2. ACHIEVING GOOD GOVERNANCE IN PROCUREMENT

Contents

In order to achieve the ideals of good governance and to address the changed environment, some fundamental institutional reform will have to be implemented; such reform needs to promote efficient and effective procurement systems and practices which enable government to deliver the required quality and quantity of service to its constituents.

The establishment of uniformity in procedures, policies, documentation and contract options and the implementation of sound systems of control and accountability need to form the cornerstone of institutional reform.

2.1. Objectives

  1. To promote effective and efficient procurement practices and systems to enable government to timeously deliver the quantity and quality of services demanded by its constituents.
  2. To achieve continuing improvement in value for money, based on whole life cost and quality.
  3. To enhance the competitiveness of suppliers through the development of world class procurement systems and practices.
  4. To ensure that control and accountability is maintained through comprehensive auditing .
  5. To achieve a uniform procurement system with standardised tendering procedures, policies and contract documentation for implementation at national and regional level.
  6. To ensure that public sector procurement complies with the provisions of the constitution.
  7. To ensure consensus within government on the reform of the public procurement process, and to encourage the adoption of the reformed process by all public sector procurement agencies.

2.2. MEETING THE CHALLENGES

2.2.1. Background

Government's overall strategy for procurement should be to achieve value for money and to develop world class procurement systems and practices.

The goal of continuous improvement in public sector procurement requires a clear lead and strong commitment through sound management practices. This, together with the basic values and principles governing public administration as enshrined in the constitution, provides a framework to develop sound organisational and institutional arrangements that will result in a public procurement system which becomes more efficient and effective.

The function of government is to govern effectively by adopting best practice in all its activities, rather than to be reliant on consensus decisions, in order to ensure the long term success of its delivery programme. Clearly, the public must be encouraged to participate in policy making but thereafter the government must take responsibility and act in terms of its mandate.

From an international perspective, South Africa is now an acknowledged player in the global economy, although still recovering from the after effects of world isolation. To succeed, South African businesses need to be competitive in line with the rest of the world. In addition, the country is required to comply with international agreements, standards and procedures relating to procurement matters. International tendering will also require acceptable documentation and systems that are compatible world wide. Over and above this, the rules of accountability have taken on a double dimension with the trend towards international agreements laying down rules for public procurement: government officials may find themselves accountable for acts and omissions not only under their own national procurement regulations but also under international agreements guaranteeing fair and equal treatment of foreign participants in the procurement process.

Public procurement procedures in most countries are coming under international influence through the conditions attached by international funding agencies to procurement under their various loans and grants. Aid agencies generally reserve for themselves the right to review the procurement process for individual contracts as a condition for disbursement. Those same agencies are also paying more and more attention to public management in general. Watchwords such as 'governance' and 'implementation culture' have come to be associated with concern over the standard of public administration and with efforts to combat corruption.

Accordingly, the Government's overall strategy for procurement should be to achieve continuing improvement in value for money, based on whole life cost and quality, and to enhance the competitiveness of suppliers through the development of world class procurement systems and practices.

Success in the more open economic environment requires consistent

and integrated policies.

World competitiveness nowadays depends as much on comparative advantage in the public policy area as it relies on technology, human resources and physical capital.

Government must play this clear policy co-ordination role.

2.2.2. Discussion

Efficiency and effectiveness in public procurement is about setting new standards.

The quest for efficiency and effectiveness in public procurement is about setting new standards. An integrated approach of effective administration and the adoption of best practice principles form the underlying theme of good governance.

Organs of State should be best practice clients and intelligent customers. Amongst other things, they should be able to:

Important specific aspects involve the following:

i. Training and skills development

Little change will be achieved without adequate training. A structured programme to impart skills development and professionalism should therefore be introduced for those with procurement responsibilities.

Consultants specialising in the management of change processes should be appointed to advise certain organs of State on how to reshape their procurement organisation and processes. The intention is to use these organs of State as a pilot for others to adopt successful change programmes themselves.

Procurement staff will require a mix of three sorts of training, depending upon the degree to which they are involved in procurement.

ii. Partnering

There should be a continuing emphasis on fair competition. However, it is acknowledged that competition must be coupled with constructive and co-operative relationships with suppliers. Accordingly, there is a great deal of current interest in partnering or partnership sourcing. The term refers to arrangements under which customers and suppliers decide to collaborate closely in order to deliver requirements such as cost reduction, improved quality or innovative solutions, rather than to conduct all their business at arms length.

iii. Benchmarking

Benchmarking is, increasingly, being recognised as a powerful tool to enhance performance, improve processes and act as a catalyst for change. Studies often reveal performance differences of several orders of magnitude which can be used to improve organisational efficiency in a motivating and rewarding manner. It can be used by organs of State, to compare their procurement processes and performance against the best there is to be found and to improve their own practices to match world class standards. As a result it aids and empowers employees to contribute to, and manage the change process with the added advantage of being able to constantly challenge the way things are done. However, best practice is not static and therefore development should be used as the basis for continuous improvement. Accordingly, benchmarking can play a significant role in strategy formulation, service delivery, process innovation and as a catalyst for change. In this way, departments can achieve a continuing, rather than static, programme of improvement.

