4. Specific Aspects of Procurement Reform

Contents

4.1 Introduction

Public Sector procurement is an instrument of Government policy. The setting of new policies to serve socio-economic objectives, the changed environment, and good governance require a review of the detail of the procurement system. If this is not done, new policies will not be able to produce the desired results. At the same time, government needs to be able to govern in an efficient and effective manner. Procurement should facilitate and not frustrate organs of State in their functioning and the discharge of their obligations.

The validity of current public procurement practices needs to be examined, and certain practices need to be revised, some housekeeping is necessary and issues which have never been satisfactorily resolved, need to be addressed.

Procurement activities may for practical reasons be considered as falling into one of the three following categories:

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.

The principles of procurement are, generally, applicable to all three types of activity; the details, however, may change. The discussion and proposals presented below, examines, as far as possible, issues in a non category specific manner.

Engineering and Construction Works procurement is, normally, more complex than that for Goods and Services as this type of contract requires elements of both Goods and Services to be combined and arranged for the performance of the contract. Construction contracts require assets to be constructed in a specific location, and have requirements which are very industry specific. For these reasons, and because the construction industry's role in public sector procurement is significant, some of the issues which need to be addressed in construction projects specifically are also raised.

4.2 Value for money

i. Discussion

Value for money, in the context of human resource development, is discussed in Chapter 3. The technical component of value for money also needs to be re-examined.

Organs of State will need to embrace disciplines such as value engineering (i.e. the structured and continuous approach to developing a common understanding of a project's aims and requirements together with all aspects of function, design, construction and operation) to enable the best functional balance between cost, reliability and performance, and, hence, value for money to be achieved.

Procurement procedures should encourage tenderers to offer alternative designs, techniques or proposals that offer better value for money. Proposals which enhance the intrinsic quality without affecting monetary savings should, also, be considered.

ii. Proposals

4.3 International competition (Foreign Tenders)

i. Discussion

Most of South Africa's industries are not yet in position to compete on a par with their international counter-parts. There are a number of reasons for this state of affairs, particularly the fact that South African industries have not gone through the full development cycle experienced by other developed economies. Accordingly, many South African industries would find it very difficult to compete both locally and abroad if all forms of preference and support for locally manufactured products were to be abolished.

Whilst State regulatory policy should aim to achieve its goals in an international context, it must also to take into consideration the support and development of local industry, and the creation of job opportunities. The policy must respond to key issues of national priority such as the upliftment of previously disadvantaged sections of the community, whilst also reflecting on issues pertinent to international trading, and how these issues will be managed. Industry must become competitive both on the local and international markets.

Local industry can be protected in a number of ways including:

Price-based preferences invariably raise the issue of value for money, particularly where the price differences between imported and locally produced goods are significant. Such preferences are, furthermore, often in conflict with international trade agreements.

Contract strategies and the packaging of contracts can also be used to tip the scales in favour of the local industry. The size of contract, early warnings to prospective local suppliers of forthcoming tenders, and technical assistance programmes can all play a part in ensuring, that local tenderers have a fair chance of winning contracts.

Targeted procurement practices can be effectively used, particularly on construction projects, to ensure that there is significant local content. The objective can be achieved without resorting to the conventional restrictive trade practices as all tenderers, including foreign tenderers will be required to deliver in terms of technical and human resource specifications.

Both technology transfer and human resource development are crucial to the advancement and development of local industry. South Africa's policies ought to ensure that the country enjoys the maximum benefit of foreign participation by incorporating a requirement for technology transfer and human resource development as integral conditions for foreign tenders.

A single, broad and comprehensive policy may be easier to manage than numerous narrowly defined policies. An offset policy is an ideal instrument through which all requirements can be achieved. Technology transfer and human resource development can be used as credits for the required offset value under an offset contract. Alternatively, it could be a requirement that foreign tenderers meet their offset requirements through purchases or services sourced from small, medium and micro enterprises.

To develop and formulate an offset policy, data would need to be gathered and analyzed. Accordingly, this is a medium to long term approach.

Since South Africa has joined the international trading community by signing the World Trade Organisation agreement, it is desirable to develop harmonised and transparent procurement procedures, acceptable to local and foreign tenderers, which make provision for value for money and competitiveness, with special emphasis on meeting the principles of the Reconstruction and Development Programme and the socio-economic objectives of government. It is, however, important that South African industries move rapidly to a position where they can compete on par with other world economies. An export orientated policy which is consistent with international trading norms might be the key to developing local industries to the required level of competitiveness.

ii. Proposals

4.4 Impact of the World Trade Organisation Agreements (WTO - formerly GATT)

i. Discussion

The World Trade Organisation (WTO - formerly GATT) is the body that regulates international trade. It fulfills three main functions, viz:

South Africa, a Founder Member of GATT, is classified in the WTO as a developed country and there is some debate as to whether South Africa should seek to be reclassified as a developing country. Although South Africa has never formally sought reclassification, it negotiated favourable conditions and extended implementation periods in several of its sensitive economic sectors during the Uruguay Round of the GATT. Thus, while WTO rules regulate international trade practises and procedures, there is significant scope to negotiate specific terms and conditions that cater for national interest and priorities.

Unlike most of the WTO agreements to which South Africa is committed as part of the WTO's single undertaking principle, the Agreement on Government Procurement is plurilateral and extends obligations only to Members that are signatory to its provisions. South Africa has, to date, not signed the Agreement and there are expectations that the Government will come under increasing pressure from its main trade partners to do so.

In responding to the pressure, South Africa should adopt a balanced approach that recognises not only potential costs, but also the potential benefits that accession to the Agreement on Government Procurement may provide. It is critically important to recognise that the issue of government procurement will remain on the multilateral negotiating agenda and the challenge is to engage the issue in a way that promotes South Africa's national interests. Moreover, Government needs to take cognisance that once it has defined its interests in this area, it is possible to negotiate the terms of accession to the Agreement in a manner that is not inconsistent with national priorities.

The Agreement on Government Procurement recognises that 'entities', which encompass governments and agencies controlled by them, are significant buyers of goods and services. Given the growing significance of this market (several billion dollars), a potential benefit of accession to the Agreement is that it will permit South African firms to tender for valuable government contracts issued by other Member countries. The purchases of governments and their agencies around the world cover a range of goods and services that may be of interest to South African firms.

Counter arguments suggest that accession to the Agreement will preclude the Government from applying preferences in awarding contracts on the basis of national development priorities; to promote local business (including SMMEs) and to encourage black economic empowerment. The argument is that foreign firms will be successful in tendering for South African Government procurement contracts and may supplant smaller, less competitive South African suppliers.

