Public Procurement Bill: National Treasury briefing

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Finance Standing Committee

05 September 2023
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

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The Standing Committee on Finance was briefed by National Treasury on the recently tabled Public Procurement Bill.

The Committee was told that the purpose of the Bill was to regulate public procurement and to prescribe a framework within which preferential procurement must be implemented. Furthermore, it intends to resolve the current lack of clarity on the public procurement regime in South Africa, which is currently fragmented as there are several laws that regulate procurement across the public administration.

Some Members were left confused by the Bill, as they felt that it did not have any clear objectives. They suggested that the Bill should have clearly defined transformation objectives and obligations, with an emphasis on price being the primary determinant of who can provide services for the State.

Members further stressed that the State should do all that it can to pay a premium for goods and services procured from historically disadvantaged groups so as to stimulate economic growth in the country.

Members further asked about the dispute resolution mechanism in the Bill and sought clarity on how the Bill created transparency in public procurement processes across all levels of government

The Chairperson informed the Committee that he had received correspondence from stakeholders to postpone next week’s scheduled public hearings on the Bill. A response would be sent to the stakeholders to indicate that the hearings would proceed.

Meeting report

The Chairperson welcomed everyone.

Mr Masualle’s apology was noted.

Thereafter, he handed over to officials from the NT to present the Public Procurement Bill to Members.

Briefing by National Treasury (NT)

Ms Mendoe Ntswahlana (Chief Procurement Officer at NT) and Mr Willie Mathebula (Chief Director: Supply Chain Management Policy, Norms, and Standards at NT) made the briefing.

Members were informed that the presentation would provide some context on the Bill, but mainly focus on the progress of the Bill thus far, given that the department had previously presented the Bill to them in May of this year.

The purpose of the Bill, he outlined, was to regulate public procurement and to prescribe a framework within which preferential procurement must be implemented. The public procurement regime in South Africa is currently fragmented as there are several laws that regulate procurement across the public administration. This has resulted in confusion as different procurement rules apply for different organs of state.

Following the December 2014 Cabinet directive for NT to accelerate the modernisation of public procurement system through a legal framework that introduces broader policy reforms, NT developed a conceptual framework for a draft Public Procurement Bill for discussions with stakeholders. NT engaged with stakeholders at national, provincial, and local spheres of government including professional bodies in auditing and accounting to obtain ideas, consider the pros and cons of policy proposals, and obtain consensus on the strategic intent of the Bill. A draft Bill was prepared. A Socio-economic Impact Assessment (SEIA) was completed and NT obtained a preliminary opinion from the Office of the Chief State Law Advisor. Cabinet approved the Bill in February 2020 for publication for public comment for a period of three months. The comment period was extended to June 2020. NT assessed more than 4000 submissions received and a revised Bill was prepared. NT also considered recommendations of the Judicial Commission Of Inquiry Into Allegations Of State Capture, Corruption And Fraud (Zondo Commission), the President’s responses to Parliament thereto, and the Constitutional Court judgement with regards to the 2017 Preferential Procurement Regulations.

The Bill was submitted for engagement at Nedlac (National Economic Development and Labour Council) on 13 April 2022. The Nedlac Public Finance and Monetary Policy Chamber in collaboration with Industry Chamber established a task team comprised of Government, Business, and Labour. The task team held 15 sittings from 6 May 2022 to 7 October 2022. The actual deliberations on the Bill commenced on 2 June 2022. In addition to these engagements, there were outside discussions held between social partners for further alignment on key issues. The task team reviewed the Bill focusing on thematic areas in accordance with the chapters of the Bill. The final Nedlac report was signed on 25 October 2022 and submitted to the Minister of Finance. The Bill has been legally vetted by the OCSLA and issued with a preliminary opinion for the Cabinet process. The Presidency also issued a SEIA certificate, subject to consultation with FOSAD (Forum of the South African Directors-General) before submission for Cabinet’s consideration. FOSAD engagement was conducted on 4 and 8 May 2023. Cabinet approved the Bill on 10 May 2023 to be introduced to Parliament. The Bill was tabled in Parliament on 30 June 2023.

