The Office of the Chief Procurement Officer (OCPO) at National Treasury gave a report on the deviations and expansions involving government departments during the third quarter of the 2020/21 financial year, and provided details of the expenditure on the COVID-19 personal protective equipment (PPE) expenditure.
In a virtual meeting, the Committee was told that 100 entities had submitted 232 deviation applications, and the value of the top 20 applications had amounted to nearly R10.3 billion, or 95% of the total. The main applicant had been the Department of Environment, Forestry and Fisheries. The top 20 applications for contract modifications, which had been received from 174 institutions, had amounted to R4.2 billion, or 96% of the total. Eskom had submitted the most applications (21), amounting to just under R2 billion.
The report on Covid-19 expenditure revealed that total orders had amounted to R19.147 billion, with payments amounting to R9.411 billion. The number of institutions involved was 444, the number of suppliers was 8 667 and the total number of orders amounted to 33 000. Among the top ten institutions that had placed orders, the Gauteng Health Department had been the highest at R4.2 billion. The National Health Laboratory Service had the largest number of payment transactions, at 1 406, while the South African Police Service had made the most payments, at R1.6 billion.
A challenge faced with regard to COVID-19 reporting was that the submission rate was relatively low, and the OCPO was in the process of issuing letters to organs of state that had not reported. Other challenges were the use of non-standardised item descriptions, making comparative and average pricing difficult, and data quality in some instances was low due to the incorrect use of units of measurement and the consolidation of payments across transactions. As a way forward, deeper analysis would be done regarding the suppliers that had benefited from COVID-19 transactions based on broad-based black economic empowerment (BBBEE), and the ownership and demographics of the owners. They would be linking the submitted data to other financial systems data and continuously following up with institutions to improve the report submission rate.
The recurring concerns of the Committee were the issue of a lack of consequence management, the representation of women, youth and people with disabilities in the procurement processes, and the actual companies that were awarded tenders but were under suspicion for collusive behaviour and corruption. Another issue was the actual role, mandate, and responsibility of the OCPO. The different scope of the roles of the OCPO, and the responsibility of the accounting officers and authorities, were clarified, and the OCPO’s role was defined as policy-related and regulatory.
The Committee was disappointed by the absence of the Director-General (DG), due to the importance of the meeting. It agreed on the need for a meeting with the DGs and Ministers in order to hold them accountable. If they were not willing, the issue should be raised to the level of the Speaker of Parliament and the Deputy President, as the Committee was very dissatisfied with what had been revealed in the report, particularly with regard to accountability and consequence management. The Committee was also concerned that Parliament’s decision to form an approval committee for deviations was not being implemented.
The Office of the Chief Procurement Officer (OCPO) gave a report on the deviations and expansions for the third quarter of the 2020/21 financial year.
Prior to the presentation, Ms N Ntlangwini (EFF) expressed her reluctance to accept the apology for the absence of the Director-General, as the budget meeting he was attending was not the first one and this meeting was being held on a virtual platform, making it easier to plan meetings progressively rather than not attending. The Committee was sitting with an important crisis and important items were being dealt with in the agenda, and he should have been present. The Chairperson suggested writing to the DG to express that the Committee would like him to attend these meetings
Deviations and Expansions: Third quarter 2020/21
Ms Estelle Setan, Acting Chief Procurement Officer, National Treasury, presented the Office of the Chief Procurement Office’s (OCPO’s) third quarter deviations and expansions and the COVID expenditure, based on the information received from government institutions as they reported. She said the presentation would cover deviations and contract modifications, some of the reasons for these modifications and trends, observations for the previous quarter, and some operational challenges and remedies.
The legislative basis for deviations and expansions came from Treasury regulation 16A6.4. The reasons for deviating from inviting competitive bids should be recorded and approved by the accounting officer/authority or his/her delegate. Accounting officers were required to report within ten working days to the relevant treasury and the Auditor-General (AG) all cases where goods and services above the value of R1 million (VAT inclusive) were procured in terms of Treasury Regulation 16A6.4. The Accounting Officer/Accounting Authority must deviate from inviting competitive bids only in cases of emergency and sole supplier status. Any other deviations would be allowed in exceptional cases subject to the prior written approval from the relevant treasury. The definitions for the types of contract modifications were provided -- extensions of a contract/purchase order, expansion of the scope in the contract/purchase order, and a variation of a contract/purchase order.
The number for deviations submitted was 232 from 100 institutions, and the number for modifications was 184, submitted by 174 institutions. The value of the top 20 applicants for deviations in quarter three was R10.282 billion. The top 20 deviation applicants had submitted 90 applications, with the highest number coming from the Department of Environment, Forestry and Fisheries (DEFF), which submitted 13 applications.
Of the top 20 applications submitted, the values were as follows:
- Closed deviations -- R100 million
- Conditional support -- R8.702 billion
- Not supported -- R969 million
- Noting -- R344 million
- Supported -- R166 million
- Noting (within Accounting Authority/Accounting Officer (AA/AO)) mandate -- R302 971.
