Public Procurement: Lessons for PDEs and bidders – Galleria in Africa Ltd v UEDCL
On April 26th 2018, the Supreme Court of Uganda pronounced its judgement in the case of Galleria in Africa Limited v Uganda Electricity Distribution Company Limited, Civil Appeal No 08 of 2017 (SC). The Supreme Court exercised its jurisdiction as a second appellate court in the appeal against the decision of the Court of Appeal over a public procurement dispute originally adjudicated by the High Court as the trial court.
The bench of five Justices of the Supreme Court unanimously held in favour of the respondent/cross appellant (UEDCL), dismissing the appeal of Galleria, and allowing UEDCL’s cross appeal with costs against Galleria in the appeal and cross appeal, and in the Supreme Court and the Courts below. The Supreme Court profoundly upheld the requirement of strict compliance with the provisions of the Public Procurement and Disposal of Public Assets Act, 2003 (PPDA Act) in public procurement processes.
The Court further stated that “the provisions of the PPDA Act are the life engine of its objectives”, and that “the objectives of the Act cannot be met without due regard to the provisions of the law…”. In the Court’s wisdom, the Court upheld the provisions of the PPDA Act to be mandatory and not merely directory, stating that “procurement and disposal activities are processes, [and] one cannot move to another stage of the process without fulfilling the first one.”
The decision of the Supreme Court in the instant Galleria case is not only relevant as an authority of the highest court in Uganda, but it further sets out the most authoritative position of the law on public procurement process. In overruling the position of the High Court in Finishing Touches Ltd v Attorney General of Uganda, Civil Suit No. 144 of 2010, the Supreme Court in the instant Galleria case took a divergent position to the effect that public procurement cannot be valid without strict compliance with the provisions of the law. In addition, the Court fortified its position by holding that the objectives of the PPDA Act cannot be met without due compliance with the provisions of the law. The judgment addresses the question of whether an award to the best evaluated bidder (BEB) constitutes a binding contract between the BEB and the procuring and disposing entity (PDE) prior to the signing of the procurement contract. The Supreme Court answered this question in the negative.
Notably, the dispute between the parties arose in 2007 prior to the amendment of the PPDA Act (in 2011), and the revocation of the PPDA Regulations SI No. 70/2003 in 2014 by the PPDA Regulations SI No. 6/2014. Therefore, whereas the Supreme Court pronounced its decision in April 2018, the Court applied the law as it stood at the time when the dispute arose in adjudicating the appeal. This article therefore discusses the Court’s key findings relevant to PDEs and bidders in light of the public procurement law as amended.
Galleria sued UEDCL in the High Court for lost profit as special damages, general damages, interest and costs of the suit in an action for breach of contract. It was contended that the parties entered into a contract by a letter of bid acceptance dated 6th June 2007 issued by UEDCL to Galleria, to which the later responded by a letter dated 11th June 2007 confirming receipt and verified to proceed with the supply of creosote oil. Galleria had been selected as the best evaluated bidder following the submission of bids in response to an advert by UEDCL in two newspapers in March and April 2007. By a letter dated 21st August 2007, UEDCL cancelled the procurement on the ground that the bid had expired among other grounds. At the time of cancelling the procurement, the parties had not signed a ‘formal’ contract.
High Court decision – in the High Court Civil Suit No. 858 of 2007, the Court dismissed Galleria’s claim with costs “finding that there was no contract between the parties”. Galleria appealed to the Court of Appeal.
Court of Appeal decision – the Court of Appeal reversed the decision of the trial court, found that there was a valid contract between the parties and allowed the appeal. Galleria was dissatisfied with the amount of damages awarded by the Court of Appeal and appealed to the Supreme Court. UEDCL cross appealed against the decision of the Court of Appeal.
Supreme Court – in the Supreme Court, Galleria advanced two grounds of appeal mainly complaining that the learned Justices of Appeal declined to award the appellant damages for lost profit, and that the general damages awarded were inadequate. UEDCL in its cross appeal raised six grounds which majorly questioned the finding of the Court of Appeal on the question of whether there was a valid contract between the parties under the PPDA Act and the then applicable PPDA Regulations, 2003. As earlier highlighted, the Supreme Court reversed the Court of Appeal decision, dismissed Galleria’s appeal with costs and allowed the cross appeal with costs against Galleria.
Public Procurement Procedures:
Public procurement procedures in Uganda are regulated by the PPDA Act, 2003 as amended by the PPDA (Amendment) Act, 2011 (Act No. 11 of 2011), and the Local Governments (Amendment) Act, 2006 (Act No. 2 of 2006). A number of Regulations under Section 96 of the PPDA Act have since been passed by the Minister of Finance, Planning and Economic Development, as well as Guidelines under Section 97 of the same Act have been issued by the PPDA Authority.
In her lead judgment under the Galleria case, with which the other four Justices concurred, Mwondha JSC held that “the provisions [of the Act] cannot be directory merely. They are for all purposes and intents mandatory and noncompliance with them makes the proceedings fatal.” The learned Justice went further to hold that “Procurement and Disposal activities are processes, one cannot move to another stage of the processes without fulfilling the first one.” The import of the foregoing holding is that failure to adhere to, or strictly follow the prescribed legal procedures in public procurement processes, the procurement process and any resulting product is null and void.
Overturning the position of the High Court in Finishing Touches Ltd v Attorney General of Uganda, the Supreme Court in the Galleria case expressly dismissed the argument that a procurement can be valid where the objectives of the PPDA Act are met notwithstanding the noncompliance with the provisions of the law. The learned Justice Mwondha JSC took cognizance of the peculiar facts in the Finishing Touches case where decoration services had already satisfactorily been rendered to the Ministry of Foreign Affairs as the PDE. That notwithstanding, the learned Justice disagreed with the conclusion reached by the High Court in the Finishing Touches case in respect of the effect of noncompliance with the provisions of the PPDA Act to public procurement processes.
