Picture: Bertram Malgas
Cape Town - Commercially lucrative state tenders do not necessarily end by being that profitable due to private entities opening themselves to financial risk when they enter into agreements with the state.

Law firm Cliffe Dekker Hofmeyer executive consultant for dispute resolution Nick Muller last week said the Western Cape High Court decision in Parkscape v MTO Forestry and SANParks emphasised the commercial pitfalls facing a private entity contracting with a state organ.

“The court found the decision by SANParks to permit, purely on commercial considerations, MTO to accelerate the commercial realisation of its assets in terms of the lease to be the exercise of a public power and therefore subject to public scrutiny, participation and approval,” he said.

The case rose after MTO concluded a lease with SANParks which permitted it to harvest for commercial gain its pine plantations within the Table Mountain National Park, in accordance with timelines approved by the parks authority. But last July, after the devastating fires in the park, MTO asked SANParks’ approval to accelerate harvesting sections of its plantation in the Tokai area of the park.

SANParks consented to this and felling of the plantation began the next month. However, a spanner was put in the works when Parkscape, a voluntary association of interested persons established last June, sought an order setting aside SANParks’ decision to allow the accelerated harvesting of the plantation and preventing the further felling of trees pending public participation and approval of this.

Parscape argued that the Table Mountain National Park and plantations were a public amenity managed under statutory authority by SANParks, and in agreeing to the accelerated harvesting of the plantation in question, SANParks was exercising a public, as opposed to a private, power.

The court agreed with with Parscape’s argument, which saw SANParks’ decision to permit MTO to embark on the accelerated felling of its plantation rendered null and void.

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Muller said this highlighted the complexities companies faced when engaging with the state. “In the circumstances, MTO, whose only interest in the lease was of a commercial nature and to realise its asset located within the park, was and is left commercially exposed. The lease could not provide the parties with unfettered rights, although it afforded them the ability to determine by agreement how certain provisions of the lease, on purely commercial considerations, should be implemented.”

Another company that recently saw its affairs come under intense public scrutiny was Net1 UEPS Technologies, whose subsidiary Cash Payment Systems is tasked with paying R140 billion in state social grants to recipients.

Unlawful

CPS’s unlawful contract was extended for a year after the South African Social Services Agency (Sassa) failed to find a replacement in more than 18 months. The fallout from its conduct in being awarded the tender resulted in its mainstay chairperson and chief executive, Serge Belamant, stepping down from his position as chairperson after a shareholder revolt.

Muller said the Net1 case was a caution: companies should seek guidance about their obligations when they were awarded public sector work.

“The extension of the contract is a significant finding for private sector companies tendering for public sector work. It shows that where a company assumes constitutional powers and obligations, the court may step into the commercial arrangement and order fulfilment of those obligations, notwithstanding the company’s commercial interests.”

BUSINESS REPORT