Challenges with Supply Chain Management /Procurement in the SANDF; with Deputy Minister

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Defence and Military Veterans

02 June 2021
Chairperson: Mr C Xaba (ANC)
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Meeting Summary

The Committee met virtually for a briefing on supply chain management and procurement issues in the South African National Defence Force (SANDF), but because of the absence of the chief logisitics officer, Members voted to defer the presentation because they did not want it to be presented by another Department of Defence (DOD) official. The meeting proceeded with a presentation by the Secretary for Defence on the Department's procurement challenges.

The Secretary for Defence said that while procurement processes had an important role to play in ensuring value for money, these processes had often been described as inefficient and cumbersome in the DOD. Members of the SANDF responsible for procurement at the unit level often highlighted the length of the procurement process and constant delays as some of their primary concerns affecting the day-to-day functioning of the organisation. She provided details of the Auditor-General's findings on procurement for the 2019/20 financial year.

Members were concerned at the Secretary of Defence's lack of authority, because she could conduct investigations but did not have the authority to enforce recommendations. They questioned the qualifications required to be chief financial officer in the DOD, and why the position was not part of the Department's supply chain function. An overview of the procurement targets reflected challenges in the DOD's performance. Its procurement policy had not been finalised or implemented, as no target had been set while it awaited approval from National Treasury. The Committee was told that the procurement of aircraft and other specialised equipment, especially spares for aircraft, took extremely long. This had significant implications for the SA Air Force, as a delay in the purchase of one small part could ground a plane for extended periods.

The Committee was not pleased with the structure of the DOD, and suggested that if no solutions were found, it would be left with no option but to ask for the Defence Act to be amended. Members also expressed their disappointment at the slow process of finalising the report on the importation from Cuba of the Interferon drug, but agreed that they would wait for the investigations to be completed.

Meeting report

DOD's presentation deferred

The Chairperson welcomed everyone, and asked if there were any apologies. The Department of Defence (DOD) responded that the chief logistics officer was unable to attend the meeting. This did not sit well with the Committee, because they were anticipating his presence and participation. The Committee voted on not receiving the presentation, because they did not want someone to present on his behalf.

The Chairperson then asked the Secretary for Defence to make her presentation.

Procurement challenges in SANDF

Ms Gladys Sonto Kudjoe, Secretary for Defence, said procurement by the DOD formed part of the broader state procurement structures. Annually, the state spent billions of rands on goods, services and construction through over 1 000 procurement entities. There were increasing efforts by the Government, through its Chief Procurement Officer (CPO), to ensure that the procurement process delivered value for money, while also limiting opportunities for irregular expenditure as well as fraud and corruption. There was thus a striving towards finding a balance between cost-efficiency and transparency.

While procurement processes had an important role to play in ensuring value for money, these processes had often been described as inefficient and cumbersome in the DOD. Members of the South African National Defence Force (SANDF) responsible for procurement at the unit-level often highlighted the length of the procurement process and constant delays as some of their primary concerns affecting the day-to-day functioning of the organisation. It also remained unclear whether the DOD's procurement policy had been finalised and implemented.

Procurement within the structures of the DOD should not be simply guided by internal policies and decisions, but ought to be aligned with broader government policies. As such, the strategic procurement framework should be kept in mind when discussing Departmental procurement.

The procurement processes in the public sector could be viewed as a means of fostering economic growth and allowing for a more equitable distribution of wealth. Three key pillars of the national development plan (NDP) could be realised, in part, through effective procurement processes, including reducing corruption, building a capable state, and investment in public infrastructure. The NDP recommends several areas where targeted action is particularly important, key amongst which is for state institutions to develop technical and specialist professional skills in order to strengthen the state’s ability to fulfil its core functions. This was especially applicable to procurement, in order to improve the ability of procurement systems to deliver value for money and minimise the scope for corruption by differentiating between different forms of procurement, approaching trade-offs more strategically, building relationships of trust and understanding, building enabling support structures and ensuring effective oversight.

Section 217 of the Constitution of the Republic of South Africa specified the primary and broad secondary procurement objectives. As the primary objective, section 217(1) states that the procurement system must be fair, equitable, transparent and cost effective. Secondary to that, section 217(2) states that procurement policy may provide for categories of preference in the allocation of contracts and the protection and advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

National Treasury had, in recent years, become increasingly aware of challenges around procurement processes, specifically the fragmented approaches to procurement among the various Departments and other state entities.

