Members again lamented the late submission of the presentation document, which meant they were unable to fact check or facilitate public participation on the information. National Treasury apologised and the Committee resolved to take the matter up with the Director General of National Treasury.
The Office of the Chief Procurement Officer gave a brief description of the Office’s six chief directorates and information on stakeholder and client engagements such as the supplier survey, which saw 45000 responses. Further, the efforts to ensure supplier and government supply chain management officials were on board with the roll out of the Central Supplier Database and the eTender portal.
The Office spoke to achievements in automation of procurement, specifically the Central Supplier Database and eTender portal. The Central Supplier Database was an online solution created to have a central database of all suppliers wishing to do business with government and has automated retrieval of a large variety of information about suppliers for ease of access by government, such as tax compliance information and company registration information. This solution allows supply chain officials to have a central source of information on suppliers that the state may wish to do business with. Further, it alleviates the administrative burden on suppliers by having once off registration for all state business, rather than registering separately with each entity. The eTender portal was presented as an online solution that aimed at publishing relevant information about tenders with open access and no fees for tender documents. The information published includes the tender documents, bids put forward for specific tenders, who was awarded the tender and at what price. This brings a large amount of transparency to the tender system and also ensures wider access to tender opportunities, because it was accessible to anyone with Internet access.
The transversal contracting unit in the Office deals with centrally negotiated contracts. There were currently about 40 central contracts and four new commodity streams have been introduced: property and leasing, professional services, education and Information Communication Technology. The intention was that centrally negotiated contracts allow for the leveraging of buying power leading to savings for government in areas where the same services or products were used by a broad range of entities in government. Reforms underway since 1 April 2016 include compulsory participation in central contracts, while the regulations used to speak to voluntary participation. Further, another 15 central contracts were intended to be negotiated.
The strategic procurement unit focused on intelligent sourcing for government and advocated a differentiated approach to buying. This approach would allow government to apply different buying methods depending on the type of product and importance to the business of the particular entity. The unit managed to negotiate with certain suppliers such as the two full service airlines to secure discounts for economy travel for government, leading to immediate savings. This was an example of strategic sourcing in action, because as there were only two potential suppliers it made no sense to go out to tender and rather the negotiation method was applied to maximise efficiency. The unit produced an instruction, which would be submitted to all government entities giving guidelines on how to apply the differentiated approach.
The Office intended to aim Members and any other oversight bodies in their work, by providing information through efforts such as the eTenders portal and in efforts to secure compliance by government engaged in pre and post-award reviews of tenders to ensure they were being properly adjudicated and awarded.
The Office planned to help government reach the savings targets announced by the Minister. Many of the interventions the Office had implemented such as strategic sourcing, transversal contracting and savings on advertising since the introduction of the eTenders portal led to savings. Other specific efforts included an assessment of the top 100 suppliers to government, with the intention of analysing the details of the supply relationship towards renegotiation.
On policy norms and standards, the Public Procurement Bill should be with Parliament by May 2016 and would deal with various aspects of procurement including the powers of the Office and empowerment through government spending. It was emphasised that the proposals regarding abuse of the system would be ruthless, such as restricting persons found to have engaged in corruption from registering any company with the Companies and Intellectual Properties Commission and automatic consequences where it was found that a tender was not awarded properly such as cancellation or placing it under administration. Officials must face automatic consequences and the element of discretion left with accounting officers would be removed.
Members raised concerns including following points and the Office respond accordingly:
- Members were concerned about the security of the Central Supply Database, specifically whether it was possible to edit suppliers’ information and who would be the administrator of the website.
The Office responded that only a supplier could alter their information and that much of the information such the banking details and tax compliance information was automatically detected by the system. There was an audit trail of log ins and changes to information, so that it could be checked who logged in, when and from which IP address.
- Members were unsure whether the solutions presented were already in operation or whether they were in the pipeline.
The Office clarified that both the Central Supply Database and the eTender portal were operational and would be mandatory for national and provincial Departments from 1 April 2016.
It was questioned whether the Office would be able to achieve its aims in the fight against corruption if it were not given the authority to adjudicate and award tenders, as that was where corruption happened.
The Office responded that with the vast number of procuring entities in government it would be near impossible for one office to administer all those tenders. It was emphasised that the key was to change the institutional culture in government departments to push for efficiency, making sure risk and internal audit committees did their work and for automation to be used to create a real time accessible paper trail, which could be used to generate reports on departments that did not pay on time or which awarded tenders to the same individuals repeatedly.
Ms E Louw (EFF) said the Committee was disappointed again; the same problem of late submission of presentations was experienced the previous day. It could not be allowed that Members had documents placed before them and be expected to deliberate on them on such short notice. The Committee needed to take action, because National Treasury (NT or Treasury) could not just apologise and the same thing happens again. Further steps needed to be taken by the Committee to determine why NT wanted to undermine the Committee by always sending presentations late. It was not right and Committee Members need to take a decision on what their next step would be regarding Treasury submitting presentations late.
Dr M Figg (DA) had the same concern; the information was with National Treasury, and for Members to be effective and carry out their oversight the documents needed to be received on time. It was not as though Treasury were not informed; the letter from the Committee indicated that the presentation needed to be with the Committee by 8 April 2016. He hoped the Committee would receive more than an apology, because that would not be enough. This was important information and the Office of the Chief Procurement Office (the OCPO or the Office) was an important new function and it was important for the Committee to be given information to be able to do its oversight. The Committee needed to take a stance and perhaps what was proposed the previous day about the Committee not allowing NT proceed with the presentation should be implemented. Treasury would then have to present the information at a later date, so that the Committee could analyse the information before it was presented. He asked if the directors present in the OCPO were the full complement.
The Chairperson said this spoke to the entire organisational structure of the OCPO.
Ms S Shope Sithole (ANC) wanted NT to know that the Committee was not just being fussy. Member’s work has to take on board communities and public participation. It became difficult if documents were only received at the meetings, and when would Members get a chance to discuss the information with their constituencies? To be effective the Committee needed to be supported by NT in giving Members time, to read, research and engage communities. It was only when Parliament brought communities on board, that South Africans would feel they were part of this institution. It was incumbent on Members, because it was an obligation of the Constitution. This was not just a ritual and meaning needed to be given to policy making.
Ms M Manana (ANC) said this matter had been raised the previous day and the Committee should elevate it to the Minister and Director General. So that they were aware of Members’ unhappiness about getting presentations the very day they were presented.
Ms Louw proposed that the meeting should not continue so that Treasury understood the Committee took the matter seriously. NT must be liable for the costs, because every meeting the documents were sent late. Something was not working or the Committee was being taken for granted. The previous day billions of Rands were discussed and Members could not double check the information provided and the same would apply to the present meeting. She wanted the meeting postponed and the matter taken to the Minister, so that people could start taking their jobs seriously.
Mr A Shaik Emam (NFP) shared the sentiments about the late submission of the documents, but if the meeting were cancelled there would be cost implications and it would not serve the purpose. He suggested the meeting continue, but Treasury and the Director General if need be must be informed that this was not acceptable. In future if no documentation was received timeously the meeting would not be scheduled or it would be cancelled, with Treasury being liable for the costs. Whilst he understood the point raised by Ms Louw, there were serious cost implications in cancelling the meeting. He would rather ask NT to comply and give documents timeously in future. Treasury should know that if it defaults again this would be the route taken by the Committee.
The Chairperson pleaded that the meeting continue, despite the genuine concerns of Members. It was difficult to deliberate meaningfully when information was not received on time. He agreed with the suggestion of taking the issue up with the Director General and the Minister. Should the Committee not receive the information timeously in future, the Committee would reschedule the meeting so that officials did not fly to Cape Town for nothing. Treasury must also understand that when Members sat internal costs were incurred. The Committee wanted to avoid a situation where either the Committee or Treasury incurred fruitless expenditure. The Committee hoped that Treasury was taking note and the same thing would not be repeated. He asked whether this was acceptable to Members.
Dr Figg was unsure which side to support. The matter was simple; when Treasury received the invite letter, a date was stipulated by which the presentation and documents must be submitted. So, if the presentation were not with Members by the date Treasury would not have to fly down.
