Public procurement in South Africa is on the brink of being turned on its head. Johannesburg-based Director, Coach, Consultant and Supply Chain Management Practioner, Shaun Scott, unwraps the legal conundrum that faces all organs of state come January 2023, which must decide for themselves how to implement the new Preferential Procurement Regulations.
Over 700 organs of state are in a mad scramble to get ready for January 2023. From Eskom, Transnet, the National Department of Health, the Cities of Cape Town, Tshwane, Ethekwini and all municipalities right down to the smallest SETA, each one is getting ready for a new world in January 2023.
And they are working hard to decide what to do!
The scramble started in February 2022. The Minister of Finance lost the appeal at the ConCourt to reverse the Supreme Court of Appeal’s declaration that the 2017 Preferential Procurement Regulations were invalid.
The 2017 regulations used almost exactly the same award mechanism used since 2011. Contracts have been awarded to the bidder that scores the highest total points for price and B-BBEE.
The total score for price plus the score for B-BBEE has decided the winner of every quotation and tender above R30,000 across the entire public sector since 2011. (Refer to the State Capture Commission for the exceptions).
For a decade the entire public sector has used the same award mechanism.
On 16 January 2023, that uniformity changes.
The ConCourt highlighted a clause in the Preferential Procurement Policy Framework Act (PPPFA) that says “the organ of state must determine its preferential procurement policy…” Not the Minister of Finance, not National Treasury, not Provincial Treasury. Each of the over 700 organs of state must determine their own preferential procurement policy.
The team at National Treasury have delivered a small miracle under the circumstances. Six weeks after the CounCourt’s 16 February ruling, National Treasury published draft regulations for comment. Six months after the comment period closed, the final Preferential Procurement Regulations 2022 were published. Commendable.
When the final regulations were published on 4 November, the hard reality hit home.
The 2022 regulations are sparse. The ConCourt dictated it that way. There is no scoring mechanism for the B-BBEE points. In fact, there is no mention of B-BBEE in the regulations.
The 2022 regulations make no mention of “functionality”. Functional criteria and the functional threshold has been a foundation of procurement for 20 years
Since 2000 all organs of state merely adopted the policy decided for it, by the Minister of Finance. Now they have to think. Now they have to determine how they will decide functionality, determine preferential goals and determine scoring methods. With little guidance from the centre. National Treasury cannot decide for them. The ConCourt has ruled.
To further complicate matters, two important Acts seem to have a different take on the preferential procurement policies. The PPPFA emphasises “Specific Goals”. Treasury says the B-BBEE scorecard is too broad and not specific enough. Section 10(1)(b) of the B-BBEE ACT says the codes of good practice (B-BBEE scorecard) must be applied in the preferential procurement policies. Which is correct? Must they choose?
Complicated legal arguments are underway. What was the legislator’s intent when the Specific Goals clause was published? Is there really a conflict between B-BBEE Act and the PPPFA or can they be harmonised? If there is a conflict, then what does the “trumping clause” in the B-BBEE Act mean?
And in the scramble, solutions are emerging. The public procurement professional has no choice but to work through this. Those that approve the policies will be on holiday soon. When they return on 16 January 2023, new policies must be in place. Time is running out. When we all return in January 2023, public procurement in South Africa will be different.
I cannot wait for that new world. Bring it on.