In addition, the potential (negative) effects of the Agreement may be to:

These effects need to be thoroughly researched before any definite conclusions can be drawn. In any event, the constraints imposed on Members by the Agreement are not absolute as there is considerable scope for the negotiation of exemptions and exclusions; Governments may list (or specify) which entities will be covered by the Agreement; entities are entitled to maintain their own specific lists of permanent suppliers. There is also provision for selective tendering.

The Agreement specifies that it only applies to procurement contracts valued at SDR 150 000 or more. Governments can therefore establish their own independent criteria in awarding contracts valued at less than this amount. It would, accordingly, be valuable to explore whether this threshold can be negotiated upward or not. If South Africa were to secure developing country status in acceding to the Agreement, it would qualify for Special and Differential Treatment which permits measures to, amongst other things:

In addition, Members that participate in regional arrangements (SADC) are able to negotiate exclusions on the basis of, for example, promoting regional industrial development. In short, the Agreement contains degrees of flexibility that need to be examined.

ii. Proposals

4.5 Appointment of consultants

i. Discussion

Consultant appointments can be broadly classified in terms of certain characteristics which may affect the extent to which specific selection criteria and specifically price, may appropriately be used in the selection process. The two extreme poles of the spectrum of consulting assignments can be defined as follows:

In routine assignments, price can play a significant role in the selection process, whereas in conceptual, complex and multi-disciplinary assignments, the use of price as a selection criteria should be less significant.

The calling for open tenders under all circumstances, even for routine assignments, is neither in an organ of State's nor the consultant's interests. Apart from an organ of State's costs in preparing and adjudicating such tenders and the consultant's costs in submitting tenders, such practices will favour the established large consultancies who have greater capacity to absorb the costs. Medium and small companies and, in particular, emerging consultants, are at a distinct disadvantage. Elaborate and complex adjudication systems are required for the satisfactory adjudication of tenders for consulting services.

A major problem with competitive tendering relates to the definition of the scope of services to be performed. Consultants cannot price their services if these are ill defined. In research and development, policy formulation, human resource development, community-based developments and the like, the scope of services can seldom be well defined prior to the commencement of the project or commission.

For engineering and construction projects, life cycle costs are most critical and are largely dependent on design quality. Any potential saving in the design fee would form only a minuscule portion of the life cost of the project and should not be allowed to jeopardise the best value for money option on the project as a whole. Likewise, the costs of policy research are trivial relative to the impacts of policy decisions on the nation. The selection of consultants on the basis of price alone may well lead to unsatisfactory, or even disastrous outcomes which could, in all likelihood, have been avoided at insignificantly greater overall cost.

International experience regarding competitive tendering for professional services has been mixed. In the United States of America, legislation was introduced as far back as 1972 to outlaw competitive tendering for professional services on construction projects. Contracts are awarded in terms of an Act which requires government to negotiate contracts on the basis of demonstrated competence and qualification for the type of services required, at fair and reasonable prices; the principle being that contracts are awarded to the most qualified firm and not the least costly. In the United Kingdom, surveys have indicated that where competitive fees (lowest price) was the criteria for award, clients on engineering and construction contracts got less value for money, as consultants were reluctant to consider alternatives, produced simpler designs, resisted client changes, spent less resources on education and training etc. Current thinking is to opt for the awarding of contracts on the basis of a quality / price mechanism, in terms of which price, depending upon the nature of the services required, accounts for from 15% to 50% of the points allocated.

The World Bank has no requirement for competitive tendering for consulting services and recommends that selection be based primarily on quality. Price forms part of the selection process only where projects are of a routine nature, and proposals are judged to lead to comparable outputs.

The principle factors which the World Bank suggests that should be used when deciding upon appointments are:

The specific needs of emerging consultants owned and controlled by previously disadvantaged individuals must be taken into account. Although this group of consultants may demonstrate competency, they are likely to lack experience which can only be obtained through the granting of appointments.

Current practices which are being pursued to facilitate the participation of emerging consultants and to reward consultants who have been proactive in developing previously disadvantaged individuals within their companies or developing capacity in emerging consultancies, include insisting that all work be performed in association with such enterprises, accelerated roster systems, joint venture requirements, and the scoring of adjudication points. Information provided by established firms in support of human resource development and social responsibility programmes is extremely difficult to verify and is seldom called for. Furthermore, such criteria frequently favour the large firms who, for various reasons relating to scale of operation, have more scope and opportunity to meet such criteria, particularly as their contributions are seldom measured in terms of their turnovers. Thus, although such systems may achieve their objectives in providing work for emerging consultants and rewarding pro-active established consultants, it is vulnerable to window-dressing and fronting and generally favours the larger consultancies.

Many organs of State have established panels of consultants who have the necessary experience and expertise to provide routine services e.g. auditing, design, contract administration, legal advice, etc. Certain appointments made to firms on these panels have resulted in strong relationships which have endured for long periods and a number of these panels have not incorporated any new panelists from the time that they were originally constituted.

Insofar as auditing appointments are concerned, calls have been made for the rotation of audits so as to prevent relationships between the auditor and auditee becoming "too comfortable" as this may result in a loss of independence. The office of the Auditor General in New Zealand applies the practice of compulsory rotation of audit firms every three years. The practice of rotation on a five year cycle is also enforced in Switzerland, both in the private and public sectors.

Organs of State, other than those functioning at national level, often require consultants to maintain local offices within their areas of jurisdiction. In many instances such offices do not, in fact, perform the work using their own resources. Instead they pass it through to associated offices in other centres. This practice is very difficult to monitor and the consequence is that appointments to consultants with local offices do not necessarily lead to local economic development.

Given the efficiency and speed of current modes of information transfer, the desirability of consultants being required to maintain local offices, which may be mere facades, is questionable. It may, in fact, be submitted that the requirement for maintaining a local office is a form of local preference, which works against free trade within the country and is, therefore, in conflict with the constitution.

Under certain circumstances, particularly where work of a highly specialised nature is required, it may be advantageous to approach a particular firm, or individual consultant, rather than to conduct a selection process. Such appointments would, normally, be desirable where the particular consultant has been closely involved in work similar to that required, or has expertise not widely available. Appointments of this nature are unavoidably open to abuse and criteria and policy in respect of sole service providers needs to be formulated.

There is a need in regard to construction projects to have available standard sets of interlocking professional appointment documents which not only govern the conditions of the appointment but also set out, as far as possible, the services to be performed by consultants and the relationships which such consultants have with construction contractors and other consultants. This is particularly necessary to enable "non-traditional" consultants e.g. training managers, mentors, project facilitators, contract compliance monitors, etc. to be appointed to ensure that development objectives are met and to describe the services required of consultants where non-traditional contract delivery options or new forms of contracts are utilised on projects.

