Public Procurement Bill: public hearings

Meeting report

[The Chairperson had IT problems at the start of the meeting].
 
The Chairperson welcomed everyone. He noted that the public hearings were supposed to be held 10 days ago but were delayed after the DA in the Western Cape Legislature requested more time. He consulted with Legal Services which advised that the Committee did not have to grant this request as the NCOP has a cycle and it is a political decision. He discussed the matter with the Committee Secretary and it was agreed to extend the hearings for 10 days. Even after this, the Committee was approached the previous day by people requesting extensions as they did not have enough time to submit. The Bill was referred to the Committee in December 2023. People knew from June 2023 that the bill was in the parliamentary cycle.

He said many things can be said about Parliament’s lack of public consultation but sometimes civil society fails to participate and does not get their act together. It was not possible to organise a programme based on the subjective views of subjective stakeholders with their subjective needs. The stakeholders are clustered among NGOs, businesses and related organisations etc..

Committee Members and staff go through all the submissions received. National Treasury is required to give a response to all submissions – both written and verbal.

The next meeting is scheduled for 8 March 2024.

This was an important bill and will be given the same importance as any other section 76 Bill.

The Committee noted the apology received from Mr du Toit.

South African Institute of Chartered Accountants (SAICA) Submission
Mr Odwa Benxa (Project Director: Public Sector at SAICA) welcomed that the Bill would consolidate the current fragmented pieces of legislation on public procurement into one single bill making the law more accessible and less cumbersome. He also noted that it was important that the Procurement Bill should not be considered in isolation from current challenges impacting procurement in the public sector. Those challenges included inadequate resources and a lack of requisite skills within the procurement institutions, a culture of unethical practices that inhibits accountability and consequence management, and the implementation and monitoring of legislation that enables irregular and fruitless expenditure within the system.

In terms of skills and resources, he recommended that the Bill incorporate the capacity and skills required for procurement units. Responsibility should be included for the National Treasury to implement regulations for minimum competencies for the Head of Procurement and procurement officials. Responsibilities should be included for the procuring institutions to ensure that the procurement officials have the required skills based on minimum competencies and that the procurement office is adequately staffed.

In terms of cultivating an ethical culture, he recommended that the Bill must ensure that the procuring institution, provincial treasury, or national treasury should have the responsibility of
implementing a fraud hotline/whistleblowing process to improve strong internal controls over the
procurement process and protection of those who report non-compliance with the Act. This will strengthen the ethical environment of the public sector and reduce procurement fraud. There needs to be specific measures to encourage and protect whistleblowers. The Code of Conduct should be supplemented with additional guidance documents or a detailed Code of Conduct which includes application guidance on safeguards to be implemented when threats are identified. The Bill should include measures to be taken in relation to the procurement transaction which has been reported as an unlawful act by an affected and that transaction should not continue until the PPO processes the affected person’s reporting.

(See Presentation)

Public Affairs Research Institute (PARI) Submission
Mr Ryan Brunette (Research Associate at PARI) said the institute supports expanding preferential procurement, but to avoid legal challenge and operational disruption, this must be firmly grounded in s217 of the Constitution, closely aligned with the rest of the Bill, and rigorously consulted and deliberated. The institute is also concerned that the new Chapter 4 fails these tests and that the project of social transformation and economic development through procurement will, as a result, be set back.

In terms of the Constitutionality of chapter 4, s217(1) of the Constitution provides that procurement must proceed in accordance with a system that is fair, equitable, transparent, competitive, and cost-effective.
s217(2) reinforces that these principles do not prevent the use of procurement to achieve socio-economic objectives, but our courts have held that this does not mean that the s217(1) principles no longer apply. s217(3) requires national legislation to set a framework within which s217(2) must be implemented, and the purpose of that framework is to ensure that procurement systems continue to strike a balance between the s217(1) principles.

Chapter 4 does not adhere to what s217 envisions. The new Chapter 4 restricts participation in procurement from the outset. It does not establish a clear set of rules for how participation should proceed. It appears to suggest that procurement systems in very similar circumstances can pursue radically different procurement policies, which may or may not be equitable in those circumstances. It does not establish any objective and measurable grounds for adjudication. It doesn’t require restrictions on competition to be justified at the outset. It never mentions price, which is highly unusual internationally. These are all significant departures from the principles of fairness, equitability, transparency, competition, and cost-effectiveness and the framework introduced in Chapter 4 establishes little by way of guardrails for constraining them or mechanisms for bringing those principles back into balance. This Bill is very likely to face a constitutional challenge.

He also mentioned that there are issues with how Chapter 4 aligns with the rest of the Bill. A central purpose of this legislation, expressed in the Bill’s preamble, is to construct a single statutory framework for public procurement. The Bill now establishes two frameworks, one in Chapter 4 and another in Chapter 5. These frameworks deal with overlapping subject matters, but the first is now largely built up in statute and the second is largely deferred to regulations. There was a clear rationale for why the second deferred to regulations, to facilitate flexibility in evolving the procurement regime, especially regarding procurement procedures and structures. However, Chapter 4 now entrenches a series of procedural steps in the statute and so at various points interferes with Chapter 5’s objective of creating a flexible, strategic, and innovative procurement regime.

