Progress made on Procurement Reform Processes: briefing by the National Treasury

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Finance Standing Committee

25 May 2010
Chairperson: Ms N Sibhidla (ANC)
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Meeting Summary

The Deputy Director-General of the National Treasury briefed the Committee on the current status of the procurement reform process.  The need to revise the Preferential Procurement Regulations contained in the Preferential Procurement Policy Framework Act arose out of Government’s concern that the current regulations did not achieve the aims of the Broad-based Black Economic Empowerment Act and its Codes of Good Practice.  The revised regulations were intended to promote local procurement, thereby encouraging the development of sustainable local enterprises and job opportunities (particularly in the rural areas).

The National Treasury had published Draft Interim Regulations and invited public comment by September 2009.  A total of 156 written submissions were received from a broad cross-section of society, including organised labour, organised business and the general public.  The comments were summarised and the revised regulations presented to NEDLAC, the Department for Trade and Industry and the Department for Economic Development for comment.

The briefing included a summary of the current preference points system, the process of alignment of the legislation, the issuing of verification certificates, the sale and letting of assets, sub-contracting and the applicability of the regulations.

The major challenges identified were the need to align the applicable legislation, to increase the capacity for verifying scorecard information submitted by tender applicants and to ensure the effective implementation of the regulations by public entities.

Members asked questions about fronting, the provision made for public participation in the procurement process, preventing the abuse of verification agencies, the provision made for an ombudsman, the implementation of the regulations and the process followed in eliciting public comment on the draft regulations.

Meeting report

Ms Sibhidla referred to previous discussions held by the Committee concerning the challenges identified in implementing procurement policies.  The National Treasury was invited to brief the Committee on the progress made in amending the Preferential Procurement Regulations.

Briefing by the National Treasury (NT)

Mr Coen Kruger, Deputy Director-General, NT introduced Mr Henry Malinga, Chief Director: Supply Chain Policy Management, NT and Mr William Mathebula, Chief Director: Contract Management, NT.

Mr Kruger said that a false perception had been created that the NT was responsible for delaying the revision on the procurement regulations.  This was not the case and the delay had been caused by the large number of written submissions that were received in response to the published revised regulations.  156 submissions were received from interested parties and the input received was summarised in the attached document Annexure “C”.  The summary illustrated the extent of the challenges faced by the NT in drafting new procurement regulations.

The revised preferential procurement regulations were intended to promote local procurement, to encourage the development of sustainable service providers and to create job opportunities, particularly in the rural areas.  The NT had submitted proposals to the Department of Trade and Industry (DTI) and the Department of Economic Development (DED).  The proposals were accepted and the NT had commenced the process of revising the regulations.  Workshops were held, including a workshop with NEDLAC.  Draft regulations were drawn up and were ready for submission to the Cabinet once the regulations had undergone legal scrutiny.

The first seven pages of the presentation dealt with the current procurement process (see attached document).  The major challenge was the alignment of the aims of the Broad-based Black Economic Empowerment Act (BBBEEA) and the Preferential Procurement Policy Framework Act (PPPFA).  The number of accredited verification agencies was limited and the decision was made to auditors to verify the scorecards and issue verification certificates to potential tender applicants.  The conditions of tender required review to ensure that tender applicants had achieved a certain scorecard level in order to be considered to be compliant.  The effective implementation of the process required the assistance of the NT and that officials received training in the methodologies.

Mr M Swart (DA) asked how the problem of fronting would be dealt with.

Mr Kruger explained that three types of fronting had been identified, i.e. financial, importing and economic fronting.  The practice of fronting arose as a result of the emphasis placed on equity requirements in the current regulations.  As a result, partnerships were formed with black-owned entities without there having been a history of dealings between the two organisations.  The regulations excluded the requirement that the tax status of the entities had to be in order.  The NT was working with the South African Revenue Service (SARS) in this regard.  Additional capacity had been created to conduct due diligence investigations to ensure that the scorecard information submitted by tender applicants was correct before the tender was awarded.  The Minister of Finance had addressed the matter in his Budget speech.

Mr D Van Rooyen (ANC) listed three issues that were raised during the previous meeting of the Committee.  The issues were the provision for public participation and the utilisation of constituency offices; the measures to avoid the abuse of verification agencies and the provision for an ombudsman.

Mr Kruger replied that not all the comments received had yet been dealt with.  Certain comments received were in direct conflict with each other.  The summary of comments included the merits and de-merits of the suggestions made.  The debate would have to continue once the review process had been completed.  The NT did not have the mandate to amend the PPPFA.  Extensive consultation had taken place.  The draft revised regulations were explained to NEDLAC but the members had been very positive about the proposals and had submitted comment in December 2009.  The issues of corruption and getting value for money had been addressed.  A review of all procurement legislation was necessary.

Mr Malinga added that certain limitations were imposed by the provisions of the Public Finance Management Act (PFMA).  The PFMA specified the responsibility of accounting officers and it was difficult to accommodate public participation in the procurement process.  There were currently only 30 accredited verification agencies and more than 82,000 enterprises requiring verification.  In certain provinces, there were no verification agencies at all.  The decision to allow auditors to issue verification certificates did not pose any risk as audit companies would not risk their standing by becoming involved in corrupt practices.  The suggestion of an ombudsman was a very good idea and the NT agreed that the regulations should include provision for the appointment of an ombudsman.

Ms Sibhidla observed that the problem was the implementation of the regulations rather than the procurement process itself.  She wanted to know what measures were being put in place to address this aspect.

Mr Van Rooyen found the point made that the PFMA impeded public participation in the procurement process of interest.  He requested more information on the process followed to elicit submissions from the public and wanted to know which sectors had submitted comment.

Mr Kruger agreed with Ms Sibhidla’s observation concerning the implementation of the regulations.  Several international entities had commented that South Africa had one of the best procurement policies in the world.  He felt that the alignment of the applicable legislation would go a long way to address the issues of fronting and encourage a more broad-based benefit from State tenders, thereby helping the poor sector of the population.  He was unable to pin-point the reasons for the failure to properly implement the regulations.  There was a certain degree of defiance by local Government authorities, a lack of capacity and a lack of adequate training.  The NT was providing frameworks and training but the major challenge was the need to change human behaviour.  The monitoring of compliance had to take place and it was essential that transgressors were punished.  It was necessary to continue the monitoring process after the tender had been awarded.

With regard to the public participation process, Mr Kruger suggested that all statutory frameworks were reviewed on a regular basis.

Mr Malinga explained that the NT had invited comment on the draft revised regulations from the public and the comments and submissions received covered many sectors.  Responses were received from organised labour, organised business and the general public.  The responses were coordinated and summarised in Annexure “C” before being presented to NEDLAC.  The suggestion to allow public participation in the procurement process could not be accommodated.

Mr Kruger suggested that the Members study the summary of the submissions provided and submitted specific queries to the NT.

Ms Sibhidla asked the Members to forward any other questions to the NT.  She thanked the delegates from the NT for the presentation to the Committee.

The meeting was adjourned.


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