Preferential Procurement Process: Provincial Treasury briefing; WC Gambling & Racing Board accommodation: Public Works status report

Finance, Economic Opportunities and Tourism (WCPP)

16 May 2018
Chairperson: Mr D Joseph (DA)
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Meeting Summary

The Provincial Western Cape Department of Public Works and Treasury briefed the Committee on the Western Cape Gambling and Racing Board’s (WCGRB’s) accommodation and Preferential Procurement Processes. The Department conceded that no responses were received when an expression of interest was published for a suitable accommodation that met the user criteria in the Northern suburbs of Cape Town. As a result what is being proposed now is limited bidding and direct negotiation with landlords.

On 22 June 2016 Cabinet resolved that the Provincial Treasury should approach Cabinet for policy guidance on the implementation of the Preferential Procurement Regulations once gazetted for implementation. Many of the comments provided by the Western Cape Government (WCG) were taken up except the comments raised on the prequalification and 30% sub-contracting requirements. New inclusions not commented on by WCG nor consulted on by the National Treasury is the negotiation process as envisaged in regulation 6 and 7.

Members expressed concern that the explanation advanced by the Department affirmed that this is a strategy used by landlords and property brokers to stifle competition by deliberately waiting for tenders to close before coming forth with their bid.

Others wanted to know why advertisements for Western Cape Gambling Board accommodation were targeted only at the Northern suburbs of Cape Town and the reason why this issue is taking such a long time to resolve.

Meeting report

Provincial Treasury: Western Cape Gambling and Racing Board's (WCGRB’s) accommodation

Mr Shane Hindley, Senior Manager: Property Management, Western Cape Department of Public Works, in his presentation stated that the Expression of Interest (EOI) published to test market for suitable space to be leased in the Northern Suburbs for a period of three years with an option to renew for two years:

-1926 m2 of office space

-parking bays

-No response received at date of closure of EO on 18 May 2018

-DPTW and Western Cape Gambling and Racing Board (WCGRB) - as end-user - may now approach landlords and/or property brokers/managing agents directly for offers to lease

-Anticipated time-frame for this process 31 May 2019

Due to period exceeding current MTEF, Minister of Finance approval will be required in terms of S66 (b) of the Public Finance Management Act (PFMA).

-If value of lease exceeds R10 million, Provincial Cabinet on recommendation of Provincial Property Committee – four months

-If value of lease does not exceed R10 million, Minister of Transport and Public Works - one month, dependent on Minister of Finance approval

-Anticipated timeframe for refurbishment by landlord, if required, and occupation by user - three months from signing lease

Interim work at current premises such as proof of repairs and water proofing are being planned to be undertaken to preserve the asset and prevent further degeneration. The building has heritage status, therefore Heritage Western Cape (HWC) approval required.

Time-line for project:

-HWC approval anticipated on 27 June 2018

-Contract estimated to start on 27 July 2018

-Estimated contract completion by latest 31 March 2019

Work has to be done whilst the building is in occupation and current premises earmarked for utilisation as decanting space, as part of modernisation program. DTPW is working on an overall accommodation plan for the WCG.


Ms C Beerwinkel ANC) remarked that the presentation presents no new info and she asked why it has taken such a long time - 2015 to be exact. It is disheartening to hear that no one is interested in renting/leasing their property to the Department. It is understood that there was an offer and she asked who it was from and why the Committee not told. Knowing how urgent the situation is, which rules and laws stops the establishment of a special task team that will put some speed towards finding accommodation for the WCGRB? What are the reasons given why people are not interested to lease or rent out their properties to them? It seems the tenure of this current fifth parliament will elapse and WCGRB will still be sitting at the same place. Why should simple admin tasks take one month, another three and four to accomplish? Is it because of shortage of staff; or do laws and regulations stand in your way?

Mr D Mitchell (DA) asked for the difference between offers being received vs. when it is advertised?

