Preferential Procurement Policy Bill: voting

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Finance Standing Committee

17 January 2000
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Meeting report

AD HOC FINANCE COMMITTEE ON THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK BILL
18 January 2000
PREFERENTIAL PROCUREMENT POLICY FRAMEWORK BILL: FORMAL CONSIDERATION

Documents handed out
Opinion of the Chief State Law Advisor on the constitutionality of the Bill - see Annexure 1
Opinion on behalf of the Ministry (drafted by Halton Cheadle, Nicholas Haysom, and Mandy Taylor) - see Annexure 2
Final mandates of the nine provinces

SUMMARY
During the previous meeting the Chairperson had asked both the State Law Advisor and the Ministry to provide legal opinions on the constitutionality of certain clauses, most importantly, the constitutionality of clause 2(1).
Mr Andrew of the DP noted that the two opinions did not coincide with each other in every respect. He pointed out that the opinion which had been provided on behalf of the Ministry said that S2(1) would have to be reworded to ''enhance'' its constitutionality. The problem with the present phrasing of the clause was that it was too prescriptive. The legal opinion suggested that it be redrafted to be more in line with a framework, rather than a policy. A proposal was suggested by Ms Ramos (Director General: Finance Department) and the Chairperson agreed to adopt it as the only proposed amendment to that clause.

Voting on the Bill took place in two separate stages:
The Select Committee voted on the Bill first and all provinces voted in favour of all the amendments [the only exception being that Kwa-Zulu Natal voted against clause 2(1)(e)(i)].

The Portfolio Committee voted on the various clauses. Not all the clauses were agreed upon. In some instances some of the minority parties abstained, and they voted against the inclusion of the word ''historically''. Amendments proposed by the minority parties were outvoted by the ANC.

The Chair then read out the long title of the Bill and the Bill was passed with amendments. The DP and the FF abstained.

MINUTES
Ms M Ramos, Director General of the Department of Finance and the State Law Advisor, Mr Kellner, were present to assist with issues which may arise from the discussion of the Bill.

The Co-Chairperson, Ms D Mahlangu (ANC, NCOP), noted that the Bill had to be debated in the National Assembly on 21 January which meant that the committee had a deadline to meet.

Legal Opinions
As requested at a previous meeting, the State Law Advisor and the Ministry had provided legal opinions on the constitutionality of certain aspects of the Bill, including S2(1) and the proposed exemption clause. An opinion on this matter was provided by both the Ministry and the State Law Advisor.

Mr Andrew of the DP noted that the two legal opinions did not coincide with each other perfectly. The opinion of the State Law Advisor was that S2(1) of the Bill was constitutional. On the other hand, the Ministry opinion indicated that certain subclauses in section 2 could be interpreted as contravening the Constitution.

S2(1)(a), (b), and (d) of the Bill were described as ''not simply setting principles or parameters for the formulation of policies'' (as the Constitution requires in S217) but instead, went a step further by prescribing what the actual policies should be. The legal opinion indicated that in order to distinguish a framework from a policy the framework would have to leave room for different policy options as it cannot ''leave a policy maker with no space at all''. The role of national legislation in terms of the Constitution is to set parameters within which the preferential procurement policies must fall.

The opinion suggested that these provisions be reworded so that limits are prescribed, as opposed to prescribing stipulations (as the Bill in its current form does). The drafters of the opinion contended that such an amendment would ''greatly enhance the constitutional validity of the Bill''.

Ms Ramos responded to Mr Andrew's concern by indicating that she had spoken to Mr Cheadle (one of the drafters of the opinion) that morning and he had said that the committee simply needed to redraft clauses 2(1)(a), (b), and (d) so that they set only limits. The idea was that the clauses should be changed from prescribing policies to something which laid down a framework and provided for greater flexibility.

The Chairperson was satisfied with this argument and indicated that this proposed ''redrafting'' would be dealt with when those particular clauses were deliberated on.

Formal Consideration of the Bill
The Chairperson read the motion of desirability and asked the committee if they supported it. Mr Andrew stated that he was not ready to support it. He indicated to the Chairperson that he would not agree to it unless he saw it in writing first. The Chairperson remarked that the motion of desirability as such was a perfectly normal procedure and she did not understand what the issue was.