The value of the top 20 government institutions made up 95% of the total value of deviations.
The total value of contract modifications for the top 20 applicants for quarter three was R4.217 billion, with the highest value coming from Eskom at R1.986 billion, with 21 applications. The total number of modifications for the top 20 applicants was 78. The value of top 20 government institutions made up 96% of the total value of modifications.
Of the top 20 applications for the modifications, the values were as follows:
- Conditional support -- R2.520 billion
- Not supported -- R287 million
- Noting --R268 million
- Supported -- R1.142 billion.
Some of the common reasons given for deviations and expansions were sole supplier and/or single source, closed bid process (limited market), business continuity, business strategy/operations --recently founded state-owned companies (SOCs) with their turn-around strategies) -- service delivery/urgency, extensions on current contracts due to new tender processes not concluded in time, failed tender processes, restarted tender processes, value-for-money, extension of accommodation leases, continued use of existing software, exceeding the 15%/R15 million or 20%/R20 million threshold for expansions (especially SOCs with large projects), government-to-government procurement -- Government Technical Advisory Centre (GTAC), Council for Scientific and Industrial Research (CSIR), etc -- and expansions of scope involving time and material.
The trends and observation showed an increased departure from the competitive bidding process, continuous modification of contracts that keep same service providers, increasing audit disputes, increasing compliance reviews related to personal protective equipment (PPE) from the Fusion Centre, some AAs and AOs procuring through deviations, even though Treasury had declined such a deviation, poor procurement planning, poor implementation of projects leading to either contract expansion or single source deviations, poor governance structures and non-implementation of consequence management on officials who caused irregular expenditure.
Some of the operational challenges were provided, such as the manual process of requests/applications, resulting in inadequate monitoring, insufficient capacity that resulted in delays in processing requests and responding to organs of state. The remedies to these challenges and others were also provided, such as the initiation of a project to automate submission, processing, monitoring and reporting of requests/applications and engagements with specific institutions and conducting site visits on applications that necessitated physical observations.
The COVID-19 reporting dashboard had been developed, based on National Treasury Instruction 11 of 2020/21 and Municipal Finance Management Act (MFMA) Circular 105 to serve as a consolidation platform for government-wide submitted COVID-19 spending data; a reporting platform for consolidated and transactional level data; and an analysis tool for COVID-19 spend-related data.
Between April and August 2020, 265 out of 805 institutions had submitted COVID-19 reports. In September, 236 institutions submitted, with 164 in October, 196 in November, and 171 in December.
The following dashboard-reporting dimensions were created to achieve the OCPO objectives for COVID -19 reporting under the headings of report summary, items spend, supplier details, supplier analysis and transaction list. The report summary showed that total orders amounted to R19.147 billion, total payments amounted to R9.411 billion, the number of institutions involved was 444, the number of suppliers was 8 667 and the total number of orders amounted to 33 000.
The item spend of R9 411 million by 444 institutions included 1 549 items and a total number of 6 585 suppliers. Supplier details showed 8 667 suppliers, 1 224 manufacturers and 1 279 supplier-manufacturers.
The report provided information on the top ten institutions that had placed orders with the Gauteng Health Department, being the highest at R4.2 billion. The National Health Laboratory Service showed the highest count of payment transactions, at 1 406. The South African Police Service had the highest sum of payments, at R1.6 billion.
A challenge faced with regard to COVID-19 reporting was that the submission rate was relatively low, and the OCPO was in the process of issuing letters to organs of state that had not reported. Other challenges were the use of non-standardised item descriptions, making comparative and average pricing difficult, and data quality in some instances was low due to the incorrect use of units of measurement and the consolidation of payments across transactions.
As a way forward, deeper analysis would be done regarding the suppliers that had benefited from COVID-19 transactions based on broad-based black economic empowerment (BBBEE), and the ownership and demographics of the owners. They would be linking the submitted data to other financial systems data and continuously following up with institutions to improve the report submission rate.
There were currently 84 cases for procurement review.
Mr A Shaik Emam (NFP) said everyone was aware that in the past couple of years, it had been found that people had been enriching themselves as a result of BEE. He asked for information on exactly who these people were, how they benefited and to what extent, so the Committee could interrogate this. While the level of inequality was increasing in the country at an alarming rate, more than R17 million had gone missing as a result of BEE. He wanted this to be investigated to find out whether BEE was promoting corruption, or if there were enough mechanisms in place to ensure that it was empowering people and advancing BEE in South Africa, but not for the wrong reasons.
Mr O Mathafa (ANC) said that the reasons provided for contract extensions were that in most cases, the new tender not being finalised in time or finalised at all. He had a strong feeling that this was an omission from the side of those who were responsible to ensure that the tender was concluded. He was of the view that if it was known that a contract was going to expire, one would advertise taking into account the adjudication and set up time.