iv. Information-sharing and collaboration

Collectively, procurement personnel in organs of State possess a great deal of knowledge and experience. Ensuring that this is fully shared within and between organs of State will be of major benefit to all. As few procurement problems are unique, solutions developed in isolation will, at best, involve duplication and, at worst, mean failure to secure the best available solution. Simple user-friendly information systems can be developed to facilitate active exchange of information.

v. Co-operation with suppliers

Relationships with suppliers should combine competition with co-operation. Government must attach the greatest importance to honesty, fairness and even-handedness in their relations with suppliers and to avoid conflicts of interest. To support ethical standards, the use of procurement procedures, which are proof against fraud and corruption should be of the highest importance. Tendering is burdensome, and costly for suppliers. Organs of State should seek to ease these burdens, in particular by avoiding lengthy and over-prescriptive specifications of requirements, by not asking suppliers to provide information unless it is absolutely necessary and, wherever justifiable, by inviting only a sufficient number of them to tender to provide genuine competition.

vi. Change management

Changes to requirements present a major management challenge. If poorly handled, they may lead to a significant increase in costs and a loss in quality of service. Where end-users put forward changes in requirements in the middle of a contract, the first task is to test carefully whether the new requirements are really necessary. They must understand clearly the cost and other implications of change. Organs of State should seek to establish relationships with suppliers in which both sides are willing to share the risks and potential benefits arising from changes and circumstances.

vii. Constitutional Provisions

A new procurement policy should comply and be consistent with the constitutional provisions. In this regard, the Constitution under the section on Procurement reinforces the principle of good governance and states: when an organ of State in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

In addition, good governance is further reinforced under the section on public administration which emphasises the following principles:

Existing and future procurement procedures, including those relating to the purchase and sale of property, disposal of moveable assets and the procurement and sale of fixed assets needs to be reviewed to ensure compliance with the provision of the constitution.

viii. Knowing the supply market

Organs of State should not act in ways which damage competition, for instance by assisting the growth of monopolies or cartels. They should weigh the short term gain against the long term risk to both sides in situations where either party can become over dependent on the other. An active programme to encourage suppliers to enter new markets should be promoted.

Keeping the market informed about opportunities and briefing suppliers about procurement decisions can have a positive impact on future contracts. A good understanding of the supply market, can provide an opportunity to monitor and control quality.

The establishment of databases of suppliers, services providers and contractors, which cover the markets within which such firms are operating, will enable best practice choices to be made when procurement strategies are decided upon. This is particularly important when implementing socio-economic policies and developing partnerships with foreign firms.

ix. Integrated Procurement

The procurement process must be seen as an integrated whole in order to maximise the opportunities for improving quality and reducing whole life costs. Organs of State need to look at the procurement process, from the initial identification of requirements to the point at which the acquisition reaches the end of its life. The procurement process should be broken down into logical steps that can be followed successfully with a minimum of management intervention and duplication.

Goods not wholly consumed in the course of use will have to be disposed of when they are no longer needed. Some assets may have a residual or resale value; for others there may be a cost, including an environmental cost, in respect of their disposal. All there factors should be taken into account in an integrated procurement process.

The concept of 'Total Cost of Ownership' must be introduced and emphasized. This cost takes into account all the costs including acquisition, personnel training, operation, maintenance, modification and disposal. As such, 'Total Cost of Ownership' should be used as a tool for decision making. With some acquisitions, particularly, capital assets, the greater part of the whole life cost is inevitably incurred after purchase. Procurement decision making must shift from 'Price Focus' to 'Total Cost Focus'.

x. Purchasing Management

Efficient performance of the purchasing management function can be of considerable benefit to the State by ensuring that the correct goods of the appropriate quality are purchased and received in the correct quantities, at the right time and at the right price. To ensure that the purchasing management function is effectively carried out, it has to be well managed, just like all the other management functions of good governance.

Purchasing management comprises the planning, organisation and co-ordination, as well as the direction and monitoring, of all the activities that are bound up with the procurement of goods. The most important purchasing management activities that have to be performed are:

Efficient purchasing ensures that 'out of stock' situations do not arise, that State finances are not unnecessarily tied up in large inventories, that the minimum amount of stock is written off or cleared and that good relations are maintained with suppliers. Careful management of this function makes it possible to obtain an optimum combination of price, quality, time, place and quantity.

High inventory levels can lead to additional costs and risks including those associated with storage. It is essential for procurement departments to establish optimum bin levels. This can be achieved by utilising effective purchasing systems which embrace appropriate control systems.

xi. Corruption

Corruption is morally and economically damaging. It jeopardises the procurement process, is always unfair, and often criminal. It saps money from much needed development projects, and adversely affects their quality. Corruption, apart from permitting wasteful procurement to occur, undermines values of society, breeds cynicism and demeans the individuals involved. Accordingly, there should be continuing vigilance in the procurement system to prevent and to react to the blight of corruption.

In particular, strong action will be taken against practices such as ringforming, fronting, tax evasion, and fraudulent preference claims. Organs of State should either impose sanctions on contractors in the form of penalties or cancellation of contracts, or recover all costs, losses or damages incurred or sustained. Good financial control is dependent upon an honest and competent Public Service. Accordingly, accounting officers must be responsible and accountable for all expenditures incurred and strong action should be taken against civil servants who misuse their authority and are involved in corrupt practices.

xii. Tax Morality

A culture of tax morality needs to be developed amongst suppliers, service providers and contractors. All businesses have various tax, levy and service charge obligations; some meet these, others don't. Those businesses that fail to meet all these obligations, apart from denying organs of State revenue, have unfair competitive advantages over their competitors. This situation is unacceptable. It is imperative that measures be put in place to ensure that those who are participating in public sector procurement have "good standing" insofar as their tax and service charge obligations are concerned.

