Public procurement – ‘terrible approach’ being taken

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JIMMY MOYAHA: The latest proposals by National Treasury relating to the General Public Procurement Regulations amendments have been out in the public for comment. The window of comment closed a little earlier this month.

We’re going to look at this in more detail, and try to unpack the potential implications of these latest draft proposals.

Read:
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I’m joined on the line by the executive director at the Centre for Development and Enterprise, Ann Bernstein, to see if we can make sense of this. Ann, lovely having you on the show, as always. Thanks so much for taking the time.

Give us an overview – and perhaps [some] background – around the particular draft regulations that have been put forward here, and perhaps how they differ from what we currently have in place around the Public Procurement Act.

ANN BERNSTEIN: Good evening. Public procurement is really important. There’s no authoritative estimate, but at least R500 billion is spent by the state and state-owned entities every year.

This is not just a financial issue. This is how government buys the goods that we need as a society. It affects what textbooks we get – do we get them on time, do we get them at a decent price?

It affects whether the hospital has machines; does it have the medicines you need? Do you know whether the municipality gets the fuel for the bakkies to fix your water pump?

This is a very important issue, and it has been a singular failure in many respects in the country until now.

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We don’t buy well – we buy at very high costs, and often there are enormous delays which push up the costs, and all sorts of things that go wrong.

So Treasury has come with these draft regulations. I should immediately say there are some things – we’re not rejecting this wholesale. We’ve looked at it very carefully.

There are some things like ‘greater transparency’ that are good reforms, and we would support those.

But we are very concerned about the provisions for preferential procurement.

We think these are complex, and they are going to push up the costs of procurement throughout the state system.

So there are really two issues that you should ask yourself. The one is how simple these procurement rules are. Do you and I understand them? Does the average official understand them in Rustenburg or in some part of a great big state-owned enterprise, an SOE? Are they simple?

Now ‘simple’ is very important – because when you introduce complexity, there’s this decision, there’s this uncertainty, there’s this delay – or there are these three people you have to get the okay from.

At each stage of that complexity opportunities for delay and for corruption come in.

So you have to think about simplicity, and you have to think about value for money. This is how they spend our tax money, and we’ve got to get value for money because we have an expanding population and we don’t have a lot of money.

Those are the criteria one needs to think about when looking at the new draft regulations.

JIMMY MOYAHA: Ann, this is clearly an important issue that we do need to address. We know, as you’ve highlighted, some of the problems we’ve experienced in the past. How far does this draft policy go in addressing this? And where does the policy perhaps miss some of the key things that we’ve been made aware of in our investigations in the past as to where public procurement has been lacking?

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ANN BERNSTEIN: Well, we’re very concerned about the preferential procurement provisions of these draft new regulations. We think they increase complexity, they increase opportunities for corruption, and they’re going to be expensive and difficult to implement.

There are three different ones. These are very complex. I don’t want to go into the detail because people will get lost in the detail, but in our view the government should substantially reconsider the proposed regulations.

They’re proposing set-asides for certain kinds of people and firms.

They’ve changed the requirements of the B-BBEE provisions that everybody’s been working toward – for example, regarding the majority black-owned companies.

They’re now saying they have to be 100% black-owned companies if they’re going to qualify.

I can bore you all with some of the detail, but essentially we are saying, ‘Reconsider the set-asides’. These are inherently inefficient and shouldn’t be used.

We should ditch pre-qualification. In other words, if you don’t qualify, you don’t even have a chance to tender for some items; the state ones.

We’re saying this is a terrible approach to procurement. It will reduce competition and therefore prices will go up.

We’re saying abandon the compulsory subcontracting model. So if you get a tender [involving] over R100 million, they can ask you, after they’ve done a feasibility study, that there are three or more companies that could tender for subcontracting an enormous proportion of this big tender of R100 million. We’re saying this is going to drive up costs dramatically.

So there are a whole lot of areas, especially with regard to preferential procurement. We are saying this is the wrong road to go. It’s going to make things more complex, and we’re not going to put South Africa on a better route to spending that R500 billion every year so that we get value for money.

JIMMY MOYAHA: More complex is certainly what we don’t want. Ann, before I let you go, I want to take a look at how this potential draft aligns with the Organisation for Economic Co-operation and Development standards, the OECD standards that we see being applied globally. Does this push us closer towards that alignment, or does this potentially push us further away and simply shift the goalposts?

ANN BERNSTEIN: Well, I don’t know the OECD sort of standard. We didn’t look at that. We looked at the detail of this – a 102-page set of draft regulations – to try and understand what they were trying to do, and whether we thought this would help the country.

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The bottom line is that the fastest way to empower the largest numbers of black South Africans is to have a state that works, and not one mired in corruption or hamstrung by complicated, time-consuming procurement processes that seek first and foremost to funnel resources to favoured constituencies.

Here one of the lessons we need to learn from the last 25 years is that if you have a policy, say on procurement, and then you load onto it not just how to procure but other social policies as well …

Who to procure [from] – women-owned companies, 100% black-owned companies, small businesses, a long list, disabled people, veterans – these might be people we do want as a society to assist, but don’t do it through procurement in this way.

It makes it very difficult to know how we get value for money.

So we’re really saying this is the wrong approach in the preferential procurement area.

There are some positives like greater transparency overall, but this is the wrong approach to deal with how we spend so much money which affects so many millions of South Africans.

JIMMY MOYAHA: The basis is simple. We would like a state that works, because a working state is one that looks after its people.

We’ll have to leave the conversation on that note.

The executive director for the Centre of Development and Enterprise, Ann Bernstein, joined us to take a look at the latest draft regulations around public procurement which have been put forward by National Treasury, and to try to make sense of what it is that they aim to achieve.

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