He asserted that these issues have emerged because Chapter 4 is essentially ‘un-consulted’. NEDLAC played a crucial role in addressing issues in prior iterations of the Bill. The NEDLAC Act asserts at s5(1)(d) that NEDLAC shall “consider all significant changes to the social and economic policy before it is implemented or introduced in Parliament”. The changes to Chapter 4 are wide-ranging, they affect one trillion rand of state expenditure annually, the courts have repeatedly asserted that public procurement is highly significant for social and economic development. However, these wide-ranging changes were introduced late in this legislative process without input from the social partners. The institute proposes that the Bill be referred to NEDLAC for proper consultation. This will likely end up saving time, by avoiding long and arduous litigation.

(See Presentation)

Business Unity South Africa (BUSA) Submission
Mr Chris Campbell (Board Member at BUSA) said the organisation supports having all-encompassing legislation to govern procurement because currently our systems have been fragmented and have fallen short of being able to adequately meet the prescripts of the Constitution, in all of its sub-sections 217 (1), (2) or (3).

He suggested that the Public Procurement Bill be referred back to the NEDLAC Process to strengthen the basis for getting such legislation eventually signed into law. Promulgation of poorly conceived legislation will result in the need for frequent reviewing of sub-ordinate legislation akin to trying to convert a donkey into a prizewinning racehorse.

The NEDLAC Process was rushed through a six-month process, whereas National Treasury had been sitting with the 2022 version for social partners to consider since 2020. Urgency seemed largely premised on closing the gap, left by the Constitutional Court ruling in respect of the Preferential Procurement Regulations of 2017, which is a component that would be addressed in the new Bill, but took very little cognizance of the how in the process of closing that gap, cost-effectiveness and other prescripts of Section 217 (1) could be deliberately driven at a primary legislation level, without prescribing processes which belong in Regulations.

Evidence suggests that of the public comments received following the August 2023 invitation by the National Assembly Standing Committee on Finance, only 36% of these were considered with 64% not having been processed at all; This shortcoming will likely be legally challenged based on the precedent set by the Constitutional Court Ruling in May 2023 which invalidated the Traditional and Khoi-San Leadership Act 3 of 2019, which had been passed by Parliament and even signed off by the President.

If Procurement principles are not well enough defined, for procurement outcomes to be optimised, it is uncertain how much success would be realised in using this as a mechanism for redress as envisaged in  Section 217 (2); It is counter-intuitive to hope that accelerating a flawed piece of legislation will produce the expected results sooner when in reality, the legislation will not be able to be effected immediately, exactly because its implementation will be delayed by likely legal challenge.

(See Presentation)

African Procurement Law Unit (APLU) Submission
Prof Geo Quinot (APLU Director and Professor of Law at Stellenbosch University) welcomed the tabling of the Bill because law reform in this area of the law is long overdue and it is important as part of the pursuit of the national development plan given that public procurement is at the heart of the engine room of government.

The Bill is especially welcomed as a long overdue step to consolidating the law on procurement because one of the biggest stumbling blocks in public procurement has been the extreme fragmentation of the law governing procurement. The law was spread out over too many different legal instruments which undermines efficiency because it is too difficult for procurers and suppliers to have a firm grip on the law. The complex web of rules and technicalities enables corruption to thrive. While the Bill is a positive step it does risk future fragmentation. To limit this the Unit proposes setting clear principles in the Bill. Key elements like procurement methods should be defined within the Bill itself and not left to regulations. Also, any delegated powers for regulations should be accompanied by clear parameters and guidelines. Regulations should handle specific details, not all principles.

On preferential procurement, too many key concepts are left open-ended for the Minister to determine such as thresholds and conditions, prescribed criteria, complementary goals, and prescribed conditions to advance sustainable development. The new powers granted to the provincial treasury to issue binding instructions to local government pose another threat to new forms of fragmentation. This opens the door to different approaches to procurement in different provinces.

The Bill needs to be anchored squarely in s217 of the Constitution. The Bill fails to implement the five vital public procurement principles enshrined in s217(1) of the Constitution. This silence leaves officials vulnerable to legal challenges and it hinders the practical application of maximum value for money championed by the Zondo Commission and the President. Specifically, the Bill offers no guidance on navigating tradeoffs between principles like fairness and cost-effectiveness or equity and competitiveness. This lack of clarity weakens the legal ground for designing policies, methods, and criteria further hindering effective procurement. Clear implementation is a major stumbling block to the Bill which many experts including the Zondo Commission have highlighted.

