AMABHUNGANE COMMENT
Why we must do all we can to prevent the Public Procurement Bill from becoming law
South Africa’s tender system has been identified as the dark heart of public sector corruption and state failure. Despite this, the National Treasury is refusing to use the first major legislative overhaul of the system to make any meaningful changes.
Corruption is eating away at South Africa’s economy, our integrity and our sustainability. Our tender systems are facilitating much of this. According to the Special Investigating Unit’s advocate Andy Mothibe, up to 90% of the cases on their books are tender fraud and corruption.
We know it: just last month we published a story on a proposed R3.7-billion deal between PetroSA and Russia’s Gazprombank, based on seemingly irregular tender processes.
The President knows it: at the recent National Dialogue on Anti-Corruption President Cyril Ramaphosa said that we must “look at the integrity of the [tender] systems because that is where the money is found and that is where all these thieves, thugs, focus their attention on because that is the centre that dispenses the resources that they want to steal”.
Chief Justice Raymond Zondo knows it: at the National Dialogue, he said that “closing the taps” on tender corruption would make a significant impact on combatting corruption as a whole.
Read more in Daily Maverick: ‘Levels of corruption have reached completely unacceptable proportions,’ says Chief Justice Zondo
In fact, Zondo knows so much about the link between corruption and tenders he wrote a chapter on procurement (the tendering for goods and services) in his State Capture Commission Report. He wrote that one of the lessons we must learn is that “the public procurement sector cannot defend itself against those who control the levers of political and state power”.
But those who do control the levers of political and state power seem utterly unfazed by the urgent need to stem the flow of tender-related corruption.
Ramaphosa’s biggest test
The Public Procurement Bill is currently before Parliament. This week, the Standing Committee on Finance accepted a revised version of the Bill and sent it to the National Assembly for consideration.
We have previously described it as the most consequential piece of legislation of Ramaphosa’s administration. Yet, the manner in which this Bill has been handled by its drafters and Parliament is deeply concerning.
As appears to be the trend now, the National Treasury, rather than the parliamentary committee, drove the law reform process. The National Treasury produced the draft Bill which was published for public comments, consolidated and considered those comments, and proposed changes to the Bill for the committee to vote on.
However, the National Treasury acknowledged in its most recent report to the committee that it had considered only 36% of written submissions. In other words, the entity responsible for reworking the Bill to respond to the concerns raised by the public simply chose not to read two out of every three public submissions.
The National Treasury explained that the sheer volume of submissions meant it simply could not get to all of them.
The committee was at pains to state that it had met its obligations to facilitate public participation in the lawmaking process, referring to “robust stakeholder engagement” in its report.
But considering only a third of the submissions is not acceptable: comments, suggestions and proposals from academic experts, grassroots representatives and those with direct experience of the tender systems are likely to have been ignored.
Even more concerning, the National Treasury introduced a chapter on “preferential procurement” based on some of the submissions received. This chapter — dealing with the thorny issue of balancing the need to transform SA’s economy while ensuring cost-effective public contracting — was never put out for public comment.
Preferential procurement refers to the constitutional requirement that public procurement be conducted through a system that is fair and equitable. In the past, this has led to the adoption of a ranking system where tenders have been scored on the 90:10 or 80:20 rule, meaning a company’s BEE score counts for 10-20% of the points it receives. However, as we saw during the State Capture era, preferential procurement rules were manipulated to divert billions from Transnet and Eskom. And the Constitution also requires that procurement be competitive and cost-effective. The Bill fails to explain how these priorities are to all be achieved.
The new Bill, if it becomes law, will leave it up to government departments and state-owned enterprises to set their own rules for what constitutes fair and equitable procurement, leaving the gate wide open for the same kind of abuses to continue.
Zondo has repeatedly stressed the need to prioritise value-for-money procurement. This is not only motivated by economic interests, but also because of how the evidence at the State Capture Commission illustrated that the lack of priority given to cost-effectiveness in awarding tenders results in corruption in the government and state-owned enterprises.
That the committee could assent to a Bill without having had public participation in such a weighty chapter is inconceivable.
Weakening protections
Unfortunately, it appears to be just one example of the committee and the National Treasury’s failure to engage with the need to develop a tender system that can identify, prevent and ensure accountability for corruption.
When the Bill was first published, we highlighted our concerns that the anti-corruption measures it would implement were too weak and that its failure to consider an independent procurement accountability mechanism would open the system up to abuse.
During deliberations, the Bill, astonishingly, has become even weaker on integrity and anti-corruption.
The Bill automatically excludes certain categories of persons from tendering for government contracts. This initially included leaders of political parties. We and others called for these categories to be expanded to include additional political party office bearers.