Proposals

  1. tariff appointments (fixed scales of fees or prescribed rates ) :
  2. competitive tendering :

4.6 Language

i. Discussion

Currently, national standards are written in technical language. As standards have become, more internationalised, the technical languages of international standards, viz. English, French and Russian, tend to dominate world wide. Of these, only English is of importance to South Africa. In the past all national standards were translated into Afrikaans. In the case of compulsory standards, this is still the case, as prescribed to the South African Bureau of Standards by the Department of Justice.

Insofar as general conditions of contract are concerned, documents are currently available in both English and Afrikaans. Difficulties have been experienced in the past when tenderers competing for a specific contract have been given the option of drawing documents in either of the two languages, as errors have inevitably crept into the documentation. These errors have, in some instances, resulted in inequitable tenders being received.

The problems relating to the provision of documentation in any of the official languages other than English and Afrikaans should not be underestimated as the necessary technical language does not exist and would have to be developed. As contract documents must convey technical information and requirements in an unambiguous manner, the preparation of documentation in a number of languages would be very difficult and fraught with dangers.

ii. Proposals

4.7 Parastatals as suppliers

i. Discussion

Parastatals are those institutions which are directly or indirectly controlled by the State. Parastatals are often perceived to have an unfair advantage in competing for contracts with the private sector on various grounds, for example, they price on the basis of operating costs alone, they have tax concessions, they are not obliged to earn an adequate return on their investment and they undercut the prices of competitors despite making losses.

Where parastatals are permitted to compete with the private sector, it is necessary to develop criteria that allows the private sector to compete with parastatals in an equitable manner.

ii. Proposals

As a general rule, parastatals should be discouraged from tendering in competition with the private sector. Where parastatals tender in competition with the private sector, a percentage loading should be applied to parastatal tenders in much the same way as a percentage loading is applied to "protect" local suppliers against foreign suppliers.

4.8 Registration of suppliers, service providers and contractors

i. Discussion

There is a balance between fiscal discipline and nation building. In the context of developing emerging suppliers, service providers and contractors and integrating them into the mainstream of the economy, there needs to be a balance between cost effective creation of physical assets / supply of goods, services and works and the development of emerging business. Supplier / service provider / contractor registration is viewed by many as a means of reducing the State's risk exposure in engaging firms who have unproven capabilities or inadequate prior contractual experience.

Registration of contractors / service vendors is encountered in many countries. In some developed countries, contractor registration is used as a means of procuring goods, services and works by means of a qualification system. This system requires firms to qualify to be included on an approved list of tenderers. Public client bodies are able to access the list, draw up a schedule of firms which are suitable for a project (prequalify), and seek tenders from firms of equivalent size, capability and experience.

ii. Proposals

Registration in South Africa should be instituted as a means of:

Non-registered suppliers, service providers and contractors should not be permitted to participate in public sector procurement activities. Registration should be subject to the observance of a code of conduct which should, inter alia, require that signatories undertake to:

4.9 Life cycle costing

i. Discussion

The prime objective of public sector procurement is to achieve best value for money. Best value for money in the context of a technical component in procurement is the optimum combination of whole life cost and quality to meet a user department's requirements and not the lowest short term cost. Whole life cost takes into account all aspects of cost over the lifetime of the asset, including capital, maintenance, management and operating costs.

For complex procurements, whole life costs may be very different from and only loosely related to initial price. In the case of capital assets, the greater part of the whole life cost is normally incurred after purchase, the purchase price frequently being as little as 20% of the total cost.

Goods which are not wholly consumed in the course of their use will have to be disposed of. When some assets are no longer needed, they may have a resale value. Accordingly, many factors need to be taken into account in an integrated procurement process.

In engineering and construction projects, life cycle costs are most important and are very dependent on design quality. Design quality is about providing, within the available resources, added value over and above the merely adequate. The procurement system needs to be structured so that quality designs and not lowest cost design is procured, as the work of the designer has a significant impact on life cycle costing.

ii. Proposals

4.10 Quality

i. Discussion

ISO 8402 defines quality as the total characteristics of an entity that bear on its ability to meet stated and implied needs. Quality may be regarded as conformance to stated requirements (specification) rather than fitness for purpose. It is achieved by executing a contract to the stated requirements. Quality can be managed and given visibility by means of one or more of the following:

The South African Bureau of Standards has a product certification scheme called the Mark Scheme. If a manufacturer is prepared to manufacture commodities in accordance with the requirements of a mark specification and to apply the required quality control measures to his factory, he may apply to the SABS to use the applicable certification mark on his commodity. Of the some 3500 SABS specifications, about 700 have been declared mark specifications. There are currently, approximately 3000 permit holders.

SABS ISO 9000 has strong support in some areas and forms the basis for most certification schemes. It has, however, been strongly criticised for being over-bureaucratic, expensive, vulnerable to variable interpretation, inappropriate for small firms and existing as a goal rather than a means to an end. Nevertheless, it is an appropriate basis for effective management of quality notwithstanding its reliance on paperwork. Currently, approximately 1500 firms have been certified.

Small firms have experienced some difficulties with the SABS ISO 9000 scheme. They have argued for a simplification of the standard and have complained about the cost of certification. There is no doubt that the cost of certification as a proportion of turnover for a small firm is significantly greater than for a large firm.

In engineering and construction works contracts, many of the problems with quality originate from poor design. A poor design may give rise to additional costs both in the construction process and on future maintenance. To ensure that suitable quality standards are maintained over time, particular care must be taken in the manner in which design commissions are awarded. Incentives may need to be provided so as to achieve high value designs.

Small and emerging manufacturers have particular problems in achieving quality, depending, however, upon how quality is measured and defined. Current practice is to define quality in terms of certain accepted criteria and to measure such acceptance in terms of prescribed test methods and procedures. These are usually set out in SABS specifications or test methods which have, to a large extent, been formulated or drafted with the approval of industry and industry-related research and development organisations.

It may be argued that these standards have been drafted to suit the formal industry, and are framed around plant-based methods of manufacture and medium to large scale enterprises which have a reasonable degree of technical competency and testing resources. In addition, the test methods and procedures for quality assurance are generally written for a scale of operation where sufficient quantities for statistical purposes are manufactured, and the cost of testing by external authorities (or that associated with the establishment of in-house laboratories) can be written off against the volume of the article which is manufactured.

Failure by a small scale manufacturer to comply with one of the requirements of these specifications, albeit a relatively minor lack of compliance, means that compliance with a SABS specification cannot be claimed. Thus, in effect, many of the current specifications present a barrier to entry to small scale entrepreneurs and exclude their participation in particular markets.

ii. Proposals

Quality should be procured on a contract specific basis by means of one or more of the following strategies:

The criterion in applying such strategies should be that:

Prequalification should not be utilised to limit competition or to reserve work for specific groupings. It should only be used to achieve an appropriate level of quality.