The reformed Procurement system should ensure that all suppliers, service providers and contractors declare in their tender submissions that they have fulfilled all their tax, service charge and levy obligations, or that arrangements have been made with the South Africa Revenue Service or relevant authorities to fulfill these obligations. Should it be found that the declaration is false, organs of State should, in addition to any other remedy they may have;

Information supplied in Tender documents should be disclosed to the South Africa Revenue Service or any other statutory body collecting taxes. Arrangements must be made with the South Africa Revenue Service to implement the necessary control measures.

xiii. Labour Practices

All suppliers, service providers and contractors are compelled by law to comply with provisions of various pieces of legislation, such as the Labour Relations Act; the Workmen's Compensation Act; Unemployment Insurance Fund and Occupational Health and Safety Act. There is, however, a need to promote better practices in respect of human resource development, employment equity, health and safety, and conditions of employment amongst suppliers, service providers and contractors. Various studies have argued that there is a dividend in respect of productivity and efficiency associated with good employment practices. Those businesses who do not adhere to their labour obligations, apart from exploiting their employees, have unfair competitive advantages over their competitors. This situation is unacceptable. Measures need to be put in place to ensure that those who are participating in public sector procurement adhere to labour standards. Best employment practices need to be promoted and recognised.

2.2.3. Principles and proposals

The strategy for procurement should be to achieve continuing improvement in value for money based on whole life cost and quality and to enhance the competitiveness of suppliers, through the development of world class professional procurement systems and practices. Within this strategy organs of State for their part, should do their best in all dealings with suppliers and potential suppliers:

Organs of State should look to suppliers, service providers and contractors in turn to observe similar standards of integrity, professionalism, co-operation, courtesy, competence and efficiency without compromising labour standards. Furthermore, such enterprises should be required to demonstrate "good standing" as far as all their tax, levy and service charge obligations are concerned as a prerequisite to doing business with organs of State. Failure to meet such obligations should be sufficient grounds for exclusion from participation in public sector procurement. All procurement data bases reflecting contracting activities should be made accessible to officials of the Receiver of Revenue.

2.3. UNIFORMITY IN TENDER PROCEDURES, POLICIES AND CONTROL MEASURES

2.3.1 Description

Tender Boards in South Africa have the power to conclude agreements, invite offers, determine the manner in which, and the conditions under which, offers must be made; and to amend or cancel the concluded agreements.

Organs of the State may only procure goods and services under delegated authority from these Boards.

Internationally, departments are responsible for their own procurement and Tender Boards, if present, perform an advisory and policy role without being directly involved in the award of tenders.

The present procurement system is maintained through a formal tendering system. Contracts are awarded by tender boards comprising government officials and non-government persons which are presently established in terms of National and Provincial Acts. The State Tender Board for example, enjoys certain powers in terms of the State Tender Board Act, including the power to conclude agreements, invite offers, determine the manner in which, and the conditions under which offers must be made, to inspect and test supplies and services offered and to amend or cancel the concluded agreements. The responsibility to appoint members to the State Tender Board rests with the Minister of Finance.

The establishment and purpose of Tender Boards is traditionally seen as an effort to ensure sound decision making in a fair and evenhanded manner and as a means to ensure that fraudulent practices are minimised. Their prime function should be the overseeing of procurement in order to ensure that the procurement of goods, services and works is conducted in a fair, equitable and transparent manner in accordance with the prevailing legislation and within the parameters of government policy. Tender Boards are, as such, concerned with the handling of tenders whereas consumer departments are concerned with the administration of contracts which have been awarded.

As the law stands at present, the State Tender Board Act does not supersede the Provincial Tender Board Acts. Provincial Tender Boards have the authority to determine their own conditions under which offers are to be made. It is therefore inevitable that this results in different tendering cultures occurring throughout the country and different interpretations of what constitutes procurement reform, affirmative action, stimulation of local economies and the like. Co-ordination is difficult in these circumstances, particularly in so far as uniformity in approach and avoidance of duplication of effort is concerned.

It is impractical for Tender Boards to deal with all procurement matters pertaining to goods, services and works falling under their jurisdiction. Accordingly, Tender Boards frequently delegate authority to consumer departments or local authorities should these entities have systems in place to effectively manage and control procurement activities. Delegation eases the work load on Tender Boards and in effect streamlines the procurement process.

National and Regional Tender Boards, particularly those which are comprised of both government officials and non-government persons, are seldom encountered in Public Sector Procurement in other countries.

For example, the award of contracts in the United Kingdom, is the responsibility of the department concerned. There is no system of referring tenders to tender boards; contracting agencies are free to set up internal committees for the evaluation of tenders. In France, tender boards play more of an advisory and policy role and have little power to review individual contracts. Many of the former British colonies permit departments to award tenders up to a certain threshold and have either permanent tender boards or ad hoc arrangements to deal with the award of large contracts.

