Regulations, with the same objects as the B-BBEE Act, are consistent with section 217(2) and the Procurement Act.’

While the above excerpt derives from the minority judgement, it was affirmed by the majority judgement:

What section 217(2) seeks to achieve is consonant with the transformative nature of our Constitution. And its provisions dovetail with those of section 9(2) of the Constitution. Without provisions of this nature, true or substantive equality would forever be pie in the sky for the vast majority of South Africans and the transformative agenda of the Constitution would be unrealisable. Talking about the transformative nature of our Constitution, Madala J said in Du Plessis: “[The interim Constitution] is a document that seeks to transform the status quo ante into a new order, proclaiming that— ‘there is a need to create a new order in which all South Africans will be entitled to a common South African citizenship in a sovereign and democratic constitutional State in which there is equality between men and women and people of all races so that all citizens shall be able to enjoy and exercise their fundamental rights and freedoms.’” 84 Although said about the interim Constitution, this is equally true of the Constitution. [100] Section 217(3) of the Constitution then provides that “[n]ational legislation must prescribe a framework within which the policy referred to in [section 217(2)] must be

implemented”. The debate between the first judgment and this judgment is not about these transformative imperatives. We both agree on them. And we must.

The conclusion to be reached is that the B-BBEE Act, and therefore Section 10 thereof, gives effect to the categories of preference in the allocation of contracts; and the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination as per 217(2) of the Constitution. One would then need to uphold the legality of the B-BBEE Act when interpreting its provisions, especially in relation to the powers granted to the Minister in terms of Section 9(6) and 10(2):

Section 9(6) of the B-BBEE Act reads as follows:

If requested to do so, the Minister may by notice in the Gazette permit organs of state or public entities to specify qualification criteria for procurement and other economic activities which exceed those set by the Minister in terms of subsection (1)

Subsection 1 referred to is 9(1):

In order to promote the purposes of the Act, the Minister may by notice in the Gazette issue codes of good practice on black economic empowerment that may include—

The empowering provision thus envisions permission granted to organs of state/ public entities to specify qualification criteria over and beyond those found in an applicable code of good practice. This is supported by the definition of ‘exceed’ found in the B-BBEE Regulations:

“exceed” as contemplated in section 9(6) of the Act, in addition to the requirements of the Codes of Good Practice means –

i.forty (40) percent sub-minimum targets set out in the Codes of Good Practice for each priority element of equity ownership, skills development and enterprise and supplier development; and

ii.targets set out in each of the five (5) elements of the Codes of Good Practice;

Of particular importance is the wording ‘in addition to’, meaning that the application of the code of good practice is not suspended or altered, it is to be complimented with additional criteria.

Section 10(2) of the B-BBEE Act reads as follows:

(2)

(a) The Minister may, after consultation with the relevant organ of state or public entity, exempt the organ of state or public entity from a requirement contained in subsection (1) or allow a deviation therefrom if particular objectively verifiable facts or circumstances applicable to the organ of state or public entity necessitate an exemption or deviation.

(b) The Minister must publish the notice of exemption or deviation in the Gazette.

Subsection 1 referred to is 10(1):

(1) Every organ of state and public entity must apply any relevant code of good practice issued in terms of this Act in

(a) determining qualification criteria for the issuing of licences, concessions or other authorisations in respect of economic activity in terms of any law;

(b) developing and implementing a preferential procurement policy;

(c) determining qualification criteria for the sale of stateowned enterprises;

(d) developing criteria for entering into partnerships with the private sector; and

(e) determining criteria for the awarding of incentives, grants and investment schemes in support of broadbased black economic empowerment.

The empowering provision thus envisions permission granted to organs of state/ public entities to be exempt from applying an applicable code of good practice or to deviate from one or more of its provisions. This is supported by the definitions of ‘exemption’ and ‘deviation’ found in the B-BBEE Regulations:

“exemption” means relief from implementing the Codes of Good Practice as granted by the Minister in terms of section 10(2) of the Act;

“deviation” means a deviation of the organ of state or public entity from the Codes of Good Practice in terms of section 10(2) of the Act;

The test of whether Section 9(6) or 10(2) finds applicability can be worded as follows:

1. Does the organ of state seek to apply a code of good practice issued in terms of Section 9(1) as is as per Section 10(2) and then add additional requirements to it? Or;

2. Does the organ of state seek to apply an amended version of a code of good practice issued in terms of Section 9(1) as per Section 10(2) or not apply it at all?

If the answer to (1) is ‘yes’, Section 9(6) applies. If the answer to 2 is ‘yes’, Section 10(2) applies.

The City of Cape Town is an organ of state. In applying only black ownership criteria in its procurement policy the City deviates from the subsection 10(1) requirement that Every organ of state and public entity must apply any relevant code of good practice issued in terms of this Act in developing and implementing a preferential procurement policy. It therefore should have applied to the Minister of Trade, Industry and Competition for an exemption in terms of Section 10(2). The judgement therefore strips the Minister of his powers, assigning it to the organ of state.

2. Insufficient Scrutiny of Transformative Objectives:
The judgment uncritically accepted the City’s chosen approach without adequately considering alternative approaches that could have more effectively promoted the objectives of the B-BBEE Act and the Construction Sectoral Code. For example, the court could have explored whether the City adequately considered mechanisms to incentivize broader black economic participation beyond mere ownership, such as: Employee share ownership programs: The judgment dismissed the applicants’ concerns regarding the exclusion of employee share ownership programs from the scoring system. However, a more nuanced analysis could have examined whether the City adequately considered mechanisms to recognize and incentivize such programs, particularly in light of their potential to promote broader employee ownership and empowerment. *Skills development and training: The judgment could have explored whether the City’s policy adequately incentivized investments in skills development and training programs for historically disadvantaged individuals within the construction sector. Supply chain development: The judgment could have examined whether the City’s policy adequately incentivized the development of black-owned small and medium enterprises (SMMEs) within the construction supply chain. By failing to adequately consider these alternative approaches, the judgment missed an opportunity to encourage more innovative and impactful procurement policies that could have more effectively promoted the objectives of the B-BBEE Act

Conclusion:
The H & I Civil & Building (Pty) Ltd judgment represents a missed opportunity to provide clearer guidance on the interplay between the PPPFA and the B-BBEE Act in the context of public procurement. The court’s narrow interpretation of the law and its limited scrutiny of the City’s policy may have unintended consequences, potentially hindering the realization of a truly transformative and equitable procurement system in South Africa. In doing so, it strips the Minister of Trade, industry and Competition of crucial powers bestowed on him to guide the ‘integrated and uniform approach to broad-based black economic empowerment policies’ envisioned by Section 11(2) of the B-BBEE Act.