Ms C Madlopha (ANC) said Members sounded like a stuck record, repeating that they need information on time. Members now would only be listening to the presentation and not engaging, because they had not read the documents. Members were not happy with the way Treasury was acting and having stated the date for which the presentations were to be submitted, if this was not met Treasury should not accept the invitation. She would accept the Chairperson’s plea, as it was the first time the Committee was meeting the OCPO.
Mr Kenneth Brown, Chief Procurement Officer, National Treasury, apologised to Members; it was his responsibility to ensure that documents were with the Committee on time. The team had prepared a lot of the work early and he took responsibility for that. He guaranteed that this would be the last time this happened and if information were to come from his office late he would be willing to resign; that was how seriously he took Member’s comments.
On the question about how many directors, the Office staff complement was about 125 people, with 80 filled positions, 6 chief directorates and 13 directors. The OCPO was trying to keep the structure fairly lean to save costs, but recruited quite a lot of expertise at the same time. As this was a specialised field the Office tried to employ industry specialists to do specific research.
Briefing by the Office of the Chief Procurement Officer (OCPO)
Mr Brown said the OCPO had been in existence for three years and in the first year of its existence a lot of research was done towards understanding what a supply chain environment entailed. From that, in January 2015 the Office released Supply Chain Management Review. In researching this the Office engaged all departments, provinces, entities and a broad spectrum of industry. The Review contained a detailed synopsis of the problems with procurement in government and was circulated to Parliament. The initial aim of the OCPO was to deal with corruption, but it was thought that in addition it should try and look into making transacting easier. The Review highlighted this in detail and provided government with a roadmap. The Office would be presenting the progress it had made in the various areas.
The Office was divided into six chief directorates: policy & legal, where all the instruction notes and legislation were developed; governance, monitoring and compliance, which monitored the entire procurement system and whether government was implementing the OCPO’s prescripts; transversal contracts, this was where the centrally located contracts were with commonly used products being contracted for centrally; strategic sourcing, here all the commodities and services used by government were analysed to come up with procurement strategies; Supply Chain Management ICT, was the environment for automation trying to reduce paperwork and manipulation; Supply Chain Management stakeholders & client management, here the OCPO engaged government, the private sector, oversight bodies and civil society organisations. The Office was fully established, but because procurement was a specialised field it was supported by expertise. For example, the OCPO had done an assessment of government’s top 100 spending items and travel was an item, but it was a fairly complicated industry and you need someone who was sharp in that particular area to assist the Office. He would not want a permanent Director of travel, but someone who would be able to provide the information required.
Ms Rakgadi Motseto, Chief Director: Stakeholder and Client Management, OCPO, said stakeholder and client management used to include capacity building, but it was split and capacity building was now housed under the Office of the Accountant General to serve both financial management and procurement. Since the launch of the Central Supplier Database (CSD) in September 2015 in the Eastern Cape, road shows to all nine provinces were commenced to ensure that all practitioners and system users were trained. Suppliers were informed about the CSD and all the changes coming through. In December 2015, another effort was made to ensure suppliers get on board with the CSD and eTender portal. A three-month campaign was run, covering nine radio stations, two commercials as well as billboard and print ads. This year there were four engagements with practitioners, because there were a variety of courses in the market and a common approach was needed. Civil society was also engaged to help them understand the supply chain management environment. The OCPO was hoping to get them on board to conduct oversight over some of the larger tenders going out from government. Business was also engaged and a company was going to help establish the call centre to deal with the 30-day payments.
Mr Brown said the OCPO was in the process of conducting a survey, over 45000 suppliers were interacted with and the results were being collated. These would be shared with the Committee, so that it has insight into the challenges facing suppliers. So far suppliers were indicating that technology should be used in supply chain management (SCM) and improve Internet access for government. Many had interacted and indicated that there were many innovative ways to approach supply chain, which they would be willing to share with the Office for free. 25% of them felt that when they submitted their invoices, they did not get proper feedback from government. Ms Motseto had spoken about the problems with the payments within 30 days and a rudimentary assessment of outstanding payments from the financial statements of Departments. The OCPO estimates that outstanding payments to suppliers older than30 days, came to around R100 billion, which should be in the economy and was not.
Automation: Central Supplier Database and eTender portal
Mr Brown moved to achievements in automation, especially the online solutions. The CSD was a major achievement and Mr Ntlaba would give a live demonstration of how a supplier would go about registering on the database. The Auditor General had raised a number of findings in a number of audits around administrative problems within supply chain management (SCM). Either tax clearance certificates were missing, employees were doing business with the state or there was no proper tracking of delinquent suppliers. The CSD began to sort out these issues. A supplier registered once and received an identity number, which would be the number for the entire existence of the company. The administrative aspects had been digitised. For example, the system picked up the company’s tax certificate from SARS and government could check if a company was tax compliant in real time. The system automatically retrieved director and company information from the Companies and Intellectual Properties Commission (CIPC). It also had access to bank account details, in anticipation of the eventual automation of payments. The CSD interfaced with the Department of Home Affairs (DHA) to get identity numbers, to screen for tender defaulters and state employees. Currently there were 68000 suppliers registered on the CSD and registration became compulsory from 1 April 2016 if a supplier wants to respond to a tender.
Mr Tumelo Ntlaba, Director: Central Supplier Database, OCPO, demonstrated how the CSD worked. This was a portal that enabled suppliers to register themselves, if they wished to do business with the state. Currently, if you want to do business with the state you have to approach each organ of state or entity to register on their supplier databases. However, the OCPO felt that especially SME suppliers should be focusing on their business, instead of expending manpower registering with state entities. Then the concept of the CSD was born, with the intention of making it easy for suppliers to do business with the state. Allowing suppliers to register once, in one place and thereafter be able to do business with any organ of state. Any supplier could access the CSD from anywhere, even from a cell phone that has Internet access at www.csd.gov.za.
Mr Ntlaba spoke to the website itself, saying a supplier would go to the site and create a profile. Then they would log in and there was an option to fill in supplier details. There they would be able to register their companies. When the supplier registered they were asked for their company registration information and Mr Brown had indicated that the CSD interfaced with the CSD. Therefore, suppliers were not the source of information on directors or legal status of their company. They simply fill in their company registration number and indicate that it was a closed corporation for example. Then the CSD retrieves the legal name of the company and its business status. Business status was important, because a company may have been deregistered or be in liquidation. What happened in practice was that suppliers would come in with certificates generated at CIPC more than a year ago and in the meantime the company would have been deregistered, but the government SCM practitioners did not have access to CIPC to verify this information. The CSD gives SCM practitioners access to live and real information to enable them to do business with legitimate companies that were in a lawful state to contract. The registration date of the company and directors’ information was received. The CSD displays the companies contact information, address, banking details and tax information. The director’s was information directly from the Companies Register and then the CSD checked whether the director was employed by the state or if they were restricted. Treasury currently maintained a database of tender defaulters and restricted suppliers. If the director appeared in that database it would be picked up by the CSD. If they were a state employee it was possible to check whether they had declared their interest and received permission to transact with the state. Currently if a company was restricted, then the person would simply register a new company under a different name and if SMC practitioners were not checking thoroughly they could fall through the cracks. With the CSD, it would pick up if the person was restricted and registering a new company would not make a difference. With the tax information, with every supplier, depending on the scale of the business, they need to have valid tax clearance certificate and tax information. The CSD also verified that individuals had valid tax clearance certificate. On the site, the supplier would put in their tax clearance number and in real time the CSD retrieved the tax compliance information from the South African Revenue Service (SARS). It was easy to forge a tax clearance certificate and if the information was not verified the state went on doing business with the supplier. Other aspects included commodities and BEE, status which were important to SCM and ensured that all this information was provided centrally.
Mr Brown said the country of origin of the supplier could even be generated from the CSD. This was quite an innovative way for government to do business. Further, it cost government only R8 million for the entire solution.
Mr Ntlaba said there were a number of reports that could be drawn from the CSD by SCM practitioners. An SCM practitioner in Mpumalanga who wanted to know what suppliers were located in Mpumalanga providing a particular commodity or service could draw such a report from the CSD. This information even went to a ward level. The SCM practitioner would indicate where they want that service delivered and could search the CSD for all the relevant suppliers. The CSD could indicate whether the person was tax compliant and whether the supplier had a local address. The CSD would be enhanced to allow access at ward level. SCM practitioners would be able to know who the suppliers were in their own constituencies.
