Public Procurement Bill: Treasury report-back on stakeholder consultation

Meeting report

Opening remarks
The Chairperson welcomed National Treasury and the stakeholder organisations. This was a continuation of the public hearings on the Public Procurement Bill, and it was the tail end of the consultation process which would be followed by the Committee deliberation stage. He allowed Treasury 45 minutes to an hour to respond to the submissions requested from various stakeholders.

National Treasury response to further consultation
Mr Willie Mathebula, General Manager: National Treasury, said they picked up the key issues that they felt needed to be shared with the Committee from their report and if there were any other issues, the Committee would have to refer to the full report.

Adv Empie van Schoor, Chief Director: Legislation, National Treasury, presented the constitutional matters raised by the stakeholders. The JSR had submitted that the tenders in question must still be evaluated in a manner that would give effect to the purpose of section 217(1). Chapter 4 gave precious little reason to believe that this was how tenders would be evaluated, and there were valid concerns that the Bill would unleash disruptive constitutional litigation. There was a further constitutional question and this was the continuing gap in locating the power to develop preferential procurement policies clearly. The JSR repeatedly raised the concern that the Bill, although it often gestures in that direction, it does not clearly assign the power to develop preferential procurement policies to procuring institutions.

JSR also raised that South Africa has a tradition of incentivised whistleblowing provisions in its legislation dealing with specific sectoral matters, as seen in environmental legislation. Procurement handles large sums of money, meaning that whistleblowing in this area could be incentivised without cost to the state. To do so, incentivised whistleblowing provisions must be carefully and specifically moulded to procurement operations. The Protected Disclosures Act only applies to employees, but in procurement incentivised whistleblowing it is often by persons who are not employees.

In response, National Treasury stated that enhancement of whistleblower legislation such as the Protected Disclosures Act was a matter to be attended by the Justice Department and that department had already published a discussion paper in 2023 on that.

PRWG said that the new Chapter 4 restricted participation in procurement from the outset and confused even South Africa’s leading procurement experts on how the rules it sought to establish were meant to work in practice. It did not lay down any objective and measurable criteria for adjudication and it opened the way for anti-competitive practices as it did not mention price, which was highly unusual.

In response, National Treasury said the regulations will detail how the framework must be implemented. It was proposed that clause 25(1) must be amended to contain a general requirement on bid evaluation as prescribed by regulations as part of the framework for an institution’s procurement system.

PRWG also submitted that in South Africa’s legislative landscape, the legitimate scope of confidentiality is established in the Promotion of Access to Information Act (PAIA). The Protection of Personal Information Act (POPIA) addresses how institutions handle personal information. By including ‘personal information protected in terms of the Protection of Personal Information Act’ in the Bill’s definition of ‘confidentiality’, the definition may be read too broadly to constrain the release of all personal information. This undermines the Bill’s objective of expanding transparency. The definition should allow confidentiality only where it is legitimate under PAIA.

In response, Treasury said the PRWG proposal was supported and that the grounds for refusal in PAIA be used for the definition of ‘confidential information’ in all respects and not only personal information.

The National Research Foundation (NRF) submitted that the SEIAS report was inadequate and naïve and characterised by fallacious premises. Relevant organs of the state need to be consulted on the cost implications – and accordingly it was a possible contravention of the PFMA. Like the VAT deregistration process of public entities, National Treasury should be providing additional funding to fund the additional roles and responsibilities, failing which, to place enactment/implementation of that on hold until Treasury fundraising efforts improve.

In response, National Treasury said Section 35 of the Public Finance Management Act provides that draft national legislation assigning an additional function, power or obligation on a provincial government must in the memorandum attached to that legislation, give a projection of the financial implications of that function, power or obligation to the province.

On unfunded mandates, Mr Mathebula said that as much as Treasury may have omitted to mention the projected financial implications, it was currently not possible to quantify the financial implications although Treasury understood that there will be financial implications.

