Water board snubs WBHO, awards 'questionable' rival tender for nearly R1bn more - court papers

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Construction companies of a joint venture, WBHO and Icon Construction, want a tender awarded by a water board in KwaZulu-Natal - which they claim cost R1bn more than their own bid for the project - set aside in court.

The founding affidavit, seen by Fin24, was filed in the KwaZulu-Natal High Court in Pietermaritzburg on December 6, 2019.

The application is against state-owned water board Umgeni Water - which provides water services to Durban and Pietermaritzburg municipalities - and against Klomac Engineering, the company which was awarded the tender.

Klomac Engineering manufactures water treatment equipment.

National Treasury is also listed as an interested party in the matter, as the awarded tender is "in breach of good fiscal policy" due to its excessive price, according to the applicants.

WBHO-Icon was one of four bidders for the tender to rehabilitate infrastructure within the Umgeni Water Nagle and Wiggins System, but was unsuccessful.

After a failed attempt at an internal appeal process, the applicants are now seeking relief through a judicial process.

WBHO-Icon claim that Klomac's price for the tender is R919m (about R1bn) more expensive than its bid for the project. They also say that Klomac's price is R514m more expensive than Umgeni Water's estimated construction costs for the project and R121m more than Umgeni's total budgeted project costs.

First steps

So far WBHO-Icon was successful in Part A of its application, to have the court interdict Umgeni Water and Klomac from implementing the tender, pending the outcomes of Part B of the application – for the court to review and set aside the tender award.

Part B will be heard on March 20, 2020, and Umgeni Water intends to oppose it.

Umgeni Water corporate stakeholder manager, Shami Harichunder, told Fin24 via email that while the water board cannot comment on allegations brought against it as the matter is sub judice, it does intend to abide by the requirements of the court order relating to Part A of the application.

As per the ruling, Umgeni Water must deliver to WBHO-Icon, by January 15, 2020, a record of documents on the tender process it followed including reasons why the tender was awarded to Klomac. WBHO-Icon may use this record to supplement their papers and file a supplementary affidavit, due on January 29, 2020.

"Consultations will begin with Umgeni Water's legal representatives in the next few days to compile the record that will contain all relevant documentation that informed decision making pertaining to awarding of the said tender," Harichunder said.

The water board is committed to finalising the matter expeditiously, as the project in question is "vital to future water security for parts of eThekwini," Harichunder added.

Klomac Engineering has not yet responded to emailed requests for comment. Fin24 understands that the offices will open again after the festive break on Monday, January 13.

Manipulation of scores

WBHO's founding affidavit unpacks what it views as irregularities in the tender process as follows.

According to the founding affidavit, none of the bidders passed the functionality evaluation stage in the tender process. However, following the "manipulation" of the scores - Klomac emerged as the only successful bidder. Umgeni proceeded to award the tender to Klomac by default, the applicants said.

WBHO-Icon put forward that the rehabilitation project is of a civil construction nature and that it is questionable that Klomac, a mechanical engineering contractor, scored well in the functional evaluation. "Quite simply the second respondent (Klomac) cannot be considered a suitable bidder for the tender," the affidavit read.

The applicants have argued that because of the "inconsistent, uncertain and contradictory" evaluation of bidders, the tender process has been "procedurally unfair" and "non-transparent", which warrants that it be started afresh.

Excessive costs

Even if Klomac passed the functionality evaluation fairly, which the applicants reject, its bid was R514m more than Umgeni Water's cost estimates (of about R1.54bn) for the project. Documents included in the founding affidavit show that Klomac's tender price was R2.05bn, VAT inclusive.

"An excess of R514m is glaringly inappropriate," the affidavit read. For this reason it should never have been considered a "suitable bid," the applicants asserted.

"The JV (WBHO-Icon) submits that the staggering price discrepancies involved and the risk of exorbitant wasteful and unnecessary expenditure in the tender alone are sufficient to have the award to the second respondent (Klomac) set aside," the applicants said.

READ: SARS goes to court to recover R200m lost through illicit tobacco trade in decade-old case "Not only is the ability of the second respondent (Klomac) to perform questionable, but it also submitted a ludicrously high price which itself excess the total budgeted project allowance of R1.9bn," the affidavit read.

Internal appeal process flawed

The applicants also state that Umgeni Water did not follow the correct procedure in terms of the internal appeal process.

According to the affidavit, following the functionality evaluation, Klomac was the only bidder to pass. Instead of allowing a seven-day window period for other bidders to appeal this stage of the tender process, Umgeni Water proceeded to the price evaluation stage, with only one bidder – Klomac and subsequently awarded the tender to it.

"Only after the second respondent (Klomac) had been assessed for price and preference points and intention to award the tender to the second respondent (Klomac) was advertised, did the first respondent (Umgeni) allow the JV (WBHO-Icon) an opportunity to exercise its right to appeal the first respondent's (Umgeni's) decision," the affidavit read.

Concerns of Bid Adjudication Committee

According to the affidavit, the tender was approved by the Bid Adjudication Committee on October 23, by means of a round-robin, which remains largely unexplained - as members continued to deliberate on the matter via email just days after.

One BAC member, Kevin Meier, on October 28, emailed concerns to other committee members related to the awarding of the tender to Klomac.

Among the concerns raised by Meier was that previously it was resolved for large projects to be split into smaller components allowing more small contractors an opportunity to tender for work. He questioned why the project was not split and suggested that there may have been more competitive pricing if that was allowed.

Meier also requested due diligence on the evaluation of the tenders to ensure that they are correct. He noted that the working evaluation sheets had areas which were crossed out "and scores changed considerably," causing tenderers who would have passed to fail and the other that might have failed, to pass.

He also asked for an independent view on whether Klomac does have the expertise to undertake civil work.

Despite these concerns which were noted and emailed to the remaining BAC members, the award was approved, as Umgeni water on November 6, 2019 advertised its intention to award the tender to Klomac.

Umgeni Water and Klomac Engineering should submit their responding affidavits, respectively, by February 13, 2020.

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