Connection with Mr Mathafa was lost.
Mr Z Mlenzana (ANC) wanted to check whether the OCPO was able to detect whether there was any fronting. If it was able to do that, what tools were being used? Was there anything that had been picked up showing that there was fronting and abuse of BEE by powerful individuals? He knew that some applications for deviations had been approved while others had not, but why was it not possible to foresee that Eskom was facing procurement challenges, hence the need for the R67 million deviation? He asked who was in charge of procurement, and what skills existed in the form of qualifications and skills among the personnel responsible for procurement at Eskom. Could Treasury confirm whether Eskom had actually received a tariff increase approval of 15% and if so, how far that would go in resolving the current financial difficulties faced by the entity?
Ms Ntlangwini said she viewed with great disappointment that the OCPO was always reporting on poor performance, poor procurement planning and lack of consequences. This had seemingly been a trend for the past couple of years. The OCPO was supposed to assist the Committee in curbing wasteful expenditure, but it seemed it was not winning. She asked what the capacity of the Office was, and whether it lacked support or office resources, and what it was that they needed to effectively do their work. Looking at this specific component, it should assist in curbing wasteful expenditure and help follow the money, and not just be a blank cheque for departments to use the government’s money.
Some of the PRASA deviations were on technical assistance and national private security, but PRASA had not even spent its capital budget, so why would it want to have a deviation for technical assistance if it had not spent the capital budget? It was greatly concerning that PRASA was the second largest contributor to the deviations.
When was government going to move away from office rentals, and rather buy office space rather than renting? A lot of money was spent on making other people rich and the country was suffering, because every cent counted -- the country was in a dire state.
Some of the deviations were for the procurement of vaccines, and she asked what was going to happen to the vaccines bought by the Department of Health with a low efficiency, and which were expiring in April. What would be done by the Department to ensure that going ahead, buying resources such as equipment and vaccines, that it was not wasteful as in the PRASA case, where trains that did not fit were bought. She asked what the OCPO had in place to ensure that when procurements were being made, there was someone from the team to assist with procurement specifications and so forth so that things were not just bought but the wrong thing was received.
She asked who procured deviations even without approval from National Treasury, what the Public Finance Management Act (PFMA) provisions were against such conduct, and why they were not enforced. Had the Office looked at other countries to see how to enforce strict consequence management against those who implemented expansions without prior approvals? She asked what seemed to be the major reason for the trend in competitive bidding, and who the major culprits were.
Mr Mathafa reconnected to the meeting, and asked how many of the 8 600 suppliers that had received COVID-19 orders were owned by women. This point was related to the one made by Mr Mlenzana with regards to fronting. He said a deeper analysis needed to be done regarding the suppliers that benefited from COVID-19 transactions through their BEE ownership. He asked whether there were timeframes within which the Committee could expect to receive feedback with regard to this particular analysis and whether it was not the OCPO’s function to monitor these contracts prior to their awarding so that preventative measures could be taken, instead of corrective ones. Regarding the payment discrepancies, there had been a major allocation made to Red Rose Africa and Masikhane Trading, and he wanted to know whether there was a specific reason why their share was so significant, compared to the rest of the suppliers.
Ms D Peters (ANC) emphasises Mr Mathafa’s points about the number of companies owned by women that had benefited from COVID-19 procurement, and the companies that benefited much more than others. She wanted to know whether the OCPO had the capacity to deal with the volume of requests for extensions, deviations and modifications within the requisite timeframes. Did government departments or organs of state create an environment for these deviations, extensions and modifications, because it seemed that the conditional support that the OCPO and National Treasury gave always exceeded the direct support, and she wanted to know why. It seemed there was collusion between the OCPO and the entities to allow for this conditional support, because conditional support was shown as 21, while the actual support was less.
The issue of the extension of accommodation contracts was acceptable, especially in situations in which a lot of money had been spent to make the facilities conducive to the lessee, but she supported Ms Ntlangwini’s point about government investing in its own properties to make it possible for money used for rent to be used to directly service the people of South Africa.
The trends and observations were worrying. She wanted to know who the main culprits were, whether they were repeat offenders, and asked for more details on what consequences were meted out to accounting officers who, despite having applications declined, continued doing what they wanted to do. What had been the success rate of the investigations that the OCPO had done with law enforcement agencies, especially looking at the number of cases that would have been dealt with? She asked that the OCPO provide the Committee with information on the number of investigations carried through to the end result in the last five years.
She asked whether the quarantine facilities and field hospitals that provinces had invested in were fully utilised, and whether there were instances of over-capacity and facilities not being utilised fully, especially in the case of hotels that were paid huge amounts of money. She asked which provincial and national organs of state had not submitted COVID-19 reports. How were rife the incidents of fronting in the COVID procurement process, and what recourse did the OCPO have for those companies that were found to be fronting. She also asked that the Committee be informed about the number of women and youth-owned companies that had benefited.