National Treasury had stated that some of the most common challenges seen across government Departments were poor service delivery, shoddy workmanship in construction work, an inefficient lease environment, collusion, cover quoting and fronting. These were some of the ways in which private sector practices contributed to an inefficient public sector supply chain management (SCM) environment. Coupled with the current procurement reforms, the private sector should also be held accountable through rigorous supplier management interventions, in order to enable a coherent socio-economic transformation approach by the government.

Many of the challenges found in the SCM environment stemmed from poor governance practices. Good governance ensured transparency, accountability, efficiency and upholding of the rule of law in all processes. The National Treasury stated that common governance and compliance failures resulted in corrupt activities. These include fronting, bribery, nepotism, collusion, cover quoting, conflicts of interest, forgery and tender splitting.

The DOD had set itself a number of targets in 2019/20 related to procurement. An overview of these targets reflect challenges in performance. However, the presentation indicated that the DOD's procurement policy had not been finalised/implemented, as no target had been set -- the policy was currently awaiting approval from National Treasury. The main challenge faced by the Department was the payment of invoices within 30 days. This target had been missed by a significant margin.

In addition, the Auditor-General (AG) had made the following findings on procurement for the 2019/20 Financial Year:

-Some of the goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations, as required by treasury regulation 16A6.1. Similar non-compliance was also reported in the prior year.

-Some of the goods and services of a transaction value above R500 000 were procured without inviting competitive bids and deviations, as required by treasury regulations 16A6.1 and 16A6.4. Similar non-compliance was also reported in the prior year.

-Some of the quotations were awarded to suppliers whose tax matters had not been declared by the South African Revenue Services to be in order, as required by Treasury regulation 16A9.1(d). Similar non-compliance was also reported in the prior year.

-Some of the contracts were awarded to bidders based on evaluation or adjudication criteria that differed from those stipulated in the original invitation for bidding and quotations, in contravention of Treasury regulations 16A6.3(a) and (b).

-The preference point system was not applied in some of the procurement of goods and services above R30 000, as required by section 2(a) of the Preferential Procurement Policy Framework Act of South Africa, 2000 (Act No. 5 of 2000) (PPPFA) and Treasury regulation 16A6.3(b). Similar non-compliance was also reported in the prior year.

-Bid documentation for the procurement of commodities designated for local content and production did not stipulate the minimum threshold for local production and content, as required by the 2017 preferential procurement regulation 8(2).

-Some of the prices of emergency goods or services procured through quotations in response to the National State of Disaster declared on 15 March 2020 were above prices negotiated by National Treasury in terms of paragraph 3.7.6(ii) of the National Treasury Instruction Note no. 8 of 2019/20.

-SA Air Force primary equipment: The procurement of aircraft and other specialised equipment, especially spares for aircraft, takes extremely long. This had significant implications for the SA Air Force, as the delay in the purchase of one small part could ground a plane for extended periods.

Members may request the Chief of Logistics to explain the process of procuring spare parts for aircraft and how this could be improved. Were aviation inflation rates considered when planning for the procurement of aircraft parts?

Once a company was selected to provide a service following the three-quote system, additional information was then requested from such a company before the procurement was complete. The company was requested to provide, among others, a tax clearance certificate, a broad-based black economic empowerment (BBBEE) certificate, a central supplier database (CSD) certificate, and other required documents. It often took very long for companies to respond to these requirements. The question had often been raised why these documents could not be available on the database itself, and why they first had to be requested by the SANDF. This process was particularly cumbersome and frustrating for the purchase of small items, where a faster turnaround time was necessary.

Why were companies requested to provide the necessary certificates only after they had been selected as the preferred service provider? Why could these documents, such as the tax certificate and BBBEE certificate, not be available on the database and companies be requested to complete these at the start of the procurement processes?

All units that were not self-accounting had a petty cash spending limit of up to R5 000. This frequently resulted in a lengthy procurement process, even for small items. This amount had also not been adjusted in many years, and the relevance of a low limit had become questionable. It made it cumbersome for units to procure even the most elementary equipment.

