Procurement Process in Department: briefing

Meeting report

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WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
7 June 2000
PROCUREMENT PROCESS IN THE DEPARTMENT OF WATER AFFAIRS & FORESTRY: BRIEFING

Documents handed out:
None

SUMMARY
The committee was briefed by the chairperson of the Departmental Control Committee of the Department of Water Affairs and Forestry. The briefing discussed the procedure and problems involved in the tendering/procurement process of the department. The role of the DCC, its composition and problems that they are currently facing was highlighted.

MINUTES
Mr Mabala, Chairperson of the Departmental Control Committee (DCC) said that it was established in terms of Section 38(1)(iii) of the Public Finance Management Act which states that "(1)The Accounting Officer for a Department…(a) must ensure that the Department…has and maintains (iii) an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective."

The DCC is comprised of nine members representing different functions in the Department. They are all experts in their relevant subject area. The different areas represented are: Water Services, Forestry, Construction, Mechanical/Electrical Engineering, Finance, Administration, Legal Services and Civil Design. This structure is repeated in each of the nine provinces, although the size of the committee ranges from three to seven members.

The functions of the DCC are the following:
To ensure compliance with tendering/procurement procedures such as ST 36 (General Conditions and Procedures), ST 37 (User Manual - Directives to Departments in respect of Procurement) and the State Tender Board Act of 1968.
To exercise effective, efficient and transparent system of financial and risk management and internal control. This task is performed by the Economic Control Committees (ECC) within the DCC.
To ensure a fair and transparent system of acquisition of Government goods and services. The Department has established a database of service providers for smaller tenders. The reason for this is that the DCC was finding that the Department was repeatedly using the same companies for projects. The database ensures that there is an availability of information that the Department can use in its application and selection process. The ECC has also set out detailed criteria for the selection of tenderers.

Mr Mabala then discussed the challenges facing the DCC. The major challenge is the Department's poor record of tendering to Historically Disadvantaged Companies (HDC). The Department is committed to addressing the goals of black economic empowerment as set out by Government policy. The State Tender Board has set out the regulations for HDC consideration that postulates that it is only on contracts of less than 2 million Rand that specific points can be awarded (in the selection process) to historically disadvantaged companies. "The regulations make provisions for the granting of certain preferences to historically disadvantaged companies when their tenders are considered and compared with other offers received."

The statistics provided by the Department show the progress that has been made in the past two years in empowering HDC's. In 1998/99 HDC's received 30% of the contracts awarded compared to 29% in 1999/00. While there has been a decrease in the number of contracts awarded to HDC's, the value of those same contracts has risen from 20% in 98/99 to 35% in 99/00. "This indicates that the disadvantaged businesses are starting to compete for big contracts and as their expertise improves, are now rewarded accordingly."

One of the major challenges regarding HDC's has been identifying whether a company is black or white owned. There has been the problem of "fronting", companies that appear to have black directors and black management but in actuality these presenters were used to procure the contract.

Other problems faced by the DCC was Departmental officials sticking with tested service providers based on the presumption that 'if Company A has always done a good job, why would we try Company B and take the chance that the job will not be adequately done?'

Mr Mabala also mentioned that he considered corruption to be a problem in the Department. This has taken the form of officials awarding contracts to companies in which they are financial stakeholders, the bribing of officials and the problem of collusion.

The final problem discussed was that of a repeated ignorance of procedure by government officials and tenderers alike. Mr Tredoux stated that the tenderers often ignore the rules and regulations of the Department and do not fill in forms properly or completely. This problem could be solved by increasing the training of officials and providing better information for tenderers.

Discussion:
Mr Sigwela (ANC) asked whether or not there is a central monitoring mechanism in place or are the regions completely independent.
Mr Mabala responded that the ECC's require the regions to submit reports to the Department after every meeting. The information required by the central body includes the number and monetary value of all contracts tendered. The problem with this structure is that it resembles an audit and action can be taken by the central body only after the contract has been awarded. Mr Mabala also noted that the regions can only give out contracts up to R150 000.

Mr Simmons (NNP) asked how frequently the head office monitors the regions.
Mr Mabala responded that with the ECC's in place, the central body now requires monthly reports from the regions even if no meeting has taken place.

Mr Mathebe (ANC) asked how the database of service providers is compiled; how the DCC ensures that a company does not operate under many names; how much the Department can tender (its limit) for one contract; and his concern that by blacklisting the 'fronters' (which the Department does if it discovers fraudulent applications) is the DCC punishing the "real culprits"?
Mr Tredoux, Assistant Director of the Procurement, Policy and Control Division, answered that the database compilation is quite a lengthy and thorough process. The opportunity to be included in the database is published in every major national newspaper as well as two or three major papers in each of the regions. One can register via the internet, over email or in written form. The rural areas are the most difficult, but regional officers hand out leaflets and put up posters.

Mr Mabala stated that the problem of people using different company names to procure contracts is not pervasive because in order to have two company names an individual must also be registered twice in the taxation database and this information is readily accessible to the Department.
Mr Tredoux noted that there is no limit for tenders but that any over R750 000 has to be processed through the State Tender Board.
Mr Mabala noted on the question of blacklisting that the problem is discovering who is really pulling the strings on a fronting operation.

Mr Ditshetelo (UCDP) asked whether the marks system to help HDC's result in poorer performance/service delivery.
Mr Mabala responded that the system operates on a step programme. This means that the Department does not award contracts of 20 million Rand to a company who have only previously received 1 million Rand contracts. He stated that the key is to find a balance between the HDC requirements and strong companies.

Mr Ditshetelo followed up with a question about empowering start-up companies and does this system allow for that.
Mr Mabala answered that even start-up companies have operational experience and in terms of project management and financial competence, there are courses available in other areas (such as the private sector) to help companies develop these capacities.

Ms Sonjica (Chair - ANC) asked Mr Mabala and Mr Tredoux to return at a later date to explain the Preferential Procurement Act to the Committee and to answer any further questions.

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