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Can a settlement agreement override fair tender procedures?
10 February 2021
 
“After losing a tender, we lodged a complaint with the department against their awarding of the tender to a bidder who we are aware operates in a less than reputable fashion. The department informed us they would cancel the tender. Subsequently we have heard that although the tender was cancelled, the department wants to enter into a settlement agreement with the bidder to avoid litigation. Surely such a settlement agreement cannot override fair tender procedures?”

This is a very valid question, as our courts have been confronted with situations where public entities have awarded tenders after their public procurement procedures fell short of the requirements of the Constitution and public procurement requirements. What then may happen is that the public entity tries to utilize settlement agreements that are made orders of the court to try and circumvent re-doing tender processes, avoid litigation and ‘legalize’, as it were, dealings that otherwise fall foul of the requirements for fair and transparent public procurement.

Our courts, including our Supreme Court of Appeal, recently confirmed again that a court cannot make a settlement an order of the court if the settlement is unlawful. Such unlawfulness would typically follow where the procurement processes followed is not correct or where litigation potentially ensues and a settlement agreement is entered into which circumvents tender procedures and it is the duty of our courts to ensure that organs of state operate within the limits of the law and helps stop corruption.

Accordingly, we would advise that you consult with your attorney to help you engage with the department as to the legality of the intended settlement agreement with the bidder.