Review of the Draft Public Procurement Bill

Disclaimer: This report was commissioned by the EU-funded “EU-South Africa Partners for Growth Project”.  The findings represent the views of the authors and do not necessarily reflect the position either of the European Union or of the EU Delegation to South Africa. 

On 19 February 2020, the National Treasury released the Draft Public Procurement Bill (“Draft Bill”) for public comments.  The overriding purpose of the Draft Bill is to introduce a single regulatory framework for local, provincial and national government and state-owned enterprises; and to create the necessary institutions to ensure the integrity of the procurement system and to address potential violations.  The Bill also replaces critical provisions in the existing Preferential Procurement Policy Framework Act of 2017 relating to the scoring and award of government tenders.

The following aspects of the Draft Bill have been highlighted in the EU Delegation’s submission to the National Treasury:

  • The establishment of a Public Procurement Regulator and a Public Procurement Tribunal should provide a much-needed mechanism to identify procurement irregularities and resolve complaints. However, the effectiveness of the Regulator as well as of the Tribunal will depend largely on the independence, capacity and ability with which it is given to implement and enforce their mandates.  The structure of the Regulator, and the composition and appointment of its members, is not described in the Bill.
  • Currently, the Preferential Procurement Regulations, 2017, awards tenders based on a preference point system that is adjusted depending on the value of the tender. All tenders that meet a minimum technical score, are subject to a second evaluation round. At this stage, tenders between R30 000 and R30 million are then adjudicated on an 80/20 basis (80 points for price and 20 points based on a company’s B-BBEE score), while a 90/10 split is applied on tenders of above R30 million.  The technical score is not even considered in this final evaluation. The Draft Bill makes no mention of this system and allows the Minister to determine the preference point system depending on the objective of the procurement.
  • Similarly, the Draft Bill is silent on whether the sectors designated, and the minimum thresholds determined for local production and local content, under the Preferential Procurement Regulations, 2017, will be retained or repealed. This includes the existing exemption processes. To date, the Department of Trade, Investment and Competition (DTIC) has designated over 20 products and services that are largely restricted to local suppliers (or a high degree of local value-added).
  • Under the Draft Bill, the Minister of Finance can set aside tenders for certain categories of persons; this differs from the Preferential Procurement Regulations, 2017, in which only a proportion of a tender (30%) above R30 million could be set aside for sub-contracting to specific designated groups.   Similarly, the scope for cancelling tenders has been broadened to include factors such as evidence of corrupt and anti-competitive behaviour, as well as matters of national security.
  • Provincial treasuries may issue different instructions for (i) different categories of institutions and (ii) different categories of goods, services or infrastructure in so far as it supports public procurement objectives. In other words, the provincial treasuries may implement a different preferential point system and define different local content regulations to that of the national government. This may undermine the Government’s objectives in introducing a single regulatory system for public procurement.
  • The Draft Bill also fleshes out all of the conditions and processes that will need to be met in the development of public-private partnerships. This detail provides both government and the private sector with much stronger guidance on public-private partnerships (PPPs), than was previously encapsulated in the Local Government Municipal Finance Management Act, 2003. However, whereas municipalities were previously given some autonomy in the conclusion of PPPs, the Draft Bill requires that all PPP concepts, feasibility studies, procurement documentation and agreements must be approved by the relevant Treasury (National or Provincial). This may increase the burden on Municipalities and their private partners in concluding PPPs and contribute to additional red tape.
  • There is a missed opportunity to include provisions for green or sustainable public procurement in the Draft Bill. Not only is green or sustainable public procurement an opportunity to address climate change, but it is an opportunity for South Africa to drive green industrial growth, implement broad-based black economic empowerment and increase green innovation.

The impact of these changes will depend heavily on the political will of government in general, and the Minister of Finance in particular; the regulatory framework that follows; and on the independence and competency of the new institutions that are created. As it stands, the Draft Bill is silent on many of these features and provides widescale discretion to the Minister of Finance to appoint members of the Tribunal and to fill in many of the gaps that will emerge from the repeal of the current Act and regulations.  To avoid the possibility of constitutional challenges, and to provide greater certainty to bidders and potential investors, it would be in all stakeholder’s interests to have these key aspects of the preferential procurement framework set out in more detail in the underlying legislation.