Ms M Dikgale (ANC) said that the presentation was not pleasing, as one heard about failures and would conclude that Parliament was in serious danger. At the Zondo Commission, it had been said the Members of Parliament were failing. She wanted to stress the issue of the trends and observations, as the Committee was not being told who the contributors were to poor procurement planning, the poor governance structure, and non-compliance with consequence management.
She wanted to know whether women and people with disabilities were considered when contracts were being awarded to these companies, as she was sure that it was not they who contributed to the failures. She asked what was being done, and what type of punishment was meted out to those who won tenders but failed. There were often pictures on social media of people’s hands that were damaged due to sanitisers.
She commented that if people were doing their job every day, they really could not be unaware of when the lease of an office rental was due to expire. She emphasised the point that the Committee should receive the names of those companies that had failed, as it would assist even the companies to not repeat those mistakes.
Mr X Qayiso (ANC) said that the presentation was quite depressing, and wished the OCPO could have been asked to clarify its responsibility before going into the presentation, as there were more questions than what had been presented. The issue of deviations without approval and consequences was a very serious problem. It would have been better for the Committee to hear that some people had been held accountable, and he did not know why the Treasury would let these things happen and keep quiet about it. He asked what compliance was found with the Employment Equity Act (EEA) in those companies that had been awarded contracts, as the Act stated that in order for the government to accept a service provider or company, it had to look at compliance with the EEA. During the procurement of PPE, he asked for a breakdown of how it had been distributed across the provinces in order to see how the distribution covered the provinces.
While talking about economic recovery, the Committee was also addressing the upliftment of the economy at the local level, and how local people and small, medium and micro enterprises (SMMEs) had benefited. He agreed with the other Members about the lack of information on gender, youth and people with disabilities in respect of transformation.
He asked whether the OCPO had identified major discrepancies in terms of payment for the same quality items by government departments, as in some instances it could be found that companies sold items at different prices. Was the OCPO able to make a breakdown of these particular clinical consumable goods, as some people had found an opportunity to exploit the state?
Mr E Marais (DA) asked whether the Treasury department had the teeth to act immediately in recommending disciplinary action and putting people on compulsory leave, because that was where things began -- with the procurement process. Government would be much better off if it made examples of the people who deviated.
The Chairperson welcomed the presentation, but said that it had raised a lot of questions. Treasury needed to respond to the question of the departure of an official in 2017, as there had been different people acting in that position and it did create problems for the Committee and the country in general. He observed that there was a pedestrian approach to the matters raised in the meetings, and the areas they came from were supply chain management (SCM). There were reasons why Parliament had come up with the laws that needed to be followed when it came to procurement and why different institutions had policies to be followed. As the Committee knew, this was where corruption and malfeasance were found, which was why there was collusion between officials and some private companies, and also why there was a lot of rent-seeking. The Committee could not afford to be pedestrian when it came to this issue.
He asked the Committee to consider that the presentation had been given, problem areas had been identified and there had been suggestions. He asked what would happen after this. What usually happened was that it became a tick-box sort of exercise, where the presentation was given, Members go through it and the same thing happens in the following year. He asked Members to consider what he was saying with regard to the presentation so as to not find the Committee going through the same problems in the following year.
It looked like there were perennial problem children, but specifically Eskom, which seemed to be the biggest contributor. Parliament had approved R49 billion in the 2020, R56 billion in 2020/21, and R31.7 billion for 2021/22, and the assumption was that when the money was spent, it would be spent according to the laws of the country. Whenever government came up with the recapitalisation of Eskom, South Africans were not happy, but they would be more unhappy if they found out that the laws were not being followed when the money was being spent. At the end of the day, accounting officers and authorities should be held accountable for disregarding the OCPO, otherwise the country would go into a moral decline, as people would know that all would happen was that those involved would be reported, but that was it, having a domino effect. He asked who the top five deviators of the past five years were, and how the OCPO knew when there was a sole supplier and how this was proven.
He said that departures from the competitive bidding process was a huge problem, as it tied in with what had been said about the lack of consequences. He wanted to know who approved expansions and deviations at National Treasury -- whether it was an individual or a committee -- as these were huge decisions, and in the past it had been an individual. He asked what was being done to try and increase capacity at the OCPO, as it could not say there was no capacity when it was tasked with such a huge responsibility. He asked whether there were timeframes for the integrated procurement system. He emphasised the importance of the issues, and asked the acting CPO to rather not answer questions if she could not.
Ms Setan said there had been quite a few questions relating to the COVID-19 procurement information, especially around gender, disability and youth issues. This information was being analysed and scrubbed to get to the detail of the BEE demographics, and hopefully at the next session the OCPO would be able to provide the information. The quality of information received was not very suitable for accurate analysis at the moment.
