TEBOGO MAKUBE: A more balanced approach needed in procurement policy

The Constitutional Court judgment in the case between the finance minister and Afribusiness NPC provides an opportunity to strengthen transformation and preference in the allocation of government contracts.

Section 217(1) of SA’s constitution requires that when an organ of state contracts for goods and services it must do so in accordance with principles of fairness, equitability, transparency, competitiveness and cost-effectiveness. These are globally accepted principles of designing, regulating and conducting public procurement.

The constitution in section 217(2) goes further to state that organs of state are not prevented from implementing a procurement policy providing for categories of preference in the allocation of contracts, for the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

To achieve these two important transformative policy objectives section 217(3) requires that national legislation must prescribe a framework within which the policy must be implemented by the organs of state. This section is peremptory or instructive and leaves no room for deviation in its implementation requirements. The Preferential Procurement Policy Framework Act (PPPFA) was enacted in response to the requirements embedded in section 217(3).

However, the PPPFA does not adequately address the constitutional imperatives of implementing categories of preference in the allocation of contracts and properly advancing historically disadvantaged individuals through procurement opportunities. The gist of the PPPFA is the preference point system, which caters mainly for price and the attainment of the socioeconomic objectives. For tenders starting from R30,000 and up to R50m, the 80/20 point system is applied, which allocates 80 points to the price and 20 points to broad-based BEE and other socioeconomic considerations, and the 90/10 system is applied for tenders above R50m.

I submit that the SA public procurement system is price-laden, mainly designed to protect the fiscus. Indeed, there is no counter argument that there must be value for money on government expenditure. However, it can also be argued that too much emphasis on the price more than other procurement objectives facilitates the importation of goods from low cost producing countries. That creates a number of economic challenges such as negative sectoral trade balances and balance of payment challenges. A balanced approach is important.

The preference point system is not adequate in driving transformation through public procurement and expenditure. The constitutional requirement for the categories of preference in the allocation of contracts is not addressed at all in the PPPFA. Alas; it still requires organs of state to implement the Reconstruction & Development Programme.

In responding to challenges highlighted above, the now invalid 2017 Preferential Procurement Regulations were used to fast-track BEE through the allocation of contracts, in particular, prequalifying certain tenders and compulsory subcontracting. The Supreme Court of Appeal declared the regulations invalid and inconsistent with the PPPFA. This is because secondary legislation cannot have more powers than the primary legislation. The Constitutional Court also declared the regulations invalid but for reasons that matters of preferential procurement policy must be determined by organs of state and not necessarily by the finance minister.

It must be noted that both courts did not rule that preference in the allocation of contracts and advancement of historically disadvantaged individuals are invalid and unconstitutional. It is therefore imperative that well-considered legislation that responds to section 217(3) of the constitution be tabled urgently to prescribe a framework within which transformative policy objectives must be implemented.

It is also concerning that the draft 2022 Preferential Procurement Regulations are still not guiding organs of state on how to implement preference in the allocation of contracts and advance historically disadvantaged individuals, although these policy objectives are both constitutional and PPPFA requirements. Moreover, categories of preference are not defined in the PPPFA, which is a  gap in the preferential procurement legislation. Well thought pre-qualification and subcontracting are measures of preference, which must be included in the primary preferential procurement legislation.

In the interim and in giving rise to section 2(d)(ii) of the PPPFA, which calls for the implementation of the RDP goals,  organs of state can come up with measures for economic development, industrial development, research and development, design and innovation, and technological development. All of these goals are key in the implementation of the local content policy, which leverages public procurement for economic and industrial development and must be included in the Preferential Procurement Regulations.

Coherence and uniformity should be the basis for the national legislation and regulations prescribing a framework within which the preferential procurement policy must be implemented by organs of state.

• Dr Makube, an advocate, is chief director: industrial procurement & development at the department of trade, industry & competition. He writes in his personal capacity.