Why were units allowed to make procurements only up to R5 000 without having to go through the central procurement database? Was this amount still realistic, as it resulted in lengthy procurement processes for small items? Why were the delegations for spending by units not adjusted upwards over the years? Besides the mentioned issues, how could the procurement processes be further streamlined to assist the commanding officers (OCs) to run their units more effectively?


The Chairperson said he had gone through the Treasury guidelines on irregular expenditure, and it mentioned that the accounting officer (AO) must take effective and appropriate steps against any official who permits irregular expenditure.

He welcomed Mr Thabang Makwetla, Deputy Minister (DM) of Defence to the meeting, and advised him that only one presentation had been made because of the excuse by the DOD team.

He said he was concerned about the powers of the Secretary for Defence being limited when it came to dealing with uniformed officers. The accounting officer had written to have members implicated in irregular expenditure being brought to book, but while the Secretary for Defence could conduct investigations, her powers were limited. Most of the irregular expenditure happened in the uniformed officers’ Department, and the Chief of Defence appoints a board of inquiry which would conduct investigations. The Secretary for Defence could only make recommendations, and it was concerning because no action had been taken against those who had been accused of irregular expenditure. The Committee hardly ever called the Chief of Staff to account because it took forever to investigate -- in some cases it took over seven years, without any conclusions. The chief financial officer (CFO) had been trusted with some responsibilities, but he had to delegate some of the duties because he could not perform everything.

The Chairperson said the problem was that the Act limited the powers of those to whom the powers were delegated when it came to taking action on transgressions. The Act had a gap, and the Committee needed to look into this, but its hands were also tied by the Defence Act, and they had to consider the possibility of amending the Act.

He said the defence budget was an issue because the supply chain was not within the CFO’s Department, which was different to other state Departments. He asked why the Department did not appoint a CFO who was a soldier, but a also a qualified CFO, as had been done in the SA Military Health Service (SAMHS). The current environment showed that the CFO was involved mostly in policy issues only, and there were other people in the Department whose posts were not clearly defined.

He was concerned about the lack of engagement from the Department when the Committee asked them to come and present on irregular expenditure, and was not happy with how it selectively chose matters to present to the Committee on fruitless expenditure. The Committee was not satisfied with the irregular expenditure of the DOD, and there might be more cases that had been reported. The Department had been ignoring the recommendations that were given by the AGSA. The situation was not good, and there must be changes made to ensure that there was accountability within the Department. The Committee did not receive any current updates on what was happening at the Department, and it was a major challenge that must be dealt with.

Mr S Marais (DA) said that he fully subscribed to the issues that had been raised by the Chairperson -- there needed to be changes as soon as possible. If the Committee suggested amending the Act, it would not resolve the current situation. He was of the view that the Committee needed to act in a creative way on how they could resolve the situation. There was a need to clarify roles in the Department because some of the roles were not clear when it came to procurement issues -- who was involved, and to what extent. He wanted to know the qualifications of the CFO and the chief of logistics, because these were legal and technical positions that must be looked at carefully.

He appreciated the presentation by the Secretary for Defence, and said that there were many matters of serious concern, and the Committee expected her to do her work without any fear or favour. On the matter of delegation, previous engagements had shown that delegation was a major issue in the Department, especially in procurement because of the delays.

He was of the view that irregular expenditure had become acceptable for some people within the Department because there were no consequences. He felt National Treasury was acting harshly towards the DOD through budget cuts because of the irregular expenditure. He asked the Secretary for Defence if she had the powers to investigate the Chief of Staff and the military police. What were the investigative and prosecutorial powers of the military police?

His last question was on the importation of the Cuban Interferon medicine, and he wanted to know if there was any feedback from the Secretary for Defence.

Mr T Mmutle (ANC) said the input made by the Chairperson and Mr Marais were on point. There was an indication of problems regarding how the finance department of the DOD was structured, especially between the men in uniform and the civilians. At a previous meeting with the Secretary for Defence, the matter had been discussed, and at this stage maybe the Committee needed to look into how the South African Police Service (SAPS) was structured. and perhaps learn something from that. The challenges caused by this structure had been highlighted when the Interferon was procured, and there had been no communication between the different portfolios in the Department, which had resulted in the report not being submitted to the Committee. When the chief of logistics had presented to the Committee, the other staff members did not attend the meeting, which showed the bad blood between the sectors, and if the Committee did not get involved there would be chaos, because measures would be undermined. The finance department could not continue as it was, and maybe it was high time that the sectors be integrated so that there could be one voice from the Department.

