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Rasool: Revised Western Cape Preferential Procurement Policy (18/02/2003)

18th February 2003

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Date: 18/02/2003
Source: Western Cape Provincial Government
Title: Rasool: Revised Western Cape Preferential Procurement Policy


EBRAHIM RASOOL, WESTERN CAPE MINISTER FOR FINANCE AND ECONOMIC DEVELOPMENT, ANNOUNCES THAT COMPANIES OWNED BY PREVIOUSLY DISADVANTAGED INDIVIDUALS BENEFIT GREATLY FROM REVISED PREFERENTIAL PROCUREMENT POLICY

In my previous media release on procurement reform, I indicated that I've set a target of 40% of provincial contracts to be awarded to Historically Disadvantaged Individuals (HDIs) to ensure that the objectives of the Preferential Procurement Policy (PPP) for the Western Cape Government is met.

As a result of the introduction of the PPP in January 2002, historically disadvantaged individuals are slowly starting to play a more meaningful role in the Western Cape Government's procurement environment. For the period 1 January - 31 December 2002, contracts to the value of R328 m (38%) were awarded to HDIs, compared to R222 m (26%) during the same period in 2001.

I have deliberately set the target for HDI involvement high to force decision-makers to embrace the provincial government's strategic goal: i.e. 'to stimulate economic growth both in the traditional and emerging sectors with appropriate infrastructural development and to the benefit of all through amongst others, procurement reform".

It is clear from the aforementioned figures that the decision-makers have seriously followed suit in reaching the set target.

The major procurement spenders are the Departments of Education, Health and Transport and Public Works. Their contribution towards HDIs for the past twelve months ranges from 72% (Education) 45% (Health) and 39% (Transport and Public Works). The figures of Health are however distorted, as it does not indicate major contracts that were awarded in the previous years (2-year contracts) and where HDI involvement is limited.

I have previously highlighted the difficulties to make inroads to certain industries. Within the health industry, especially on medical equipment and medical consumables, it was found that HDI's companies range from few to non-existent. This is mainly because of the structure of the health industry and the various laws in place governing health products and services.

Most of the health products/services are imported and supplied by multi-national companies and entry to this market requires a fair amount of capital.

The initiative of the Provincial Treasury to compel departments to draw up their own procurement application programmes (procurement plans) has resulted in the appointment of professionals to assist with such plans for the department of health.

Preliminary key findings of the research conducted revealed inter alia:

* A very low current base of HDI and SME supplier participation coupled with structural barriers to entry created by the capital-intensive nature and technological sophistication of some of the industry sub-sectors
* Inability of most HDI's to access and /or afford testing and certification processes to qualify as suppliers
* Complexities with the existing procurement and tendering processes

Although it may take time and perhaps it would require that my national counterpart re-look at the existing preferential procurement legislation, the barriers identified in the health industry would be attended to.

Simultaneously, entry to the roads industry is not easy owing to its complexity and technical nature. In both the aforementioned industries, and others to a lesser extent, it is quite clear that preferential procurement based solely on equity of companies will not bring about the necessary change to facilitate meaningful participation by HDIs, and other initiatives will have to be pursued.

These initiatives would include the promotion of joint ventures between the more established companies, on the one hand, and HDIs and small and emerging companies on the other. A component of such joint ventures will need to be adequate skills transfer, be it management or technical.

Although the initial aim of preferential procurement is to broaden the economic base and to empower those who are disadvantaged, it is also open to abuse by businesses that change their shareholding but not the management structure of their companies so as to take advantage of the system. Strong punitive action will be instituted against offenders. We are currently pursuing the development of a policy on fronting and a supplier's database to assist us to do effective patrolling.

To date the Provincial Treasury has been driving the implementation of preferential procurement; the ultimate responsibility however rests with heads of departments. It is commendable to see their proven commitment toward preferential procurement over the short term.

Departmental procurement plans were identified as key instruments towards the effective implementation of preferential procurement to ensure the desired impact of procurement expenditure within the Province.

In their procurement plans, departments have indicated the amount budgeted for procurement, amounts earmarked for preferential procurement and the preferential procurement goals targeted. All indications are that contracts to the amount of R350 m in this 2002/ 2003 financial year might be awarded to HDIs compared to the R238 m in the 2001/2002 financial year.

One such company that has benefited from the changed preferential procurement policy is Magqwaka Construction from Guguletu who in the past year have won contracts worth R14, 4 million. This company is but one of many that has benefited from the change in policy. Previously a racial ceiling existed and no preferential policy covered contracts worth more than R2 million. Companies like Magqwaka Construction therefore found it very difficult to compete for these contracts.

I also would like to address falsehoods spread by Robin Carlisle of the DA about the contract awarded to Zacon Construction. It is quite obvious that while the majority of the people working in Government are committed to transformation, people like Carlisle and his party want us to fail.

At the first smell of trouble, he goes around spreading untruths. The fact of the matter is that Zacon Construction has an excellent track record and was one of the better bids for the nursing college upgrading tender. There are people within the government who wanted Zacon to fail. These people will however fail in their endeavours to undermine the good efforts of the government.

Thank You!!

Contact: Thabo Mabaso @ 083-414-8144
Issued by Finance and Economic Development, Western Cape
18 February 2003
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