Internationally, there are also different approaches to the regulation of procurement. In Anglophone Africa, which is reflective of British administrative practice, government procurement regulations often form part of the financial regulations. As a consequence, procurement procedures are enforced upon ministries, departments and other government agencies as part of a broader set of financial instructions. In Francophone Africa, which is reflective of French administration, procurement regulations are detailed and inclined towards central control by trying to integrate the regulations on public procurement in one legislative structure, normally consisting of a public procurement code, accompanied by standard general conditions for contracts of different kinds. The entities subject to public procurement regulations may not only be government departments but also decentralised collective entities, public entities, majority state owned enterprises and corporate bodies to the extent that they use public funds.

It is acknowledged that the present system of procurement through Tender Boards in South Africa is often cumbersome and unwieldy and in some instances results in delays of functional services being performed by organs of State.

2.3.2 Vision

To have uniformity in tender procedures and control measures to ensure that procurement is efficiently, and effectively, utilised as an instrument of government policy throughout South Africa in a transparent, fair, equitable, competitive and cost effective manner.

2.3.3. Secondary vision

2.3.4. Constraints

The new Constitution requires that procurement must be in accordance with a system which is fair, equitable, transparent, competitive and cost effective.

Current constraints to the attainment of the vision include:

2.3.5. Discussion

i. Systems of control and accountability

The starting point for any discussion about public procurement organisation must be the systems of control and accountability applied to public sector expenditure. The crucial issue is the interaction between user departments, on the one hand, and organs in charge of control, on the other hand.

The continued role and functions of tender boards needs to be critically re-examined in view of South Africa's developmental objectives together with its programme to urgently deliver without undue delays. In addition, Clause 217(1) of the Constitution reads as follows "217.(1) when an organ of State in the national, provincial or local sphere of government or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective".

In this regard, the following control measures are currently in place:

With all the abovementioned control measures in place and given that the Government's current policy is to devolve more managerial responsibility to heads of departments, the following two questions arise:

Clause 217 of the Constitution also raises another fundamental question: should parastatals be subject to public sector procurement regulations and the like?

ii. Linkages between National and Provincial Procurement policies

Decisions taken by one Tender Board can impact negatively on, and set poor precedents for other Tender Boards.

Decisions taken by one Provincial Tender Board in the best interests of a province can have negative impacts on neighbouring provinces. A good example of this has been some recent decisions taken in respect of stimulating local economies. Preferences for local content in some provinces have led to market distortions as such preferences have inflated local prices and caused local products to be dumped at lower prices in neighbouring provinces.

Decisions by Tender Boards have in some instances set poor precedents for others, particularly in the areas where emerging enterprises are seeking to engage in public sector procurement. This raises unrealistic expectations which are often not sustainable and causes delays in the procurement activities of National Departments who are subject to the State Tender Board procedures and are often not in a position to adapt their contract strategies to fall in line with local precedents. The converse is also true. Much confusion exists within the business environment, particularly in the case of national enterprises who have to develop different strategies (which may be in conflict with each other), in order to secure contracts in different parts of the country.

The Constitution recognises the aforementioned difficulties associated with fragmented policies relating to developmental objectives. In this regard, clause 217(2) makes provision for organs of State and institutions identified in national legislation to implement a procurement policy which makes provision for "categories of preference in the allocation of contracts" and "the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination". Clause 217(3), however, requires that "National legislation must prescribe a framework" within which such policies may be implemented.

To achieve uniformity in National and Provincial Procurement laws, National Government should first develop clear, concise policy statements regarding its procurement reform objectives. Such policy should clearly state the Government's affirmative action and anti-discrimination objectives. Empowerment cannot be achieved outside the mutuality of these provisions. A framework for the dissemination and evaluation of these policies should be put into place to enlighten Local, Provincial and National leadership. It should consider stating - through appropriate legislative enactment - its minimum threshold expectation of Provinces in respect of participation goals, job creation goals, affirmative action goals, etc., and the establishment of conditions for appropriation of national monies to Provinces.

The introduction of targeted procurement as envisaged in Chapter 3 in order to affirm the reconstruction and development programme requires that value for money, in so far as the development component is concerned, needs to be monitored and measured as well as the attainment of the objectives themselves. Affirmative action policy and its impact on society needs to be researched, developed, co-ordinated and facilitated through a National Commission on Affirmative Action, comprising representatives of various Ministries, Provincial and Local Government appointees, parastatals, non-governmental organisations and private sector bodies, rather than by a collection of Tender Boards having a narrow focus solely on procurement related issues.

Central government should also consider the aggressive imposition of sanctions on violators of any National or Provincial procurement law, such that no contract involving allocations of national monies can be awarded by an organ of State or institution identified in national legislation to any contractor who has been sanctioned or prohibited from participating in national procurement processes. Such a sanction will deter fraudulent representation regarding issues such as equity ownership, management and the attainment of development objectives.

The State should further establish creative incentives to encourage provinces to implement threshold national reforms. This can, to some extent, be achieved by making major grants available to national, provincial and local bodies subject to such funds being used to further specific socio-economic objectives within well defined economically disadvantaged communities.

iii. The case for central tendering

Central tendering has, in the past, proved to be cost effective.