But the committee resolved to remove them from the Bill altogether.
Zondo had recommended that whistle-blowing be incentivised as a way to identify and prevent corruption. A number of the submissions also emphasised the need to incentivise and protect whistle-blowing, particularly after the assassination of Babita Deokaran, the public servant who dared to blow the whistle on the Gauteng Department of Health.
However, the National Treasury and the committee felt that it was not appropriate for there to be a separate whistle-blowing provision for procurement only and noted that the Department of Justice was undertaking a review of SA’s whistle-blowing laws.
Other pieces of legislation — such as the National Environmental Management Act — have introduced sector-specific whistle-blower protection clauses. And any updates to the broader whistle-blower regimen are likely to take years before adoption.
Public Procurement Office
Another serious concern is the capacity of the Public Procurement Office (PPO) and its ability to effectively play all the roles it is allocated by the Bill.
The PPO is supposed to regulate all procurements and to conduct oversight and accountability for non-compliance. It is also required to identify possible criminal irregularities and refer those to law enforcement.
This means that the PPO is effectively both player and referee in the tendering game, which has a direct bearing on its ability to effectively identify corruption and take action against those responsible.
There is a debate that must be had over the correct location of the PPO. Many procurement specialists — including Professor Geo Quinot and former chief procurement officer Kenneth Brown — have argued for (at least) the regulatory powers of a procurement office to be located outside of the National Treasury.
The problem is the committee accepted the Bill without any deliberation on the PPO’s location, need for independence and capacity to effectively combat corruption in procurement processes.
Laws are failing us
In his State Capture Commission report, Zondo eviscerated the efforts of those responsible for curbing procurement-related corruption:
“It seems scarcely believable that the constant flow of legislation over the years had so little impact in curbing corruption and that the combined efforts of Parliament, National Treasury, the Auditor-General, the Provincial Treasuries and National and Provincial Governments could have been so ineffectual.
“The efforts, albeit failed efforts, to address corruption show that there is no easy solution to the problem. Corruption has strengthened its hold and extended its hold on public procurement over a very long period of time. Clearly, a new approach is required; it cannot be the same mixture as before.”
As South Africans, we should be angry that, despite Zondo’s warning, those with the power to make legislative changes are treating this so lightly.
We should be angry that those we have entrusted to represent our interests have failed to take seriously the need to stem the corruption flowing through procurement.
We should be angry that — despite everything we know about how tenders are used to facilitate illicit wealth accumulation — those who have the power to introduce restrictions on who can benefit from tenders have looked after their own interests rather than the country’s.
And we should be angry that Parliament and the National Treasury pay the public so little respect that they’d rather rush through a law than take the time to consider the submissions made by members of the public desperate for a government that works.
But the Bill is not yet law. The National Assembly and the National Council of Provinces have to vote on it. And then the President has to sign it into law.
The window of opportunity to create a tender system that does not serve as a cash cow to those with power and connections is closing rapidly.
But we still have a chance. We must do what we can to prevent this Bill becoming law. DM
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To be correct the 90/10 or 80/20 preferential procurement points were based on a companies BBBEE score, not BEE score as stated in the article. BBBEE scores various broad based BEE elements where BEE is narrow based looking at ownership.
Any suggestions as to what we can do?
Insert a clause into the Constitution that establishes a National Procurement Agency as a completely independent Chapter 9 institution. Any government entity — from municipal departments right through to SOEs — that wishes to procure anything must submit their request to the Agency, who will vet the specifications, issue the RFQ, and manage the entire tender process from start to finish, based on relevant legislation. The Agency’s Director is to be appointed by direct public election, from a shortlist of candidates each approved by 60% of parliament, for a maximum of two five-year terms. The Agency’s mission would be to replace the procurement divisions currently duplicated in each government entity, and to streamline procurement processes to be as simple and cost-effective as possible — for both the government and the suppliers — while still promoting broad and equitable procurement with as much local production components as is reasonable. There would be a strong focus on setting acceptable norms & standards in the goods & services procured, in concert with the SABS. Challenges to the Agency’s awarding decisions can be lodged in a dedicated Procurement Court with specialist judges.
Of course, WE can’t do this, not directly. But we could become activists for independent and rational procurement.
Erm, or, how about appointing public officials who abide by a modicum of norms and principles, let alone rules and regulations?
We are printing handbooks for people who are either incapable or unwilling to read them…
Part of your idea , if memory serves is already available at Treasury . Just needs to be moved out into and add your additional ideas.