Mr Mathebula responded to the stakeholder suggestion that the information on the outcome of the tender process must be made available within 14 days. With the introduction of the Tribunal, there are steps that any bidder who may be aggrieved by the outcome of the tender process must follow, including going back to the procurement institution to raise the issue and running through the Tribunal, meaning the proposed 14 days would not be enough.

On the register of persons prohibited from submitting bids, Mr Mathebula responded that this is a complex issue because all government officials are not supposed to do business with the state. The question becomes what happens when the person decides to leave the state and whether they are allowed to bid. The matter needs to be considered carefully before it can be provided for in the Bill and its legal implications need to be considered.

The Chairperson thanked National Treasury for its presentation, noting the hard work done to provide detailed responses to the stakeholders. He would allow each of the stakeholders five minutes to respond to the Treasury presentation.

Stakeholder engagement
Mr Chris Campbell from Business Unity South Africa (BUSA) said the absence of the distinction that needed to be made between strategic and general procurement still bothered them in that the only reference to it was two lines in the Bill, yet it seemed to make a big difference. They were not convinced that National Treasury appreciated why it was necessary to expand more on it in the primary legislation. As much as they heard that there was cross consultation, they hoped that after all the work and effort that was everyone put in the process, there was confirmation of the constitutionality of Chapter 4 in the Bill so that the potential legal challenges can be avoided.

Mr Ron Grace from NRF said that it was unacceptable that National Treasury claimed that it cannot quantify because it can project in terms of the appetite. Treasury was prejudicing the Act because it could be challenged if it did not do the costing projection. The standstill period is going to retard service delivery and the Constitution also speaks about efficiency and service delivery. When Treasury summarised the NRF, it said nothing about the effectiveness of National Treasury, which was a key point in the NRF 300-page submission because checks and balances and accountability must be considered. International best practice must also be considered. Treasury does not show accountability in what it should be doing.

On international donor funding, if donor funding is more that 50%, it makes sense for it to be subject to regulations; if less that 50% then it does not apply. The Act should specify those regulations. The NRF would be available to assist with the drafting of the Bill should it be required and that it believed the Bill was not ready for implementation.

Mr Simon Eppel from NEDLAC said there were some improvements in the Bill, and they appreciated those. However, they had three concerns; firstly, it was hard to see the effects of the changes to the Bill because they had not seen them in text so they had not figured out how they would work. Secondly, there were some larger unaddressed structural issues that were raised by other stakeholders. Thirdly, they still needed to see how the Bill would work in real life and is implemented. National Treasury had opened the door on the Bill and kept saying it was up to the NCOP to recommend that the Bill goes back to NEDLAC within 18 months for further consultation. He appealed to the NCOP that the Bill is taken back to NEDLAC within the next 18 months to work on the deeper issues and the same should apply to the regulations.

Mr Matthew Parks from COSATU said they appreciate that the Bill must be passed now as it would be impossible not to, but there must be a supplementary Bill within 18 months to help strengthen the Bill further.

Ms Lisa Higginson from Public Service Accountability Monitor (PSAM) said it was helpful to understand National Treasury’s position and its response to the PSAM question about putting a time limit on providing procurement information. They were still concerned about the extent of this but acknowledged the response from Treasury. PSAM hoped to see a radical improvement on commitment to transparency in the application of the Bill and that the change from instructional notes to regulations would make dramatic improvements. PSAM also hoped to see better enforcement of the regulations to ensure the information is accurate and makes it possible for the public to monitor procurement.

Ms Tanya Vogt from South African Medical Technology Industry Association (SAMED) said one key area not addressed was its recommendation that it should be mandatory to have a specialist on the committees. National Treasury had said it would consider this, but it was not addressed in the response presentation.

Mr Shaun Scott from Willpower said there is a small community of procurement people that work in Parliament and provincial legislatures, and they rely on the support and training that exists for the rest of the public procurement community. Excluding provincial legislatures and Parliament from the core of the Bill and just making Chapter 4 on Preferential Procurement applicable is going to create a difficulty within the capacity, the people, the training, and the systems that will be used by Parliament and provincial legislatures. He was looking forward to hearing what Adv Jenkins would say about the constitutionality of that. Willpower welcomed the changes proposed by Treasury, especially the one Treasury suggested that procurement processes be moved away from a department to more responsibility across the functions, but that will need to be explained more carefully because it was significant and clever proposal.

