Bill to simplify state tender processes has some troubling flaws

On February 19 the Treasury published the long-awaited draft Public Procurement Bill for public comment. The bill has a noble aim: to simplify the confusing and fragmented rules for public tender processes into a single unified process that is easy for bidders and supply chain officials to understand and apply.

However, the draft has some disquieting aspects for those who do business with the government, most notably a lack of detail on key aspects of procurement processes, which are left to be fleshed out later in regulations.

The draft bill appears poised to create further opportunities for black empowered businesses to grow, but does not spell out exactly what form these measures will take. The most disquieting feature is that it creates significant uncertainty about the criteria that will determine who wins a tender and, for this reason, is arguably unconstitutional.

At present tenders are determined on the basis of a preference points system. Those valued at under R50m are awarded in terms of the 80/20 system (where 80 points are awarded for price and 20 points for preferences based on the bidder’s broadbased BEE scorecard). Tenders valued at more than R50m are awarded on a 90/10 split (90 points for price and 10 points for the bidder’s BEE scorecard).

The draft bill requires that the finance minister determine a preference points system but, unlike the current laws, does not provide any constraint on the way the system is structured. So, for example, the minister could decide on regulations for a preference points system of 50 points for price and 50 for BEE. The minister would have wide discretion to determine how the preference points system would function, (with no real guidance from parliament) and could fairly quickly and easily change that system (although the regulations must be submitted for parliamentary scrutiny).

This is arguably unconstitutional, as the constitution requires that the framework for preferential procurement be set out in national legislation. That is, the framework must be determined by parliament rather than the minister in his sole discretion. It would be in the interests of all bidders — both those who are empowered and those who are not — for the framework to be set out in legislation so that they have certainty how the award of tenders will be decided.

Other notable features: ● It seems to suggest the minister is required to put in place measures for organs of state to set aside certain government tenders so that only a limited category of persons may bid for that contract (and no-one outside that category may bid, even if they are capable of fulfilling the requirements of the tender). For example, a tender could be set aside for only historically disadvantaged persons, or only SA citizens, or only businesses operating in a particular province or municipality;

● It introduces a new, more streamlined process for entering into public-private partnerships;

● A tender process may now also (in addition to the existing grounds) be cancelled “where there is a significant change in the required technical specifications, bidding conditions, conditions of contract or other details”, “in the interest of national security” and where “insufficient bids are received to determine competitiveness”, and the right to cancel is not expressly stated to apply only prior to the award of the tender;

THE MINISTER WILL DETERMINE A PREFERENCE POINTS SYSTEM WITHOUT CONSTRAINT ON THE WAY IT IS STRUCTURED

● Disposal of state assets may take place through open advertised bidding, public auction, electronic reverse auction, restricted bidding or through any other method prescribed by the minister, or in respect of movable assets by auction, written price quotations, transfers to other organs of state or controlled dumping. Under the current laws there has been significant debate as to whether a procurement process should be followed for the sale and letting of state assets; and

● It establishes processes for reconsideration of decisions taken in competitive tender processes by the institution itself or by a national regulator or provincial treasury. If the bidder is still dissatisfied the decision can be reviewed by a public procurement tribunal.

These processes are aimed at addressing the landslide of protracted procurement litigation by providing cheaper and more cost-effective relief to bidders, and at reducing the negative effect on service delivery. It is notable, however, that a decision made by the public procurement tribunal may be reviewed by a court, and therefore the process could end up being even more drawn out.

The public is required to submit comments on the draft bill by May 31 2020.