Private sector beware: Lessons from Sassa crisis

The controversial social grants saga engulfing Sassa and Cash Paymaster Service is a significant case study for public-private partnerships, according to Lionel Egypt, Sarah McGibbon and Yana van Leeve from Cliffe Dekker Hofmeyr.

On Wednesday, 15 March 2017 the Constitutional Court heard the matter of The Black Sash Trust against Social Development Minister Bathabile Dlamini and others. The court was asked to make an order to ensure that the South African Social Assistance Agency (Sassa) complies with its constitutional obligation to provide social assistance to the beneficiaries of social grants.

In 2012 SASSA entered into a contract with Cash Paymaster Services (CPS) for the payment of social grants to beneficiaries after being awarded a tender to do so. The award of the tender was declared invalid by the Court in 2013; however, the order of invalidity was suspended pending a determination of a just and equitable remedy.

In 2014, in AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others 2014 (4) SA 179 (CC) (Allpay 2) the Court declared the contract concluded with CPS invalid and ordered the tender process to be re-run with no disruption to the payment of existing social grants to beneficiaries. In doing so, the court maintained its jurisdiction to supervise the matter and suspended the declaration of invalidity pending a decision by Sassa to award a new tender.

An organ of state

In coming to its conclusion in AllPay 2, the court made the significant finding that as CPS had undertaken a constitutional obligation and was performing a public power under the Constitution, it too is considered to be an organ of state in fulfilment of those obligations. This finding was made notwithstanding the fact that CPS is a private company.

The 2017 Sassa hearing reiterated the import of this finding in an exchange between the justices of the court and counsel for CPS. In this exchange, the court – primarily through Chief Justice Mogoeng – explored the possibility of stepping into the commercial arrangement between Sassa and CPS and going beyond the terms of the contract between the two parties. The court put it to counsel that it may be in a position to authorise CPS to fulfil its constitutional obligations beyond March 31 2017 (when the current contract expires) even without a new contract having been agreed and despite the fact that it will not be commercially beneficial to CPS to do so.

The manner in which the Sassa/CPS saga is currently unfolding (the highlighted debate in particular) together with the finding in AllPay 2 could mean that private sector companies tendering for public sector work may get more than they bargained for when awarded a tender.

It is crucial to bear in mind that where a private company is awarded a tender in which it will perform public functions under a public power – such as the payment of social grants or the supply of prepaid electricity meters (City Power v Grinpal Energy Management Services) – it will be treated as an organ of state in respect of those functions and powers.

The judgment issued by the court in the current matter should provide useful further guidance on this issue.
Private sector clients would therefore be well-advised to seek guidance and advice regarding the obligations they intend to undertake in terms of tenders.

         Image: Lionel Egypt, Sarah McGibbon and Yana van Leeve from Cliffe Dekker Hofmeyr.