A slew of laws, regulations and policies govern the process {writer: Stef Terblanche}

Corruption in government procurement systems – particularly tender-related corruption at municipal level and at provincial governments – has been big news recently.

Examples abound, such as the tender irregularities allegedly committed by the Western Cape government regarding a tender worth between R50 million and R70m, awarded to TBWA Hunt Lascaris for a two-year brand and communications strategy contract. Or the Gauteng government earlier this year, identifying a number of ‘questionable’ tenders worth almost R200m in the City of Tshwane, Kungwini Local Municipality, Ekurhuleni Metropolitan Municipality, the West Rand District Municipality, and in Emfuleni Local Municipality.

Earlier this year, the eThekwini municipality (Durban) appointed a forensic firm to probe fraud, corruption and maladministration allegations after Auditor-General Terrence Nombembe’s 2009/10 report indicated that R532m had been spent irregularly in the municipality.

More sensational have been the allegations around the ANC Youth League president Julius Malema, whose family trust is being investigated by both the police and the Public Protector, regarding the alleged irregular awarding of tenders by the Limpopo provincial government.

Last year, the Public Protector could not find any irregularities in contracts worth several millions of rands awarded by three municipalities to SGL Engineering Projects, with which Malema was involved.

While investigations in most of these cases are continuing, of a more serious scope are the remarks by Finance Minister Pravin Gordhan on the topic in his budget speech earlier this year.

He said there were 53 ongoing investigations at the time involving procurement irregularities with contracts worth R3 billion, while the South African Revenue Service (SARS) was investigating another nine cases of tender fraud, with a total value of approximately R1.7bn.

In addition, as at the end of January this year, SARS had identified some 13 000 vendors who had won state contracts and who owed taxes amounting to over R1bn.

“Senior managers of our institutions and municipalities are expected to work actively to improve their procurement processes and oversight,” said Minister Gordhan.

Rules of the game

But just how are municipalities expected to go about this key task? It is clear that the state procurement system, and particularly that of local government, is still some way off from achieving uniformity and ease of compliance and implementation.

A prohibitive slew of laws, regulations and policies govern and guide municipalities when it comes to procurement. Key among these are:

• Constitution of the Republic of South Africa (Act No. 108 of 1996), which applies to all organs of state and provides procurement objectives and establishes the government’s policy for preferential procurement;

• Preferential Procurement Policy Framework Act – PPPFA – (Act No. 5 of 2000), which applies to all organs of state and establishes the manner in which preferential procurement policies are to be structured and implemented;

• Local Government: Municipal Finance Management Act – MFMA – (Act No. 56 of 2003), which applies to all municipalities and municipal entities, and establishes a detailed regulatory framework for supply chain management by municipalities as well as guides the drawing up of procurement policies by municipalities;

• Local Government Municipal Systems Act (Act No. 32 of 2000), which provides a framework for the establishment of service delivery agreements involving competitive bidding processes in local government;

• Broad-Based Black Economic Empowerment (BBBEE) Act (Act No. 53 of 2003), which provides for a framework for the establishment of service delivery agreements involving competitive bidding processes in local government, as well as a Code of Good Practice to inform the development of qualification criteria for the issuing of licences or concessions, the sale of state-owned enterprises and for entering into partnerships with the private sector, as well as for the development and implementation of a preferential procurement policy;

• Construction Industry Development Board Act (Act No. 38 of 2000), which applies to all organs of state involved in procurement relating to the construction industry, and which sets down certain criteria and requirements as well as establishes a national register of contractors, consultants and suppliers to manage the public sector procurement risk;

• Auditor-General Act (Act No. 12 of 1995), which applies to all organs of state and provides for the AG to reasonably satisfy himself/herself that satisfactory management measures have been taken to ensure resources are procured economically, and utilised efficiently and effectively;

• Competitions Act (Act No. 89 of 1998), which outlaws any restrictive horizontal or vertical practices that have the effect of substantially preventing or lessening competition in a market or involves directly or indirectly fixing a purchase or selling price or any other trading condition, as well as outlaws dividing markets by allocating customers, suppliers, territories or specific types of goods or services, and prohibits collusive tendering;

• Promotion of Equality and Unfair Discrimination Act (Act No. 4 of 2000), which applies generally to the state and all citizens, and prohibits the state or any person from discriminating unfairly from any person and in particular on the grounds of race, such as the denial of access to opportunities, including access to services or contractual opportunities for rendering services, or failing to take steps to reasonably accommodate the needs of such persons;

• Municipal Supply Chain Management (SCM) policies, which are required of each municipality or municipal entity in terms of the MFMA and the PPPFA, with the goal of such a policy having to be the provision of a mechanism to ensure sound, sustainable and accountable supply chain management within the municipality or entity, and which must give effect to section 217 of the Constitution of the Republic of South Africa by implementing a system that is fair, equitable, transparent, competitive and cost-effective, and more; and

• Various regulations, which have been drafted in connection with the aforementioned laws and published in the Government Gazette.

The most recent of these regulations to have been published were those relating to the PPPFA, which were published by Minister Gordhan on 8 June and which will become effective on 7 December. These regulations were aligned with the BBBEE Act and its associated Codes of Good Practice, and are in line with the government’s Industrial Policy Action Plan.

The main changes relate to the points-scoring structures for price and black ownership of bidders; all bidders having to submit BEE rating certificates issued by approved verification agencies or registered auditors; a new threshold value of R1m to stimulate the development of small enterprises; and measures to promote uniformity throughout the public sector procurement system.

It is clear from the above that municipal procurement officials need to have their wits about them in order to navigate safely and efficiently through this legal and regulatory maze.

From time to time, various government departments and provincial governments publish tender and general procurement guidelines on their websites or in print for use by municipal procurement and accounting officials.

In 2005, the National Treasury also published its guide, called the “Supply Chain Management: A Guide for Accounting Officers of Municipalities and Municipal Entities”, which provides guidance for the adoption of an integrated supply chain management function and its related managerial responsibilities assigned to accounting officers in terms of sections 62 and 95 of the MFMA.

Procurement and tenders in local government are mainly regulated by the MFMA – particularly Chapter 11, which relates to good and services; and the Local Government Municipal Systems Act.

The MFMA requires each municipality or municipal entity to have implemented an SCM policy that must comply with the prescribed framework and the range of supply chain management processes that municipalities and municipal entities may use, including tenders, quotations, auctions as well as other types of competitive bidding.

It sets out the procedures and mechanisms for each type of process, the required documentation, screening processes, compulsory disclosures of information, the barring from participating in tender bids by certain categories of persons – particularly those convicted of fraud or corruption – and various other matters.

It further sets out compulsory procedures to be followed with unsolicited bids; tenders other than those recommended in the normal course of the tender procedure; implementing the SCM policy of a municipality or entity; provisions for contacts and contract management; the barring of councillors from serving on municipal tender committees; barring interference by any person in the supply chain management system of a municipality or amending or tampering with any tenders, quotations, contracts or bids after being submitted. It prescribes competency levels for the accounting officer and all other officials of a municipality or municipal entity involved in the implementation of the supply chain management policy; and sets out conditions and process for public-private partnerships.

The latter aspect forms a core part of the current probes in Limpopo where a private company, On-Point Engineers (Pty) Ltd – in which Malema’s Ratanang Family Trust allegedly owns a stake and which is headed by Malema’s former business partner, Lesiba Gwangwa – was contracted to award state road construction tenders in that province.