Organs of State should consider alternative forms of testing to confirm compliance and relax standards, where appropriate, to facilitate the participation of emerging or local enterprises.

Strategies to overcome difficulties relating to small scale manufacture should include:

4.11 Measures to combat corruption

i. Discussion

In the context of public procurement, corruption usually comprises fraudulent behaviour by persons concerned with the procurement process leading to losses for an organ of State. Usually, there is some form of collusion between the buying and the selling side: responsible officials on the public procurement side request or are induced to accept favours from tenderers or contractors. Such practices are often, but not always, criminal; they are always immoral and improper in terms of good procurement practice. Fraudulent actions are sometimes confined to one side of the procurement transaction, such as when tenderers collude to "rig" tenders or when officials misappropriate public property, or assets.

Corrupt actions within organs of State may include:

Corrupt actions by suppliers / service providers / contractors may include:

Competition and transparency serve to combat corruption to some extent. Other measures, however, need to be instituted to minimise corruption.

ii. Proposals

The following preventative measures should be adopted:

4.12 Early payment cycles

i. Discussion

Access to finance is one of the most urgently felt needs among emerging businesses. The specific problem of delayed payment to suppliers and contractors often aggravates the financial position of small enterprises and further hampers their access to funds. Although the present tendering conditions provide for payment within 30 days, the actual period is often significantly longer than this.

ii. Proposals

4.13 Financing of suppliers, service providers and contractors

i. Discussion

One of the major challenges facing many small, medium and micro enterprises and emerging companies is their inability to attract sufficient debt and equity capital to fund the growth of the enterprise. As enterprises succeed in obtaining larger contracts their ability to internally finance themselves diminishes. Many of these firms, while still growing, have not reached the creditworthy stage usually required by traditional financing sources. Others, having utilised their existing credit lines, find that their bank is unwilling to extend them further credit, even for the performance of a contract.

ii. Proposals

The procurement system should make provision for:

4.14 Period contracts

i. Discussion

The contract strategy for period contracts in the past has tended to favour the maximisation of the quantities of goods, services and works required, the contract period and the geographic area served by such contracts. This policy is generally not conducive to small, medium and micro enterprise participation and does not geographically spread economic activity. There is accordingly a need to revisit the policy relating thereto and to unbundle such contracts.

A contract strategy in respect of single versus umbrella (multi-activity) contracts or facilities management needs to be determined. Furthermore, attention needs to be paid to the determination of the optimum contract period, as long period contracts:

In circumstances where delay in delivery can result in consequential costs being incurred or where the commodity is not always available, consideration needs to be given to the awarding of contracts to two or three suppliers / service providers to permit consumer organs of State to have some flexibility. The most favourable tender will be accorded preferred contractor status and the secondary and tertiary contractors would only be approached should the preferred contractor be unable to supply or deliver. Consideration can also be given to implementing a system of performance guarantees in terms of which a cash deposit is provided at the commencement of a contract by the preferred contractor. This cash deposit can then be used to compensate the State for any cost premiums arising from non-performance.

ii. Proposals

Period contracts, in order to permit small, medium and micro enterprise participation, should be structured taking cognisance of the following :

Period contracts can be used as a means of equipping emerging contractors / manufacturers with plant. In some circumstances, contracts should be awarded to two or three suppliers / service providers with one of these contractors being accorded preferred contractor status.

4.15 Emergency Procurement

i. Discussion

Situations arise from time to time, wherein life, property and human well-being are threatened and rapid action is required to remedy, or alleviate, the situation, which may have resulted from among others :

When a situation requiring rapid remedial action arises in respect of a facility for which an organ of State is responsible, it is essential that such organ should have readily available the means of procuring the services of competent contractors, suppliers and service providers in the shortest possible time. The extent and nature of the services required will probably be known only in broad terms, but this cannot be permitted to delay the commencement of delivery.

Criteria need to be set and certification systems to be put in place to ensure that this system of procurement is not abused and only used in specific circumstances.

ii. Proposals

A Rapid Delivery Procurement System should be established which :

The criteria warranting the use of the Rapid Delivery Procurement System for an emergency should be that one, or more of the following conditions exist, or there should be an imminent danger of it about to exist :

The accounting officer in the organ of State wishing to utilise Rapid Delivery Systems should certify that the emergency meets the abovementioned requirements.

4.16 Stimulation of local economies

i. Discussion

Local economic development is an area of great promise, but which is fraught with difficulties owing to the skewed nature of the South African economy. The major factor in this imbalance is the economic dominance of large corporations. Perhaps the most serious consequences is the limit to ongoing, sustainable job creation.

While small businesses have burgeoned in recent years, they have concentrated on the retail sector. This is due to the limited availability of technical skills, lack of access to primary resources (such as land and capital) and price controls on raw materials which reduce the competitiveness of small firms. The challenges confronting proponents of local economic development are enormous.

Clearly government has to focus beyond administrative and service provision roles and take on the role of economic catalyst. Such a function should lead to new practices in procurement which will promote the development of small manufacturing, service and construction enterprises.

Preferences, in the past, have been utilised to protect regional industries in much the same manner as the local tenderers are afforded protection from foreign tenderers. Such practices can, however, have severe impacts on neighbouring areas, as such preferences cause market distortions. Typically, those protected by such preferences inflate their prices in the local economy and dump their products at lower prices in neighbouring areas. Furthermore, such preferences are difficult to administer.

The selection of contract strategies, the packaging of contracts and the employment of affirmative procurement practices can, on the other hand, tip the scales in favour of the local economy. In particular, Affirmative Procurement which seeks to engage the participation of small, medium and micro enterprises is to a large extent self targeting towards local enterprises.

ii. Proposals

4.17 Contracts having low financial values

i. Discussion

The present system of obtaining telephonic or verbal price quotations (no tenders are invited) for contracts under a certain value - R20 000 in the case of the State Tender Board (usually from a minimum of three suppliers), excludes many of the emerging small, medium and micro enterprises. The system is dependent on a data base of approved suppliers. Any business not on the approved list is excluded from the market.

ii. Proposals

4.18. National Standards

i. Discussion

National Standards, in the current South African context, is the collective term for Specifications, Codes of Practice and Test Methods which are published by the South African Bureau of Standards as national documents.

Standardisation is becoming more and more internationalised. The Agreement on Technical Barriers to trade within the WTO Agreement of Tariffs and Trade is also very explicit in its requirements for the harmonisation of standards on a regional and international basis. These trends are given further impetus by the massive harmonisation exercise currently underway in the European Union (EU). A similar drive is expected to take place within the Asia - Pacific Economic Community (APEC) in the near future.