The Bill’s centralising tendencies regarding procurement raise significant concerns about its compatibility with the Constitution’s principles of cooperative governance. Centralisation manifests itself in several ways which risk completely removing local government elected officials from procurement regulation. Centralising power at the national level disregards local knowledge, needs, and geographical disparities potentially hindering optimal procurement outcomes. The lack of consultation with local government contradicts the spirit of cooperative governance. The Unit recommends a thorough review of the allocation of powers between the different spheres of government.

The Bill also demands substantial resources for successful implementation but in the same breath, the Bill fails to address capacity needs raising concerns about its feasibility in practice. The Bill offers no statutory basis that equips provincial and municipal government to fulfil their additional mandates prescribed in the Bill. The unit proposes adding a provision in the Bill explicitly mandating increased capacity and professionalisation. This provision should oblige relevant departments like the National and Provincial Treasury to allocate additional resources to procurement functions.

(See Presentation)

Joint Strategic Resources (JSR)
Prof Jonathan Klaaren (Professor at Wits University and member of JSR) stated that the Bill raises significant Constitutional issues. Secondly, the Bill should provide for the independence and effectiveness of public procurement regulatory functions. Thirdly, the Bill needs to strengthen anti-corruption enforcement mechanisms.

The revised Bill remains unclear whether it sees procuring institutions or the National Treasury as the first mover in setting up public procurement policies for procuring institutions. Chapter 4 of the revised Bill is not clear as it does not set out standards or concepts that assist implementation, and as currently drafted appears to fall short of the Constitutional framework standard as well as potentially the balance among the s217 principles. However, section 22 of the Bill which speaks about facilitating sustainable development is welcomed and it should be extended to promote green public procurement.

The Bill should statutorily embed the principles for procurement and establish checks and balances framed around s217 of the Constitution. Also, the Bill should provide adequate independence and effectiveness of the institutions fulfilling regulatory functions in public procurement which are distinct from the purchasing and operational functions. The Bill needs strengthened anti-corruption enforcement. For instance, the Bill’s regulatory inspection or civil investigation powers need to be aligned with the existing investigative powers of the Special Investigating Unit (SIU), the new Investigating Directorate of the National Prosecuting Authority (NPA), and any new anti-corruption agency (NACA) as well as incentivised whistleblowing.

(See Presentation)

National Research Foundation (NRF) Submission
Ms Lindiwe Nkwe (Compliance and Reporting Senior Manager at the NRF) commented that the Bill does not promote an innovation-enabled environment. 17(2 a) largely removes any discretion that procuring institutions may have under sections 7 and 8 by granting the Minister far-reaching powers to prescribe to institutions how they should procure. The organisation recommends that the Minister should prescribe an appropriate and differentiated framework at minimum for innovation-centric procuring institutions, ideally for all procuring institutions, and include specific procurement methods to address innovation. Methods to support innovation procurement must be continually developed and implemented across procuring institutions.

Section 18(3) is extremely limiting at provincial and local government levels and may retard transformation. Why must a procuring institution trade-off between “black people within a particular geographical area” and other designations such as women or youth? This makes it impossible, for example, for a province or municipality to support black women-owned small businesses within their geographical areas, which they may have identified as a specific transformational need. The section must be removed and managed via regulation so that provincial and local governments have substantive powers in the procurement system.

She noted that they had identified cost implications as another challenging area within the Bill. Section 5 of the Memorandum says that “No substantial financial implications for the State are envisaged”. She remarked that this could not be the case. On the contrary, the Bill will involve considerable costs related to implementation costs, compliance costs, procurement costs, and knock-on costs. The organisation recommends that all these cost implications must be quantified to determine what the financial implications for provinces and local governments are of enacting the Bill. Without such quantification, the Bill cannot legitimately be passed.

(See Presentation)

Discussion
The Chairperson posed a question to Treasury related to whether they have the capacity to do what they have set out in the Bill. Can local and provincial governments implement the Bill?

Mr D Ryder (DA, Gauteng) stated that the Bill has been through the National Assembly already. What the Committee is dealing with in the meeting is a B Bill. The National Assembly passed a version of the Bill on the 6th of December. On the 7th of December, an A Bill was issued and on the 8th of December, a B Bill was issued. The B Bill is currently the topic of discussion in the meeting.

There are material changes that have taken place between the Bill introduced in the National Assembly and the Bill that is before the Committee in the meeting. Consultation on this version of the Bill needs to be quite comprehensive and there needs to be a lot of discussion. The Committee cannot assume that the National Assembly has thoroughly ventilated the material content of the Bill because there are material differences. He was not certain that the National Treasury had been forthcoming about the contents of the Bill that had been passed in the National Assembly and the version of the Bill that was before the Committee in the meeting at present.

The Chairperson acknowledged that the Bill did indeed have material changes that made it different from the initial Bill that had been introduced in the National Assembly. He invited the Legal Advisor to expound on the process of a Bill reaching the NCOP. From his understanding, a Bill would ordinarily come to the NCOP once it has been passed and adopted by the National Assembly. Also, Parliament does have the right to change a Bill substantially. Parliament is obligated to listen to public comment because that is the nature of a healthy democracy but ultimately it is Parliament that has the power to make the final decision on any Bill.