The Bill aims to: determine general procurement requirements; provide for a preferential procurement framework; establish a Public Procurement Office within National Treasury and define its functions; define the functions of provincial treasuries; define the functions of procuring institutions; provide for measures to ensure the integrity of procurement process including access to procurement processes and information; provide for the power to prescribe different methods of procurement and bidding process; use of technology in procurement; provide for dispute resolution mechanisms; enable regulations among others to have different prescripts for different types of procurement and provide for the repeal and amendment of certain laws.

The presentation also looked at the arrangement of chapters in the Bill and gave an overview of key provisions.

(See Presentation)

Discussion

Mr F Shivambu (EFF) said he was struggling to understand the proposed legislation presented to the Committee. The Bill, he felt, should have clearly defined transformation objectives and obligations, with an emphasis on price being the primary determinate of who can provide services for the State. He asked if this would be included in the Bill. If it would not be, there would be no changes to the structure of the economy as the historically empowered business elite would always have a strategic and permanent advantage over others.

Two, he outlined that the EFF has in its elections manifesto, and on other occasions, emphasised that procurement by the State should be an instrument to promote localisation and that it should be stated in the legislation that certain goods and services that the State procures, inclusive of professional services, must be local, or a threshold should be implemented. This would enhance and stimulate real economic activity – which he believed was not present in the Bill.

Both the EFF and the ANC discussed in 2019 the benefits of state-led localisation of goods and services for the South African economy. He proposed that the Bill look into the content of these discussions and that the Committee have further deliberations on the Bill.

Three, he wondered why the NT did not clearly state which provisions of the Public Procurement Act (PPA) that it wanted to amend. All in all, he thought that the drafting of the Bill was poorly done.

Dr D George (DA) mentioned that it was well-known that corruption within the country, particularly in public procurement, remained a serious problem and it seemed that the Bill’s proposed solution to this was to centralise public procurement. As such, he asked what mechanisms would be put in place to ensure that the envisaged PPO would be held to account, given the powers that it will be given and the fact that it will have to oversee procurement in all three levels of the government. Further to that, he asked why the recommendation made by the business community on whistleblowers was not taken into account by the Bill.

Two, he asked what the role of Provincial Treasuries (PT) would be in relation to the PPO as it had not been mentioned in the Bill.

Three, he asked where quality, price, and efficiency were featured in the Bill. Placing focus on all three was important because the country’s fiscus has been under strain for some time, making it difficult to release funds to provide services to the people.

Mr M Manyi (EFF) said that he did not understand the purpose of the Committee meeting because the Bill ignored critical aspects of the National Development Plan (NDP), one of which was the recommendation to build and improve the capacity of the State so as to restart economic activity in the country. Instead, the implementation of the Bill would lead to the outsourcing of the State’s capacity. In other words, he went on, the NT was requesting the Committee to actively undermine the NDP. What should rather be discussed in the meeting, he advised, was how the State should aim to build capacity within itself so that it can provide services to the people.

After that, he asked what the purpose of the Bill was, because it had no clear objectives. Furthermore, no context was provided by officials from the NT on what the key issues with the Preferential Procurement Policy Framework Act (PPPFA) were. The real reason why the PPPFA failed, he stressed, was because it placed too much emphasis on Section 217 (1) of the Constitution and very little on Section 217 (2) – which speaks to the empowerment of historically disadvantaged groups. As a result of the 80/20, 90/10 preferential policy, those groups did not have economies of scale to compete on an equal scale with established business players who particularly benefited from the Apartheid government.

Another issue he had with the Bill was that it proposed too many changes to the current legislation, and it unnecessarily re-worded certain sections. For instance, it has changed the 80/20, 90/10 preference point system to ‘value for money’, which he thought meant the same thing. No empowerment to historically disadvantaged groups would be brought by this change of words, he stressed.

He then asked why the Bill had barely touched on localisation. He agreed that the Committee had to hold further discussions on the Bill and that it should be re-worked by the department because, in its current form, it would not bring about meaningful change in the economy. The Bill, he added, should not be supported by the Committee.

Ms P Abraham (ANC) indicated that the ANC could not question the Bill as it had questioned its content when it was previously presented to the Committee. Thereafter, she mentioned that she would pose several clarity-seeking questions to the department.

One, she asked how the Bill sought to create transparency in public procurement processes across all three levels of government.

Two, she asked if it would not be more appropriate for the Bill to refer to younger people as the youth and not as children.

Three, while she was pleased with the fact that the Bill includes a dispute resolution mechanism, she wondered what the process would be to ensure that disputes are resolved.