On the standstill period, Willpower did not believe that the clause currently addressed the practical implications that it will have in institutions and perhaps the standstill clause must be moved to the regulations, and it could be debated even further to ensure that it is practical.

Mr Gabriel Crouse from SA Institute of Race Relations (IRR) said the Chairperson had asked National Treasury for "black owned" data and what is currently happening in terms of procurement processes and BEE. Treasury provided information from the Central Supplier Database that over R1.2 trillion was spent on black procurement. Slide 20 to 26 of Annexure A deals with the different BEE level statuses and the number of BEE companies and how much they received each year respectively. Before that, slide 4 and 5 refer to ‘black owned’ and it defines black-owned companies as 51% black owned or more. The slide says black owned companies receive R588 billion out of the R1.2 trillion. That means black owned companies receive 63% of the procurement expenditure, which is a majority. The concern was that during the Treasury presentation, it was still saying those are not black owned companies. Treasury says there is a difference between black owned companies and BEE Level One, and this difference must be clarified alongside the R588 billion.

On the premium, the IRR had asked how the premium was going to be calculated, and Treasury’s answer was in effect that there will be no premium, but there will be negotiations of a fair market price. Treasury said it believes that the Constitution provides that there should be a premium, but the question asked by IRR is how much? On unfunded mandates, Treasury said it did not table the Bill to state that there will be premiums, but its statement was about preference measures. However, the preference measures are what create the premiums, and the question is how much is that going to cost the provinces? Section 35 of the PFMA states national legislation, when it is drafted and tabled, must have a memorandum that says how much this is going to cost the provinces if they are getting new powers and responsibilities – does that refer to both the primary and subordinate legislation?

The Select Committee is involved in passing legislation and if there is an infringement on rights, section 36 of the Constitution is the lawmaker’s guiding light. Section 36 says one cannot infringe upon a right if there is a less intrusive way to achieve section 217(2) and (3) interests. If the Committee does not choose that way, then it is going to fail the constitutionality test in section 36. Treasury said the tie breaker is consistent with section 36 of the Constitution, but the playing field is not level enough. Treasury should come with a picture of how level the playing field is so that the Committee can use it to make an informed decision.

Ms Caroline James from PRWG said they had little time to engage with the report prior to the presentation and although they had the engagement with Treasury, they were concerned that the engagement was limited, more limited to Treasury rather than with the Committee and they were unable to engage with the MPs’ views on the Bill. PRWG hoped to hear and understand the Members' views on the Bill after the process with Treasury was completed.

Although they recognised the small changes made to the Bill in response to stakeholder comments, they still had not looked at the textual changes to the Bill and fully familiarise themselves on how those changes were implemented. The engagement with National Treasury was narrowly constrained to making comments on areas that could be easily fixed by correcting incorrect references to specific Acts rather than dealing with 'big picture' constitutional issues that still existed in the Bill.

Adv Nandipha Ntsaluba from Department of Military Veterans said there was an interesting inclusion in the definition of 'military veteran' in the Bill which seemed to extract only part (a) of the definition from section 1 of the Military Veterans Act. She was concerned if this would not cause a challenge because the definition is threefold. Military Veterans had pleaded that clause 58 should not confine itself to only two ministries. The experience that was gathered during the Military Veterans regulations development process signified that there was a need to look at the organs of state that are affected by the benefit, and the same approach should be adopted in developing regulation legislation in this space because it naturally will triangulate across various constitutional institutions. Lastly, the Department of Military Veterans had referred to consultations with the Information Regulator to deal with data privacy.

