Overpricing is where government's real leakage sits, says Treasury's Kenneth Brown

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Kenneth_Brown.jpgIt is South Africa’s equivalent to the proverbial $640 Pentagon toilet seat — a paper binding machine that the government buys from its suppliers for the rand equivalent of almost $2,000, about 13 times what it should cost.

Chief Procurement Officer Kenneth Brown cited the binding machine as an example of the massive waste that means as much as 40% of the government’s R600-billion budget for goods and services is being consumed by inflated prices from suppliers, and by fraud.

Addressing this would mean that "without adding a cent, the government can increase its output by 30%-40%," he says. "We could be building more roads, more schools without even adding more money to the current budget."

Brown says the government plans to save as much as R25-billion a year by modernising its supply chain.

Since the office was set up in 2013, Brown and his team of 93 have led a Treasury drive to contain spending and renegotiate business deals that has taken on new urgency as SA faces a possible credit-rating downgrade to junk.

Brown says a major problem is fraud, including collusion between business people and government officials to inflate prices.

"That is where the real leakage in the system actually is," he says. "People can order things they don’t need, and they can take them home."

Making progress

The office has helped negotiate new contracts for the 20 000–30 000 cars it buys each year, getting state departments as much as 30% in discounts. It has also concluded contracts, including a deal with Vodacom, which provides cellphone and data deals to about 400 000 of the state’s 2.2-million employees.

So far the procurement office has stopped 9 000 public servants using companies they own to try to do business with the government, according to Schalk Human, a chief director in the procurement office. That was the result of the unit putting together a "central supplier database" where 325 000 companies were listed, and owners were verified through an automated system.

Adapted from an article published in BusinessDay

1 Comment

As an SCM Practitioner in the Public Service I found that to save as much as the said R25-billion per year many changes need to be made which will not be always politically acceptable or achievable.

National Treasury must not only focus on big ticket items/goods/services/works and Companies but also on the smallest items/goods/services/works and SMME companies and focus on all SCM offices in all departments in each town where there is a SCM office as it is there were the biggest leakage is.

For a start National Treasury can move all procurement (quotation and bids) activities of goods, works & services to an online portal which actually works and is easy to use, procure an off the shelf system that
have a working track record, see what is used by the big companies in South Africa, do not re-invent the wheel by having a customized system designed.

National Treasury will have to find a way to block businesses that exist only in name e.g. "cell phone businesses" and do not have a physical presence e.g. "walk-in business/shop" from doing business with
any State department as these businesses issue quotations, bid, receive orders, and then procure the required goods and services via a third party taking no risks in the process or physical ownership of the goods,
causing inflated prices.

Only businesses that sell to the public must be allowed to sell to the state as it will indicate that the owners of such businesses is serious about building a business and not just there for the taking.

It was found in our day-to-day dealings that BEE companies are a big culprit when it comes to inflated prices.

National Treasury must legislate that all items that can be procured through means of Transversal Contracts be contracted by National Treasury from e.g. cleaning materials, fuels, leasing, etc.

Procure Goods and Services directly from the supplier e.g. fuel (Diesel & Petrol), procure from Sasol, Engen, and Shell etc. and not from small distributors as they add their profit on top of the profit already made
by the main suppliers.

Appoint professional market researchers to analyse the price in the market for goods and services as very few State Departments/Institutions have the capability or personnel to do such function and in many cases
are prevented and or ignored when supplying information on market pricing.

Legislation, Regulations, Instructions, Practice Notes and Circulars must be made more user friendly to be easier to understand and implement as SCM practitioners are under severe pressure by management to procure and in many cases do not have the required skill to correctly interpret the documentation.

SCM training must not only apply to SCM practitioners but also to officials in related fields, e.g. Internal Audit, Management etc. as they do not always understand the SCM environment or are not up to date
with the newest information which cause conflict as wrong instructions are issued and expected to be adhere too.

Centralize the SCM function as each department do not need to have its own SCM Office as many items/services/works procured is of a non-specialized nature. An electronic system linked to stores/warehouses
for the procurement of goods can automatically detect when goods need to be procured and order it without human interference or assistance.

Get rid of the excessive paperwork, SCM Practitioners is pushing more paper than actually focusing on what they are employed to do e.g. cost effective and efficient procurement.

Get rid of the “deadwood” in SCM, National Treasury will need to do a skills audit on SCM, not leaving it to the departments as SCM for as long as I can remember was the dumping ground for unwanted, lazy, ill
disciplined, un-trainable officials not wanted or needed by other sections in the departments.

On occasion officials were also send to SCM not because they were needed or useful but as punishment if the officials done something wrong or crossed the wrong manager. These officials have no interest in the
scm processes and do not contribute.

Lastly, when SCM Officials are employed, why not employ them directly by the OCPO, it will relieve the pressure on the SCM officials as they will work for the OCPO and not for a specific department and will therefore not be under any pressure or influence to do the wrong things to please departmental managers who threaten SCM officials daily with disciplinary action if their wishes or demands are not met at any cost.

Maybe in the future we will have a proper procurement system that will be cost effective and efficient but as things stand now we will need drastic changes to achieve it.

Regards,

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