Policy changes pin hopes of economic transformation on government procurement

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AndrewMolver_100.jpgChanges made to South Africa's government procurement policy are aimed at relying more heavily on public procurement as a tool for increasing the pace of economic transformation and urgently addressing socio-economic imbalances owing to South Africa's pre-democratic past.

This was largely performed through the implementation of the Preferential Procurement Regulations of 2017, which introduced a number of significant changes.

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Most notably, the regulations give government the power to apply pre-qualification criteria to advance certain designated groups when awarding state tenders. Regulation 4 permits an organ of state to advertise any invitation to tender on the condition that only a particular category of bidder may tender. These categories include:
- Those having a 'stipulated minimum broad-based black economic empowerment (B-BBEE) status level'
- Exempted micro enterprises (EMEs) and qualifying small enterprises (QSEs)
- Bidders agreeing to sub-contract a minimum of 30% to various EME/QSE categories

Furthermore, by permitting organs of state to apply a pre-qualification criterion that requires all tenderers to have a minimum B-BBEE status level, the regulations appear to circumvent the limitations imposed by the Preferential Procurement Policy Framework Act (PPPFA) as to what weighting is to be attached to a tenderer's B-BBEE status when evaluating and awarding tenders.

Whereas, under the PPPFA, a maximum of 10 or 20 points out of 100 (depending on the value of the tender) can be allocated for B-BBEE status, the new regulations elevate the importance of B-BBEE status to the extent that it can entirely preclude certain bidders from tendering at all, irrespective of how functional and cost-effective such bidders might be.

This contradicts the PPPFA's clear intention to promote price as the biggest factor when awarding government tenders, with the matter of 'preference' playing a substantially smaller role. A judicial challenge to have this regulation declared ultra vires and invalid remains imminent.

Other noteworthy changes introduced by the Preferential Procurement Regulations include:
- A change in the threshold of the evaluation of a bid on the basis of price and preference. Where tenders are assessed on the basis that price shall count 80 points and preference shall count 20 points (out of a total of 100 points), the contract value will be equal to or above R30 000 and up to R50 million (the previous threshold was up to R1 million). In contracts with a value of more than R50 million, price shall count 90 points and preference shall count 10 points (previously above R1 million).
- Organs of state are required to identify tenders, where feasible, in which the successful bidder must sub-contract a minimum of 30% of the contract value for contracts above R30 million to certain categories of qualifying entities.

The Department of Justice and Constitutional Development published a proposed Code of Good Administrative Conduct in terms of PAJA, which will apply to public procurement decisions. The Code is intended to provide guidance to administrators to ensure that the decisions they take are lawful, reasonable and procedurally fair. The Code does not impose additional legal obligations on administrators than those imposed by the Constitution and PAJA. Rather it is there to assist administrators to comply with their legal duties and, in doing so, improve their services.

The Department of Trade and Industry has initiated the Strategic Partnership Programme (SPP) to develop and support programmes/interventions aimed at enhancing the manufacturing and services supply capacity of suppliers with links to strategic partners' supply chains, industries or sectors.

The objective of the SPP is to encourage large private-sector enterprises in partnership with government to support, nurture and develop small- to medium-sized enterprises (SMEs) within the partner's supply chain/sector to be manufacturers of goods and suppliers of services in a sustainable manner. A further objective is to support B-BBEE policy through encouraging businesses to strengthen the element of enterprise and supplier development (ESD) of the B-BBEE Codes of Good Practice.

The SPP will be available on a cost-sharing basis between government and its strategic partners for infrastructure and business development services necessary to mentor and grow enterprises. The grant will be capped at a maximum of R15 million per financial year over a three-year period, based on the number of qualifying suppliers and subject to the availability of funds.

Adapted from an article published by Adams & Adams

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