By Ryan Brunette and Jonathan Klaaren
South African public procurement law needs a tougher approach to enforcement. It will have one if it empowers and incentivises whistle-blowers.
The Public Procurement Bill, in process since 2013, was recently published for comment. The public has until 31 May 2020 to have its say.
Government’s procurement budget is larger than its employee compensation budget. At around R926-billion in 2018, it accounts for about 20% of South Africa’s gross domestic product. At this scale, public procurement is key to the public administration’s operational efficiency and effectiveness. It is central to the country’s politics and to allocations in the broader economy. The prime site of corruption, public procurement, is at the same time a lever in South Africa’s transformation into a society free of the racism and sexism of the colonial and apartheid political economy.
Viewed against this background, the Public Procurement Bill has features of a grand compromise. It aims to construct – from the dozens of legislations from the last 25 years – a single, coherent legal framework for the entirety of South Africa’s public procurement. The Bill places centralised regulatory and oversight authority in a proposed Public Procurement Regulator in the National Treasury. It promotes a more flexible and expanded approach to preferential procurement from black people, women, and disabled people. The Bill also formalises some existing practices that are not yet explicitly authorised in South African law, such as geographical set asides in the allocation of contracts, to businesses located in specific provinces, municipalities, and under-developed areas.
The Bill intends to bolster public procurement ethics, even while it enhances post-apartheid efforts to reshape patterns of ownership and control of South African capitalism. It points towards positive synergies (between anti-corruption and broad-based development, by creating more avenues for the economic empowerment of historically disadvantaged groups), at the same time that it works to better-regulate and harness these channels to a broader public interest. We believe, however, that the Bill does not follow through on this final commitment, as it fails to underpin public procurement law with a credible enforcement strategy.
To do so, the Bill should empower whistle-blowers to bring civil claims for the recovery of damages suffered by the state as a result of procurement fraud and corruption. These whistle-blowers must be incentivised, rewarded for the sacrifices they make doing their civic duty, by awarding them a specified percentage of damages won.
The problem that this would address is greater than the Public Procurement Bill. South Africa’s criminal justice system as a whole is struggling to keep up with the growth of the country’s corruption problem.
In her report for the 2019 financial year, the National Director of Public Prosecutions says that 210 government officials were convicted for corruption and related offences. That was three convictions less than the previous year. The Asset Forfeiture Unit recovered R2.8-billion in corruption-related civil recoveries, but this was off the back of freezing orders worth R4.4-billion in 2018, a figure that fell to just R262-million in 2019.
There is no lack of potential corruption cases.
A cursory examination of almost any organ of state could make the point. Take Durban’s eThekwini Metropolitan Municipality as an example. It accounts for less than a 1% of all employees in the country’s public sector. By July 2018, the municipality was reportedly sitting on 361 wholly unattended cases of potential corruption and fraud – which is 72% greater than all the officials convicted across the country in the National Prosecuting Authority’s 2019 financial year. Just one of the eThekwini cases involved potential procurement corruption worth R406-million, which is R144-million more than the value of all of South Africa’s corruption-related freezing orders granted in the same year.
eThekwini is far from being a delinquent. It is one of the strongest municipalities in South Africa; the ready availability of its figures reflects the relative transparency and effectiveness of its oversight processes.
Looking at a more famous case, in early 2019 the Sunday Times reported investigations into 1,980 Eskom employees. The Special Investigations Unit was looking into contracts worth R139-billion for the Medupi, Kusile and Ingula power plant build programmes. The Asset Forfeiture Unit successfully froze, in that year, almost R280-million.
How can the Bill legally empower whistle-blowers?
To address these shortcomings, the Public Procurement Bill could adopt a form of law known as qui tam, an abbreviation of the Latin for “he who sues on behalf of the King as well as for himself.” The essence of qui tam legislation is that it grants to some private persons the right to approach a court to enforce a public law. It simultaneously encourages such efforts with a reward, a financial incentive or bounty, for successful litigation.
The basic idea is simple and elegant. It is applied in a number of legal systems around the world. Incentivising civic efforts covers for gaps in political will and investigative capacity. Inside information is difficult and costly to get to, so qui tam draws this information out, sowing distrust in corrupt combinations and encouraging whistle-blowers to break rank and come forward. In South Africa, a similar mechanism is used in the corporate leniency policy of the Competition Commission, which has proven to be highly effective in disrupting price-fixing cartels.
Qui tam has been developed most rigorously in the United States. There it has largely been confined to civil claims for the recovery of damages suffered by the state in the course of public procurement and – another area of potentially important application in South Africa – taxation. In public procurement, these damages must arise as a result of fraud or “reckless disregard for truth or falsity”. Whistle-blowers are encouraged to make use of the services of specialist law firms in lodging claims with courts. Government is afforded an opportunity to adopt these claims, and otherwise to intervene in proceedings in the public interest. Where damages are proven, the initial whistle-blowers are rewarded with a percentage of recoveries, with judges exercising discretion as to the exact amount, within stipulated upper and lower bounds. Courts can also compel claimants to pay the legal costs of defendants, as a way to discourage unethical, vexatious, and frivolous litigation. These sorts of adjustments have been refined over centuries and they work.
For the year ending September 2019, under its flagship False Claims Act, the United States Department of Justice reported qui tam settlements and judgements of over $2-billion. Since 1988, the federal government has attained qui tam settlements and judgements worth $45-billion, or 72% of all damages awarded for false claims over this period. The United States has relatively low levels of procurement corruption and able investigative and enforcement agencies. In South Africa, inserting a qui tam provision into public procurement law will take pressure off of investigators and prosecutors that have little spare capacity. The potential gains for the country’s struggling fiscus are comparatively larger.
To defeat corruption, South Africa cannot further confine its already-narrow formal avenues. It must expand them to offer people legally approved paths out of the illicit economy. The Public Procurement Bill provides to this effect with its enhanced provisions for preferential procurement. At the same time, however, new businesses fostered in this way will tend not to be viable and developmental, unless the state builds the regulatory capacity to compel them to deliver on contract and improve efficiencies, productivity, and adherence to public goals. The Public Procurement Bill, in this last respect, falls flat. It needs teeth, an enforcement strategy, and it will find it in the empowerment and incentivisation of civic action by whistle-blowers.
Ryan Brunette and Jonathan Klaaren are Research Associates at Public Affairs Research Institute (PARI) and co-authors on the Public Procurement position paper that will launch on 16 April 2020.
Ryan Brunette is studying for a PhD in Political Science at the Graduate School and University Center of the City University of New York.
Jonathan Klaaren is a Professor at Wits University, serving at the Law School and the Wits Institute for Social and Economic Research (WiSER). His current research interests include the African legal profession and the law of competition, public procurement, international economy in Africa, and migration.