Preferential Procurement Policy Bill: discussion

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Finance Standing Committee

15 December 1999
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Meeting Summary

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Meeting report

15 December 1999

Submissions presented:
Commission on Gender Equality
Black Management Forum/ Black Information Forum
Black Business Council

: Ms B Hogan and Ms D Mahlangu

There were many objections to the procedure this Bill has followed. It was decided that the chairpersons should meet with the Finance Minister to discuss the issues raised at the hearing. A major concern to all was the deadline of the 4 February 2000 for passing this Bill which might undermine policies that emerge in a future White Paper. A decision was made for the committees to meet on 12 January 2000 for deliberations.


Commission on Gender Equality
(Presented by Ms Elize Delport, Ms Zubeida Barmania and Ms Fatima Seedat)
The Commission stated that the procurement point system should be revised so that more points be awarded for majority black ownership and majority black female ownership. It also recommended that a constitutional amendment be enacted placing an obligation on all organs of state to adopt preferential procurement policies. Tax incentives should be put in place to motivate the big business sector to expand its links with outsourcing and sub-contracting micro and small businesses owned by women and in particular black women, in tender contracts.

Ms Fubbs (ANC, Gauteng) stated that the Bill failed to be precise and felt that 'access to finance' needs to be unpacked as this was the stumbling block and not the bill or legislation. She stated that there are certain disadvantages in having packages and smaller tenderers and cited experience gleaned in Gauteng. If there are only a few source providers then the price will ultimately be controlled and would increase in the long run. She raised the issue of "fronting" and stated that the formation of more groups within organisations and companies increased the danger of fronting. She also pointed out that the international survey carried out in France and Canada on the economic development of women was easy to implement because there were no race problems.

In response Ms Delport stated that the major problem that women face is access to finance and that the Bill does not provide for this. She recommended that a policy be put in place so that women can have access to finance, and in so doing, the Bill will achieve its aims.

Ms Seedat noted that there must be monitoring and evaluation to ensure that companies are legitimate. The Bill should require that the regulations come to Parliament and that the parliamentary committee should consider these before they are implemented. In response to the issue of packaging, the following recommendations were made:
(1) mechanisms should be found which are innovative enough to deal with the abuse of the solutions put in place; these mechanisms should be made mandatory,
(2) a monitoring system should be in place and
(3) the government should package smaller contracts that small firms can take on, and in so doing, build the capacity of the small firms.

Mr K Andrew (DP) noted that the point allocation system precludes rural people from business opportunities. On the issue of fronting he pointed out the fact that monitoring added to the cost and questioned the percentage of the cost involved in monitoring smaller contracts. He also questioned the preferencing system proposed by the Commission.

Ms Seedat recommended that a non-labour intensive system be put in place - an example of which would be additional forms which the company would fill in , and this would be checked by the monitoring group. On the issue of the 11% preference system, Ms Seedat felt that it should be an expense that is borne by the state and be seen as an investment in reconstruction and transformation.

Ms Delport's response on the issue of fronting is that people do not understand the tendering process and recommended that part of the budget be allocated to the education process; and in so doing, the issue of fronting would decrease as more people became empowered.

Ms Fubbs (ANC, Gauteng) commented that females, especially black females, do not tender because of the lack of knowledge of the tendering process and this in turn disadvantages women.

Ms Seedat stated that black companies bid at higher costs because of the lack of resources and mentioned that if tenders are granted on the basis of cost, then black companies would not be considered.

Mr E Conroy (NNP, Gauteng) questioned the time span for the preferencing system and felt that a time limit should be put in place.

Ms Seedat's response to this was that there should be no limit because women face all forms of discrimination and as yet there is no form of equality between males and females.

Mr Green (ACDP) stated that it was imperative to "empower the unempowered" through knowledge and felt strongly that it should be ensured that a company is capable of fulfilling the tender before being given any preferences. Many were unable to complete jobs as they initially lack knowledge and experience.