Mr Andrew said the Bill was not desirable in respect of certain terms. He added that the minority parties were not privy to the same information that the ANC was privy to, and, as such, they did not want to be ''steamrollered'' by agreeing to things that they had not even seen.

The Chairperson remarked that reading the motion of desirability was a normal procedure, that the majority party was not privy to any information, and that she would not entertain a discussion on the motion of desirability.

Mr Andrew then agreed to support the motion of desirability.

Preamble
Ms Fubbs (ANC, Gauteng) put forward the proposed amendment to delete the first line of the Preamble, and to delete ''by any organ of state and any such identified institution'' in the second last line. All agreed to this proposal.

Clause 1 Definitions
Identified institution
The ANC proposed the deletion of the definition of an ''identified institution''. This was agreed to as the new definition for ''organ of state'' covered this.

Organ of state
Mr Schutte (NNP) proposed the original definition of organ of state be deleted and replaced with the amendment which the committee had agreed upon previously, namely:
(iv) ''Organ of state'' means:
a national or provincial department as defined in the Public Finance Management Act, 1999 (Act no. 1 of 1999);
a municipality;
a constitutional institution as defined in the Public Finance Management Act, 1999
Parliament
A provincial legislature' or
Any other institution or category of institutions included in the definition of ''organ of state'' in section 239 of the Constitution and recognised by the Minister by notice in the Gazette as an institution or category of institution to which the Act applies

However Mr Schutte reiterated his earlier reservation regarding clause iv (f). He did not think that the Minister should have the power to decide that the Act should apply to a particular institution (where the Constitution did not recognise that the Act should apply to such institution).

Ms Hogan replied by referring to the State Law Advisor's comments in a previous meeting that the changes to the ''organ of state'' definition were not unconstitutional. Mr Kellner had explained that the Bill's definition did not have to be identical as long as the essential elements of the definition in S217(1) of the Constitution were contained in it. It could not be argued that any of the constitutional elements had been left out.

An ANC member noted that the definition simply had the effect of enhancing the Constitution by identifying other organs.

Mr Andrew interpreted the definition to mean that, in order for an institution to be regarded an ''organ of state'' it would have to comply with two elements:
It would have to fall within the parameter of S239 of the Constitution, and it would also have to be recognised and published in the Gazette by the Minister as an institution to which the Act would apply.

Mr Schutte's interpretation was that the clause gave the Minister the power to declare that an institution as an organ of state to which the Act would apply, even if such institution was not recognised by S239 of the Constitution. Further he did not consider the opinions of the State Law Advisor and Mr Andrew to be valid. Although he would not vote against the Bill, he had strong reservations in respect of this clause.

Mr C Viljoen (FF) suggested that the word ''recognised'' be replaced by either ''published'' or ''listed''. There was no support for this suggestion.

Municipality

The term ''municipality'' was referred to in clause 1(iv)(b) as an example of an ''organ of state''. In previous meetings some suggestions had been made to clarify the term ''municipality'' somewhat. It had been proposed that reference be made to ''municipality'' as it was defined in a particular section of the Constitution. The committee now had to decide to which section of the Constitution they wanted to refer.

SALGA suggested that the term ''municipality'' should refer to S156 of the Constitution. The State Law Advisor's written opinion suggested that reference be made to S151(1) of the Constitution. A member of the ANC then proposed that it would be more appropriate to refer to section 155(6) of the Constitution.

Mr Andrew indicated that he preferred the view of the State Law Advisor as this was the constitutional definition of a municipality and S155(6) did not say what a municipality was.

The State Law Advisor then realised that there was a typing error in his report and indicated that the reference should in fact be made to S155(1). Mr Andrew responded that he was now ''not following'' as S155(1) did not define municipalities it simply said that there could be different categories of municipalities. He suggested that the S155(1) reference could be retained as long as S151(1) was also used.

The Chairperson said that she wanted to avoid an argument on this issue. Mr Andrew said that he did not agree with the State Law Advisor but that it was not an ''earthbreaking issue''. The State Law Advisor agreed to the combination of S155(1) and S151(1). SALGA then jumped in and said that their reference could also be added in addition to the other two. Mr Feinstein indicated that this would be going into ''too much detail''. The State Law Advisor then made the following suggestion: The reference should read ''A municipality as contemplated in the Constitution''. Ms Hogan asked if this definition would be sufficient and the State Law Advisor indicated that he was satisfied that it would. Accordingly, this amendment was accepted.

