Office of the Chief Procurement Officer briefing

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Finance Standing Committee

11 October 2017
Chairperson: Ms T Tobias (ANC) (Acting)
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Meeting Summary

The Office of the Chief Procurement Officer (OCPO) briefed the Committee on roles and responsibilities, achievements and challenges of the Office.

OCPO roles and responsibilities were to develop Supply Chain Management (SCM) policies, set uniform norms and standards for policy application that are aligned to section 217 of the Constitution, the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA); provide SCM support; compliance monitoring of SCM policy implementation. Achievements by the Office included: succeeding in creating the necessary shock in the system in fighting corruption and abuse of the SCM system. The Office was able to modernise public procurement through the use of technology thereby reducing cost of doing business with government. There was promotion of transparency by centralising the publication of tender opportunities. The drafting of the Public Procurement Bill was to eliminate fragmentation in the procurement environment.

Areas of improvement were the monitoring of the policy outcomes to see if policies are effective and derive the intended outcomes and, if not, subject them to review. Leveraging public procurement spend to support broad government socio-economic objectives to unlock procurement opportunities for black companies, black industrialists, B-BBEE and small businesses. Consolidation and review of instruction notes to avoid potential overlap with the roles and powers of Accounting Authorities and law enforcement agencies.

 The Office noted that there were 793 applications for deviations from procurement rules for competitive bidding processes in 2016/17. A total of 450 applications were approved, 198 applications were approved with conditions and 138 applications were not approved. There were 4 applications for noting and 2 applications that were withdrawn. There were 756 applications for expansion or variations and 398 were approved while 248 were approved with conditions; 109 applications were not approved, 1 application for noting and zero application was withdrawn. The top 10 deviations by value included Eskom R31 billion, South African Revenue Service (SARS) with R1 billion deviation, the Department of Rural Development and Land Reform deviation of R685 million. There was a total value of R37 billion in deviations. In terms of expansions, Eskom topped the list with R33 billion. Total value of expansions was R42 billion.

Members asked if there was a specific reason that the Chief Procurement Officer did not respond to the questions asked by Members at the previous meeting. The Committee should be briefed on the process for the appointment of the Chief Procurement Officer and whether the Minister of Finance was involved in that process. The Acting Chief Procurement Officer was asked if there was any grain of truth to a media article claiming that he said that the Office was behaving more like a “dictator than an enabler” and a review of the function of the Office should be undertaken. Members complained that there should be more information on the review of contracts above R10 million. There was no update provided on the Eskom report on coal contracts. Why was the Eskom report withdrawn? The report is alleged to recommend a forensic audit of Eskom. Was any forensic audit underway or implemented?

Members requested the Committee be briefed on the reports about the R70 billion given to the Chinese government for infrastructure contracts. It was unclear how the R70 billion worth contract accorded with section 207 of the Constitution. Was this dealt with by the Office? Members asked about the Umzimvubu water project went far back and Eskom had made it clear that was not interested in migrating towards using hydroelectricity. Members complained about the lack of information on deviations and expansions in the presentation. It was noted that most state organs still struggle to pay invoices within 30 days and was there consequence management that could be imposed. Why was there a reference to corruption in the presentation under achievements while evidence pointed to the increase in corruption?

Members said it was unclear whether the Passenger Railway Agency of South Africa (PRASA) locomotive contract conformed to the Public Finance Management Act (PFMA). Was the Office aware of this contract? What was being done by the Office to address this? How many cases of corruption had been detected and reported to law enforcement agencies? Questions about SAA contract deviations were repeated several times. Was there any policy in place to guide approval of deviations and expansions as there did not appear to be? Members complained that R31.3 billion nuclear contract deviations by Eskom were extremely high but the Committee did not get any information on the reasons for such deviations. How much had been spent on avoiding corruption and was there value for money? What was the budget allocation for fighting corruption? What is the cap for deviation? On the nuclear deal, the applicable policy that was used was requested.

The Committee agreed that the presentation was thin and this was acknowledged by the Acting Chief Procurement Officer. All the requested information was to be submitted to the Committee within seven days.
 

Meeting report

The Chairperson indicated that some of the questions will not be answered today as the Acting Chief Procurement Officer was not present at the meeting to answer the important questions.

Mr D Maynier (DA) interrupted and said that the Acting Chief Procurement Officer was present in the meeting and therefore all the questions that had been asked will need to be answered.