Mr Mmutle said that the Committee was clear on what they wanted to see happening at the Department, and it did not want a repeat of previous years. The lack of cohesion between the staff was affecting the outcomes of the Department because of how things had been conducted. Up to this day, no one had been held accountable for the procurement of Interferon. He said that the cases being raised by the Committee were new, and asked for a comment from the Secretary for Defence on how they were planning on dealing with them.

Ms A Beukes (ANC) said that it seemed like there would be a light at the end of the tunnel. The report was open ended, and the Committee would not be able to do oversight because there were no timeframes. She wanted to know what the view of the Secretary for Defence was on the AGSA report, and the expectations of the Department in the forthcoming financial year. She was concerned about the slow pace of response from the Department, and asked why they did not have a dedicated team that dealt with the issues raised by the Committee and ensure that responses were sent to it on time.

The Chairperson said that the issues raised were worrisome, and the more they remained unresolved meant that the Committee would continue moving in circles, because there would be no progress. Each accounting officer had to make risk assessments in his/her department, and what was being discussed was very sensitive. The problem was that the hands of the Secretary for Defence were tied. Any expenditure should be accounted for in terms of legislation. The army had bought Interferon, but the CFO and the Secretary for Defence were not aware of this purchase, and this meant that anyone could approve a transaction in the Department. He wanted to know to what extent the Secretary for Defence had the powers to stop something from happening, because the delegation of powers showed that that the powers were equal, and it posed a problem.

Secretary for Defence's response

Ms Kudjoe referred the Committee to the Defence Act on the matter of accounting officers, and how they could conduct investigations. The issues that had been unresolved were a problem to the Department, because they kept affecting its progress, and the Department needed to account for these issues. She added that she was an accounting officer, and told the Committee she had done her best since being appointed as the Secretary for Defence with the powers vested in her, but sometimes they had to outsource.

(Due to connectivity problems, she was not clearly audible for some minutes.)

She said the Department was trying to be creative in ways that could help them in dealing with the procurement issues, and to improve the supply chain.

She told the Committee that the issue of Interferon had been widely covered in the media, and an inter-ministerial task team had been formed to investigate the matter. The Department had also been contacted by the Public Protector, and it had supplied the relevant documents that had been requested.

The Chairperson asked Ms Kudjoe to repeat some of the information, since he had not heard everything because of the poor signal.

Ms Kudjoe referred to the Department's internal audit unit, and said it had been subject to investigation. The lack of capacity in the department played a huge role in affecting the audit outcomes.

The Chairperson asked Ms Beukes to repeat her questions because Ms Kudjoe did not hear them well.

Ms Beukes asked about when the investigations had been completed, and why it was taking so long to implement the recommendations. She also wanted to know if the Department was waiting for a response to the letter they had sent, or if they had a dedicated team working on these issues. She also wanted a comment from the Secretary for Defence on the audit outcome.

Ms Kudjoe said that when she was employed, one of her mandates had been to have good governance, and they now had a full team responsible for compliance, and they were doing well. The Department was engaging with the Ombudsman to see what measures they could implement, and approach the AGSA. The Department was trying its best, but the problem was that most of its time went to trying to clear the backlogs, because they continued to affect the current work of the Department.

Mr Siphiwe Sokhela, CFO, DOD, told the Committee that it was difficult to account for something that one was not responsible for. He was referring to the supply chain, as the CFO did not have any input when it came to the supply chain.

In response to the question of qualifications, he said that he assumed the question was a general one. For one to be appointed to such a position, one needed to have the necessary qualifications and the required experience in business administration. Before 1999, the Act had been different, but when the PFMA came into effect, that was when the CFO position was introduced, since there were broader lines. The Department was supposed to move from the income and expenditure to full management, and this was to be based on performance. Things had been recorded in the balance sheet before, but it was different now because of the PFMA. The accounting officers were already empowered in their Departments, and they should be checking the responsibility for SCM, and that was where the Department was coming from. Back then the AGSA did not audit everything, but there were certain parts that they focused on. Even irregular expenditure was not much of an issue because they were still figuring out what could be described as irregular expenditure. The PFMA was a law, and it must be implemented. The human capital was not enough for the Secretary for Defence to achieve her targets at the moment.