The fundamental problem is that in order to implement any sort of rule, you have to have the agreement of the majority that this something worthwhile supporting. If you don’t, you will constantly be undermined. It seems that the majority of South Africans think stealing, corruption and deceit are perfectly acceptable, in fact quite admirable – the flaunting of wealth by our criminal leaders at public events is evidence of this. So if the minority (growing smaller as young people flee the chaos) want to stop the crime, implement change, it becomes extremely difficult.
The most disappointing thing is watching this country and its infrastructure collapse in a heap.
That’s the sad truth and seems to be unchangeable. So well pointed out, thanks Jennifer.
Having been involved in Public Sector tender preparation for over 20 years, I know that the concerns raised in your article are all valid.
There is a bigger picture though.
Compared with the complex problems facing the rest of the world, our challenges are relatively simple.
If we could only stamp out corruption, and fill public sector positions based on merit, we would place the country on a far more positive trajectory.
Instead, we are witnessing a feeding frenzy as more and more corrupt people compete for access to the ever-diminishing pool of public funds.
And then of course there are the impending elections, the potential aggregate loss of personal wealth is spurring all on to new heights (depths ?) of greed.
Perhaps, in the words of President Jan Brand, “Alles sal reg kom”.
Economic malaise and burdensome costs killed the Nationalist Apartheid Government. The same factors will kill the ANC Rotten Regime. The only question you need to ask is what will follow? And if you look North on this dark continent, the answer to that one should be reasonably apparent.
The ANC National Treasury have their priorities!
Lessons can be learnt from leading industries on how to execute successful procurement.
One of the initial low-level in the evolution of procurement is where it reports to the financial department and is typically seen as an administrative function. The focus is the adherence to procedures, the mistaken belief that the lowest price equals highest value, “testing the market” will elicit an adequate response from suitably qualified suppliers with zero collusion and corruption that may result in any underhanded actions that will influence the purchasing decision.
It is common cause that the lowest price selection is typically a setup for failure. Factors like lead-time, technical ability, availability of capacity and on-time delivery are simply ignored. This necessitates the move from cost-based procurement to value-based procurement.
One of the fundamental mistakes are that all items are equal and that there should be no difference in strategy when procuring them.
First of all there are products that are freely available in the market. Your local supermarket, stationery store or hardware. Asking for quotes will deliver very similar prices while the effect on the total spend is negligible. These items can be procured using P-cards or term contracts to reduce the effort required to procure.
Secondly, items of a technical nature are vital to the continued operation to the organisation. Should the decision to be to follow the tender procedure, it will lead to extensive delays in repairing the equipment, leading to a severe lack of service delivery. Most of these items require immediate replenishment, so tenders are not suitable either as an interruption of the service is unacceptable.
Thirdly, tenders and the three-quote system can only be used if the user knows exactly what he wants, there is a Bill-of-Quantities and there is a large number suppliers. Adequate quality procedures are in place to enure standards are met. Standard materials are used, so the cost of those items are well-known, but they are assembled in some unique way, for instance with building and construction work. Materials, labour, overhead cost and profit make up the price, so the real issue is whether the supplier is proficient and can effectively deliver a quality product on time and within the specified budget.
Lastly, there are the technically complex items of a capital nature. This represents the major part of the procurement budget and require a long-term commitment from both Original Equipment Manufacturer (OEM) supplier and customer as the item will require technical support, upgrades and spare parts for a very long time, typically 15-20 years. With these items, the Total Cost of Ownership is the most important factor as you cannot flip-flop between suppliers, Willie with his bakkie and a few spanners simply won’t do!
One only has to look at the automotive industry to see the impact of world-class procurement. There is a seamless integration between assemblers and suppliers. Once in business, they will always endeavour to make the partnership work where both the risk and reward is proportionally shared.
The proposed act fails in addressing the current problems with state procurement which is a major factor in state failure. There is a world-wide trend to centralise procurement, the act does the exact opposite! It still falls under Treasury, so the focus will always be on the mistaken belief that tenders will deliver the best value as well as the adherence to endless acts and regulations that attempts to double down on something that will never work. Lastly, it seems to be a desperate last-ditch attempt to make entrench “ANC favourable” procurement.
If only government can deliver services as the automotive industry builds cars!
As someone who have been involved in public procurement on both sides, I like some of these suggestions. I would add the need that there must alwys be strong, documented rationale why professional services should be procured instead of it being done inhouse by existing staff. Too many municipalities outsource work for which they have ample capacity to do internally.
I would also add the critical fact that no matter the letter of the law or rules, at the end of the day its the people involved & the institutional culture. If the institutional culture favours or is ambivalent about corruption & you have people interested in self-enrichment, then corruption will flourish. And the opposite also happens – a culture of delivery & staff focused on societal outcome/impact will be less likely/willing to be corrupt, or tolerant of corruption by colleagues.