The Chairperson apologised and said that she did not notice the presence of the Chief Procurement Officer.

Mr Maynier complained that the presentation made available to the Committee did not cover the questions that had been asked by Members in the previous meeting. The presentation needed to get to the gist of the matter that is in everyone’s interest.

The Chairperson indicated that the Committee would not allow Mr Maynier to “play to the gallery” by asking irrelevant questions. The meeting was scheduled until 1pm and therefore there is ample time including time allocated for discussion.

Office of the Chief Procurement Officer briefing
Mr Willie Mathebula, Acting Chief Procurement Officer, Treasury, indicated that the roles and responsibilities of the Office of the Chief Procurement Officer (OCPO) were to develop Supply Chain Management (SCM) policies, set uniform norms and standards for policy application that are aligned to section 217 of the Constitution, the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA). The Office provides SCM support for policy implementation at all spheres of government, collaborates with law enforcement agencies and works to avoid confusion of legislative mandates.

Mr Mathebula highlighted a number of achievements made by the Office. The OCPO has succeeded in creating the necessary shock to the system, fighting corruption and abuse of the SCM system. The Office was able to modernise public procurement through the use of technology thereby reducing cost of doing business with government. There was promotion of transparency by centralising the publication of tender opportunities. The drafting of the Public Procurement Bill would eliminate fragmentation in the procurement environment and provide for a framework for targeted procurement. The promulgation of the Public Procurement Framework regulations was to promote targeted procurement pending finalisation of the Public Procurement Bill.
           
Areas for improvement had been identified and these included the monitoring of the policy outcomes to see if policies are effective and derive the intended outcomes and, if not, subject them to review. The Office aimed on leveraging public procurement spend to support broad government socio-economic objectives to unlock procurement opportunities for black companies, black industrialists, Broad-Based Black Economic Empowerment (B-BBEE) and small businesses. There was a need to focus on SCM capacity building and supporting government institutions to apply the prescripts correctly to prevent unnecessary irregularities. There is a consideration for the consolidation and review of instruction notes to avoid potential overlap with the roles and powers of Accounting Officers/ Authorities and law enforcement agencies.

Mr Mathebula said there were 793 applications for deviations in 2016/17. A total of 450 applications were approved, 198 applications were approved with conditions and 138 applications were not approved. There were 4 applications for noting and 2 applications withdrawn. There were 756 applications for expansion or variations and 398 were approved while 248 were approved with conditions.  A total of 109 applications were not approved, 1 application was for noting and zero application was withdrawn. The application for noting was basically those applications that were approved by the institutions prior to implementation of National Treasury Instruction Note 3 of 2016/17. The top 10 deviations by value included Eskom R31 billion, South African Revenue Service (SARS) with R1 billion deviation, the Department of Rural Development and Land Reform deviation of R685 million. There was a total value of R37 billion in deviations. In terms of expansions, Eskom topped the list with R33 billion, Department of Health came second with R6 billion while Department of Environmental Affairs with R716 million. The total value of expansions was R42 billion.

Mr Mathebula mentioned that common reasons for requesting deviations and expansions included:
• Lack of planning by government institutions
• Inadequate relevant skills and capacity
• Lack of contract management
• Amendments to scope during tenure of the contracts
• Maintenance and support of existing infrastructure
• Emergency procurement procedures
• Sole supplier status.

Mr Mathebula said that proposed interventions were:
• Mapping applications for deviations to submitted procurement plans. Applications may be approved, based on procurement plans.
• There is a need to strengthen compliance monitoring and policy outcomes.
• There is a need to provide technical support to government institutions and SCM capacity building.
• There should be more collaboration with law enforcement agencies to fight corruption in SCM system.
• Improve stakeholder relations with other government institutions.
• Develop a framework and guidelines for deviations, variations and expansions.
• Strengthening powers of OCPO to monitor compliance.

The review of contracts above R10 million included: 260 for PRASA and one each for Eskom, SABC and Transnet. The scope of the investigation was to verify compliance with the SCM framework. There are a number of consultants providing assistance with investigation and these included Deloitte and KPMG. A draft report had been submitted for comment by PRASA, the other three were all pending investigations.