With regard to general period contracts which are contracts arranged on behalf of more than one department for the supply of universal goods and services, the principle of central tendering is advocated. Quantities are generally unknown and the purpose of these contracts is to obtain the best unit prices for the various commodities or services. Central government departments and provincial departments participating in these contracts, are compelled to purchase their specific requirements from the successful tenderers at the contractual prices. As these contracts, in many instances, have resulted in enormous savings for the government in the past and in all likelihood will continue to do so in the future, it is suggested that the offices of the State and Provincial Tender Board continue with these contracts. This action will have minimal effect on the functionality of the different departments as they are only compelled to order from contractors when they are in need of the specific commodity and/or service.

iv. The case for a Procurement Compliance Office

Given that :

The reconstitution of the offices of the national and provincial Tender Boards, the disbanding of the Tender Boards, the establishment of a National Procurement Compliance Office and a national legislative framework is advocated.

it is submitted that the continuation of the system of national and provincial tender boards would not best serve the country's procurement needs in the light of the changed environment and is not an appropriate mechanism to affirm the Reconstruction and Development Programme through the procurement system.

What is required is a system which permits consumer organs of State to procure goods, services and works within a national legislative framework and Treasury regulations, retains the services of the existing offices (as opposed to Boards themselves) of the various Tender Boards for general period contracts and certain ad hoc contracts and has a nationally based mechanism for directing procurement policy and ensuring compliance with policy directives and legislation. Such a system would be driven by two independent arms; procurement offices/centres being the one arm, and an office of procurement compliance, the other. The procurement offices/centres would be responsible for the day to day procurement activities i.e. inviting tenders, adjudicating tenders, inspecting and testing of supplies and services offered and the awarding of tenders, in terms of a national legislative procurement framework and the systems of procurement established by the accounting officer responsible for procurement of relevant organs of State.

The Procurement Compliance Office, which would be nationally based, would on the other hand:

2.3.6. Linkages between Accounting Officers and the Procurement Compliance Office

Accounting Officers of the different Organs of State should be fully responsible and accountable for any expenditures regarding procurement within their line of responsibility. Any expenditures incurred in this regard should be subject to appropriate regulations and directives. However, to ensure uniformity within the procurement system, national directives issued by the Procurement Compliance Office should apply. The Procurement Compliance Office must endeavour to monitor all public sector procurement and should assist any Accounting Officer in rectifying any deviations from the national directives should such deviations occur.

2.3.7. Principles and proposals

A national legislative framework is needed to establish uniformity in tender procedures, policies and control measures

A National Procurement Framework needs to be drafted and promulgated to set out uniform tender procedures, policies and control measures as well as preferences and policies with respect to the advancement / protection of persons or categories of persons disadvantaged by unfair discrimination. Such legislation should also include mechanisms for implementing new and reformed policies. Tender Board Acts need to be repealed and a national Procurement Compliance Office needs to be established. The State and Provincial Tender Boards should be disbanded.

The office of the State Tender Board and the offices of the Provincial Tender Board should be reconstituted as Procurement Offices serving either national, provincial or local organs of State, as appropriate. These offices should be responsible for administering ad hoc contracts, where consumer organs of State choose not to procure goods, services or works to supply their internal needs, and central tendering (general period contracts).

Consumer organs of State (national, provincial and local) should be permitted to procure goods, services and works should they so desire; except those falling under the jurisdiction of the Procurement Offices or those in terms of Treasury instructions which are regarded as being the functional responsibility of another department to provide. Accounting officers who are responsible for Procurement Offices and Procurement Centres should procure goods, services and works, as relevant, in accordance with any system which they may devise provided that such a system complies with the National Procurement Framework. They should, as such, be responsible for developing clear procurement strategies, good management systems and staff training and development strategies.

Consumer organs of State which engage in procurement activities (Procurement Centres) as well as all Procurement Offices should submit regular reports on their activities to the Procurement Compliance Office and should be subject to regular inspections and ongoing monitoring by that office. Annual reports should inter alia, set out milestones achieved in respect of targeted procurement goals, time frames for increasing goals, changes in the ownership profiles of prime contractors/service providers and the degree to which RDP related objectives have been met.

The national Procurement Compliance Office should ensure that centres comply with national legislation, co-ordinate the implementation of new and reformed policies, monitor progress made in the implementation of reform measures and attend to complaints received from the public.

Entities which should be subject to national procurement legislation should include not only all organs of State, but also certain parastatals, particularly state majority owned enterprises.

2.4. UNIFORMITY IN CONTRACT DOCUMENTATION AND CONTRACT OPTIONS

2.4.1 Description

Tender Boards have not played a role in establishing uniformity in contract documentation and contract options.

Tender documents define the rights, risks and obligations of the parties to be involved in a contract and define the nature, quantity and quality of the goods, services or works to be provided in the performance of the contract. Accordingly, such documentation should be legally and technically correct and assign risk in an appropriate manner.

Typically, tender documents comprise core documents which set out conditions of tender; conditions of contract; specifications; data sheets / drawings; and the tender itself. Contract documents contain certain additional documents, including the contract agreement.

Tender Boards in South Africa are generally concerned with the processing of tenders, the delegation of authority and in ensuring that contracts are awarded in an equitable, transparent and public manner. Historically, Tender Boards have not played a proactive role in tender documentation and have generally only examined aspects such as conditions of tender and conditions of contract. As Tender Boards do not usually have the expertise to scrutinise these documents, changes or new forms of contract are accepted if they have been favourably received by State or Provincial legal advisers.