Adv Frank Jenkins (Senior Parliamentary Legal Advisor) replied that chapter 4 of the Bill was substantially redrafted by National Treasury as Mr Ryder indicated. The redrafting was a result of public comment and deliberations within the Standing Committee on Finance which considered the Bill. Although there were serious concerns about time constraints related to how long the Bill sat in the National Assembly, the Bill still followed the ordinary processes of any other Bill that reached the NA and NCOP. The A version of the Bill is the proposed amendments that the Committee adopted. The B version of the Bill is the original Bill with the proposed amendments from the A version of the Bill. The NA approved the B Bill with its additions and then referred it to the NCOP for deliberations. Ultimately, there are no procedural irregularities in terms of how the Bill arrived at where it is now.

Mr Ryder remarked that it would be reasonable to assume that the NA processed a flawed Bill to meet time deadlines.

The Chairperson refuted Mr Ryder’s assertion and stated that Adv Jenkins had not said anything about the NA processing a flawed Bill due to time constraints.

Mr Ryder said that Adv Jenkins may not have said it expressly, but he may have implied it and everyone could draw their own conclusion. He appreciated the excellent and well-considered inputs from the speakers. Many speakers spoke in unison about a few issues such as the constitutional issues that were raised. He was expecting Treasury to respond to the constitutional concerns that were raised, particularly the centralisation of procurement. This is an issue that triggers chapter 3 of the Constitution, and it limits the powers of provinces and local government. Also, the potential for bottlenecks due to this issue is substantial.

The issue around localisation and procurement is interesting because defining locality becomes a critical question. If you sit in National Treasury, local is South Africa. If you are sitting in Emfuleni, then local is Sebokeng and surroundings. It is unclear what the centralised body means by local at this point. The ability to implement this Bill and the cost of implementation is not something that should be dismissed. The NRF has a valid point in bringing up the implementation costs because they will have a material impact on departments. We heard from the Finance Minister who said there is not enough money to fund NHI immediately so what is the point of processing this Bill in its entirety if it cannot be funded as well?

There are many pages of written submissions that the Committee must get through which might stretch the Committee’s capacity, but it must be done to get as much information as possible. The Bill is going to impact small businesses such as those that are providing services to municipalities at a local level, yet these are the key players that are missing from the meeting at present. As part of the s76 process, there will be an opportunity for continuous public participation and public participation in provinces needs to be more comprehensive and reach out to small businesses and township economies because they are the backbone of the country, so their input is pivotal.

The Chairperson asked Treasury to look further into the issues of capacity and resources related to implementing the Bill. Concurring with Mr Ryder, he stated that the Bill is substantially different from what was presented by Treasury in the previous week. Speaking to procurement professionals and stakeholders, he assured them that this was not the only opportunity for public comments on the Bill. There would be numerous opportunities, but the stakeholders would have to avail themselves.

He noted that there needs to be a balance between consultation with stakeholders and Parliament’s right to make a final decision. People are opposed to the Bill from different sides. Some people who are for and others who are against transformation have opposed the Bill. So, there is a spectrum of individuals who do not support the Bill. From 1998 and onwards, generally, Treasury has been very cautious about giving Ministers wide discretion and powers because past practices have created situations where Ministers run rogue with their powers.

There is a need for significant state intervention precisely in the spirit of cooperative governance. When it comes to procurement there must be a strong national framework while allowing latitude to municipalities and provinces. He emphasised that when it comes to the Constitutional issues, National Treasury must remedy the issues because they cannot bring forward a Bill that does not pass constitutional muster, particularly because of the subsequent amendments made before the Bill’s referral to the NCOP. He reminded the attendees that it is important to note that any piece of legislation is political because it is laden with the objectives and goals that the ruling party seeks to achieve so there are various positions that one must consider when analysing the Bill holistically.

Mr Brunette repeated that there were substantial amendments made to the Bill especially on Chapter 4 by the NA. The Chapter does not meet the definition of a framework as required in terms of s217 of the Constitution which is the reason why most of the stakeholders in the meeting are worried. He emphasised that the institute was in favour of expanding preferential procurement, but the procurement system needs to be firmly positioned in sound legal foundations so that the procurement system can develop smoothly.
Mr Campbell reiterated that all the comments that they had made were in the interests of what they see as a significant social partner for South Africa. The contribution is meant to be constructive.

Prof Quinot addressed the matter of resources and cost and said what is important for the NCOP and the Committee to engage with is to interrogate the instruments that are designed in the system to assist Parliament in its functions, primarily socio-economic impact assessments, the memorandum, as well as the PFMA, and s35. All these factors are not accurately reflected in this Bill as discussed. In terms of the balance of what should be in the Act and what should be in the regulations is a very critical point that has been mentioned. One cannot put all the details in the Bill because that would be very cumbersome, and it is not what anyone is suggesting but there are very clear international global standards on how one can achieve that balance in public procurement law between putting the necessary principles into statute and supplementing those with regulations.