South Africa cannot stand aloof from these developments. International trade is vitally important. Accordingly, standards should become more internationalised. In the electro-technical sector about 40% of the national standards have been aligned with International Electro-Technical Commission's (IEC) standards. In the non-electro-technical field approximately 15% have been aligned with the International Organisation for Standardisation's (ISO) standards, and in the telecommunications field, virtually all national standards are aligned with the international standards, mostly European Telecommunication Standards Institute's (ETSI) standards.

Construction standards have historically been based on British standards. As Britain has now become part of the European Union, it follows that construction standards should be aligned with that of the European Union. (The cement industries have already adopted the European standard and are manufacturing according to this specification, SABS EVN 197-1, and have adopted the nomenclature for cement contained therein).

ii. Proposals

4.19. Labour Issues

i. Discussion

Contractors, suppliers and service providers are, in so far as their labour is concerned, responsible for complying with the 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. Compliance with such legislation has a direct cost impact on suppliers. Frequently, unscrupulous employers fail to comply in order to maximise profits, or have insufficient capital to meet these financial commitments.

Labour standards have traditionally been enforced through courts of law, either in terms of criminal proceedings, or in terms of civil proceedings. Inspectors have been empowered to confirm and enforce compliance with such standards. The system is, for various reasons, cumbersome, ineffectual and time consuming. Frequently, cases are inconclusive or result in a warning, a suspended fine or an insignificant fine being handed down.

Criminal proceedings should not be the primary mechanism to encourage and enforce compliance with labour-standards. There should be a range of remedies available to encourage and enforce compliance in an expedient manner, some of which could relate to the procurement system.

On engineering and construction works contracts, because of the historic distinction between the building and construction industries, minimum wages differ between the industries. The problem is further complicated by the collapse of Industrial Councils in some regions. The Framework Agreement for Labour Intensive Construction and Community-based Public Works Programmes further complicates matters. For example, at present, two companies, the one allied to the building industry and the other to the civil engineering industry could quite easily be tendering for a building development. The civil engineering contractor is required to price for his locally recruited labour being paid the rates determined for the Magisterial district in question, whereas the building contractor can price his tender using the same labour but on the minimum going rate should the area not be covered by an Industrial Council. If another project "just up the road" is being administered in terms of the Framework Agreement, there is yet another wage rate for the same activities. Likewise, different wage rates and service conditions may exist on Community-Based Public Works Programmes which are administered by the community.

It is submitted that the status quo does not permit fair and equitable tender price comparisons to be made, is confusing, does not lead to the development of sustainable community enterprises and encourages contractors to engage subcontractors or informal sector enterprises who do not observe minimum wages, in order to remain competitive. A common wage order for all those engaged in construction activities, which takes account of regional and project specific variations and is based on the classification of job activities within which there may be grades of skill, would go a long way to resolving the aforementioned problems. Payment linked to productivity as opposed to time spent on the job could be permitted for categories of work for which labour may be substituted for machines in order to create jobs e.g. excavation activities, construction of road base courses, surfacing of roads, etc.

In countries where discrimination has been practised, particularly on racial lines, affirmative action programmes have been implemented to reinforce both equal employment and business opportunities with a view to removing disparities in employment practices and business ownership between different groups of people, usually on the basis of race and gender. Affirmative action, when properly applied, should reinforce equal opportunity concepts and should not imply "preferential treatment" or "reverse discrimination". Affirmative action endeavours to ensure that all segments of society have the same opportunity to participate on the basis of open competition and to advance according to relative ability.

Various proposals have been made regarding employment equity in so far as public sector procurement is concerned. These include:

Some have argued for quotas and targets to be established in terms of national legislation to implement affirmative action. Others in turn have argued for companies to become companies which may be viewed as being progressive in their orientation and conduct.

What needs to be established is which route will best serve the interests of employment equity viz., tax incentives, procurement activities or legislation or a combination thereof. Furthermore, the practicalities associated with the implementation of employment equity by means of such routes needs to be established. For example, should it be decided to accord preferences in public sector procurement for aspects of employment equity, employment equity will have to be defined, quantified, measured and audited in order to establish compliance during the performance of the contract in such a manner that companies of different sizes are not unfairly treated. (Small companies, because of their size in terms of turnover and employee compliment may subscribe to employment equity principles but may take years to implement such policies due to low turnovers in their employee complement and slow growth in the size of the company).

ii. Proposals

4.20. Short term service contracts

i. Discussion

Where there is a shortage of particular skills in an organ of State or a short term crisis has developed, short term service contracts for some particular service may be required. Procurement in such circumstances can be very sensitive.

ii. Proposals

Short term service contracts should embrace the following set of principles:

The performance of service providers should be monitored, and only those service providers who have the competence, capacity and availability of suitable personnel be entrusted with such contracts.

4.21. Subcontracting issues

i. Discussion

Subcontractors have very little negotiating power with prime contractors due to the fact that there is always a "next job syndrome"; non payment by the prime contractor; and victimisation.

Some of the problems expressed by subcontractors include the "Hawking" of prices submitted to prime contractors by them in order to obtain lower prices from others (i.e. the practice of Dutch Auctioning); the risk of non-payment; the use by prime contractors of hard earned subcontractors' monies as an interest free overdraft facility and prime contractor bodies frequently representing subcontractor interests at forums.

Invariably, as employers only have a relationship with the prime contractor, they regard subcontracting issues to be the prime contractor's problem and of no concern to them. Subcontracting is an effective means of involving small, medium and micro enterprises in public sector procurement activities. As such, the plight of subcontractors cannot be ignored. Accordingly, measures need to be taken to address the shortcomings in the current subcontracting arrangements, particularly in respect of engineering and construction works contracts. Such measures could include some or all of the following:

ii. Proposals

4.22. Allocation of risk and change management

i. Discussion

Risk cannot be eradicated, but can be managed; it is better to be proactive rather than reactive. Organs of State should identify and access procurement risk on a case by case basis. As a general rule, the aim should be to allocate risks to those best able to manage them provided that the cost of transferring them to that party does not exceed the cost of retaining them. In many cases, this will be the supplier, contractor or service provider. Transferring risk to these parties may provide them with an incentive to improve their performance. Forcing them to accept risks which they have no chance of managing is, however, likely to be both costly and futile. Where there is doubt about where a risk should be, organs of State should compare the cost of transferring it with the cost of retaining it themselves.

In engineering and construction works contracts, the risks which need to be considered include construction risk; delays, performance and operational risks; commercial risks; and political, legal and financial risks in various forms. Risk management can involve:

Risk management will not remove all risk from projects; its principal aim is to ensure that risks are managed most efficiently. Inevitably, certain risks will have to be borne by organs of State. Allowances for residual risks should be made in estimates of time and cost.