As a result, there is little uniformity in contract documentation and delivery systems. Each organ of State may use its preferred conditions of contract, subject to this being acceptable to the relevant Tender Board, draft their own specifications, and format their documents in the style of their own choosing. In works contracts, the tendency is to follow the recommendations laid down by professional associations and learned societies and to utilise standard industry documents and systems. This has also not resulted in the standardisation of documentation, as groupings within these bodies and organs of State have for various reasons retained older forms of contracts, opted for hybridised documentation or developed parallel documents. Furthermore, various groupings have developed or supported different sets of documentation. The division of the construction industry into building and civil engineering components has further complicated the issue.

Reconstruction and Development principles and recent government socio-economic policy objectives have demanded that contract documentation and contract options be revisited to accommodate emerging enterprises and marginalised sectors of society and attain certain socio-economic objectives. This has led to a largely fragmented proliferation of new documentation.

There is also a need, following the lead of countries such as the United Kingdom, to revisit delivery systems and forms of contract to improve sector efficiency and effectiveness and to achieve good governance.

2.4.2 Vision

To have uniformity in contract documentation and contract options in order to meet the Reconstruction and Development principles and socio-economic objectives, effect economies in procurement and enable consumer organs of State to be best practice clients.

2.4.3. Secondary visions

2.4.4. Constraints

Organs of State are free to utilise the documentation of their choice, subject to it being legally and technically correct.

The lack of appropriate regulations and the absence of co-ordination of contract documentation and contract options are the major obstacles to the attainment of the vision.

2.4.5. Discussion

Different organs of State use different conditions of contract. Some utilise in-house conditions of contract, others, particularly in respect of works contracts, use industry based conditions. In some instances, extensive special conditions of contract have transformed standard, industry-based contracts into in-house ones, as the amendments are of such a nature that they change the very structure of the documents. The South African Federation of Civil Engineering Contractors reports that their members are currently faced with approximately 25 different conditions of contract when dealing with public and private sector procurement agencies in South Africa.

Insofar as specifications are concerned, the South African Bureau of Standards (SABS), a statutory body which was established by the Standards Act of 1945, has published approximately 3 500 national standards. Over and above the development of national standards, the SABS also provides its expertise for the development of co-ordinating (CKS) specifications in order to standardise and co-ordinate the bulk purchases of government and semi-government bodies. CKS specifications are used where no national standards are available. Organs of State, particularly in the case of works contracts, frequently draft their own standards to cover situations which are either not covered by SABS specifications, or where the existing SABS specifications for various reasons, do not cover the subject to their satisfaction.

Frequently those responsible for preparing tender documents have randomly mixed conditions of tenders, conditions of contract, specifications, and measurement and payment terms. This has resulted in documentation being complex and ambiguous and in the allocation of ill-defined and unacceptable risks to contractors.

Uniformity in tender and contract documentation will promote:

Uniformity in contract documentation will result in:

For uniformity to be effective, it should be implemented by all organs of State, parastatals and the private sector.

i. The generic categorisation of contracts

In South Africa, Tender Boards have broadly grouped "goods and services" into a single condition of contract and separated "works" from "goods and services". The ST 36 General Conditions and Procedures, as a result, covers supply only, supply and install and design and fabricate/make up in a single, all encompassing document. As a result, the document is not focused and is confusing to certain sectors of industry. The generic categorisation of contracts would enable a family of focused conditions of contract to be drafted and, particularly in the case of works contracts, uniform delivery options to be formulated.

Contracts could be categorised as follows:

goods: being the supply of raw materials or commodities made available for general sale. services: being the provision of labour and/or knowledge based expertise. engineering & construction works: being the provision of a combination of goods and services, including building and engineering infrastructure, arranged for the development and provision of an asset or refurbishment of an existing asset.

Some activities will, unavoidably, fall between the abovementioned categories. In such circumstances, such activities should be categorised on the basis of where the greater proportion of sub-activities lie.

The generic categorisation of contracts will enable the contracting environment to be rationalised, simplified and regulated.

The abovementioned categories of contracts can be further divided into sub-categories. This will enable the contracting environment to be rationalised, simplified and regulated. It would, furthermore, facilitate the implementation of targeted procurement and in some instances training, the development of enterprises and the delegation of authority.

Goods contracts could, for example, be further categorised on the basis of whether or not they have foreign components or are likely to have foreign components. Services could be subdivided into professional services, management services, development support services and general services. Engineering and construction works contracts, could be classified on the basis of factors such as size, complexity, novelty / innovation, intensity (speed of design and construction), physical location, likelihood of variations in scope, quality of the completed work and responsibilities i.e. risk factors. Construction is, however, the synthesis of four functional activities, namely, construction management, materials management, materials supply and physical work (labour, plant and equipment). Accordingly, contracts can be further categorised on the basis of who the contracting parties are, and the functional activities performed by such parties. This latter categorisation is particularly relevant to the engagement and development of emerging contractors in public sector procurement activities.

ii. Alternative delivery and contract options in engineering and construction works contracts

A wide range of strategies for public sector engagement in the provision of services is available. An organ of State may use a variety of options to improve a service being rendered or to engage the private sector for the delivery of services. Organs of State may procure the resources of private sector companies in service delivery through service contracts, management contracts, the renting of assets and investment linked contracts. In each of these options the responsibility of the organ of State diminishes; in service contracts responsibility for the operation and maintenance of the service is retained; in management contracts most of the responsibilities are retained, in the renting of assets ownership is retained and in investment linked contracts (or concessions) responsibilities are deferred for a period of time.