The Chairperson found Prof Quinot’s input about the international agreements on public procurement law very useful because it has been a persistent theme since 1994. He asked Prof Quinot to submit a three-page summary that provides the details of the clear international global standards on how to achieve the balance in public procurement law between putting the necessary principles into statute and supplementing those with regulations.

Prof Klaaren thanked the Committee for initiating the process and allowing stakeholders to contribute, noting that the session felt constructive. He added that they would be happy to continue to participate.

Ms Nkwe reiterated that the organisation would avail itself to assist National Treasury where they require assistance. They are an innovation-centered organisation and most of their commentary on the Bill has been thoroughly researched. Their research indicates that the Bill should provide opportunities for new entry, not the market. She especially thanked Mr Mangwene for his assistance leading up to the proceedings.

Southern African Clothing and Textile Workers Union (SACTWU) Submission
Mr Simon Eppel (Research Director at SACTWU) recommended two ways of moving forward as it relates to improving the Bill. The first way forward is to provide comments and propose changes to the text of the Bill. The second way forward is to propose that the NCOP should insist on a process to amend the Bill by bringing it back to Nedlac in the next 6 months for proper deliberation and consultation.

The big changes coming out of the NA process such as chapter 4 have created risks. Some basic constitutionally mandated issues appear to be missing from the Bill such as the lack of clarity on price or pricing mechanisms in the Bill is curious and a concern. It may be argued that it is not aligned with the Constitution. After all, the primary legislation seems to be missing a matter critical to its mandate. The NCOP should consider this matter and address it.

The extensive new additions to the Bill are hard to interpret and appear deficient. This may introduce the risk of poor and even chaotic implementation which will constitute the basis for uncertainty, contestation, uneven application, and undermined policy objectives. Examples of the deficiencies laden in the Bill include some missing definitions.

Preferences require precise instructions & advanced administrative capabilities which are both lacking. This may lead to possible poor implementation. Procuring institutions generally have limited insight into the national supply base. The Bill mandates market research for some preferences but not others, raising concerns about misaligned preferences and compromised service delivery. Layering multiple preferences could, if applied haphazardly, fragment contracts to an unviable extent, threatening the sustainability of businesses, industries & job creation.

Without a common national standard for applying preferences, institutions may interpret them inconsistently, potentially fragmenting the market even further and preventing businesses, including black-owned enterprises, from achieving the necessary scale. This would furthermore undermine localisation, industrialisation, and jobs. Also, an overly complex tender system poses high entry barriers, hampers industrialisation efforts, and favors fraudulent conduct over legitimate business operations, promoting the proliferation of tender rigging.

(See Presentation)

Congress of South African Trade Unions (COSATU) Submission
Mr Matthew Parks (Parliamentary Coordinator at COSATU) noted that during the NA process, s13 was watered down. The section originally prevented leaders of political parties and other related persons from submitting bids for tenders. This exclusion was subsequently removed in the current version of the Bill. It must be returned in the interest of strong anti-corruption measures.

The Bill requires public institutions to keep a record of automatically excluded persons which is welcomed but to ensure that this is done in a meaningful way to enhance transparency and monitoring, and to avoid this clause becoming useless and the data being silenced within individual institutions, a national register of these interests should be kept at the Public Procurement Office (PPO), and it must be publicly disclosed.

In late 2022, Parliament had done a lot of work around the grey listing and money laundering legislation. There needs to be typos corrected within that legislation otherwise it is going to create a bit of a mess. There is a very basic factual error to correct in the Procurement Bill s33(2) which will have the effect of impacting transparency and the disclosure of beneficial ownership which the money laundering legislation developed quite well. The Procurement Bill needs to align the provision with both s56(7)(aA) and s56(12).

The Bill is silent on whistleblowing which is inappropriate. The Bill must protect whistle-blowers! It must encourage or incentivise whistle-blowers to step forward because they are a very useful tool to recover money & shatter corrupt networks. Given the significant amendments that happened to the Bill while at Parliament, particularly in relation to Chapter 4, there is more urgency to return this Bill to NEDLAC sooner - within 6 months – to engage deeply on its contents, risks, implementation, and challenges. He kindly requested the members of the NCOP to ensure that this outcome is realised.

(See Presentation)

Corruption Watch (CW) Submission
Ms Motlatsi Komote (Legal Researcher at CW) stated that Section 217(c) of the Constitution lays down an imperative of a public procurement system that is fair, equitable, transparent, competitive, and cost-effective. The problem is that these principles are not reflected in the current version of the Bill. A large bulk of these key principles have been left to subordinate legislation to deal with. Any policy principles of this nature should be embedded in the primary legislation. The risk of not doing so is that we vest too much discretion in a Minister without offering any guiding principles in the Bill itself.