Mr Mathebula identified the challenges that the Office currently found in the environment:
• Lack of capacity and relevant technical skills and project management skills.
• Generally a lack of ethics and integrity in the procurement environment
• Lack of a dispute resolution mechanism resulting in disputes being referred to courts.
• There was lack of payment of suppliers within the stipulated 30 working days.
• There was lack of leveraging procurement to spend on supporting the broad socio-economic objectives of government.

Discussion
Mr Maynier asked if there was a specific reason why the Chief Procurement Officer did not respond to the questions asked by Members prior to the meeting. The Committee should be briefed on the process for the appointment of the Chief Procurement Officer and whether the Minister of Finance was involved in the process. Was there any understanding of the role of the Chief Procurement Office? An article in a Sunday newspaper claimed that the Acting Chief Procurement Officer said that the Office was behaving more like a “dictator than an enabler”. The Officer should either confirm or deny this claim that had been widely made in the public domain. It would be important for the Committee to hear if the Office supports the review of its functions in looking at how the Office can execute its duties. There should be more information on the report on the above R10 million contract by Eskom. There was no update provided on the Eskom report on coal contracts with Tegeta that was withdrawn. Why was the Eskom report withdrawn? The report is alleged to recommend a forensic audit of Eskom. Was there any forensic audit that was underway or implemented?

Mr Maynier commented that the deviations by Eskom and SARS were particularly concerning. The Committee should know why there are such deviations in these entities. There should be a direct response as to why the Chief Procurement Officer would be unable to respond to questions on the Eskom deviations from public finance management rules for nuclear procurement contracts, the forensic audit in place and the procurement processes applied in the nuclear deal. Why was the Chief Procurement Officer not supplying the required documents to the Committee as requested in writing?

Mr A Lees (DA) complained that there was nothing in the presentation that spoke about the role of the Office in dealing with corruption. It was absurd to note that there was more emphasis on the policies and not on the rule of law. The Committee should be briefed on the reports about the R70 billion that was given to the Chinese government for infrastructure contracts. It was unclear how the R70 billion worth contracts accorded with section 207 of the Constitution. Was this dealt with by the Office? The Umzimvubu water project went as far back as under the apartheid government and Eskom had made it clear that was not interested in migrating towards using hydroelectricity. The water in the project could be used to deal with the water crisis in various regions in the country. It was mentioned that South African Airways (SAA) was under investigation and it would be important to be provide brief details of the investigation that was being undertaken. There was lack of information on deviations and expansions and the year of those two mentioned in the presentation.

Mr D Hanekom (ANC) said that most of the important questions had already been asked especially the one on the Umzimvubu water project. The absence of details in the presentation was a concern especially on reasons for deviations as this was important to be taken into consideration. There is a reference to corruption in the presentation but what is absurd is that this is made under achievements. Why was this listed as a success while evidence pointed to the increase in corruption? It was unclear whether the PRASA locomotive contract conformed to the PFMA. Was the Office aware of this contract? What was being done by the Office to address this? How many cases of corruption had been detected and reported to law enforcement agencies? The country was particularly concerned about the scale of corruption. When would the Public Procurement Bill be tabled in Parliament?  

Ms B Mabe (ANC) mentioned that the Committee should be provided with a summary of deviations and expansions including the details of the responsible department for these. It must be made clear that deviation was not corruption as this is provided for in the PFMA. What was the acceptable level for deviation and expansion? Was there capacity in place to deal with corruption? Was there value for money in dealing with corruption? The Office should form a relation with other organs of state like Public Service Commission (PSC) and the Department of Planning, Monitoring and Evaluation (DPME). It seemed like most state organs and government departments still struggled to pay invoices within the period of 30 days.

Mr Mathebula responded that the article that appeared in the Sunday newspaper was false and inaccurate. He wanted to state categorically that he had never met the Minister and the Deputy Minister as an individual but rather as a team. He clarified that his Acting position commenced on 1 September 2017. The Office was not a dictator and the article was certainly inaccurate and the article was generally full of lies. Some of the questions asked by Members should be responded to by the Director-General. He explained that he was not involved in the Eskom report and therefore was not aware of the withdrawal of the Eskom report. The only thing that could be confirmed is that there is investigation in place again Eskom. The Office of the Accounting General could elaborate further on some of the questions about Eskom including those around corruption. The Office is focused on compliance with the PFMA. There is investigation of the Gupta emails. The purpose of the presentation was to compile information on deviations and expansions but it would be a mammoth task to provide details for each deviation and expansion.