Clause 2 Framework for implementation of preferential procurement policy
Clause 2(1)
Ms Fubbs suggested that the clause be amended to read as follows: ''An organ of state must determine its preferential procurement policy and implement it within the following framework''.

Mr Andrew did not approve of this definition, he felt that it was still ambiguous and that they were going back to square one. Mr Schutte said that ''this was the most crucial sentence in the whole world'' and that they should ''give proper attention to it''.

The Chairperson noted that there was a general feeling to accept this amendment as suggested by Ms Fubbs. Mr Andrew requested time to confer with his colleague which was allowed. The DP then indicated that they found the amendment to be acceptable.

Clause 2(1)(a) and (b)
According to the opinion submitted on behalf of the Ministry, it was these subclauses which had to be reworded to be less prescriptive and provide greater flexibility.

Mr Schutte suggested providing some kind of limit instead of prescribing a specific number of points to be awarded: ''a tenderer should score not less than (a certain number of points) and not more than (a certain number of points). He suggested that this type of phrasing would provide the flexibility that they were looking for .

Mr Andrew suggested: ''a maximum of 15 points for the lowest acceptable tender of a contract below five hundred thousand rand; and a maximum of 10 points for the lowest acceptable tender of a contract above five hundred thousand rand.''

Ms Hogan replied that it was a good idea to put rand values in legislation as the rate of inflation would mean that the amounts in the legislation would have to be continually updated.

Ms Ramos indicated that the lawyers instructions to them only meant that they had to set some kind of maximum. She noted that they did not want the tenderer to have less than 90 points but that they wanted to create flexibility around the 10 points. She suggested the following formulation:
''for contracts with a rand value above a prescribed amount a maximum of ten out of 100 points may be allocated for specific goals as contemplated in section 2(1)(e), provided that the lowest acceptable tender scores 90 points for price.''

The same wording could be used for the 80/20 ratio in subclause 2(1)(b), the only difference being that the clause would start, ''for contracts equal to or below a prescribed amount...''.

This would provide that the 90 points (or 80 points where applicable) would still be awarded to the lowest acceptable tender but flexibility would exist around the award of the ten points. This would achieve the aim of making the clause less prescriptive and enhancing its constitutionality.

Mr Andrew said that if they set a specific figure, example the 90/10 ratio then they have gone beyond setting a framework and have made a policy.

Mr Luyt (FA) said that he supported the amendment of Ms Ramos as there had to be some kind of prescriptive gesture on their part.

Ms Ramos said that while it was true that they had to provide a framework, it was necessary to place parameters within that framework.

All except Mr Andrew agreed to the above-cited changes to clause 2(1)(a) and (b). He said that the amendment was a big improvement but he was still not happy with prescribing the limits. He indicated that the DP would reserve their position on this matter.

Clause 2(1)(c)
Mr Schutte moved that this clause should remain as it was in the tabled Bill but there was no support for this suggestion.

The committee agreed to replace the word ''less'' with the word ''fewer'', and, in the last sentence to delete the last line and replace it with ''the formula prescribed''.

The committee took a vote to determine whether the formula should remain in the Act or whether it should be moved to the Regulations. All the provinces represented in the Select Committee voted in favour of moving the formula to the Regulations. Within the Portfolio Committee, all the parties, except the NNP, agreed to moving the formula to the Regulations.

Clause 2(1)(d)
The committee agreed that this clause should fall away (as it had now been replaced by the new clause 2(1)(a) and 2(1)(b).

Clause 2(1)(e)(i)
A debate arose regarding the amendment which had been proposed by the ANC at a previous meeting for the inclusion of the word ''historically'':
"persons, or categories of person, historically disadvantaged by unfair discrimination"

Mr Andrew questioned whether a person who had been disadvantaged in the past but who was now successful would qualify for a Preferential Procurement Policy? His concern was that people who were historically disadvantaged but were now financially well-off would be able to claim that the Preferential Procurement Policy applied to them.

Ms Fubbs said that regard should be had to what the intent of the Bill was. She added that including the word ''historically'' would add ''specificity as to who the Bill was intended to target''. The purpose, thus, was not to exclude other groups, but simply to specifically include certain groups.

