The SA National Roads Agency (Sanral) has withdrawn its preferential procurement policy that faced court action from the construction industry because it heightened requirements for firms to have a favourable Broad-Based Black Economic Empowerment profile to win tenders from the state-owned enterprise (SOE).

The board of Sanral announced on Tuesday that it had withdrawn the procurement policy, which it implemented in May, but has since been successfully challenged by the construction industry, saying that it wanted to avoid further legal action.  

The board plans to consult the construction industry about reworking and finalising a new procurement policy. As an interim measure, Sanral will revert to an old policy to adjudicate new tenders relating to the expansion and maintenance of roads and key arteries across SA.  

Sanral board chair Themba Mhambi said the legal challenges to the procurement policy had resulted in the SOE being “prevented from proceeding with the processing of close to 80 tenders worth billions of rands”.

“The board of Sanral has adopted the decision to withdraw the new preferential procurement policy because of the negative impact these court challenges have, including the fact that we anticipate that the lengthy court processes will cause significant delays to the work of Sanral,” Mhambi said in a media statement.

Damage control

Some market watchers have quipped that the Sanral board is now doing damage control by withdrawing the preferential procurement policy that has been described as “unworkable” and even “illegal”, as the SOE has already clocked up bruising court losses around the policy, with more possibly to come.

At least two construction firms, H&I Construction and SMEC South Africa, have successfully obtained interim orders from the Gqeberha and Pretoria high courts to stop Sanral’s evaluation of new tenders using its new preferential procurement policy. Both interim interdicts were granted pending court applications to review and set aside the new policy.

The construction industry has rallied around H&I Construction in its court action against Sanral as the former is supported by as many as 11 other construction firms, including Stefanutti Stocks, Power Construction, and Baseline Civil Contractors. The firms have argued that the preferential procurement policy would significantly downgrade their Broad-Based Black Economic Empowerment (B-BBEE) status and leave them unable to do business with the state and its organs.

South Africa has a well-developed construction industry and most companies have spent a lot of money to improve their transformation/empowerment profiles, as many firms are 100% black-owned.

The preferential procurement policy has caused conflict within Sanral’s corridors and the SOE’s chief financial officer, Inge Mulder, and Inba Thumbiran, the head of supply chain management, were suspended apparently because they disagreed with the terms of the policy and refused to implement it.

Read more in Daily Maverick: Sanral doubles down on new procurement rules despite signs of tension in its corridors 

The Sanral board’s preferential procurement policy

Preferential procurement is a system that paves the way for historically disadvantaged groups and companies to earn extra points in the scoring of tenders, helping them to emerge successful in the bidding process. 

In the past, Sanral used a bidder’s B-BBEE rating to allocate a max­­­i­­­mum of 10 or 20 points out of 100 (depending on the value of the project) for compliance with the SOE’s preferential procurement requirements, mainly its empowerment criteria. Companies with a Level 1 B-BBEE rating (the highest and most coveted empowerment status) could automatically receive the full number of points.

In May, Sanral abruptly changed the weighting of the 10 and 20 points for preferential procurement to provide maximum benefit for 100% black-owned firms. Sanral’s changes, argued H&I Construction, would relegate a bidder’s B-BBEE rating to a mere one point, in the case of a tender valued at more than R50-million, or two points when a tender has a value between R30,000 and R50-million.

The Sanral board has now scrapped this new procurement policy and reverted to the old one as an interim measure. The effect of the board’s decision is that all new and advertised Sanral tenders that have not yet closed and were adjudicated using the new procurement policy, will be cancelled.

The Sanral board said the tender process would be started afresh using the old procurement policy — a “decision which has been reached with much angst in light of the urgent need for the services to be rendered. Sanral intends to expedite the re-advertisement of tenders and processing thereof within this current financial year.”

Sanral has about 200 tenders that have been advertised with a value of about R33-billion. An estimated 80 tenders with a value of more than R11-billion will be affected by the board’s cancellation and requirement to re-advertise tenders.

Sanral CEO Reginald Demana said, “A protracted legal battle between Sanral and the construction industry would have dire consequences and not only for Sanral’s projects, which run into billions of rands but would also be detrimental to the entire economy. Clearly, it is not in the interest of Sanral, nor is it in the national interest, to delay our infrastructure build programme.” 

It is a dramatic U-turn by Sanral, considering Demana and Mhambi (the board chair) recently launched a spirited public defence of the new procurement policy, with the pair saying that transformation was a constitutional imperative, and “we will continue to drive it as long as we are the governing structure of Sanral”. DM