A wide variety of strategies are available for the procurement of assets, some of which include Design and Build; Develop and Construct; Traditional Pre-planned; Management Contract (i.e. contracts are between the management contractor and the trade contractors); Construction Management (contracts are between an organ of State and the trade contractors); and Investment-linked (also known as Build, Own, Transfer; Build, Own, Operate; Build, Own, Operate, Transfer).

International studies have shown that the optimum contract strategy can influence the overall project cost by between 10 and 15%.

Payment terms to allow for major risk allocation between parties include, lump sum contracts; remeasurable contracts; target type contracts which facilitate modern partnering strategies; and cost reimbursable contracts.

Apart from the abovementioned delivery systems, a range of contracting models has also been developed to facilitate the participation of emerging contractors and the development of new businesses owned by previously disadvantaged individuals; other models have been developed to engage local resources and to generate jobs through the substitution of people for machines. South Africans have been very innovative and creative in these areas.

There is a need to have uniform construction standards.

The importance of uniformity in approach and standardisation of contract documentation in the development and implementation of the abovementioned delivery systems cannot be overstated. There is a desperate need to co-ordinate initiatives, avoid duplication of effort (and fruitless expenditure), and disseminate these new methodologies to all organs of State. Organs of State should become best practice clients.

iii. Construction Standards

The National Building Regulations contain functional regulations which set out the requirements for the performance of a building, or element thereof, without specifying the materials, dimensions or methods of construction. Rules have been formulated to facilitate the design of traditional forms of construction. Compliance with these rules is deemed-to-satisfy the regulations. No deemed-to-satisfy construction rules are, however, provided; the regulations merely require that "all workmanship in the erection of any building shall be in accordance with sound building practice". As a result there is no standardisation of construction practices and differences of opinion exist as to what constitutes good practice.

When the National Home Builders Registration Council's (NHBRC) Standards and Guidelines committee was developing construction rules for the recently launched home builder's warranty scheme, they found that none of the current building industry specifications adequately covered house construction. As a result, they were obliged to draft construction standards to minimise the NHBRC's risk exposure. These standards would have been better located in national building regulations or a national standard.

The SABS has been effective in introducing standardisation in the area of materials specifications and to some extent, due to an industry based initiative, in civil engineering construction standards. There is considerable scope for achieving a higher degree of standardisation in the civil engineering industry, to introduce standardisation in the building industry and to achieve national standardisation covering both industries. Currently methods of measurement are incorporated in civil engineering construction standards and this presents a barrier to the standardisation of specifications. There are many examples of a lack of standardisation in specifications which could be common to the two industries.

Standardisation of construction standards will not only contribute to quality, cost effective products and savings in construction costs, but will also enable new entrants / emerging contractors to learn what is required of them in a consistent and systematic manner. The quality of training will also improve as trainers will know what standards are applicable, and what trainees are required to produce.

iv. Documentation for emerging contractors

It is highly desirable that contract documentation be appropriate to facilitate the development of emerging contractors and manufacturers into the mainstream of the economy. In recent years, much documentation has been produced, the quality of which has been extremely variable.

The writing of abridged contract documentation should be avoided as the adequacy of such documents is questionable; they are unfamiliar to officials and professionals; emerging contractors will not be afforded the opportunity of becoming familiar with industry standards and may as a result be precluded from tendering for work outside of development programmes; and such documents may not handle the rights, risks and obligations of all parties in an equitable manner.

Construction contract documentation should be drafted in such a way that it caters for a "hierarchy" of projects in terms of complexity. Moving towards this system will greatly enhance the confidence, capacity and capabilities of the emerging entrepreneur. In addition it could save the client / client's agent time and money if an appropriate document is available, which contains only what is necessary.

v. The role of a national Procurement Compliance Office

Uniformity in contract documentation and contract options in the public sector has not to date been achieved in South Africa for a number of reasons, despite there having been many initiatives to do so. The reason for this is the manner in which procurement is regulated. Currently, South African procurement is framed around financial instructions following British colonial administrative practice. In countries which are influenced by the French system of procurement, uniformity is achieved because documentation is a subject of the procurement framework and regulations and expenditure of public funds is conditional upon the use of prescribed documentation. For example, it is mandatory in projects which are funded by the European Union in South Africa to make use of the European Union's conditions of contract.

In France, the Tender Board is concerned with the detail of contract documentation and not the award of individual contracts. The role of the French National Tender Board is that of preparing, publishing, interpreting and promoting regulations and standard documents for public procurement.

The French National Tender Board has four sections consisting of collegial bodies of experts under the chairmanship of high-ranking officials, namely:

Regulation will result in uniformity of contract documentation and the approach to procurement.

The French system is, accordingly, highly regulated and prescriptive insofar as contract documentation is concerned and ensures uniformity in contract documentation and a structured approach to procurement.