Discussion
Mr D Ryder (DA, Gauteng) appreciated the manner in which the public hearings were handled because Treasury’s level of consultation and interactions with the stakeholders showed the maturity of the legislative process. The presentation document sent yesterday at 5pm had slides that were brief and perhaps more meaningful to Treasury and the stakeholders who participated than to the Members. He would need more time to read through the issues as they were difficult to follow having to cross-reference between the Bill, the stakeholder submissions and the Constitution for context.

In his response to the presentation, Mr Ryder said it seemed likely that there would be another round of fairly substantial changes to the Bill before it goes through, and that might lead to a referral back to the National Assembly. He was looking forward to hearing what the Chairperson’s decision would be on how to move forward because several stakeholders had made calls to have the Bill taken back to NEDLAC. He felt there was a need to refer the Bill back to NEDLAC especially noting the volume of changes that have been made and the number of proposed changes.

The Chairperson said the National Assembly will have two days of sittings in the next few weeks and there were two plenaries in the next week, which would give the Committee more time to consume the information they were given. He did not see an issue with the amount of work the Committee has to do before the Bill is passed although he agreed that the presentation was hard to follow. He said the Committee heard that the National Assembly had voted on a Bill that they have never seen and asked the Parliamentary Legal Advisor to comment on how that was possible. Stakeholders were right to want to see the final text because that is what counts more than the policy responses from Treasury. There was no need to make final decisions at the moment because it was still in its initial phases and Members should not think it will be easier if the process is suspended until after the elections because entirely new Committee members in the NCOP and the National Assembly will have to deal with it.

There was general agreement that the Bill should be viewed as a temporary or transitional Bill and that within 18 months it should be reviewed through the NEDLAC process. There is no need to call off the Bill at this stage because the Committee still has plenty of time. No matter how long the process takes, there will always be disagreements, and the Constitutional Court will deal with the constitutional matters.

The Chairperson asked that Adv Jenkins to meet with the Committee in an online meeting next Tuesday 23 April to speak on the constitutional issues that were raised by stakeholders. On unfunded mandates, it is hard to believe when a government department says there are no financial implications on specific matters. The unfunded mandates are not subject to legal scrutiny, but the Memorandum can be changed if Treasury was in the wrong. It is not fair to expect a final and definite figure on the cost implications and the issue of a public procurement office in National Treasury is not necessary.

Parliamentary Legal Advisor response
Adv Frank Jenkins, Parliamentary Legal Advisor, said he would participate in the 23 April meeting to explain the constitutional issues, although there were not constitutional matters in the stakeholder submissions. On unfunded mandates, it was a chicken and egg issue because when Parliament receives a department annual report, it usually mentions the chapters of the relevant legislation that the department must implement and the budgets would flow from those duties of implementing the legislation.

Legislation is not operative and does not always get budget, but sometimes the budget follows legislation. However, passing the legislation results in budget allocation because there is legal compliance which cannot be circumvented in an annual performance plan. The issue of the Memorandum to the Bill setting out the financial obligations is not accurate because there is usually a Socio-Economic Impact Assessment done by the Department of Planning, Monitoring and Evaluation in the Presidency which stakeholders and National Treasury have access to which would explain further what would happen when the Bill is implemented.

On the role of the provincial legislatures and Parliament in the Bill, the PFMA was passed in 1999, in which there was a recognition of the constitutional principle of separation of powers. So the PFMA states it applies only in a limited respect to provincial legislatures and Parliament because of the separation of powers. That was also given effect by Parliament when it passed the Financial Management of Parliament and Provincial Legislatures Act in 2009.

Chapter 4 of the Public Procurement Bill is fulfilling the prescripts of the Preferential Procurement Policy Framework Act. The Public Procurement Bill as it becomes an Act cannot apply wholly to Parliament and the provincial legislatures because of the separation of powers recognised by the Constitution. Parliament is entitled constitutionally to arrange and determine its own internal arrangements and proceedings and it is empowered to provide for its own financial management, including supply chain management.

Lastly, the comment that the Public Procurement Bill was not served before the National Assembly was incorrect as the Standing Committee on Finance considered a draft Bill that was prepared for it and it was finalised in the form of a B-Bill before the National Assembly.

