SCA finds W Cape’s Royal Security services deal was ‘cost-effective tendering’

9 Jun 2024

The Supreme Court of Appeal has dismissed an application by a rival bidder to interdict a tender awarded by the Western Cape Department of Infrastructure to Royal Security, a company once controlled by Roy Moodley, implicated in State Capture.

Royal Security won a R282-million contract to provide security services for the Western Cape’s fixed assets. The business, once controlled by Roy Moodley, who was implicated in State Capture, is now controlled by his son Magesh, as Scorpio’s Pieter-Louis Myburgh wrote in June 2023.

On Friday, 7 June, Supreme Court of Appeal (SCA) judges Visvanathan Ponnan, Tati Makgoka and Nolwazi Mabindla-Boqwana, with judges Glenn Goosen and Phillip Coppin concurring, dismissed an appeal brought by Tyte Security Services.

The five respondents were the Western Cape provincial government, the MEC for the Department of Infrastructure, the Western Cape Department of Infrastructure, Royal Security and SS Solutions trading as Seal Security.

Seal Security had won a bid in 2021 to provide services to the department and had wanted the Western Cape High Court to interdict the government from appointing Royal while a review application to set aside the tender was under way.

Seal Security and Tyte Security Services, another Royal rival, had shared the earlier contract.

Read more in Daily Maverick: Royal Security — founded by State Capture ‘kingpin’ Roy Moodley — bags R282m contract in DA-led Western Cape

The SCA found it was common ground during litigation that the price Royal had tendered was “most favourable” to the provincial government. The bid, the court noted, was “lower than all the others by a significant margin”.

Royal’s bid of R282-million for the 24-month contract was 18.45% below the pre-tender estimate, whereas Seal and Tyte had exceeded the estimate by 5.62% and 1.35% respectively.

The SCA quoted an earlier opinion by Judge Patrick Gamble that “at the end of it all, the approach adopted by the province was in accordance with the touchstone of public procurement — the promotion of competition and cost-effective tendering. Importantly, the exercise resulted in a significant saving for the public purse — around R83m when compared to Seal’s price.”

Windfall

While sharing the contract, the court said, the anticipated windfall to Seal and Tyte of a further turnover of R100-million after the award of the bid to Royal represented 28.16% of the full-term value of the second contract.

Apart from illustrating “the exceptional nature of this matter”, the facts also bore testimony “to the extent of the existing and ongoing prejudice to Royal and the public at large”.

The significance of the public interest in this matter had been recognised by the high court in the concurring judgment of Judge Gamble in the review application.

Importantly, he noted, the exercise resulted in a significant saving for the public purse — about R83-million compared with Seal’s price.

Royal had to provide insurance cover of R5-million per 300 guards, furnish a performance guarantee equal to 1% of the contract, being R2.8-million, and establish sites in six different districts.

Royal had also spent more than R1-million on uniforms and R7.5-million on tactical response vehicles.

“As against that, the continued rendering of services in terms of the impugned first contract, has generated in excess of R70-million for Seal and Tyte,” the court said.

History of the deal

The Western Cape government contracts security companies to guard its property “which is especially vulnerable to unlawful occupation and vandalism”.

Each contract typically lasts for two years.

On 25 March 2021, the tender for the services was awarded jointly to Tyte and Seal following a tender process. On 21 April 2021, the provincial government invited bids for a new 24-month contract.

On 31 May 2023, it awarded the tender to and concluded a contract to commence immediately with Royal Security.

On 15 June 2023, Seal brought an urgent application for an order that, pending the final determination of a review application, interdicted the government from implementing its decision to award the tender to Royal.

By way of a counter-application, Tyte also sought the review and setting aside of the award.

On 27 June 2023, Judge Matthew Francis, issuing directions on the review application, ordered that Seal and Tyte continue to render services in terms of the first contract, pending the outcome of the review.

The review application was heard by judges Patrick Gamble and Derek Wille in November 2023. Separate judgments were delivered on 21 February, with Judge Gamble concurring, for somewhat different reasons, in the order proposed by Judge Wille.

The review application by Tyte and Seal was dismissed and the award of the tender to Royal upheld. On 28 February, Tyte applied for leave to appeal against the main order and in March Royal applied urgently for an order in the SCA.

No irreparable harm

There would be cases, the SCA judges opined, where a litigant might suffer “irreparable harm” by being forced to abide by a decision of a court that was subsequently held to be wrong on appeal.

But even on a “most general impression as to the strength of Tyte’s case and its ultimate prospects of success, this was not such a matter”.

Tyte had argued that if it were compelled to hand over operations to Royal, but ultimately succeeded in having the award of the second contract set aside on appeal, then Tyte would become the preferred supplier.

Tyte had also asserted that this entitlement arose from orders of judges Ashley Binns-Ward and Francis, but these, the SCA said, were “temporary and expedient and in no way sought to (or could for that matter) resolve the respective rights and obligations of the parties”.

In arguing that it would suffer “irreparable harm” Tyte had taken “a rather narrow view” of the matter.

“It focuses on the profits that it will lose going forward, but ignores entirely the windfall that it has received from a contract that was unlawfully awarded to it.

“It seeks to continue to reap that windfall for an indefinite period well into the future. It does so in the face of a new contract that has been held by the high court to have been lawfully awarded to Royal.”

What was more, the court said, as long as Tyte continued to perform in terms of the first contract that had been held to be unlawful, it did so at an inflated cost to the provincial government.

“The windfall, taken together with the inflated costs, is completely dispositive of Tyte’s argument that the harm to it is irreparable.” DM

Categories:

Tags:

DM is much better if you are signed in...

South Africa

Windfall

History of the deal

No irreparable harm