Municipal housing agreements and procurement - When is it really a contract for goods or services?

Authored by Michelle David and Ntokozo Ngubane.

A municipality gives its land to a charitable trust to build houses for the poor and no tender is issued.  Nearly three decades later, the municipality tries to escape the contractual arrangement by arguing it ought to have gone out to tender all along.   In Nosilela N.O. v Nelson Mandela Bay Municipality, the high court held that where a municipality neither acquires services from its counterparty nor pays for it, the arrangement is not a contract "for goods or services" under section 217(1) of the Constitution.  The constitutional procurement standard simply does not apply.

Section 217(1) of the Constitution is the constitutional gateway for all public procurement in South Africa.  It requires an organ of state, when it contracts "for goods or services", to do so through a system that is fair, equitable, transparent, competitive and cost-effective.  Every public tender process, supply-chain management policy and procurement challenge in our law flows from this provision.  The threshold question, whether section 217(1) of the Constitution is triggered at all, determines whether procurement regulation applies to a particular agreement or whether that agreement falls outside the procurement framework.

The facts in this matter were as follows.

1. The Mzingisi Development Trust (Trust) is a charitable trust serving the Soweto on Sea community in Gqeberha.  In December 1997, the Trust concluded a Land Availability and Services Agreement (LAASA) with the predecessor of the Nelson Mandela Bay Municipality (Municipality).  Under the LAASA, the Trust would develop a low-cost housing township at Bethelsdorp North for some 6 500 indigent families.
2. The housing deal was structured such that the Municipality made its land available at no charge and took responsibility for external services at its own cost.  External services are the bulk infrastructure, such as main sewer lines and arterial roads, that connect a development to the existing municipal network, as distinct from internal services such as water connections, roads and stormwater drainage to individual stands.  The Trust's development works were funded by provincial subsidy through the Human Settlements Development Grant.  The Municipality did not pay the Trust.
3. Two phases were completed successfully and more than 1 000 houses were delivered.  Then, in 2017, the project ground to a halt.  A critical stretch of bulk-sewer infrastructure, known in the papers as "the missing link", had never been installed by the Municipality.  Without it, internal services could not be connected and no further houses could be built.  The estimated cost of the missing link was approximately R20 million, and services valued at approximately R136 million remained unutilised by reason of its absence.
4. The Trust approached the court to enforce the LAASA.  The Municipality opposed and brought a conditional counter-application to have the agreement set aside from its inception.  The ground was that the LAASA had been concluded in 1997 without a competitive procurement process, in breach of section 217(1) and section 10G(5)(a) of the Local Government Transition Act, 1993 (LGTA), which imposed a materially identical standard at the time.  Notably, the Municipality had previously attempted to cancel the LAASA in 2010 but rescinded that cancellation on the advice of senior counsel who confirmed that the agreement remained in full force and effect.  In 2023, the Municipality’s own Executive Mayor’s report and council resolution again acknowledged the outstanding obligation and resolved to perform it. 

The central question was whether the LAASA was a contract "for goods or services".   The court held that the procurement standard under section 217 of the Constitution is triggered where the state acquires goods or services from its counterparty for value. In this matter, the Municipality neither acquired services from the Trust nor remunerated it.  The LAASA was accordingly not a contract "for goods or services" within the meaning of section 217(1) or section 10G(5) of the LGTA.

The court's reasoning can be distilled into the following points.

1. The social purpose of the agreement is irrelevant to the section 217(1) analysis.  The enquiry is structural, namely, what did the municipality get from its counterparty, and did it pay for it?  A housing agreement will be subject to procurement rules if the municipality is the buyer.  Where the municipality makes its own resources available without acquiring anything in return, the arrangement falls outside section 217(1) of the Constitution, regardless of how worthy its purpose.
2. The court drew a telling contrast with arrangements where a municipality holds a provincial grant, invites tenders and pays developers from public funds under its control.  In such a case, the municipality is plainly acquiring goods or services for value and the procurement standard applies.  In the present case, the Municipality simply made its land available and the Trust was funded independently by provincial subsidy.  The two types of arrangement are structurally different and the procurement consequences follow accordingly.
3. In addition, the court also found the Municipality's attempt to challenge its own 27 year-old agreement unreasonable.   The Municipality had produced no record of the 1997 procurement process.   Furthermore, the Municipality had over the years acknowledged the agreement, resolved to perform under it and only sought to set it aside when the Trust approached the court for enforcement.  The judgment is a reminder that an organ of state that wishes to challenge the validity of its own agreement must do so timeously and cannot rely on that challenge as a defence years later when called upon to perform.
4. The court declared the Municipality in breach, dismissed the counter-application and granted a structural supervisory order requiring the Municipality to report on oath every six months on the steps taken to install the missing infrastructure.  The order reflects the court’s view that, where a municipality’s position on an agreement has shifted over time, a simple declaration of breach may not be enough to secure performance.  The broader lesson is that inconsistency in honouring contractual obligations may invite judicial oversight of the kind granted in this matter.

The key takeaways are as follows:

1. Not every agreement a municipality enters into is a procurement contract.  The test is whether the municipality acquires goods or services from its counterparty for value.  Where a municipality holds grant funding and pays a developer to deliver housing, the procurement standard set out in section 217(1) of the Constitution applies.  Where a municipality simply makes its land available and the developer is funded independently, as in this matter, the arrangement falls outside section 217(1) of the Constitution.
2. When structuring housing delivery partnerships, the practical question is not whether the agreement involves housing. It is whether the municipality is acquiring goods or services for value. The answer determines whether procurement compliance is required and whether the agreement may one day be open to challenge.

Nosilela N.O. and Others v Nelson Mandela Bay Municipality and Others (Case No. 109/2025) [2026] ZAECGHC (17 September 2026)