Mr Maynier interrupted and said it was nonsensical for the Officer to say it was a “mammoth task” to provide the Committee with critically important information.

Ms Mabe asked that Members should respect each other including everyone in the meeting and therefore it was unacceptable to swear at each other.

The Acting Chairperson said that it was acceptable and parliamentary to use the word “nonsensical”. She asked the Officer to proceed in responding to the questions.

Mr Mathebula replied that there was not sufficient time to respond to the questions that he had been asked to respond in writing. The Office respected Parliament and therefore there could never be an attempt to undermine Parliament. The Department of Energy is the one responsible for answering questions related to the nuclear deal. The word “corruption” was mentioned several times in the presentation and not just once.

Mr Lees pointed out that his main concern was “corruption” was mentioned under Achievements.

Mr Mathebula responded that the alleged amount of R70 billion for the locomotive contract was still under consideration by the Treasury and no decision had been taken on the matter. Slide 5 of the presentation should have made reference to financial year 2016/17 under deviations and expansions. There should be a framework for approval of deviations and expansions. The Office has been able to expose corruption in various entities and this was in the public domain. There are a lot of reports in the media about corruption in the State Owned Companies (SOEs) and the Office was playing a major role in addressing these cases. The Office always acts immediately when there is corruption although the Office did not have the competence to actually conduct investigation on corrupt and fraudulent activities. He had not detected any form of corruption since assumed the acting position in September 2017. Any corruption that had been detected by the Office is usually referred to the law enforcement agencies. The timeframe for tabling the Public Procurement Bill was March 2018 but the draft Bill will still be channelled to the general public for comments. It is indeed true that deviations are not corruption.

Mr Mathebula promised that there would be commitment from the Office to provide the Committee with the names of the government departments responsible for deviations and expansions. There is no capacity in place to deal with corruption and that is why the Office was working heavily with law enforcement. It was a challenge for many government departments and entities to comply with the 30 working days for payment of invoices. The mandate to deal with corruption was a legislative process. The Office was using the PFMA as a guideline to deal with corruption. The Committee would be provided with the report on government departments and entities that are still struggling to pay invoices within 30 working days.

The Chairperson asked whether the Parliamentary Liaison Officer of the Department had received the written questions that had been forwarded by Members.

The Parliamentary Liaison Officer responded that he had received the written questions from the Committee.

The Chairperson expressed concern about the long discussions about issues that are in the media as this really looked like a complete waste of time. Members should be having discussions on how to deal with corruption, ways to enforce compliance, introduction of the e-tender system and the automated supplier system and whether this was achieving the intended outcomes. It was indeed true that deviation did not mean corruption but it always meant bad planning and the Committee should not be seen as condoning bad planning. It was good to see that the presentation identified challenges like lack of capacity and skills in place. The reality is that government officials tended to undermine each other and this was hampering any progress. The Office was established to avoid corruption in the tender system and this was introduced by the ANC government. It would be important to know how the Accountant General was working with the law enforcement agencies such as the Hawks as this was a matter that was always being emphasised by the Committee. All the requested information should be submitted to the Committee within seven days.

Mr Maynier asked if article by the City Press about the alleged comments by Mr Mathebula was completely untrue. Was there any proposal to relook at the functions of the Office? How was it possible for the Acting Chief Procurement Officer not to be aware of the Eskom report especially when he had worked in Treasury for 15 years? Why was he not aware of the Eskom report? The OCPO presentation was not up to standard and lacked details on a number of matters. The deviations by Eskom were extremely high but the Committee did not get any information on the reasons for such deviations. On the nuclear deal, it would be helpful to get the applicable policy that was used for that deviation. The Office was certainly supposed to be aware of the nuclear deal.

Mr Lees asked to be provided with more information on the deviations for SAA as this was asked in the previous round of questions. It looked like the deviations and expansions were done without any policy in place to guide those deviations. Why was the Bill for tabling in March 2018 listed under Achievements? There should be a need to look at and peruse the contracts to ascertain whether there is no corruption involved as this was the big issue in the country at the moment.

The Chairperson mentioned that some of the questions belonged to other departments and not the Office.

Mr Hanekom said maybe there is a framework for dealing with deviations and expansions or even a definition or ground rules for deviations. The priority should be on strengthening the existing framework so as to avoid the situation were deviations become a norm. The Office had done well in fighting corruption as this was a scourge in the country and this Office was a beacon of hope. Treasury needs to be strengthened in order to fight corruption. What was the responsibility of the Office when corruption is precisely to do with procurement?