There is a distinct difference between capacity (hours available to perform work) and capability (the ability to produce at an acceptable norm and standard). Many cadres were appointed because they had the “potential” to do the work, which obviously failed to materialise.
Competent workers were quickly sidelined because they stood in the way of a fellow cardre’s “turn to eat”.
The old adage apply: How do I make myself look like a genius? Surround yourself with idiots.
Joh! Thanks Jan, and Sarel, for very compelling thoughts, from experience and best practice.
The astronomical eye-watering amounts paid over the last say 20 years, how little there is to show for it, imbedded poverty and off-the-charts inequalities, coupled with the wholesale collapse of administrative capabilities of the state will surely be studied by academia and think tanks in the near future.
I don’t think we have quite reached the bottom of the failure hole yet, simply due to the fierce resistance to any change, but in five or seven years the playbook will implode.
So we must hang in there till then and not give up.
Because then it’s truly over. Can’t let that happen.
Having had dealings with my local municpality for both electricity and water, I can comment as follows:
We used to have public works departments filled with mostly competent people but now all the work is being subcontracted out, for obvious reasons – backhands and politicians having direct dealings in the contracts. This all = money. The public works departments are still staffed but do next to nothing. An example of this is that we had a serious water leak outside our premises. Finally the locally municipal plumbers arrived and I was very pleased to see them only to be informed that they were only there to switch the water mains off further down the road so that the sub contractor could get to work on the pipes. In essence the same story occured on the electricity side but this time the incompetent contrators nearly killed themselves while the works department guys pitched up dressed like they were going to dinner and refused to get involved! So us tax payers are probably paying double the amount for repairs to all infrastructure and that is why nothing gets done because budgets are quickly used up and then there is no money left for the important stuff.
What can we do … short of getting rid of this utterly incompetent and corrupt government in our next elections???
In countries that respect democracy, the rule of law, and the rights of all citizens: All government procurement, by law, had to go go through a Central Tender/Procurement Board which is set up,
specifically, to stop Tender fraud by Tender Entrepenuers and government officials. The USA had to implement a similar system to prevent rampant thieving. SA used to follow this system. The USA still follows this sytem…
However when the ANC came into power, this was canned on the premise that SA had to cater for BEE. This then became a free for all – all tenders were contolled by the ANC Cadres deployed by the government.
The cadres do not want to give up this cash cow. Now tenders can be put out by any cadres in a management position or with contacts in high places and that’s where the problem arises. it is very easy to tell a tenderer to put a bit more on for the cadres in charge which will be given out later to designated cadres by way of devious means, who participated in the dirty deal. And that’s also where the money laundering also took often took place. The filthy thieving scounderels getting away very easily with millions and billions…
Ask the USA, we must go back to this cadre-proof system…
After being involved with SAPS project in NW Province I can tell your readers that ANC corruption will never stop. All tenders are just for the well connected comrades and Cyril is the biggest problem SA has ever experienced not even Zuma comes close to him and his band of thieves. Sorry to say but SA has lost the fight against an corrupt ANC political party who will never change. Viva let’s pray change comes in 2024
Once again I’m feeling sick after reading this article; adding to the sick I feel with no water at all after 10 days of some/nothing/some/nothing/ normal/some /nothing some/nothing. In fact there is enough to make me sick all day every day.
Like in the rest of Africa the terrorists that took over the government just carry on with another form of terrorism, namely economic terrorism, to enrich themselves and bled the country dry just to over enriched themselves.
All this is promoted on the back of parity for the people… Read.. payback time for the ills of the past.
So in a nutshell paying for the sins of the forefathers. So hear we are with aging political depots taking the national microphone and telling the downtrodden thats its all in their best interests to “spread the manure for the benefit of the village”…what thinly veiled nonsense, whilst back at the ranch, the minions die like flies… the manure is feeding the crops of the ANC… recall that famous saying..” the children of the revolution will rise up and kill the revolution..” .. well bunker down it’s about to happen.
Transparency in public spending should be total. It is public money, so the public has a right to know. Confidentiality? Stuff that : if you want to sell to the public then deserve to know your beneficial ownership and what you charge for what goods and services.
Publication of all invoices over some low hurdle would allow Joe Bloggs that knows a mop cannot cost R9000 to flag the invoice for investigation. Pay Joe a % of the savings his appeal generates and at same time ban the beneficial owners of the vendor from future state work. While at it, flag the vendor at SARS and add beneficial owners to database all banks need to place under close watch.