Mr Ntlaba said the eTender portal was a website where all government institutions would publish their tenders centrally, online. The benefit of this was that at present suppliers were required to go to a government organ and pay a certain amount to access the documents, without even being sure they suited their requirements. The eTender portal dealt with this, because all tenders should be published centrally and they should be available for free. Going forward all suppliers would be able to access tender documents for free online. This made it easier for suppliers to check which tenders had been published in their area or their area of business. It allows anyone to have access to tender information and allows anyone to be aware of opportunities. At present there were over 2700 tenders published, these were worth billions and were an opportunity out there for South Africans to grab. The eTender portal increased transparency, because it published demand plans. These were plans for what departments intended to spend over a year. Members on oversight could check the demand plans and whether what was planned for went out to tender.
The eTender portal has the documents advertised with documents available for free. When the tender gets adjudicated, a list of all the people who put in bids and the prices would be published, visible for all suppliers. The information of the winning bidder must also be published, along with the price and their scores. This helped deal with disputes, because the system was transparent. The single largest problem facing government was challenges on the award of tenders, some were genuine, but some were frivolous challenges. This had a big impact on service delivery, because it delayed the roll out of projects. The eTender portal could indicate which companies, from where, were responding to certain tenders and if international companies were participating. It therefore provides government with quite a bit of intelligence on how to approach supply chain management.
Mr Ntlaba said the address was www.etenders.gov.za and various categories: tender opportunities, awarded ones and closed ones. Under advertised tenders, all the tenders were displayed and one was able to search and filter by province, commodity or service, cluster or even by Department or entity. The awarded tenders tab lists all the awarded tenders and indicates the winning bidder. It helped with oversight, because over 2700 tenders had been advertised, but only a few awards were made, but Mr Brown would add more information. This tab also indicates all the companies that participated in the tender, the contract information and value of the award. Closed tenders operated the same way, as with cancelled tenders. It made it easy for anyone to see what was available, what the trends were and where the opportunities lay.
Mr Brown said from 1 April 2016 all national and provincial departments and their entities must advertise on the eTender portal and was no longer advertising in newspapers. This would apply from 1July 2016 for municipalities. This change in the rules would save government an estimated R1 billion. Ms Motseto and he had met with the publishing houses who felt this would have a negative impact on their business. NT understood and felt they needed to accept innovation and adjust their business models accordingly. Treasury was thinking of using a similar portal for government job ads, which government spends about R1.5 billion on each year. Treasury was thinking of developing an app that would allow companies registered on the CSD to receive notifications to the company where tenders were advertised. It must be remembered that if things were no longer in the newspapers NT must make it easy for businesses to access the information. Business was very excited about the developments and with the more efficient process for business Treasury hoped to see resultant savings in spending.
Mr Brown spoke to gCommerce, saying government had transversal contracts, which were centrally negotiated. The government vehicle contract was worth about R8 billion and Treasury has negotiated prices for every model with the suppliers. Some gave 5 or 6% discount and others gave up to 28% on the vehicles. The same was done for pharmaceuticals, medical equipment. With gCommerce, SCM practitioners in departments who wanted to buy a wheelchair would just type wheelchair into the solution and all the wheelchairs that had been centrally negotiated would be displayed and the order could be placed. This was so that procurement was no longer a paper-based system.
Mr Brown on eProcurement, said the single largest source of corruption was in the procurement we did not see, which was quotations. Things get ordered which government does not need or at inflated prices. The same supplier would use three different entities to provide the quotations. Government also did not get the best price. The Minister of Finance indicated that government needed a price referencing system. This has been done, but it was a laborious process. Prices in different areas could vary so markedly, that it made it difficult to maintain the price referencing system. The intention here was top have a standard platform across government where governments would be able to search for a product and suppliers would bid electronically. This would drive prices down and leave a trail of who was doing the transacting, what price they paid and why. Mr Kenneth Pillay, Chief Director: Transversal Contracting National Treasury, had shown him stacks of documents for single tenders where just the administrative burden of processing the tender took 40 days. The intention was to move to electronic bidding and the entire process could be electronic. NT was at quite an advanced stage with rolling this out and it would save the state a sizeable amount of money.
Governance, Monitoring and Compliance
Mr Solly Tshitangano, Chief Director: Supply Chain Governance, Monitoring and Compliance, OCPO, began with procurement plans that were also published on the eTender portal. Since 2015, on a quarterly basis Treasury was publishing procurement plans for provincial and national departments. This was done so that suppliers could know in advance that certain entities were going to procure certain things, allowing suppliers to plan accordingly. It also avoided abuse by officials, because what some of them did was to inform certain suppliers in advanced to prepare the documents, but others did not know. Mr Brown had once stopped a tender worth about R100 million, because it was only advertised for two days and could only have been responded to if there had been prior information as the documents could not otherwise be completed. These were the types of challenges that would be remedied by publishing procurement plans. On a day-to-day basis the OCPO received a lot of complaints, some of which would be sorted out by the systems already mentioned. The major ones included specifications being biased. Suppliers who would contact the OCPO with a compliant would pick this up; the Office would assess the tender documents and inform the entity accordingly. The entity would then be able to change or stop the tender, to ensure the bias was removed. Other complaints included advertising for short periods, which would be monitored on the eTender portal to proactively stop awarding. The OCPO did pre and post-award bid reviews. This was done when the Office received information that a tender was not being properly adjudicated. The Officer would come in at that stage, advising the institution that due to what had been noted it would not be beneficial to the institution to award the tender or continue adjudicating. The decision would then be taken by the entity to cancel the tender or regularise the process. Post-award reviews were where the tender was already awarded and the Office received complaints that the tender was not awarded properly. The OCPO would check whether the process complied with SCM norms and standards, if not then it would recommend that the tender be cancelled or advertised. Currently the OCPO was reviewing the contracts above R10 million in most major public entities, such as the coal contracts in Eskom and consulting contracts in Transnet. With Passenger Rail Agency of South Africa (PRASA), emanating from the report of the Public Protector Treasury had already appointed 13 companies, audit and legal firms, to assist in the investigation. With the Department of Correctional Services, a tender was advertised and the Standing Committee on Public Accounts was now considering the matter. At the end the preferred bidder quoted R378 Million, but the OCPO assessment showed that this tender should have been awarded for about R50 million. The Department was being engaged, to have it cancelled.
Mr Kenneth Pillay, Chief Director: Transversal Contracting Office of the Chief Procurement Officer, said currently the unit was managing R26 billion worth of contracts for national and provincial Departments. This excluded voluntary participation by municipalities and some state owned entities. There were currently about 40 central contracts and four new commodity streams had been introduced: property and leasing, professional services, education and ICT. Looking at the property and leasing sector the provincial and national spend was about R6 billion. However, government could not have administrative procurement officials dealing with property and leasing. It took an expert who understood what the cost drivers were and why the private sector paid R80 per square meter, but government paid R104 per square meter in some buildings. That research was on going and huge savings were expected. Professional services, which dealt with consulting and advisory services, were conservatively estimated at R10 billion spend. Education, including textbooks, furniture and stationary was estimated at R10 billion and the intention was to reduce costs. ICT conservatively would be at about R20 billion. The Learner and Teacher Support Materials project had two projects recently launched: textbooks and stationary packs. For example, stationary packs were reduced to R110 per learner; if all nine provinces participated this could save R1 billion.
Mr Brown said OCPO would look at grade R and list all the requirements of the students and the same would be done for all other grades. All of that on average was R110 a child. Children in ex Model C or private schools would possible pay between R600 and R1000, which government pays R110 on average.
Mr Pillay said the OCPO had successfully rolled out a school furniture tender for the Eastern Cape and intended to have all provinces participate in a central structure for school furniture. Norms and standards for school construction had been published. Previously the costs would run into about R60 million per school and these would ensure schools di not cost more than R35 million.