The OCPO did have capacity issues in terms of the number of institutions that it needed to support. It did work closely with public finance and departments or branches within National Treasury on the day-to-day activities of government institutions, and when deviations and expansions were required, it engaged with them if they were worried about the reasons found and their awareness of the requests.
A list could be made of the main culprits and provided to the Committee. The list of institutions not reporting on COVID was in the Excel spreadsheet that had been provided in the meeting. It could be that certain institutions, specifically smaller ones, would not have done any procurement and therefore had not reported, but this had to be analysed and followed-up specifically relating to the bigger ones such as the Department of Health (DoH), the South African Police Service (SAPS), Social Development, the South African Social Security Agency (SASSA), Transnet and Eskom.
OCPO shared the concerns of the Committee with regard to deviation without approval and asked that the Committee ask the AOs, when they meet with them, to account based on the information provided in this meeting. A schedule of the instances that the OCPO had come across could be provided to the Committee. The consequences were that if National Treasury declined a deviation and the accounting officer went ahead, it would result in irregular expenditure which would be declared by National Treasury or the Auditor-General (AG), and in those cases there was a stringent irregular expenditure framework that provided a process that the institution would have to go through before they could request condonation of irregular expenditure, including a determination of whether there was criminal activity involved, or the institution had suffered any losses. Unfortunately, with so many institutions, the OCPO did not have the capacity to foresee these things upfront and prevent them.
Rogue pricing was a matter of demand and supply in the market, especially in a period where everyone was competing for items in the market and suppliers having the bargaining power to ask prices that were beyond normal, so Treasury had issued a price list based on average prices found in the market at that point. Three or four reiterations of the pricing schedule had been issued, and the information provided to the OCPO through the reports could, in some instances, show where there were major outliers in terms of the pricing, and this would be followed up. In many cases, it was already being investigated by law enforcement agencies, especially the ones that had been identified in the media.
She said the question about the CPO vacancy would have to be redirected to the DG. The interviews conducted in 2020 had been unsuccessful and a head-hunting exercise was being conducted.
The responsibility of the OCPO was mainly to draft the rules of engagement -- the rules on how procurement should happen. It was up to the accounting officer to make sure that they followed these rules. On the other hand, the OCPO should be in a position to do monitoring and make sure that governance structures were in place. At the moment, the Office was lacking due to the fact that it was so overburdened with the administration of all these deviation requests that it was not in a position to do effective monitoring as it should. It did monitor upfront -- there were procurement plans that were submitted to Treasury, quarterly reports from institutions on the progress of procurement plans, and the mechanism was used to be proactive to ensure that procurement was happening according to the procurement plans. The OCPO was working with public finance and its budget analysts to understand some of the reasons for the deviations.
Ms Basani Duiker, Chief Director: SCM Governance, Monitoring and Compliance, National Treasury, said that fronting could be detected only through the evaluation of documents that had been submitted during the tender processes, a process that was done during the evaluation of a specific tender. The only way that National Treasury could pick this up by itself if there had not been complaints submitted that there was possible fronting in a particular tender, was in instances where it would have written to a particular department and requested documents to review a particular tender. When fronting was suspected through that process, the BBBEE Commission was roped in to assist with the investigation of the fronting, and when the investigation had been concluded and it was found that a particular bidder had been involved in some collusive or fronting behaviour, there were regulations that allowed for that particular bidder to be restricted from doing business with government for a certain amount of time. It was important to note that it was the responsibility of the accounting officers and authorities to initiate the process of restriction once investigations had been done. Currently there were 138 service providers on the supplier database, and there were a number which had been restricted for collusive behaviour and fronting.
The fact that poor performance and planning had been a trend over a period of time, leading to deviations, expansions and extensions of contracts, was a matter that needed to be looked at more holistically and strategically by looking at SCM units within the departments and entities themselves, because when government had systems and officials were appointed into positions within the units and there were processes in place, the units were treated as strategic units. They had a place on the executive table, and SCM was not treated as just a function in a corner, and should be able to deal with the matters for which it was responsible. Supply chain needed to be properly capacitated within the departments to deal with strategic procurements, because it was one of the key drivers of service delivery, and if it was done properly, some of the issues would be dealt with.
National Treasury’s OCPO was a policy maker in so far as procurement was concerned, and it then monitored and followed up on issues of non-compliance, but the responsibilities of the accounting officers and authorities needed to be emphasised. Their responsibility, according to the PFMA, was to ensure that appropriate action was taken when consequence management was required.
When dealing with issues of deviations and expansions, in most cases these were supposed to be exceptional cases, where it should be impractical for departments or entities to go out on tender, whether because of an emergency or because there were no other service providers in the market, or simply just because there was no time or any other reason. It was important to consider service delivery at that point, but in taking service delivery into consideration, it became important to consider the risks that the departments or entities would be faced with by procuring, using a deviation mechanism. If the OCPO found itself in a position in which it had to support a request for a deviation or contract modification to ensure that service delivery continued and it did not impede on the department’s ability to give the people of South Africa their rights, it may support the deviation. However, it would raise the critical risks and concerns it might have that it would want the department to take further action on, and satisfy it that there were mitigating strategies for those risks.