Contract documents are tools for managing risks. Their purpose is to determine the consequences of particular risks which have been identified. Contracts should accordingly clearly define the respective responsibilities of the parties and be flexible enough to deal with inevitable changes. The management of changes to requirements presents a special challenge. The importance of the clear allocation of risk and the management of change cannot be underestimated, particularly in contracts of a developmental nature, where third party management support is involved. Clear guidelines in this regard are required.

ii. Proposals

4.23. Insurances

i. Discussion

Insurance is not a substitute for effective risk management. Insurance is only intended to deal with measurable or known risks and shifts the impact of loss so as to reduce it. Insurance cannot deal with uncertainty itself and cannot prevent loss.

Most physical risks can be insured against. For example, in engineering and construction works contracts a contractor can have some of his risks covered by effecting insurance such as Contract Works Insurance; Public Liability Insurance; SASRIA Special Risks Insurance; Removal of Support insurance; general insurance cover for plant owned or hired by them; or Professional Indemnity Insurance.

Many standard forms of construction contracts require the contractor to effect Contract Works and Public Liability insurances and to extend such cover to subcontractors. Some require that in addition, contractors effect SASRIA and Removal of Support Insurance. Most National and Provincial Departments require contractors to effect the relevant insurances. On the other hand many public utilities and local authorities have their own Contractor's All Risk policies under which the majority of work put out to tender is automatically insured through their Principal Controlled Insurance which may comprise a mix of conventional and self insurance. In such cases, contractors need only to effect any supplementary insurance cover such as insurance of construction plant and equipment, including tools, office and other temporary structures and contents, except those intended for incorporation into the Works; insurance in terms of the provisions of the Compensation for Occupational Injuries and Diseases Act of 1993; motor vehicle liability insurance; and insurances for the manufacture / fabrication of portions of the works at premises other than the contract site.

There are many advantages to both the State and emerging contractors / small, and micro enterprises should the State have Contractors All Risk policies under which the majority of work put out to tender is automatically insured by them. In contractor development programmes, insurance excesses can in some instances be higher then the amount of profit on labour only contracts and as a result can cause a contractor to incur financial losses to the extent that he cannot continue with the contract.

The State self-insures its own assets. As a result, many uncertainties exist regarding insurances on the renovation and repair of buildings and what cover contractors have when effecting repairs.

ii. Proposals

4.24. Guarantees

i. Discussion

Client bodies are exposed to a certain amount of risk particularly in respect of engineering and construction works contracts, to the extent that contractors may fail to perform or provide a defective product. This can have direct financial implications in so far as rectification and completion of the works is concerned, and consequential financial implications resulting from the delayed occupation or possession of the assets that are created. Delayed completion also inevitably results in increased construction costs. As a result, client bodies require contractors to lodge a security guarantee and retain an amount from interim certificates in order to cover some of this risk. Prime contractors in turn, in order to minimise their risk, often require subcontractors to provide similar guarantees. (Guarantees are seldom called for by the State Tender Board in respect of contracts involving the procurement of goods and services; certain local authorities require guarantees for most contracts involving goods and services).

A performance bond may be described as a three party contract between the employer, the contractor and the surety, guaranteeing performance by the contractor with a stated financial benefit in the event of non-performance. Retention is held by the employer as an insurance for the correction of defects not attended to by the contractor. Construction guarantees provided for in some private sector building contracts, covers more than a performance bond and effectively places insurance against failure to perform and failure to rectify defects at a single source.

Performance bonds should not be confused with retention monies which are intended to cover the cost of making good defects in construction. Performance bonds are intended to cover the additional cost of completing the works where the works are interrupted prior to their completion due to the termination of the contract for reasons which may include contractor insolvency, or failure to perform.

In so far as small, medium and micro enterprises / emerging construction businesses are concerned, this presents a significant financial hurdle to overcome in the pursuit of being awarded contracts. Furthermore, such enterprises, because of their greater risk factor presented to sureties, usually have to obtain their performance bonds at significantly higher rates than the large well established firms. Accordingly, they not only struggle to secure bonds, but have to do so at a cost premium.

Specific strategies and innovations are required to enable small, medium and micro enterprises / emerging construction businesses to obtain the necessary performance bonds. The provision of tender guarantees also needs to be considered, particularly where tenderers compete on the basis of both price and development objectives. Tender guarantees may also be necessary to afford organs of State some degree of protection from irresponsible tenderers. Such guarantees should, however, not be set so high as to discourage tenderers from tendering.

ii. Proposals

4.25. Training in construction projects

i. Discussion

It is generally acknowledged that the lack of skills is one of the four major constraints facing small and micro enterprises. Training in the construction industry has historically been indirectly linked to procurement through the Manpower Training Act of 1981 which permitted the minister to declare a scheme created by any group or association of employers, for the training of employees within given parameters, to be binding in respect of the industry in which they are engaged. This piece of legislation has led to the creation of Training Schemes managed by organisations who are empowered to levy compulsory payment from employers. Thus the cost of training is included in the contract price of participating employers.

In the construction industry, Training Schemes are administered by the South African Federation of Civil Engineering Contractors and the Building Industries Federation of South Africa. Participating contractors include the cost of levies in their tender prices in order to have access to training of their employees. Emerging contractors, not being members, do not price for training as they do not pay levies. As a result, they frequently have no access to industry-based training.

On projects which are designed to engage marginalised sectors of society in construction activities, the training costs are an order of magnitude higher than the aforementioned levies; typically allocations of between 5% and 10% of the contract price are called for. Such training raises a number of issues:

Another issue relating to procurement is that of value for money. The determination of value for money on a project specific basis is difficult to determine as the necessity and impact of such training in the long term is difficult to access, particularly where new capacity is generated.

ii. Proposals

The distinction should be made between short term RDP-related development objectives, which are project-related but programme-driven, and the medium / long term human resource development of the industry. Training should be integrated with the product. As such training needs should be determined jointly by organs of State and industry. Training should be undertaken on a programmed approach and not on a project specific basis. Training should be regionalised and managed by implementing departments or their delegated agents in co-operation with employer bodies / associations on a provincial basis.

Training should be measured in terms of regional structured training plans (human resource development strategies) in order to establish value for money.

Accordingly, provision for training, except for on-the-job training, should not be made in construction contracts. The services of training providers should be procured in the same manner as that proposed for the appointment of consultants.

4.26. Adjudication of engineering and construction works tenders involving emerging / community contractors

i. Discussion

Emerging / community contractors who undertake to perform certain construction functions and require third party management support to execute their contracts should be afforded some protection from tendering unrealistically low rates. The acceptance of unrealistically low prices will inevitably lead to failure of such contractors and increased costs to complete contracts. Furthermore, as labour is usually the largest cost component of such contracts, low tender prices will invariably translate into unacceptable wage payments to workers.