Mr Pillay said the reforms underway since 1 April 2016 included compulsory participation in central contracts. Previously the regulations spoke to voluntary participation in central contracts, but since 1 April 2016 certain central contracts were compulsory. For example, with medical equipment, in excess of 90% of medical equipment came from outside the country and was bought from virtually the same suppliers. However, there were huge differentials in what was being paid across the country. The intention was putting in a central mechanism, to increase government’s buying power. Over the next year 15 more contracts would be negotiated and managed by the OCPO such as education, health and ICT sectors. Beyond this, NT would be working with provincial treasuries to look at provincial contracts. Increased participation by municipalities was being pursued. The OCPO did not forget about transformation priorities, so there needs to be participation by black owned, and local and small business. Mr Brown had spoken to the online bidding process and currently the system was old and outdated. Government needed to reinvent how it did online tendering and such platforms were being looked at to reduce the administrative burden.
Mr Brown clarified that the OCPO would not run the entire tender system from Pretoria. A big chunk of procurement remained with the entities to run themselves, but some of the systems were centralised and entities were forced to use them. If a tender were going to be centralised, it would not be up to the OCPO to wake up and decide it would be a nice central tender. With a transversal contract such as the school furniture, because it was going to impact nine provincial departments there was a consultation process. Each stakeholder was engaged and they formed part of bid committees to inform the OCPO of what was happening in the various provinces. This would not be a unilateral process and a central tender was one that was inclusively negotiated by everyone affected. The same would be done for national Departments, for example with the central vehicle contract where the biggest consumers of vehicles would be consulted. Participation in central contracts was compulsory from 1 April 2016, but if a commodity was found which was much cheaper than the central contracts the stakeholders should bring it forward to the OCPO.
Ms Estelle Setan, Chief Director: Strategic Procurement, OCPO, said currently strategic procurement within government was very rule driven and this was why government strategic sourcing was different from the private sector. That should not preclude government from doing strategic sourcing, because it needed to find more intelligent ways of procuring commodities. The OCPO was advocating a differentiated procurement approach, which meant one did not buy stationary in the same way one bought capital equipment. Strategic sourcing was about analysing the market and value chains before procurement to understand how the commodity fits together. With the differentiated approach the OCPO looked at what impact a particular commodity had on a particular department’s business. What would happen to that Department if it were not supplied and what were the market supply complexities? Based on those two elements you could determine whether a product was a routine good, like stationary, which would be subject to a different sourcing approach than one high supply complexity and high business impact, which would be a strategic commodity. Then there were leveraged goods, where government needed to keep the tender process going to leverage its economies of scale and buying power. Bottleneck goods were where the risk of supply needed to be managed. The unit conducted a portfolio analysis of government spend between 2012 and 2014. It found that the top five commodity categories made up more than 50% of the government spend. This gave an idea of where to start looking for opportunities to save and also this allowed one to know which departments were likely to be involved. This would inform the sourcing strategies to try and look for smarter ways to procure. The travel and accommodation project was one of those commodities where the OCPO had started looking at smarter ways of procurement. It was an example of where the OCPO was employing negotiation and tender processes, with other items being routine or bottleneck. Through this process the Office negotiated with the two full service airlines: British Airways and SAA. There was no sense in going out on a tender for this, because there were only two full service carriers in the market. The Office therefore did all the research it could and had very structured negotiations with the two airlines. The outcome was that for full economy-class tickets the Office secured between 25 and 30% up front discounts to published rates. The Office also negotiated with four major hotel groups to establish maximum allowable rates per star grading. This resulted in some immediate savings, with the cost containment rate of R1300 being replaced with a maximum allowable rate per star grading. This showed it was not only about tender processes, but also about efficiency gains.
Ms Setan moved to current reforms, saying the Office was looking at issuing the NT travel policy applicable to government; a NT instruction, giving departments instructions on how to apply strategic sourcing. A communications project was also underway and projected savings were estimated to be between R300 and R600 million over the next year. On travel and accommodation, the OCPO was only focusing on local airlines, car rental and travel management companies. There was further work to be done with conferencing, bus and coach hire and other areas. The medical equipment project, standardisation of equipment specifications was spoken to and the first phase was completed. The high value, high volume items used in hospitals and clinics were analysed, which come to a value of R2 billion, and new projects, LTSM procurement and distribution models, to see if the best practice was in place. The Office would continue with the medical equipment project, because about 48 items were analysed. It would be looking at medical waste management, hospital laundry and linen, food services and cleaning services; as well as looking at a pharmaceutical dispensing model to see how citizens who did not have medical aid could access medico without going to hospitals and standing in queues. Infrastructure and related professional services were another focus. Together with transversal contracting, which had a lot of synergy with strategic sourcing, were looking at other opportunities for sourcing initiatives that could result in transversal contracts.
Mr Brown said government spends R9 billion a year on travel, about another R4.5 billion was spent on subsistence and travel. Another R4.5 billion would be spent on actual travel, where due to the negotiations government should save about R1.5 billion. The national travel policy intends to place restrictions, so that people did not travel frivolously. The delegations which travel should be reduced delegations, so that the overall spend on travel would be reduced. That was what it meant to assess a commodity and go deeper into such details.
Plans for Compliance and Reporting
Mr Brown said the Office wants to design systems so that Members could conduct proper oversight and could intelligently talk to departments. Procurement plans should give Members information to question the costing of Department’s projects and by when tenders were to be finalised. The Auditor General reported that non-responsive tenders or tenders which get cancelled were at about 40%. Tenders were advertised, bidders responded, adjudication process took place, but out of nowhere the tender gets cancelled. This happens where people see that the tender was not going to the person they thought it would and it was a painful thing, because suppliers put money into bidding. The OCPO wants to do a database of cancelled tenders per Department so that it could be known and people could start asking questions about why certain Departments were continually cancelling tenders. What would help the Office was for Members to also indicate what kind of information they would want. Many Departments were doing forensic investigations, but the results did not become known. It was about time government became transparent around these results. The Office would like to ensure Department’s accounting officers, where the investigations were underway, that they were concluded at a specified time and some of the results were published. This would build a culture of compliance in government.
Saving R75 billion over the next 3 years
Mr Brown said the Minister had indicated that government must save R25 billion a year by the outer year of the Medium Term Expenditure Framework. The Office would like to see it starting this year, to save R75 billion over 3 years. Some things being done were starting to see savings coming through. The OCPO had assessed the top 100 suppliers and for example was negotiating with Telkom where the spend was about R2 billion. They were resistant, but like with the Post Office innovation would take the bigger part of their business. For example, Internet calling allows voice communication for free and soon all government Departments would have interconnectivity allowing them to talk for free. Basil Read had a tender to build 12 schools for R600 million. The OCPO met them the previous week and requested a bill of quantities, in order to understand how they got to R50 million per school. The OCPO would then start negotiating to reduce the tender price. Some construction companies were very open when engaged, they indicated government did not know what it was buying and did not know how to negotiate some contract terms. The Office aimed to learn what government was doing wrong from industry and when dealing with infrastructure matters going forward these would be implemented. There was one instance where around R1.5 billion was spent for 6km of road and the OCPO would go into the details, thereafter seeking re-negotiation. Many suppliers were looking at the interventions positively. Government paid horrendous licence fees to Microsoft and the State Information Technology Agency (SITA) should renegotiate these as well. Some of the focus areas were construction, pharmaceuticals and streamlining the banks. There were four major banks that did business with the state, but the thousands of state entities put out a tender every time they wanted to interact. It would be best to interact with the banks and standardise the fees. On ICT, the OCPO wants to ensure that the equipment procured fits the purpose for which the person would use it. SITA had been doing a lot of the work and there would be positives coming soon. Even space utilisation was important, in the private sector office space per individual was about 18 square meters, but in government it was about 36 square meters. If a space utilisation project was undertaken, then the leasing requirements of government could be reduced significantly.
