Restructuring government procurement | Fin24

After getting caught up in bureaucratic delays since the departure of South Africa’s inaugural chief procurement officer (CPO), Kenneth Brown, from National Treasury in December 2016, the eagerly awaited Public Procurement Bill finally kicked on.

The legislation has been in the works since Brown was appointed in 2013 by former finance minister Pravin Gordhan to establish the Office
of the Chief Procurement Officer (OCPO) to reform and modernise
government’s procurement and supply chain management(SCM) systems and policies to eliminate tender-related corruption and simplify tendering processes.

But efforts to close loopholes and clean up state procurement got stuck when Brown, his boss and
former Treasury director-general Lungisa Fuzile,
Gordhan, and Mcebisi Jonas, former deputy finance
minister, were hounded out of Treasury for attempting
to block or investigate lucrative tenders linked to the
Gupta family – business partners of former president
Jacob Zuma’s son, Duduzane.

Zuma fired Gordhan and Jonas in March 2017, using a
questionable intelligence report which claimed Gordhan and
his Treasury team were conspiring with foreign interests to
undermine his administration.

The ousting of Zuma from power in February 2018 by his comrades in
the ruling ANC and the appointment of Tito Mboweni as finance minister
in October 2018 by Zuma’s successor, Cyril Ramaphosa, appear to have
aided bringing back on track the development of the proposed legislation.

Mboweni has shown that he is prepared to curb wasteful expenditure
across the state and extract value for money on the government’s
estimated R800bn annual procurement budget, which it spends to buy
goods and services from suppliers.

An avalanche of evidence of tender-
rigging, fraud, and corruption – whereby the state lost billions of rand
– has been laid bare at the Commission of Inquiryinto State Capture, chaired by Deputy ChiefJustice Raymond Zondo.

In part, the draft bill attempts to address weaknesses in procurement legislation that make it easy for corrupt government officials, politicians, and service providers to loot the state when tenders are issued, while at the same time opening up procurement opportunities to black-owned and women-controlled suppliers.

The bill prohibits government employees from trading with the state. Drafters of the bill aim to close loopholes that are created by the fragmentation in laws governing public sector procurement.

The bill aims to develop a single legislation that eliminates fragmentation. Currently, procurement is legislated through the Public Finance Management Act (PFMA), which is applicable to national and provincial governments, while municipalities are regulated through the Municipal Finance Management Act (MFMA).

On top of the PFMA and MFMA, there are 29 other pieces of legislation dealing indirectly with or regulating certain aspects of public procurement. Then there is the Preferential Procurement Policy Framework Act (PPPFA), applied to all organs of state to address racial economic inequality caused by apartheid.

Apart from consolidating procurement laws into one regulatory framework, the bill sets out several key policy proposals. 

Firstly, it aims to remodel Treasury’s OCPO into a Public Procurement Regulator (PPR) that will regulate public procurement. The finance
minister will be responsible for appointing a chief executive officer (head) of the PPR on recommendation from an appointment panel.

The PPR will have wide-ranging powers that entail initiating criminal proceedings, overturning decisions of procuring
entities, and suspending or terminating procurement processes.

Ministers will be prohibited from interfering with
procurement processes and will be confined to a policy-
setting and oversight role.

Secondly, it introduces the debarment of suppliers
that submit false information in their bid documents to secure contracts. The bill allows the regulator to debar
suppliers if they are found to have been involved in corrupt
activities and price-fixing.

Thirdly, it aims to reform the preferential procurement policy
to advance SA’s industrial development and broad-based black
economic empowerment (B-BBEE).

This will be done through implementing tender set-asides, whereby a portion of public procurement
spend will be allocated to people previously disadvantaged by unfair
discrimination during apartheid.

Finally, it intends to establish a Public Procurement Supplier
Ombudsman to manage a system of complaint and dispute resolution.
The ombudsman will resolve complaints and disputes between
suppliers and procuring entities.

I expect the section that deals with preferential procurement policy
reforms to receive the greatest attention from lobbyists because it will
set out the criteria that determine who wins tenders and who doesn’t.

Currently, tenders are awarded based on a preference points system. Tenders valued at less than
R50m are awarded on the 80/20 preference points
system, whereby 80 points are allocated for price
competitiveness and 20 points for a bidder’s strength
according to the B-BBEE scorecard.

Tenders valued at
more than R50m are awarded on the 90/10 system,
whereby 90 points are allocated for price and 10 points for the B-BBEE scorecard.

I expect the preference points system to be altered to increase the B-BBEE points allocation to give black suppliers a bigger chance of
winning tenders than is currently the case, where price decides who
wins tenders.

This article originally appeared in the 2 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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