Mr B Nair (ANC) stated that banks were reluctant to provide finance to small black businesses especially those run by black women. He felt that monitoring plays an important role and should be carried out by NGOs and communities should be mobilised through legislation in order to resolve the problems raised by the Commission.

Ms B Hogan (Chairperson) referring to the recommendations put forward by the Commission on the emphasis on the development of female employees, felt that only the issues of middle class women were being highlighted.

Ms Seedat's response to this was that there must be system in place where women are empowered through ownership and not through their male counterparts. She noted that in Australia, the Australian Human Rights Commission was involved in monitoring. Ms Hogan replied that South Africa should move beyond the state in monitoring.

Ms Fubbs (Gauteng) mentioned that the Constitution does not compel organs of state to implement the Preferential Procurement Policy because the government states that 'it is now the time for delivery.'

Ms Seedat's response was that the Constitution needed to be amended to compel organs of state to implement the Preferential Procurement Policy.

(Presented by Ms Fiona Tregenna)
COSATU believes that procurement policy legislation is central in ensuring that political liberation translates into economic emancipation and empowerment. Ms Tregenna however expressed dissatisfaction at the "back to front" process leading to this bill as the Green Paper was published in 1997 yet the bill was being rushed through now and there had been no sight of a White Paper.

They called for uniformity in the practices of the different organs of State with respect to preference in tendering systems and for clarity and tightening of the Bill, which COSATU says, is vague. They asked the committee to seek independent legal advice on the Department's view that it would be unconstitutional to make the Bill's framework binding on all organs of state.

COSATU identified five key objectives which need to inform procurement policy:
- The quality and cost efficiency of goods procured
- The economic empowerment of previously disadvantaged persons or categories of persons this was seen as central factor which the bill must encourage
- The promotion of domestic (as opposed to foreign) manufacturers/service providers suggesting that foreign suppliers should not even be allowed to tender.
- The promotion of best practice labour standards and worker rights
- Employment creation - COSATU that the Bill would be useless if it did not ensure job creation.

Adv D Schutte (NNP) asked COSATU to expand on it proposal regarding

COSATU's response was that the idea was not to prioritise for one person at the expense of a magnitude of other persons losing their jobs but rather to ensure enrichment of groups of people not individuals. COSATU cited an example where a black man acquires goods from a white man and then sells the goods to Government. This situation was described as unacceptable as it promoted the enrichment of one individual versus a group of individuals.

Mr K Andrew (DP) asked how COSATU would apply a policy to avoid fronting and how to determine who qualifies for the Preferential Procurement Policy since setting up a Commission just for this purpose is impractical and costly. He also agreed with COSATU'S submission that there should be no Preferential Procurement Policy for companies which do not pay tax.

COSATU agreed that fronting presented a major problem and suggested that a range of criteria must be set up to assess tenderers and various factors (for example their employee profile) must be weighed up in accessing each tenderer. COSATU also agreed that the Preferential Procurement Policy must not apply for companies which do not pay tax.

Mr R Davies (ANC) stated that a structure must be put in place so that employees who see irregularities occurring (for example, fronting), can easily report such situations. COSATU agreed with this.

An opposition member suggested that the 90/10 preference point system needed to be tightened up.

COSATU responded by saying that their submission provides guidelines on how points must be weighed.

Ms S Sithole (ANC,Northern Province) asked COSTAU about how it suggests dealing with the problem of people needing to apply for VAT registration in order to be considered yet the South African Revenue Services had very few offices in the rural areas. Would this not automatically preclude those people who need to be empowered from being empowered?

COSATU responded by saying that VAT registration was a necessity in order to get a tender.

Ms Fubbs (ANC) noted that the minimum and best practice requirements set out by COSATU in their submission related only to large and medium-sized firms and asked whether the aim was to exclude sub-contractors.

COSATU replied by saying that in tender adjudication, comparison must be made of the employment-creation policies of the tenderers. Best practice requirements do not need to be met by small businesses as long as they have satisfied the minimum requirements.