Policy, norms and standards
Mr Brown said looking at the automation that Mr Ntlaba spoke to; it was part of rationalising the system. As automation brought a reduction in the amount of rules required. How the OCPO takes that empowerment forward was important and section 217 of the Constitution speaks to empowerment and how it should happen. It was not debatable that South Africa was an unequal society and government needed to start thinking how it could start using procurement smartly to decidedly aid empowerment. Later in the year a Public Procurement Bill would be coming forward, which would fully establish the Office of the Chief Procurement Officer. It would give the Office administrative powers; identify the roles and responsibilities of the various role players in departments such as the accounting officer. It would dictate who did what when, what the reporting requirements were, what an accounting officer needed to do. The Bill would be clear about empowerment and empowerment must happen going forward. It would deal with reporting and transparency, indicating what information needed to be out in the public for the legislatures to do proper oversight. He emphasised that Treasury would be ruthless in its proposals around abuse of the system. There were two parties which abused the system: business and government, because there were two parties to corruption. What was going to come through was restricting the company, including every director of the company and if a company has running contracts in other areas they would also be assumed to have been wrongfully obtained leading to the potentially being put under administration or taken over. Treasury would restrict that individual from registering on CIPC, meaning that if an individual engaged in corrupt activity they would be prevented from doing business privately. People argued that this could be unconstitutional, but fighting corruption cannot be unconstitutional. Government needed to think about how we would deal with this in a decisive way. Abuse of the system happened knowingly in some departments and a department would know that a tender would be wrongly awarded or adjudicated and accounting officers reluctantly approved that. However, the accounting officers did not do anything about that. The question then was how do you put automatic measures in place, so that if something was wrong the tender was cancelled, costs were recovered from whoever, the official needed to be suspended. These things need to be automotive and it should not be left to someone’s discretion. The law itself would be draconian when it comes to deal with abuse of the system. On dispute resolution, there were people who legitimately dispute the way a tender was awarded and they deserved space to do this. However, government needs to put measures in place allowing for dispute resolution, without preventing service delivery. In many cases projects were standing still, because of frivolous disputes. NT hoped to have the Bill finalised by the middle of May 2016 and many external consultations were undertaken. Once public consultations were completed the Bill would be tabled.
Mr Brown said 95% of departments were with the OCPO and many of them were tired of corruption. Many of the things presented actually came from ideas from the departments. The OCPO was trying to carry departments with them, so that whatever came up with was a joint effort. There were delinquents and it would take time in these areas. The single biggest problem for government was capacity. Many of the failures may not be corruption related and were merely due to the inability of the system to run the entities as a business. If Departments were asked where their SCM lay in their organisational structure, Members would be shocked to learn that a low level employee managed a portfolio of R10 to R15 billion. Departments came with a strategic plan, annual performance plan and a budget, which Parliament approved, but they did not present how they were going to deliver. In each Department there must be someone who came to Parliament and said they would ensure delivery took place. If this were not corrected then things would never get going. SCM was a specialised field, because if the South African Police Service wants to purchase vehicles they ed know which models and what technology was required inside the cars, such as safe storage of weapons. He had asked his Director General whether he was aware of the cost drivers inside Treasury aside from personnel. What did it consume and where did it procure it? Departments needed to be run like a business and if costs were to be reduced they must easily identify the areas for savings. Governing was a business and the way we need to build capacity was beyond degrees and requires common sense.
The Chairperson said having heard the presentation; the OCPO had the absolute support of the Committee. The Committee’s objective was to follow money connected to predetermined outcomes and would be the Office’s partner.
Mr Shaik Emam said despite the despondency about the late arrival of the documents, the presentation was valuable and informative. Supply chain management was a great concern to many in the country and especially the Committee. Would the OCPO be able to periodically provide the Committee with a report on the different challenges faced by the departments with the systems to be rolled out, defaulters, corrupt officials and non-compliance with processes. If the systems could be implemented properly, then it would be half the battle won. On pricing, would the Office very seriously consider pricing being different in different areas and be able to put a national standard as guideline even though the local officials would still procure. A lot of problems were not created at the time of tendering or bidding, but started with the budgeting process. Where an official was intent on corruption, they would make a project even where it was not budgeted for. It then was irregular expenditure and there were provisions in the Public Finance Management Act that allowed for it to be regularised, which was then done. The three-quotation system did not work anymore, because one man would give all three quotations. Who would be doing the actual awarding of tenders, because his would be the Department, would it be automatic or would it be the OCPO? There was some rule that if you were the lowest bidder and if it was under 15% of the estimate, the tender would not be awarded despite the potential that someone’s overheads may be significantly lower. The system should be able to identify good practices and people who were performing. Would it be able to identify if a supplier had the capacity and requisite financial muscle to carry out a project? How would the Office check that a person was not overburdened, because they may have the cash flow for one project of a certain value, but may be awarded another of similar or less value leading to cash flow problems. The idea of the eTender portal was good, because the sad thing about tendering was that 60 people would drive 300km, pay for expensive tender documents and sit for site meetings, but it was already decided who would get the job meaning 59 people wasted their time. This would give everyone an equal opportunity to tender. There were other requirements to qualify for tenders, including site visits and would the OCPO be able to pick up discrepancies in these further aspects. A great percentage of taxpayers’ money that was stolen was in the smaller contracts, totalling much more than the large contracts. How would the Office limit communication between any interested parties and the OCPO team? The budget information was also given out to tenderers, which gasve a guideline for how to tender and this was another problem.
Ms Madlopha said the information given would really help with the Committee’s oversight. Tender defaulters were a real problem for government, because they defaulted with one department, but were legitimate with other departments. Was there any plan for the OCPO to have a tracking system for these defaulters to prevent the non-performance and so on? The Office indicated problems with the lack of knowledge and skills of the SCM officials, and the lack of accountability due to a lack of capacity. Did the Office have the mandate to expose those who were failing to do their jobs in its reports to the Committee, to allow Members to deal with such people? It would be good to indicate a certain department had specific challenges.
The Office had stated that it was getting cooperation from Departments, but other reports to the Committee indicated that the Departments were uncooperative. Such conflicting reports make it difficult for Members follow and make these people account. Had the OCPO checked the SCM norms and policies for loopholes, because these allowed people to engage in corruption and blame the system? Did the Office have the mandate to make a guideline for all entities including state owned enterprise to force them to account and close the window for corruption? Government was faced with a situation where service providers came up with high prices for goods and services, with contracts that favoured certain suppliers or potential collusion. When millions of Rands were stolen it was called corruption, but when billions were stolen from the public purse it was called collusion and no one made any noise about it. When the 2010 world cup stadiums were built billions of Rands were stolen, but no one raised the matter.
Ms Madlopha asked if the Office had a mechanism to prevent non-performance and poor quality products being supplied, although some had been mentioned. It was correct that there were two parties to corruption and the private sector had a plan to engage in corruption, because they negotiated it with the officials. On systems which were not in line with legislation, had the Office has checked this, what plans were in place? Section 217 (2) of the Constitution and the Preferential Procurement Policy Framework Act provided for public procurement as a means for transformation, which was the Office’s direct mandate. How would the OCPO deliver on that, especially the issue of transformation? Did the Office have a plan, because it was one of its chief mandates? If the supply chain and procurement were not transformed, the relevant sectors would not be transformed.
Ms Louw said tenders and the tender system in government was the corruption hub of South Africa. This was precisely why the tender system should be abolished. Did the Office have a have a contract management office, because within procurement this was required? In the past with the PRASA issue, Members heard that prices were inflated due to Rand devaluation. It should be common knowledge that if you were negotiating outside the county the Rand value was a factor to be considered. The OCPO mentioned a survey on disputes, but was there an office that dealt precisely with those disputes and resolving them. On the eTender portal, who was the administrator for the system? Similar to who was going to award the tenders, because in an ideal world that was what should happen on the eTender system to automatically award. Who had access to the system, and who could make change sand how would it be tracked?
On property, Ms Louw found it strange that government rented buildings, why did it not just buy the property? In the Northern Cape the former Premier owned half of the properties and he was doing business with the state and leasing the buildings. Why did government not buy or build the properties? If there could be perfect mechanisms, then all that money to be saved could be pooled to buy these buildings. She encouraged investigating these possibilities. She welcomed the suggestions on travel because there was a need to have such a system in place so that government officials did not take unnecessary trips.
Ms Louw asked for a list of all the Departments and municipalities that were guilty of cancelling tenders and the like. On reviewing contracts above R10 million with Eskom, Prasa and Transnet, this was why she had asked whether the OCPO has an office dealing with contracts. Mr Brown had indicated that 13 companies were hired to deal with the investigations, but how could the OCPO tell other entities to stop using consultants in the face of this. On the coal contracts, she would like to know if Shaduka would be reviewed. On the 40 transversal contracts, could there also be a list of these as well.