Ms Mabe indicated that the Office was strategic and very important for the country as one sees large scale corruption being reported. How much had been spent on avoiding corruption and was there value for money? What was the budget allocation for this? What is the cap for deviation? Referring to the 793 applications for deviations, there were lot of deviations and this was starting to look like a trend. The interventions by the Office looked as if they were not punitive enough in ensuring that there is commitment to get things right. There should be consequence management to ensure that there is compliance.

Ms D Mahlangu (ANC) said that there should be a full report on government departments affected by corruption, whether an action plan was in place and whether deviation was approved or not. The payment of invoices within 30 working days looked like an outdated strategy as it was not effective and largely affected small businesses. Why introduce the policy on payment of invoices within 30 days when it was not enforced? The lack of consequence management resulted in large scale of corruption. There was a lack of quality in the OCPO presentation and this was something that needed to be addressed. There are guidelines in place on what to include in a presentation to Parliament and this needed to be followed. The presentation was not showing any form of professionalism. It was concerning to see the name KPMG amongst the consulting companies used by the Office. Was there any trust in these consulting companies? What was the duration of these consultancies? What were these consulting companies investigating? Who are these companies that had been blacklisted? What transgression had been committed by these companies?

Mr Mathebula responded that there are regulations in place to deal with deviations and expansions. There is reference to Preferential Framework Act in the presentation. The instruction on deviations was that it should be 15% or R15 million on goods and services. The framework indeed needed to be strengthened to be effective and strong enough to deal with corruption. The deviation is when there is an emergency and exceptional cases are dealt with by Treasury including provincial treasuries. The framework is not detailed enough on approval. The detection of corruption is immediately reported to law enforcement agencies as already highlighted. There is a restriction list for the restricted suppliers and there is a list of tender defaulters and the list was quite long because of how common corruption was. The procurement plan should have a budget in place. No budget had been set aside for the review of the work of the Office. The presentation was indeed not detailed enough and this criticism was accepted. It was already known that the nuclear deal was set aside by the Cape Town High Court and the Department of Energy was currently reviewing that decision.

The report on contracts above R10 million will be provided to the Committee. It was true that the Office should be above all other organs of state in terms of performance. R25 million was set aside to fight corruption this year. In cases where deviation is not approved, there is always an instruction from Treasury on measures to be taken going forward and how to follow due process. The Office would prepare a full report on variances. The paying of invoices within 30 working days is a thorny issue and some companies fail to pay on time because of owing SARS VAT. The withholding of payment was to be dealt with by the Office. There was a proposal to introduce consequences to encourage compliance in paying invoices within 30 working days. The KPMG issue was a matter in the public domain and the Office would be commenting on the matter as time progressed. The Committee would be provided with information on cases that were dealt with by various consulting companies. The internal audit should play a role in assisting the Office in the fight against corruption so as to avoid the use of private consulting companies as government departments are often overcharged. There are discussions with the Treasury on how to deal with alleged corruption within SAA.

Ms Mahlangu reiterated her call for the presentation to be up to standard and exhibit professionalism.

Ms Mabe emphasised that interventions needed to be forceful to encourage or enforce compliance. There should be solutions to lessen duplication by collaborating with the PSC and DPME to fight corruption. There should be a central focus team that would deal with corruption within the public sector.

The Chairperson said that it was the proposal of the Committee previously that there should indeed be an independent central focus team dealing with corruption.

Mr Lees asked whether the Office was not dealing with any contracts related to SAA.

Mr Maynier asked if Mr Mathebula completely dismissed the media reports of his referring to the Office as being a “dictator” and his responses confirming that there is a plan in place to review the work of the Office. Was there some truth to these allegations made in the media? Was it fair to say his preparedness for this meeting was inadequate?

Mr Mathebula noted the concern around the quality of the presentation once again and said that this would be looked into when appearing before the Committee again. The Office certainly supports the proposal for the intervention to be firm and include consequence management. Coherence with other structures dealing with corruption was certainly important and should be welcomed. He once again disputed the content of the article with contempt as it was pure lies that lacked any substance. It must be made clear that there was no specification on what the Office should focus on when making the presentation to the Committee and this is something that should be taken into consideration.

Meeting adjourned.

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