The process of considering deviations and variations was a lengthy one. It was a process in which the OCPO relied on the departments and entities to submit substantial information and documentation for it to have evidence about what was being said. The OCPO sometimes had to go as far as doing site visits to check what the institutions were alluding to in the projects they were involved in, to satisfy the Office that what was being said by the departments and entities was truthful. Therefore, in that capacity, it became very important to ensure that responses were provided on time, and critical that it looked into those matters.
Ms Mpho Nxumalo, Director: Supply Chain Management (SCM) Policy, Norms and Standards, OCPO, put into context what exactly the Office was responsible for. Its responsibility was to manage the development and issuance of uniform norms and standards to enable a fair, transparent, competitive, and cost-effective procurement system for all organs of state when contracting for goods and services. In issuing those norms and standards, it also needed to ensure that those directives must also provide for the advancement of persons or categories of persons disadvantaged by unfair discrimination, including categories of preference in the allocation of contracts.
The OCPO’s responsibility was more of a regulatory one, but while doing that, it had different chief directorates with different responsibilities. It had to ensure this fairness and uniform norms and standards, governance monitoring and compliance, was applied within institutions. There were other aspects that ensured that in realising some of the economies of scale, there were transversal contracts and strategic procurement, and there were systems to assist in ensuring effectiveness. Regulation 16A6, when procuring goods and services, stipulated that it was the responsibility of the accounting officer to ensure that there was a bid committee system that had a specific committee to look at the specifications prior to going out on a tender, and an evaluation committee was separate from the bid specification committee and the bid adjudication committee. This happened within the institution, and in this regard, the OCPO was ensuring that it was not both the referee and the player. The PFMA gave responsibility to accounting officers, so the OCPO would not be in a position to take over the functions of the accounting officer. It was in this regard that in most cases, these provisions were adhered to. In Section 16A6.9, was designed to avoid abuse of the SCM system, and it was the responsibility of the accounting officer to take all reasonable steps to prevent the abuse.
Mr Tumelo Ntlaba, Director: Central Supplier Database, OCPO, said that on the dashboard portal, Members would be able to get the actual details of the transactions relating to the question on Red Roses Africa and Masikhane.
Mr Mlenzana said that there was a situation of more talking than practice. What was happening was theory and “supposed to be,” and the wishes of the Committee and the OCPO, but there was a situation where the OCPO was literally saying it did not have the teeth to bite. It was clear that there was nothing much that the OCPO could do -- it all lay with the accounting officers of the various entities and departments, and these were the very same accounting officers who had let down the government.
Ms Ntlangwini said that it was important for the DG to be present to give political direction as the head of the Department, as there were pertinent issues being dealt with that the staff might not be in a position to answer. The letter needed to be sent to the DG to ask him to be present without apologies.
Mr Qayiso said that the AG’s report had said something with regard to the procurement of PPE, and had reflected badly on the outcomes of the audit. After this presentation, he now saw what the AG was referring to, and did not think after that report there was the anything that the OCPO had learnt to say that things should be done differently. It did not seem the OCPO had read anything in the AG’s report and that they were over-burdened and should hire more staff to assist and arrest the culprits. The OCPO was able to see the misalignment in the supply chain only four to five years after it happened, which was a serious problem which needed to be fixed as soon as possible. The Committee should be receiving a report that all the centres of the supply chain had been aligned to conform to the practice and principles of the OCPO, instead of reports of overburdening and misalignment. The Committee had received a report the previous day from Treasury, but he did not know the relationship between that report and the work he was seeing in this meeting.
He said that the OCPO must go back to the drawing board and come up with a very clear plan of how to assist all the institutions, and to ensure that its work reflected its existence, because there could not be an institution that does not justify its existence. The Office had been established to deal with the situations taking place at ground level that did not conform to the practices of Treasury when it came to procurement, but it could not be that the same office created problems of not being able to manage the situations that had arisen. It should be able to live up to its existence. The DG should have been present to assist the Committee, as the report reflected very badly on procurement on the heels of the AG’s report on PPE procurement.
The Chairperson repeated his question about who approved deviations and expansions, as he had not received an answer. He said that the Committee should not adjourn with a misconception that equated BBBEE with malfeasance and corruption. When it came to PPE, the Minister had reported that 70% of the beneficiaries of the PPE contracts were not BBBEE or women-owned companies. It was very important that there was not a misconception, as it may end up sterilising the work being done with procurement processes and maligning black companies. This was not the intention of the government, as it wanted to correct the issues of apartheid that marginalised black people, women and people living with disabilities.