Mr Viljoen (FF) said that the Constitution did not intend that the legislation should apply to historically disadvantaged people. He explained that S217 of the Constitution said that the legislation should be fair and equitable. Allowing the inclusion of the word ''historically'' disadvantaged would have the effect of making the legislation unfair and inequitable (because the committee was legislating to create new categories of disadvantaged). He explained his rationale by using the following example: a white boy who was 13 years old now and was not part of country's past, would be discriminated against by this legislation (in years to come) as he may be disadvantaged, but will not be considered historically disadvantaged.

Ms Ramos said that, whether the word ''historically'' was left in or taken out, it would not change the fact that the Bill was intended to deal with historically disadvantaged people. She added that the specific goals were not prescriptive as they were phrased with the words ''may include''. Thus, there was clearly room in the legislation to accommodate other goals.

The Chairperson said that it was clear that the committee would not reach agreement on the matter as they were moving from one extreme to another. A Select Committee vote was taken and all the provinces, with the exception of Kwa-Zulu Natal and the Free State, voted in favour of retaining the word ''historically'' in the Bill.
In the Portfolio Committee, political parties voted in the following way:
ANC - in favour of 'historical'
DP - against 'historical'
IFP - they said that for them it was a non-issue as the purpose of the Bill was served whether the word was left in or taken out.
NNP - Said they were against the inclusion of the word but that it was not a major issue.
FA - against 'historical'
FF - against 'historical'

Because the ANC were the majority, the inclusion of the word 'historically' was agreed to.

Another issue related to clause 2(1)(e)(i)
Mr Schutte proposed adding the words ''only South African citizens''. His concern was that the Bill may be interpreted in such a way that people who were not SA citizens may benefit from it.

Ms Ramos replied that the Bill was only intended to apply to South African citizens and that this was not an issue which needed to be dealt with in the Bill, it could simply be addressed in the regulations.

Clause 2(1)(e)(ii)
Regarding the reference to RDP principles, Mr Andrew felt that the objectives of the RDP should either be tabled in the committee or else there should be a reference in the Act to some identifiable document which would clarify what the RDP principles were.

The committee agreed that this section would include a cross-reference to the Government Gazette in which the RDP principles had been published.

Clause 2(1)(f)
The committee agreed to this clause.

Clause 2(1)(g)
Ms Fubbs suggested that the words ''sound reasons'' be deleted and replaced with ''objective criteria that would assist with the attainment of the goals referred to in (e) or (f)''.

The DP objected to this wording as Mr Andrew felt that it would mean that the tenderer could now score extra points for the RDP goals. He suggested that they say, ''objective criteria in addition to those contemplated in (e) or (f) above''. This suggestion was agreed to by the committee.

New subclause
The committee agreed to make the following subclause an addition to the Bill. It reads as follows:
''Any tender awarded on account of false information furnished by the tenderer in order to secure preference in terms of this Act , may be cancelled without prejudice to any other remedies the state may have''.

Clause 2
The committee agreed to delete these.

Clause 3
This was agreed to by the members and would now become Clause 2

Additional proposed amendments
Mr Andrew proposed limiting the number of times that someone can win a tender.

Ms Ramos warned that the committee should be careful about putting something like this in the legislation as different types of preferences existed. To prove her point, she explained that there were, for example, some companies, who had provided IT systems to government for years. She suggested that some kind of mechanism might be put in the regulations.

The State Law Advisor said that this was not a legal decision but a policy decision. He referred the committee to their amendment in 2(g) and suggested that the fact that someone had won a tender a certain number of times may be considered as one of the objective criteria. This proposal was agreed to.

Mr Andrew also suggested that a clause be inserted in terms of which the Preferential Procurement Policy would not be implemented for contracts in excess of five million rand. This proposal was not agreed to. Mr Schutte indicated that he supported the principle of an upper limit but not the amount that Mr Andrew had referred to.

Mr Andrew also wanted to insert a clause in terms of which the Minister would have to review the effect the Act was having and then report on this to Parliament. The Chairperson indicated that such a provision would be tautologous as the portfolio committee could call for the Minister at any time.

Exemption clause (New clause 3)
Ms Ramos said that she had asked the State Law Advisor to phrase this and he had submitted the following:
''The Minister may, on request, exempt an organ of state from any or all of the provisions of this Act, if -
it is in the interests of national security;
the likely tenderers are international suppliers; or
it is in the public interest.