In most contractor development programmes outside of South Africa in sub-Saharan Africa, contractors are not selected by means of competitive tendering. A common way to select contractors for participation in programmes is to invite members of the public to fill out an application for training. Applications are processed and participants are selected on the basis of criteria which are dependent upon the objectives of the programmes. Graduates from training courses are then offered fixed-rate period contracts. Further fixed-rate period contracts are granted should they demonstrate satisfactory performance. This system has not succeeded in fostering an entrepreneurial spirit amongst contractors, who invariably remain entirely reliant for their livelihoods on work handed to them in this manner.

International donor bodies have tried to break out of this deadlock by insisting that contracts be awarded on the basis of competitive tendering and have advocated the acceptance of tenders on the basis of a banded price around an estimate, which is made known prior to the closing of tenders. Tendering consequently degenerates into "estimate plus" bidding.

ii. Proposals

Any system which is adopted to award contracts to emerging / community contractors should be based on the following:

Tenders should be adjudicated in terms of an estimated price, prepared by a person responsible for either preparing the contract documentation or providing third party management support. Tenderers who price below a predetermined percentage below the estimate should be automatically rejected. Tenders should be awarded to the tenderer whose price is immediately above the cut off value. In the interests of transparency the method of adjudication should be made known to tenderers. The estimate should, be kept secret and be only read out and recorded immediately prior to the public opening of tenders.

4.27. Environmental Issues

i. Discussion

Organs of State can encourage their suppliers, service providers and contractors to behave in an environmentally friendly way by integrating their concern for the environment with their procurement activities.

Organs of State should implement policy which will influence the behaviour of vendors to:

Procurement policy may require vendors to provide proof of their commitment to environmental protection. This may take the form of statements on the steps companies are taking to reduce their impact on their environment, or alternatively to demonstrate that they are not in breach of any statutory requirements relating to the environment.

ii. Proposals

Organs of State should:

Suppliers, service providers and contractors should:

5. CONCLUSION: THE WAY FORWARD

Studies have indicated that government expenditure is of such significance that it is a vital component of economic and social progress and as such plays an important role in the transformation process. To overcome the legacy of discrimination and neglect, South Africa must, above all, create conditions for sustainable growth. Any new procurement policy needs to be sensitive to the urgent demands of addressing the present socio-economic imbalances within the context of a global economy and the need to apply accepted principles of good governance. Clearly, South Africa needs to create and adopt new and imaginative procurement policies that will address the country's requirements for equity and social upliftment while, at the same time, allowing it to be internationally competitive .

The aim of this Green Paper is to give all South Africans the opportunity to contribute to the change process that will have a profound effect on all. South Africa is facing enormous challenges, both locally and internationally, as it opens the economy to the combined impact of global investment and free trade regulations. It is envisaged that a coherent and adequately resourced procurement policy will contribute to the national objectives of:

This Green Paper sets out the key elements of the Government's new strategy for procurement. In addition, the evolving institutional framework through which the strategy should be implemented has also been outlined. It should be clear that all these proposed polices, institutions and systems cannot be developed without government adopting a vigorous approach to implement this framework. The government has put in place a process, involving public consultation, aimed at developing the best policies to achieve it's goals. The Green Paper process, should result in the formulation of new Procurement Policy for South Africa, ultimately to be published as a White Paper.

It is recognised that the subject matter of this policy needs to be considered with other related Government policies and initiatives in an integrated and structured manner.

This Green Paper has sought to identify the key issues to be addressed by government policy and to suggest some of the available options. The Paper is designed to raise questions about these options, by discussing the merits or otherwise of adopting them, in an effort to stimulate public debate. It is not a statement of government policy, but outlines issues and options to which the South African public are invited to respond and make contributions that will eventually help shape government policy. The culmination of the process will be the publication of a White Paper and the beginning of legislative reforms pertaining to procurement.

Constructive participation will enable Government to respond more effectively to the needs of South Africa in this important area of reform. The Green Paper has drawn on the experience of other societies and nations who have grappled with similar issues. The common features include building on existing strengths and restructuring government policies and programmes to support the principles of Growth, Employment and Redistribution as outlined in the macro-economic strategy. However, ultimately, it is for all South Africans to determine the best course of action to meet the country's challenges and to accept joint responsibility for implementing the changes required.

The desired output of this process is to develop world class professional procurement polices and systems while ensuring the productive participation of previously disadvantaged persons in a manner that promotes entrepreneurship and the adoption of best practice within all South African businesses while improving international competitiveness.

Although policy choices are involved, the implementation of this new vision is the responsibility of all South Africans. There are no shortcuts if the country is to make the transition to full economic maturity.

AFFIRMATIVE PROCUREMENT IN BRIEF

Affirmative Procurement in a practical and pragmatic manner affirms the changed environment in South Africa, government's socio-economic objectives and the principles of the Reconstruction and Development Programme. It enables organs of State to operationalise policies in a targeted, transparent, visible and measurable manner when engaging in economic activity with the private sector, without compromising principles such as fairness, competition, cost efficiency and inclusion.

Affirmative Procurement comprises participative programmes aimed at the engagement of small, medium and micro enterprises owned by previously disadvantaged persons and the increasing of the volume of work available to the poor and the income generation of marginalised sectors of society.

Key elements associated with Affirmative Procurement are:

  1. The recognition that:
    • procurement may be used as an instrument of government policy.
    • value for money need not be a measure of monetary cost alone.
    • goods, services and works can be procured both in terms of human resource and technical specifications.
    • participation of targeted individuals, groups of people, communities and enterprises can be secured by means of a development objective / price mechanism, a human resource specification or a combination thereof.
  2. The use of development objective / price mechanism (points scoring tender adjudication procedure) as a means of:
    • measuring a tenderer's human resource and financial offer (i.e. value for money).
    • adjudicating of tenders.
    • ensuring that premiums, if any, paid in respect of socio economic or development objectives are within acceptable limits.
    • favouring certain targeted individuals, groups, communities or practices without excluding those who fall outside of such target groups from tendering.
    • encouraging the private sector to use their skill, knowledge and creativity in responding to socio economic and development objective challenges in a cost effective manner.
  3. The use of human resource specifications in order to:
    • define target groups
    • set goals (targets), measured in monetary terms, which may be met by engaging the target groups in the pursuit of predetermined socio-economic / development objectives.
    • provide for the measurement of key indicators to ensure that goals may be quantified and audited during the performance of the contract.
    • set out how goals can be achieved, and the penalties which are to be applied should a contractor fail to achieve the contractual goal.
  4. The classification of contracts in order to facilitate standardisation in approach and the targeting of business enterprises/local resources
  5. The use of the third tier of government in order to effect area bound (specific) targeting relating to marginalised sectors of society in construction projects.

