Can the state Invoke a defence of "No Bud­get No Pay" to a service provider's claim? A recent Supreme Court of Appeal (SCA) decision addressed this question.

The Free State Department of Police, Roads and Transport ("Roads Department'') decided to embark on a road infrastructure programme encompassing 23 roads located throughout the Free State province. The stated aim was to promote accessible mobility and safety, with an overarming objective of stimulating socio­al economic growth.

One of the elements of the programme was the provi sion or engineering services lnduding environmental service. The Roads Department called for tenders for these services as it was obliged to do in terms of the law govern log public procurement. A joint venture was the successful ten­derer and it was duly awarded the contract. It appointed a sub-consultant to render the env ironrnental services. The joint venture and the sub-consult· any duty went about rendering theservlces called lor In the programme.

The contract progressed happily and the roads Department duly met its payment obl.igations to the joint venture which in turn enabled it to meet its payment obligations to its sub­consultant . However, funds dried up and the roads Department simply stopped paying, despite both the joint venture and Its sub-consultant continuing to render the services required of them.

The sub- consultant of the amount due to it as oppose to pursuing a clalm against the Joint venture with whom it had contracted. Predictably, the Roads Department raised the defence that the sub-consultant had no legal stancllng to sue it as there was no contract between them. However, not content with that legal sidestep, the Roads Department went on to say that there was another readon why it was not obliged to pay and that was be­ cause it had in fact made no budgetary allocation for the road infrastructure programme. As such the Publlc Finance Management Act (PFMA) prevented it from making any payment. 

Irregular

The Roads Department argued that any peyment under the joint venture and sub­ consultant contracts would be "irregular expenditure" and prohibited under the PFMA. The SCA examined the evidence that had been put up by the Roads Department and conduded that the statement by the Roads Department that no rudgetary allo­ cation had been made foe the road rehabillitation programme was disingenuous and factually wrong.

The SCA explained the difference be­tween "Irregular expenditure" and "unau­thorised expenditure" In terms or the PFMA. "lrregular expendlture" is expenfilture that is not in accordance with any ap­plicable legislation and as such has not been legally and properly incurred. "'Unauthonsed expenditure" on the other hand is expenditure in circum­stances where a legal obligation has ooen properly incurred but the budgetary vote from which the expenditure is to be met has become exhausted.

In such circumstances el ther parlia­ment or the relevant provincial legislature appropriate additional funds to the relevant vote. Falling that, the expenditure must be met as a first charge against the funds allocated to the relevant vote in the next financial year. The Court accordlngly dismissed the Roads Department's "no budget no pay" defence.

The Court also took the unusual step of ordering the Roads Department to the sub-consuhant despite there being no con­tract between them. It said that the Roads Deparbnent was a State department which was required to be accountable and, because It had not raised any quibble wlth the performance of the sub-consuhanfs services, which it should in any event have paid for through the con­duit of the joint venture, it should be made to pay.