Is public procurement reform on its way?

The draft Public Procurement Bill published in February 2020 aims to regulate and prescribe a single regulatory framework for procurement as envisioned in section 217(3) of the Constitution of the Republic of South Africa.

By Jason Smit, Muhammed Somrey & Aliyah Ince of Pinsent Masons Africa

Aliyah Ince, candidate attorney Muhammed Somrey, senior associate Jason Smit, partner

According to National Treasury, one of the main objectives of the draft Bill is to remove the current fragmentation of public procurement regulations. This means that the draft Bill would have to address a large range of issues evident in the current regulatory framework by, among other things, identifying concerns around procurement and proposing practical solutions and mechanisms to address them. The draft Bill has received criticism from various quarters for arguably failing to do this.

Improvement of the current regulatory regimes

The Constitution envisions procurement processes undertaken by organs of state that are fair, equitable, transparent, competitive and cost-effective. In addition, section 217(3) requires the implementation of national legislation to prescribe a framework within which these processes must be implemented. Proposed with the implementation of the draft Bill is the repeal of various current procurement-related legislation in their entirety, or amendments to legislation in part. Examples of legislation proposed to be repealed in their entirety include the Preferential Procurement Policy Framework Act (No. 5 of 2000; PPPFA), the Local Government: Municipal Finance Management Act (No. 56 of 2003), and the State Tender Board Act (No. 86 of 1968). Legislation to be amended in part include, among others, the Public Finance Management Act (No. 1 of 1999), the National Water Act (No. 36 of 1998), and the Broad-based Black Economic Empowerment Act (No. 53 of 2003). It is clear from the proposed repeals and amendments that the draft Bill would have wide-ranging impacts across various sectors. The infrastructure sector in particular would be vastly impacted for reasons mentioned below. The repeal of the PPPFA, tied with the repeal of the Preferential Procurement Regulations of 2017 (‘2017 Regulations’) promulgated under the PPPFA, has the effect of rendering the preferential point system currently in effect non-existent. Rather, the draft Bill seeks to promote a ‘flexible preferential procurement regime’ and enable the Minister of Finance to prescribe a framework for categories of preferences and the protection or advancement of persons or categories of persons previously disadvantaged by unfair discrimination in procurement, and after consultation with responsible Ministers (see Chapter 4). It should be noted that the 2017 Regulations have in any event been rendered invalid by the Supreme Court of Appeal, with judgment by the Constitutional Court still pending.

With one of the main objectives of the draft Bill being to do away with the current ‘fragmentation’ of public procurement regulation, according to National Treasury, it is intended to propose a single framework applicable to national, provincial and local government, and state-owned entities. The draft Bill also aims to promote procurement that is “developmental; ensures value for money in the use of public funds; expands the productive base of the economy; supports innovation, efficiency and maximum

competition; and uses technology to simplify procurement process”. This perhaps arises from concerns that regulatory regimes have consistently been criticised for being too formulative and failing to promote efficient procurement methods. In other words, there exists a concern of overcoming red tape.

National Treasury highlights key areas of regulation in the draft Bill, a few being: the establishment of an impartial, unprejudiced Public Procurement Regulator (‘Regulator’) within National Treasury; the power to prescribe different methods of procurement; and a dispute resolution mechanism wherein it is envisioned that review will occur within an institution, by the Regulator, and by the Provincial Treasuries. Thereafter, review will occur by an independent Tribunal. The introduction of dispute resolution mechanisms will promote the efficient handling of disputes and limit the need to litigate in courts, which have already been over-burdened by matters for some time. The Regulator, in particular, appears to be granted vast obligations and powers by the draft Bill (see Chapter 2). The question that arises is how the draft Bill aims to ensure enough capacity within the Regulator to confirm that these obligations are carried out not only efficiently, but to their full and proper extent. This does not appear to be addressed by the draft Bill.

Responses to the draft Bill

While the draft Bill proposes to address the gaps and concerns surrounding the current ‘fragmented’ regulatory regimes, it has received criticism on various aspects.

A long-standing criticism towards procurement regimes has been a lack of transparency and accountability, among others, in the form of a lack of readily available information to the public. This has resulted in difficulties in holding institutions accountable and addressing corruption. Interestingly, lack of transparency and information available to the public has been highlighted in the recently published draft National Infrastructure Plan 2050 (NIP) as an area needing development. The NIP proposes various initiatives to promote this, including monitoring practices and a database to contain information that will be made readily available to the public. In addition, the NIP also highlights the need for a more streamlined regulatory regime and the removal of red tape, which the draft Bill proposes to implement. The draft Bill, however, has received criticism for failing to improve transparency and accountability.

The Parliamentary Budget Office (PBO) has commented that the draft Bill contains limitations that prevent the realisation of the principles of section 217 of the Constitution as set out above. In particular, the PBO draws attention to the fact that transparency is at the discretion of the Regulator through the vast powers granted to it. The Standing Committee on Appropriations has also levelled criticisms at the draft Bill, stating that it fails to address economic transformation through exclusive growth, fails to include localisation in the draft Bill itself, and fails to clearly state how it will address challenges with regard to value for money. Concerns around ‘discretionary transparency’ arise from the draft Bill’s rather general requirement that bidders’ information is to be kept confidential – it is argued that this general inclusion favours secrecy and corruption, and that non-sensitive bid information should be publicly available.

The independency, appointment process and qualifications of the Regulator have also been called into question. These would appear to be valid concerns, as the draft Bill empowers the Regulator to a large extent to perform various obligations and actions. The establishment of the Regulator within National Treasury itself has been challenged in terms of the Regulator’s ability to remain independent despite being housed in National Treasury.

Further, as mentioned above, the draft Bill repeals the 2017 Regulations made under the PPPFA. While the draft Bill allows the Minister of Finance to determine the preference point system, concerns have been raised around the fact that it makes no mention of the system prescribed by the 2017 Regulations and is also silent on the thresholds determined for local content.

In light of global trends and policies, an important feature is the draft Bill’s failure to include clear and unambiguous provisions and initiatives for green public procurement (GPP). The European Commission has defined GPP as a process whereby public authorities seek to procure goods, services and works with a reduced environmental impact throughout their life cycle. Sustainable procurement practices have been a global focus for some time now, with GPP having been implemented in various initiatives around the world. As public entities exercise large-scale purchasing power in contracts for goods and services, polices that prioritise GPP initiatives are a step towards sustainable markets. The draft Bill’s failure to address sustainability is of concern for South African markets.

The draft Bill is yet to be enacted, as it is still undergoing various processes of consideration and deliberation. Comments on the draft Bill have been provided by multiple industry role players and it remains to be seen how these comments will be addressed once the draft Bill is formally published again. The comments provided appear to identify similar areas of concern. Allegations of corruption and malfeasance surrounding public procurement processes are unfortunately commonplace and at the fore of public scrutiny of state procurement. The draft Bill presents an opportunity to increase and promote accountability, transparency, public involvement and sustainable practices, and the next iteration is no doubt awaited with much interest across many industry sectors.