Mr P Uys (ANC) wanted to know why adverts were targeted onlyto the Northern suburbs of Cape Town only. In which local newspapers were the adverts placed? Why would you need heritage approval to repair roofs and make it water proof knowing those are emergency actions that must be taken? Doing these amounts to protecting heritage sites but you seem to create an impression that you are tampering with the structures. What is the Department’s overall accommodation plan? Did the Department make some calculations to ascertain how much is needed to rent a space equal to the rental space required? Is the R10 million offer realistic with all the stipulations? What are your internal calculations?

In response Ms Chantel Smith, DDG: Provincial Department of Public Works (PDPW), said in answer to the question on the difference between offers being received vs when it was published; the law now required that an open process be followed. This was advertised in the open so that it could be demonstrated that the market was tested. The idea is to see how the market responds and if no offers were received from the market, a limited bidding can then is undertaken. In this case landlords could be targeted and negotiated with. The difference in the main is whilst they have to compete with each other in an open process, such competition is lacking in a limited bidding. That is also why most of the landlords prefer to wait out the open process so that they will not have to compete with other bidders and they also understand that if there was a preference for the Northern suburbs and a given amount of space (as the case now),  it limits the market on who could meet such requirements. All these are factors that drive the EOI and the way in which the market responds. What is proposed now is limited bidding and direct negotiation with landlords and that is the difference with the offer now received; this person is not competing with other bidders because they waited until the close of the bid before submitting their offer to the department knowing that the requirement was not changed. The Department will now have to negotiate with them and in the negotiations; there could also be offers to sell.

Ms Beerwinkel said that her understanding of the previous question was; what is the difference of what is in the tender for this building and the person now being approached; how is that different? The explanation given by the Department affirmed that this is a strategy used by landlords / property brokers to stifle competition by deliberately waiting for tenders to close before coming forward to bid knowing that there is no more competition. Is this strategy a good thing? Will the Department get a better deal by going this way?

The Chairperson asked if this new process of negotiations falls outside of the procurement process.

Ms Smith said it is just another method. Looking at the open process, it has a content framework which means that the Department states what the specifications are and their requirements. This is stated in the tender document which as well subject to certain conditions and a closing date.  The process that follows after this cannot be said to be good or bad. At times it is good because they can offer you more than asked for and one is able to negotiate. Other times it is bad because what they do is circumvent the proper process to compare apples with apples. Now you do not have the same or similar thing but different things which have to be evaluated based on its merit. Each is however evaluated based on the broader framework. The department cannot tell now who the offer is from and what it is because the closing date for this process is the end of this month; the department still have to see what other things can come up before that closing date. It will then be evaluated which also forms part of the procurement process, so telling the committee now equates to opening one person’s tender and giving you information therein; that is the only reason and not to withhold any information.

Mr Shane Hindley, Senior Manager, Property Development in PDPW commented that in terms of heritage approval; the point is around making the building safer. When the department appeared before the standing committee a year ago, there was an issue around making safe a building that had collapsed. The rubble could not be removed which was unsafe for the residents because there was no approval from HWC. Any work even though it is making the place safe; HWC approval is needed when the building has heritage status. On the issue around calculations, the values attached to the approvals are prescribed in the regulations promulgated in terms of the Western Cape Land Administration Act. This Act prescribes which level the approval can be granted; for instance if it is up to R5million, the head of component after consultation with the minister. If it is between R5million to R10million, it is minister that approves and above R10million, it is required that cabinet grants approval on the recommendation of the PPC; because of PFMA requirements, the MEC for finance must also give approval. On the value of the lease, the square meter requirements are based on the user’s ratified requirement, the user being WCGRB. If 1926 square meters at an average of R100 per square meter rental without any escalation applied, it is already beyond R10million; this already means that cabinet must approve the transaction. On why the Northern suburb of Cape Town was targeted; that was the preference expressed by the user for the location, which is why the Northern suburbs was targeted.  It was published in the Burger for Afrikaans speakers, Cape Argus for English speakers and Bukani for Isi Xhosa audiences and also in the Tender Bulletin.

