Treasury to juggle price and BEE in procurement bill

The National Treasury will review a clause in the draft Public Procurement Bill that emphasises price as a criterion for evaluating bids so as to give empowerment a stronger role.

Leanda Pietersen, the director of supply chain management legal advisory services at the Treasury, gave the undertaking during a meeting on Tuesday of parliament’s finance committee, which is deliberating on the bill.

The bill lays down a broad framework for procurement by organs of state and includes sections aimed at empowerment and transformation such as set-asides, pre-qualifying criteria, and mandatory subcontracting and localisation in certain circumstances.

Pietersen said the Treasury reconsidered the clause relating to the role of price in awarding bids before appearing at the committee and would review it to include other criteria.

Pietersen was commenting on clause 18 (7) of the bill, which deals with set-asides and states that price must be used as a criterion for the evaluation of set-aside bids that meet other criteria such as functionality.

In the Treasury’s revised bill, the clause states “the contract must be awarded to the bid that scored the highest points for price”. The points being assigned to price are calculated according to a prescribed formula.

The wording aligns with the provision in the constitution that states “when an organ of state in the national, provincial or local sphere of government or any other institution identified in national legislation contracts for goods or services it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective”. It notes, however, this does not preclude a preferential procurement policy.

The question of price and value for money has been a key issue raised during public hearings on the bill.

EFF MP Mzwanele Manyi voiced objections to the use of price as a criterion, saying black businesses suffer from a number of disadvantages, which make them less competitive from a price point of view relative to their white competitors.

These include the distance of their businesses in townships from the central business districts — the spatial development legacy of apartheid — which involves additional transport costs. Other disadvantages are their lack of economies of scale and the high risk placed by banks on black businesses. If price were to be rewarded, then the bill would in effect say that the government doesn’t want black suppliers, Manyi said.

He indicated the inclusion of price as a criterion for bids is a deal breaker for him in terms of his further participation in the committee’s deliberations and urged it be removed altogether.

Stellenbosch University law professor Geo Quinot, who heads the African Procurement Law Unit, said there are other important criteria besides price to consider when assessing bids, such as quality and environmental concerns, though he doesn’t believe price should be discarded altogether.

DA finance spokesperson Dion George emphasised that “price is crucially important because government is running out of money and can’t afford to overpay for anything”.

He said: “The irony here is that money for service delivery to the poorest South Africans is crowded out by paying more to service providers apparently to empower them. So money is diverted from the poorest households to other beneficiaries, many of whom are already empowered.

“By not focusing on price, businesses will be incentivised to focus more on meeting preferential criteria than on improving their efficiency, productivity or quality of service.

“This will disrupt the market signals that prices convey about the value and scarcity of resources, which will lead to significant inefficiencies and increased costs for the government and ultimately taxpayers.”

The committee is racing to complete its deliberations on the bill, which is due for debate in the National Assembly next Tuesday.

ensorl@businesslive.co.za