Dr Figg said a lot of good documents came to the Committee and he would like to see results before getting excited. People who dealt with corruption tended to be dealt with it themselves and he hoped it did not happen to the OCPO. Implementation was one of the challenges and the Office needed support, which it would get from the Committee. On slide 2, the CSD training had been done, but he had previously raised whether all the potential suppliers had the capacity and necessary infrastructure to register and benefit from the database. Would the local or small suppliers be in anyway disadvantaged, because of having a central database. Would the goods be supplied locally or via a central supply? On slide 3, the bank account details with technology was easy, to verify someone’s status was a bit more challenging. How were banking details checked to ensure the person who was registering as a supplier was the same person whose bank details were supplied and were those of the qualifying supplier. He noticed that editing could be done on the CSD, was it possible for someone to access the information of a supplier and change it? On the cost of the schools, Mr Shaik Emam had spoken about giving someone a certain project, because they had capacity although they could not handle more. Was there a limit set for each supplier, based on information received so that that overburdening was avoided? Mr Brown mentioned the frivolous challenges to tender awards, but could everyone challenge or was there a fee attached to that, as this would help as a deterrent. Slide 8, if people knew contracts above R10 million would be reviewed they would award contracts of R9 million. Further, would the OCPO review contracts from specific suppliers or would the Office look at specific notorious figures’ contracts?
Dr Figg said on the R35 million per school, surely that would depend on the number of learners and could be an indication of what type of school would be built for that amount. The Committee had conducted oversight over two schools built for R85 and R84 million, because how could that be awarded when the work could have been done for R35 million. Slide 17 indicated that schools must be built to last 100 years, instead of high maintenance costs. Oversight was important, there was a school which the Committee conducted oversight over, a school which was just over a year old and required maintenance. On the slide dealing with challenges, these were good instruments to use, but if there was no communication or no consequences for non-compliance and those challenges still existed after three years, then the objectives would not be achieved.
Mr Brown said government has close to 1000 procuring entities, including departments, their entities and municipalities. This was a sizeable amount and the Office was getting close to 1 million transactions going through the system per month. Thousands of tenders were managed every day and to put surveillance system in place to cover each one would not be possible. What the Office was thinking in putting in place automation was to at least have oversight over many aspects in an intelligent way. For example, the tenders above R10 million in Prasa numbered about 280 and in the case of Transnet it was the same. Looking at the depth of contracting it was quite drastic and one needed to ask big departments what the boards did and what the CEO did. Where was the supply chain head, what qualifications did they have and what did they need to report to the board on a regular basis? We need the institutions to work and the OCPO could put in place the mechanisms and hope the institutions do the rest. If the OCPO was to do the work itself it would never get anywhere, but the interventions were designed to improve results. It does not help if some of the CEOs were questionable and frankly we need to think carefully about the people deployed to those positions, because this was a major chunk of the problem. On pricing, the point made was that a price referencing system could be put in place, but managing such a system was problematic itself. What was required was the capacity in Departments to do market research. The person who did procurement would have to do market research to determine the local prices and suppliers. What were required were commodity and category specialists. This did not mean the OCPO must do nothing; the Office went on a study tour to South Korea in December 2015. What happened there, which touched a number of points raised by Members, was that the South Koreans discovered suppliers did not pay their workers’ salaries. They have discovered that the contracting party was paid, but they did not pay their subcontractors. They knew what the economy looked like at a ward level and when they put a tender together they would immediately indicate to the tenderers who would be the suppliers of the inputs into that project. For example, if a school was to be built they would indicate who the brick suppliers were in that locality, they would be vetted and the South Korean government had already negotiated the prices, then they instructed the person to use the prices which were already known, so that the tender prices reflected what the economy looked like around the project. When they award a tender they ask for a list of employees and when an invoice comes they pay the workers, through an automated service. If there were subcontractors the same applied. South Koreans believed that was the only way in which a government could control the economy smartly and South Africa was far from that. Even if a price referencing system could be put in place, it would be fairly artificial in most cases. In construction it could be done, because of the quantity surveying per project. Government would know the quantities of inputs and the rough prices, meaning a price referencing system could be done for that Department or project, which meant the price referencing system would have the greatest impact. The Department of Water Affairs, to build a bulk water pipeline the planning would indicate what diameter pipes were to be used and what material they would be made out of and all the costing for that could be done long in advanced. Therefore, when a company came forward with a bid of R500 million for an 80km pipeline the Department could reject it as ridiculous, because the pricing would have already be done. The behaviour of the consulting engineers was a problem, because their fee structure was percentage based and they would design the projects at inflated rates. The Department received the costing information from consulting engineers and then it would assume that should be the budget. Mr Shaik Emam has raised the point of bids getting rejected, because they were far below the estimate by the consulting engineers. The OCPO was in the final stages of putting together a regime to manage consulting fees properly, because it has been realised that it was an area that had a ripple effect. He was not dismissing the point around the price referencing system and the Office was looking at areas where it would give marked improvement now. The OCPO did not have the power to award tenders, aside from the transversal contracting unit. If a tender were managed by the City of Cape Town, they would use the CSD to verify if the suppliers were compliant with certain things. Whoever made that particular decision was still within the City of Cape Town, so the system and decision-making remained decentralised. With the CIBD system, bidders would be eligible for awards given their capabilities. The question was how the CIBD monitored awards, because a supplier may receive ten awards at the value that they would be able to handle one award.
Mr Brown appreciated many of the comments coming through, or example good performance should be flagged. The panel system where there were a panel of 20 suppliers, but only two gets the work all the time. The OCPO wants to have sight of all panels or framework contracts. This speeds up procurement, but it needs to be reflected perhaps on the eTender portal so that when awards take place, the OCPO could question why it was only two companies all the time. In addition to all of this the OCPO would build a business intelligence unit and try to get actuaries whose job would be to sit on the eTender portal and monitor patterns. When a pattern was identified the OCPO would be able to take decisive action. Unfortunately it would be a bit reactive, but that was the nature of the beast. The Committee may want to consider visiting the centre in Midrand where independent power producers were evaluated. Members would be shocked at what they saw, bid adjudicators did not have access to their cell phones and went through a security screening that checked everything. In the venue the proceedings were recorded, including voice. His thought process was whether there was a case to take that and replicate it in a number of Provinces. So that high value procurements could be adjudicated and managed in a controlled environment like that. Communication around tenders should be managed, because people shared information about certain bids and it would be difficult to police. Tender defaulters, fraudulently awarded tenders or the work was incomplete, would be tracked and Mr Tshitangano had visited schools in Limpopo where there was a furniture tender. What some of the companies did was to make poor attempts at refurbishing the furniture, yet they charged for new furniture. Now that they knew who these suppliers were, the OCPO questioned the Department why this had not been picked up. Further, these companies were put on terms and would not be paid until they had performed properly. This was why the OCPO indicated that in the Bill it would be ruthless with defaulters. This was the reason why there was the CSD, if suppliers were found to have defaulted on a tender they would belaboured as such and would not be able to transact with the state. This made it easy for Departments to be aware of which suppliers were defaulters in the adjudication process.
For the Committee, the OCPO could start drawing reports on departments which had complaints levelled against them, including the nature of the complaints. The Office would work with Members to enhance oversight and to ensure things were taken to their logical conclusion. Treasury had access to the payments systems side of national and provincial Departments, allowing it to know what was happening around transactions and tender awards. However, when it came to public entities NT did not have this and a public entity could transfer a large amount of money to a company without any oversight. This was necessary and measures were starting to be put in place for this, even if it was just sight. This would allow Treasury to monitor trends in this regard. NT had rationalised many policies and regulations, the Treasury regulations that the Minister would hopefully sign soon were rationalising a lot of the SCM environment. It was being differentiated to show how to manage infrastructure procurement. However, pricing still remained the responsibility of the accounting officer. For example, an assessment involving quantity surveying was required and a quotation for R800 000 was received. He had checked the work to be done, hours it would take and expertise required, leading him to reject the quote, because the work should only cost the Office about R100 000. Thereafter, a separate quotation was asked for and came in at R98000.
On restrictions and collusion, it pained the Office that there were construction companies that fleeced government for billions and there were no consequences. They were still doing business with the state. However, the decision to take action did not lie with the Office. This was the reason why when the Bill was crafted a way to give those powers to the office would be found. So that it could really take action where it needs to be taken, because if it were left to the officials action would not be taken.
