Is a contractor’s capacity a relevant factor to exclude their bid?

It frequently happens that contractors may be working on a number of projects, which may limit their organisation’s capacity, either financially or in terms of its manpower, etc., to execute further works.  It is also common that a particular employer may issue a number of projects simultaneously and may look to then provide varied work parcels, given the capacity of the bidders to execute all of the projects simultaneously.

Are employers entitled to consider these factors in the adjudication of tenders?

This question came before the Supreme Court of Appeal in a judgment delivered on 1 October 2025.

In Infrastructure for the Improvement of Roads issued by the South African National Roads Agency Soc Ltd (SANRAL), Urban Icon (Pty) Ltd (“Urban Icon”) submitted bids in respect of all seven tenders.  SANRAL ultimately awarded three tenders to Urban Icon, and the remaining four tenders were awarded to other bidders, i.e., the second-highest-scoring bidders.

Although Urban Icon’s bids met the requirements for technical functionality, its prices were the lowest, and they were the highest-scoring tenderer.

The Bid Adjudication Committee considered Urban Icon’s capacity in the light of the fact that Urban Icon was recently incorporated, and the contracts it had performed were modest in comparison to the scale of the work required by the tenders.

Their investigations revealed that Urban Icon’s staff complement was modest, with a limited track record, and it would have to rely on external specialists who were also committed to other entities performing work for SANRAL.

Their conclusion was that this posed a high risk to SANRAL to award “too much work to a relatively new entity, with no track record.”

The three projects awarded concerned roads that did not carry large volumes of traffic, and SANRAL considered them less risky, being projects that “lend themselves to new entrance into the industry.”

The Supreme Court of Appeal considered whether SANRAL was entitled to consider their capacity and termed that the competence issue, and secondly, whether, in doing so, SANRAL could exercise this factor in its decision and termed that the irregularity issue.

The Court considered the provisions of the Constitution and the Preferential Procurement Policy Framework Act (“PPPFA”) as well as its regulations and reiterated that a contract must be awarded to the tenderer who scores the highest points, unless objective criteria justify the award to another tenderer.   

The Court noted that the terms on which the bids were adjudicated were provided for in the Conditions of Tender.

The tender provided in the Standard Conditions states that a tender offer should be accepted if it does not present any unacceptable commercial risk and the tenderer should demonstrate professional and technical qualifications, competence, financial resources, equipment and other physical facilities, managerial capability, reliability, experience and reputation, expertise and personnel, to perform the contract.

The Court found that SANRAL was permitted to consider the capacity of a bidder to undertake all the work for which it had bid and the commercial risk to SANRAL that might arise from such a bidder’s capacity constraints.

The Court accepted that SANRAL could undertake a risk assessment, and the risk would have to be assessed on an objective basis.  The Court noted that this was important, given the use of public funds.

On the irregularity issue, the Court found that SANRAL had the power to investigate and consider Urban Icon’s capacity to carry out all the tenders it had submitted bids for.  The Court considered the investigation conducted by Mr Essa and found that it was thorough and could not be faulted.  The Court found that the decision taken by SANRAL to award three tenders, but not all seven, to satisfy the objective criteria contemplated in the PPPFA. 

The Court also found that SANRAL was not inconsistent in its considerations of the other tenders and that Urban Icon was not treated unfairly.

Accordingly, the Court dismissed Urban Icon’s appeal and ordered them to pay SANRAL and the second successful tenderer’s legal costs. 

Conclusion

It is clear that the law provides for the highest scoring tenderer to depart from an award to the highest scoring tenderer where there are objective criteria.  Where an administrative functionary has conducted a proper risk assessment and investigation and given the lowest scoring tenderer an opportunity to address the concerns, they would be permitted, where those objective reasons exist, to depart from the results of the point scoring exercise. 

Unsuccessful tenderers in this instance would be entitled to be provided for reasons for that decision in order to assess whether they are objectively justifiable, or ought to be judicially challenged.