Affirmative Procurement has two main legs:

  • A development component which ensures that the target group is capable of participation.
  • A structured participation component which ensures that the target group is engaged in the provision of goods, services and works.

Affirmative Procurement, without resorting to set asides and price preferences can be used in an effective, efficient, transparent and cost effective manner to:

  • put in place a programme of affirmative action to address the deliberate marginalisation from economic, political and social power of previously disadvantaged individuals and sectors of society.
  • develop small businesses, particularly those owned and operated by black entrepreneurs.
  • provide jobs in a targeted manner on engineering and construction contracts.
  • increase the number of employment opportunities per unit of expenditure.
  • promote acceptable labour practices and standards.

Affirmative Procurement seeks to ensure that public funds are expended in a such a way that all segments of the South African population benefit from such expenditure through job creation and commercial activity. It makes the tender process accessible to the target group without guaranteeing work and links the flow of money into targeted business enterprises with a commitment flow of responsibility.

It has as its aim, in the long term to :

  • promote development objectives with a focus on human resource development.
  • provide opportunities for skill transfer, capacity building to acquire experience.
  • encourage commitment to human resource development and social responsibility programmes within organisations to specifically, redress historical imbalances.
  • facilitate growth in terms of the efficiency and effectiveness of delivery as well as numbers and size of business owned and controlled by previously disadvantaged individuals.
  • ensure that emerging enterprises contribute to the tax base, engage workers who are affiliated to labour associations, adhere to safety regulations and reflect norms and standards in their business activities associated with those of developed countries.

THE PILLARS OF PROCUREMENT REFORM

GENERAL

  • The strategy of 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.
  • Organs of State should seek to embrace efficient and effective procurement practices and systems and so deliver the services which they are mandated to do in the required quantities and quality in compliance with Constitutional provisions.
  • Government should focus beyond administrative and service role provisions in its procurement practices and take on the role of economic catalyst in the transformation process
  • Organs of State when engaging in procurement activities should adhere to the preservation of the highest standards of integrity, objectivity, fairness, efficiency and professionalism.
  • Success in the economic environment requires government to play a clear policy co-ordination role which is likely to have a wider application in the rest of the public sector, and indeed in the private sector.

SOCIO-ECONOMIC REFORM

  • Public sector procurement should be structured in a manner that promotes economic reconciliation and competitiveness.
  • The structuring of contracts should be such that small, medium and micro enterprise participation is maximised without compromising time, cost and quality.
  • Value for money should not be based on least cost alone; it can include well defined socio-economic criteria which can be evaluated in a transparent and measurable manner.
  • Targets should be set and delivery systems should be designed to facilitate one or more of the following :
    • The development of small, medium and micro enterprises particularly those owned and operated by previously disadvantaged persons;
    • The increasing of the volume of work available to the poor and the income generation of marginalised sectors of society;
    • Affirmative action to address the deliberate marginalisation from economic, political and social power of black people, women and rural communities and to empower communities and individuals from previously disadvantaged sectors of society;

subject to such targets being readily definable, quantifiable, measurable, auditable and verifiable.

  • The policy of targeting must not compromise the principles of fairness, competition, cost-efficiency and inclusion, and should be subject to periodic review.
  • The procurement process should be made accessible to the target groups, and structured in a simplified and user-friendly manner.
  • The third tier of government should identify area bound targets and select associated delivery mechanisms.
  • Organs of State should take cognisance of regional and local dynamics when implementing procurement policy and associated practices
  • International competition should not prejudice local enterprises and should be used as an opportunity to develop and advance local industry through technology transfer and human resource development.

THE PILLARS OF PROCUREMENT REFORM

INSTITUTIONAL REFORM

  • Procurement must comply with the provisions of the constitution, support macro economic policies, be an instrument of the transformation process and promote tax morality and improve labour standards.
  • National legislation should prescribe a procurement framework which regulates procurement procedures, practices, documentation, policies, preferences and control measures in all organs of State.
  • Procurement control and monitoring should be exercised by a national Procurement Compliance Office whose functions should be to ensure that procurement agencies comply with the national procurement legislation and framework and associated regulations.
  • The Procurement Compliance Office should have five specialist arms which have functional responsibilities in respect of registration, administration, socio-economic affairs, technical matters and education and training respectively.
  • Existing national and provincial Tender Board Acts and Local Government Ordinances pertaining to procurement, should be repealed; the existing State and Provincial Tender Boards should be disbanded.
  • Offices of Tender Boards (as opposed to the Boards themselves) should be reconstituted as Procurement Offices responsible for central tendering and certain ad hoc contracts.
  • Consumer organs of State should be authorised to act as Procurement Centres in order to procure goods, services and works, based on predetermined criteria.
  • A code of conduct should be drafted to govern the actions of procurement officials and those engaged in providing goods, services and works.
  • The Procurement Compliance Office should regulate and prescribe all documentation in order to achieve a uniform procurement system with standard tendering procedures and contract documentation.
  • All enterprises which contract with organs of State should be registered and all targeted enterprises certified.
  • Standards and specifications should result in appropriate quality being procured to satisfy user needs and should not be used to exclude emerging enterprises from participation.
  • Parastatals should not unfairly compete with the private sector and should comply with the provisions of a National Procurement Framework.
  • A comprehensive training and skills development programme should be embarked upon to ensure that procurement officials have the necessary procurement skills.
  • Measures should be taken to ensure that the effects of the WTO's Code on Government Procurement do not impact negatively on the overall objectives of South African socio-economic reform.
  • In the interim, a preference system for local content, or an offset policy with a bias towards export promotion, should be used to support the local economy in the face of foreign competition.

INVITATION TO COMMENT

The Ministries of Finance and Public Works welcome any comment, criticism or concern on the proposals made for the reform of the public procurement process from all interested parties. Please address your correspondence to:

Comments should reach the Secretariat on or before 30 June 1997.

Machiavelli (1514):

"It should be borne in mind there is nothing more difficult to arrange, more doubtful of success and more dangerous to carry through than initiating changes in a state's constitution.

The innovator makes enemies of those who prospered under the old order and only lukewarm support is forthcoming from those who would prosper under the new."

A lack of response from those who are earmarked to benefit from Procurement Reform would indicate that the same is true in this case.

ACKNOWLEDGEMENTS

The Ministry of Finance and the Ministry of Public Works would like to acknowledge the contribution of the following in the procurement reform process culminating in development of this Green Paper:

Co-chairpersons of the Procurement Forum:

Task Team:

Other organisations:

TOC