Mr Andrew was dissatisfied with (c) as he felt that the decision as to whether it was in the public interest would be at the sole discretion of the Minister.
The State Law Advisor indicated that if there was a dispute, the courts would decide whether the exemption was in the public interest or not.

This clause was then agreed upon.

Transitional provision
Clause 4 - This clause was agreed upon.

Regulations
Clause 5(1) - This clause was agreed on.

Clause 5(2)
This additional clause was agreed to by the committee. It reads as follows:
''Draft regulations in terms of this Act must be published for public comment before their promulgation''.

Short title
The committee agreed to insert the word ''called'':
" This Act is called the Preferential Procurement Policy Framework Act, 2000''

Voting
The Bill was voted on by the NCOP's Select Committee first. The members voted in favour of all the clauses, as amended, unanimously, with the exception of clause 2(1)(e)(i). The province of Kwa-Zulu Natal was the only province which voted against clause 2(1)(e)(i) as they thought the word ''historically'' should be excluded from that clause. They were, however, outvoted. The report was read and all agreed to the Bill as a whole.

The Bill was then voted on by the National Assembly's Portfolio Committee. All the clauses were agreed to, except the following:
Clause 2(1) - the DP and the NNP abstained
Clause 2(1)(a) - the DP abstained
Clause 2(1)(c) - the NNP abstained
Clause 2(1)(e)(ii) - the DP moved that the amendment ''historically'' be deleted. The FA seconded that move. The parties voted. There were 5 votes in favour of deletion and 12 votes against. Thus, the insertion of ''historically'' was agreed to.
The DP moved for the addition of a clause which would have the effect that Preferential Procurement Policy may not be implemented for tenders with a value in excess of R5 million. A vote took place and the DP was outvoted by 5 - 12.
Clause 3 (Exemption clause) - the DP abstained.

The Bill as a whole was voted on and all agreed except the FF and the DP (both of whom abstained). The Bill was passed.

Appendix 1:
AD HOC COMMITTEE ON THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK BILL (BILL 66-99)

OPINION

1. I have been asked to furnish a written opinion on three matters relating to the abovementioned Bill. I propose to deal with the matters seriatim.

2. The first question is whether a clause in the Bill making it compulsory for an organ of state to implement a preferential procurement policy would be unconstitutional. As I see it, there are two possible grounds on which such a clause can be attacked as being unconstitutional. The first is if it can be shown that the Constitution forbids any such law (regardless of the legislator). The second ground would be that this Bill is national legislation which purports to bind organs of state in the provincial and local spheres of government.

3. As to the first ground, the only section of the Constitution dealing with a preferential procurement policy which I could find was section 217 which provides—
"(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for—
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) may be implemented.".

4. The section clearly contains no express prohibition of a law making the implementation of a preferential procurement policy compulsory. The only question is whether such a prohibition can be implied. I think the answer must be in the negative since subsection (2) merely says that subsection (1) does not prevent the implementation of such a policy while subsection (3) states that national legislation must provide a framework for the implementation of such a policy. Item 21(4) of Schedule 6 to the Constitution is equally neutral as it provides that for the period prior to the enactment of framework legislation, "the absence of such legislation does not prevent the implementation of the policy referred to in section 217(2)."

5. As to the competence of Parliament (being the legislature for the national sphere of government) to bind the provincial and local spheres regarding the implementation of a preferential procurement policy, I think the enquiry must start with section 44 of the Constitution. That section provides—
"(1) The national legislative authority as vested in Parliament—
(a) confers on the National Assembly the power—
(i) to amend the Constitution;
(ii) to pass legislation with regard to any matter, including a matter within a functional area listed in Schedule 4, but excluding, subject to subsection (2), a matter within a functional area listed in Schedule 5; and
(iii) to assign any of its legislative powers, except the power to amend the Constitution, to any legislative body in another sphere of government; and
(b) confers on the National Council of Provinces the power—
(i) to participate in amending the Constitution in accordance with section 74;
(ii) to pass, in accordance with section 76, legislation with regard to any matter within a functional area listed in Schedule 4 and any other matter required by the Constitution to be passed in accordance with section 76; and
(iii) to consider, in accordance with section 75, any other legislation passed by the National Assembly.
(2) Parliament may intervene, by passing legislation in accordance with section 76(1), with regard to a matter falling within a functional area listed in Schedule 5, when it is necessary—
(a) to maintain national security;
(b) to maintain economic unity;
(c) to maintain essential national standards;
(d) to establish minimum standards required for the rendering of services; or
(e) to prevent unreasonable action taken by a province which is prejudicial to the interests of another province or to the country as a whole.
(3) Legislation with regard to a matter that is reasonably necessary for, or incidental to, the effective exercise of a power concerning any matter listed in Schedule 4 is, for all purposes, legislation with regard to a matter listed in Schedule 4.
(4) When exercising its legislative authority, Parliament is bound only by the Constitution, and must act in accordance with, and within the limits of, the Constitution.".