Mr Mitchell wanted an answer of yes or no. Taken into account that we are now on the 16th of May half way to 30th of May, has the department approached a landlord or property broker or managing agent directly for offer to lease?

Ms Smith said yes, that they have spoken to property brokers and agents because they want their assistance in finding a property with the user specifications in the Northern suburbs preferably; it is only when a property with the right specifications could not be found that the same thing could be repeated in the Southern suburbs and then inform the user. 

Preferential Procurement Process

Ms Nadia Ebrahim, Acting Chief Director: Provincial Treasury (PT), said on 22 June 2016 Cabinet resolved that the Provincial Treasury approaches Cabinet for policy guidance on the implementation of the Preferential Procurement Regulations once gazetted for implementation.

WCG via the Provincial Treasury and the supply chain management (SCM) cadre engaged on and completed the following preliminary tasks before the regulations were promulgated:

-PT provided comments to initial draft regulations (14 August 2015) and attended and partook in the National Treasury SCM Modernisation Committee meeting and various workshops with Treasury where the regulations were discussed

-Legal opinion solicited via legal services (Adv. Rosenberg) and summarised legal context provided to PT (07 August 2015)

-Concluded a financial and technical impact assessment on the draft regulations Gazetted for comment and provided formal comment dated 15 July 2016 via the MEC for Finance;

-Additional comment on legal and constitutional inconsistencies was provided to Treasury on 29 July 2016;

-Many of the comments provided by WCG were taken up except the comments raised on the prequalification and 30% sub-contracting requirements. New inclusions not commented on by WCG nor consulted on by National Treasury is the negotiation process as envisaged in regulations 6 and 7.

PPR Implementation Challenges; Risks and Impact

Rising of 80/20 threshold from R1 million to R50 million.  Premium will increase from 7.71% (R832 million to 13% (R1.094 billion) which is = R262million extra (based on 2015/16 expenditure) Does not include impact of other cost drivers.

Prequalification criteria focusing on black owned SMMEs (i.e. military veterans; youth & disabled

Ultra vires the PPPF Act and unconstitutional

Double referencing; value for money

Encourages fronting, collusion

Not aligned to PPPFA, B-BBEE Act and CIDB regulations

30% sub-contracting R30 million contracts

Compulsory if feasible

Industries diverse, sub-contracting not always possible and negative impact on VFM and/ pricing

Impact existing sub-contracting model (CIDB)

Local Production and Content (special condition)

How local content fits into the context of the constitutional objectives of unfair discrimination

Ultra Vires the PPPFA: Special Condition of tender is included within the 20 or 10 points of the 80/20 and 90/10 points scoring system

Cost of Verification past onto procuring institutions (Increase in pricing)

Conformance to Performance

Public procurement frameworks characterized by an unstable tension between the public expectations of transparency and accountability and efficiency and effectiveness of resource management;

Complexity of procurement environment

Conflicting stakeholder interests; views and claims at the political, business, community, management, legal and technological levels within the SCM arena

Public Procurement

-Governments have long used public procurement as a tool to promote socioeconomic objectives. These objectives are sometimes referred to as ‘horizontal’ or ‘collateral’ considerations as they are additional to the primary purpose of public procurement.

-In formulating public procurement policies these considerations are wide ranging, from promoting labour laws to encouraging local industrial development to supporting environmentally sustainable practices.

-The case for public procurement as a tool to promote participation by SMMEs and /or black owned businesses is compelling from a developmental and economic perspective

-Public procurement is a powerful tool to achieve socioeconomic objectives because it operates at the intersection of the government’s regulatory and buying powers. Governments are market regulators and market participants.

-Governments spend trillions of dollars annually purchasing the goods, works and services they require to fulfill their public functions

The Chairperson thanked the Department for the detailed insight given in the presentation. For the sake of time, no questions will be taken today. A suitable date will be arranged to interrogate the document.

The meeting was adjourned.


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