R3 600 - the cost of a purchase order in government



NhlanhlaNene.jpgThe central procurement office (CPO) created by Treasury to leverage volumes in the government has already led to savings amounting to billions of rand, says Finance Minister Nhlanhla Nene.

"The cost of a purchase order will be reduced from approximately R3 600… to between R500 and R750 using the new technology platforms,” said Nene, in a written reply to a parliamentary question by Democratic Alliance MP Malcolm Figg.

The savings are attributed to the creation of a central supplier database, a commerce centre and implementation of an e-procurement system for the government - developments that will all reduce the administrative cost of transacting for suppliers and departments.

“Future administrative auditing costs will be reduced. Where the auditor-general was auditing administrative compliance in over 1 000 procuring entities, their auditing will focus on auditing one central supplier database. This alone should save the state R500 per order in auditing costs," he added.

"The current CPO modernisation programme is steadily starting to bear fruit," said Nene.

Savings would result in lower prices paid by the government, whose annual procurement budget for goods and services totals more than R600-billion.

Ultimately the office was expected gradually to decrease the cost of doing business with the state, said Mr Nene
An extra R39-million was allocated to the procurement office budget in the adjustments budget, bringing the total for the financial year to R94.7-million. The extra funds would enable the procurement office to accelerate reforms in supply change management.

Another advantage of the procurement office would be the ability to negotiate competitive prices for goods and services required by several government departments.

"A total of 39 transversal contracts valued at approximately R28-billion were facilitated by the office of the central procurement officer and it is estimated that the centre-led procurement resulted in a R5-billion saving compared with market value of the commodities under these contracts."

Building plans for schools were now standardised and costed. Provinces had to adhere to this standard. This intervention is expected to reduce the average cost of building a new school from between R60-million and R70-million to just less than R35-million. Stationery contracts had been negotiated at an average cost of R100 per learner for total stationery per grade.

Nene added that a strategic sourcing framework was being work-shopped with all procuring entities to assist with demand management and supplier development.

"Departments are getting a better grasp of their commodities and markets. In the long run, this should reduce cost as prices of commodities are fully understood. Strategic sourcing initiatives for travel and accommodation and mobile and fixed line communication will result in projected savings of R1.2-billion and R300-million respectively during the 2016-17 financial year," the minister said.

Adapted from an article in Business Day

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