To Ms Louw, to be frank the tender system was here to stay, there needs to be a way of deciding who gets awarded the contract; although he noted the point being made. For certain tenders there needed to be a probative system and have an external eye evaluating the process to ensure that whatever decision taken was in line with prescripts. Over and above where the Office sits in real time how would such a system be put in place? However, this should not add too much costs given the thousands of tenders adjudicated. How we fix the system was going to be important.
Mr Brown responded to Mr Ntlaba, who said every supplier had access to his or her own CSD profile, through a username and pin. This was like a bank account pin and should not be shared, lest other people were able to access the details. From the practitioners’ side they could only view supplier information and the responsibility for maintaining information lay with the supplier. Previously, with the system of registering on every individual database the practitioners would take the form filled out by the suppliers and enter the information themselves. This was now the suppliers’ responsibility and they must ensure that it was correct. On the verification of bank details, this was done across the various banks, once the supplier indicated who they were banking with. The company registration information and legal name of the entity were sent to the bank to check if the bank account details matched with the details of the supplier. This was to ensure that incorrect details were picked up. Further, when a supplier tried to change their account details the CSD would send a onetime pin to the supplier, which must be entered before updating the details. On the eTenders portal, the Departments and entities had access to update the tender documents themselves. Those that did not have capacity could send their documents to the provincial or National Treasury, which would assist. The big institutions that upload a lot of tenders did that administration themselves. There was a very thorough audit trail on the CSD, anytime any activity happened it was logged, including who logged in, at which particular IP address and other information, which was logged in a very detailed manner. When auditors came to audit the entities, a supply report could be generated which would show that the entity used company A on a particular day, with the company’s compliance information and if it were changed and when.
Mr Brown responded on properties and leases. The OCPO was working closely with the Department of Public Works to do a detailed profile of the property which government owns and which it leases. They were also looking at the tenure for which a particular department has been in a particular building. That would inform which portfolio needed to be built and owned and which ones need to be leased. Further, there would be a protocol around the leased buildings. That was something which when the Committee interacted with DPW it should enquire about, towards fast tracking it. In the interim the OCPO would be talking to landlords to negotiate reduced rates where it could. The point was good and it was on the OCPO’s radar screen. On the travel side, the intention was similar to the CSD, a single IT platform that was the same across government. When bookings were made they were uniform, so that NT could start to check travel patterns. Treasury should be in a position to go into a department’s records, without it being involved, and check where it travelled to and how big the delegations were in real time. This would allow NT to continuously interact with Departments. A national travel policy would come into effect in June 2016, but in the absence of technology where Treasury did not have sight of the information it was difficult to control. The travel industry was a tough industry and at present the NT team was paying R1295 per night, per individual, per room, including dinner and breakfast, which in the present market conditions was cheap. A Minister approved international travel and it was they who decided how big the delegations must be. It would be interesting to look at departmental travel patterns and international travel patterns, then the questions could be asked differently to different people.
To Dr Figg, when he had started in his current position in his first meeting with the practitioners he told them that in three years’ time the OCPO would be where it was presently. Comparing these two positions, they were chalk and cheese. He told them if were not in that position he would be willing to resign. Therefore, he was quite optimistic that the Office was moving forward and what had been presented now was currently being implemented. These were not things in the pipeline; the conversation now was how to refine the systems. He had noted inputs from Members, which were things that could assist in closing the loopholes with the CSD. On local suppliers and the capacity to register on the CSD, the CSD was a database where people who wanted to do business with the state registered. The OCPO did not decide which tenders were awarded; the procuring entities remained responsible for facilitating the transactions and taking their local economies into account. When national tenders were put together, local economies would be taken into account. With the school furniture tender, anyone could create a factory to produce school furniture. At present there were about 10 manufacturers, but there could be 50 or 100. All that would need to be done was to prescribe the design and price the inputs. The OCPO was very mindful that the local economy needed to be part of procurement. He would be very concerned if companies from Gauteng get the tenders all the time, although there would be certain commodities which tended themselves that were localised in a particular region.
On the R35 million per school, the Department of Basic Education put forward three sets of plans, which were given to a quantity surveyor to cost the project including fees and the like. The OCPO then came up with a model that places it at roughly R35 million per school. The models also assumed conditions were a certain way, but circumstances may be different. However, when a supplier needs to deviate from the plan permission for the variation needs to be sought. He had spoken to a black owned construction company that was building a building across from the offices of the OCPO, which was 17000 square meters for R100 million. Schools on average were no more than 5000 square meters and that company had stated they could build schools for under R30 million. Being rules based and prescriptive would solve the problem so far, but if this kind of information were made public it would be difficult for people to hide. They would have to explain and if there were no cogent reasons there must be consequences, without which we would simply continue to talk.
Ms Motseto, on access of small businesses to CSD, said SITA offices and post offices were used to provide access.
Mr Brown said where Members had requested a list this had been noted and would be provided. On access to the CSD, there was a call centre for the CSD, which could be called, where there was a problem and he had given the team a turnaround time of not more than 24 hours.
Mr Ntlaba, on support for suppliers, said there were service centres in communities and where they were online they could assist with registration. Further, although they would not be delivering forms to departments there were still SCM practitioners who could assist. All government centres that were currently procuring should be able to provide assistance to register on the CSD. Once a supplier was on the CSD they were registered forever. On performance management, going forward this would be brought onto the CSD and eTender portal. If a particular supplier did well the departments would be able to rate them and the same would apply to departments that request services late or do not pay. A spend analysis system would be developed to see where the money was going most of the time. Then over time NT would be able to run data analysis to see whether government spending was going to local, black suppliers and was in line with government priorities. Therefore, it would help government a great deal with policy making.
Mr Brown said Members might want to consider inviting a sprinkling of suppliers, just to interview them to see if they were aware of the CSD and whether it helps them the way the OCPO claims. The feedback would be useful and there could be certain things that the Office had missed. Ms Louw had questioned the use of consultants, but consultants were used to put together the CSD for R8 million and using experts smartly had saved the state a lot. The eTender portal cost R0, because the same contract and people were used to design. The OCPO was only paying a hosting fee of R16000 to SITA, but it would be buying its own servers and the portal would be moved. The OCPO spends about R20 million on consultants, but their job was clear: they must save the state money. He would not know how to negotiate a construction contract, so he would be happy paying someone to do that; as long as there was a reduction in the contract price. The Office did not hire consultants to do the OCPO staff’s work.
Mr Tshitangano said on the R10 million figures for review of contracts, this was the figure applicable to public entities when the Office reviewed awards. If a complaint were received about a certain tender, regardless of the value, it would be reviewed. For other entities, when reviews were done they would not look at the value. On Section 217(2) of the Constitution, currently there was the Bill on the way, but there were other interim-reforms. The 2011 preferential procurement regulations would be amended soon and would introduce a number of reforms upon signature by the Minister.
Mr Brown on section 217(2), the OCPO relied on the PPPFA to do this function. Government needs to think about radical change and would look at targeted procurement. It would clarify how women, disabled persons and other previously disadvantaged groups would be treated in the regime. The Office had interacted with black business and they have given proposals, so the progress was fairly good.
Mr Maleka Matlong, Director: Local Government ICT Office of the Chief Procurement Officer, said the Office started with national entities and it earmarked that municipalities would join the CSD and eTender portal on 1 July 2016. The OCPO met with the South African Local Government Association (SALGA) over the past three months, through their municipal finance structures. Recently, Mr Brown met with the SALGA CEO. The Office also met with the Unions and has informed them of the intended reforms. The target was that by the first week of May the seventeen non-delegated municipalities, including eight metros, would be met and the previous day the City of Cape Town was interacted with. The benefits demonstrated include the localisation, because they wanted to do what was called ward-based procurement for contracts less than R30000. They have developed an excel spreadsheet as a database, but were shown that the CSD was at a ward level. Then the City of Cape Town should have a supplier day, to register at least three suppliers in each ward. Where the Mayor wants to go to a particular ward then they would be able to procure from a particular ward.
The Chairperson said he would allow a few more concise questions.