He said that in most cases, the conditions of deviation and expansion were man-made, but they were created so people could find reasons for not following the law and policies. Timeframes for integrated procurement systems were needed, and this had been identified as critical in improving the efficacy and the effectiveness of the OCPO. Timeframes were needed, otherwise the process would be open-ended. He asked whether there was any possibility that by the time that institutions applied for a deviation, they had already deviated so that instead of asking for permission, they were asking for condonation.
Especially with regard to PPE, the DoH could have deviations, but the Chairperson was struggling to find reasons for PRASA and Eskom. However, since the entities would be meeting with the Committee, the OCPO should not be burdened with that question. He asked that when a letter of invitation was sent to them, it should be stated that they needed to address the Committee on the deviations -- who was involved, the companies that benefited, why they were deviating and expanding, the amounts involved and whether they got permission to deviate. In the letter to the DG, beyond the issues raised by Ms Ntlangwini and Mr Qayiso, he should be asked to address the Committee on the permanent filling of the CPO position and the plans to capacitate the Office.
Ms Peters repeated a question she had raised earlier about the capacity of OCPO to deal with the volume of requests for all the deviations, extensions and modifications. She asked whether departments or organs of state created the environment for the deviations. She asked whether there was some former OCPO officials who were now procurement officers in some of the state organs who would truly know the inner workings of the OCPO in a way which would then result in the statement that had been made on the trends -- that there were those who, despite not having received the support of the OCPO for a deviation or extension, would go ahead. It was not acceptable for the OCPO to tell the Committee that the accounting officers and authorities should have done the work in terms of analysing the requirements or qualifications of some of the companies. The accounting officers made requests to the OCPO for deviations and extensions.
She was concerned about the capacity of the Office, and wanted to know whether there were companies that were blacklisted before and should not do business with government and organs of state, as this would mean there were gaps for those companies to come through. She wanted to believe that even the emergency resulting from the pandemic had created an avenue for these companies to try their luck in a different form, which was why she was interested to know who the directors of these companies were. It was important for the office to provide details of the companies beyond the dashboard that it had provided.
She asked whether the Committee was expected to agree to the deviations, extensions and modifications, or what it was they were expected to do, especially in view of the statement of the last speaker who had said accounting officers knew what needed to be done because they knew the Treasury regulations and the PFMA requirements.
Ms Setan said that there was a union within the CPO, the Governance Monitoring and Compliance unit, that had directors and deputy directors who processed all the applications and draft responses. The Chief Director then looks at the reasons and approves or supports the response, after which the CPO approves the deviations and exceptions or modifications. In cases where it was necessary, the CPO would engage with either the Asset Management and Liability unit or its budget analysts to understand the reasons that lie behind a deviation, but it was still approved by the Chair of the CPO.
The CPO was looking at the integrated financial management system which had an SCM component to it, and the OCPO was involved with the Integrated Financial Management System (IFMS) project office to supply the system specifications. If that was still delayed, it would delay the office having an integrated procurement system as well, unless it came up with a plan to deviate from the process which it was currently exploring, and seeing whether there were other possibilities.
In many cases, institutions request deviations prior to implementation, which the OCPO would either support or not. If it happened that there were deviations without approval from National Treasury, this resulted in irregular expenditure for which the institution would need to apply for condonation, which was an arduous process for departments and accounting officers. It was not a simple yes or no process, as the OCPO needed to understand what the circumstances were and if there were any elements of criminality or losses to the state.
Within the supply chain area in government, a lot of government officials did move from one institution to another, and there were former officials of the OCPO who were currently in CPO positions in other institutions such as Eskom, the State Information Technology Agency (SITA), and the South African Revenue Service (SARS).
There was a published list of blacklisted companies on the website of National Treasury. For government institutions to enter into agreement with these companies would be against the rules of engagement, and that would result in irregular expenditure. It was the responsibility of the people who did the evaluations to check on this list whether the directors or companies were blacklisted on the register.
Mr Mlenzana said that the question posed by the Chairperson to the Committee should be a subject of the Committee’s own discussion, outside the presence of the OCPO. The Committee needed to ensure the DG was part of those discussions.
Mr Sifiso Magagula, Committee Content Adviser, wanted to remind the Committee about the approval process, because it seemed to be concerned about the approval process of deviations and expansions and the risks associated with it. In 2018, there had been a resolution made through the Standing Committee on Public Accounts (SCOPA) and communicated to National Treasury, for National Treasury to form a committee that would approve deviations and expansions to avoid risks associated by giving someone this huge responsibility attached to a lot of money. It was unfortunate that the question had come up again in the meeting, when there was communication from Parliament agreed to by the DG of National Treasury that it was too risky to subject an individual to approve such large amounts of money.
The Chairperson said he was aware of that decision, and wanted to know what had been done about it, which was why he had asked the question.