Four, she asked whether the Bill set out a process for lifestyle audits to be conducted on State officials. If so, how then would public officials be held accountable for unethical and corrupt practices?

Five, she asked what the proposed timelines for the implementation of the Bill were.

Six, she asked what would be the outcomes and benefits of the Bill’s implementation.

The Chairperson said the manner in which people who are considered politically exposed (because they are related to political officials) were treated was wrong in the country. He questioned why relatives of Members of Parliament were not able to conduct business with the State given that the Members are not involved in the supply chain management (SCM) processes. This was prejudicing their relatives, he added.

Then he asked how much capacity the proposed public procurement tribunal would have to conduct reviews, as court cases taken for review are currently dealt with in a space of three years at times.

He agreed with other Members who felt that the Bill needed to be clearer on the empowerment objectives, especially as this was central to the struggle for liberation in the country.

He recommended that the Bill make a provision for a law of preferential procurement rather than having the Minister having to first discuss it with the Ministers of Trade, Industry, and Competition; Small Business; Women, Youth and People with Disabilities (PWD), and any other affected by the draft regulations; before doing so. He sought clarity on what was meant by this provision (Clause 17 of the Bill). All the loopholes in the current legislation on empowerment should be closed so that it cannot be taken to court.

Mr Shivambu took issue with the view that the Bill could not be questioned as it had been previously presented to the Committee. All Members, as public representatives, carried the right to question the effects of a particular piece of legislation.

The Chairperson told Members that the Committee had received letters from stakeholders to postpone the date for the public hearings. He asked National Treasury to clarify some of the concerns raised in the letters. 

Mr Mathebula, in response to the questions on localisation and value for money, said that Chapter Four of the Bill makes provision to draft a policy for categories of preference in the allocation of contracts and the protection or advancement of persons or categories of persons disadvantaged by unfair discrimination. It also refers to the Broad-Based Black Economic Empowerment (BBBEE) Act of 2003.

The policy envisaged in this Chapter must include one or more preference point systems and thresholds. In other words, the 90/10, 80/20 requirements will be done away with because the PPPFA is being repealed through the Bill. Localisation and industrialisation are also provided for in this Chapter, he said. The format of both will be properly clarified in the regulations.

He explained that the presentation had incorrectly referred to the youth as children.

Regarding the recommendation that the Bill make a provision for the law of preferential procurement rather than having the Minister having to discuss it first with other Ministers, he mentioned that once adopted, a range of regulations would be enacted by the executive that will address this. However, the department noted the suggested provision.

In response to the concerns regarding the retention of the 80/20, 90/10 preferential point system, he indicated that this has been subject to debate in the country, with the NT committing to resolving the issues in the PPPFA; hence the Act is now being repealed.

On the point raised of why NT did not clearly state which provisions of the Public Procurement Act it wanted to amend, he said that the schedule in the presentation clearly showed the pieces of legislation that would be amended or repealed, these are (among others): the National Suppliers Procurement Act (which will be repealed), the Housing Act (which will be amended), the National Water Act (which will be amended), the SITA Act (which will be amended).

Referring to the question on the recommendation made by the business community not taken into account in the Bill on whistleblowers, he indicated that the NT was not opposed to whistleblowing, rather it disagreed on whether the Bill was the correct piece of legislation where whistleblowing should be provided for. In line with its belief that corruption cuts across divisions in government departments and not only in SCM, the NT made the suggestion to the Department of Justice (DoJ) that the Protected Disclosure Act should include this provision – this Act falls under the DoJ.

During debates at Nedlac, the NT discussed whether it wanted to incentivise people to blow the whistle on alleged corruption. One of the proposals made by labour was that a whistleblower be paid R100 000 for every successfully prosecuted incident. The NT was opposed to this and argued that reporting corruption or any mischief is a moral obligation.

In response to the question on what the role of PTs would be in relation to the PPO, he remarked that their role has been clarified in Chapter Two of the Bill.

Answering the concerns raised on value for money, he said that the State should strive to achieve value for money and transformation at the same time.

Referring to the question of what mechanisms would be put in place to ensure that the envisaged PPO would be held to account, he explained that the Bill spoke to measures that will deal with corruption, one of which is collaboration between the PPO and law enforcement agencies.