The organisation has identified some issues related to public participation, mainly with the NA process. Towards the end of last year, there were significant changes that were made around Chapter 4, which raises concerns for the organisation because the various contributions the organisation made were not fully considered. Facilitating public involvement means giving members of the public a reasonable opportunity “capable of influencing the decision to be taken. There were substantial changes made by the OCPO to Chapter Four which had an impact on public participation. It would therefore be appropriate to refer the changes back to the NEDLAC.

She mentioned that they were alarmed about the removal of price as a criterion for evaluating tenders.
This misaligns the Bill with section 217 of the Constitution because public procurement must be equitable, competitive, transparent, and cost-effective. The organisation’s recommendation is for the reinstatement of price as a criteria within the Bill.

She added that the organisation’s recommendations include that the Committee incorporates incentivised whistleblowing in the final version of the Bill. Transparency and accountability mechanisms in the Bill should be strengthened. Separation of powers between the various entities (National Treasury, Public Procurement Officer, provincial treasuries) must be reinforced for clarity and efficiency purposes. Meaningful public participation must be considered throughout the legislative process in the NCOP. Progress made in receiving public input should not be lost.

(See Presentation)

Public Service Accountability Monitor (PSAM) Submission
Ms Lisa Higginson (Budget Advocacy Coordinator at PSAM) said that there was not enough information for monitoring since the Bill leaves key elements of reporting and disclosure to subordinate legislation. There is no justification for leaving these key elements to regulation. Their recommendation to the drafters is an adoption of data standards to strengthen transparency and enable citizen monitoring and oversight.

Very few concrete suggestions to the Bill to improve outcomes such as greater participation, institutional arrangements, and transparency have been implemented and several gaps remain. The National Treasury has committed to open contracting. There are some existing arrangements in place, notability e-Tenders and the Central Supplier Database. The challenge is that the e-tenders portal is not up to date, and it does not provide sufficient information for monitoring and oversight. Local Municipalities and Public Entities are not required to publish. This is stated in fine print on the e-Tenders website. Will the Bill overcome these challenges by accepting proposals for a centralised portal with greater transparency?

The main recommendations include addressing the concerns raised in previous submissions. Strengthen transparency provisions to ensure that the Bill addresses existing deficiencies. Adopt the Open Contracting Data Standard (OCDS) or similar standards to ensure objectives are met. Also, the Bill should align with the Department of Public Service and Administration (DPSA) government-wide open data principles.

(See Presentation)

South African Medical Device Industry Association (SAMED) Submission
Ms Tanya Vogt (CEO at SAMED) said that the areas they were most focused on considering how procurement in medical technology poses a unique challenge and how a one-size-fits-all all procurement plan could raise significant issues with regard to patient care and taking care of the healthcare sector in general. They would like to advocate for value-based procurement in healthcare. The removal of strategic sourcing is a concern within the med-tech environment. There are also conflicts between the proposed NHI Bill and the Procurement Bill.

Medical technologies are estimated to bring in approximately R20 billion in terms of the market size within the country and 80% of those businesses are small and medium-sized enterprises. Most of the med-tech products in the country are imported due to the large amounts of money needed for local investment and distribution. The industry is complex in that sub-contracting in the health sector often increases the price of Medical Devices (MDs). Localisation for MDs is complex, not like ‘generics’ in medicines which necessitates that the Procurement Bill consider the unique regulatory frameworks including clashes with the NHI Bill.  

The removal of the principles around Bid Specification Committees and the Chapter on Supply Chain Management from the Draft Bill, in both the previous version of the Bill (B18-2023) and the current Bill, decreases the likelihood that there would be appropriate consideration as a matter of law, of unique requirements for med-tech procurement.  MDs require significantly different considerations when arriving at specifications and goal-setting requirements. Procurement must allow for improvements introduced within contract structures - patients to benefit from innovation. Non-exclusive contracts/multiple models and types – meet the needs of different healthcare providers (HCPs) and patients. Account for the value of medical technology. Maintenance and servicing of medical equipment is critical. A clear and efficient procurement-to-
payment system to address consignment inventory.

The concept of Value-based Procurement, removed from the Draft Bill, and which no longer exists in the current Bill, sets out important parameters to ensure that medical device procurement is appropriate and responsive. “Strategic sourcing” is also now removed as a definition in the current version of the Bill. SAMED notes that the phrase “a strategic approach to procurement” is included in Chapter 5 for which the Minister may prescribe a framework, and although not defined, submits that it should be defined as value-based procurement i.e. making purchasing decisions that consider how a product or solution can best deliver the outcomes being measured and reduce the total cost of care — rather than focusing exclusively on purchasing a specific product at the lowest possible price. Low price does not always equate to high quality / better outcomes.

(See Presentation)

Will Power Submission
Mr Shaun Scott (Director and Chain Supply Management practitioner at Will Power) stated that the Bill must include Parliament and provincial legislators to inhibit continued fragmentation which is what the Bill is attempting to overcome in the first place. The Bill also applies to donor funding. This is concerning because it is likely to have significant financial and service delivery risks in provinces and local government because donors are reluctant to follow the exact prescripts of a national entity. Also, the district development model seems to be ignored in this version of the Bill.