Mr Shaik Emam said the SCM expenditure for national was only 7%, while the provincial was 27% and he asked for the local government spend on supply chain. With all the good ideas presented, how would it be enforced and how would the OCPO get local government to buy into the system. What were the loopholes in the matters presented, and which could be a problem going forward. While restricting certain persons from doing business with the state there were ways around that, such as transferring the business to a spouse or family member, because they could still be getting the money. That was going to be a mammoth task to identify. Was there a mechanism to automatically report that there had not been payment to suppliers within 30 days, so that the relevant Departments could be highlighted and the 30-day payments system could work? The OCPO would identify challenges in supply, such as a lack of local suppliers, would it then forward this information to the Department of Trade and Industry? Did the Office not think the system adopted in South Korea should be pushed for, because the rich were still getting richer? If someone was manufacturing something in a locality, they should be given preference with tenders in that region. This would help uplift those communities and create jobs, because he had found that too often the same people were awarded the tenders. Further, he knew that subcontractors who often do the dirty work do not get paid and was there a way for the OCPO to pick this up? On travel, even getting a discount sometimes would not make a difference given the high prices of travel in the country. Perhaps an in house travel agent should be looked into, like the system in Parliament. Another problem that was costing government a lot of money was disputes around tenders. How could these be dealt with, because frivolous disputes were put in which would not be won, yet in the meantime government was losing money. The CIDB was another challenge, for a supplier had a CIBD grading of GB2. Then a joint venture was done with a supplier who has a GB5 rating. Automatically thereafter their rating jumps from GB2 to GB7. This gave them a capacity rating allowing them to deal with project worth R50 million, but they would not have the capacity and would not be able to do the job. Lastly, he felt that the OCPO was doing a fantastic job and if this was implemented and supported it would go a long way, saving a lot of money. He would submit the rest of his questions in writing.
Ms Louw understood what the Office intended to do and she would like to stay optimistic; however this was difficult given the responses she received. The OCPO had only taken over the administrative part of the tender system, but it was in decision making that the corruption happened. If that function did not lie with the OCPO then the battle would not be won. She would have expected that the role of decision-making should lie with the Office and not with municipalities. It was easy to say to a friend that they should register on the CSD, advertise the tender on the eTender portal and still make a corrupt award. She still believed that a number of problems would be faced. The Office did not have enough bite and the Minister would have to revise the entire role of the office. However, as it stood it would not accomplish what it aims in her view. Too many individuals still came to SCOPA for hearings and nothing was happening to those individuals. The office did not have enough bite, because it could not take individuals to task, especially government officials doing business with the state.
Ms Manana said this report was an eye opener. The OCPO had spoken about air travel, but what about the land travel? She knew some officials were claiming exorbitant amounts, which were on the road most of the time. She knew some officials were claiming R40000 to R50000 per month, who would still also get their salaries. The previous day there was a presentation on telecommunications expenditure, which indicated that in Q3 of last year the telecommunications had only managed to spend 5.5% of their budget for broadband roll out, precisely because of the tender problems. Was the OCPO aware of these problems and could they assist?
Ms Shope Sithole said it was an enlightening presentation. She used to undermine it, but if the Committee could be clued up on procurement issues they would be able to assist the OCPO with what it intended to do. She was convinced that what the Office had put on paper and judging by the enthusiasm, it would assist the state to run well. She was concerned about small municipalities, because tenders went out and they usually went to the same people. Further, there was a tendency to not pay their workers. She had thought that when government came up with the tender system that it was part of poverty alleviation, but all she saw was a few people getting richer by the day. Could the Office do a case study on smaller municipalities, especially in Mopani. There it was known that the tenders in the municipality went to a certain person and the community even respected those people. On the issue of paying small contractors on time, she knew of a number of small contractors that have gone bankrupt. It was killing local economies, because if small businesses were not paid for even just two months they collapsed. She asked that the Chairperson to arrange a workshop so that all Members could be on the same page.
Mr Brown said there were the Constitution and the decentralised fiscal system, which gave particular powers and functions to each sphere of government. Whatever the Office put together had to be within the confines of that system and that was how it operated. However, that did not mean the point was invalid. What government needed was to look at was why institutions were not working properly. The Office could help cosmetically, but if this was more fundamental. There were risk committees and internal audit committees in every entity, but were they doing their work. Therefore, centralising tenders with the Office would not solve that problem, because the institutions must work at the end of the day. The 30 day payment system was a serious problem, he had a black owned company in the Eastern Cape approach him because they were owed R100 million and if they were not paid within the next two weeks it would have to close its operation. 2500 employees would be retrenched and all the subcontractors who benefit would be affected. The Office then intervened and assisted that company. Out of that, he had asked the stakeholder and client management unit to have a call centre for 30-day payments, separately from the Department of Performance Monitoring and Evaluation. The Office wanted to have it web based, a company which was not getting paid would upload the invoices and the Office must get it immediately, to be passed on to the relevant Department. A circular was being worked on to indicate that if an invoice came to the OCPO it must be resolved within 10 days and if not, that entity would not have money transferred even if it meant the Department would stand still. Furthermore, reports would be generated so that they could be given to Parliament and published in the media indicating which departments were delinquent so that people could deal with the people who have the authority to make those payments. The OCPO had finalised its integrated financial management tender and part of it would interface with the banks system and the payment system, towards bringing in a bit of automation into the payment cycle. At present the payments were legitimate and must be made, but it would not happen if there were no “brown envelope” in return. Part of why the Office wanted to have the capital acquisition and procurement plans of all departments and where the Office would employ more people was to do business intelligence. Government consumed 85 million condoms a month, which was a billion male and female condoms a year. This was a R3.5 billion tender a year, but 95% of that was imported. However, there could have been several condom factories, creating jobs and the like. The information was being generated now to interact with DTI to ensure the economy was grown smartly. On land travel, it was how a department managed its business as it gave people permission to travel. The department must manage its assets, including cars and the like, because that was the responsibility of that institution. No system would help with the problem identified. While the Office was very alive to the very good suggestions coming forward, it must ask which aspects fell within its mandate. It also went back to the broader Treasury to bring forward these ideas and there was a robust interaction in Treasury around that. If we did not focus on building efficient institutions, service delivery would continue to suffer.
The workshop idea raised by Ms Shope Sithole was a great idea and perhaps a meeting should be convened of all relevant Committees to share this information. Then the questions raised could begin to be answered. In the interim, whatever other things Members feel they could help should be brought forward to the Office. He again apologised that the presentation was not timeous and should this happen again Members must be the first to writing the letter of dismissal.
Dr Figg said he wanted to make a very important offer that any of the contractors that did not get paid within 30 days would let the OCPO deal with it. Could the Office’s contact number for suppliers that had not been paid be published in some way?
The Chairperson said he had heard about the call centre, but perhaps these were more urgent. Particularly, as presently there were defaulting departments and entities.
Ms Motseto said the reason it would be launched on 1 May 2016 was that the OCPO was trying to develop a system where the suppliers do not have to send the documents manually. Rather they should be able to go to upload them and they would come through instantly. At present the web system was being developed and was targeted for 1 May. The Office would announce through the media and it would operate through the CSD.
The Chairperson said the team should realise that there were high expectations upon themselves. There were three key things that must come through in the work being done. Firstly, the Office was facilitating government tenders to ensure and improve timeous service delivery. This became important with government’s infrastructure build programme, with huge budgets and the complaint from the private sector that tenders were coming out very slowly. Of even bigger importance was the Office’s ability to altogether eliminate corrupt practices and improve efficiency in the system. Thirdly, the role of this Office in contributing to better implementation of empowerment. He saw that the Office had noted it, because the Committee was interested in inclusive growth, creating jobs and growing the economy. The Office’s collaboration with Department of Trade and Industry, Department of Small Business Development and Department of Economic Development would be very important. The critical point being made was the issue around the awarding of tenders, the decision making part, if that was located within the Office perhaps that should be replicated in the provinces. To begin to close the gaps and while at the beginning it may not be watertight, it became critical that an ordinary person could get through to the Office to say they think there was corruption in this particular awarding of a tender. People were simply tired of corruption and that was why he was saying there were very high expectations on the Office from South Africa; high expectations from people who were doing business with government, because people had been short-changed. Short changed such that some businesses had collapsed, some businesses grew very big and some individuals grew very rich. The Committee thought the Office was up to the task and it had the support of the Committee.
The meeting was adjourned.
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