The South African Bureau of Standards has not been entirely successful in achieving standardisation, particularly in respect of the construction and allied industries. Two notable examples are the absence of construction standards in the building industry and the lack of materials specifications for water supply plumbing components. The reason for this is that the SABS does not conduct the necessary research and development required to formulate standards. Such research and development work needs to have been undertaken by other organisations or private industry. Frequently the research work is undertaken on a voluntary basis by learned societies or professional associations and invariably, the technical committee members are not remunerated for their time. As a result, the process is drawn out and it may take several years to finalise documents. Clearly this situation is not conducive to standardisation in public sector procurement.

A national Procurement Compliance Office can regulate contract documentation and contract options.

It is submitted that the National Procurement Framework which is proposed to achieve uniformity in tender procedures, policies and control measures should be extended to regulate contract documentation and contract options and that a Procurement Compliance Office could play a leading role in regulating such matters by:

The Procurement Compliance Office could appoint collegial bodies of experts as is done in France to oversee and advise on these activities. Such bodies can also take responsibility for the development of human resource specifications and the like. This arrangement would enable uniformity to be achieved in the most cost effective manner and would eliminate duplication of effort.

2.4.6. Principles and Proposals

The legislative framework which is proposed to achieve uniformity in tender procedures, policies and control measures should be extended to regulate contract documentation and contract options. The national Procurement Compliance Office should prescribe standard sets of documentation which may be used by organs of State, update documentation, co-ordinate the drafting of new documentation and fund and direct any research and development required to develop documentation. Parastatals, particularly those that are state majority owned, should be subject to these regulations as set out in National Procurement Legislation.

Aid agencies should be informed of the benefits of using the standard documentation, particularly, those pertaining to socio-economic objectives, and be dissuaded from introducing their own documentation.

2.5. ESTABLISHING A PROCUREMENT COMPLIANCE OFFICE

The function of a Procurement Compliance Office

A national Procurement Compliance Office should manage procurement reform, oversee the way in which the State does business with the private sector and maintain the procurement system.

The establishment of a national Procurement Compliance Office is the proposed institutional means of implementing procurement reform in terms of a National Procurement Framework, overseeing the manner in which the State does business with the private sector, and maintaining the public procurement system in South Africa. This office would not have the power to conclude agreements, invite offers, cancel agreements and the like as current Tender Boards enjoy, as such powers will be vested in the offices (as opposed to the Boards themselves) of the current national and provincial Tender Boards and various consumer organs of State. The prime function of the Procurement Compliance Office will be that of overseeing the procurement system in order to ensure that the procurement of goods, services and works is conducted in a fair, equitable, transparent, competitive and cost effective manner in accordance with the prevailing legislation and within the parameters of government policy. The Procurement Compliance Office will not be involved in the awarding of individual tenders.

In terms of the proposals, existing national and provincial offices of Tender Boards and accounting officers of organs of State will effect procurement as Procurement Offices and Procurement Centres, respectively. Procurement Offices and Procurement Centres will be responsible for all day to day procurement activities i.e. inviting tenders, adjudicating tenders, inspecting and testing of supplies and services offered and the awarding of tenders in terms of a National Procurement Framework and the local system of procurement established by the accounting officer responsible for such procurement. These Offices and Centres will, however, be responsible for developing their own systems and strategies, management systems, staff training and development strategies subject to their compliance with a National Procurement Framework, and will be required to submit regular reports on their activities and be subject to regular inspection and monitoring by the national Procurement Compliance Office.

The basic functions of a national Procurement Compliance Office should in broad terms be to:

A code of conduct should be used to regulate private sector participation and govern the actions of officials.

A code of conduct should be drafted to govern the participation of suppliers, service providers and contractors in public sector procurement. Similarly, a code of conduct should be drafted to govern the manner in which officials of organs of State act. The Procurement Compliance Office should be empowered to sanction those that transgress these codes in an appropriate manner.

The Procurement Compliance Office should also attend to and investigate complaints received from the public regarding tender procedures and any regulations. Should this office not reply to the satisfaction of the plaintiff, the latter should be free to approach the office of the Public Protector in this regard.

The Procurement Compliance Office should also be empowered to audit procurement which, for reasons of national security or confidentiality or political sensitivities, cannot follow normal procedures.

2.5.2. Specialist arms of a national Procurement Compliance Office

A Procurement Compliance Office should comprise five specialist arms covering the following functional areas:

Each arm should be headed by a high-ranking official and where necessary supported by collegial bodies of experts.

i. Administrative arm

The specific responsibilities of the administrative arm would be the regulation of tender procedures, policies and control measures so as to achieve uniformity and to permit procurement to be efficiently and effectively utilised as an instrument of government policy throughout South Africa. Responsibilities could include:

ii. Registration arm

The registration arm should deal with all matters pertaining to registration. Its responsibilities could include:

iii. Socio-economic arm

The specific responsibilities of the socio-economic arm would be to ensure that the potential of public sector procurement is realised as an instrument of policy in the transformation process in a cost effective, transparent and efficient manner. Responsibilities could include:

iv. Technical arm

The specific responsibilities of the technical arm would be the regulation of contract documentation and contract options so as to achieve uniformity in order to meet Reconstruction and Development principles and socio-economic objectives, effect economies in procurement and enable consumer organs of State to be best practice clients. Responsibilities could include:


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