In terms of the constitutionality of the Bill, it ignores the local and socio-economic constitutional objectives of provinces and local government. The central office and provincial treasuries may issue binding instructions, but they are not going to bring the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the South African Local Government Association (SALGA) into the process.

There are also conflicts with the original legislative and executive powers of provincial legislatures and local government. They have identified 36 matters in their submissions that have not been catered for in the Bill which is concerning because if an Accounting Officer fails to take reasonable steps to implement the Act, they are liable for an offence or imprisoned for three years or they will be fined.

The current version of the Bill allows for specialist offices at the Public Procurement Office at the national level. The powers are just assigned powers to provincial treasuries, but the Bill doe does not assign specialist offices at the provincial level. Procuring institutions are defined but there are no original powers allowed to municipalities. This is going to be a key implementation issue. There is no provision in the Bill for the minimal organisational requirements, competencies, or positioning of where the procurement office will be.

In terms of preferential procurement, prequalification is limited to only one. This will surely retard transformation in provincial and local government. He stated that procedural measures do not belong in primary law because they are going to be limiting.

The Bill talks about subcontracting as a condition in BID and not a condition of contract. The condition of BID is going to empower the construction mafia and radical business forums in the country and continue to create unreasonable expectations at the lower community level. It is going to be practically challenging. Ultimately, conditions of contract work and we need to just stick with that.

(See Presentation)

Institute of Race Relations (IRR) Submission
Mr Gabriel Crouse (Writer and analyst at IRR) stated that they were opposed to race-based legislation, so they were reluctant to accept preferential procurement. The focus should be cost control and cost-effectiveness. There is no transparency and cost control in the Bill because it instead creates broad discretionary powers for the Ministry and procurement offices to deviate from a value-for-money basis to pay what Mr. Mathebula referred to as premiums. Those premiums are a cost, and that cost is not reported in the budget at present and that cost certainly will not be reported under the new system of procurement envisaged by the Public Procurement Bill. This is a major concern; in the organisation’s written submissions it made recommendations to cure the problem.

He implored the Committee, stating that even if it could not stomach any of their other submissions, it must take seriously the fact that there is a cost, and that cost must be accounted for. He elaborated further on what the costs looked like, costs such as hiring new staff to process paperwork, purchasing computers, or software systems to deal with the processes envisaged in the Bill but more significant that are the costs that come out of seeing two different bids and spending extra on one business rather than another to get that premium. These premiums will be paid under the Bill as it is envisaged. What the Bill is lacking and must do is to create a system where every time such a cost is paid, that cost must be accounted for so that the amount can be reported back to the public.

If you look at international laws that try to deal with affirmative action, one finds that often affirmative action plays a particular role which is that of a tie breaker. From a procurement perspective, an instance of this could be a scenario where two bids are both equally cost-effective so the s217 requirement is being met but now the conundrum is to try to figure out how to break the tie. A real government procedure is to flip a coin in most cases but another way one might break the tie is by using a preference point system that can be used to break the tie using categories of preference.

Ultimately, balancing cost-effective requirements with transformational requirements as a tie breaker is a practical way that the Committee can reconcile s217(1) and s217(2) if the Committee seeks to cure the Bill of its Constitutional defects and set up a framework that adheres to the Zondo Commission Report’s advice to maximise value for money while respecting transformational imperatives. He asked the Committee to contemplate whether it was still necessary to enhance the scope of preferential treatment whereas black businesses are already thriving and doing well. South Africa is very different from what it used to be, and Treasury now needs to focus on getting the best value for buck.

(See Presentation)

Discussion
Mr Ryder said that COSATU raised some very poignant points such as their comment about the dilution of s217(1) and the IRR made a similar point. The IRR took it further by identifying that s216 has some very important aspects that need to be taken into consideration. Legislation needs to be balanced and take all the differing views into account. A hyper fixation on one particular clause in the Constitution might create a lack in addressing the Bill as a whole. COSATU also mentioned the issue around NEDLAC. NEDLAC is big, organised business and sometimes they are given too much power because they speak for a very advantaged and fairly small grouping. The point is that the Committee is not getting views from small businesses, the township economy players.

The issue of whistleblowing has been raised several times. COSATU pointed out that there are basic spelling and grammatical errors in the Bill before the Committee and the amendments to Chapter four that have not been tested and are unlikely to be properly tested. This makes it difficult for the Committee to produce a proper Bill. Corruption Watch spoke about the transparency issues laden in the Bill which create a risk for increased corruption. This is a significant point because the Bill gives the Minister broad powers but very little to no mention of oversight over the procurement process is alarming and should be addressed.

SAMED pointed out the disconnect between the NHI Bill and the Procurement Bill. It will be interesting to see which piece of legislation will then take precedence. SAMED made valid points relating to how nuanced procurement is in specialised areas, medicine being one. Mr Scott, from Will Power, pointed out one good thing about this piece of legislation and that is that it does not reference the District Development Model. The District Development Model is dead, and all the test models have pointed out that this model is never going to work. Will Power also pointed out the financial implications that have not been properly addressed.

