GREEN PAPER ON PUBLIC SECTOR
PROCUREMENT REFORM IN SOUTH AFRICA

An initiative of the Ministry of Finance and the Ministry of Public Works

April 1997

TABLE OF CONTENTS

MESSAGE FROM THE MINISTER OF FINANCE

As the largest buyer in the country, government has a responsibility to ensure that its procurement policy supports its overall economic objectives, and serves as an instrument for attaining those objectives.

One of the key elements in Government's strategy for employment creation and income generation is the promotion of small, medium and micro enterprises (SMME's). In the past, the tendering system favoured larger, established companies, and it was very difficult (if not impossible) for newly established businesses to enter the public tendering system.

Government therefore embarked on a reform process to make the tendering system more easily accessible to small, medium and micro enterprises. This process has resulted in a Green Paper on Public Procurement Reform.

At the same time, this Green Paper is a step towards greater policy co-ordination across the different levels and departments of government.

This Green Paper is a discussion document which contains various proposals aimed at achieving objectives of good governance, developing and utilising the country's human resources potential to the full, and encouraging a well developed and competitive business sector. It is being released so that anyone who so wishes can forward their comments to the Department.

I wish to record my appreciation to the Department of Public Works, and also to the World Bank for financial assistance and guidance with the reform process and preparation of this Green Paper.

MESSAGE FROM THE MINISTER OF PUBLIC WORKS

The development of this Green Paper represents a significant milestone in the transformation of public sector procurement in South Africa.

The appropriate orientation of public sector procurement would enable the State to use its purchasing power to attain specified socio-economic objectives. Within the South African context, public sector procurement can make a critical contribution to the transformation and democratisation of South African society. In striving for the above, Government must also ensure that such a procurement policy subscribes to international best practice and reinforces the principles of good governance.

This Green Paper attempts to address these issues, and proposes strategies that blend international best practise with South African specificities . The presentation of new concepts such as an affirmative procurement policy, life cycle costing, value for money and appropriate risk management strategies indicate Government's commitment to the development of a procurement system that responds to the needs of South African society.

The development of this Green Paper has also highlighted the creative potential that is unleashed when government departments operate in a collaborative fashion.

The proposals contained in this Paper have wide ranging and far reaching implications for all stakeholders engaging in the public sector procurement process. I therefore urge all interested parties to consider the issues raised in the Green Paper so that our collective inputs contribute to a procurement system that all South Africans can be proud of.

PROCUREMENT REFORM: THE PROCESS

The process of procurement reform commenced with interaction within Government.

On 24 January 1995, a Government Forum comprising representatives from various State and Provincial user departments was established in order to arrive at a consensus position as to what restructuring is necessary and what is possible in the short and medium term.

Since the initiation of the procurement reform process, certain documents have been released which impact on the procurement reform proposals, and influence some of the recommendations. These include:

  • The new constitution.
  • Growth, Employment and Redistribution: a macro-economic strategy.
  • National Small Business Enabling Act

The proposals which have been developed in this Green Paper have been based on aims and objectives which have been broadly agreed to by various National and Provincial organs of State. However, consultation with all stakeholders in the process is of primary concern to the Government and, as such, a Green Paper on procurement reform has been developed as a discussion document on the proposals and principles which underlie procurement reform.

The Government hopes that the release of its preliminary policy and principle statements will draw the constructive discussion and input of all stakeholders and interested parties in order to facilitate the development of the best possible procurement policy.

EXECUTIVE SUMMARY

The Government of South Africa is committed to good governance and the elevation of previously marginalised communities. Total procurement by the different Organs of State is estimated at R56 billion. This amount calls for strict control through good financial governance.

The Constitution of our country prescribes that procurement for any organ of State should be dealt with through a system that is fair, competitive, transparent and cost effective. The Constitution also allows for the implementation of procurement policies providing for categories of preference in the allocation of contracts and the protection, or advancement, of persons, or categories of persons, disadvantaged by unfair discrimination. It is therefore clear that the public sector procurement system can be used to attain certain socio-economic objectives. This will, however, not be achieved without adhering to sound financial management, which inter alia includes the principles of value for money, good financial control, eliminating and countering corruption and ensuring that all contractors have a "good standing" insofar as their tax and service charge obligations are concerned.

The Government realises the importance of the small, medium and micro enterprises (SMME's) as part of the macro economic development of South Africa. In the past, the tendering system favoured the larger and more established businesses, and it was very difficult for any new and upcoming tenderer to enter into the public sector procurement system. The Ministries of Finance and Public Works embarked on the reform of the public sector procurement system to make the tendering system easily accessible to the SMME's. The emphasis is on the development and stimulation of the SMME sector and using the procurement system as an instrument to achieve certain socio-economic objectives without forfeiting the principles of good financial management.

Good Governance

Proposals on good governance include aspects such as value for money, good financial control, countering corruption, meeting tax and service charge obligations and adhering to prescribed labour practices.

A National Procurement Framework needs to be drafted to establish uniformity in tender procedures, policies and control measures. Such a framework should be administered by a Procurement Compliance Office. It is the intention of the Procurement Compliance Office to be pro-active in nature and to establish preventative and control measures on a regular basis.

Socio-Economic Objectives

Socio-economic objectives through the procurement system includes access to tendering information and the simplification of tender documents, breakout procurement, awarding of tenders in terms of a development objective mechanism, drafting of an affirmative SMME participation programme, promoting employment-intensive practices, affirming marginalised sectors of society in construction projects and the development of an affirmative procurement policy.

Other aspects which are dealt with, include inter alia international competition, stimulation of local economies, labour issues, guarantees and training. Emphasis is also laid upon the development of human resources.

The Green Paper, at this stage, contains proposals which should not be regarded as policy. The Green Paper is published for comments and the Ministries of Finance and Public Works welcome any comment, criticism or concern on the proposals made. The objective is to establish a public sector procurement system that will meet the needs of the people of South Africa and will ensure development towards a better South Africa for all its citizens.