The National Assembly passes Public Procurement Bill: A giant leap towards procurement reform
4 Jan 2024
Public procurement processes in South Africa have long been in need of an update. After 24 years under the current legal framework, the courts have developed a rich body of case law as government departments and state-owned enterprises have contracted for goods and services with mixed success and serious failures. Fundamental lessons have been learned.
The latest iteration of the Public Procurement Bill B18B-2023 (the “Bill”) was passed by the National Assembly on 6 December 2023. The Bill is aimed at regulating public procurement by introducing a single regulatory framework for procurement for national and provincial government departments, municipalities, as well as constitutional institutions and state-owned enterprises (“SOEs”).
The Bill aims to consolidate legislation regulating procurement, including the Preferential Procurement Policy Framework Act, 2000 as well as the procurement-related provisions in the Public Finance Management Act, 1999, the Local Government: Municipal Finance Management Act, 2003, the Broad-based Black Economic Empowerment Act, 2003, and the Prevention and Combating of Corrupt Activities Act, 2004.
Once the Bill comes into effect, all procuring institutions must conduct their procurement processes in accordance with its requirements. In this article, we highlight the salient reforms introduced by the Bill.
Among the most significant changes brought about by the Bill is the establishment of the Public Procurement Office (the “PPO”), to be established within the National Treasury. The PPO’s powers are extensive and include the power to issue binding instructions and non-binding guidelines on any procurement matter, measures to promote integrity in procurement, measures to promote transparency and to promote standardisation in procurement. Although the introduction of a body dedicated to overseeing the procurement activities of organs of the state is a welcome development, it is questionable whether the PPO’s power to issue guidelines and instructions solves the issues created by the multiplicity of legal instruments currently regulating procurement. Critics of the Bill have also questioned whether the PPO should be housed within the National Treasury, as this may create doubts about its independence, particularly because the National Treasury is also a procuring institution.
Also notable is Chapter 4 of the Bill, the bulk of which was introduced late in the parliamentary process and has not been subjected to a public comment period. Chapter 4 creates a prescriptive framework within which organs of state must provide for preferential procurement.
The following additions and changes have been introduced:
- Section 17 introduces ‘set-asides’, which oblige procuring institutions to reserve certain bids for specified categories of persons, such as black people, black women, women, persons living with disabilities and small enterprises, subject to targets prescribed by the Minister of Finance in the regulations.
- Section 18 provides that procuring institutions must promote the allocation of contracts to certain categories of persons by applying pre-qualification criteria in their procurement processes. For instance, a procuring institution can advertise bids with a specific condition which limits the eligibility of bidders based on B-BBEE status level, sub-contracting requirements, ownership thresholds and citizenship. The belated introduction of these provisions is controversial given the lack of public consultation, very limited local manufacturing capacity in South Africa and the likely impact on foreign bidders, many of whom, working in partnership with local enterprises, play a key role in supporting Government’s energy and logistics recovery plans.
- Interestingly, section 20 re-introduces ‘local production and content’, which was previously repealed along with the rest of the Preferential Procurement Regulations, 2017. Section 20 empowers the Minister of Trade, Industry and Competition to stipulate minimum thresholds for local content and production for certain designated sectors or industries. These provisions can advance the local economy if implemented properly, however, it is unclear whether lessons over the last 12 or so years have been sufficiently accounted for. For example, rigid frameworks for procurement often limit competition, increase prices due to the limited number of local suppliers, and do not necessarily offer a sustainable business model for local suppliers over the long term as procurement contracts are typically once-off or for a short period of time.
It appears from Chapter 4 that the intention is for procuring institutions to apply the mechanisms described above; set-asides, prequalifying criteria, subcontracting and local content, and only if those are not applicable, to apply a system of preferences.
Chapter 4 of the Bill also provides that procuring institutions must advance sustainable development in procurement, and introduce measures to advance the creation of jobs, intensification of labour absorption, beneficiation and the development of small enterprises.
In accordance with Chapter 5, the Minister of Finance is empowered to prescribe a framework within which procuring institutions must implement their procuring systems, including the type of procurement methods that must be used and the requirements and procedures to be followed for each prescribed method. Procuring institutions are also obligated to take steps to prevent corruption in procurement, and, to the extent possible, use technology in the implementation of the Bill. This degree of central control and discretion by the Minister of Finance over the full range of State institutions, without adequate guidance on the parameters within which it should be applied, is problematic. For example, there is no indication as to how the core pillars of price (or value for money), functionality (technical credentials) and preference will be measured in a bid evaluation and ultimately a determination as to the successful bidder, or if they will all count towards that decision. In addition, the Bill gives insufficient guidance as to the factors for differentiating between categories of procurement or institutions, which could create operational and organisational challenges for departments and SOEs through adopting a one-size-fits-all approach. It will therefore be necessary for regulations to address the nuances in the operations and functions of organs of state.
Another contentious provision is a limitation to the effect that all bids must be in South African currency. It is not stated whether contracts concluded pursuant to these bids must also be Rand-based.
The Bill is still to be debated and passed at the National Council of Provinces (“NCOP”) in early 2024 and will need to be debated in each of the nine provincial legislatures. Any further amendments made by the NCOP could require further deliberation by the NA. For now, organs of state are bound by the existing procurement legislation and must ensure that all procurement activity is undertaken in a manner that complies with the constitutional procurement principles.
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