He stated that he shared similar concerns with the IRR about race-based legislation. This type of legislation takes us back to an important question which is how race is going to be tested and how to determine who is black enough to benefit. Race is a complex topic because it has become a fluid concept. No one mentioned the Harvard Growth Lab’s research and the IMF’s research which indicates that preferential procurement is often counter-productive and does not deliver the intended outcomes that are hoped for.  

Mr Parks remarked that everyone could concur that this is a major Bill that presents some challenges that need to be well-ventilated and investigated. Ideally, the Committee should remedy the challenges but regardless of whether the challenges have been fixed or not the Bill still must go back to NEDLAC. At a high level, NEDLAC is a much more functional space to debate policy issues than no space at all. The goal is to bring the Bill back within six months not just because of the importance of this Bill but also because public procurement is done badly in the country. It also poses an existential threat to public finances, socio-economic development, service delivery, democracy, and our social contract. The organisation is not worried about state control rather it is more worried about decentralization. There is a need for a system that captures data at a local level so that there is better oversight, a better ability to identify problems, and a better ability to respond to those problems.

Ms Komote reiterated that the Bill is important and that it should be done correctly. It should not be rushed, and it is important that the primary piece of legislation addresses the concerns that have been raised by stakeholders previously and currently related to transparency, accountability mechanisms, and open data contracting as well.

On the public participation process, the Bill should be taken back to NEDLAC for more consideration and stakeholder engagement. On the transparency and accountability mechanisms, we should not be leaving a lot to subordinate legislation to deal with. It is also important to ensure that there are effective checks and balances in place for the Minister because as the Bill stands in both of its versions the Minister has unfettered power. This is extremely risky and detrimental as demonstrated by state capture in the past.

Ms Zukiswa Kota (Programme Manager at PSAM) commented that much of what the previous speakers had said about the changes and continued participation around the Bill are important contributions. She agreed with Mr Ryder’s remark that it was of great importance to include the people who will be directly affected by the potential reforms proposed in the Bill. This is a very vital consideration especially when thinking about substantive public participation. She added that social justice imperatives in public procurement are well appreciated by everyone but they seem to get lost in the complexity of the field of procurement, not unlike the field of finance for instance which has massive social justice implications if we do not have adequate and inclusive processes.

Ms Vogt said that they welcome the fact that there have been significant challenges between the Procurement Bill and the NHI Bill and where the two pieces of legislation land in the middle. A key question that must be addressed relates to which of the two Bills will end up taking precedence. In terms of dealing with public procurement in the health space, it cannot be a one-size-fits-all all environment. Healthcare is a very nuanced industry and without having highly specialised individuals who are adequately trained and with the requisite knowledge to be able to construct procurement budgets and write up specifications, there will be a dynamic impact on the delivery of healthcare services.

Mr Scott spoke about district municipalities and admitted that they were not doing well but we cannot dismiss the fact that there is a major gap in cooperative governance in the Bill. There is no way that a small-owned business by a black woman in the North West is going to compete with Bidvest on price so premium is important so we are not at a stage in the country where we have the option to stop paying premium. He added that it is acceptable that there will be a common data platform on which that data would be available and transparent but one should not lay on top of that an approach that forces whether your buying locomotives, power stations, stationary, medical devices, things that have not been vetted yet. The problem is that there will be many entities requesting exemption and that means we will lose that common data platform so there must be a careful approach.

Mr Crouse expressed how impressed he was by the proceedings on February 6, 2024. It was amazing to see a branch of the legislature hold a branch of the executive responsible for delivering information for the public benefit. The fruits that came out of the Committee holding the National Treasury accountable is information that is crucially relevant to the public process and the broader policy debate in the country. The premiums are not included in annexures A, B, C, and D so there is a big problem that these premiums are not accounted for. He implored the Committee to request from the National Treasury the cost of premiums that are currently being paid to understand the cost of premiums that would have to be paid under the Bill.

Mr Parks stated that they supported the objectives of the Bill, but it does need significant work considering the tight time pressure. The Bill is urgent and various challenges like pricing, chapter four need to be addressed and transparency and accountability must be strengthened.

Closing Remarks
Mr Ryder, acting on behalf of the Chairperson, thanked all the participants for their contributions. Treasury has a substantial job ahead of it, particularly in light of the comments about time pressure. The Chairperson already alluded that the Bill has been in process for over a decade. To try and rush the Bill now when it has only been introduced at the eleventh hour does not appear to be very constructive. He was grateful for the positive comments that they received. The Committee will convene again with Treasury to get their feedback next Friday. He asked all the presenters to ensure that they were present and involved in the meeting with Treasury because they would be given an opportunity to engage with Treasury's responses. He also thanked the administration for their hard work in terms of collecting the submissions.

The meeting was adjourned.