Eskom unfairly shifted R5bn tender goalposts

Judge sets aside deal with Areva, ruling that strategic criteria should not have been part of process

THE Supreme Court of Appeal has ruled that Eskom’s R5 billion tender to French nuclear vendor Areva to replace Koeberg’s aging steam generators was “irrational and unlawful” and has set the tender aside.

Although Areva has already begun work on replacing Koeberg’s six generators, the appeal court has ruled that Eskom must re-open the tender process.

Yesterday’s judgment comes after a rival bidder, Westinghouse Electric Belgium, took legal action to have the tender awarded by Eskom to Areva in August 2014, reviewed and set aside. The first case was heard in the Gauteng Local Division High Court, where Westinghouse argued that the decision to award the tender to Areva had been taken unlawfully. The company said the board tender committee had given the tender to Areva based on “various strategic considerations” which had not been part of the stated bid criteria. Westinghouse had not known about these criteria, nor had it been informed by Eskom about them.

However, Westinghouse lost the case in the high court, which found that the strategic criteria were relevant to awarding the tender, which had therefore not been awarded unlawfully.

But yesterday supreme court of appeal Judge CH Lewis overturned the high court decision. In his judgment Judge Lewis said the high court had appeared to overlook the principle that in assessing the lawfulness of the tender process, a court must consider only whether the bids had been properly evaluated against the tender criteria.

“Other considerations are not relevant,” he said.

Judge Lewis found that the high court had not taken into account that Westinghouse had not known what these “strategic criteria” were before the tender was awarded, so had not been given an opportunity to deal with them. The high court has also not taken into account that the tender process must be procedurally fair, and that a bid should be evaluated only against the bid criteria contained in the invitation to tender.

The appeal court found that the process followed by Eskom in awarding the tender to Areva had been procedurally unfair and the tender had been awarded for reasons that were not relevant.

The strategic criteria – which Eskom conceded had not been part of the tender – included that Areva was the original equipment manufacturer for Koeberg, that it had offered to grant Eskom its intellectual property rights over the nuclear power station equipment, that it had offered a study on the feasibility of manufacturing nuclear valves in South Africa, and that it had “generally demonstrated better control of sub-suppliers and had a stronger overall branding content”.

“What exactly this meant is unclear,” Judge Lewis said. “In any event, it lay outside the tender award criteria. But worst of all, Eskom did not give Westinghouse the opportunity to defend its record. And as a matter of fact, Areva would have used a subcontractor, SENPEC, that had never worked outside of China.”

Judge Lewis found that the board tender committee had taken into account each of the strategic considerations, which had not been included in the bid criteria, and had then decided to award the tender to Areva.

It had thus made the decision unlawfully in terms of the Promotion of Administrative Justice Act.