In the recent Supreme Court of Appeal case of Command Protection Services (Gauteng) (Pty) Ltd t/a Maxi Security v South African Post Office Limited the Supreme Court of Appeal had to decide whether a binding agreement came into existence by virtue of a tender that was submitted (the offer) and the subsequent letter of appointment (acceptance of the offer).

The relevant factual background is as follows:

The Post Office invited tenders for the guarding of post offices in six regions of the country.

Maxi Security submitted tender documents in terms of the Request for Proposal (“RFP”) document. Maxi Security subsequently received a letter of acceptance from the Post Office which informed Maxi Security that:

“This appointment is subject to the following:

• BEE improvement, and
• The successful finalisation and signing of a formal contract.

A draft contract will be forwarded to you within (7) seven working days for your comment and to the effect mutually agreed on amendments and finalisation into a formal contract. You are kindly advised to acknowledge receipt of this letter of appointment and provide this office with the contact information of the person(s) responsible for the finalisation of the contract process.”

A meeting was held between Maxi Security and the Post Office where Maxi Security was advised that it had been awarded the tender in respect of three regions for which it had tendered. After the meeting Maxi Security also received a draft contract. Maxi Security however started providing security services to the Post Office while they were negotiating the terms of the draft agreement. During the negotiations the Post Office informed Maxi Security by way of a letter that the relationship between them was on a conditional month-to-month basis, subject to and until finalisation of the negotiations and conclusion of the agreement. The parties failed to sign an agreement and the Post Office gave a month’s notice to Maxi Security to vacate all premises of the Post Office.

Maxi Security approached the court and alleged that the Post Office letter constituted repudiation of the agreement and claimed damages in the sum of R14 million from the Post Office.

Despite the fact that Maxi Security had already started rendering services to the Post Office, the Supreme Court of Appeal agreed with the Post Office that there could not be a binding agreement until the negotiations were concluded and a formal contract was signed. The contract would only come into existence upon the successful finalisation of the contract process.

It is important to read the letter of appointment carefully in order to avoid unnecessary litigation. It is furthermore important where a company award a contract by way of a tender to make it clear in the RFP that no binding contract will come into force until a formal agreement has been finalised and signed on behalf of the duly authorised representatives of the parties.