6. From this section it is clear that Parliament may pass legislation with regard to any matter (which is not otherwise prohibited by the Constitution) except a matter within a functional area listed in Schedule 5. Even in respect of matters within a functional area listed in Schedule 5, Parliament may make legislation when it is necessary for one of the reasons listed in paragraphs (a) to (e) of subsection (2).

7. The enquiry must accordingly shift to the question whether the matter at issue here, namely the compulsory implementation of a preferential procurement policy, can be regarded as falling within a functional area listed in Schedule 5. In this regard it is interesting to note the provisions of section 44(3) of the Constitution. In terms of that subsection, legislation regarding a matter which is reasonably necessary for, or incidental to, the effective exercise of a power concerning any matter listed in Schedule 4 is deemed to be legislation with regard to a matter listed in Schedule 4. No such provision is made with regard to matters falling within a functional area listed in Schedule 5. I regard that as being significant and as indicating the opposite intention as regards Schedule 5 matters. In other words, it seems that the Constitution intended that legislation with regard to a matter falling within a functional area listed in Schedule 5 does not include legislation regarding matters not expressly listed in that Schedule but which are necessary for, or incidental to those functional areas specifically listed in Schedule 5. Procurement policies (whether preferential or not) and their implementation are not among the functional areas expressly listed in Schedule 5.

8. It thus seems that section 44(1) is no bar to the proposed clause being inserted in the Bill. Even if I am wrong with regard to incidental matters being deemed to be matters falling within a functional area listed in Schedule 5, I feel that a strong argument could be made out that Parliament is allowed to intervene in this matter in terms of section 44(2)(b) or (e).

9. Lastly regarding this clause I feel it is my duty to point out that the clause presently proposed so as to make the implementation of a preferential procurement policy compulsory might not have the desired effect. The proposed clause makes it compulsory for an organ of state to have a preferential procurement policy and to implement it within a framework but it does not oblige the organ of state to implement it on every occasion when it calls for tenders. This, taken in conjunction with the fact that in terms of the proposed clause 2(1)(e) the specific goals may include contracting with disadvantaged persons, means that an organ of state could have a preferential procurement policy, and implement it occasionally and when it does so it need not give preference to persons disadvantaged by unfair discrimination but it would nevertheless comply with the Bill.

10. The solution, in my view, would be to oblige the organs of state to implement their policy whenever they call for tenders and to change clause 2(1)(e) by substituting "must" for "may" and removing the reference to the RDP objectives if policy dictates that it is not essential that they be included in respect of every tender.

11. The next question relates to the definition of "organ of state" in the document put forward by the African National Congress. It provides—
"'organ of state' means—
(a) a national or provincial department as defined in the Public Finance Management Act, 1999 (Act No. 1 of 1999);
(b) a municipality;
(c) a constitutional institution as defined in the Public Finance Management Act, 1999;
(d) Parliament;
(e) a provincial legislature; or
(f) any other institution or category of institutions included in the definition of "organ of state" in section 239 of the Constitution and recognised by the Minister by notice in the Gazette as an institution or category of institutions to which the Act applies;".

12. I am asked whether that proposed definition would lead to unconstitutionality if included in the Bill in the light of section 217 of the Constitution and the definition of "organ of state" in section 239 of the Constitution. The argument in favour of a finding of unconstitutionality (if I understood it correctly) is to the effect that section 217 refers to an "organ of state" as defined in section 239 and that definition is not the same as the definition proposed in the Bill.