The Chairperson asked who monitored the performance of the Secretary for Defence, since she was not in control of the human resources (HR).

Ms Kudjoe responded by saying that it was the uniformed person who did the assessment.

Mr Sokhela referred to section 38 of the PFMA, and said that the Secretary for Defence did not have the control mentioned in this section, and it was difficult for her to achieve some of her targets.

The Chairperson said that there would be no need to amend the Act if the rules were being followed in the performance of one's duties, but the lack of performance meant that there was a problem. If there was disciplinary action, then there were no two ways to do, it because people needed to be held accountable.

Mr Marais agreed with the Chairperson, and said that sometimes it was the attitude that forced the Committee to take drastic action. He highlighted that Members had referred to the Interferon procurement.

The Chairperson reminded Mr Marais that the Committee had given the Department time to investigate the Interferon issue, and that the matter would be dealt with once the investigation was complete.

Mr Marais apologised for raising the issue, and acknowledged what the Chairperson had said.

Mr Marais applauded the comments by the Chairperson on the amendment of the Defence Act, and said that those who had been doing wrong should then be held accountable.

Deputy Minister Makwetla said that the deliberations of the Committee had been intense and very important. He commended the impact that had been by the Secretary for Defence in terms of the irregular expenditure, and said that her attitude had been commendable. He raised his concerns on the limitations clause, and concurred with the letter that had been written on the matter of irregular expenditure.

He said that if the recommendations of the Secretary for Defence were executed, there would be no discussions taking place, but because of the lack of action, the discussions were still ongoing in the Committee. Some of the issues from the Secretary for Defence could have been raised with the Minister, but because of time constraints it was difficult to have such discussions.

He said that the jet fuel issue needed clarity, because conflicting information had been provided, and with regard to the framework issue, he was of the view that it was not clear whether the military police, when investigating cases of fraud and corruption, referred the cases to the magistrates court -- the confusion was whether they were responsible for opening cases. He wanted to know the involvement of civilian agencies, and in what capacity they were involved with the military police. He believed that civilian agencies should be more involved when it came to commercial crimes, but there was no clarity on such matters at the moment. The report did not make it clear on the matters to be finalised -- whether it referred to the investigations, or if it was matters in court. He was also concerned about the timeframes given by the Secretary for Defence.

The Chairperson said that the Deputy Minister was correct with the matters he had raised, because there was a need for intervention on matters that were likely to generate tension between the offices in the Department. He briefly touched on the defence structure, and said that there was a need for change in order to have a reputable defence force. If the two offices worked together and accounted effectively, then most of the problems would be resolved and ultimately irregular expenditure could be avoided. The SAPS had specialised units, but in the military police it was still a problem, because they did not have these specialised units and it was concerning, because sometimes matters would be delayed because of the lack of capacity.

The Chairperson thanked the Deputy Minister for his input on matters that had been taken to court, and said that more discussions would be held on these matters by the Committee and the Department.

Closing remarks

He asked the Secretary for Defence and the Deputy Minister to give their closing remarks.

Ms Kudjoe said that she did not have much to say, other than that they would work on improving their relations with the Committee, and complete their investigations. She thanked the Committee for inviting them to the meeting.

The Deputy Minister said that had already given his remarks, and also thanked the Committee for inviting him to the Committee.

Committee matters

Mr Marais thanked the Chairperson for such a constructive meeting, and asked about the Interferon meeting that was supposed to happen sometime later. He wanted to know who would be invited.

The Chairperson responded that all the relevant parties would be present at the Interferon meeting.

He asked the Committee Secretary to project the draft proposal of Committee visits, and said that they could not discuss the draft programme because some of the paperwork had not been concluded yet. He reminded Members that the third quarter was going to be affected by elections, since they would be required to campaign by their parties. He asked the Committee researcher to check on the programme.

Adoption of minutes

The minutes of 19 and 26 May 2021 were adopted.

The meeting was adjourned.


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