Ms Ntswahlana, responding to the question on how the Bill sought to create transparency in public procurement processes across all levels of government, outlined that Chapter Two of the Bill does state that PPO must, in accordance with the Bill, develop and implement measures to ensure transparency.

Ms Empie van Schoor (Chief Director: Legislation at the NT) said that the regulations that will be drafted by the Minister will give him/her and the PPO certain powers to issue out instructions and the procurement policy, similar to the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA).

Regarding the question of why relatives of Members of Parliament were not able to conduct business with the state, she explained that the Bill did not use the term politically exposed persons, rather, it refers to certain people who are automatically excluded from tendering, such as officials in the bureaucracy and their relatives. There is no prohibition for public office bearers’ relatives to participate in the bidding of tenders.

There is a provision where an institution must identify the family members to ensure that there is no undue influence, but no preclusion.

In response to the question on the dispute resolution mechanisms in the Bill, she highlighted that the first point of call is that a particular institution may reconsider a decision to award a tender; if the tenderer is not satisfied they can take the matter up to the tribunal. There is a timeline prescribed for the tribunal to consider the dispute.

Regarding the capacity of the procurement policy tribunal, she stated that it was difficult to say how many appeal reviews would be received by the tribunal. Nevertheless, unlike the court, review processes will be expedited in the tribunal, she added.

There is a provision to make the public procurement transparent to the public, but this will be covered in the regulations.

On whether the Bill set out a process for lifestyle audits to be conducted in the State, she explained that there is a limited provision in Regulation 58 that provides for lifestyle audits for automatically excluded persons and relatives of officials. The NT believed that the lifestyle audits for officials in the SCM should be dealt with in employment legislation, through the assistance of the Department of Public Service and Administration.

Once the Bill is implemented, she went on, the NT will have to develop the regulations required as well as the applicable instructions. One of the areas that should have priority is Chapter Four, given the lack of regulations in the PPPFA that address empowerment.

Mr Manyi highlighted that the NT did not respond adequately to his questions on the outsourcing of the capacity of the state and the value for money. The Bill, he added, does not provide a premium for empowerment.

Dr George asked how the PPO would impact the role of the NT and PTs in monitoring public procurement.

Mr Shivambu mentioned that there are certain functions of the State that do not need an external service provider like cleaning and security services, the repairing of potholes, and the building of bridges which do not require technical skills. The legislation should state that the following sectors are not due for procurement, he stressed.

In areas where it is not advisable or possible for the State to carry out those functions internally then the intention should be transformative and aimed at localisation, industrialisation, and the sustainable creation of jobs in the country because at present it seems that the State went on tender for all things.

Mr Manyi pointed out that the legislation must be clear on set-asides, so as to give effect to empowerment objectives.

Value for money was a reformulation of the 90/10 and 80/20 preferential point system, which perpetuated white monopoly capital. The Bill, he recommended, should focus on what the allowable premium was. Further to that, he called for discussions around this to take place.

He recommended that the Act must supersede the Companies Act.

He wondered how the BBBEE sector codes would be affected by the Bill’s intention to supersede all other public procurement legislation.

Mr Mathebula indicated that the department took note of the points made on the need to capacitate the State to carry out its functions internally, however, it will not be possible to place the provision in the Bill to regulate what services should be outsourced.

Regarding the concern on value for money and the BBBEE sector codes, he assured the Committee that the department would consider the points made.

In response to the recommendations made on the premium, he stated that the PPPFA prescribes a maximum premium of 11.1% for 90/10, and 25% for 80/20 – there is a threshold of what tenders apply to both. Given that the department will be getting rid of the PPPFA, it will have to specify in its subsequent regulations what premium the State would be willing to pay.

Ms Ntswahlana added that Chapter Two was quite detailed on the different categories of procurement and procuring institutions.

Chapter Three speaks to what should be done in a bid committee where an official is found to be a relative of the bidder.

Value for money, she added, will go further than the principle of procuring an item at the best possible price. 

The Chairperson pointed out that the Bill was initiated in 2014 and went through various forums before being tabled in Parliament on 30 June 2023. The Committee put out an advert for written submissions and public hearings were scheduled for next week. A response will be provided to the stakeholders who argued that the public hearings should be delayed. He emphasised that the Bill was now the responsibility of the Committee and it would deliberate and make changes where necessary.

The Committee Secretary said that the Committee would hold a physical meeting the following day.

The meeting was adjourned.

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