13. A closer look at section 217(1) of the Constitution reveals that it is concerned with an organ of state (as defined in section 239) but only one in the national, provincial or local sphere of government. For the rest, it refers to "any other institution identified in national legislation". Now the definition proposed for the Bill certainly includes all the departments of state in the national, provincial and local spheres of government (although the reference to "municipality" could be improved) and it also includes various other institutions thus "identifying" them for the purposes of section 217(1).

14. I accordingly conclude that, although the wording of the two definitions differs, the inclusion in the Bill of the definition proposed by the African National Congress will not result in the Bill being ruled unconstitutional.

15. Regarding the reference to "municipality" in the proposed definition, I would suggest the addition of the words "contemplated in section 151(1) of the Constitution." That will confirm that what the Bill has in mind here is the local sphere of government as is envisaged in section 217(1) of the Constitution. Extension of the concept of municipality so as to cover independent suppliers of goods or services would be dangerous in the absence of research into all the ramifications. Such research is beyond the scope of this opinion.

16. The last question I am asked is whether granting the Minister of Finance the power to exempt an organ of state from any or all the provisions of the Bill would be unconstitutional.

17. The exercise of such a power by the Minister could conceivably be construed as a form of subordinate legislation thus requiring parameters to be set by Parliament if it is not to be held to be unconstitutional (see generally in this regard the decision of the Constitutional Court in Executive Council, Western Cape Legislature v President of the RSA (1995(4) SA 877 CC).

18. The Committee also recognised this possibility and has requested the Department and the Minister to make suggestions as to how the power can be limited so as to protect the Minister from numerous requests for exemption and also to obviate the threat of unconstitutionality. Care will have to be taken with the final wording of the clause so as to ensure that parameters are set.

19. The view expressed in this opinion are my own and do not necessarily reflect the views of the State Law Advisers.

O B KELLNER CAPE TOWN
PRINCIPAL STATE LAW ADVISER 14 JANUARY 2000


Appendix 2:
THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK BILL

OPINION

1. We have been asked as a matter of urgency to provide an opinion on the constitutionality of the Preferential Procurement Policy Bill and advise on certain other issues that have arisen during the debate on the Bill in Parliament. They are:

1.1. whether it is constitutional for national legislation to prescribe a preferential procurement policy rather than merely a framework for such policies;

1.2. whether it is constitutional to require all preferential procurement policies developed by organs of State to be in accordance with a national framework;

1.3. whether it is constitutional to require all organs of State to adopt preferential procurement policies;

1.4. whether it is constitutional for the Minister to be granted the power to exempt a person or organ of State from the framework.

2. We have been asked to give this opinion on an urgent basis. We have formulated our response in a summary form. If requested to do so, we will provide an opinion with fuller motivation.

INTERPRETING SECTION 217 OF THE CONSTITUTION
3. The answers to the above questions depend on a reading of section
217 of the Constitution which reads as follows:
"(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation,

contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for-
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) may be implemented."

4. Our interpretation of section 217 is as follows:

4.1. Section 217(1) requires state procurement for goods or services to be done in accordance with a 'system' that is fair, equitable, transparent, competitive and cost-effective.

4.2. The requirement thatt the system be fair and equitable does not prevent preferential procurement policies contemplated in subsection (2) from being part of that system.

4.3. Any preferential procurement policy contemplated in subsection(2) must be in accordance with a nationally prescribed framework (section 217(3)).

4.4. Although section 217(2) states that any preferential procurement policy must be subject to a statutory framework, nothing else in secton 217 is said about the regulation of the 'system' of procurement by legislation and the form that it must take. In fact the system of procurement is heavily regulated. There is extensive regulation of state contracting for services and goods at national, provincial and municipal level. The prime example is the State Tender Board Act, 86 of 1968. The long title reads:

"To provide for the regulation of the procurement of supplies and services for... the State and to that end establish a State Tender Board, to provide of the establishment of regional tender boards and to define their function..."

4.5. The State Tender Board Act, 86 of 1968 establishes a system that is aimed at ensuring that some, if not all the constitutional requirements stated in subsection (1) are met. The obligation on organs of state at national level to contract through the State Tender Board is to be found in the Treasury regulations and in specific provisions in legislation.

4.6. It is our view that legislative prescription of a system of procurement for organs of state is constitutional. Nothing in section 217 precludes it - all that section 217 does is to limit national legislative prescription to a framework in respect of preferential procurement policies.

