Recent Government Procurement policy developments in South Africa have been aimed at placing greater reliance on public procurement as a tool for achieving expedited economic transformation and urgently addressing socio-economic imbalances deriving from South Africa’s pre-democratic past.
In the past year, this was largely performed through the implementation of the recently issued Preferential Procurement Regulations of 2017, which introduced a number of significant changes. Most notably, the regulations give government the power to apply ‘pre-qualification criteria to advance certain designated groups’ in 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 bidders may tender, categories including those having a ‘stipulated minimum B-BBEE status level’, exempted micro enterprises (EMEs) and qualifying small business enterprises (QSEs) and bidders agreeing to subcontract a minimum of 30 per cent to various categories of EMEs or QSEs. 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 PPPFA as to what weighting is to be attached to a tenderer’s B-BBEE status in evaluating and awarding a tender.
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 most determinative factor in 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, whereby tenders are assessed on the basis that, in contracts with a value of equal to or above 30,000 rand and up to 50 million rand (the previous threshold was up to 1 million rand), price shall count for 80 points and preference shall count for 20 points (out of a total of 100 points) and in contracts with a value of more than 50 million rand, price shall count for 90 points and preference shall count for 10 points (previously above 1 million rand); and
- Organs of state are required to identify tenders, where it is feasible, in which the successful bidder must subcontract a minimum of 30 per cent of the contract value for contracts above 30 million rand 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, but is there to assist administrators to comply with their legal duties and, in doing so, improve their services. The deadline for public comment on the Code was 17 February 2017 and publication of the final Code is now awaited.
The Department of Trade and Industry has initiated the Strategic Partnership Programme (SPP), to develop and support programmes or 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 or sector to be manufacturers of goods and suppliers of services in a sustainable manner and to support B-BBEE policy through encouraging businesses to strengthen the element of Enter and Supplier Development of the B-BEE Codes of Good Practice. The SPP will be available on a cost-sharing basis between government and the strategic partners for infrastructure and business development services necessary to mentor and grow enterprises. The grant will be capped at a maximum of 15 million rand per financial year over a three-year period based on the number of qualifying suppliers and is subject to the availability of finds.
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