The Black Management Forum (BMF), The Black Information Forum (BIF), The Association of Black Accountants of South Africa (ABASA)
Ms Christine Qunta stated that this Bill is a crucial piece of legislation and expressed amazement at how carelessly it was being treated. The Green Paper had been presented as long ago as April 1997 and now the Bill was hurriedly produced in order to meet its 4 February 2000 constitutional deadline . The Bill is critical because it seeks to redress imbalances in an economy which 5% of the population, namely white males, controls . She stated that the Bill was at the very heart of restructuring the economy as successful implementation would result in a change in the demographics of companies and the ownership of businesses changing hands. She decried the fact that the Bill was only two pages long. She noted that the formulas used should be set in the regulations and not put into the Bill.

Other failings that she cited were: that the point system used to allocate tenders would favour white-owned businesses because more points were allocated to companies which tendered at lower prices (notably white-owned companies ) ; that the Bill used such terms as "specific goals " which were not defined ; it does not address "fronting" which is a major problem in the tendering process ; it does not make affirmative procurement mandatory ; and it does not encourage black ownership or increase in equity for blacks due to the practice of "fronting".

The Black Business Council (BBC)
Ms Msuthukazi Madzikizela criticised the lack of consultation regarding this Bill's formulation. She noted that the Bill makes no reference to the problems within the complicated tendering process nor to job creation and it contains no provisions to ensure the participation of women and rural people. Further harsh penalties should be imposed for the practice of "fronting".

Ms Fubbs (ANC) agreed that the management profile of tenderers was important and that Small Medium and Micro Enterprises (SMMEs) tenderers should be considered but her worry was whether the panel thought that ownership was the only vehicle for transformation or if worker participation was also being given sufficient consideration.

Ms Madikizela (BBC) responded by saying that there was a lack of definition in the preference point system.

Ms Qunta (BMF, BIF, ABASA) said that race should be a major criteria on how tenders are allocated to SMMEs.

An opposition committee member asked how the formula suggested by Ms Qunta in her submission was determined and noted that if allocation is not based on the price of a tender, this would create instant millionaires for an elite group of black people.

Ms Qunta responded by saying that government is obliged to pay a premium for the past and that she has no problem with the creation of black millionaires. In conclusion Ms Qunta requested more time for the organisations that she represented to analyse the Bill and then for them to present a more considered opinion.

SACOB (South African Chamber of Business)
(Presented by Mr Ken Warren and Ms de Wet)
SACOB stated that the Bill meets the constitutional requirements to provide a framework for a Preferential Procurement Policy and that the Bill should be passed.

The following are issues which were raised by SACOB:
- A mechanism which penalises corruption must be added to the Bill
- A system that ensures tenderers are in good standing with the Receiver of Revenue should be in place
- A sunset clause must be added to the bill to ensure the levelling of the playing field in the future
- The issue of mentioning "race" should be moved away from when discussing the disadvantaged which is broader in meaning
- Smaller contracts are recommended as it ensures that SMMEs have the opportunity to tender.

A committee member asked SACOB for suggestions regarding corruption and asked how the issue of race discrimination could be reversed if it was not to be mentioned in the future. She also asked the panel to comment on the issue of ownership and SMMEs.

In response to the question on corruption, Ms De Wet replied that an initiative to blacklist people must be put in place. However she noted that it would require legislation to implement it but that this would cause constitutional problems.

On the issue of race, Ms De Wet said that "we know who are disadvantaged" and that SACOB does not want distinctions to be made; for example, a preference being made of a black male rather than a white female.

With regard to ownership, she stated that SMMEs had total ownership and that SACOB merely provides small enterprises with back-up. She added that the Bill needs to look at the issue of job creation.

Mr Warren of SACOB stated that a sunset clause should be in place and that it was Parliament's obligation to revisit it. He recommended a review period of 25 years.

In conclusion, the two committees decided that their chairpersons should meet with the Finance Minister to discuss the issues raised at the hearing. A major concern to all was the deadline of the 4 February 2000 for passing this Bill which might undermine policies that emerge in a future White Paper. A decision was made for the committees to meet on 12 January 2000 for deliberations.


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