Time to consider procurement critically
The brouhaha over whether the new procurement regulations negate BEE obligations of the state, its companies and agencies, seems to have died down, ending more than a week of unhelpful bickering over whether this spells the end for BEE in state purchasing.
Though the debate was filled with alarm and noise, it raised the need for considered and critical reflection on the role of preferential procurement in the SA economic policy framework. One perspective that requires engagement, not for its merit but because of the dangers posed by uncritical acceptance of it, is the view proposed by Sakeliga.
In a statement published in Politicsweb last week, the organisation insisted that organs of state are no longer “compelled to do preferential procurement”, and “if they do decide to exercise their discretion to do so”, they must meet the requirements of section 217(1) of the constitution. This requires that when the state buys goods, it must do so through a system “which is fair, equitable, transparent, competitive and cost-effective”.
In creating an iron wall between sections 217(1) and 217(2) and (3) of the constitution, Sakeliga emphasises “costeffective” at a point in time, overlooking other considerations: the “fairness, transparency and competitiveness” of the systems and processes that drive these purchases. Yet such systems cannot overlook the market as a social institution in a context that brings goods and services to the state in the first place.
The elements of fairness, equity and competitiveness, which Sakeliga assumes are value-neutral judgments, cannot be subsumed under just getting the cheapest price, forgetting that market structures inherited from historical, social and institutional environments like settler colonialism and apartheid determine prices under conditions far short of equitable, fair or competitive.
Scale economies arising from historical, current and future anticompetitive market behaviour may, for instance, reduce the final purchasing price of a good or service, delivering it cheaply to the state but at considerable harm to competition or the equitable distribution of market opportunities.
To solely prioritise “purchase price or cost”, in a country with dominant firms in key product and service markets and deep and persistently racialised inequality, would be to opportunistically read section 217 of the constitution outside the preamble to the same supreme law, which requires not only a recognition of the injustices of the past but also places an obligation on all of those who exercise power to “heal the divisions of that past”.
Deciding to exercise the discretion to implement a procurement policy that makes provision for categories of preference is therefore not a “choice” to overlook the other considerations in section 217(1) and only focus on market price in an abnormal market. At a political level, such a choice is not just about correcting the problems arising from our divided past but can also be about managing supply risks and building local, resilient production networks to reduce lead times.
Chapter 4 of the draft Public Procurement Bill therefore suggests correctly that in prescribing a framework for categories of preference, consideration be given to not only the Broad-Based Black Economic Empowerment Act, but on local manufacture, local technology and its commercialisation, labour intensity of production, and firms based in villages and townships. While the design of our procurement system may operate under the illusion of meeting the marketplace for the first time at every bid and purchase — buying pens the same way it procures bridges — it is commendable that the bill makes provision for “strategic procurement” in section 71.
This is a long-term approach to purchasing informed by leveraging the state’s buying power, reducing inconsistency in price, and reducing the duplication of effort and buying processes — as opposed to securing immediate transactional bargains oblivious to the supply side, market structure and other considerations.
Seen in this way, preferential procurement is not just about set-asides to black suppliers at inflated cost, as some suggest, but about building resilient supply chains in the state while laying the basis for meaningful economic empowerment and progress.