A Summary of Key Public Procurement Aspects
This month saw Minister Pravin Gordhan deliver his 2017/2018 budget speech which, as anticipated, included specific reference to several Public Procurement aspects.
What can we learn from it and what does this mean for Procurement at large?
Looking through objectively critical lenses and seen against a backdrop of continued and excessive wasteful and fruitless expenditure and graft and corruption in managing public funds, it begs the question, “what’s really new and how is this going to radically change?”
A Framework for Transformation
In addressing the above questions, Gordhan advanced the following as clear guiding principles looking forward:
“To achieve the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development. Transformation without economic growth would be narrow and unsustainable. Growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past. Less inequality is associated with greater macroeconomic stability and more sustainable growth.”
Gordhan also confirmed the principles of a sustainable and integrous transformation path, listing the following as critical pillars:
- Sound public finances;
- The health of South Africa’s financial institutions;
- Investment-grade credit ratings;
- Competitive Public Procurement processes; and
- Clarity of vision and the details of sectoral priorities and programmes set out in the National Development Plan.
Gordhan stated that although progress had been made in transforming the financial sector, more needed to be done to broaden access through more affordable financial services, improve market conduct, ensuring employment equity at top management levels, providing procurement opportunities and transforming ownership.
Expanding on Public Procurement, Gordhan claimed several specific achievements which included (a) continued improvement in the effectiveness of public spending and opportunities for small business participation, (b) an enabling environment for small enterprises and support through leveraging both public and private sector procurement budgets, and (c) full operationalization of the central supplier database which makes doing business with the state much easier and cost effective.
With respect to the centralised supplier database, this is seen as an enabling tool which will assist government to know with whom it is doing business and to use technology to reduce opportunities for fraud and corruption. Using this technology, government has already identified a large numbers of transactions for further investigation, including anomalies such as:
- Public service employees who appear to be doing business with the state;
- Supply agreements that reflect the identity numbers of deceased persons;
- Payments to bank accounts other than those of the relevant suppliers.
Gordhan also saw Public Procurement as an important strategic vehicle for developing local industries, broadening economic participation and creating work opportunities. He further stated that that Public Procurement is a critically important pillar of economic transformation, and, with Public Procurement amounting to about R1.5 trillion over the next three years, Gordhan’s statements in this regard should signal organisations and procurement practitioners at large to continue with meaningful transformation initiatives. In this vein, the new preferential procurement regulations published last month aim at achieving the following:
- Where large firms are awarded tenders of R30 million or more, 30 per cent of the contract value must (where feasible) go to small or black-owned enterprises;
- Procurement authorities are now empowered to set clear targets to promote black-owned and women-owned businesses, participation of youth and disabled persons and opportunities for rural enterprises and co-operatives;
- South African suppliers will enjoy preference in respect of goods with significant local content, thus supporting job creation.
In addition, to support further Public Procurement reforms, a draft Public Procurement Bill will be published shortly, establishing a single procurement authority, which will consolidate the currently fragmented regulatory environment.
Gordhan also quoted the following specific Public Procurement project achievements and work in progress:
- The OCPO currently manages 71 transversal contracts covering over 23 000 items worth R61 billion. Good progress is being made to find better value for money while expanding and diversifying the number of suppliers;
- Savings of R675 million in 2016/17 on cell phones and vehicle contracts. The vehicle contract alone is expected to save the state between R1 billion and R1.5 billion per year over the medium term;
- In the property-leasing sector, it is expected to realize savings of between R2 and R3 billion, while releasing resources for greater employment and contracting in building maintenance and services.
- Collaborative efforts between SITA and National Treasury have led to savings of R2.5 billion over the next three years in the ten largest ICT equipment contracts.
- Working with the Department of Basic Education on cost-effective standards for building design, government has reduced the average cost of new schools from R70 million for 7 500 square meters to R34 million;
- Gordhan emphasised that suppliers who have met their delivery obligations are entitled to payment within 30 days and that government will continue to monitor progress in meeting this commitment.
Fraud and Corruption
Gordhan fired a general broadside salvo at those engaged in fraud and corruption in the public sector and had this to say: “ … where fraud or corruption is identified, action must be taken. Letsogo la molao ke le letelele. The law will catch up with you. Molato ga o bole …”.
With regards to fraud and corruption in the Public Sector, we can generally infer the following:
- There is generally a Corrupt Seller and a Corrupt Buyer involved in corrupt transaction, of whatever form;
- Public Sector fraud and corruption usually goes hand in glove with Private Sector participants, … these are two sides of the same coin.
In respect of the above, the following key summary points follow:
Gordhan outlined the need for essential foundations for a healthy climate of economic development, growth and transformation, setting out five critical pillars upon which to build. (Notably, we can easily deduce that by eroding any of those pillars, one erodes the very capability of the economy to perform adequately).
He also highlighted various achievements in Public Procurement relating to continued improvement in the effectiveness of public spending, an enabling environment for small enterprises, full operationalization of the central supplier database and also specific procurement projects undertaken to public spending. This was further supported by new preferential procurement regulations published last month as well as further planned Public Procurement reforms to come.
Finally, he issued a stern warning to those engaged in fraud and corruption in the public sector. (Note the role of Corrupt Seller & Corrupt Buyer and Public Sector & Private Sector relationships in this regard.)
© 2017 Stratocube Advisory Services