1. INTRODUCTION

1.1 Background

The Government's aim is to transform the public procurement process in order to achieve its socio-economic objectives within the ambit of good governance.

The procurement system in South Africa needs to be changed in order to face the challenges presented by changes in both the local and international environments.

National, Provincial and Local government departments in South Africa have an enormous collective buying power. According to various analysts, the Total Consolidated General Government Procurement is estimated to amount to R56 billion for the 1995/96 financial year, at current prices.

This amount constitutes approximately 13% of Gross Domestic Product and represents some 30% of all government expenditure.

The estimated Consolidated General Government Procurement spending may be categorised as follows:

• Central Government R22 billion (39%)
• Provincial Government R25,5 billion (45%)
• Local Authorities R8,5 billion (16%)

Extra-budgetary institutions increase these amounts by a further R6 billion.

There are two components to this spending:

• Goods and services - which account for approximately R44 billion (79%)
• Capital assets - which account for an estimated R12 billion (21%)

Public sector procurement has a major impact on the South African macro economy, both in terms of consumption and investment spending. As such, public sector procurement can be used as a tool by government to achieve economic ideals, including certain socio-economic objectives. At the same time, an effective and efficient procurement system will permit government to deliver the quality and quantity of services demanded by its new constituency in accordance with Reconstruction and Development Programme principles and other policy objectives.

A fundamental requirement for any new procurement policy is that it should be in line with the national economic growth strategy with the acceptance that the country is now operating in a changed environment both locally and internationally.

1.2 Procurement Reform

The Ministry of Finance, in conjunction with the Ministry of Public Works , has drawn up this Green Paper on Procurement Reform to initiate the process of reform. The reformed procurement process needs to be responsive to the needs of government policy and needs to adopt best practices in all its activities.

This document makes a number of proposals for the reform of the procurement process. At the heart of these proposals are four key principles.

First it is a reality that previously the public tendering system favoured the established and larger businesses, and it was very difficult for any newcomer to enter into the public sector procurement system. The existence and importance of the small, medium and micro enterprises were ignored in the past. The Government realises the importance of this marginalised sector of the society and will use the procurement system to make the process easily accessible for the new and upcoming businesses and eliminate the injustices of the past. However, good value for money cannot and will not be negated. According to our Constitution, the procurement system must be fair, competitive, transparent and cost effective. Our Constitution also allows the implementation of categories of preference in the allocation of contracts, as well as the protection of advancement of persons, or categories of persons, disadvantaged by unfair discrimination. It is therefore clear that the advancement of marginalised sectors of society and achieving certain socio-economic objectives, can be included in the concept of whole life cost and value-for-money.

Secondly, one of the major objectives of the Government is to attain and maintain good governance. This includes good and sound financial control. With an estimated expenditure of approximately R56 billion on public sector procurement, good financial control is of the utmost importance. Decision making within national regulations and guidelines will be delegated to accounting officers who will be responsible and accountable for all procurement expenditure incurred within their line of responsibility.

Third, corruption will not be tolerated within the Government services and within the country as a whole. Within the public sector procurement system, emphasis will be placed upon measures to eliminate and counter any form of corruption.

Finally, any principal doing business with the public sector aims to make a profit. It cannot, under any circumstances, be justified that anyone doing business with the public sector should do so when he/she has not met his/her tax obligations. Contractors should at least have a status of "good standing" insofar as their tax and service charge obligations are concerned. This means that as part of financial control within public sector procurement, measures will be implemented to ensure that anyone doing business with an organ of State, has met his/her tax and service charge obligations.

In this Green Paper on Public Sector Procurement Reform, reform is dealt with under the following two headings, namely:

• Socio-economic objectives;
• Achieving good governance in procurement.

1.3 Vision

To achieve the ideals of good governance and to address the changed environment, some fundamental institutional reform is necessary. There is a need to develop professionalism in departments by providing best practice guidance to enable departments to become more proficient in procurement and to provide organisational efficiency. To this end, the following issues are dealt with in the document:

• The need for value for money
• The need to eliminate corruption in Procurement Systems
• The need for contractors to have "good standing" insofar as their tax and service charge obligations are concerned
• Implementation of systems of control and accountability
• Uniformity in procedures, policies, documentation and contract options
• Effective monitoring and reporting

Institutional and economic reform lies at the root of the public procurement transformation process.

• Skills development of key procurement personnel
• Specific areas of procurement excellence such as Information Technology (IT)
• Value for money improvements
• Integrated procurement processes to focus on whole life costs and benefits
• Total Quality Management (TQM)
• Bench-marking procedures and performance to world class standards
• Networking of procurement departments (information sharing)

The implementation of the above will involve major cultural changes and considerable effort as is often necessary during a period of transition. The strategies and policies to be put in place should ensure that departments will be successful in managing this change and thereby develop the full potential that effective procurement can provide over the many areas of government activity.

The procurement system should become an instrument of government policy in the manner in which the public sector does business with the private sector.

There is in addition a challenge to stimulate economic growth by economically empowering previously marginalised sectors of our society. The Reconstruction and Development Programme's aims and ideals provide the ideological backdrop to proposals for transforming the process of public procurement.

1.4 Reform Objectives

1.4.1. Socio-economic objectives

1. To seek value for money on behalf of all tax payers.
2. To eliminate corruption in the procurement process.
3. To make the public procurement process accessible to all by simplifying the process, and by encouraging fairness and transparency.
4. To encourage greater competition in the public procurement process through the creation of an enabling environment for small, medium and micro enterprises while retaining quality and standards.
5. To support participation of a broadened range of enterprises with appropriate inland revenue registration and acceptable labour practices in order to ensure sustainability.
6. To revise the concept of value-for-money in the procurement process in terms of the new objectives which are to be applied.
7. To set out targeting policies in order to create opportunities for the broadest possible participation in the public procurement process.
8. To increase the volume of work available to the poor and enhance the income generation of marginalised sectors of society.

1.4.2. Good Governance

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.