Preferential Procurement Policy Draft Bill

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Finance Standing Committee

23 November 1999
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Meeting Summary

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Meeting report

23 November 1999

Documents handed out:
Department of State Expenditure: Slide Presentation (attached to end of minutes)

The Department of State Expenditure represented by Mr N Mlamla, Deputy Director General, Mr J Breytenbach, Director: Logistics, and Mr D Botha, Deputy Director: Finance briefed the Committee on the draft Preferential Procurement Policy Bill.

The Chairperson, Ms D Mahlangu, informed the committee that the briefing by the Department of State Expenditure is only informal, as Cabinet had not formally adopted the bill.

Mr K Andrew (DP) asked when the formal bill would be tabled, as this informal briefing could become irrelevant if a new draft of the bill is adopted by Cabinet.

Mr Botha said the Bill was before Cabinet and agreed to in principle, but will again be before Cabinet on 24 November 1999, for adoption.

Mr A Feinstein (ANC) pointed out that the committee had created precedence when it considered the Financial Services Bill and tax legislation well before adoption by Cabinet. He made a proposal that since this is not the first time that this procedure again be followed so that as much progress as possible be made in the short period left.

The Chairperson supported the proposal for the informal briefing to go ahead.

Mr N Mlamla briefed the Committee on the bill. (See Department of State Expenditure Briefing - Appendix 1)

Mr K Andrew asked whether the Bill covers much of the reconstruction and development principles.

Mr J Breytenbach said the definition is very broad and will cover all principles in the Reconstruction and Development Programme (RDP) document. He went on to say that the department was advised to define it broadly and not be specific, so as not to create problems with international agreements.

Mr S Leeuw (ANC) pointed out that the formula used in the tendering process only applies to construction tenders. He then asked about the formula to apply for the other tenders.

Mr J Breytenbach said that in the past problems have been encountered with the application of the formula, but lessons have been learnt and therefore the formula is applicable to all tenders, not only construction tenders.

Dr G Woods (IFP) asked what factors are taken into consideration in the tendering process.

Mr D Botha said, firstly, the capability of the applicant to fulfill the obligation is considered. Should the applicant not be in a position to fulfill that obligation, the tender application would be declined. Secondly, a tax certificate should be attached to the tender. Should there be no tax certificate the tender would be declined.

Mr K Moloto (ANC) asked what recourse do people have when someone has not complied with the Act.

Mr D Botha said that at national level when a tender is awarded all non-successful tender applicants are informed. Furthermore they have a right to reasons for non-acceptance, if they are not satisfied with these reasons they have recourse to the Public Protector or the courts.

Mr G Lucas (ANC, Northern Cape) asked whether this bill is in line with international legislation.

In response Mr J Breytenbach said that this bill is not in line with international legislation, as internationally South Africa is pressurised to also sign the Government Procurement Agreement of the World Trade Organisation and South Africa have not been signed. If South Africa signs this agreement no preference is given to South African citizens and the Constitution would have to be amended to make provision for this.

Mr S Leeuw (ANC) raised the concern that the Constitution does not put an obligation on an organ of state to have a preference system. He said that in terms of the Bill no one would be forced or has an obligation to give preferential treatment.

Mr J Breytenbach said it is unfortunate that this is the state of affairs, the department is in no position to overrule the Constitution and therefore the bill does not place an obligation on the state. Parliament would have to be approached to make an amendment to the Constitution to make provision for an obligation.

Dr G Koornhof (UDM) asked who is to do the monitoring of compliance.

Mr D Botha (ANC) said, "This would unfortunately be an extra costs, but is necessary to ensure compliance. At National level the National Board must see to it that the monitoring is done, the actual monitoring would be done by contract monitors."

Dr G Koornhof enquired how local tender applicants are catered for in the situation where both local and international companies or individuals make tenders.

Mr D Botha responded that in this instance the prices of the tenders are considered. If prices are compared and the local tender is slightly higher than foreign tender, preference will go to the local tender. Should the local tender be higher than 11.1% of the foreign price, it is most likely that no preference would be given.

Ms R Joemat (ANC) raised her concern with the actual implementation of the bill and asked how much training has been done at national, provincial and local level to implement the bill.

Mr J Breytenbach said the department is in close contact with all national and provincial tender boards and is moving towards uniformity in the actual implementation. The department is working on the issue of training people, but local authorities have not been addressed yet.

Mr L Green (ACDP) asked what the percentage of contracts are awarded to Historically Disadvantaged Individuals (HDIs) and how much training is given to HDIs in terms of pricing and tender procedures.

Mr J Breytenbach responded that in the year 1998 -1999 about 25% of contracts were awarded to HDIs. As for training the Department of Trade and Industry had been approached to look at training of upcoming HDI companies and contractors. The Department of State Expenditure also runs workshops to assist and educate HDIs.

MS Sonjica asked what recourse is available to individuals who feel that they have been treated unfairly.

Mr D Botha said that in such instances the Public Protector or the courts could be approached.

Since there were no further comments or questions, the Chairperson thanked the Department for the briefing.

Consensus was reached that should Cabinet adopt the bill on 24 November 1999, public hearings would be held in the Provinces on 13 and 14 December 1999 and in National Assembly on 15 December 1999.

The meeting was adjourned.

Appendix 1
Section 217 (3) of the Constitution - National legislation to provide for a framework in terms of which a preferential policy as contemplated in section 217(2) are to be implemented by organs of state in all three spheres of government
Section 217 (2) - procurement policy to provide for:
- categories of preference in the alIocation of contracts;
- The protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination

- Section 217(2) does not put an obligation on an organ of state to have a preference system -merely states that subsection (1) does not prevent organs of state to implement a preferential system
- Section 21711] states that a procurement system has to be fair, equitable, transparent, competitive and cost-effective

Paragraph 21(4) of Schedule 6 of the Constitution requires the national legislation in terms of section 217(3) to be enacted within three years of the date on which the new Constitution came into effect - 4 February 2000

Organ of state - as contemplated in section 239 of the Constitution:
- any department of state or administration in the national, provincial or local sphere of government

- any other functionary or institution -
· exercising a power or performing a function in terms of the Constitution or a provincial constitution

· exercising a public power or performing a function in terms of the any legislation

- 90\1O preference point system for acceptable tenders
- lowest acceptable tender gets 90 points - other acceptable tenders higher in price, will score less points
- A maximum of 10 points may be awarded to tenders which comply fully with specific goals,
- Reconstruction and Development Principles
- contracting with HDI's

Any tender which was advertised before date of commencement of this Act must be finalised as if this Act has not come into operation

Minister may make regulations regarding any matter that may be necessary or expedient to prescribe to achieve the objects of the Act

Cahinet approved in 1996 a preference system to benefit HDI's and women
- 88/10/2 principle for contracts < R2mlllion
· MainIy directed to HDI's and women
- 90/10 principle for construction related contracts
· Mainly directed at a contribution towards the RDP

· Problem
- 88/10/2 principle leads to fronting by certain tenderers

Comprehensively accommodates RDP principles
· lncreases application irrespective of value of contracts
· Reduces risk of fronting
· Accommodates small businesses
· Accommodates aspects of disability
· Preferences for HDl's and women
· Element of price remains the dominant factor
· Supports a uniform tendering process


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