4.7. The only constitutional question that arises in any statutory regulation of the system' of contracting for goods and services, is the competence of the legislature to make the law. In other words which legislature has the competence to pass a law regulating the system of procurement. It is our view that this is a national competence. We deal with this issue in summary form in the body of the opinion.

5. Is it constitutionally permissible for national legislation to prescribe a policy rather than a framework?

5.1. Our answer to this question is that it cannot for the reasons that follow.

5.2. Section 217(3) specifically refers to a framework and not to a policy. If it had been the Constitutional Assembly's intention to permit the National Assembly to stipulate the policy in legislation, it would have said so. Section 217(3) contemplates something less than a policy - it contemplates a framework within which a policy is to be implemented.

5.3. The role of national legislation is therefore to set the parameters within which preferential procurement policies must fall, but it is for the individual organs of state or institutions to establish their own preferential procurement policies.

5.4. We wish to raise a concern that the Bill in its current form may be open to challenge because it establishes a policy rather than a framework. We refer, in particular, to sections 2 (a), (b) and (d) of the Bill. Those provisions do not set principles or parameters for the formulation of policies but prescribe the policies themselves. To distinguish a framework from a policy, the framework must give some room for different policy options - it cannot leave a policy maker with no space at all. Accordingly, if those provisions can be reworded in such a way as to prescribe limits rather than stipulations, the constitutional validity of the Bill will be greatly enhanced.

6. Is it constitutional to require all preferential procurement policies to be in accordance with a national framework?
6.1. Subsection (3) reads:

"National legislation must prescribe a framework within which the policy referred to in subsection (2) may be implemented."

6.2. The use of 'may' in the provision suggests that the organ of state has the option to choose whether or not to apply the framework. Our view is that that interpretation would render subsection 217(3) superfluous. If organs of state or institutions had a choice, there would be no need -
6.2.1 for subsection (3) at all; or
6.2.2 the constitutional obligation to prescribe a framework
- '[n]ational legislation must prescribe a framework...'.

6.3 Accordingly we are of the view that the proper construction of the Constitution either renders it obligatory or permits national legislation under its competence to prescribe the system of procurement to make it obligatory.
7 Is it constitutional to require all organs of state and institutions to adopt preferential procurement policies?

7.1 Section 217 requires organs of state and institutions to contract in accordance with a system. It then stipulates the requirements of such a system namely that it is 'fair, equitable, transparent competitive and cost effective'.

7.2 As we have argued above, nothing is said in section 217 as to who decides on the system and whether the system can be established or regulated by legislation. That being the case, the only constitutional question that remains is whether the national legislature has the legislative competence to prescribe a system for contracting goods or services. In summary form our view is that this is a national competence for the following reasons:
7.2.1 It is not specifically listed in either Schedules 4 or 5 to the Constitution
7.2.2 If it is to be a provincial legislative competency, it will have to be a matter that is reasonably necessary for, or incidental to, the effective exercise of a power concerning any matter listed in Schedule 4. Even if it is such a matter, which we doubt, it is a matter in respect of which the National Assembly has concurrent jurisdiction. There is no provision that we are aware of that would be in conflict with the proposed obligation that all organs of state adopt a preferential procurement policy.

7.3. Accordingly we are of the view that it is permissible for national legislation to prescribe as part of the 'system' that all organs of state and institutions adopt policies on preferential procurement.

8. Is it constitutional for the Minister to be granted the power to exempt a person or organ of state from a prescribed framework?

8.1 This is, in our view, the wrong question. The Constitution requires a national legislative framework and it would not therefore be constitutionally valid for the Minister to be empowered to exempt people from acting within that framework.

8.2. However, it would be in order for the Minister to grant exemptions from the 'system', in particular the obligation to implement a preferential procurement policy in respect of a particular contract.

8.3. This power should be granted to the Minister, with the power to delegate, the State Tender Board and all other functionaries and institutions that have the power to contract on behalf of the State.

8.4. Criteria for the exercise of that power should be contained in the Bill. Possible criteria for limiting the exercise of the executive discretion to grant exemptions may be:
8.4.1 National security
8.4.2 Urgency
8.4.3 International suppliers.

Halton Cheadle
Nicholas Haysom
Mandy Taylor
17 January 2000

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