Notwithstanding the above, the High Court decision in Engineer Investments Ltd v Attorney General & KCCA HCCS No. 0331 of 2012 raises pertinent questions on whether innocent third parties (providers) should suffer loss or be deprived of their earned proceedings due to the culpability of officials of the PDEs. The High Court in answering the question in the negative held that third parties should only be held liable for breach of relevant statutory provisions in procurement process where it is shown that the third party (provider) participated in the said breach. Whereas the Engineer Investments Ltd case is distinguishable from the facts under the Galleria case, the cross-cutting issue in both cases is the effect of noncompliance with the provisions of the law in the procurement process on the procurement.
In the Engineer Investments Ltd case, KCCA refused to pay the balance of the contractual sum under a contract for the provision of solid waste management services by the Plaintiff. Part payment of the contractual sum had been made to the Plaintiff following the issuance of a certificate of completion as required by law. The grounds raised for the refusal to pay the balance of the contractual sum were; failure to obtain the consent of the Attorney General prior to signing of the contract between the Plaintiff (Engineer Investments Ltd) and the 2nd Defendant’s predecessor (Kampala Capital City), and that the contract was a nullity for non-compliance with the provisions of the PPDA Act. The Court found that the first requirement was not applicable to the contract between the parties. The Defendants did not adduce evidence to support the allegations on noncompliance with the PPDA Act. The Court found the Defendants’ case to be “an attempt to defraud a person who has provided satisfactory services under a contract awarded and executed by the [2nd] Defendant.” The Court further upheld “the general principle that a statute should not be used as an instrument of fraud”, as the 2nd Defendant sought to defraud the Plaintiff of the consideration for services provided.
It is important to note that whereas the Galleria case addresses the question of the rights of a successful bidder prior to signing of a procurement contract, the Supreme Court expressly emphasized the requirement of strict compliance with the provisions of the law on public procurement. Noncompliance with the public procurement requirements, processes and procedures under the provisions of the law in the Supreme Court’s wisdom renders the process and any result thereof null and void. The Engineer Investments Ltd case propounds the position that a provider can recover under the quantum meruit principle (a pay which is proportionate to the work, service or goods done or supplied under a procurement contract), where the contract is rendered void after satisfactory execution. However, the binding decision of the Supreme Court on the effect of noncompliance with the provisions of the law will now be a looming obstacle to recovery of damages by a provider, especially where no procurement contract was signed between the PDE and the provider in accordance with the prescribed procedures. PDEs and private stakeholders (bidders and consultants) participating in public procurement processes must therefore fully comply with the prescribed procedures and requirements under the law or desist in participating in any breach whatsoever.
The Award, Notice to Best Evaluated Bidder (NOBEB) and Contract:
After the rigorous bidding process and beating of the cut throat competition to emerge the best evaluated bidder to whom the Contracts Committee decides to award the contract, the Galleria case underpins the indispensable importance of following the proper procedure in executing a valid procurement contract.
The inconsistencies under the revoked PPDA Regulations, 2003 on the contract award processes have since been rectified under the PPDA (Contracts) Regulations SI No. 14/2014 operationalizing the provisions of the PPDA Act on award and execution of public procurement contracts. The position of the law under the PPDA Act (Section 76 (1)) and the PPDA (Contracts) Regulations (Regulation 4 (2)) is that an award decision by the Contracts Committee and the communication of the NOBEB do not amount to a contract. The best evaluated bidder as illustrated under the Galleria case cannot therefore claim breach of a contract on the basis of the award decision or receipt of the notice to the best evaluated bidder (or letter of bid acceptance) without having executed a written contract with the PDE.
It is worth noting that the Supreme Court emphasized the observance of the requirement for the lapse of a ten days period from the date of publication of the NOBEB before a contract can be signed. (see: Regulation 5 – PPDA (Contracts) Regulations). The only exceptions under the Regulations relate to micro and direct procurements, or procurement in emergency situations irrespective of the procurement method used. The ten days period is among others intended to allow any bidder aggrieved by the decision of a PDE to make a complaint to the Accounting Officer. (see: Section 90 (1a) – PPDA Act).
A procurement contract laying out the terms of the procurement must be signed by the PDE (Accounting Officer) and bidder or consultant prior to implementation of the contract. The signing of the contract is preceded by the Accounting Officer’s making of necessary confirmations such as; the contract price not being higher than the market price established prior to the commencement of the procurement process, the process is not subject to any administrative review, the full amount of the procurement requirement or proposed contract period is committed, and necessary approvals from relevant agencies including the Attorney General have been procured. (see: Regulations 7 (1) – PPDA (Contracts) Regulations). The learned Justice Mwondha JSC succinctly underscored the requirement for a written contract in the Galleria case to be that: “[T]he provision for a written contract is an indication that without it, the obligations of each party have not been spelt out and if the party proceeds to implement, the implementation will be premature.”
A successful bidder in public procurement therefore ought to first execute a contract with the PDE before supplying any supplies (goods) or undertaking any works or services for the procuring entity. The procuring entity on the other hand should ensure full and strict compliance with the provisions of the PPDA Act, and the regulations and guidelines made and issued under the Act. According to the decision of the Supreme Court in the Galleria case, failure to comply with the procedures and processes under the law renders the procurement void. The decision of the Court further reaffirms the position that an award decision of the Contracts Committee and the notice to the best evaluated bidder (or a letter of bid acceptance) do not amount to a contract between a PDE and a successful bidder.
By: Lastone Gulume B,
Legal Associate - Legal Consultancy Department.