Ms Setan said there had been discussions around having this committee, but it had fallen by the wayside for the reason that having a committee looking at these deviations might delay service delivery. That should not be considered an excuse, but it would be taken up with the DG to look at forming a committee, and maybe the terms of reference around the approval committee then needed to be assessed in terms of the thresholds or certain types of approvals of deviations due to the volumes that the OCPO was handling, as it could not practically look at every single one.
The Chairperson asked that this matter also be added to the letter that would be sent to the DG, as it would be unfortunate that the decisions taken by Parliament were not implemented.
The issues around the OCPO and its responsibilities pertaining to deviations and expansions had been taken care of. It remained a concern of the Committee that service providers were not paid timeously despite Parliament having appropriated money for those responsibilities, and it would like the OCPO to follow up on that. The question of using the budget that had been passed to deal with the transformation of the legacy of apartheid was very important, and the OCPO should stay close to that.
The Chairperson asked for consideration of the minutes of the meeting which took place on 27 November 2020 on the public hearings on the 2020 Second Adjustment Appropriation Bill and the 2020 Medium-Term Budget Statement. The minutes were adopted.
The Chairperson said that during interactions with different role players, especially departments, state-owned entities (SOEs) and agencies, a lot of recommendations were made. However, taking the example cited by Mr Magagula, where there was a decision taken but not implemented, a lot of issues had been raised in this meeting, but what guarantee was there that tomorrow there would not be the same type of challenges? This was an area the Committee needed to reflect on, because it talks to its effectiveness in oversight. The Committee was calling the DG, but the Ministers may have to come and assist the Committee with these matters.
Mr Mlenzana said that the Committee would need a specific session to dig deeper into this. It was high time for the Committee to be recognised by its colleagues, particularly in government from the Ministers, to the DGs and their functionaries. The Committee might have to develop teeth to bite, and one suggestion would be that on a quarterly or half-yearly basis, the Committee secretary assist by developing a template of resolutions, decisions and timeframes for implementation. The Committee would then have to make government account. The Committee had due constitutional and parliamentary rights to hold the government accountable. It could go to the Deputy President and raise its dissatisfaction if the Ministers did not come to the party. It needed to be very smart in its approach so as to not be seen as witch-hunting.
Ms Peters supported the points raised by Mr Mlenzana, and said that she recommended that prior to engaging with the leader of government business, the Committee take the matter through parliamentary channels -- to Mr Frolick (House Chairperson) and the Speaker -- who would then write to the Leader of Government Business and tabulate all the departments and executing authorities that needed to be brought to the attention of the Deputy President.
Ms Ntlangwini said there had been several times when the Committee had said that it was sending letters, but perhaps it should also involve the Speaker, because it does not give a sense of joy hearing about how committees conduct their work. It wanted to do its work to the best of its ability, but there was no way forward in terms of solving some of the problems. Looking at the OCPO for instance, one could reflect on all its presentations and see the same pattern and problems for the past four to five years or more.
Ms Peters said it would be good for the Committee to have sight of the performance agreements that the ministers had signed with the President, just to see whether there were financial or budgetary issues captured in the performance agreement, as it was always important for executive authorities to know and understand what was happening with the budgets in the departments.
The Chairperson said that performance agreements were available to the public, and requested that the researchers look at them to see what Ms Peters asked for.
Ms Ntlangwini asked that the Committee Secretary create a group of all the Committee Members, seeing that everything now happened virtually to raise issues and for notifications, as these meetings were being televised.
The Chairperson said the group chat would also help the Members to discuss matters that were concerning them, pertaining to the work of the Committee, so they did not have to wait until the Committee met. He asked whether the support staff should be a part of it, and this was agreed upon.
Ms Peters asked for clarity on how to deal with the “lock up” situation.
The Committee Secretary said he would need to discuss this with the Committee’s colleagues in Treasury, and this would be discussed with the Members.
The Chairperson referred to the last medium-term budget speech, and said those in Parliament were locked up, but those on the virtual platform had not received the information because it was market sensitive and virtual platforms were not as secure as one would like them to be. Those in Parliament had been locked up from 11 am until the Minister had delivered the budget speech at 2 pm.
Ms Ntlangwini said this concern was raised in the last budget lockdown, where Members were not appraised with the speech as in previous years, and that was the main reason why they were there -- to let the Committee peruse the budget speech before it was presented to the house. It did not serve its purpose if the Committee could not get the budget speech before it was presented in the House. She asked that the Chairperson address this with the Minister on another platform.
The Chairperson agreed
The meeting was adjourned.
- Media Statement: Standing Committee on Appropriations Demands Names of Top Five Deviators from Procurement Rules
- NTQ3 2020/21 Deviations and Expansions
- Governance Monitoring and Compliance: Quarter 3 Analysis- Expansions
- Governance Monitoring and Compliance: 2020/2021 Quarter 3 Report Expansions
- Governance Monitoring and Compliance: 2020/2021 Quarter 3 Report Deviations
- Request to continue with CSIR Lease Agreement
- National Treasury: COVID-19 Reporting
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