The Chairperson said one of the stakeholders mentioned a 300-page submission and he was not sure what the stakeholder expected in reply because that would be unfair to expect Treasury to reply to the whole document with all the work that it has faced. He asked Adv Jenkins to think about what could be done about whistleblowers and if he could respond to that in the 23 April meeting. On part-implementation of the Bill, that was done before with the Municipal Systems Bill, where the Minister would regulate some parts of the Bill to come into effect at different times and that could be a possible option to follow.

National Treasury’s response
Mr Mathebula said the text changes to the Bill based on the recommendations will be produced and submitted to the Committee. He assured the Committee that the regulations this time around, unlike normally, would be consulted on with the public, and they would be availed for discussion at NEDLAC. The instructions will also be gazetted for the public to comment on.

On transformation and the BEE procurement practices, he said the measurement of BEE levels is based on the broad-based nature of the BEE Act. There are many instances where big businesses will ignore the ownership element of the scorecard and prioritise other elements of it, and their obtaining a status level 1 or 2 proves the broad-based nature of the BEE Act. This means the R588 billion did not necessarily go to black people because it could have easily gone to companies who decided to ignore the ownership levels of BEE.

The current system of the Preferential Procurement Policy Framework Act (PPPFA) has the two preference point systems of the 80/20 and 90/10, where in contracts of more than R50 million, the 90/10 is applied. As this Bill does not have a formula to state the percentage of what the premium will be, National Treasury is moving for the formula to be prescribed through regulations by the Minister and the public will have an opportunity to comment on it. Since the enactment of the PPPFA, black people have always said the inclusion of the preference point system formula in the primary legislation is the problem. That led to people complaining that the PPPFA does not go far enough in addressing transformation. National Treasury was merely avoiding including a formula for the premiums and evaluations early within Chapter 4 of the Bill.

The Chairperson asked Mr Mathebula and his team to respond to the specific questions asked by the stakeholders and they could respond to others in writing if the meeting went over time.

Mr Mathebula replied that the strategic versus operational issue was noted and in Treasury's view, Chapter 5 provides a specific approach. For example, the education sector would say the Learner Teacher Support Material (LTSM) is important to them and the procurement thereof should be strategic in nature. There is a clause in Chapter 5 which provides a comprehensive approach to strategic and operational issues. In clause 64, there is a specific reference to the procurement of infrastructure and capital assets in that the approach should be strategic, and the details thereof will be in the regulations because infrastructure is wide-ranging.

Mr Mathebula noted that the NRF said the standstill would cause a loss of donor funds, but Treasury felt that some government departments underspend and they end up losing the money. The standstill is because of the introduction of a Tribunal to deal with some disputes and it is important to ensure that government is not litigated against when an aggrieved bidder takes the matter back to that specific department or to the Tribunal.

If there is any procurement that is urgent that will have an impact on service delivery, there should at least be an emergency provision that can be invoked. On donor funding, any treasury currently will have a unit that specifically manages donor funds; hence the donors must also comply with the Bill because there should not be a fragmented system where donors have their own system and want to impose their procurement system on South Africa. The bid committees must be cross-functional in nature and must contain different expertise because they deal with different kinds of procurement in the country, and that is covered in clause 29.

Mr Mathebula said that the 300-page NRF submission can be looked at over time but given the time constraints and the public participation process held all around the country, it was not possible to read 300 pages which had to inform a 37-page Bill before the Committee. Treasury would look at the submission over time to see how the submission may inform the regulations going forward. The definition of 'military veteran' and 'data privacy' will also be considered, but some of the concerns in the longer submission to the Committee were addressed.

Adv van Schoor said including the proposed definitions for words and phrases dealing with section 217(1) would not be appropriate because they would be dealt with in the regulations. The reading of section 35 refers to Bills tabled in Parliament and it is not defined in the PFMA.

The Chairperson thanked National Treasury and the stakeholders for the work they put into the engagements on the Bill.

The meeting was adjourned.