Approaching government with an unsolicited offering is fraught with uncertainty, and an understanding of the regulatory landscape is important for businesses seeking to manage the risks of doing so.
While these projects have the potential to stimulate innovation, improve service delivery and generally enhance the quality of service to the public, there are good reasons for prospective offerors to be cautious. First, the failure to correctly categorise an offering could lead to its exclusion from the process. Second, depending on the extent of intellectual property protection available – in some cases none – there are significant risks relating to control over what happens to a concept or idea once it is shared with government. Third, non-adherence to the framework carries the risk of a successful award being challenged in court for undermining the constitutional standards of good public administration.
As a starting point, it is necessary to view the framework through the lens of section 217 of the Constitution which states that when government “contracts for goods or services, it must do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.”
Unsolicited offerings are regulated broadly by two key documents. They are the National Treasury Practice Note No 11 of 2008/2009 (“the Practice Note”) issued in terms of the Public Finance Management Act, 1999 (“the PFMA”) which regulates unsolicited proposals and the National Treasury Circular “Implementation of Supply Chain Management” (27 October 2004) (“the Circular”) which deals with unsolicited bids.
Unfortunately, other than on procedural differences, these documents do not adequately differentiate between unsolicited proposals and bids, or between their subcategories. Unsolicited proposals are defined as Public Private Partnership (“PPP”) bids or non-PPP bids but there is no explanation as to what is meant by these terms. And even though a PPP is defined in further regulations, nothing is said about what is meant by a non-PPP bid. The definition of an unsolicited bid is equally unhelpful: it is referred to broadly as a product or service that is “innovative”, “unique” and “provided by a sole provider”. Crucial to submitting an offering is an appreciation of the risks of an incorrect categorisation: if a submission is presented as an unsolicited bid but is actually an unsolicited proposal, then different requirements need to be met and the failure to do so will be fatal.
Further, the PFMA requires government institutions to adopt a Supply Chain Management (SCM) policy to provide further detail on how that institution will manage these projects. To date, many government institutions have not taken steps to incorporate the Practice Note and Circular into their procurement policies.
Despite the peremptory language, neither the Practice Note, the Circular nor SCM policies constitute legislation – they are guidelines – and do not therefore impose any legally binding obligations that can be strictly enforced. Their purpose is to guide government institutions through the process of considering an offering. However, material non-compliance on the part of business is likely to result in exclusion of a project. And, more seriously, for a successful award there is always the risk that failing to comply with the framework can be used as a basis for a court challenge for contravening section 217 of the Constitution.
Protection of concepts/ideas
A level of protection is provided in relation to unsolicited proposals for so long as the concept or idea in that proposal is not offered by another source. So, an institution would not be permitted to use the contents of a proposal (data, concepts or ideas) as a basis for negotiations with another firm unless the proposal is put out to tender and the proponent consents to its use. However, the proponent will lose its protection if a third party independently approaches government with a similar proposal. In my view, therein lies the danger: it may not be possible to contain the spread of an idea once it is revealed to government.
Notably, these protections do not seem to be available in relation unsolicited bids, rendering sole providers more vulnerable on this score.
The threshold consideration – for both the Practice Note and the Circular – is that a government institution may,but is not obliged to, consider an unsolicited proposal or bid. The danger is manifest: an offering could be excluded at the discretion of the relevant authority with little protection for the author of the idea once it is shared with government.
The framework distinguishes broadly between the procedures relating to unsolicited bids (which permit government to enter into direct negotiations with an offeror outside of a tender process) and those of unsolicited proposals (which usually – but do not necessarily – involve an ordinary tender process).
Procedure – unsolicited bids
According to the Circular, a compliant unsolicited bid is one which the
(a) product or service offered in terms of the bid is a unique innovative concept that will be exceptionally beneficial to, or have exceptional cost advantages for the institution;
(b) person who made the bid is the sole provider of the product or service; and
(c) the need for the product or service by the institution has been established during its strategic planning and budgeting processes. Notably, once these requirements have been met, the institution is permitted to enter into direct negotiations with the proponent outside of the normal procurement process and which may or may not culminate in an agreement. The fact that no tender process is required is controversial and does pose a threat to the constitutional principles underlying good public administration.
Procedure – unsolicited proposals
Compared to the Circular, the guidelines regulating unsolicited proposals are more detailed. In general, a PPP bid must comply with Treasury Regulation 16 to the PFMA and the Practice Note and a non-PPP bid must only comply with the Practice Note.
Once the accounting officer has decided to consider an unsolicited proposal it must determine whether it is “compliant” or “unacceptable”. If a proposal is rejected, the relevant authority would be required to notify the proponent of the said rejection, return the proposal and ensure that the institution does not exploit any of the proponent’s intellectual property rights.
If an unsolicited proposal is found to be compliant and is accepted by the relevant institution, the decision to consider the proposal must be communicated in writing to the proponent. Negotiations are then entered into to conclude an unsolicited proposal agreement (UPA). If consensus cannot be reached, the institution is prohibited from implementing the proposed project for the near future and may not utilise any proprietary information provided by the proponent as part of its proposal. If a UPA is concluded then a Request for Qualification (RFQ) will be issued to test the market for the existence of other private entities capable of providing the product or service. Importantly, it is only in the event of no response to the RFQ that an institution may enter into direct contractual negotiations with a proponent outside of a tender process – if there is a response to the RFQ, an ordinary competitive bidding process must ensue and the proponent will be reimbursed in terms of the UPA should the contract be awarded to another bidder.
To date, there is no case law that deals with a challenge to an award of an unsolicited proposal or bid. However, given the risks associated with approaching government in this way, it is advised that a prospective proponent seek legal advice on compliance with the framework, the category in which their offering is likely to fall and the extent to which the proposal or bid would, or could, enjoy intellectual property – or other – protections. Once the decision to proceed is taken, a business proposal should endeavour to comply with the framework read with the relevant institution’s SCM policy. Even though these documents do not impose legally binding obligations, adherence – as far as possible – is recommended and is likely to provide a level of protection to a successful offeror in the event that the award were ever challenged on the basis that it violated the Constitution.
Raisa has a BA and LLB (both cum laude) and is currently studying her LLM in business and commercial law. She was admitted as an attorney in 2013 after having completed articles at Bowman Gilfillan, and proceeded to take up a position as research clerk to Justice Zondo and Justice Froneman at the Constitutional Court until July 2014 when she left and joined Caveat Legal. Raisa specialises in constitutional law and administrative law, which incorporates public procurement (tender) law.